UNIVERSITY OF SOUTH ALABAMA
BOARD OF TRUSTEES MEETING
December 6, 2007
10:00 a.m.
A meeting of the University of South Alabama Board of Trustees was duly convened by
Dr. Steven H. Stokes, Chair Pro Tempore, on Thursday, December 6, 2007, at 10:00 a.m. in the
Board Room of the Frederick P. Whiddon Administration Building.
Members Present:
Trustees Scott Charlton, Steven Furr, Cecil Gardner, Samuel Jones,
Donald Langham, Bettye Maye, Christie Miree, Arlene Mitchell,
Bryant Mixon, John Peek, Steven Stokes, Larry Striplin, and
James Yance.
Members Absent:
Trustees J. L. Chestnut, Joseph Morton, James Nix, and Bob Riley.
Administration
and Others:
President Gordon Moulton; Drs. Dale Adams, Michael Boyd,
Joseph Busta, Pat Covey, Becky Devillier, Lamar Duffy (COM Alumni
Assn.), Ron Franks, Roma Hanks, Russ Lea, John Sachs (Faculty Senate),
Robert Shearer, David Stearns, John Smith, Sam Strada, and Sue Walker;
Messrs. Terry Albano, Barry Bukstein, Wayne Davis, Andy Denny
(USA National Alumni Assn.), John Garcia, Joe Gottfried, Daniel Greer,
Jimmy Grodnick, Stan Hammack, Matt Hayes, Mikey Hendricks,
Abe Mitchell, Lee Pope, Martin Statkewicz (SGA), Wright Waters
(Sunbelt Conference), and Chris Willis; and Mss. Lynne Blissette,
Kristy Britt (Faculty Senate), Lisa Bukstein, Karin Caswell,
Jennifer Edwards (SGA), Joy Grodnick, Sally Jarvis, Geri Moulton,
Caroline Pope, Catherine Pope, Julia Pope, Vicki Tate (Faculty Senate),
and Jean Tucker.
Press:
Messrs. Eric Lowe (APT), Mike Perin (Birmingham News, via phone),
George Altman and Tommy Hicks (Press-Register), Jason Shepard
(Vanguard), Chris Frye and Jud Hulon (WKRG), Robert Brown (WALA),
and Ted Hughes, Kevin McDermond, and Clement Townsend (WPMI);
and Mss. Leigh Patton (Vanguard), Jessica Taloney (WKRG), and
Emily Turner (WPMI).
Upon the call to order, Chairman Stokes called for adoption of the revised agenda. On motion by
Mr. Langham, seconded by Ms. Maye, the revised agenda was unanimously approved.
Chairman Stokes called for consideration of ITEM 1, the minutes of the September 20, 2007,
meeting of the Board of Trustees, as well as the minutes of the September 19, 2007, meeting of the
Committee of the Whole and the November 2, 2007, meeting of the Endowment and Investments
Committee. On motion by Dr. Charlton, seconded by Ms. Maye, the minutes were unanimously
adopted.
President Moulton presented ITEM 2, the President’s Report. He welcomed recently appointed
Trustee Ms. Mitchell, and introduced Dr. John Smith, who will serve as Vice President for Student
USA Board of Trustees
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December 6, 2007
Affairs effective February 2008 upon Dr. Adams’ retirement. Mr. Andy Denny, President of the
USA National Alumni Association was recognized. Dr. Covey introduced Dr. Roma Hanks, who
will serve as Chair of the Department of Sociology, Anthropology, and Social Work effective
Summer 2008.
President Moulton announced that Commencement would take place on December 8. He said that
Dr. Glenn Sebastian, former Chair of the Department of Earth Sciences, would deliver the address
and 1,507 degrees would be awarded, bringing the total degrees awarded to 61,234. He called
attention to the University’s newest promotional publication which highlights USA facts and
initiatives. He said that the Coors Classic basketball exhibition would be held December 15, with
USA taking on Mississippi State University.
President Moulton reported that Homecoming is scheduled for February 16. Among the events that
will take place in conjunction with Homecoming are the Distinguished Alumni and Service Awards
Program on February 15 and the Bell Tower and Alumni Plaza groundbreaking ceremony that will
occur prior to the men’s basketball game.
Dr. Stokes called for consideration of academic and student affairs items. Mr. Yance, Chair of the
Board’s Subcommittee on Football, reported on the due-diligence process conducted to determine
if creation of a football and marching band program would be in the best interest of the University.
He said that extensive consideration had been exerted and that constituent feedback, including strong
support by the USA National Alumni Association, clearly demonstrates that now is as favorable a
time as there ever may be for launching an NCAA-sanctioned Division I program. On behalf of the
subcommittee, he enthusiastically recommended the Board’s approval of ITEM 3 as follows.
RESOLUTION
FOOTBALL AND MARCHING BAND
WHEREAS, the University of South Alabama has established itself as one of Alabama’s fastest growing
universities, with enrollment increases in recent years vastly surpassing the average of its peer institutions, and
WHEREAS, USA students have reflected an ever-increasing interest in living on campus, being involved in campus
life, and expanding the University’s extra-curricular and athletic offerings, and
WHEREAS, in recent years USA has made dramatic strides in student life through program and infrastructure
improvements including new intramural fields, enhanced on-campus housing, expanded Greek housing, greater athletic
offerings, and a new student recreation center soon to be constructed, and
WHEREAS, the elected representatives of the student body, the Student Government Association, have now
overwhelmingly supported further enhancing student life through the creation of an NCAA-sanctioned intercollegiate
football team, and
WHEREAS, the SGA and the student newspaper, The Vanguard, along with other student groups, have worked
together to garner support from fellow students illustrated by more than 2,300 names on a petition expressing support
for a football program and a willingness to invest in it through increased student fees, and
WHEREAS, the University has determined that a $150 per-semester fee increase, to be effective with the 2008
fall semester, would be required to support this initiative, with this fee being prorated for part-time students, and
WHEREAS, it has been determined that USA could make this fee adjustment and still remain at or below the
average cost of its peer universities in the state, and
USA Board of Trustees
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December 6, 2007
WHEREAS, a football program would provide the University a venue through which it could create a marching
band program and other student life programs deemed desirable by current and potential students as an outlet for their
interest and talents, as well as a public point of pride for their institution, and
WHEREAS, numerous members of USA’s alumni family throughout the years have expressed their support for
such a program, citing football’s ability to unify and provide a catalyst for fellowship among alumni and a greater
permanent connection to their university, and
WHEREAS, USA’s Faculty Senate has voted its support for such a program, as long as it adds value to the
student experience and USA’s academic and financial integrity are preserved, and
WHEREAS, many university constituencies, including city and county leaders, have expressed their support of
such an effort and have offered their assistance in facilitating it, anticipating football’s potential to further enrich area
entertainment opportunities and provide an economic stimulus, and
WHEREAS, the Mobile area economy is currently experiencing a renaissance and the relationship between the
community and the University has never been stronger as evidenced by increasing enrollment, as well as numerous
cooperative educational, health care and economic development endeavors, and
WHEREAS, the University President has assembled a task force representing the major constituencies of the
University, and this group has expressed optimism that while implementation of such a program presents challenges, it
is both feasible and worthwhile, and
WHEREAS, the University is currently on the soundest economic footing in its history, and has addressed many
of the deficits in its finances, infrastructure, health system and other areas since it opted not to pursue football after a
comprehensive review of the subject beginning in 1999, and
WHEREAS, USA since 1999 has enhanced its capacity to generate private support through the successful
implementation of a development program, illustrated by the success of its first comprehensive campaign, and
WHEREAS, football provides the University expanded marketing opportunities by appealing to students who
desire intercollegiate football, band, and related programs, and
WHEREAS, the University administration believes that the combination of student fee support, community
assistance, private giving, increased athletic revenue through ticket sales and other means, and other forms of revenue
provide for the implementation of football at a reasonable net cost, without harm to USA’s academic or other athletic
programs,
THEREFORE, BE IT RESOLVED, that the Board of Trustees of the University of South Alabama hereby authorizes
the University President to begin implementation of an NCAA-sanctioned football program at the University of South
Alabama, with an objective to achieve Division I status as soon as practical, and
BE IT FURTHER RESOLVED, that the student fee increase described herein be implemented effective with the
2008 Fall Semester to support this initiative, and
BE IT FURTHER RESOLVED, that this be done as expeditiously as feasible so that the University and students
can begin accruing the benefits of the football and band programs.
President Moulton agreed that conditions are right for a football and band program. He said that
students were excited about USA football and had pledged their support in the form of $300 per year
in additional student fees that will fund the lion’s share of start-up costs. He called upon
Ms. Jennifer Edwards, SGA President, who presented a petition in support of football and a
marching band which contained more than 2,000 student signatures, including those of student
organization leaders. Following a visual presentation of media clips covering a recent rally for
football, others who addressed the Board in support of football were Mr. Andy Denny, President of
USA Board of Trustees
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December 6, 2007
the USA National Alumni Association and Ms. Vicki Tate, Faculty Senate Chair, who provided
polling results indicative of faculty support as long as academic programs are not adversely affected.
President Moulton introduced Mr. Wright Waters, Sunbelt Conference Commissioner, who
congratulated the University for moving forward with football. He assured Trustees that USA and
the community had the resources to build a successful program. He said that the decision of the
Board today to incorporate football and band programs was significant for the University’s future
growth, and offered the Sunbelt Conference’s assistance during the institution’s transition.
President Moulton invited the student guests to stand as he read aloud the proposed resolution, for
which he included additional language stipulating that the student fees would be effective for the
2008 fall semester. Mr. Langham suggested that paragraph six be amended as suggested.
Chairman Stokes called for comments by Trustees. Mr. Striplin expressed his enthusiasm, and
Mayor Jones spoke in support of the program on behalf of the City of Mobile, and noted that City
Councilman Reggie Copeland had addressed the Committee of the Whole on December 5 in support
of the program. At that time, Councilman Copeland stated that rental fees for home games played
at Ladd- Peebles Stadium would be waived for five years and that the stadium would be refurbished.
On motion by Mr. Langham, seconded by Ms. Maye, the resolution was unanimously approved by
a show of hands. To commemorate the occasion, Ms. Edwards and other students passed out
footballs signed by SGA officers to President Moulton and Board members, while Mr. Denny
presented an inaugural coaching jersey to President Moulton. President Moulton announced that
a committee would be immediately formed with the charge of searching for appropriate personnel.
He assured Trustees that the administration would proceed in a wise and deliberate manner.
Following a short recess, Dr. Stokes called upon Dr. Covey to present ITEM 4 as follows. On
motion by Mr. Peek, seconded by Ms. Mitchell, the resolution was unanimously approved.
RESOLUTION
SABBATICAL AWARDS
WHEREAS, in accordance with University policy, proposals for Sabbatical Awards have been reviewed and
recommended by the respective faculty committees, department chairs, college deans, and by the Senior Vice President
for Academic Affairs and the President,
THEREFORE, BE IT RESOLVED, that the University of South Alabama Board of Trustees approves said Sabbatical
Awards on this date, December 6, 2007, for the 2008-2009 academic year.
NAME
Dr. Brian J. Axsmith
Dr. Robert E. Holm
Dr. Jennifer Langhinirichsen-Rohling
Dr. Michael L. Monheit
Dr. Madhuri S. Mulekar
Dr. Benjamin J. Shamback
Dr. Gayle V. Davidson-Shivers
Dr. James L. Swofford
DISCIPLINE
Biology
Music
Psychology
History
Statistics
Visual Arts
Professional Studies
Economics
TIME PERIOD
Fall 2008
Spring 2009
Spring 2009
Spring 2009
Spring 2009
Fall 2008
Spring 2009
Fall 2008
USA Board of Trustees
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December 6, 2007
Dr. Covey presented ITEM 5 as follows. On motion by Ms. Miree, seconded by Ms. Maye, the
resolution was unanimously approved.
RESOLUTION
PROFESSORS EMERITI
WHEREAS, the following faculty have retired from the University of South Alabama:
ACADEMIC AFFAIRS:
Heide Lomangino, Ph.D., Assistant Professor of Foreign Language
and Literatures
Glenn R. Sebastian, Ph.D., Associate Professor of Geography
Robert J. Fornaro, Ph.D., Professor of International Studies
Edward L. Harrison, Ph.D., Professor of Management
and
WHEREAS, in recognition of their contributions to the University through extraordinary accomplishments in
teaching and in the generation of new knowledge through research and scholarship, and for serving as a consistently
inspiring influence to students for a period of time, and
WHEREAS, the faculty and chairpersons from their departments, academic deans, the Senior Vice President for
Academic Affairs, and the President have duly recommended the aforementioned retirees from the University faculty,
NOW THEREFORE, BE IT RESOLVED that the Board of Trustees of the University of South Alabama in a seated
meeting held on December 6, 2007, hereby appoints the aforenamed individuals to the rank of Assistant, Associate or
Professor Emeritus, as appropriate, with the rights and privileges thereunto appertaining, and
FURTHER, BE IT RESOLVED that the Board of Trustees of the University of South Alabama, in
recognition of their extraordinary accomplishments and dedicated service, wishes to convey its deep
appreciation to these individuals.
Dr. Covey presented ITEM 6 as follows (refer to APPENDIX A for copies of policies and other
authorized documentation). She described the charge of the University’s Strategic Diversity
Committee and said a good deal of time was given toward deriving a set of goals which will guide
the University in maintaining best practices with regard to the diversification of faculty, staff, and
students. She added that input from USA’s constituencies had been solicited and considered.
Mr. Gardner said it had been a pleasure to serve on the committee. He said the group was diverse
in its membership and that the committee was serious in approaching its charge. He moved approval
by the Board and Mr. Striplin seconded. Responding to a question from Mayor Jones as to whether
there was a provision in the document for annual updates, Ms. Tucker said that the policy is fluid
and can be changed as needed. Mayor Jones recommended that annual reports be provided to the
Board of Trustees. President Moulton concurred and the Board unanimously approved the
resolution.
RESOLUTION
UNIVERSITY OF SOUTH ALABAMA STRATEGIC PLAN FOR RACIAL AND ETHNIC DIVERSITY
WHEREAS, the University of South Alabama was chartered in 1963 by the State of Alabama as a comprehensive,
coeducational institution of higher education, and
USA Board of Trustees
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December 6, 2007
WHEREAS, the University entered into a consent decree in the matter of Knight, et al. v. United States of
America, et al., as did other four-year degree granting public universities in Alabama, designed to assist diversity of
Alabama public universities, which, in 2006, led the Court to find that the University was “in full compliance with the law,
and that, therefore, there are no continuing policies, or practices, or remnants, traceable to de jure segregation, with
present discriminatory effects which can be eliminated, altered, or replaced with educationally sound, feasible, and practical
alternatives or remedial measures...” (Order and Final Judgment, Knight, et al. v. United States of America, et al.,
December 2, 2006), and
WHEREAS, as a part of the settlement agreement made with the plaintiffs in the Knight matter, the University
of South Alabama, as did all public universities in Alabama, agreed to draft a Strategic Diversity Plan to help guide it in its
continued efforts to expand and increase diversity at the University, and
WHEREAS, the University drafted a plan, posted it on the University Web site and placed it in the University
library for public comment, revised the draft as needed pursuant to the comments, and presented the revised draft to the
Board of Trustees for review and comment,
NOW, THEREFORE, BE IT RESOLVED that the University of South Alabama Board of Trustees approves the
attached Strategic Plan for Racial and Ethnic Diversity and authorizes the President of the University to implement the plan
immediately.
Chairman Stokes called for consideration of health affairs items. Dr. Furr, Chair of the Health
Affairs Committee, recommended approval of ITEM 7 as follows. On motion by Dr. Charlton,
seconded by Ms. Mitchell, the resolution was unanimously approved.
RESOLUTION
USA HOSPITALS MEDICAL STAFF APPOINTMENTS AND REAPPOINTMENTS FOR AUGUST, SEPTEMBER, OCTOBER, AND NOVEMBER 22, 2007
WHEREAS, the Medical Staff appointments and reappointments for August, September, and October 2007, and
November 22, 2007, for the University of South Alabama Hospitals are recommended for approval by the Medical Executive
Committees of the University of South Alabama Hospitals,
THEREFORE, BE IT RESOLVED, that the appointments and reappointments be approved as submitted.
Concerning ITEM 8, a report on the USA Mitchell Cancer Institute, Dr. Boyd provided an update
on current recruiting activities of the Mitchell Cancer Institute. He reported that clinical
development of the gynecologic-oncology program is quickly growing, and reminded the Board of
the appointment of Drs. Michael Finan and Rodney Rocconi. He said that construction of the MCI
facility is 85 percent complete.
Dr. Stokes called upon Mr. Hammack to present ITEM 9, a report on the USA / IHS Strategic Health
Alliance. Mr. Hammack detailed a visual outline of a plan and proposed budget to improve parking
and landscaping at USA Children’s and Women’s Hospital. He said that a request for bids had been
advertised and that the administration could seek approval to proceed at the March Board meeting.
Dr. DeVillier said that parking is inadequate and remote parking and shuttle service are being made
available. Mr. Hammack said that the clinical needs of the internal medicine practice at the USA
Medical Center were being addressed. He said that the Biomedical Sciences Library would be
relocated and that a simulation lab would be created for student training. Dr. Franks reported that,
as a result of the alliance between the MCI and IHS, opportunities for new clinical and educational
programs have developed in nursing as well as medicine. Additionally, he announced the
appointment of Dr. Sam Strada as Dean of the College of Medicine.
USA Board of Trustees
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December 6, 2007
On behalf of Mayor Nix, Chair of the Budget and Finance Committee, Chairman Stokes called upon
Mr. Wayne Davis for a report of budget and finance items. Mr. Davis said ITEM 10 would be
discussed with ITEM 11, and he proceeded to address ITEM 10.A as follows. He explained that
additional maintenance and storage space is necessary to support existing buildings and new
construction, and requested the Board’s permission to pursue the development of a design for the
proposed facility estimated to be approximately 35,000-40,000 square feet. President Moulton said
that the new building may initially be used to house the football and marching band programs until
permanent space is identified. On motion by Ms. Maye, seconded by Mr. Langham, the resolution
was unanimously approved.
RESOLUTION
MAINTENANCE AND STORAGE BUILDING
WHEREAS, the University has experienced continued growth in the number of buildings on campus, and
WHEREAS, the University has several additional new buildings under construction or planned to be under
construction in the near future totaling approximately 400,000 square feet, and
WHEREAS, the University has had an ongoing need for a maintenance and storage building to support existing
facilities, and
WHEREAS, the construction of the new buildings will significantly increase that need, and
WHEREAS, the Administration of the University wants to commence the necessary planning and engineering
studies for a new maintenance and storage building of approximately 35,000-40,000 square feet to satisfy these needs,
NOW THEREFORE, BE IT RESOLVED, that the Board of Trustees authorizes the University President to initiate
the necessary planning and engineering studies, including site selection, of a maintenance and storage building of
approximately 35,000-40,000 square feet.
Mr. Wayne Davis presented ITEM 10.B as follows. Mr. Davis proposed that real property, the
original site of the Mitchell Cancer Institute, be leased to the Infirmary Health System, at market
rates, for the construction of a professional office building. The lease would be written in terms
consistent with the existing lease of the former USA Knollwood Hospital. On motion by Mr. Peek,
seconded by Dr. Charlton, the resolution was unanimously approved.
RESOLUTION
GROUND LEASE OF 14.33 ACRES TO INFIRMARY HEALTH SYSTEM, INC.
WHEREAS, the University of South Alabama (USA) owns land on its Knollwood campus immediately north of the
hospital now known as Infirmary West, an acute care hospital and a long-term acute care hospital which were leased to
the Infirmary Health System, Inc. (IHS) by USA in a long-term lease entered into on April 1, 2006, to continue the provision
of not only much-needed health care services and related resources to the people of Mobile and surrounding communities,
but also a valuable site for education and research activities of USA’s colleges of Medicine, Nursing, and Allied Health
Professions, and
WHEREAS, USA and IHS each desire to maintain and enhance the quality of health care in the Mobile and
southern Alabama region and to improve the quality of clinical education for students in the health care professions, and
USA Board of Trustees
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December 6, 2007
WHEREAS, to further the aforementioned health care and educational goals, IHS would like to lease the 14.33
acres of the above-described Knollwood campus land currently owned by USA and shown in Exhibit A, based on fair market
value and for a term of years and an option to renew to run concurrently with the April 1, 2006, lease to IHS, and
WHEREAS, the University of South Alabama, having at one time considered the land for use as the site of the
Mitchell Cancer Institute, but, since the location of the MCI has changed, has no current plans for the use of the property,
has determined that leasing this land on Knollwood campus as described above is in the best interest of the University in
that it will enhance USA’s valued missions of health care education, research, and service on the Knollwood campus,
BE IT THEREFORE RESOLVED, that the University of South Alabama Board of Trustees, having considered the
above and determined that the lease to IHS of 14.33 acres of land owned by USA on its Knollwood campus is in the best
interest of the University of South Alabama, hereby authorizes the President of the University to negotiate and execute a
lease agreement for this acreage with Infirmary Health System, Inc., its subsidiaries or affiliates.
EXHIBIT A
Beginning at the Northwest corner of the Northwest quarter of the Southwest quarter of Section 10, Township 5 South,
Range 2 West, Mobile County, Alabama; thence run North 89E27'42" East, 504.21 feet to a point on the South right-of-way
line of Knollwood Drive Extension, having a 100 foot right-of-way; thence run South 51E26'07" East along the said South
right-of-way line, 1051.59 feet; thence departing the said South right-of-way line, run South 0E03'37" East, 16.61 feet;
thence run South 89E47'51" West, 1327.47 feet; thence run North 0E05'12" East, 672.12 feet to the point of beginning
and containing 14.33 acres, more or less.
Mr. Wayne Davis presented ITEM 10.C as follows. He discussed the University’s current debt
structure and that each bond issue may be redeemed beginning ten years after the issue date. He
outlined the advantages of refinancing at that ten-year date at a lower rate than the original bond
issue rate. He explained that the University had the opportunity to enter into an option to sell that
future redemption today and receive significant proceeds based upon the sale of that option. He
reminded the Board that, at the September 2007 Board meeting, the value of the “swaption”
transaction had been approximately $8 million, and that, on December 6, 2007, the value had
increased to approximately $9 million. He talked about the proceeds from the swaption being
invested similarly into the endowment, and said the earnings were free and clear of any arbitration
rules. With no further discussion, minutes of the December 5, 2007, Executive Committee meeting
pertaining to the swaption were distributed for review and adoption by the Board. On motion by
Mr. Langham, seconded by Dr. Charlton, the minutes of the December 5, 2007, Executive
Committee meeting were unanimously approved. Further, on motion by Mr. Langham, seconded
by Mr. Yance, the resolution was unanimously approved.
RESOLUTION
OPTION TO ENTER FINANCIAL TRANSACTION RESPECTING CERTAIN OUTSTANDING BONDS OF THE UNIVERSITY
WHEREAS, the University of South Alabama has heretofore issued its
$100,000,000
UNIVERSITY OF SOUTH ALABAMA
University Tuition Revenue Refunding and Capital Improvement Bonds
Series 2006
Dated December 1, 2006
USA Board of Trustees
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December 6, 2007
and its
$51,080,000
UNIVERSITY OF SOUTH ALABAMA
University Tuition Revenue Refunding and Capital Improvement Bonds
Series 2004
Dated March 15, 2004
together, the “Outstanding Bonds,” and
WHEREAS, Those of the Series 2006 Bonds having a stated maturity on December 1, 2017, and thereafter will
be subject to redemption prior to their respective maturities, at the option of the University, as a whole or in part, on
December 1, 2016, and on any date thereafter (and if in part, in such maturities as the University shall select, and if less
than all of a single maturity is to be redeemed those to be redeemed to be selected by the Trustee by lot) at and for a
redemption price with respect to each Series 2006 Bond (or principal portion thereof redeemed) equal to the par or face
amount of each Series 2006 Bond redeemed plus accrued interest to the date fixed for redemption, and
WHEREAS, Those of the Series 2004 Bonds having a stated maturity on March 15, 2015, and thereafter will
be subject to redemption prior to their respective maturities, at the option of the University, as a whole or in part, on March
15, 2014, and on any date thereafter (and if in part, in such maturities as the University shall select, and if less than all
of a single maturity is to be redeemed those to be redeemed to be selected by the Trustee by lot) at and for a redemption
price with respect to each Series 2004 Bond (or principal portion thereof redeemed) equal to the face or par amount
thereof plus accrued interest to the date fixed for redemption, and
WHEREAS, Wachovia Bank, National Association has proposed a transaction, sometimes referred to as a
Swaption for a Forward Synthetic Refunding, to allow the University to achieve a present realization of certain amounts in
connection with the future redemption of the outstanding Bonds and the optional redemption dates set forth above, and
WHEREAS, the University has determined that entering into a transaction with Wachovia Bank, National
Association of the type described in the attached Exhibits I through IX will permit the University to achieve present benefit
from the future redemption of the Outstanding Bonds, and
WHEREAS, the University understands that any such transaction will obligate the University to either issue its
refunding bonds with respect to either or both of the Outstanding Bonds or terminate the transaction in the event the
options granted to a counterparty are exercised as required by the final documentation, and
WHEREAS, any transaction entered into pursuant to authority granted by this resolution will be governed by the
University of South Alabama Derivatives Policy, and
WHEREAS, the appropriate financial analysis has shown the transaction to be an Effective Hedge, as required
by the University of South Alabama Derivatives Policy, and
WHEREAS, the Executive Committee of the Board of Trustees unanimously approved a resolution authorizing
the President of the University, the Vice-President for Financial Affairs and the Secretary of the Board to execute such
documents necessary to consummate the transaction contemplated by this resolution, and
WHEREAS, the Executive Committee of the Board of Trustees requests that the Board of Trustees accept the
report attached as Exhibit I, Synthetic Advance Refunding Analysis, Series 2004 and 2006 Bonds, and approve the
transaction as outlined in said report and the attached exhibits and order the documents attached as Exhibits I through
IX be included in the minutes of this meeting of the Board of Trustees,
THEREFORE, BE IT RESOLVED, that the Board of Trustees accepts the report attached as Exhibit I, Synthetic
Advance Refunding Analysis, Series 2004 and 2006 Bonds, and approves the transaction as outlined in said report and
the attached exhibits and orders the documents attached as Exhibit I, Synthetic Advance Refunding Analysis, Series 2004
and 2006 Bonds; Exhibit II, ISDA Master Agreement; Exhibit III, Schedule to the Master Agreement; Exhibit IV, ISDA Credit
Support Annex; Exhibit V, Draft – Swap Transaction Confirmation Series 2004; Exhibit VI Draft - Swap Transaction
USA Board of Trustees
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December 6, 2007
Confirmation Series 2006; Exhibit VII, General Certificate of University of South Alabama; Exhibit VIII, Draft - Fairness
Opinion; and Exhibit IX, Summary of Synthetic Advance Refunding Analysis be included in the minutes of this meeting of
the Board of Trustees.
Chairman Stokes called for a report of audit items. Mr. Wayne Davis presented ITEM 10, the
Monthly Fund Accounting Reports for July, August, and September 2007 and the Quarterly GASB
Financial Statement for the twelve months ended September 2007, and ITEM 11, the KPMG Audit
Reports and Letter for the year ended September 2007. He indicated that representatives from the
University’s independent audit firm of KPMG had made its annual report to the Audit Committee
on December 5, 2007. He reminded Trustees of the invitation by KPMG to contact them at any time
to discuss questions or concerns. He said that all reports and letters from KPMG were included in
the Board binder, and noted that the auditors rendered an unqualified opinion as to the fairness of
the financial reports.
Chairman Stokes called for a report of endowment and investments items. President Moulton called
upon Mr. Albano to present ITEM 12, a report of the performance for the total endowment and each
individual money manager for Fiscal Year 2007: Commonfund, Arlington Partners, Gerber /Taylor,
Oakmark Select, and Private Advisors. Mr. Albano said that the endowment outperformed its
relative index for the full fiscal year 2007 (18.36 percent vs. 11.91 percent) and since inception (9.45
percent vs. 3.67 percent). He discussed the underperformance of Oakmark Select, and reported that
the Endowment and Investments Committee had previously considered Oakmark’s performance and
had voted to release Oakmark from its management responsibilities. He said that, after some
analysis, the Endowment and Investments Committee decided to invest the proceeds from Oakmark
with the firm of Douglas C. Lane & Associates.
Regarding ITEM 13 as follows, President Moulton recognized Steven and Angelia Stokes for their
most recent gift of 553 acres of timberland that is to be sold with the proceeds benefiting the
University. He called upon Dr. Covey to discuss the use of the timber proceeds. Dr. Covey
announced that Dr. Sue Walker, Chair of the English Department, had been named to fill the Stokes
Distinguished Professorship in Creative Writing, the first endowed professorship in the history of
the College of Arts and Sciences. Dr. Walker expressed gratitude for the honor. Dr. Stokes thanked
Dr. Walker for all she had done for the program. On motion by Mr. Yance, seconded by
Mr. Striplin, the resolution was unanimously approved.
RESOLUTION
SALE OF REAL PROPERTY
WHEREAS, the University of South Alabama owns approximately 553 acres of real property in Barbour County,
Alabama, said property having been deeded to the University by Mrs. Angelia R. Stokes, and
WHEREAS, this gift was made to the University to create the Stokes Institute for Creative Writing, and
WHEREAS, the University desires to sell the property and to use the proceeds of the sale for the aforedescribed
purpose,
THEREFORE, BE IT RESOLVED, that the Board of Trustees authorizes the President of the University of South
Alabama and the Vice President for Financial Affairs to place the property on the market through the process outlined in
USA Board of Trustees
Page 11
December 6, 2007
the Policy and Procedure by which the University of South Alabama would Sell or Lease Real Property or Interest Owned
by the University of South Alabama, as approved by this board on March 9, 2006.
President Moulton expressed delight that Trustee Mayer Mitchell’s place at the Board table was now
filled by Mrs. Mitchell. Board members and guests watched a video commemorating Mr. Mitchell’s
Board service and his significance to the University of South Alabama. President Moulton asked
the Mitchell family to join him with Mrs. Mitchell, and he read aloud ITEM 14 as follows. He
presented Mrs. Mitchell with a framed resolution, and with Mr. Mitchell’s academic hood.
Mrs. Mitchell was joined by daughter Mrs. Joy Grodnick in sharing thoughts about Mr. Mitchell and
in extending thanks to the University community for the outpouring of support during the difficult
preceding months. The Board, by way of numerous expressions of admiration for Mr. Mitchell as
a colleague and personal friend, overwhelmingly adopted the resolution, with Ms. Mitchell
abstaining.
RESOLUTION
TRIBUTE TO TRUSTEE MAYER MITCHELL
WHEREAS, Mr. Mayer Mitchell served faithfully as a member of the Board of Trustees of the University of South
Alabama from the time of his appointment in 1975 until his death on September 26, 2007, and
WHEREAS, during his 32 years of service, Mr. Mitchell provided exemplary leadership in numerous key Board
positions, including Chair Pro Tempore of the Board, Chair of the Budget and Finance and the Health Affairs committees,
and, at the time of his death, Chair of the Endowment and Investments Committee and a member of the Executive
Committee, and
WHEREAS, Mr. Mitchell made extraordinary contributions to his community, state, and nation, and most
particularly in support of the University of South Alabama, where the Mitchell College of Business, Mitchell Center, Mitchell
Cancer Institute, and Joseph and Rebecca Mitchell Learning Resource Center in the Mitchell College of Business all bear
testimony to the generosity of Mr. Mitchell and his family, whose philanthropy represents the greatest amount of giving
by a family to a single public university in Alabama, and
WHEREAS, for his outstanding accomplishments in business and philanthropy and keen political insights,
Mr. Mitchell was widely respected and commended by national, international, state, and local organizations, and
WHEREAS, Mr. Mitchell was intensely devoted to family, friends, colleagues, all manner of worthy causes, and
the USA Jaguars, and unrivaled in his joy at their success,
THEREFORE, BE IT RESOLVED, the Board of Trustees acknowledges the legacy of Mayer Mitchell and pays
tribute to his memory for his many contributions, invaluable service and unwavering commitment to the University, and to
the citizens of the State and the Nation, all of whom have benefited from his wisdom, dedication, and generosity, and
extends heartfelt sympathy to Mrs. Arlene Mitchell, Mr. Abraham Mitchell, and all members of the family of Mayer Mitchell.
President Moulton recognized Trustee Don Langham for having completed a three-year term as
Chair Pro Tempore of the Board of Trustees. He thanked Mr. Langham for his leadership, and
invited the Langham family to join Mr. Langham for the reading of ITEM 15 as follows. On motion
by Mr. Striplin, seconded by Mayor Jones, the resolution was unanimously adopted. Ms. Langham
assisted President Mouton in the unveiling of an oil portrait of Mr. Langham. Mr. Langham
conveyed gratitude for the opportunity to serve, and thanked the Board, and the University
administration and staff for their support during his term as Chair.
UNIVERSITY OF SOUTH ALABAMA
STRATEGIC PLAN FOR
RACIAL AND ETHNIC DIVERSITY
DECEMBER 2007
OVERVIEW
2
Good schools, like good societies and
good families, celebrate and cherish diversity - Deborah Meier
The University of South Alabama was chartered in 1963 by the State
of Alabama as a comprehensive, coeducational institution of higher
education. The University serves as a major center of high-quality and
accessible undergraduate, graduate and professional education for
metropolitan Mobile, the State of Alabama, the Gulf Coast region and the
southeastern United States.
The University’s mission actively embraces the functions of teaching,
research, public service and health care through which it vigorously
pursues the preservation, discovery, communication and application of
knowledge. The University is committed to the education of the whole
person, the creative person. The University of South Alabama’s programs
of education, research, public service and health care are all founded upon
the basis of a reciprocal relationship between the institution and the
community of Mobile, Alabama and the central Gulf Coast. Instruction,
research, scholarship, public service and health care that enhance the
economic development of the State and improve the quality of life and
health of its citizens are integral and essential parts of its mission as a
comprehensive, metropolitan university.
As it grows and develops, the University will continue to focus on its
strengths to produce programs of interdisciplinary excellence that address
the special needs of the people it serves. The University’s environment
must encourage and foster the qualities expected of leaders, such as
integrity, service, stewardship, involvement and respect for individuals as
well as an appreciation for diversity.
3
The University of South Alabama now has over 14,000 students and
employs more than 5,000 people on its academic campuses in Mobile and
Baldwin counties and its two hospital campuses.
The University of South Alabama, like its home community of
Mobile, Alabama and the central Gulf Coast, is growing and becoming
more diverse and dynamic each day. Crucial to its mission to utilize
“instruction, research, scholarship, public service and health care [to]
enhance the economic development of the State and improve the quality of
life of its citizens,” the University of South Alabama is committed to
diversity both within the University of South Alabama family and as a
leader in the community.
The purpose of this Strategic Diversity Plan is to define and clearly
identify, within a legally sustainable structure, goals and measurable
outcomes for diversity at the University of South Alabama. The University
recognizes and values the contributions made by African-American and
other under-represented populations and desires to make the University an
even more attractive and inclusive place for people of all races, ethnicities,
faiths and cultures to study and work in a supportive, diverse community.
Copies of this plan as well as measurable outcomes will be available
on-line at the University’s website, www.southalabama.edu, and in hardcopy in the University of South Alabama Library during normal business
hours.
4
INTRODUCTION
5
INTRODUCTION
In 1985, as part of litigation affecting the public four-year postsecondary institutions of higher education in the state, the University of
South Alabama entered into a consent decree with the United States
government in a case known as Knight, et al v. United States of America,
et al. The purpose of this litigation and the decrees which flowed
therefrom was to “eliminate the vestiges of racism which still exist in
Alabama’s college and university system.” As part of that decree and
subsequent extensions, the University entered into a twenty year
enforcement period wherein its diversity efforts were monitored by the
Court. In 2006, upon conclusion of the enforcement period, the University
entered into a settlement agreement with the plaintiffs which the Court
recognized as a demonstration of the institution’s “commitment to
continuing to operate in a constitutional and non-discriminatory fashion.
. .” The Court went on to find, and the plaintiffs agreed, that the
University of South Alabama is “in full compliance with the law, and that,
therefore, there are no continuing policies, or practices, or remnants,
traceable to de jure segregation, with present discriminatory effects which
can be eliminated, altered or replaced with educationally sound, feasible
and practical alternatives or remedial measures. . .” (Order and Final
Judgment, Knight, et al. V. United States of America, et al., December 12,
2006). As part of the settlement agreement made with the plaintiffs in
2006, the University of South Alabama agreed to draft a Strategic
Diversity Plan to help guide the University in its continued efforts to
expand and increase diversity at the University.
This Plan was originally drafted by a committee of twelve persons.
The Strategic Diversity Committee Membership is attached to the Plan as
Exhibit A. The President of the University appointed Dr. Pat Covey,
Senior Vice President of Academic Affairs, to Chair the Committee. The
Committee is composed of persons nominated by the University
6
community and appointed by the University President. The committee
contains six African-Americans, one Pacific Islander and five Caucasians.
Four of the committee members are women. The committee included
members from all areas of the University community, specifically, four
members representing the students (including the President of the Student
Government Association, the President of the African-American Student
Association, the Manager of Multi-Cultural Student Affairs and the
Associate Vice-President of Enrollment Services), five faculty members
and two members representing University staff (including the Director of
Human Resources and the University Investment Manager) and a member
of the University of South Alabama Board of Trustees. After the
committee finalized its draft, the draft plan was posted on the University’s
website and placed in the library for a period of public comment.
Following the public comments, and revisions as appropriate, the final Plan
was presented to the University Board of Trustees prior to its December
2007 Board Meeting. The Board of Trustees voted on the Plan at its
December 2007, Board Meeting, and, as approved, the Plan became
effective immediately.
In drafting this Plan, the Strategic Diversity Plan Committee spent
time, effort and energy reviewing diversity plans currently in place at other
institutions in Alabama and across the United States. The Committee
carefully considered the programs currently in place at the University and
evaluated the success of the particular program, the program’s long-term
viability, and whether the program remains legally viable.
The committee also considered the business imperative of diversity.
Diversity helps businesses grow and become more profitable. Diverse
participants in University communities provide competitive advantages to
the institutions by representing the interests of a broad range of people
which, in turn, results in a better understanding of the individual and
collective needs. This better understanding of the individual and collective
7
needs naturally flows to enhancement of services provided, improved
student, patient and staff satisfaction and enriched financial resources.
Moreover, it is apparent that in some job classifications, particularly
nurses, physicians and technicians, due to national shortages, without
attracting more under-represented populations into those career paths, the
shortages will become still more dire.
Finally, committee members conducted extensive interviews with
current members of the University community, including students, faculty
and staff, colleagues from other similar institutions, and the community at
large to better ascertain common problems and solutions.
The University believes that this Plan embodies the best of what the
Committee found in its research and positions the University to continue
successfully increasing diversity at the University of South Alabama
through even greater inclusion of African-American and other underrepresented populations at the University of South Alabama.
8
DEFINITIONS
9
DEFINITIONS
In drafting this Plan, the Strategic Diversity Committee worked under
a charge from the Knight settlement to draft a Strategic Diversity Plan that
continues to increase racial and ethnic diversity in all areas of the
University, with a particular emphasis on African-Americans.
The Committee recognizes that certain terms and phrases can be
sensitive and may have unwelcome and/or non-inclusive connotations. For
that reason, after thoughtful deliberation, the Committee has embraced the
term “African-Americans and other under-represented populations” to
include those individuals whose representation at the University of South
Alabama has traditionally been less than optimal for the University to
create a fully diverse, thriving community of learning.
For the purpose of faculty and staff diversity reporting, the University
and this Plan will utilize the United States Department of Labor
classifications in use at the time of reporting.
For the purpose of student diversity reporting, the University and this
Plan will utilize the United States Department of Education classifications
in use at the time of reporting.
10
CHARGE TO
STRATEGIC DIVERSITY COMMITTEE
11
CHARGE TO STRATEGIC DIVERSITY PLAN COMMITTEE
April 2007
The University of South Alabama (“USA”) will develop a
comprehensive institution-wide Strategic Diversity Plan (the “Plan”). The
Plan will identify and implement strategies for searching, hiring and
retaining a diverse faculty and staff and for recruiting and retaining
students of diverse backgrounds as agreed to by USA in its settlement of
Knight v. The State of Alabama in December 2006. In developing a Plan,
the committee will review and assess existing plans for diversity at USA.
Faculty and administrators providing diversity-related services and
programs may be asked to present information and facts to the committee,
or it sub-committees, for discussion and recommendation. As part of its
charge, the committee may make recommendations to accept existing
programs, modify the plans and programs, request and/or develop and
adopt an entirely new plan and/or program.
Objective 1
Promote diversity across all levels of the USA community.
Action Step 1A
Develop and approve a comprehensive plan for diversity at USA.
Action Step 1B
Incorporate outcomes and related assessments in the Plan.
12
Objective 2
Increase effectiveness in recruiting, hiring and retaining diverse faculty and
staff at all levels at USA.
Action Step 2A
Assess current efforts to recruit and hire diverse faculty and staff, and
design and implement an institutional recruitment plan for faculty and for
staff based on the results of that assessment.
Action Step 2B
Research and develop a plan for implementing known approaches to
legally increase hiring and retention of faculty and staff.
Action Step 2C
Assess effectiveness of the plan as a tool for implementing viable legal
approaches to increasing hiring and retention of faculty and staff.
Action Step 2D
Assess and improve the campus climate for diverse faculty and staff,
including orientation and on-going development for all faculty and staff as
necessary in the area of diversity.
Objective 3
Strengthen recruitment and retention of a diverse student population
consistent with the University’s academic goals.
13
Action Step 3A
Assess annually recruitment of diverse students; design, implement and
assess plans for more effective recruitment as needed.
Action Step 3B
Review outcome-based plans for those departments providing services and
programs directed toward retention of diverse student populations;
establish clear and measurable service outcomes and assessment plans as
legally sustainable.
14
SYNOPSIS OF GOALS
15
SYNOPSIS OF GOALS
The University of South Alabama is an Equal Opportunity/Equal
Access Institution and an Equal Opportunity/Equal Access employer.
Although the University of South Alabama has made significant strides
towards increasing diversity within the University community, the
University recognizes that there are still gains to be made. At the time of
adoption of this Plan, the presence of African-American and other underrepresented populations on campus is less than optimal for the University
to enjoy the full benefits available to a diverse University community
located in Mobile, Alabama.
As a crucial first step in this Plan, the University reaffirms its
dedication to providing a diverse, inclusive and stimulating learning and
working environment and to continue serious and substantial assessment
of the University’s progress toward further increasing the diversity of the
University of South Alabama by even greater inclusion of AfricanAmericans and other under-represented populations at the University of
South Alabama.
A university community is comprised of three primary groups,
students, faculty and staff. Given the inherent dynamics of the particular
groups and the University’s resources, student, faculty and staff diversity
have each grown at different paces based upon the opportunities and
pressures unique to that group. Therefore, in some areas of this report,
global generalities applicable to the entire University community are
appropriate, but, in other areas, in order to fully review and chart progress,
the groups are sub-divided into students, faculty and staff.
16
GOALS
ONE
Continue to recognize the importance of, and the University of South
Alabama’s commitment to, increasing representation of African-Americans
and other under-represented populations at the University of South
Alabama.
TWO
Educate all students for an increasingly multi-cultural society in Alabama,
the United States and the world and continue to foster respect for the multicultural communities at the University of South Alabama.
THREE
Continue to develop recruiting and retention initiatives designed to enable
students to enroll and progress at even higher levels at the University of
South Alabama.
FOUR
Develop legally viable programs to assist with the recruitment and
retention of African-American and other under-represented staff, including
executive, administrative and managerial employees, at the University of
South Alabama and engage in consistent review and assessment of those
efforts.
17
FIVE
Develop a legally founded action plan to assist with the recruitment and
retention of African-American and other under-represented faculty at the
University of South Alabama and engage in consistent review and
assessment of those efforts.
SIX
Increase community outreach programs in an effort to facilitate recruitment
and retention of qualified African-American and other under-represented
students, faculty and staff at the University of South Alabama and to
enhance the perception in the University’s main service area of the
University as a place open and eager to educate and employ persons of all
races, creeds, religions and national origins.
SEVEN
Increase resources in an effort to provide more support to economically
disadvantaged students in their studies at the University of South Alabama.
18
BACKGROUND OF AND
IMPLEMENTATION STRATEGIES
FOR GOALS
19
GOAL ONE
Continue to recognize the importance of, and the University of South
Alabama’s commitment to, increasing representation of African-Americans
and other under-represented populations at the University of South
Alabama.
A.
The Institutional Environment
1.
The University of South Alabama is proud of its commitment
to diversity in all aspects of its higher education community,
student, faculty and staff. African-Americans and other underrepresented populations comprise a higher percentage of the
University of South Alabama’s total enrollment than the
national average of similar institutions. Additionally, the
representation of African-Americans and other underrepresented populations in the faculty and staff areas trends
toward the national average - - statistics of which the
University of South Alabama is rightfully proud given the
fierce competition for African-American and other underrepresented populations across America and the University’s
financial resources. Nonetheless, the University is and will
continue to implement legally viable programs designed to
make this university community an even more welcoming place
for all students, faculty and staff to live and work.
2.
Current Statistics - Please see Exhibit B.
20
B.
Institutional Requirements
1.
To maintain the University’s focus on and commitment to
diversity, the President, vice presidents, deans and department
heads will be responsible for providing leadership to
accomplish the goals of this plan.
2.
Each college is currently charged with submitting to the VicePresident for Academic Affairs an annual report on its
accomplishments and objectives related to diversity. These
reports are reviewed by the Vice-President who, in turn,
advises the University President and the Board of Trustees on
the University’s diversity initiatives and outcomes.
3.
The annual requirement for submission of these reports by
individual academic departments will continue during the life
of this Strategic Diversity Plan. Each plan should include an
assessment of the department’s institutional environment as it
relates to diversity on campus and should include specific
numerical data substantiating the findings contained in the
report. While the University may not and will not set
numerical goals as the measurement of diversity, the University
does expect and require each department and/or division, as
applicable, to submit substantive, hard data to support its
conclusions as contained in its annual reports.
4.
Commitment to diversity as evidenced by these departmental
and/or division annual reports and other factors will be a part
of the job description and required job goals and objectives for
each person responsible for submitting and/or reporting on
these plans.
21
5.
The University will maintain its Advisory Committee on
Diversity (founded in 2002), and this committee shall meet and
report to the President as necessary to effectively provide input
into and guidance for the future progress of diversity programs
at the University. The current membership of this committee
is attached as Exhibit C. Future membership will be
documented in the Strategic Diversity Plan Yearly Updates.
6.
The University will send at least two representatives to annual
diversity conferences, if held, and will post a report on the
University’s website regarding the conference(s) and any
recommendations resulting from participation in such
conference(s). The two representatives will be selected by the
University’s African-American faculty and administration.
22
GOAL TWO
Educate all students for an increasingly multi-cultural society in Alabama,
the United States and the world and continue to foster respect for the multicultural communities at the University of South Alabama.
A.
Multi-cultural Climate
1.
For nearly four hundred years, the flow of new arrivals to the
United States has made issues of racial and ethnic diversity a
continuous public and private concern. America’s leadership
of an ever-expanding global economy suggests that racial and
ethnic diversity will remain major public policy issues.
2.
The University of South Alabama is committed to preparing its
students, graduates and the communities it serves to not only
compete in a global economy but also to understand how
interaction with and knowledge of diverse peoples and cultures
enriches lives and contributes to a vibrant and energizing
campus environment.
3.
To aid in fostering a campus community that enhances learning
and appreciates and respects diversity, the University will, to
the best of its ability:
a.
Sponsor and encourage programs that expose students
and the University community to racial and ethnic
diversity, inter-group relations and conflict resolution.
23
b.
Study the feasibility of increasing University Library
holdings, including electronic resources, related to
African-Americans and other under-represented
populations.
c.
Sponsor and encourage research, publication and
professional development in African-American and
under-represented population studies.
d.
Explore the feasibility of expanding the AfricanAmerican studies program to include a major.
e.
Explore the feasibility of creating a multi-disciplinary
center for the study of race and ethnicity that would focus
on research, teaching and public programs.
24
GOAL THREE
Continue to develop recruiting and retention initiatives designed to enable
students to enroll and progress at even higher levels at the University of
South Alabama.
A.
Student Diversity
1.
Undergraduate Student Diversity
a.
The University of South Alabama currently has underrepresented population enrollment of 24.8% of its
undergraduate student body. Almost nineteen (18.7%)
percent of the undergraduate student body is AfricanAmerican. This number exceeds the national average of
13.1% undergraduate African-American students. Based
on these data, University of South Alabama graduate
responses to exit surveys and the general climate in
existence at the University, the University believes that its
current recruitment initiatives are successful and that the
African-American and other under-represented
populations enrollment will continue to grow as the
University’s recruitment and retention programs continue
their current success.
b.
The University will focus on increasing recruitment and
retention of qualified applicants across all undergraduate
populations with increased emphasis on programs
specifically designed to assist less academically prepared
students with the transition to successful collegiate
studies at the University.
25
2.
Graduate Student Diversity
a.
The University of South Alabama, like most other
universities in the United States, would like to increase its
recruitment and retention of African-American and other
under-represented populations in its graduate degree
programs. Currently, approximately seventeen (17.3%)
percent of graduate students enrolled at the University of
South Alabama are African-American or other underrepresented populations compared to a national average
of approximately twenty-two percent (22.7%). AfricanAmerican graduate students comprise approximately
fourteen (14.1%) percent of the graduate students at the
University of South Alabama. Nationally, AfricanAmericans represent approximately ten (10.7%) percent
of the graduate students.
b.
Recruitment is affected by the smaller pool of AfricanAmerican and other under-represented population
students who choose to go on to graduate studies and by
the preparation of the applicants for these studies.
Academic preparation affects both the student’s chances
of acceptance to graduate school and the student’s ability
to succeed if matriculated into graduate school.
c.
As part of the Knight settlement, the University put in
place certain programs designed specifically to help
minority students more successfully transition to the
rigors of graduate school, particularly medical school.
These programs are no longer legally viable alternatives.
26
d.
The University will develop and, to the extent practicable,
implement other, legally viable programs to assist underprepared students (which is not synonymous with
African-American and other under-represented
populations) to succeed in graduate programs.
3.
Continue to look for innovative and exciting programs to
legally grow both enrollment and retention of AfricanAmerican and other under-represented student populations.
4.
To the extent feasible, support and nurture the programs
currently in place to recruit and retain African-American and
other under-represented student populations.
5.
Review, analyze and, to the extent practicable, expand
mentoring programs available to students.
6.
Student Diversity Tables and Programs are contained in
Appendix “A”.
27
GOAL FOUR
Develop legally viable programs to assist with the recruitment and
retention of African-American and other under-represented staff, including
executive, administrative and managerial employees, at the University of
South Alabama and engage in consistent review and assessment of those
efforts.
A.
Staff Diversity
1.
The University of South Alabama recognizes the crucial link
that current and prospective staff diversity plays in continuing
to increase the diversity of its student body, faculty and staff.
The University’s staff is often the first and most frequent
encounter people have with the University community.
Clearly, having a diverse workforce will help lead persons of
African-American and other under-represented populations to
think of the University when seeking education and
employment.
2.
In some position classifications and geographical locations of
University campuses, the University of South Alabama has
been very successful at recruiting African-American and other
under-represented populations. This is particularly the case at
the hospitals which are geographically situated closer to the
under-represented populations of Mobile, particularly the
African-American population.
3.
The University of South Alabama, like all higher educational
institutions in America, has faced more challenges in recruiting
and retaining African-American and other under-represented
populations in the higher pay classifications, specifically
28
executive, managerial and administrative classifications. The
causes of this are rooted in multiple, complex factors, including
fierce competition within and between both the higher
education sector and the private enterprise sector for talented
professionals, executives and managers and the limited
financial resources of the University.
4.
All search committees for executive, administrative and
managerial positions will have African-American
representation.
5.
To the extent allowed by law, the University will emphasize to
the search committees for all executive, administrative and
managerial positions that diversity is an important selection
criterion.
6.
To increase African-American and other under-represented
populations representation across all staff positions, the
University will identify a multi-faceted approach designed to
increase retention and promotional opportunities in the lower
pay classification and increase recruitment and retention in the
higher-pay classifications. This recruitment/retention strategy
is attached as Exhibit D.
7.
Additionally, although some University of South Alabama
salaries may not be as lucrative as those offered by other
institutions, particularly in mid-level professional, executive
and managerial positions, the University does have a very
competitive benefits package which, when considered in
combination with salary, makes the total benefits package
attractive to persons employed at the University and living in
Mobile competitive with that offered by other institutions in
29
other areas. To highlight the advantages of the total
compensation package, including both salary and benefits, the
University’s Human Resources Department will continue its
outreach efforts to educate both current and prospective staff
members about the opportunities and compensation available
at the University.
8.
Support grassroots effort to create organizations focused on the
unique issues faced by African-American and other underrepresented populations staff members.
9.
To the extent practicable, provide additional classes and
resources to assist employees in learning about and becoming
qualified for additional employment opportunities at the
University of South Alabama.
10. Review current hiring practices to ensure that information
related to working for the University and living in the Mobile
area is easily and readily available to prospective employees.
11. Staff Workforce Analysis Information is contained in Appendix
B.
30
GOAL FIVE
Develop legally viable programs to assist with the recruitment and
retention of African-American and other under-represented faculty at the
University of South Alabama and engage in consistent review and
assessment of those efforts.
A.
Faculty Diversity
1.
A University’s faculty occupies a special and distinct role in the
life and energy of a University. Students look to faculty
members not only as educators but also as mentors and rolemodels. The community’s perception of a University is often,
in no small sense, formed by people’s perception of the
University’s faculty. For a University to enjoy the full benefits
of a vibrant and free exchange of ideas, multiple ideas must be
present. As ideas are shaped by background and experience,
without a diverse and broad proliferation of ideas and
backgrounds, the overall University experience cannot be
completely fulfilled.
2.
The University of South Alabama has enjoyed success in the
recruitment of African-American and other under-represented
populations consistent with that enjoyed by the University’s
peer institutions. Currently, more than fifteen (15.5%) percent
of the University’s full-time faculty is identified as AfricanAmerican or other under-represented populations. The national
average for full-time faculty is approximately sixteen (16.5%)
percent.
31
3.
Efforts to increase African-American and other underrepresented populations faculty at the University of South
Alabama is hampered by the reality of the market-place –
relatively few African-American and other under-represented
population students attain graduate degrees, and many of those
who do attain graduate degrees choose to work in the private
sector rather than at universities. Additionally, the competition
for these graduates is so fierce that talented young professors
are often recruited away to schools with more financial
resources than the University of South Alabama.
4.
In an effort to increase recruitment and retention of AfricanAmerican and other under-represented faculty, the University
of South Alabama has identified the recruitment/retention
strategy attached as Exhibit E.
5.
Support grassroots efforts to form a faculty and/or staff group
dedicated to the unique concerns of the African-American and
other under-represented populations faculty members.
6.
To the extent practicable, all search committees for faculty
positions will have African-American representation.
7.
To the extent allowed by law, the University will emphasize to
the search committees for all faculty positions that diversity is
an important selection criterion.
8.
Review current faculty hiring practices to ensure that faculty
candidates are provided relevant information on both the
University community and the Mobile area.
32
9.
Review current faculty hiring practices to ensure that new
faculty members receive ample opportunity for mentorship both
within their departments and, as necessary, from faculty
members outside their departments.
10. To the extent practicable, provide additional mentoring
opportunities designed to ease the transition for all faculty
members to academia, the University of South Alabama and
Mobile, Alabama.
11. Faculty Diversity and doctoral statistics are contained in
Appendix C.
33
GOAL SIX
Increase community outreach programs in an effort to facilitate recruitment
and retention of qualified African-American and other under-represented
students, faculty and staff at the University of South Alabama and to
enhance the perception in the University’s main service area of the
University as a place open and eager to educate and employ persons of all
races, creeds, religions and national origins.
A.
Community Outreach
1.
In an effort to ensure that the University of South Alabama
continues to be seen as a great place for African-American and
other under-represented populations to become students and/or
employees, the University will stress to its students, faculty,
staff and alumni the importance of developing and maintaining
solid relationships with the African-American and other underrepresented population communities in the University’s
geographical area. The University will identify key persons to
be charged with general oversight of the University’s efforts in
this area. The identified persons will be asked to document the
University’s efforts in these areas and suggest and/or oversee
the development of new, legally sustainable efforts. To the
extent possible, the University will consider ways that funding
for community initiatives, both people and programs, might be
available.
2.
The University will review and determine the viability of a
“Community Leadership Committee” to be composed of
community leaders from across the University’s geographical
drawing area for the purpose of providing increased recognition
34
of the programs and opportunities available at the University for
African-Americans and other under-represented populations.
3.
The University will actively seek ways to utilize its resources to
provide professional development, training and advancement
opportunities for current and prospective University faculty and
staff.
35
GOAL SEVEN
Seek additional resources in an effort to provide more support to
economically disadvantaged students in their studies at the University of
South Alabama.
A.
University of South Alabama Fund-Raising
1.
In 2006, the University initiated its first-ever comprehensive
campaign, Campaign USA: Leadership. The goal of this
campaign is to raise 75 million dollars by March, 2009, to help
underwrite the needs of the University. These needs include
funding for undergraduate scholarships, graduate assistantships, endowed faculty positions, classroom and laboratory
equipment, medical equipment, and capital construction. The
University believes that successful fund-raising for these
purposes will expand opportunities for more students to study
in better educational environments while at this University.
2.
The University maintains a Development Office whose goals
include soliciting funds for the University to offer increased
scholarship opportunities thereby making the University of
South Alabama more accessible for more students and assisting
in enabling those students to thrive while here by offering more
financial and classroom support.
3.
The University of South Alabama Financial Aid Office will
continue to work to make the University affordable for all
admitted students.
36
4.
From 2000 through 2006, grants and sponsored research
activities at the University of South Alabama has grown by
almost forty (39%) percent. While all of these programs have
an effect on the availability of programs to students at the
University, some of these programs are targeted to specifically
provide opportunities for funding to students. The University
will continue to look for ways to offer increased sources of
direct funding to students.
5.
In 2002,the University and the USA Research and Technology
Corporation developed the USA Research and Technology Park
located adjacent to the main campus of the University of South
Alabama. One of the main features of this collaborative effort
between the University, USA Research and Technology
Corporation and the tenants who lease space in the USA
Research and Technology Park is to provide internship
opportunities and future job prospects for students at the
University of South Alabama. As the venture continues to grow
and develop, opportunities for University students will likewise
grow and develop.
37
MONITORING FOR EFFECTIVENESS
AND ACCOUNTABILITY
38
Monitoring of Strategic Diversity Plan for Effectiveness
and Accountability
The University of South Alabama recognizes the importance of a
systemic, thorough and routine review of its efforts towards increasing
African-American and other under-represented populations diversity at the
University of South Alabama. To this end, the Strategic Diversity Plan will
be subjected to the following measures of accountability and review (and
any others deemed appropriate):
1.
The President will designate an employee of the University with
the responsibility of overseeing the implementation and
continuing obligations of this Strategic Diversity Plan. That
individual will designate persons and/or departments with
specific responsibilities pursuant to the plan.
2.
As part of his/her annual performance review for at least the
next five years, all University personnel charged with specific
responsibilities pursuant to this plan shall be accountable for
his/her responsibilities under the plan, including, to the extent
applicable, a review of: (1) progress toward goals; (2) campus
environment; and (3) recruitment and retention efforts for
African-American and other under-represented populations.
Goals set will not be in the form of set-asides or quotas, may
vary depending upon job market, job openings, and student
applicant pool, and will serve as only a management tool for
assessing the effectiveness of ongoing diversity programs.
3.
The University will post on its website by February 1st of each
year, beginning in 2008, a report regarding the implementation
of the Strategic Diversity Plan that will include the following:
39
a.
b.
c.
d.
e.
f.
Racial composition data of student body (total,
undergraduate, and graduate) from 1991 to the
present;
Racial composition of the students awarded
bachelor, graduate and professional degrees;
Racial composition of full-time faculty from 1991 to
the present;
Racial composition of presidents, provosts, vice
presidents, deans, department chairs and other EEO1 level administrators from 1991 to the present;
Racial analysis of faculty and administrative
positions filled during the year, including the
number of African-Americans considered for these
vacancies; and
An assessment of progress by the institution in
enhancing diversity and/or moving toward its
diversity goals, with an emphasis on the
representation of African-American faculty, EEO-1
level administrators, and students.
4.
These annual reports will be distributed to the Board of Trustees
each year.
5.
The Strategic Diversity Plan and the annual reports will remain
readily available to the public in both the University Library and
on the University’s website.
40
EXHIBIT A
STRATEGIC DIVERSITY PLAN COMMITTEE
APRIL 2007
Dr. Pat Covey, Senior Vice President for Academic Affairs
Ms. Pam Henderson, Director Human Resources
Mr. Terry Albano, Investment Manager
Dr. Barbara Broome, Associate Dean, Nursing
Dr. Donald Devore, Associate Professor, History
Dr. Andre Green, Assistant Professor, Leadership and Teacher Education
Dr. Irene McIntosh, Associate Professor, Education, Professional Studies
Dr. David Stearns, Associate Vice President, Enrollment Services
Dr. Carl Cunningham, Manager, Multi-Cultural Student Affairs
Mr. Will Jackson, President, Student Government Association
Mr. Jonathan Correia, President, African-American Student Association
Mr. Cecil Gardner, Member, USA Board of Trustees
EXHIBIT B
AFRICAN-AMERICAN STUDENT, FACULTY AND STAFF
AT THE UNIVERSITY OF SOUTH ALABAMA
STUDENTS
USA
NATIONAL
17.4%
12.5%
FRESHMEN
USA
NATIONAL
18.0%
11.3%
FACULTY
USA
NATIONAL
4.23%
4.3%
STAFF - 110
USA
NATIONAL
8.2%
10.3%
STAFF - 130
USA
NATIONAL
19.0%
N/A
USA Numbers are from Fall 2006
National numbers are from Chronicle of Higher Education Almanac Issue 2006-2007
EXHIBIT C
ADVISORY COMMITTEE ON DIVERSITY
MEMBERSHIP
8/28/2007
Dr. Pat Covey, Senior Vice President for Academic Affairs
Mr. Keith Ayers, Director of Public Relations
Dr. Barbara Broome, Associate Dean, College of Nursing
Dr. Isabel Brown, Associate Professor, Dept. of Foreign Languages and Literature
Dr. Diane Abercrombie, Assistant Professor, Dept. Of Physician Assistant Studies
Dr. David Johnson, Dean, College of Arts and Sciences
Dr. Jeanne Maes, Professor, Department of Management
Dr. Hattie Myles, Assistant Dean, College of Medicine
Mr. Shelton Perry, Environmental Services, USA Children’s and Women’s Hospital
Ms. April Dupree- Taylor, Instructor, Dept. of Communication
Dr. Harvey White, Director, Center for Healthy Communities
Dr. Robert Shearer, Assistant to the President
Ms. Jean Tucker, Senior University Attorney
Ms. Pamela Henderson, Director of Human Resources
EXHIBIT D
Recruitment Table for Staff
(Non-Academic Employees)
To assist with identifying well qualified applicant pools
Classification
110 Exec/Admin/Mgmt *
115 Spec Medical E/A/M **
130 Professional Staff **
Exempt/Non-Exempt
Job Title
Assistant VP
and above
Type of Recruitment
In addition to standard five day external posting,
targeted national outreach appropriate for the job
family is required.
Search plan to be developed at the start of the
search in consultation with Human Resources
(HR).
If a search firm is used – the contractor is to
comply with USA targeted outreach criteria.
Sources
USA HR Website
and Job Boards,
and advertising
with three or more
sources.
i.e. national
organizations,
publications, and
websites.
Waivers
Requirements for search procedures may be
waived by the Office of the President in the
following situations:
1. Current employee identified for a lateral
transfer.
2. Promotion for an internal employee within
the division with demonstrated competencies.
3. Upgrade of an internal employee within the
department – and NO new position is created.
4. Temporary appointment – search required if
incumbent becomes a candidate for the
permanent position.
Other 110’s
i.e. Director
In addition to standard five day external posting,
targeted local or regional or national outreach
appropriate for the job family is required.
Clearance by VP for Finance or designee.
Criteria – same as above.
Accountants
Admissions
Counselors
Asst Mgrs
etc.
Standard – five day external posting.
USA HR Website
and Job Boards,
and advertising
with at least three
sources i.e.
local/regional
newspapers,
organizations, and
websites.
USA HR Website
and Job Boards and
additional outreach
if needed.
With department and division heads approvals
submit internal posting request to HR for
consideration.
All Other Regular Staff **
Standard – five day external posting.
Same as above.
Same as above.
Temporary Staff **
Standard – five day external posting.
Same as above.
Same as above.
*
**
All search committees for 110 positions will have African-American representation
To the extent practicable, all search committees for all other staff positions will have African-American representation
EXHIBIT E
RECRUITMENT TABLE - ACADEMIC EMPLOYEES
CREATING EXCEPTIONAL AND DIVERSE APPLICANT POOLS
REFLECTING OUR STUDENT AND COMMUNITY POPULATIONS
Classification:
Job Title
Type of Recruitment
Sources
Retention Strategies
Academic *
Tenure
Intensive regional or
national search,
International search
Outreach to targeted
sources:
professional
organizations,
graduate institutions
and HBCUs,
newspapers,
professional journals,
networking at
professional meetings
Mentoring,
Research Opportunities,
Time toward tenure for
previous academic career,
Promotion acceleration
based on previous academic
career,
Rank at time of hire,
Workload consideration
Committee load
Academic *
Non Tenure
Intensive regional or
national search
Outreach to targeted
Mentoring,
sources:
Personal development time,
Local and national
Workload consideration
professional
Committee load
organizations,
Newspapers,
graduate institutions
and HBCUs
Academic *
Temporary
Regional
Outreach to targeted
Mentoring
sources:
Local professional
organizations
*
To the extent practicable, all search committees for faculty positions will have African-American representation
APPENDIX A
TOTAL AFRICAN-AMERICAN ENROLLMENT
YEAR
AFRICAN-AMERICAN
TOTAL UNDER-REPRESENTED
1998
12.6%
17.0%
1999
14.2%
19.0%
2000
14.7%
19.5%
2001
15.8%
20.1%
2002
16.9%
21.3%
2003
16.3%
21.1%
2004
16.8%
21.7%
2005
16.8%
21.2%
2006
17.4%
22.3%
2007
17.5%
23.1%
EFFORTS BY THE OFFICE OF MULTICULTURAL STUDENT AFFAIRS TO
SUPPORT THE SUCCESS OF AFRICAN-AMERICAN STUDENTS AT USA
Abeneefoo Kuo Honor Society – This African-American honor society consists of students who
have shown outstanding abilities in academics, leadership and service with a 3.0 GPA or better. For
the years 2002-2005, the group was inactive. The honor society was subsequently reinstated in
February of 2006. In the Spring of 2007, there were over 30 USA students inducted with a total of
150 guests present.
African-American Leadership Conference – Every January, African-American students from USA
attend the National African-American Leadership Conference at Rust College in Holly Springs,
Mississippi. This year’s theme was “Mission Oriented Leadership: If Not You: Who? The Baton
Must Be Passed.”
African-American Student Association (AASA) – The African-American Student Association is one
of the most well-known and influential student organizations on USA’s campus. The organization is
a strong support structure for not only African-American students but all students on campus. The
AASA provides in-depth learning experiences of Black History and opportunities for students to
excel in leadership positions and academics.
African-American Student Association Gospel Choir – The African-American Student Association
Gospel Choir is an ensemble of about 30 students from USA. This choir builds confidence and selfesteem in the students through their many performances and is an opportunity for the students to
network and talk about their classes or course work.
Alabama Louis Stokes Alliance for Minority Participation – A select group of scholars are chosen
for their excellence in academic coursework and their pursuit of graduate studies for a challenging
career in science, technology, engineering or mathematics.
Dr. Martin Luther King Scholarship – Five to six African-American students are awarded $500
scholarships once per year. The scholarship is based on GPA, community and campus involvement,
and a one page statement on why that student should be selected for the scholarship.
Men of Excellence (MOX) – The purpose of this organization is to ensure, encourage, and motivate
African-American men at USA and for members to establish and use leadership skills. This
organization, which was founded in March of 2006, focuses on class scheduling, career
opportunities, etiquette, and student involvement on campus.
National Pan-Hellenic Council (NPHC) – The NPHC is the governing body of the Historically Black
Greek Letter organizations at USA. Students are encouraged to get involved on campus and in the
Mobile community. Students are also taught how to put together step shows in the Mitchell Center
for the community.
Showcase of Excellence – The Showcase of Excellence is a family oriented program that
acknowledges students of color at USA for their academic achievements. This past year, there were
200 guests present for this event. There is always a dynamic speaker that presents words of
encouragement to the students. Parents are always impressed with this event because they see the
university taking time to recognize their child or children.
Involvement in Local Schools – The Manager of the Office of Multicultural Student Affairs speaks
and volunteers often at different schools in the Mobile County Public School System. This provides
opportunities to advertise USA in the community and in particular in the African-American
community. Whenever possible, USA students participate in these events. As a result, the students
become better academically, are more focused, and are proud to say they attend the University of
South Alabama.
USA Homecoming Activities – African-American students are encouraged to participate in all facets
of homecoming. For the past few years, there have been African-American Homecoming Kings and
Queens and students that have placed in the top five. The Office of Multicultural Affairs is used to
encourage and prepare students for such an undertaking.
USA Science and Education Camp - This program is focused on getting high school students excited
about science and education. The program is also used as a recruitment tool for USA. The
Manager of the Office of Multicultural Student Affairs travels to every high school and meets with
school counselors and principals about the program.
Women of Excellence –– The purpose of this organization is to ensure, encourage, and motivate
African-American women at USA and to establish and use leadership skills. The organization, which
was founded in March of 2006, focuses on class scheduling, career opportunities, etiquette, and
student involvement on campus. Dr. Denise McAdory is a co-advisor.
Michael A. Figures Leadership Experience – The goal of this program, founded by Senator Vivian
Figures and administered through the School of Continuing Education and Special Programs, is to
encourage young Alabamians who demonstrate the potential for leadership but may not have had the
opportunity to develop this potential. By choosing rising ninth graders as participants, program
coordinators endeavor to seize the moment of youth when young people begin developing the self
concepts, values, and sense of place that will set the future direction of their lives.
Upward Bound – This program, which is funded by the US Department of Education, is a precollege academic program designed to help students develop the skills that are required for academic
success in high school and college. The goals of the program are to improve academic skills,
promote personal growth and responsibility, provide experiences in diverse cultural and educational
activities, and assist students in making realistic career decisions and developing behavior patterns
and survival skills.
STUDENT RETENTION RELATED ACADEMIC INITIATIVES AT USA
Freshman Seminar - All new freshman students are required to take a Freshman Seminar course in
which they learn skills related to college academic success. This course is aimed at student
retention.
Writing Center - The Writing Center provides consultants to help students learn techniques and
strategies to improve their own writing skills. It is open to students across the university
community.
Developmental Studies - Development Studies offers a variety of programs for students who are not
academically well prepared. By using concentrated review activities, students become better
prepared for required courses, especially in Math and English.
Supplemental Instruction - Supplemental Instruction is an academic enrichment program that assists
students in historically difficult courses.
LAS 100 Course – This is a new course aimed at regularly admitted students with relatively low
English skills. These students often have trouble in English and suffer low retention. It is intended
to provide extra preparation for these students so they can be successful in their required college
English courses and their subsequent college career.
Math Tutoring Lab – The Math and Statistics Department offers free tutoring to students through the
Math/Statistics Lab. Tutors are available during scheduled hours throughout the semester except
term breaks and the week of finals.
Physics Tutoring – Free tutoring in physics is available each semester, including summer, through
the Physics Department.
Engineering Tutoring – Free tutoring is available through the Tau Beta Pi Honor Society.
Nursing Tutoring – Professional students in the College of Nursing have access to the College of
Nursing Learning Center. Faculty members are assigned to the Center to assist students with their
learning needs.
Computer and Information Sciences Tutoring – Free tutoring is available through the student chapter
of the Association for Computing Machinery.
Foreign Language Tutoring – The Foreign Languages Department typically offers free tutoring in
French, German, Russian and Spanish during the Fall and Spring Semesters.
Learning Skills Seminar – For the past several years, the History Department has offered a program
of Learning Skills Seminars open to students in any USA history class.
USA Honors Program – The USA Honors Program challenges exceptional students with scholarly
creative activities, exposes them to cultural enrichment, and requires them to engage in community
service. This program is effective in attracting and retaining highly qualified students.
Project Success – Project Success is a mentor program by Minority Student Activities focusing on
improving retention of minorities.
LSAMP – the Louis Stokes Alliance for Minority Participation is a new program at USA. This
program focuses on recruiting and retaining minority students in science and engineering majors. A
key component of the program is a Drop-In Center in which students study together and build
mutual support relationships.
Student Support Services – This is a program funded by the Department of Education to increase the
retention of eligible students: those students that are first generation college students, income
eligible, and in need of academic support. Among the services provided are tutoring, study skills,
training, and mentoring.
Undergraduate Research Program – Students from all disciplines participate in undergraduate
research during the summer term with this program. One benefit from undergraduate research is
increased motivation to finish the degree.
Computer Science, Engineering, and Mathematics Scholarship (CSEMS) Program – CSEMS is a
National Science Foundation program for computer science, engineering, and mathematics students
who receive scholarship funding and are expected to participate in an undergraduate research
experience. This program is aimed at increased retention of eligible students.
APPENDIX B
UNIVERSITY OF SOUTH ALABAMA
WORK FORCE ANALYSIS
“110" EMPLOYEES
(MANAGERIAL, ADMINISTRATIVE, EXECUTIVE)
RACE
# OF EMPLOYEES
% OF EMPLOYEES
White
Black
Other
254
23
3
90.7%
8.2%
1.1%
TOTAL:
280
100.0%
UNIVERSITY OF SOUTH ALABAMA
WORK FORCE ANALYSIS
“130" EMPLOYEES
(PROFESSIONALS)
RACE
# OF EMPLOYEES
% OF EMPLOYEES
White
Black
Other
1214
302
72
76.4%
19.0%
4.6%
TOTAL:
1588
100.0%
APPENDIX C
UNIVERSITY OF SOUTH ALABAMA FACULTY
1998-2006
Total Number Faculty - University of South Alabama
African-American Faculty - University of South Alabama
Percentage of African-American Faculty - Univ. of South Alabama
Percentage of African-American Faculty Nationally
(in all 4-year public institutions)
Fall
1998
Fall
2006
738
19
2.57%
755
32
4.23%
-----
4.30%
EARNED DOCTORATES IN THE UNITED STATES 2004 *
Total Doctorate Recipients
Number of African-American Doctorate Recipients
Primary Employment Plans of Doctoral Recipients in 2004:
Teaching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.4%
Research and Development . . . . . . . . . . . . . . 31.2%
*
**
Chronicle of Higher Education, August 25, 2006
Chronicle of Higher Education Almanac 2006-2007
48,378
2,900 (6.0%)
(39.2% of all African-American
Doctorate recipients in 2005
were in Education **)
UNIVERSITY OF SOUTH ALABAMA
BOARD OF TRUSTEES
Executive Committee Meeting
December 5, 2007
2:00 p.m.
The Executive Committee of the University of South Alabama Board of Trustees was duly convened
by Chairman Donald L. Langham on Wednesday, December 5, 2007, at 2:00 p.m. in the Frederick
P. Whiddon Administration Building.
Members Present:
Trustees Cecil Gardner, Donald Langham, Bettye Maye, Steven Stokes,
and James Yance.
Members Absent:
Trustees Samuel Jones and James Nix.
Other Trustees:
Trustees Scott Charlton, Steven Furr, Christie Miree, Arlene Mitchell,
Sheriff Mixon, John Peek.
Administration
and Others:
President Gordon Moulton; Drs. Dale Adams, Michael Boyd, Joe Busta,
Pat Covey, Ron Franks, Russ Lea, Bob Shearer, and David Stearns;
Messrs. Wayne Davis; and Mss. Jennifer Edwards (SGA), Vicki Tate
(Faculty Senate), and Jean Tucker.
Press:
Messrs. George Altman (Press-Register) and Jason Shepard (Vanguard).
Chairman Stokes convened the meeting and President Moulton welcomed Trustees and guests.
President Moulton said that the University has an opportunity to achieve substantial financial
benefits from entering into a transaction with Wachovia Bank, National Association (“Wachovia”),
and called upon Mr. Wayne Davis to introduce ITEM 1 entitled Option to Enter Financial
Transaction Respecting Certain Outstanding Bonds of the University. Mr. Davis said that the
University’s Series 2004 and 2006 bonds may be redeemed at the University’s election in 2014 and
2016, and that the redemption privilege is a right that is valuable and quantifiable in the derivatives
market. Ordinarily, the value of a bond’s redemption privilege is recognized over many years.
However, the Wachovia transaction will allow the University to recognize the value of the
redemption in the present, without having to wait. Mr. Davis explained that the value is recognized
by selling Wachovia two options to enter into one interest rate swap for each option. The interest
rate swaps, if the options are exercised, would be entered into on each of the Series 2004 and 2006
redemption dates. The value of the options change continuously, based on the financial markets,
but if the options are granted today, the University would receive $8.47 million. In the future, 90
days before the redemption dates of the two bond issues, Wachovia must decide whether or not to
exercise the options. If it decides to not exercise the options, the options expire unexercised and the
University is free to treat the bond issues as it would any other bond issue. But, if the options are
exercised, an interest rate swap would be entered into between the University and Wachovia on the
related redemption date. At this point the University is expected to issue bonds to redeem the
outstanding bonds and use the swaps as hedges, or possibly terminate the transactions. That choice
would be made based on input from the University’s financial, legal and bond advisors at that time.
Executive Committee
Page 2
December 5, 2007
Mr. Davis reminded the Committee that at the September 2007 meeting of the Board of Trustees,
the Board authorized President Moulton to proceed with negotiating this transaction. Also at that
Board meeting, the Board approved the University of South Alabama Derivatives Policy
(“Derivatives Policy”). The Derivatives Policy requires the University to undertake extensive
financial and legal analyses of the transaction. Mr. Davis told the Committee that Mr. John Harrell,
of Bradley, Arant, Rose & White, LLP has acted as the University’s legal advisor and that Messrs.
Jim White and Johan Grahs of the firm of Porter, White & Company have acted as the University’s
financial advisors. Drawing the Committee’s attention to Exhibit I, Synthetic Advance Refunding
Analysis, Series 2004 and 2006 Bonds, Mr. Davis said that the appropriate analyses have been
concluded. He further said that the University has exercised due diligence and had considerable
discussion among members of management, and that the administration is in favor of entering into
the options and recommends approval of ITEM 1 as follows:
RESOLUTION
OPTION TO ENTER FINANCIAL TRANSACTION RESPECTING CERTAIN OUTSTANDING BONDS OF THE
UNIVERSITY
WHEREAS, the University of South Alabama has heretofore issued its
$100,000,000
UNIVERSITY OF SOUTH ALABAMA
University Tuition Revenue Refunding and Capital Improvement Bonds
Series 2006
Dated December 1, 2006
and its
$51,080,000
UNIVERSITY OF SOUTH ALABAMA
University Tuition Revenue Refunding and Capital Improvement Bonds
Series 2004
Dated March 15, 2004
together, the “Outstanding Bonds,” and
WHEREAS, Those of the Series 2006 Bonds having a stated maturity on December 1, 2017, and thereafter
will be subject to redemption prior to their respective maturities, at the option of the University, as a whole or in
part, on December 1, 2016, and on any date thereafter (and if in part, in such maturities as the University shall
select, and if less than all of a single maturity is to be redeemed those to be redeemed to be selected by the
Trustee by lot) at and for a redemption price with respect to each Series 2006 Bond (or principal portion thereof
redeemed) equal to the par or face amount of each Series 2006 Bond redeemed plus accrued interest to the
date fixed for redemption, and
WHEREAS, Those of the Series 2004 Bonds having a stated maturity on March 15, 2015, and thereafter
will be subject to redemption prior to their respective maturities, at the option of the University, as a whole or in
part, on March 15, 2014, and on any date thereafter (and if in part, in such maturities as the University shall
select, and if less than all of a single maturity is to be redeemed those to be redeemed to be selected by the
Trustee by lot) at and for a redemption price with respect to each Series 2004 Bond (or principal portion thereof
redeemed) equal to the face or par amount thereof plus accrued interest to the date fixed for redemption, and
University of South Alabama
SyntheticAdvance Refunding Analysis
Series2004 and 2006 Bonds
TABLE OF CONJENTS
Descrintion
SyntheticAdvanceRefundingAnalysis
Series2004and2006Bonds
Wachovia Presentation-September 12, 2007
Draft TradeConfirmation
G:'721-3.docsReoortTOC:.doc
Table of Contents
1
2.
3.
Summary
1..1. Timeline of Events
1.2. Summaryof Analysis
RefundingAnalysis
2.1. Series2004Bonds
2.1.1
Summaryof Proposal
2.1.2
Analysis
a. SwaptionBasedon SIFMAIndex
b.SwaptionBasedon I-Month UBOR
2.1.3
Summary
2.2. Series2006 Bonds
2.2.1
Summaryof Proposal
2.2.2
Analysis
a. SwaptionBasedon SIFMAIndex
b.SwaptionBasedon I-Month UBOR
2.2.3
Summary
2.3. IssuanceCostsand Ongoing Liquidity Fees
FinancialAnalysis as Requiredby SwapPolicy
3.1. Hedge Considerations
3..1.1 HedgeEffectiveness
3.1.2
HedgeEffectivenessSummary
3.2. Risks
3.2.1
InterestRateRisk
3.2.2
Market AccessRisk
3.2.3
Basis Risk
3.2.4
Mark-to-MarketRisk
3.2.5
CounterpartyRisk
3.2.6
TerminationRisk
3.2.7
Tax Risk
3.2.8
Rollover Risk
3.2.9
Insurance,Liquidity, Remarketing,and Expensesof IssuancesRisk
3.2.10 Credit Risk
3.2.11 ContractLiquidity
3.3. StressedValues
3.3.1
StressedValues for SwaptionsFollowing Transaction
3.3.2
StressedValues for Swapsas SwaptionsExpire
3.4. Other Financial Benefits
3.5. Fully Liquidating the Call Options
3.6. TransactionCosts
G:\72p3\4ocs\synth adv ref anaIysis.doc111/6/2007
Porter, White & Company
Page1
1. Summary
WachoviaBank ("Wachovia") is offering a syntheticadvancerefunding of
outstandingSeries2004and 2006 bonds,issuedby the University of SouthAlabama (the
"University"). The refunding is proposedto be effected throughthe saleof two swaptionsby the
University to Wachovia(the "Transaction"). The proposedswaptionsexpire March 15,2014 for
the 2004bondsand on December1,2016 for the 2006 bonds. Wachoviawould pay the
University for the right to call into effect (i.e. enterinto) the swapsunderlying the swaptionsat
the future dateswith 90 daysnotice.
The proposedTransactionis expectedto createapproximately$8 millionI in
upfrOntproceeds,which is $7 million in exceS:s
of a traditional advancerefunding, assumingthat
sucha refunding werepemIitted underapplicabletax laws. Wachovia's fee for executingthe
transactionreducesthe proceedsto $7.1 million net cash. In executingthe transaction,the
University would be partially selling its call option on the old bondsand acceptingbasisrisk if
the swaptionsare structuredas LmOR basedswaptions.
I
Sincethe University electsto realize debtservicesavingsfrom the refunding
upfront, therecould be a future liability associatedwith the refunding. After accountingfor the
expectedvalueof this liability and taking into accountthe fact that there areno restrictionson
reinvestmentsof proceeds,the Transactionis expectedto createan economicbenefit in the range
of $2.8 million to $4.7 million dependingon whetherthe transactionis LffiOR or SIFMA based.
Seesection3.4 for details.
The Transactionappearsreasonableandbeneficial to the University as compared
to a tJ"aditional
advancerefunding, but thereare severalrisks that are associatedwith this
TranSactionand they are discussedin section3.2. Threeprominentrisks are basis risk, mark-tomarket risk and, market accessrisk and are discussedin section3.2.3, 3.2.4, and 3.2.2.
The University could potentially improve the upfront proceedsby an additional
$1,126,000by fully liquidating the call optionsembeddedin the outstandingfixed rate bonds.
This would require a slight restructuringof the proposaland this is discussedin section3.5.
Wachovia indicatesthat it will chargea spreadof 11.02basispoints if the
swaptionsare LIBOR basedand 12.33basispoints if the swaptionsare SIFMA basedfor
executingthe proposedTransaction. The dollar value of the spreadis equivalentto $891,000
and $992,250,respectively. This spreadappearsreasonableto us basedon current market
conditions.
1 As of September12, 2007, subjectto market change.
2 1.5 bps for hedging,5.5 bps for credit, and 4.0 for profit.
32.75 bps for hedging, 5.5bps for credit, and 4.0 for profit.
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1.1 Timeline of Events
In exchangefor the upfront paymentreceivedby the University, Wachovia
acquiresthe right to call the underlying swapsinto effect at future dates. If Wachovia exercises
its right to call the underlying swapsinto effect,Wachoviawould pay an additional amountof
money, expectedto cover issuancecostsof variable rate bonds,at thosefuture datesand the
University would be required to call the outstandingfixed rate bonds,issuevariable rate bonds,
and begin to makepaymentson the swap(s). The two swaptionsare separateobligationsand the
exerCiseof onedoesnot necessarilyrequireexerciseof the other. Figure 1 and Figure 2 shows
the timeline of eventsfor the series2004and 2006 swaptions.
Figure 1: Series2004 Swaption Timeline
Trade Date
September12,2007
Ex«cise Date
December 16, 2013
I
Effective Date
March IS, 2014
I
I
Clmentseries2004fixed ratebonds
I
k
/\.
y
Bond Maturity
March IS 2024
~
Variable RateDebt (VRDNs)
--y- pllLf fixed-foT-floating swap
~ --OR
-'-..
Currentseries2004fixedratebondsremainoutstanding
/
Paymcotreceivedby the UDivcrsity
Figure 2: Series 2006 Swaption Timeline
Trade Date
September]2,2007
Exercise Date
September1,20]6
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,,\
-I
,,'.,
-y
Effective Dale
Decomber 1,20]6
Bond Maturity
December I, 2036
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/'"
-y
k
Cunent
series
2006
fixed
rate
bonds
~
Varlab1e
Dcbt(VRDNs)pb..
fixed-fur-floating
!
swap
--OR
,
Paymmt received by !be University
Rate
/
Currmt series2006 fixed ratebonds remain outstanding
If Wachovia exerciseswaption on SeptemberI, 2016:
-Fixed for floating swap becomeseffective December 1,2016
-University ca1lsoutstandingseries2006 bonds and issuesVRDNs
-The University receives52,212,814on December 1,2016
OR
IfWachovia doesnot ex«cise swaption:
-" is
2006 fixed rate bonds remain0
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1.2. Summaryof Analysis
The analysisof the proposedTransactionis donein two steps. First, a breakdown
of the proposalfor eachseriesis madeto identify the structureand sourceof upfront payments
from the proposedTransaction,as shownin Figure 3, and thenan analysisof the Transactionis
done as requiredby the University's SwapPolicy.
Figure 3: Sourcesfor Premium
Premium Offered
Sourcesfor Premium
SIFMA
Swaption
Time Value
$3,590.,000
LffiOR
Swaption
Co~sation for
SIFMA/LIBOR
BasisRisk
$2,813,000
The analysisis performedusing market dataasof closeof businesson September
12, 2007,4and the valuescalculatedin the analysisare at mid-market. The difference between
the premiumreceivedat the time of transactionand mid-marketvalueswill equalWachovia's
gross compensationfor executingthe Transaction. The valuespresentedin this analysisshould
not be comparedto thosepresentedby Wachovia on September12,2007 to calculatea spread
from mid-market,as it maybe misleadingdue to marketmovements.
The proposedTransactionrepresentscombinedinterestsavingsof approximately
$1,596,000plus a partial exerciseor 1ransfer,at an estimatedvalue of $3,590,000,of the call
option embeddedin the outstandingfixed rate bOnds.The embeddedcall option is partially
exercisedsinceWachoviacan only exerciseits right at one future date,while the fixed rate
bondScan be called at severalfuture dates. The estimatedtotal value of the proposed
TranSactionis $5,186,000if the underlying swapsare basedon the SIFMA Index.
4Sourceof datais Bloomberg and Delphis Hanover.
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If the University acceptsthe potential for basisrisk associatedwith the future
relationshipbetweenthe SIFMA Indexand I-Month LIBOR and basesthe underlying swapson
a percentof I-month LffiOR instead,the estimatedmid-marketvalue or the Transactionis
$7,999,000.Table I summarizesthe sourcesof the estimatedvalues. Thesevalues are midmarketvaluesand do not include a spreadthat Wachoviais expectedto chargefor transacting
the proposal.
Table 1: Summary of Values (Computed on a PresentValue Basis)
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I
OutstandingBond Series
Value of interestsavingsavailable
Time value of embeddedcall options
Series2004
Series2006
Total
$ 477,000 $ 1,119,000 $ 1,596,000
872,000
3,844,000
4,716,000
1,349,000
4,963,000
6,312,000
477,000
687,000
1,119,000
2,903,000
1,596,000
3,590,000
1,164,000
4,022,000
5,186,000
547,000
2,266,000
2,813,000
1,711,000
6,288,000
7,999,000
Proposed Swaptions
Paymentfor interestsavings
Partialtransferof time value in call options
.SIFMA Based Swaption
Compensationfor potentialbasisrisk
LlBORBasedSwaptions
Under the assumptionthat Wachovia exercisesits rights underthe Transaction
and the University issuesvariableratebondsas a replacementof existingbonds,the payments
receivedunderthe underlying swapsare expectedto effectively hedgevariable rate paymentson
the bonds suchthat debtserviceremainsthe same. Thereare severalfinancial risks associated
with this transactionand they are discussedunder section3.2.
Wachoviaindicatesthat it will chargea total spreadof$891,000 if the swaptions
are LIBOR basedand $992,250if the swaptionsare SIFMA based,to executethe transaction.
The breakdownof thesespreadsis shownin Table 2 below.
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2. RefundingAnalysis
2.1. Series2004Bonds
2.1.1 SummaryofProposal
The Series2004bondswere issuedto refund outstandingbondsas well as for
capital improvements.The seriesis cunently outstandingin the amountof $47.525million, with
an averagecouponof 4.96%, it is callable at par starting March 15, 2014and hasa final maturity
on March 15,2024. The amountoutstandingwhen the seriescanbe called at par in 2014is
$41.245million.
Wachovia'sproposalsinvolves purchasinga swaptionfrom the University that
would, at Wachovia's option, force the University into an underlying swap. IfWachovia
exercisesthe swaption,which can bedone March 15,2014,6the University would be requiredto
begin makingpaymentson the underlying swapcontract. It is also expectedthat ifWachovia
exercisesthe swaption,the University would call the outstanding2004bondsand issuevariable
rate bonds ("VRDNs") in its place. Underthe swapcontract,the University would pay a fixed
rate of 4.96% to Wachoviaand would receivepaymentsbasedon either 68% of I-Month LffiOR
or the SIFMA Indexplus 25 basispoints.
I
Wachoviahasoffered an upfront paymentfor the swaptionof $1,663,000if the
underlying swapis basedon 68% of I-Month LffiOR and $1,000,000if it is basedon the
SIFMA Index. In addition,Wachoviahasoffered to pay a fixed amountof$803,215, intendedto
cover issuancecostsof the VRDNs if the swaptionis exercised.
The variable rate receivedunderthe swapis intendedto offset the variable rate
paymentson the VRDN s as well as ongoing liquidity and renlarketingfees. As a result,the
interestis expectedto be "syntheticallyfixed" when all cashflows, both on the VRDNs andthe
swapcontract,aretaken into account.
2.1.2 Analysis7
The analysisand breakdownof the proposalis divided into severalstepsin order
to identify the financial componentsthat createthe value for the upfront payment. The analysis
includesa traditional advancerefunding,Sseparationof the value of the option from the
underlying swap,and separationof valuedue to additionalbasisrisk.
5Terms are based on draft Confirmation for Series2006 swaptionand weighted averagecoupon of Series2004
bonds.
6Notice must be given 90 days prior to exercise.
7 Market dataunderlying the analysisis as of close of businessSeptember12,2007.
8Although a traditional advancerefunding would be limited due to IRS regulations,an assumptionis made that the
entire issuecan be refunded in order to make a fair comparison.
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A traditional advancerefundingwould producepresentvalue savings of
approximately$642,500.9In a traditional advancerefunding, new fixed rate bondsare issued
andproceedsareplacedin an escrowto pay the old bonds until they can be called. For all
practical pwposes,this is equalto exercisingthe call option embeddedin the outstandingbonds
and purchasinga new call option embeddedin the refunding bonds,althoughof shortermaturity.
The value of the call option included in the 2004 bondsis estimatedat
$1,349,000.10This option canbe exercisedon any date,beginningMarch 15,2014 through
maturity of the bonds.
To removethe effect of any optionality includedin fixed rate bonds, the "pure"
interestratesavingsare calculatedby evaluatinga forward starting swap,I I effective March 15,
2014 through March 15,2024. This analysisassumesa forward starting swapcombined with the
issuanceofVRDNs in 2014and calculatesthe presentvalue of interestsavingsavailable during
thoseyears. The presentvalue of sucha swapis $783,000and if the presentvalue of issuance
costsadjustedfor the probability of occurrenceis takeninto account,the netvalue of sucha
contractis $477,000.
a. Swaption
Basedon SIFMAIndex
A syntheticadvancerefunding, as proposed,whereWachoviapurchasesa
swaption,wherethe underlying swapis basedon the SIFMA Index, would representpartial
exerciseof the option embeddedin the fixed rate bonds,since it can only be exercisedon March
15,2014and not on any subsequentdates. The mid-marketvalue of this swaption,as of
September12,is estimatedto be $1,164,000.
Under the assumptionthat the University will issueVRDNs, the variable rate
bondscanbe expectedto have resetratesreasonablyclose to the SIFMA Index sincethe SIFMA
Index is calculatedbasedon variableratebonds with characteristicstypical for thoseissuedin
the tax-exemptmarket. Therefore,the swappayments,wherethe University receivespayments
basedon the SIFMA Index, can reasonablybe expectedto offset paymentson the VRDNs with
very little variation. The risk of thesepaymentsbeing different is referred to as basisrisk.
If the assumptionis madethat the variablerate paymentsreceivedunder the swap
completelyoffsetsthe paymentson the VRDNs, the net interestpaymentsfor the University is
the fixed rate paid to Wachovia on the swap. Hence,the interestrate may beconsidered
syntheticallyfixed. Pleaseseediscussionof risk factorsas in Section3.2pertaining to basisrisk.
b. SwaptionBasedon i-MonthUBOR
A syntheticadvancerefunding,whereWachoviapurchasesa swaption,wherethe
underlying swapis basedon a percentageof I-Month LffiOR, representsa partial exerciseof the
option embeddedin the fixed rate bondsas well as compensationfor the additionalbasis risk
I
9 Debt servicesavings are discountedat LIBOR.
lOUsingsynthetic replication and assumingfreely traded value. It includes exercisefee equalto issuancecosts.
II Swapbasedon SIFMA Index plus 25 bpsand 4.%% coupon.
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absorbedby the University. The mid-marketvalue of the LmOR basedswaption,as of
September12,is estimatedto be $1,711,000.
While 68% of I-Month LffiOR hashistorically provided enoughcashflow to
offset paymentsbasedon the SIFMA IndexI2thereis no guaranteethat this relationshipwill
continue in the future. In financeand otherareasof life, the pastis not necessarilyindicative of
the future. While related,the tax-exemptshort-termmarketis separatefrom the taxableshortterm marketandthe relationshipbetweenthe two is not confined to marginal tax rates. For
example,thereis no guaranteethat the tax-exemptstatusof municipal bondswill be in effect 20
yearsfrom now. While the expectedratio of I-Month LffiOR to the SIFMA Index, basedon
historical data,is estimatedat 68010,
the LffiOR basedswaptionincludes compensationfor the
additional risk of variability in this relationship.
The value of the basisrisk potentially absorbedby the University is the difference
in value betweenthe swapsunderlying the SIFMA swaptionand the LmOR swaptionand it is
equalto $1,039,000.The University only absorbsthis risk if the swaptionis exercisedand the
derived marketvalue of this additionalbasisrisk, given that the swaptionis exercised,is
therefore$547,000.
2.1.3 Summary
The table below summarizesthe embeddedvalue in the series2004 bondsaswell
as the breakdownof the value componentsof the proposedswaptions. To make a fair
comparison,all valuesinclude estimatedissuancecosts,weightedby the likelihood of its
occurrence.
I
Table 3: Summary of Value
Series2004Bonds
Value of interestsavingsavailable 2014-2024
Time value of embeddedcall option
$
477,000
872,000
1,349,000
ProposedSwaptions
Paymentfor interestsavings2014-2024
Partial transferof time value in call option
SIFMABasedSwaption
Compensationfor potential basisrisk
LIBOR BasedSwaption
477,000
687,000
1,164,000
547,000
1,711,000
12Basedon information included in Wachovia presentationSeptember12,2007.
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The University will not be required to call the fixed rate bonds. It could issue
variable rate new moneybondswhoseinterestrate risk would be effectively hedged. Or it would
repurchasethe swaptionfrom Wachoviaand do a conventionalrefunding. Should it choosenot
to call the outstandingbonds,the University would retain the exercisepremiumof $803, 215.
Series2006 Bonds
2.2.1 SummaryofProposal
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The Series2006 bondswereissuedto refund outstandingbondsas well as for
capital improvements.The seriesis currentlyoutstandingin the amountof $100 million, coupon
of 5%, is callable at par starting December1, 2016 and hasa final maturity on December1,
2036.
Wachovia'sproposalinvolves purchasinga swaptionfrom the University that
would, at Wachovia's option,force the University into an underlying swap. If Wachovia
exercisesits rights underthe swaption,which canbe doneDecember1,2016,13the University is
expectedto begin to make paymentson the underlying swapcontract. It is also expectedthat in
conjunctionwith Wachoviaexercisingthe swaption,the University would call outstanding2006
bondsand issueVRDNs in their place. Underthe swapcontract,the University would pay a
fixed rate of 5% to Wachoviaand would receive paymentsbasedon either 68% of I-Month
LIBOR or the SIFMA Index plus 25 basispoints.
Wachoviahasoffered an upfront paymentfor the swaptionof $6,240,000if the
underlying swapis basedon 68% of I-Month LffiOR and $3,325,000if it is basedon the
SIFMA Index. In addition, Wachoviahasoffered to pay a fixed amountof$2,212,814, intended
to coverissuancecostsof the VRDNs if and when the swaptionis exercised.
The variable ratereceivedunder the swapis intendedto offset the variable rate
paymentson the VRDNs as well as ongoing liquidity and remarketingfees. As a result, the
interestis expectedto be "syntheticallyfixed" whenall cashflows, both on the VRDNs and the
swapcontract,aretakeninto account.
2.2.2 Analysis14
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2.2.
The analysisfollows the sameprocedureas for the 2004bondsand a breakdown
of the proposalis madein order to identify the financial componentsthe University gives up in
return for the upfront payment. The analysisincludesa traditional advancerefunding,15
separationof the value of the option from the underlying swap,and separationof value due to
additionalbasisrisk.
13Notice must be given by September1,2016.
14Market data underlyingthe analysisis asof closing of businessSeptember12,2007.
ISEven if a traditional advancerefunding would be limited due to IRS regulations,assumingthat the entire issue can
be refunded is done in order to make a fair comparison.
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A traditional advancerefunding would producepresentvalue savings of
approximately$311,000.16In a traditional advancerefunding, new fixed rate bonds are issued
and proceedsareplacedin an escrowto pay the old bondsuntil they can be called. For all
practicalpwposes,this is equalto exercisingthe embeddedcall option embeddedin the
outstandingbondsandpurchasinga new call option in the refundingbonds.
The value of the call option included in the 2006 bondsis estimatedat
$4,963,000.17
This option can be exercisedon any date,beginning December1,2016 through
maturity of the bonds.
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To removethe effect of any optionality included in fixed ratebonds,the "pure"
interestrate savingsare calculatedby evaluatinga forward startingswap,18effective December
1,2016 through December1,2036. This analysiswould assumea forward starting swap
combinedwith an issuanceofVRDNs in 2016 and calculatesthe presentvalue of interest
savingsavailableduring thoseyears. The presentvalue of sucha swapis $1,779,000and if the
presentvalue of issuancecostsand likelihood of occurrenceis taken into account,the net value
of sucha contractis $1,119,000.
a. SwaptionBasedon SIFMAIndex
A syntheticadvancerefunding,as proposed,19
whereWachoviapurchasesa
swaption,wherethe underlying swapis basedon the SIFMA Index, would representpartial
exerciseof the option embeddedin the fixed rate bonds,since it can only be exercisedon
December1,2016 and not on any subsequentdates. The mid-market valueof the swaption,as of
September12,is estimatedto be $4,022,000.
Underthe assumptionthat the University will issueVRDNs, the variable rate
bonds canbe expectedto have resetratesreasonablyclose to the SIFMA Index since the SIFMA
Index is calculatedbasedon variablerate bonds with characteristicstypical for thoseissuedin
the tax-exemptmarket. Therefore,the swappayments,wherethe University receivespayments
basedon the SIFMA Index, can reasonablybe expectedto offset paymentson variable rate
bonds with very little variation. The risk of thesepaymentsbeing different is referredto asbasis
risk.
If the assumptionis madethat the variablemte paymentsreceived underthe swap
completelyoffsetsthe paymentson the VRDNs, the net interestpaymentsfor the University is
the fixed mte paid to Wachovia on the swap. Hence,the interestmte may be considered
syntheticallyfixed. Pleaseseediscussionof risk factorsas it relatesto basisrisk.
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16Debt service savingsare discountedat LffiOR.
17Including exercisefee equalto issuancecosts.
18Swap basedon SIFMA Index plus 25 bps and 5.0% coupon.
19Terms basedon draft confirmation supplied by Wachovia.
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b. SwaptionBasedon i-Month LIBOR
A syntheticadvancerefunding whereWachoviapurchasesa swaption,where the
underlying swapis basedona percentageof I-Month LffiOR representsa partial exerciseof the
option embeddedin the fixed rate bondsaswell as compensationfor the additional basisrisk
absorbedby the University. The mid-marketvalue of the LffiOR basedswaption, as of
September12,was estimatedto $6,288,000.
I
While 68% of I-Month LmOR has historically provided enoughcashflow to
offset paymentsbasedon the SIFMA Index2othere is no guaranteethatthis relationship will
continuein the future. The tax-exemptshort-termmarketis separate,althoughrelated, from the
taxable short-termmarketand the relationshipbetweenthe two is not Confinedto marginal tax
rates. For example,there is no guaranteethat the tax-exemptstatusof municipal bondswill be in
effect 20 yearsfrom now. While the expectedratio of I-Month LmOR to the SIFMA Index,
basedon historical data,is estimatedat 68%, the LmOR basedswaptionincludes compensation
for the additionalrisk of variability in this relationship.
The value of the basisrisk potentially absorbedby the University is the difference
in value betweenthe swapsunderlyingthe SIFMA swaptionandthe LmOR swaptionand it is
equalto $4,366,000.The University only absorbsthis risk if the swaptionis exercisedand the
derived marketvalue of this additionalbasisrisk, given that the swaptionis exercised,is
therefore$2,266,000.
2.2.3 Summary
The table below summarizesthe embeddedvalue in the series2006 bondsaswell
the breakdownof the value componentsof the proposedswaptions. To make a fair comparison,
all valuesinclude estimatedissuancecosts,weighted by the likelihood of its occurrence.
I
Table 4: Summary of Value
Series2006Bonds
Value of interest savings available 2016-2036
Time value of embedded call option
ProposedSwaptions
Paymentfor interestsavings2016-2036
Partial transferof time value in call option
SIFMA BasedSwaption
I
Compensationfor potential basis risk
LlBORBasedSwaption
$ 1,119,000
3,844,000
4,963,000
1,119,000
2,903,000
4,022,000
2,266,000
6,288,000
"~O
Basedon information included in WachoviapresentationSeptember12,2007.
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The University will not be required to call the fixed ratebonds. It could issue
variable rate new moneybondswhose interestrate risk would be effectivelyhedged. Or it would
repurchasethe swaptionfrom Wachoviaand do a conventionalrefunding. Should it choosenot
to call the outstandingbonds,the University would retainthe exercisepremiumof$2,212,814.
2.3. IssuanceCostsand OngoingLiguidi!y Fees
The paymentsoffered by Wachovia in conjunctionwith exerciseof the swaptions,
$803,215for the series2004bondsand $2,212,814for the series2006bonds,appearsreasonable
as presented.The feesarebasedon the following assumptions:
1. Cost of Issuanceof$150,000 and $350,000respectively,
2. Underwriter's discount of $4.75 per $1,000facevalue, and
3. Bond Insuranceof 80 basis pointstimes total debtservice!!
Wachoviaalso assumesa spreadof25 basispoints underthe swapcontracts
intendedto coverongoing liquidity and remarketingexpensesnormally incun-edwhen VRDNs
are outstanding. A spreadof 25 basispoints appearsreasonableunderthe assumptionthat the
bondsare insured.
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21Based on existing debt service.
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3. Financial Analysis as Required by Swap Policy
3.1 Hed2eConsiderations
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As requiredby the University's swappolicy, a proposedderivatives transaction
should to be analyzedas to whether it constitutesa hedge. Sincethe proposedTransaction
effectively constitutesa combinationof two elements,an option to enterinto a swapand the
actual swap,eachwill be addressedas to whetherit constitutesa hedge.
A hedgehasbeendefined as "Reducing your risks. Hedging involves deliberately
taking on a new risk that offsetsan existing one, suchas your exposureto an adversechangein
an exchangerate,interestrate, or commodityprice.,,22Therefore,before a financial instrument
can be classifiedas a hedge,the risk againstwhich it hedgesmustbe defined.
The University intendsto transacta syntheticadvancerefunding by selling two
swaptions,which arethe options on the underlying swaps. The economicconsequencesof
selling the proposedswaptionsare equivalentto partially liquidating the call optionsembedded
in the fIXedrate bonds. Extinguishinga call option is not in and of itself a hedge exceptthat the
transactionwill remove any uncertaintyas to whether or not the call option's value is ever
realized. In this sense,the proposedTransactionis a hedgeagainsta reductionin the value of the
embeddedcall options, as a result of passageof time, sincea significant portion of the options'
value is time value.
If the swaptionsexpire "out-of-the money," therewould be no further liability for
the University in 2014and 2016 respectively,exceptfor the fixed rate bonds,and the University
will have fully capitalizedon the time value includedin the embeddedcall options. However,
sincethere are inherentinterestsavingsavailable,the probability of exerciseof the swaptionsis
thereforegreaterthannot.
I
.
The remainderof this analysisthereforeassumes,whererelevant, that the
swaptionsare exercisedby Wachoviaand the underlying swapsbecomeeffective, series2004
and 2006 bondsare called on March 15,2014 and December1,2016 respectively,thatVRDNs
are iSsued,and syntheticfixed mte debtis createdas a result. Whether or not the underlying
swapsmay be consideredeffective hedgesis thereforeaddressednext.
3.1.1 HedgeEffectiveness
The critical terms for the swapsunderlying the proposedTransactionand thoseof
an assumedVRDNs issueare, with the exceptionof the variablerate chosenor actuallypaid,
expectedto be the same.23The assumedVRDN issuesare for this analysisexpectedto be issued
as variable ratedemandnotes,with bond insuranceinsuring timely paymentsof principal and
22Bishop, Matthew, Essential &onomics, The&onomist in Association with Profile Books Ltd. (London, 2004).
23Based on draft confirmation from Wachovia for Series2006 bondsand assumingthat Series2004 bonds would
have a fixed rate of 4.96%.
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intereston the bonds,and theyare expectedto have a supportingliquidity facility. Further, the
assumedVRDN issuesare expectedto havebond balancesoutstandingin the sameamountsas
the series2004and 2006 and interestwould be paid monthly.
With regardsto the floating mte actuallypaid on the VRDNs and the floating mte
receivedunderthe swap(s),they can be expectedto deviatefrom eachothermore or less
dependingon whetherthe floating mte receivedunderthe swapcontmctis basedon the SIFMA
Index or 68%of I-Month LffiOR.
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If the floating rate receivedunder the swapcontractis basedon the SIFMA Index,
the ratepaid on the VRDNs is expectedto be offset by the floating paymentsreceivedunder the
swapcontractwith little variation. The SIFMA Index is essentiallyan averagerate on high
gradevariableratebonds thattradein the tax-exemptmarket:4 Even thoughthe SIFMA Index
and the assumedVRDNs may resetat different rates,sincethe SIFMA Index is an averageof
bonds with similar characteristicsas the assumedVRDNs, they are expectedto be substantially
the same.
If the floating rate receivedunderthe swapcontractis basedon 68% of I-Month
LffiOR, the rate paid on the VRDNs is expectedto be offset,basedon historical data, by the
floating ratereceivedunderthe swapcontract. However, i-Month LIBOR is a taxable interest
rate c?argedby bankson loansto.other banksand there may befactor~ that wil12aj!;ct~nterest
rates In tax-exemptmarket,but wIll not affect theLIBOR market,and VIceversa. While 68%
of I-Month LffiOR canbe expectedto be the sameas the SIFMA Index overtime, basedon
historical data,they are expectedto vary from this relationshipat a given point in time. Figure 4
showsthe historical relationshipbetweenthe SIFMA Index and 68% of I-Month LffiOR As
shownin the graph,the SIFMA Index and 68% of I-Month LffiOR have over time moved
together,however,on a weeklybasis, 68% of I-Month LffiOR is rarely equalto the SIFMA
Index.
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24For moredetails on how the SIFMA Index, seehtt12://www
.sifma.or2/caDital_markets/swagindex.shtrnl.
25For more information on LmOR, seeh
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Figure 4: SIFMA Index and 68% of I-Month LIBOR
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Source:Bloomberg
As of September12,2007,the averageratio betweenthe SIFMA Index and 1Month LffiOR sinceSeptember199226that would createoffsetting cashflows was 69%.
However,Wachoviaproposesto use Act/Act day count on I-Month LIBOR, which normally use
Act/360 day count, and as a resultthe historical ratio betweenthe SIFMA Index and I-Month
LffiOR would rise to 70%. Either day count conventioncan be usedin the swapwhen it is
executed,but the marketvalue of the swapis affectedby the methodchosen. Further, if future
hedging relationshipis basedon a historical relationshipthat is expectedto continue,a 2%
difference in the ratio used,with a 5% averageI-Month LffiO R, would result in an average10
basispoint basisdifference.
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3.1.2 HedgeEffectivenessSummary
If the University electsto basethe swapson the SIFMA Index, the floating rate
cashflows receivedunderthe swapsare,as a resultof similar critical terms,27expectedto
effectively hedgethe variable rate interestpaymentson the assumedVRDN issues. As a result,
debtservicepaymentscan reasonablybe expectedto staythe sameas thoseunder the fixed rate
bondsand the swapmaybe consideredan effective hedge.
26Based on market standardday countconventions.
27Notional amounton swapsand outstandingbalanceon bond issue, index usedto calculatefloating paymentson
swap,payment frequency,reset frequency,and day count convention.
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If the University electsto basethe swapson 68% of I-Month LffiOR, the floating
rate cashflows receivedunderthe swapscan reasonablybe expected,basedon historical data, to
effectively hedgethe floating rate interestpaymentson the assumedVRDN issues,assumingall
other critical termsare equal. However, due to factors that may affect the tax-exemptand/orthe
LffiOR market,the variationfrom this relationshipcan be expectedto be greater. As a result,
debt servicepaymentscanbe expectedto be the sameover time as thoseunder fixed ratebonds.
The swapmaybe consideredan effective hedgebut it doesadd basisrisk.
3.2.~
The risks commentedon hereare those that canbe reasonablycommentedon
under currentcircumstances.Tax and other regulatoryrules, suchas accountingrules, as well as
market conditionsmay changeand unforeseenrisks may becomeapparentas a result. This list
shouldthereforebe updatedwith possibleadditionsas part of the oversightresponsibility on the
swaptionpositions.
3.2.1 InterestRateRisk
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Interestrate risk, as a resultof rising short-terminterestrates,causinghigher
interestratepaymentsis effectively hedgedby the University by its fixed rate bonds. If the
swaptionsare exercised,the underlying swapsare expectedto effectively hedgethe potential
higher paymentson VRDNs as well.
Interestrate risk, as a result of changesin long-term interestrates, may causethe
value of fixed rate bondsor interestratederivativesto change. If the University executesthe
proposedTransactionand long-term inter~strates subsequentlyfall, the value of the swaptions
would change,with negativeconsequences
for the University. Unlessthe University is required
to postcollateralunderthe agreements,this is not expectedto have any cash flow consequences.
3.2.2 MarketAccessRisk
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The proposedTransactionassumesthat VRDNs will be issuedas a replacementof
existing series2004and 2006 fixed rate bonds. If the University is unable to issuevariablerate
bonds,after Wachoviaexercisesits right underthe swaps,the University would still be required
to begin to makeperiodic paymentson the swaps,eventhough thereareno relatedbonds,or the
University would have to liquidate the swaps,which may createa substantialcashoutlay. See
section3.3 for stressedvalues.
3.2.3 Basis Risk
If the University electsto basethe swaptionson 68% of I-Month LIBOR, the
University assumesthe potential for basisrisk. As discussedunder3.1.1 HedgeEffectiveness,
there is a risk that, assumingthe swaptionsare exercised,the floating paymentsreceivedunder
the swapsdo not fully offset the variable ratepaymentsdue on the assumedVRDNs. There is
also somebasisrisk associatedwith swapsbasedon the SIFMA Index sincethe SIFMA Index is
an averagerate on tax-exemptbonds,althoughthe differenceis expectedto be small.
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3.2.4 Mark-to-MarketRisk
Mark-to-marketrisk arethe consequences
as a resultin the mark-to-marketvalue
changesof swaptionsor swaps. If proposedGASB accountingrules are implemented,one such
consequence
could be thatreportedannualresultsfor the University maybe negatively impacted
as a resultof the changesin value in derivativepositions,evenif there areno current cashflow
implications.
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Fixed rate liabilities are generallymeasuredat historical values on the balance
sheetand derivative positionsare currently only disclosedin the notes for entities that report
underGASB. However, thereis currentlyan initiative from GASB to requirederivative
positionsto berecordedon the balancesheetand unlessthe positionqualifies for "hedge
accounting" its value changefrom oneperiod to the next will bepassedthrough the income
statement.As a result from this initiative, the changein time value in the proposedswaptions
from one accountingperiod to the next could be requiredto be passedthroughthe income
statement.
3.2.5 Counterparty
Risk
While the swaptionsremainunexercised,the University is not exposedto
Counterpartyrisk. However,if the swaptionsare exercisedand the underlyingswapsbecome
effective, the University would becomeexposedto counteIpartyrisk, as Wachovia may be
unableto fulfill its obligationsunderthe contracts. This risk is to a large extentmitigated since
Alabama law requirescounteIpartiesto postcollateral when a contractis in the University's
favor.
3.2.6 Termination
Risk
The University may be required to terminate the swaptions or swaps under certain
circmnstances, such as credit downgrades or other events specified in the contracts. In the event
that a position needs to be terminated, the University may owe a substantial amount of money to
terminate the contracts. See section 3.3 for stressedvalues.
TaxRisk
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3.2.7
The Unive~ity is subjectto the risk of changesin tax laws and regulationsas it
relatesto the expectedrelationshipbetween68% of I-Month LIBOR and the SIFMA Index,
which servesas a good proxy for interestpaymentson the assumedVRDNs. If for example,
marginal tax rates decrease,the expectedmtio of I-Month LIB OR that would be necessaryto
offset paymentsbasedon the SIFMA Index would increase. Anotherexamplewould be a repeal
of the tax-exemptionof municipal bonds by the FedemlGovernment.The SIFMA Indexunder
thesecircumstancescould reasonablybe expectedto have resetmtes at 100%of I-Month
LffiOR and a swapwhere paymentsarebasedon 68% of I-Month LIBOR would be insufficient
as a hedge.
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3.2.8 RolloverRisk
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The University doesnot have any rollover risk as it relatesto the Proposed
Transactionsincethe underlyingswapswould coverthe life of the assumedVRDNs.
3.2.9 Insurance,Liquidity, Remarketing,and ExpensesofIssuancesRisk
The University bas risks as it basmadeassumptionsaboutfuture costsof bond
insurance,liquidity facility, andremarketing. Current assumptionsare basedon fixed payouts
from Wachoviaif the swaptionsare exercised.Bond insuranceis assumedto be 80 basispoints
of total debtserviceand maybe reasonableunder currentcircumstances.However, if costsfor
bond insurancewere to increase,the fixed payout from Wachoviawould remainthe same.
The University also assumesthat 25 basispoints, in additionto the floating rate
receivedunderthe swap,is sufficient to coverongoing liquidity and remarketingcosts.
Similarly, an original placementfee of 47.5 basispoints currentlyseemsgenerousfor initially
underwriting the VRDNs, but that too couldchange.
3.2.10 CreditRisk
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The University is subjectto credit risk as assumedcostsof bond insurancewould
likely increaseif the University's credit mting were to deteriomte.
3.2.11 ContractLiquidity
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Swaptionsand swapsbasedon 68% of I-Month LIBOR are more liquid and price
transparentthanif they arebasedon the SIFMA Index. The LffiOR marketis substantially
larger and more active thanthe SIFMA market.
3.3. Stressed
Values
In orderto gaugepotential exposureand loss by the University as a result of the
Transaction,stressedvaluesare calculatedfor the LffiOR basedswaptions. Thesevalueswould
not necessarilybe cashlosses,unlessthe positionsneedto be terminated,sincethe University
intendsto hedgethe assumedVRDNs with the swaps.
The value of the proposedswaptionsare driven mainly by two factors;the level of
interestratesand implied volatility of thoseinterestrates. If the swaptionsare exercisedsuch
that the underlying swapsbecomeeffective,the main driver of the value is the level of interest
rates. The lower the level of rates,the greaterthe liability the swaptionsand underlying swaps
would be for the University.
Figure 5 showsthree different term structures;the one in effect on September12,
2007, a "Projected," which is expectedto be in effect December1, 2016 as implied by mtes on
September12,2007, and an "Extreme," which is a constructof historical mtes. The Extreme
term structureis consistentwith the lowestmid points in the LffiOR swapmarketrecordedby
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Bloomberg sinceMay 10, 1994. The lowestratesrecordedon eachpoint did not necessarily
occur simultaneouslywith the other low points and the Extremeterm structuremay be
consideredan extraordinaryevent.
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Figure 6 showsthe marketimplied volatility for the 20-year LIBOR swaprate, for
a given strike level and optionmaturity. For the series2006 swaption,the strike rate would be
5% and option maturity would be approximatelynine years (September12, 2007 until December
1,2016). The higher the level of implied volatility, the moretime value a swaptionhas. The
University would want to sell the swaptionwhen implied volatility is high and buy (or temIinate)
when implied volatility is low.
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3.3.1 StressedVa/uesfor SwaptionsF oJ/owingTransaction
The total mid-marketvalue for the proposedTransactionas of September12,
2007was $7,999,000for the swaptionsbasedon 68% of I-Month LmOR. Table 5 showstwo
potential value changesin the proposedswaptionfor changesin either volatility or volatility and
rates. If volatility were to increaseto its highestpointsrecordedby Bloomberg since January26,
200428immediatelyfollowing execution,the University would suffer a loss of $587,000,
assumingthe term structureof interestratesdoesnot change. In the eventthat volatility were to
reachits highestlevel and the term structureof interestratesfalls by 100basis points acrossall
maturities,the University would suffer a loss of $ 6,087,000,althoughsuchan eventwould be
consideredvery unlikely. This loss would be an opportunitycost, not a cashloss.
28Limited by availability of data.
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Table 5: StressedSwaption Values
Item
Settlement StressedValoe
Date
($)
Series2006 Swaption
9/12/2007
Series2004 Swaption
9/12/2007
Stress
Factor(s)
(6,691,000) Volatility
(1,895,000) Volatility
Subtotal
(8.586.000)
Series2006 Swaption
9/12/2007
Series2004 Swaption
9/12/2007
Subtotal
(11,113,000) Vol. andRates
(2,973,000) Vol. andRates
(14,086,000)
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3.3.2 StressedValuesfor Swapsas SwaptionsExpire
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As the swaptionsapproachesmaturity, their time value approacheszero and their
overall value approachesthat of the underlyingswaps,currentlyexpectedat $2,496,000and
$9,747,000for settlementon March 15,2014 and December1, 2016, respectively. In the event
that the term st11lcturefalls to the Extremelevel describedabove,the resultingvalues for the
swapsarepresentedin Table6. Again, thesevaluesrepresentopportunity cost, not cashcosts.
3.4. OtherFinancial Benefits
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Sincethe University intendsto executea syntheticadvancerefunding and realize
the debtservicesavingsupfront, therecould be a future liability associatedwith the refunding.
In addition, thereare no restrictionswith regardto reinvestmentrates on the proceedsreceived
by the University and the University usesa 7% expectedreturn on its investments.
Table 7 S11mmarizes
the expectedgain as a resultof reinvestingthe upfront
paymentsat 7% by selling the LffiOR basedswaptions. The expectedfuture liabiliiy29 resulting
from realizing debtservicesavingsupfront is the "Expected SwapValue, excl. Fee" column.
This liability takesthe form of higher debtservicethan what would otherwisebe necessary.
Note that the grossproceedsreceivedon September12, 2007 do not include a spreadfrom midmarketchargedby Wachovia for executingthe Transaction,which would directly affect the
29Bastd on marketdata as of September12,2007.
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expectedgain. Table 8 showsthe expectedgain for SIFMA basedswaptions. This also exclude
Wachovia' s fee for executingthe transactions.
Table 7: Expected Reinvestment Gain (LmOR Swaption)
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Gross
Proceeds Settlement
(9/12/2007)
Date
~
Series 2004 Swap
Series 2006 Swap
1,711,000
6,288,000
Expected
SwapValue,
excl. Fee
3/15/2014
(2,496,000)
12/1/2016
(9,747,000)
2,657,599
11,733,150
PresentValue
of Expected
Gain @ 7%
964,814
4,198,964
621,161
2.250.298
$
2,871,459
Table 8: Expected Reinvestment Gain (SIFMA Swaption)
Gross
Proceeds Settlement
(9/12/2007)
Date
Series 2006 Swap
1,164,000
4,022,000
Expected
SwapValue,
excLFee
3/15/2014
(1,072,000)
12/1/2016
(2,822,000)
Total
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803,215
2,212,814
ExpectedGain
(Future Value)
Total
Series :4004 Swap
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ExerciseFee
Expected
Reinvestment
Value
ExerciseFee
Expected
Reinvestment
Value
803,215
2,212,814
1,807,975
7,504,887
ExpectedGain
(Future Value)
PresentValue
of Expected
Gain @7-1.
1,539,190
6,895,701
990,952
3,695,527
$
4,686,479
Fully Liauidatin!! the Call Qntions
The proposedTransactionis economicallyequivalentto partially liquidating the
call optionsembeddedin the fixed rate bondssinceWachoviacan only exerciseits right on
March 15,2014 and December1, 201630while the fixed rate bondsca1be called beginningon
thosesamedatesand on any subsequentdatesthrough maturity of the bonds. By restructuring
the proposedswaptionssuchthat they are exercisableby Wachoviaevery six months,starting on
March 15,2014 and December1,2016, respectively,throughmaturity of the bonds,the call
optionswould be fully liquidated. The estimatedadditionalproceedsfrom sucha restructuring
would be approximately$1,126,000.31
3.6. Transaction
Costs
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Wachoviahasindicated that their costsand profit for executingthe proposed
TranSactionwould be as presentedin Table 9 below. Thesespreadsappearto be reasonableand
the presentvalue of 1 basispoint is $18,800and $62,200for the series2004 and 2006
respectively. The total transactioncost,in dollars, is shownin Table 10.
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30Notice must be given 90 daysprior to exercise.
31AsSumingthe swaptionsarebasedon the SIFMA Index. Proceedswould be greater if swaptionswere LIBOR
baseddue to additional basisrisk.
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3.5.
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Table 10: Transaction Cost ($)
Spread($)
LffiOR
SIFMA
Swaption
Swaption
206,800
230,300
684,200
761,950
Swaption
Series2004
Sereis2006
$
891,000
$
992,250
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Wachovia's implied costsand profit appearreasonableto us. Consideringthe
size and structureof the transaction,the costsand profits aboveare within marketranges. The
inter"dealermarket for similar swaptionsoffers bid-askspreadsof approximately4 basispoints.
A costof hedgingof 1.5basispoints thereforeappearsfavomble.
The credit chargeof 5.5 basispoints appearsreasonableand within cuuent market
rangesbasedon anecdotalevidence. The credit would equateto a total cost of approximately
$342.100for Wachovia's exposureof approximately$5.6 million initially for a term of either
nine or possibly29 years.32
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Wachovia's profit of 4 basispoints is fair and reasonableconsideringthe size and
structureof the proposedtransactionsbasedon currentmarketconditions.
32Basedon the Series2006 LIBOR basedswaption.
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University of South Alabama
Derivatives Policy
September 24, 2007
Porter, White & Company
Table of Contents
1.
2.
3.
4.
5.
General
1.1. Scope and Purpose
1.2. Legal Authority
Analysis of Proposed Transactions
2.1. Financial Analysis
2.1.1
Does the Proposed Transaction Constitute an Effective Hedge?
a. Overall Considerations
b. Hedge Effectiveness
2.1.2
Risks
2.1.3
Other Financial Benefits
2.1.4
Transaction Costs
2.2. Legal, Tax, and Accounting Analysis
2.2.1
Legality of Agreement
2.2.2
Integration for Tax Purposes
2.2.3
Expected Accounting Treatment
2.3. Documentation
2.3.1
Required Provisions
a. Collateral
b. Termination Events
2.4. Selection of Eligible Counterparties
Procurement.
3.1.1
Negotiated or Bid
3.1.2
Fairness Opinion
Management and Monitoring
4.1. Oversight Responsibility
4.1.1
Payment Management
4.1.2
Monitoring of Mark-to-Market, Counterparties, Collateral, and Termination
Events
4.1.3
Risk Monitoring
4.2. Disclosure
4.3. Annual Report to Board
4.4. Termination of Transaction
4.4.1
Optional termination
4.4.2
Mandatory Termination
Appendix
5.1. Definition of Terms
5.2. GFOA Derivatives Checklist
5.3. Code of Alabama, section 41-1-40 to 41-1-44, inclusive
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1. General
1.1. Scope and Purpose
The purpose of this Policy is to guide the use of derivative financial instruments by the
University of South Alabama (the “University”) in terms of the University’s authority to enter
into such transactions and the process that should be followed when such transactions are
contemplated. The Code of Alabama, section 41-1-40 to 41-1-44, inclusive (attached in
Appendix), authorizes derivative transactions by governmental entities in Alabama for the
purpose of hedging financial risks associated with debt obligations or investments. This Policy
does not address transactions that do not qualify as Hedges or the issue of whether such
transactions may be separately authorized as investments.
Rating agencies and the Government Finance Officers Association (GFOA) recommend that
derivative instruments should be used only for Hedging activities and not for speculation.
GFOA’s publication Use of debt-Related Derivative Products and the Development of a
Derivatives Policy (2003 and 2005) (DEBT) states: “Governmental issuers must understand fully
the characteristics of derivative instruments, have the ability to determine a fair market price and
be aware of the legal, accounting, credit and disclosure issues involved. These instruments
should not be used for speculation, but only to manage risks associated with an issuer’s assets or
liabilities and only in conformance with financial policies that reflect the risk tolerances and
management capabilities of the issuer.”
Standard and Poor’s Public Finance Criteria: Debt Derivative Profiles, published September 29,
2004, states “Hedges are designed to offset risk. Derivatives entered into to generate revenues or
relieve rate pressures are viewed as essentially gambling on interest rates and are viewed
negatively in the overall analysis.”
The National Federation of Municipal Analysts recommends that issuers publicly disclose how
they use derivatives to manage risk and how each transaction hedges an investment or debt issue.
A Hedge has been defined as “Reducing your risks. Hedging involves deliberately taking on a
new risk that offsets an existing one, such as your exposure to an adverse change in an exchange
rate, interest rate, or commodity price.”1
The objective of this Policy is therefore to prescribe a process to properly evaluate derivative
transactions before they are executed in order to ensure that a transaction under consideration
constitutes a lawful, fairly priced and effective Hedge.
1
Bishop, Matthew, Essential Economics, The Economist in Association with Profile Books Ltd. (London, 2004).
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1.2. Legal Authority
The University is a governmental entity under the Code of Alabama and is authorized to enter
into derivative transactions for the purpose of hedging financial risks. The applicable statute
requires as a condition of entering into a derivative transaction that the University’s governing
body find and determine that the transaction will constitute a Hedge. In considering such a
finding and determination the University’s governing body should have available to it for
reliance the analysis hereinafter described. The authority of the University to enter into a
derivative transaction should be confirmed in each instance by a legal opinion which should
consider the analysis hereinafter described.
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2. Analysis of Proposed Transactions
Proposed derivative transactions should be analyzed by University staff or independent advisers.
The analysis should address, at a minimum, the issues described in this section. The interest of
the persons or firms performing the analysis should be aligned with those of the University. A
potential counterparty to a proposed transaction will not be considered independent, although the
potential counterparty may provide information and perspective useful in the analysis.
The overall purpose of the analysis should be to evaluate the relative risks, benefits, transaction
costs and legality of the proposed derivative transaction. A determination of tax and accounting
treatment will also be appropriate in most cases. Legal issues will likely involve mixed
questions of fact, law, and finance and will require a joint effort of the lawyer and staff or
independent advisers performing the financial analysis.
The scope of the analysis will depend upon the situation. Reference to authoritative guidelines
and checklists, such as the GFOA Derivatives Checklist (attached in Appendix), is appropriate.
The analysis should be completed prior to consideration of the proposed transaction by the
governing body.
2.1. Financial Analysis
The Financial Analysis should address:
a) Whether or not the proposed transaction constitutes an effective Hedge,
b) The risks attendant to the proposed transaction,
c) Verification of other benefits expected for the transaction,
d) Estimates of transaction costs, whether paid upfront or over time.
2.1.1
Does the Proposed Transaction Constitute an Effective Hedge?
a. Overall Considerations
A proposed derivatives transaction should be analyzed in the context of the entire balance sheet
of the University. Once the University has identified an item and specific risk(s) relating to that
item that it wishes to hedge, the extent to which existing assets or liabilities do not “naturally”
offset those risks should be determined. For example, the variability of interest rates on shortterm debt may be naturally hedged or partially offset by the existence of short-term fixed assets.
The “unhedged” portion of a proposed or existing asset or liability can then be compared to the
proposed transaction. Further, the University should not have derivatives in effect with Notional
Amounts exceeding existing and proposed debt.
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b. Hedge Effectiveness
To ensure that a proposed transaction will constitute an effective hedge, the analysis should
address the expected relationship between the item the University wishes to hedge and the
proposed transaction. This should be done by comparing the critical terms, such as those
normally found in a trade confirmation, of the proposed transaction to those of the item to be
hedged. In accounting rules and literature this is sometimes referred to as the “short-cut method”
or “consistent critical terms method.” If the terms of the proposed transaction and the item the
University wishes to hedge are different, the characteristics of the target asset or liability should
be explored and data relating to the historical performance of the target asset or liability should
be reviewed and analyzed. The proposed Hedge should be "back tested" by determining whether
and to what extent the proposed Hedge would have reduced the risk of the targeted asset or
liability if it had been in effect during historical periods. Relevant statistical methods, such as
regression and correlation analysis, may also be employed. Acknowledging that "past
performance is not necessarily indicative of future performance," consideration should be given
to factors that might cause future performance to deviate from past performance.
2.1.2
Risks
The risks arising from using derivatives are not entirely attributable to the derivative agreement,
but may also arise from obligations, such as variable rate debt, that are used in conjunction with
a derivative agreement. The analysis should comment on the following risks:
Interest Rate Risk
Interest rate risk is the risk of changes in current, or
expectations about future, interest rates such that it negatively
impacts an entity’s financial position. It may or may not have
current cash flow implications.
Mark-to-Market Risk
The potential adverse effect on the organization as a result of
changes in the mark-to-market valuation of positions, such as
non-cash charges due to accounting treatment.
Basis Risk
The risk of a deviation from the expected relationship between
two payment streams, whose changes are intended to offset
each other.
Counterparty Risk
The risk of failure, by Counterparty, to fulfill obligations under
an Agreement.
Termination Risk
The risk of a payment being due to terminate an Agreement at
market value, when that market value is negative.
Rollover Risk
The risk of higher interest rate cost, than expected, as a result of
shorter maturity on an Agreement than on associated liabilities.
Tax Risk
The risk of future tax law changes, which would affect the
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expected relationship between two payment streams. This is a
form of basis risk.
Liquidity /Remarketing Risk
The risk of an increase in the cost of or inability to renew a
liquidity facility and/or remarketing agreement for variable rate
notes or the risk of a failed auction in the case of auction rate
securities.
Credit Risk
The risk of an event that would negatively impact an entity’s
credit quality.
Market Access Risk
The risk of not being able to access capital markets as intended.
Contract Liquidity
As the University's circumstances change, it may want to
unwind the transaction or enter into an offsetting transaction
with another counterparty. It is important, therefore, that the
proposed transaction be liquid in the sense that it can be
terminated with the Counterparty or offset with another
counterparty on financial terms that can be readily determined.
2.1.3 Other Financial Benefits
Benefits of the proposed transaction that are represented or expected should be evaluated and
quantified. In this connection, all aspects of the proposed transaction should be considered.
Optionality foregone or acquired should be separately valued in light of alternative transactions
containing optionality. For example, if variable rate bonds are issued in conjunction with a fixed
for floating rate swap, creating synthetic fixed rate debt, instead of issuing fixed rate bonds, the
analysis should show how much of the advertised interest savings is attributable to omitting the
cost of the call option included in traditional fixed rate bonds.
2.1.4
Transaction Costs
The analysis should show the gross economic cost to the University expected to result from a
transaction. Gross economic cost refers to the difference between (i) the estimated market value
of a transaction and (ii) the value of the transaction as executed. This difference is sometimes
referred to as the “spread from mid-market,” and the analysis should reveal this amount in
relevant industry terms as well as in dollar amounts. In the case of a negotiated transaction (see
Procurement) the gross economic cost to the University is the gross income booked by a
Counterparty in a transaction.
If an Agreement, such as a swap, is entered into in conjunction with an insured bond issue, the
additional cost of insuring the payment obligation of the University under the Agreement should
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be evaluated. If the University agrees to collateralize its payment obligation in a transaction, an
estimate of the cost of collateralization should be made.
In addition, all legal and other expenses anticipated in connection with a transaction should be
estimated and included in the analysis.
2.2. Legal, Tax, and Accounting Analysis
2.2.1
Legality of Agreement
Prior to considering a derivative transaction, the University should receive a legal opinion that
the proposed transaction is a valid and legally binding contract. The legal opinion should
comment on the sources of funds available to make payments, potential termination payments,
and collateral postings, if applicable.
2.2.2
Integration for Tax Purposes
The University should request an opinion from bond counsel, or other qualified party, stating
whether or not the proposed transaction can be expected to be treated as a qualified hedge under
IRS regulations, and thereby taken into consideration for the purpose of calculating bond yield in
applying applicable arbitrage rules.
2.2.3
Expected Accounting Treatment
The University should request an opinion from its auditor, or other qualified party, on the
expected disclosure and accounting treatment for the proposed transaction and whether or not it
will qualify for Hedge Accounting. Consideration will be give to proposed accounting standards
as well as those currently in effect.
2.3. Documentation
Generally, documentation will be based on the industry standard documents developed by the
International Swap and Dealers Association (ISDA) that are used in derivative transactions. This
documentation is comprised of:
a) Master Agreement,
b) Schedule,
c) Credit Support Annex, and
d) Trade Confirmation.
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As a general rule, the terms of the Master Agreement as modified in the Schedule and Credit
Support Annex should be reviewed by legal counsel, understood by the University, and agreed
upon with any potential Counterparty prior to negotiation or bidding of a derivative transaction.
The terms of the Trade Confirmation, leaving out only final price or rate, should be agreed upon
prior to any execution through negotiation or bidding. The specific financial terms of a proposed
transaction, such as day count conventions and other terms found in a trade confirmation, should
be analyzed. These terms should generally conform to those that are used for the asset or
liability hedged unless there are industry conventions otherwise used and the effect of such
differences can be analyzed. The financial analysis should comment on the terms of the Hedge
and those of the hedged asset or liability and, if they are different, provide justification for why
the terms differ.
The University may elect to use documentation that it considers to be more advantageous than
ISDA documents when considering derivative transactions and these alternative documents may
reference ISDA definitions. However, the principle of agreeing on terms, with the exception of
price, with potential Counterparties prior to any execution should be followed.
The sources of funds available to make payments resulting from a proposed transaction should
be identified and analyzed and confirmed by counsel as being lawfully available for the purpose.
2.3.1
Required Provisions
The Code of Alabama, section 41-1-40 to 41-1-44, inclusive (attached in Appendix), requires
Counterparties to post collateral at least quarterly in an amount equal to what would be payable
at that valuation date to the governmental entity if the Counterparty defaulted. The University is
allowed, but not required, to post collateral under the statute as well.
a. Collateral
Eligible collateral is defined as cash in United States dollars or obligations eligible for
investments in Alabama of municipal and county funds, and postings should be based on
monthly valuations or other periodic valuation as requested by either party.
Collateral should be held by an independent third party.
b. Termination Events
The University should have the right of optional termination of an Agreement at any time “at
market” with the termination value determined by Market Quotation and Second Method, or any
other method the University deems appropriate.
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2.4. Selection of Eligible Counterparties
An Eligible Counterparty will have unsecured long-term debt rated no lower than A+ or
equivalent by Standard and Poor’s, Moody’s Investor Service, or Fitch Ratings. Under the
statute, a Counterparty must have a net worth of at least $100,000,000 or its obligations must be
guaranteed by a person or an entity with a net worth of at least $100,000,000.
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3. Procurement.
3.1.1
Negotiated or Bid
It is the objective of the University to attempt to have at least three Eligible Counterparties
compete, through bidding, when considering derivative transactions, unless the University
determines that it is inefficient to arrange bidding. The University will attempt to simplify the
terms of a proposed transaction such that it is transparent in pricing and amenable to valuation,
attractive for Eligible Counterparties to bid, and does not favor one Eligible Counterparty over
another.
The University may elect to privately negotiate an Agreement with an Eligible Counterparty if it
deems that a proposed transaction contains too many unique provisions for bidding or if it wants
to reward an Eligible Counterparty for proposing innovative ideas. In such cases a written
justification for a negotiated as opposed to a bid transaction will be prepared explaining in detail
the justification for the negotiated transaction.
In a negotiated transaction it is important to determine that the Counterparty's compensation is
reasonable, as unreasonable compensation can lead to excess costs and potential violations of
arbitrage regulations relating to tax exempt bonds (and the potential taxability of the interest on
such bonds). Since the Counterparty's compensation in most derivative transactions is hidden
from view, if an Agreement is to be negotiated, the following steps should be followed:
a) The University and the Eligible Counterparty will agree on the level of compensation, in
dollar amounts, that the Eligible Counterparty will earn on the Agreement,
b) The level of compensation must be verifiable at the time of execution, and
c) The Eligible Counterparty will agree that the level of compensation agreed upon is the
amount that it will record on its books as a result of executing the Agreement.
3.1.2
Fairness Opinion
A competent independent analyst (referred to in the industry as “Swap Adviser”) should provide
the University with a fairness opinion simultaneously with execution of an Agreement describing
the terms and the fair value of the transaction. If an Agreement is negotiated, the fairness
opinion will verify that that terms agreed upon with the Counterparty were achieved at
execution. The fairness opinion should state the estimated gross cost, in dollar amounts, to the
University of executing the Agreement.
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4. Management and Monitoring
4.1. Oversight Responsibility
The University will designate a party responsible (“Swap Manager”) for oversight of any
executed Agreements. The Swap Manager may rely upon a qualified independent analyst. Such
oversight includes, but is not limited to:
4.1.1 Payment Management
The Swap Manager will ensure that procedures are in place to verify and manage scheduled
payments as required under any Agreement.
4.1.2 Monitoring of Mark-to-Market, Counterparties, Collateral, and Termination Events
The Swap Manager will ensure that procedures are in place for periodic Mark-to-Market
valuation and monitoring of terms as agreed upon in Documentation, including such terms as
collateral postings and possible termination events.
4.1.3
Risk Monitoring
The Swap Manager will on a periodic basis review the performance of any derivatives with
regards to risks commented on in the financial analysis.
4.2. Disclosure
The University will fully disclose to interested parties, such as credit rating agencies, insurance
providers, and bond investors a description of each transaction entered into, the hedged item, the
potential risks associated with each hedge, and Counterparty for each transaction. The
University will report derivative positions in its financial statements in compliance with
standards of the Government Accounting Standards Board or other applicable authority.
4.3. Annual Report to Board
The Swap Manager will report annually to the governing body the hedge’s performance,
potential termination exposure, and any material events related to any Agreements, such as credit
downgrades or payment defaults. Such a report will contain:
a) A description of each individual Agreement, the hedged asset or liability, effectiveness of
hedge, liquidity/remarketing risk, market access risk, rollover risk, and current estimated
market value,
b) Mark-to-market valuation of Agreements by Counterparty,
c) Collateral held or posted by Counterparty,
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Page 11
d) Credit ratings of each Counterparty, or its guarantor,
e) Any other material events related to any transaction, Counterparty, or risk, such as tax or
mark-to-market risk, and
f) Suggested actions to be taken with regards to the above mentioned or other relevant
items.
4.4. Termination of Transaction
In the event that it is desirable to terminate a transaction, the University will consider feasible
alternatives to termination “at market” with its current Counterparty. Such alternatives may be
to arrange bidding among Eligible Counterparties to take over the University’s obligations to
ensure that the cost of terminating a transaction is fair.
4.4.1
Optional termination
The University may terminate a transaction if it determines, through appropriate financial
analysis, that it is advantageous to do so. The financial analysis shall review the original
intentions for the transaction and justify why it is more advantageous to terminate the transaction
than to leave it in place. This financial analysis is to be done by persons or entities, such as
internal staff or outside Swap Adviser, whose interest are aligned with those of the University,
and that are qualified to perform such analysis. The Counterparty in a proposed transaction
should not perform this analysis.
4.4.2
Mandatory Termination
In the event that a transaction is terminated as a result of a termination event, such as a default or
a decrease in credit rating of either the University or a Counterparty, the University will through
appropriate financial analysis determine whether or not it is appropriate and cost efficient to
enter into a replacement transaction.
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5. Appendix
5.1. Definition of Terms
Hedge A transaction that, possibly by absorbing a new risk, reduces the risk of another
transaction.
Agreement A derivatives contract such as, but not limited to, futures contract, swap, swaption,
or cap.
Counterparty A party in a derivative transaction.
Notional Amount The amount underlying an Agreement that is used to calculate payments.
Hedge Accounting Accounting rules allowing for related assets and liabilities or income and
expenses to be offset against each other in presentation of financial results.
Eligible Counterparty A financial institution making a market in derivatives.
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5.2. GFOA Derivatives Checklist
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5.3. Code of Alabama, section 41-1-40 to 41-1-44, inclusive
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DERIVATIVES CHECKLIST
Introduction
This checklist is a supplement to the Recommended Practice on Use of Debt-Related
Derivatives Products and the Development of a Derivatives Policy (2005) and is designed to be
an attachment to a government issuer’s derivatives policy. It is designed to be used prior to
entering into any derivatives transaction. This checklist presumes an issuer’s compliance with
the Recommended Practice—to wit, that the issuer has adopted a derivatives policy and that the
issuer’s staff has been trained in the evaluation and use of derivative products. An issuer that
cannot answer the questions in this checklist is advised to continue its training prior to
completing a derivatives transaction.
While the principles enunciated in the Recommended Practice are generally applicable
to all derivatives transactions, it is impracticable to create a “one size fits all” checklist to
address the specific issues of all derivatives transactions. First, over-the-counter derivatives
transactions are not uniform. Each is customized to fit the needs of the parties. Second, the
derivatives market and the products being used in that market change over time, sometimes quite
quickly, in response to changes in the broader financial markets. Third, the experience and
sophistication of users of derivative products varies. Many experienced users of derivatives will
already have developed their own means of assuring that all relevant issues in a derivatives
transaction have been considered and addressed. Therefore, this checklist is intended mostly to
assist issuers that meet the presumptions described above but are relatively new to the
derivatives market. The issues addressed in this checklist are broadly applicable, but the form of
the checklist is one that issuers are encouraged to adapt to their particular circumstances.
Many of the capitalized terms used in this checklist are used as defined in International
Swaps and Derivatives Association, Inc. (“ISDA”) documents, and this checklist presumes that
an issuer is familiar with such documents.
General Information
1.
Name of Governmental Issuer: ______________________________________________
2.
Date of most recent update to Issuer’s Derivatives Policy: _________________
3.
(a)
Names of Official and Backup(s) Responsible for Procurement of Derivative:
________________________________________________________________________
(b)
Names of Official and Backup(s) Responsible for Monitoring Derivative:
________________________________________________________________________
(c)
Have all of them satisfied the training standards prescribed in the Issuer’s
Derivatives Policy?
Yes ___ No ___
4.
Independent Derivatives Advisor, if any: ______________________________________
5.
Independent Derivatives Monitor, if any: ______________________________________
Authority
1.
Will the Issuer’s counsel deliver an unqualified opinion on the Issuer’s authority to enter
into the derivative?
Yes ___ No ___
General Terms
1.
Type of Derivative: _______________________________________________________
2.
Counterparty/ies: _________________________________________________________
3.
(a)
(b)
(c)
(d)
4.
Notional Amount: ________________________
5.
Identify debt, or assets, with which the derivative is associated:
________________________________________________________________________
Expected Trade Date: _________________
Effective Date: __________________
Scheduled Termination Date: ________________
If derivative is an option, Exercise Date(s): _____________________________
Financial Terms
1.
(a)
(b)
(c)
(d)
Basis for calculating Issuer’s payments: _____________________________
Frequency of calculation: __________________________
Frequency of payment: ______________________
Can the passage of time or future market conditions cause the basis for calculating
these payments to change?
Yes ___ No ___
If yes, explain: _____________________________________________________
__________________________________________________________________
__________________________________________________________________
2.
(a)
(b)
(c)
(d)
Basis for calculating Counterparty’s/ies’ payments: _______________________
Frequency of calculation: __________________________
Frequency of payment: _____________________________
Can the passage of time or future market conditions cause the basis for calculating
these payments to change?
Yes ___ No ___
If yes, explain: _____________________________________________________
2
__________________________________________________________________
__________________________________________________________________
3.
Identify any embedded options in the derivative: ________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
Will either party make an upfront payment upon execution of the derivative?
Yes ___ No ___
Purpose
1.
2.
State the reason(s) for entering into the derivative.
_______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Were other means considered for achieving such purpose(s)?
Yes ___ No ___
If yes, why was the derivative chosen? ________________________________________
________________________________________________________________________
________________________________________________________________________
Risks
1.
2.
Has the Issuer evaluated the extent
upon execution of the derivative?
(a)
Basis Risk
(b)
Tax Risk
(c)
Interest Rate Risk
(d)
Counterparty Risk
(e)
Termination Risk
(f)
Market-access Risk
(g)
Rollover Risk
(h)
Credit Risk
to which each of the following risks will be assumed
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
No ___
No ___
No ___
No ___
No ___
No ___
No ___
No ___
Are the risks to be assumed within the risk parameters of the Issuer’s Derivatives Policy?
Yes ___ No ___
3.
Has Issuer run, or had run for it, stress tests on how the derivative could affect Issuer’s
budget and financial position under various market conditions?
Yes ___ No ___
____________________________________________________
4.
How do the benefits of entering into the derivative outweigh the risks being assumed?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3
5.
Upon execution of this derivative,
(a)
How many derivatives will Issuer have outstanding? _________________
(b)
What is the total notional amount of those derivatives? _______________
(c)
What percent of Issuer’s long-term debt will be associated with derivatives?
_______
Documentation
1.
Is Issuer’s counsel experienced in derivatives transactions?
Yes ___ No ___
2.
Has Issuer discussed with its counsel:
(a)
Required consents and approvals?
(b)
Relation of derivative payments to bond payments?
(c)
Default provisions?
(d)
Termination provisions?
(e)
Other remedies?
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Counterpartv/ies
1.
On what basis did Issuer select Counterparty/ies?
Competitive
Negotiated
2.
If competitive,
(a)
Who was bidding agent? ________________________
(b)
How many firms were invited to bid? ______________
(c)
How many firms bid? __________________________
(d)
Is bidding agent providing a closing certificate?
Yes ___ No ___
3.
If negotiated,
(a)
State reasons for negotiating derivative: _________________________________
__________________________________________________________________
(b)
State reasons for choosing Counterparty/ies: _____________________________
__________________________________________________________________
(c)
Estimated spread relative to mid-market or benchmark rate? _______________
(d)
Is Derivatives Advisor providing a certificate as to fair market valuation?
Yes ___ No ___
If no, what comfort will Issuer receive that the terms for the derivative are
commercially reasonable? ____________________________________________
4.
Does Counterparty/ies meet credit criteria of Issuer’s Derivatives Policy? Yes ___ No __
5.
What percentage of Issuer’s total notional amount of derivatives will be with the same
Counterparty/ies?______________
4
6.
If Issuer will have more than one derivatives transaction with Counterparty or any of the
Counterparties, will there be netting between or among separate derivatives transactions?
Yes ___ No ___
Credit Support
1.
Credit Support will be provided for:
(a)
Issuer
Yes ___
No ___
If yes, name of provider: ____________________________________________
(b)
Counterparty/ies
Yes ___
No ___
If yes, name of provider: ____________________________________________
2.
Has Issuer’s counsel reviewed Issuer’s credit support obligations? Yes ___ No ___
3.
Has Issuer established procedures sufficient to:
(a)
Comply with any such obligations?
Yes ___ No ___
(b)
Renew or replace Credit Support, if required?
Yes ___ No ___
(c)
Monitor the credit level of the Counterparty/ies?
Yes ___ No ___
(d)
Receive the benefit of, and comply with any obligations relating to, any credit
support obligations of Counterparty/ies?
Yes ___ No ___
Tax Issues
1.
Tax counsel reviewing the documentation: _____________________________________
2.
Has Issuer discussed with tax counsel:
(a)
Integration of the derivative with a bond issue?
Yes ___ No ___
(b)
Whether yield monitoring is required?
Yes ___ No ___
(c)
Whether the derivative’s performance or mark-to-market value should be
included in arbitrage compliance calculations?
Yes ___ No ___
3.
Will tax counsel deliver an opinion in connection with the derivative? Yes ___ No ___
Operations and Monitoring
1.
If the Expected Trade Date and the Effective Date are different, is the derivative part of a
series of transactions?
Yes ___ No ___
If yes,
(a)
Describe the subsequent transactions being considered: ____________________
________________________________________________________________________
________________________________________________________________________
(b)
Has Issuer established procedures or mechanisms to:
(i) Determine how and when any subsequent transaction will occur?
Yes ___ No ___
(ii) Evaluate and handle risks to completion of any subsequent transaction?
Yes ___ No ___
5
(iii)Complete, and pay expenses of, any subsequent transactions?
Yes ___ No ___
2.
Has Issuer discussed the appropriate accounting treatment for the derivative with its
independent auditor?
Yes ___ No ___
3.
Does the Issuer intend to use hedge accounting?
Yes ___ No ___
If yes, has the issuer received or made arrangements to receive confirmation of hedge
effectiveness?
Yes ___ No ___
If yes, from: ___________________________________________________________
4.
Who is responsible for confirming payment amounts and making necessary payments?
______________________________________________________________
5.
What is the source for Issuer’s regular payments? _______________________________
6.
How are such payments budgeted? ___________________________________________
7.
Who is responsible for monitoring mark-to-market valuations? ____________________
8.
What is the frequency of such monitoring? ________________________
9.
What is the frequency of:
(a)
Reporting monitoring results to Chief Executive Officer/Chief Financial Officer?
________________________
(b)
Sharing monitoring results with independent auditor? ______________________
10.
Has Issuer discussed this derivative with the rating agencies?
11.
Who is responsible for delivery of future documents required by the derivative’s
documentation? ___________________________
12.
Who is responsible for answering investors’ questions about Issuer’s derivatives
exposure? _______________________________________________________________
________________________________________________________________________
Yes ___ No ___
Information Provided By:
____________________________________
(signature)
6
Page 14
5.3. Code of Alabama, section 41-1-40 to 41-1-44, inclusive
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1/11
DRAYI'
SWAPTRANSACTIONCONFIRMATION
Dalte:
To:
Address:
Fa:l:
Attention:
Fn)m:
I
Ref. No.
September
18,2007
TBD ("Counterparty")
TBD
TBD
Sir orMadam
Wachovia Bank,N.A. ("Wachovia")
XXXXX
Dear Sir or Madam:
This confirms the terms of the Transactiondescribedbelow betweenCounterpartyand Wachovia. The definitions and
provisions containedin the 2006 ISDA Definitions, as published by the InternationalSwapsand Derivatives Association,
Inc., are incorporatedinto this Confirmation. In the eventof any inconsistencybetweenthose de~tions and provisions and
this Confirmation,this Confirmation will govern. Fixed Amounts and Floating Amounts for eachapplicable PaymentDate
hereunderwill be calculatedin accordancewith the ISDA Definitions, and if any Fixed Amount and Floating Amount are
due for the samePaymentDate hereunder,then those amountsshall not be payableand insteadthe Fixed Rate Payer shall
pay the positive difference,if any, betweenthe Fixed Amount andthe Floating Amount, and the Floating Rate Payer shall
pay the positive difference,if any,betweenthe Floating Amount and the Fixed Amount.
The Transactionto which this Confirmation relatesis a Swaption,the terms of which are as follows:
1. £wantion Terms:
Trade Date:
xxxxxxxxxx
Option Style:
Seller:
European
Counterparty
Buyer:
Premium:
PremiumPaymentDate:
ExerciseBusinessDays:
Wachovia
XXXXXxxxxx
XXXXXXXXXX
New York
2. Plocedurefor Exercise;
I
I
:ExpirationDate:
EarliestExerciseTime:
Expiration Time:
Partial Exercise:
Automatic Exercise:
Fallback Exercise:
Written Confirmation:
3. 5..ecttlement
Terms:
~;ettlement:
September01, 2016
9:00 a.1n.New York time
11:00 a.1n.New York time
Inapplicable
Inapplicable
Applicable
Applicable as provided in Section12.2 of the ISDA Definitions.
Physical
4. The tenns of the particular Underlying Swap Transactionto which this Swaptionrelatesare as follows:
I
I
I
I
Inn!;action T~:
C!!J:IC:nc~
for Pa~ents:
InterestRate Swap
U.S. Dollars
Imn~
Trade Date:
Effective Date:
Tennination Date:
XXXXXXXXXX
December01,2016
December01,2036 in respectof Fixed Amounts
December01,2036 in respectof Floating Amounts, subjectto the Following Business
Day Convention.
Wachovia: DRAFT
2/11
I
fixed Amounts:
Fixed RatePayer:
Notional Amount:
PeriodEnd Dates:
Payment
Dates:
BusinessDayConvention:
Business
Day:
FixedRate:
FixedRateDayCount
Fraction:
Mlitional
Counterparty
For a CalculationPeriod, the amountset forth opposite that Calculation Period on
Attachment I hereto
Semi-annuallyon the 1stof eachJuneand DecembercommencingJune 01, 2017,
through and including the Termination Date; No Adjustment.
Semi-annuallyon the 1stof eachJuneand DecembercommencingJune 01, 2017,
through and including the Termination Date.
Following
New York
5.000/0
30/360
Fixed Amount:
Fixed Amount Payer:
Fixed Amount:
PaymentDate:
Wachovia
XXXXXXXXXX
Simultaneouslywith the issuanceof the Related Bonds, but in no eventlater than
December01, 2016
~~ting Amounts:
FloatingRatePayer:
NotionalAmount:
PeriodEnd Dates:
PaymentDates:
I
BusinessDay Convention:
BusinessDay:
Floating Rate Option:
DesignatedMaturity:
:Spread:
Floating Rate Day Count
Fraction:
ResetDates;
J\1ethodof Averaging:
~:::ompounding:
Rounding convention:
Wachovia
For a Calculation Period, the amount set forth opposite that Calculation Period on
Attachment II hereto
Monthly on the 1st of each month, commencing January 03, 2017, through and
including the Termination Date, subject to adjustment in accordance with the
Following Business Day Convention.
Monthly on the 1st of each month, commencing January 03, 2017, through and
including the Termination Date.
Following
New York
68% ofUSD-LIBOR-BBA
1 Month
Plus 0.25%
Actual/Actual
Weekly on Thursday
WeightedAverage
Inapplicable
5 decimalplacesper the ISDA Definitions.
5. The additionalprovisions of this Confirmation are as follows:
~llation A~ent:
~lent Instructions:
I
.I
I
Wachovia
WachoviaBank,N.A.
CIB Group,ABA 053000219
Ref: Derivative Desk (TradeNo: XXXXX)
Account#: 04659360006116
~ovia
Contacts:
Settlements
and/orRateResets:
Tel: (800)249-3865
Fax:(704)383-9139
Wachovia: DRAFT
I
Documentation:
Tel: (704) 383-4599
Fax: (704) 383-9139
I
Collateral:
Tel: (704)383-9529
I
I
~nents to Counte!12~:
Pleasequote transactionreferencenumber.
Pleaseprovide written paymentinstructions.
Wachovia will makeno payments until
written payment instructionsare received.
Phone: 1-800-249-3865Fax: 1-704-383-8429
A.4ditional T~§
Bon.iI-RelatedTransaction. This Transactionis a Bond-RelatedTransactionfor all purposesof the ISDA Master
Agre:ementand the "RelatedBonds" for the Transactionshall be the Counterparty'sBonds which are issuedto [
maturing on [ ].
~lmentation
I
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I
If at anytime there exists an executedISDA Master Agreementbetweenthe parties governing this Transaction,this
Confirmation supplements,fonns part of and will be governed by that ISDA Master Agreement,and all provisions contained
or incorporatedby referencein that ISDA Master Agreementwill govern this Confirmation exceptas expresslymodified
herein. In the absenceof that ISDA Master Agreernent,this Confirmation shall supplement,fonn a part of, and be subject to
an agreementin the fonn of the ISDA Master Agreement(Local Currency-Single Jurisdication)published in 1992 by the
International Swapsand Derivatives Association,Inc. as if the parties had executedan agreementin suchfonn (the
provisions of which are herebyincorporated by reference),but without any Scheduleexceptfor the electionof New York
law (without regard to conflicts of law principles) asthe governing law. Referencesin this Confirmation to the "ISDA
Master Agreement" shall be to whichever of the foregoing is applicable.Neither party is acting asthe other party's financial
advisor for this Transactionnor is it relying on the other party for any evaluationof the presentor future results,
consequences,
risks, and benefits of this transaction,whether financial, accounting,tax, legal, or otherwise.
I
I
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I
.
],
3/11
Wachovia: DRAFr
4/11
Pleaseconfirm that the foregoing correctly setsforth the terms of our agreementby executinga copy of this Confumation
and teturniiig it to us.
Very truly yours,
WachoviaBank,N.A.
I
By:
Name:
Title:
Ref.No. XXXXX
Acceptedand confirmed as of date first abovewritten:
TBD
By:
DRAFT
Name:
Title:
I
I
I
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I
I
I
I
I
..
DRAFr
Wachovia: DRAFT
I
5/11
ATTACHMENT I -DRAFT
AmortizationSchedulefor xx:xx:x
I
I
I
I
I
I
I
Calculation Period
(from and including, to but excluding)
01 Dec 16
to
01 Jun 17
01 Jun 17
to
01 Dec 17
01 Dec 17
to
01 Jun 18
01 Jun 18
to
01 Dec 18
01 Dec 18
to
01 Jun 19
01 Jun 19
to
01 Dec 19
01 Dec 19
to
01 Jun 20
01 J\m 20
to
01 Dec 20
01 Dec 20
to
01 Jun21
01 J\m 21
to
01 Dec 21
01 Dec 21
to
01 Jun 22
01 J\m 22
to
01 Dec 22
01 Dec 22
to
01 Jun 23
01 Jun 23
to
01 Dec 23
01 Dec 23
to
01 Jun 24
01 Jun 24
to
01 Dec 24
01 Dec 24
to
01 Jun 25
01 Jun 25
to
01 Dec 25
01 Dec 25
to
01 Jun 26
01 Jun 26
to
01 Dec 26
01 Dec 26
to
01 Jun 27
01 Jun 27
to
01 Dec 27
01 Dec 27
to
01 Jun 28
01 Jun 28
to
01 Dec 28
01 Dec 28
to
01 Jun 29
01 Jun 29
to
01 Dec 29
01 Dec 29
to
01 Jun 30
01 Jun 30
to
01 Dec 30
01 Dec 30
to
01 Jun31
01 Jun31
to
01 Dec 31
01 Dec 31
to
01 Jun 32
01 Jun 32
to
01 Dec 32
01 Dec 32
to
01 Jun 33
01 Jun 33
to
01 Dec 33
01 Dec 33
to
01 Jun 34
01 Jun 34
to.
01 Dec 34
01 Dec 34
to
01 Jun 35
01 Jun 35
to
01 Dec 35
01 Dec 35
to
01 Jun 36
01 Jun36
to
01 Dec 36
usn Notional Amount
usn
Notional
Redur.tion
(at end of period)
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
94,400,000.00
94,400,000.00
88,515,000.00
88,515,000.00
82,325,000.00
82,325,000.00
75,820,000.00
75,820,000.00
68,980,000.00
68,980,000.00
61,790,000.00
61,790,000.00
54,230,000.00
54,230,000.00
46,285,000.00
46,285,000.00
37,930,000.00
37,930,000.00
29,145,000.00
29,145,000.00
19,910,000.00
19,910,000.00
10,205,000.00
10,205,000.00
Wachovia: DRAFT
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,600,000.00
0.00
5,885,000.00
0.00
6,190,000.00
0.00
6,505,000.00
0.00
6,840,000.00
0.00
7,190,000.00
0.00
7,560,000.00
0.00
7,945,000.00
0.00
8,355,000.00
0.00
8,785,000.00
0.00
9,235,000.00
0.00
9,705,000.00
0.00
10,205,000.00
I
6/11
ATTACHMENT n -DRAYI'
Amortization Schedulefor XXXXX
I
Calculation Period
(from and including,to but excluding)
01 Dec 16
to
03 Ian 17
031an17
to
01 Feb 17
01 Feb 17
to
01 Mar 17
01 Mar 17
to
03 Apr 17
03 Apr 11
to
01 May 17
01 May 17
to
011un17
01 Jun 17
to
03 lul17
03 Jul17
to
01 Aug 17
01Aug17
to
01Sep17
01Sep17
to
02qct17
02 Oct 17
to
01 Nov 17
01 Nov 17
to
01Dec17
01 Dec 17
to
02 Ian 18
02 Ian 18
to
01 Feb 18
01 Feb 18
to
01 Mar 18
01 Mar 18
to
02 Apr 18
02 Apr 18
to
01 May 18
01 May 18
to
01 Jun 18
01 lun 18
to
02 lul18
02 Jul18,
to
01 Aug 18
01 Aug 18
to
04 Sep 18
04 Sep 18
to
01 Oct 18
01 Oct 18
to
01 Nov 18
01 Nov 18
to
03 Dec 18
03 Dec 18
to
02 Jan 19
02 Jan 19
to
01 Feb 19
01 Feb 19
to
01 Mar 19
01 Mar 19
to
01 Apr 19
01 Apr 19
to
01 May 19
01 May 19
to
03 lun 19
03 lun 19
to
01 Jul19
01 lul19
to
01 Aug 19
01 Aug 1~
to
03 Sep 19
03 Sep 19
to
01 Oct 19
01 Oct 19
to
01 Nov 19
01 Nov 19
to
02 Dec 19
02 Dec 19
to
02 Ian 20
02 Ian 20
to
03 Feb 20
03 Feb20
to
02 Mar 20
02 Mar 20
to
01 Apr 20
01 Apr 20
to
01 May 20
01 May 20
to
01 lun 20
01 Jun 20
to
01 lul20
01 Ju120
to
03 Aug20
03 Aug 20
to
01 Sep 20
usn NotionalAmount
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
I
I
Wachovia:DRAFf
usn Notional Reduction
(at end of period)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
I
I
I
I
I
I
I
I
I
I
I
I
I
7/11
Calculation Period
(fI-omand including,to but excluding)
01 Sep 20
to
01 Oct 20
01 Oct 20
to
02 Nov 20
02 Nov 20
to
01 Dec 20
01 Dec 20
to
04 Jan21
04 Jan21
to
01 Feb21
01 Feb 21
to
01 Mar 21
01 Mar 21
to
01 Apr 21
01 Apr 21
to
03 May 21
03 May 21
to
01 Jun21
01 Jun21
to
01 Jul21
01 Jul21
to
02 Aug 21
02 Aug 21
to
01 Sep21
01 Sep21
to
01 Oct 21
01 Oct21
to
01 Nov 21
01 Nov 21
to
01 Dec 21
01 Dec 21
to
03 Jan 22
03 Jan 22
to
01 Feb 22
01 Feb 22
to
01 Mar 22
01 Mar 22
to
01 Apr 22
01 Apr 22
to
02 May 22
02 May 22
to
01 Jun 22
01 Jun 22
to
01 Jul22
01 Jul22
to
01 Aug 22
01 Aug 22
to
01 Sep22
01 Sep22
to
03 Oct 22
03 Oct 22
to
01 Nov 22
01 Nov 22
to
01 Dec 22
01 Dec 22
to
03 Jan 23
03 Jan 23
to
01 Feb23
01 Feb23
to
01 Mar 23
01 Mar 23
to
03 Apr 23
03 Apr 23
to
01 May 23
01 May 23
to
01 Jun23
01 Jun 23
to
03 Jul23
03 Jul23
to
01 Aug 23
01 Aug 23
to
01 Sep23
01 Sep23
to
02 Oct 23
02 Oct 23
to
01 Nov 23
01 Nov 23
to
01 Dec 23
01 Dec 23
to
02 Jan 24
02 Jan 24
to
01 Feb 24
01 Feb 24
to
01 Mar 24
01 Mar 24
to
01 Apr 24
01 Apr 24
to
01 May 24
01 May 24
to
03 Jun 24
03 Jun 24
to
01 Jul24
01 Jul24
to
01 Aug 24
01 Aug 24
to
03 Sep 24
usn NotionalAmount
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
Wachovia: DRAFT
usn Notional Reduction
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
I
8/11
CalculationPeriod
I
I
I
I
I
I
I
I
(from and including,to
03 Sep24
to
01 Oct 24
to
01 Nov 24
to
02 Dec 24
to
02 Jan 25
to
03 Peb25
to
03 Mar 25
to
01 Apr 25
to
01 May 25
to
02 Jun25
to
01 hll25
to
01 Aug 25
to
02 Sep25
to
01 Oct 25
to
03 Nov 25
to
01 Dec 25
to
02 Jan 26
to
02 Peb 26
to
02 Mar 26
to
01 Apr 26
to
01 May 26
to
01 Jun 26
to
01 Jul26
to
03 Aug26
to
01 Sep 26
to
01 Oct 26
to
02 Nov 26
to
01 Dec 26
to
04 Jan 27
to
01 Peb 27
to
01 Mar 27
to
01 Apr 27
to
03 May 27
to
01 Jun 27
to
01 Jul 27
to
02 Aug 27
to
01 Sep 27
to
01 Oct 27
to
01 Nov 27
to
01 Dec 27
to
03 Jan 28
to
01 Peb 28
to
01 Mar 28
to
03 Apr 28
to
01 May 28
to
01 Jun 28
to
03 Jul28
to
01 Aug 28
to
but excluding)
01 Oct 24
01 Nov 24
02 Dec 24
02 Jan 25
03 Peb 25
03 Mar 25
01 Apr 25
01 May 25
02 Jun 25
01 Jul25
01 Aug 25
02 Sep25
01 Oct 25
03 Nov 25
01 Dec 25
02 Jan 26
02 Peb 26
02 Mar 26
01 Apr 26
01 May 26
01 Jun 26
01 Jul26
03 Aug 26
01 Sep 26
01 Oct 26
02 Nov 26
01 Dec 26
04 Jan 27
01 Peb 27
01 Mar 27
01 Apr 27
03 May 27
01 Jun 27
01 Jul27
02 Aug 27
01 Sep 27
01 Oct 27
01 Nov 27
01 Dec 27
03 Jan 28
01 Peb28
01 Mar 28
03 Apr 28
01 May 28
01 Jun28
03 Jul28
01 Aug 28
01 Sep28
usn Notional Amount
100,000,000.00
100,000,000.00
100,000,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
Wachovia: DRAFT
.
usn Notional Reduction
0.00
0.00
5,600,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,885,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6,190,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6,505,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9/11
I
I
I
Calculation Period
(froM and including,to but excluding)
01 Sep 28
to
02 Oct 28
02 Oct 28
to
01 Nov 28
01 Nov 28
to
01 Dec 28
01 Dec 28
to
02 Jan 29
02 Jan 29
to
01 Feb 29
01 Feb 29
to
01 Mar 29
01 Mar 29
to
02 Apr 29
02 Apr 29
to
01 May 29
01 May 29
to
01 Jun 29
01 Jun 29
to
02 Jul29
02 Jul 29
to
01 Aug 29
01 Aug 29
to
04 Sep 29
04 Sep 29
to
01 Oct 29
01 Oct 29
to
01 Nov 29
01 Nov 29
to
03 Dec 29
03 Dec 29
to
02 Jan 30
02 Jan 30
to
01 Feb 30
01 Feb 30
to
01 Mar 30
01 Mar 30
to
01 Apr 30
01 Apr 30
to
01 May 30
01 May 30
to
03 Jun 30
03 Jun 30
to
01 Jul30
01 Jul30
to
01 Aug 30
01 Aug 30
to
03 Sep30
03 Sep 30
to
01 Oct 30
01 Oct 30
to
01 Nov 30
01 Nov 30
to
02 Dec 30
02 Dec 30
to
02 Jan 31
02 Ian 31
to
03 Feb31
03 Feb 31
to
03 Mar 31
03 Mar 31
to
01 Apr 31
01 Apr 31
to
01 May 31
01 May 31
to
02 Jun 31
02 Iun 31
to
01 Jul31
01 Iul31
to
01 Aug 31
01 Aug 31
to
02 Sep 31
02 Sep31
to
01 Oct 31
01 Oct 31
to
03 Nov 31
03 Nov 31
to
01 Dec 31
01 Dec 31
to
02 Ian 32
02 Jan 32
to
02 Feb32
02 Feb 32
to
01 Mar 32
01 Mar 32
to
01 Apr32
01 Apr 32
to
03 May 32
03 May 32
to
01 Iun 32
01 Iun 32
to
01 Iul32
01 Iul 32
to
02 Aug 32
02 Aug 32
to
01 Sep32
usn NotionalAmount
75,820,000.00
75,820,000.00
75,820,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
I
I
Wachovia: DRAFI'
usn NotionalReduetion
0.00
0.00
6,840,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,190,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,560,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,945,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
10/11
I
I
I
I
I
I
I
I
Calculation Period
(from and including,to but excluding)
01 Sep32
to
01 Oct 32
01 Oct 32
to
01 Nov 32
01 Nov 32
to
01 Dec 32
01 Dec 32
to
03 Jan 33
03 Jan 33
to
01 Feb 33
01 Feb 33
to
01 Mar 33
01 Mar 33
to
01 Apr 33
01 Apr 33
to
02 May 33
02 May 33
to
01 Jun 33
01 Jun 33
to
01 Jul 33
01 Jul33
to
01 Aug 33
01 Aug 33
to
01 Sep 33
01 Sep33
to
03 Oct 33
03 Oct 33
to
01 Nov 33
01 Nov 33
to
01 Dec 33
01 Dec 33
to
03 Jan 34
03 Jan 34
to
01 Feb 34
01 Feb 34
to
01 Mar 34
01 Mar34
to
03 Apr34
03 Apr 34 .to
01 May 34
01 May 34
to
01 Jun 34
01 Jun 34
to
03 Jul 34
03 Jul34
to
01 Aug 34
01 Aug 34
to
01 Sep 34
01 Sep 34
to
02 Oct 34
02 Oct 34
to
01 Nov 34
01 Nov 34
to
01 Dec 34
01 Dec 34
to
02 Jan 35
02 Jan 35
to
01 Feb 35
01 Feb3$
to
01 Mar 35
01 Mar 35
to
02 Apr35
02 Apr 35
to
01 May 35
01 May 35
to
01 Jun 35
01 Jun35
to
02 Jul35
02 Jul 35
to
01 Aug 35
01 Aug 35
to
04 Sep 35
04 Sep35
to
01 Oct 35
01 Oct 35
to
01 Nov 35
01 Nov 35
to
03 Dec 35
03 Dec 35
to
02 Jan 36
02 Jan 36
to
01 Fob 36
01 Feb36
to
03 Mar 36
03 Mar 36
to
01 Apr 36
01 Apr 36
to
01 May 36
01 May 36
to
02 Jun36
02 Jun36
to
01 Jul36
01 Jul 36
to
01 Aug 36
01 Aug 36
to
02 Sep 36
usn Notional Amount
46,285,000.00
46,285,000.00
46,285,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19.910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
Wachovia: DRAFT
usn Notional Reduction
0.00
0.00
8,355,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,785,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,235,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,705,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
11/11
Calculation Period
(frotn and including, to but excluding)
02 Sep36
to
01 Oct 36
01 Oct 36
to
03 Nov 36
03 Nov 36
to
01 Dec 36
usn Notional Redut!tion
10,205,000.00
10,205,000.00
10,205,000.00
0.00
0.00
10,205,000.00
I
I
I
I
I
I
I
I
I
I
I
I
.
usn Notional Amount
Wachovia: DUFf
(LocalCurrency-Single Jurisdiction)
Exhibit
II
ISDA@
InternationalSwapDealers Association,Inc.
MASTER AGREEMENT
dated as of November -'
WACHOVIA BANK, NAnONAL ASSOCIAnON
and
2007
UNIVERSITYOF sourn ALABAMA
have enteredand/oranticipateenteringinto one or more transactions(eacha "Transaction")that are or will
be governedby this MasterAgreement,which includesthe schedule(the "Schedule"),and the documents
and other confirming evidence (eacha "ConfIrmation") exchangedbetweenthe parties confirming those
Transactions.
Accordingly, the parties agreeas follows: -
1.
Interpretation
(a)
Definitions. The terms defined in Section12 and in the Schedulewill have the meaningstherein
specified for the purposeof this MasterAgreement.
(b)
Inconsistency.In the event of any inconsistencybetweenthe provisions of the Scheduleand the
other provisions of this Master Agreement,the Schedulewill prevail. In the event of any inconsistency
betweenthe provisions of any Confirmation and this Master Agreement (including the Schedule), such
ConfIrmation will prevail for the purpose of the relevantTransaction.
(c)
Single Agreement. All Transactions are entered into in reliance on the fact that this Master
Agreementand all Confirmationsform a single agreementbetweenthe parties (collectively referred to as
this "Agreement"), and the parties would not otherwise enterinto any Transactions.
2.
Obligations
(a)
General Conditions.
(i) Eachparty will make eachpaymentor delivery specified in eachConfirmation to be made by
it, subjectto the other provisions of this Agreement.
(ii) Paymentsunderthis Agreementwill be made on the due date for value on that date in the place
of the accountspecified in the relevant Confirmation or otherwisepursuantto this Agreement, in
freely transferablefunds and in the mannercustomaryfor paymentsin the requiredcurrency.Where
settlementis by delivery (that is, other than by payment),such delivery will be made for receipt on
the due date in the mannercustomaryfor the relevant obligationunlessotherwisespecified in the
relevant ConflrInation or elsewherein this Agreement.
(iii) Each obligation of eachparty under Section2(a)(i) is subjectto (1) the condition precedent
that no Event of Default or PotentialEvent of Default with respectto the otherparty has occurred
and is continuing, (2) the condition precedentthat no Early Termination Date in respect of the
relevant Transactionhas occurred or been effectively designatedand (3) each other applicable
condition precedentspecified in this Agreement.
Copyright @1992by International SwapDealers Association,Inc.
SecondPrinting
(b)
Change of Account. Either party may change its account for receiving a payment or delivery by
giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment
or delivery to which such change applies unless such other party gives timely notice of a reasonable objection
to such change.
(c)
Netting.
If on any date amounts would otherwise be payable:-
(i)
in the same currency; and
(ii)
in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make payment of any such amount
will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been
payable by one party exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate amount would have been
payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount will be determined in respect
of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of
whether such amounts are payable in respect of the same Transaction. The election may be made in the
Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions
identified as being subject to the election, together with the starting date (in which case subparagraph (ii)
above will not, or will cease to, apply to such Transactions from such date). This election may be made
separately for different groups of Transactions and will apply separately to each pairing of branches or offices
through which the parties make and receive payments or deliveries.
(d)
Default Interest; Other Amounts. Prior to the occurrence or effective designation of an Early
Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any
payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on demand in the same currency
as such overdue amount, for the period from (and including) the original due date for payment to (but
excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of
daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation
of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of
any obligation required to be settled by delivery, it will compensate the other party on demand if and to the
extent provided for in the relevant Confirmation or elsewhere in this Agreement.
3.
Representations
Eachparty representsto the otherparty (which representationswill be deemedto be repeatedby eachparty
on eachdate on which a Transactionis enteredinto) that:(a)
Basic Representations.
(i) Status. It is duly organised and validly existing under the laws of the jurisdiction of its
organisationor incorporationand, if relevant under suchlaws, in good standing;
(ii) Powers. It has the power to executethis Agreementand any other documentationrelating to
this Agreementto which it is a party,to deliverthis Agreementand any other documentationrelating
to this Agreementthat it is required by this Agreementto deliver and to perform its obligations
underthis Agreementand any obligationsit has under any Credit SupportDocumentto which it is
a party and has taken all necessaryaction to authorisesuchexecution,deliveryandperformance;
(ill) No Violation or Conflict. Suchexecution, delivery and performancedo not violate or conflict
with any law applicableto it, any provision of its constitutionaldocuments,any order or judgment
of any court or other agencyof governmentapplicableto it or any of its assetsor any contractual
restriction binding on or affecting it or any of its assets;
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ISDA@1992
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Printing
(iv) Consents.All governmentaland other consentsthat are required to have been obtained by it
with respectto this Agreementor any Credit SupportDocumentto which it is a party have been
obtainedand are in full force and effectand all conditionsof any suchconsentshave beencomplied
with; and
(v) Obligations Binding. Its obligationsunderthis Agreementand any Credit SupportDocument
to which it is a party constitute its legal, valid and binding obligations,enforceablein accordance
with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generallyand subject,as to enforceability,to
equitable principles of general application (regardless of whether enforcement is sought in a
proceedingin equity or at law».
(b)
Absence of CertainEvents.No Event of Default or PotentialEvent of Default or, to its knowledge,
TerminationEvent with respectto it hasoccurredand is continuingandno sucheventor circumstancewould
occuras a result of its enteringinto or performingits obligationsunderthis Agreementor any Credit Support
Documentto which it is a party.
(c)
Absence ofLitigation. There is not pendingor, to its knowledge,threatenedagainstit or any of its
Affiliates any action, suit or proceedingat law or in equity or before any court, tribunal, governmentalbody,
agencyor official or any arbitratorthat is likely to affect the legality, validity or enforceabilityagainstit of
this Agreementor any Credit SupportDocumentto which it is a party or its ability to perform its obligations
underthis Agreementor such Credit SupportDocument.
(d)
Accuracy ofSpecified information. All applicableinformationthat is furnishedin writing by or on
behalf of it to the otherparty and is identified for the purpose of this Section3(d) in the Scheduleis, as of
the date of the information, true, accurateand complete in every material respect.
4.
Agreements
Each party agreeswith the other that, so long as either party has or may have any obligation under this
Agreementor under any Credit SupportDocumentto which it is a party:(a)
Furnish Specified Information. It will deliver to the other party any forms, documents or
certificates specified in the Scheduleor any Confirmation by the date specified in the Schedule or such
Confirmation or, if none is specified, as soonas reasonablypracticable.
(b)
Maintain Authorisations. It will use all reasonableefforts to maintain in full force and effect all
consentsof any governmentalor other authority that are required to be obtained by it with respectto this
Agreementor any Credit SupportDocumentto which it is a party and will use all reasonableefforts to obtain
any that may becomenecessaryin the future.
(c)
Comply with Laws. It will comply in all material respectswith all applicablelaws and ordersto
which it may be subjectif failure so to complywould materially impair its ability to perform its obligations
underthis Agreementor any Credit SupportDocumentto which it is a party.
5.
Events ofDefault and Termination Events
(a)
Events of Default. The occurrenceat any time with respectto a party or, if applicable, any Credit
SupportProviderof suchparty or any SpecifiedEntity of suchparty of any of the following eventsconstitutes
an event of default (an "Event of Default") with respectto suchparty:(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this
Agreementor delivery under Section2(a)(i) or 2(d) requiredto be made by it if suchfailure is not
remediedon or beforethe third Local BusinessDay afternotice of suchfailure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform any agreementor
obligation (otherthan an obligationto make any paymentunder this Agreementor delivery under
Section2(a)(i) or 2(d) or to give notice of a TerminationEvent) to be complied with or performed
3
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by the party in accordancewith this Agreement if such failure is not remedied on or before the
thirtieth day after notice of such failure is given to the party;
(ill) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party to comply with or
perform any agreementor obligation to be complied with or performed by it i~ accordance
with any Credit Support Document if such failure is continuing after any applicable grace
period has elapsed;
(2) the expiration or termination of such Credit Support Document or the failing or ceasing
of such Credit SupportDocumentto be in full force and effect for the purposeof this Agreement
(in either case otherthan in accordancewith its terms) prior to the satisfactionof all obligations
of such party under each Transactionto which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffinns, disclaims, repudiates or rejects, in
whole or in part, or challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation made or repeated or deemed to have been made or
repeatedby the party or any Credit SupportProvider of suchparty in this Agreement or any Credit
Support Documentproves to have been incorrect or misleading in any material respect when made
or repeatedor deemedto have beenmade or repeated;
(v) Default under Specified Transaction. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party (I) defaults under a Specified Transactionand, after
giving effect to any applicablenotice requirementor grace period, there occurs a liquidation of, an
accelerationof obligations under, or an early termination of, that Specified Transaction,(2) defaults,
after giving effect to any applicable notice requirementor grace period, in making any payment or
delivery due on the last payment, delivery or exchangedate of, or any payment on early termination
of, a Specified Transaction(or such default continues for at leastthree Local BusinessDays if there
is no applicable notice requirement or grace period) or (3) disafflrIns, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction(or such action is taken by any person or entity
appointed or empoweredto operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the
occurrenceor existenceof (I) a default, event of default or other similar condition or event (however
described) in respect of such party, any Credit Support Provider of such party or any applicable
Specified Entity of such party under one or more agreementsor instruments relating to Specified
Indebtednessof any of them (individually or collectively) in an aggregateamount of not less than
the applicableThreshold Amount (as specified in the Schedule)which has resulted in such Specified
Indebtednessbecoming, or becomingcapableat suchtime of being declared,due and payable under
suchagreementsor instruments,before it would otherwisehave beendue and payable or (2) a default
by such party, such Credit Support Provider or such Specified Entity (individually or collectively)
in making one or more paymentson the due date thereof in an aggregateamount of not less than the
applicable Threshold Amount under such agreements or instruments (after giving effect to any
applicablenotice requirementor graceperiod);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified
Entity of suchparty:(I) is dissolved (other than pursuantto a consolidation, amalgamationor merger); (2) becomes
insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay
its debts as they become due; (3) makes a general assignment, arrangement or composition
with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights, or a petition is presentedfor its
4
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winding-up or liquidation, and, in the case of any such proceeding or petition instituted or
presented against it, such proceeding or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed,discharged,stayed or restrainedin eachcase within 30 days
of the institution or presentationthereof; (5) has a resolution passedfor its winding-up, official
managementor liquidation (other than pursuantto a consolidation, amalgamation or merger);
(6) seeks or becomes subject to the appointment of an administrator, provisional liquidator,
conservator,receiver, trustee, custodian or other similar official for it or for all or substantially
all its assets;(7) has a securedparty take possessionof all or substantiallyall its assetsor has
a distress, execution, attachment,sequestrationor other legal process levied, enforced or sued
on or against all or substantiallyall its assetsand such securedparty maintains possession,or
any suchprocessis not dismissed,discharged,stayed or restrained, in eachcase within 30 days
thereafter; (8) causesor is subject to any event with respectto it which, under the applicable
laws of any jurisdiction, has an analogouseffect to any of the events specified in clauses (1)
to (7) (inclusive); or (9) takes any action in furtheranceof, or indicating its consentto, approval
of, or acquiescencein, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider of such party
consolidatesor amalgamateswith, or mergeswith or into, or transfersall or substantially all its assets
to, another entity and, at the time of suchconsolidation, amalgamation,merger or transfer: (1) the resulting, surviving or transferee entity fails to assumeall the obligations of suchparty
or such Credit Support Provider under this Agreement or any Credit Support Document to
which it or its predecessor was a party by operation of law or pursuant to an agreement
reasonably satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the consent of the
other party) to the performance by such resulting, surviving or transferee entity of its
obligations under this Agreement.
(b)
Termination Events. The occurrenceat any time with respectto a party or, if applicable, any Credit
SupportProvider of suchparty or any Specified Entity of suchparty of any event specified below constitutes
an Illegality if the event is specified in (i) below, and, if specified to be applicable, a Credit Event Upon
Merger if the event is specified pursuantto (ii) below or an Additional Termination Event if the event is
specified pursuant to (iii) below:(i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which
a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after
such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b» for
such party (which will be the Affected Party):(1) to perform any absolute or contingent obligation to make a payment or delivery or to
receive a payment or delivery in respect of such Transaction or to comply with any other
material provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform, any contingent
or other obligation which the party (or such Credit Support Provider) has under any Credit
Support Document relating to such Transaction;
(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Scheduleas applying
to the party, suchparty ("X"), any Credit SupportProvider of X or any applicable Specified Entity of X
consolidatesor amalgamateswith, or mergeswith or into, or transfers all or substantially all its assets
to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the
creditworthinessof the resulting, surviving or transfereeentity is materially weakerthan that of X, such
Credit SupportProvider or suchSpecified Entity, asthe casemay be, immediately prior to such action
(and, in suchevent, X or its successoror transferee,as appropriate, will be the Affected Party); or
5
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(ill) Additional Termination Event. If any "Additional Termination Event" is specified in the
Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the
Affected Party or Affected Parties shall be as specified for such Additional Termination Event in
the Schedule or such ConfIrmation).
(c)
Event of Default and Illegality. If an event or circumstance which would otherwise constitute or
give rise to an Event of Default also constitutesan Illegality, it will be treatedas an Illegality and will not
constitutean Event of Default.
6.
Early Termination
(a)
Right to Terminate Following Event of Default. If at any time an Event of Default with respectto
a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting
Party") may, by not more than 20 daysnotice to the DefaultingParty specifyingthe relevantEvent of Default,
designatea day not earlier than the day suchnotice is effective as an Early TerminationDate in respect of
all outstandingTransactions.If, however, "Automatic Early Termination" is specified in the Schedule as
applying to a party, then an Early Termination Date in respect of all outstandingTransactionswill occur
immediately upon the occurrence with respect to such party of an Event of Default specified in
Section 5(a)(vii)(I), (3), (5), (6) or, to the extent analogousthereto, (8), and as of the time immediately
preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the
occurrencewith respectto suchparty of an Event of Default specified in Section5(a)(vii)(4) or, to the extent
analogousthereto,(8).
(b)
Right to TerminateFollowing TerminationEvent.
(i)
Notice. If a TerminationEvent occurs,an Affected Party will, promptly upon becomingaware of
it, notify the other party, specifyingthe nature of that TerminationEventand eachAffected Transaction
and will alsogive suchotherinformationaboutthat TerminationEventasthe otherparty may reasonably
require.
(ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) occurs and there are two
Affected Parties, eachparty will use all reasonableefforts to reach agreementwithin 30 days after
notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.
(ill)
Right to Terminate.If: (1)
an agreementunder Section 6(b)(ii) has not beeneffected with respectto all Affected
Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or
(2)an Illegality other than that referred to in Section 6(b)(ii), a Credit Event Upon Merger
or an Additional Termination Event occurs,
either party in the case of an Illegality, any Affected Party in the case of an Additional Termination
Event if there is more than one Affected Party, or the party which is not the Affected Party in the
caseof a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected
Party may, by not more than 20 days notice to the other party and provided that the relevant
Termination Event is then continuing, designatea day not earlier than the day suchnotice is effective
as an Early Termination Date in respect of all Affected Transactions.
(c)
Effect ofDesignation.
(i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early
Termination Date will occur on the date so designated,whether or not the relevant Event of Default
or Termination Event is then continuing.
6
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(ii) Upon the occurrence or effective designation of an Early Termination Date, no further
payments or deliveries under Section 2(a)(i) or 2(d) in respect of the Terminated Transactions will
be required to be made, but without prejudice to the other provisions of this Agreement. The amount,
if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6( e).
(d)
Calculations.
(i) Statement. On or as soon as reasonably practicable following the occurrence of an Early
Termination Date, eachparty will make the calculations on its part, if any, contemplated by Section 6( e)
and will provide to the other party a statement (1) showing, in reasonable detail, such calculations
(including all relevant quotations and specifying any amount payable under Section 6(e» and (2) giving
details of the relevant account to which any amount payable to it is to be paid. In the absence of written
confIrmation from the source of a quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such
quotation.
(ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date
under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the
case of an Early Termination Date which is designated or occurs as a result of an Event of Default)
and on the day which is two Local Business Days after the day on which notice of the amount payable
is effective (in the case of an Early Termination Date which is designated as a result of a Termination
Event). Such amount will be paid together with (to the extent permitted under applicable law)
interest thereon (before as well as after judgment), from (and including) the relevant Early
Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such
interest will be calculated on the basis of daily compounding and the actual number of days elapsed.
(e)
Payments on Early Termination. If an Early Termination Date occurs, the following provisions
shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation"
or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation"
or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early
Termination Date and determined pursuant to this Section will be subject to any Set-off.
(i)
Events of Default. If the Early Termination Date results from an Event of Defau1t:(I) First Method and Market Quotation. If the First Method and Market Quotation apply, the
Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of
(A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of
the Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party over
(B) the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay
to the Non-defaulting Party,ifa positive number, the Non-defaulting Party's Loss in respect
of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and Market Quotation apply,
an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts
owing to the Non-defaulting Party less (B) the Unpaid Amounts owing to the Defaulting Party.
If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party;
if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount
to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable
equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a
positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative
7
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number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting
Party.
(ii) Termination Events. If the Early Teffilination Date results from a Teffilination Event:(I) One Affected Party. If thereis oneAffected Party,the amountpayablewill be deteffilined in
accordancewith Section6(e)(i)(3), if Market Quotation applies, or Section6(e)(i)(4), if Loss
applies, exceptthat, in eithercase,referencesto the Defaulting Party and to the Non-defaulting
Party will be deemedto be referencesto the Affected Party and the party which is not the
Affected Party, respectively,and, if Loss applies and fewer than all the Transactionsare being
teffilinated,Loss shallbe calculatedin respectof all Teffilinated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:(A) if Market Quotationapplies,eachparty will deteffiline a SettlementAmount in respect
of the Teffilinated Transactions,and an amount will be payable equal to (1) the sum of
(a) one-half of the differencebetweenthe SettlementAmount of the party with the higher
SettlementAmount ("X") andthe SettlementAmount of the party with the lower Settlement
Amount ("Y") and (b) the Unpaid Amountsowing to X less(II) the Unpaid Amounts owing
to Y; and
(B) if Loss applies,eachparty will deteffiline its Loss in respectof this Agreement(or, if
fewer than all the Transactions are being terminated, in respect of all Teffilinated
Transactions)and an amountwill be payableequalto one-halfof the difference betweenthe
Loss of the party with the higher Loss ("X") and the Loss of the party with the lower
Loss ("Y").
If the amountpayable is a positive number, Y will pay it to X; if it is a negative number, X
will pay the absolutevalue of that amountto Y.
(ill) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs
because "Automatic Early Termination"applies in respectof a party, the amountdeterminedunder
this Section 6( e) will be subject to such adjustmentsas are appropriate and permitted by law to
reflect anypaymentsor deliveriesmadeby one party to the other underthis Agreement(and retained
by such other party) during the period from the relevant Early Termination Date to the date for
payment determined under Section6(d)(ii).
(iv) Pre-Estimate. The parties agreethat if Market Quotationapplies an amountrecoverableunder
this Section6(e) is a reasonablepre-estimateof loss and not a penalty. Such amountis payable for
the loss of bargain and the loss of protection againstfuture risks and exceptas otherwise provided
in this Agreementneitherparty will be entitled to recover any additional damagesas a consequence
of suchlosses.
7.
Transfer
Neither this Agreementnor any interestor obligationin or under this Agreementmay be transferred(whether
by way of security or otherwise)by eitherparty without the prior written consentof the other party, except
that:(a)
a party may make such a transfer of this Agreement pursuant to a consolidation amalgamation
with, or merger with or into, or transfer of all or substantiallyall its assetsto, anotherentity (but without
prejudice to any other right or remedyunderthis Agreement);and
(b)
a party may make such a transferof all or any part of its interest in any amountpayableto it from
a DefaultingParty under Section6(e).
Any purported transfer that is not in compliancewith this Sectionwill be void
8
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8.
Miscellaneous
(a)
Entire Agreement.This Agreementconstitutesthe entire agreementand understandingof the parties
with respectto its subject matter and supersedesall oral communication and prior writings with respect
thereto.
(b)
Amendments.No amendment,modification or waiver in respectof this Agreementwill be effective
unless in writing (including a writing evidencedby a facsimile transmission)and executedby each of the
parties or confirmed by an exchangeof telexes or electronicmessageson an electronic messagingsystem.
(c)
Survival of Obligations. Without prejudiceto Sections2(a)(iii) and 6(c)(ii), the obligations of the
parties underthis Agreementwill survive the termination of any Transaction.
(d)
Remedies Cumulative. Except as provided in this Agreement,the rights, powers,.remediesand
privileges provided in this Agreementare cumulative and not exclusive of any rights, powers, remedies
and privileges provided by law.
(e)
Counterpartsand Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect of it) may be
executedand delivered in counterparts(including by facsimile transmission),eachof which will be
deemedan original.
(ii) The partiesintend that they are legallybound by the terms of eachTransactionfrom the moment
they agreeto thoseterms (whether orally or otherwise). A Confirmation shall be enteredinto as
soon as practicable and may be executedand delivered in counterparts (including by facsimile
transmission)or be createdby an exchangeof telexes or by an exchangeof electronicmessageson
an electronic messagingsystem,which in eachcasewill be sufficient for all purposesto evidence
a binding supplementto this Agreement.The partieswill specifythereinor through anothereffective
meansthat any suchcounterpart,telex or electronic messageconstitutesa Confirmation.
(f)
No Waiver ofRights. A failure or delay in exercisinganyright, power or privilege in respectof this
Agreementwill not be presumedto operateas a waiver, and a single or partial exerciseof any right, power
or privilege will not be presumedto preclude any subsequentor further exercise, of that right, power or
privilege or the exerciseof any otherright, power or privilege.
(g)
Headings. The headingsused in this Agreementare for convenienceof referenceonly and are not
to affect the constructionof or to be taken into considerationin interpretingthis Agreement.
9.
Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all
reasonableout-of-pocket expenses,including legal fees, incurred by such other party by reason of the
enforcementand protection of its rights underthis Agreementor any Credit SupportDocumentto which the
DefaultingParty is a party or by reasonof the early terminationof any Transaction,including, but not limited
to, costs of collection.
10.
Notices
(a)
Effectiveness.Any notice or other communicationin respectof this Agreementmay be given in any
mannerset forth below (exceptthat a notice or other communicationunder Section5 or 6 may not be given
by facsimile transmissionor electronic messagingsystem)to the addressor number or in accordancewith
the electronic messaging system details provided (see the Schedule)and will be deemed effective as
indicated:(i)
if in writing and delivered in personor by courier, on the date it is delivered;
(ii)
if sentby telex, on the datethe recipient's answerbackis received;
9
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(ill) if sent by facsimile transmission,on the date that transmissionis received by a responsible
employeeof the recipientin legible form (it beingagreedthat the burdenof proving receiptwill be
on the senderand will not be met by a transmissionreport generatedby the sender's facsimile
machine);
(iv) if sent by certified or registeredmail (airmail, if overseas)or the equivalent (return receipt
requested),on the date that mail is delivered or its delivery is attempted;or
(v) if sentby electronicmessagingsystem,on the datethat electronicmessageis received,
unlessthe date of that delivery (or attempteddelivery) or that receipt,as applicable,is not a Local Business
Day or that communicationis delivered(or attempted)or received,as applicable,afterthe close of business
on a Local BusinessDay, in which casethat communicationshallbe deemedgiven and effective on the first
following day that is a Local BusinessDay.
(b)
Change ofAddresses.Eitherparty may by noticeto the otherchangethe address,telex or facsimile
numberor electronicmessagingsystemdetails at which notices or other communicationsare to be given to
it.
11.
Governing Law and Jurisdiction
(a)
Governing Law. This Agreement will be governed by and construed in accordance with the law
specified in the Schedule.
(b)
Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement
("Proceedings"),eachparty irrevocably: (i) submitsto the jurisdiction of the Englishcourts, if this Agreementis expressedto be governed
by English law, or to the non-exclusivejurisdiction of the courts of the Stateof New York and the
United States District Court located in the Borough of Manhattan in New York City, if this
Agreementis expressedto be governedby the laws of the Stateof New York; and
(ii) waives any objectionwhich it may have at anytime to the laying of venue of anyProceedings
brought in any such court, waives any claim that such Proceedingshave been brought in an
inconvenientforum and further waives the right to object, with respectto suchProceedings,that
suchcourt doesnot have anyjurisdiction over suchparty.
Nothing in this Agreementprecludes either party from bringing Proceedingsin any other jurisdiction
(outside, if this Agreementis expressedto be governedby English law, the ContractingStates,as defined
in Section 1(3) of the Civil Jurisdiction and JudgmentsAct 1982 or any modification, extension or
re-enactmentthereof for the time being in force) nor will the bringing of Proceedingsin anyone or more
jurisdictions precludethe bringing of Proceedingsin any otherjurisdiction.
(c)
Waiver ofImmunities. Eachparty irrevocablywaives,to the fullest extentpermitted by applicable
law, with respectto itself andits revenuesandassets(irrespectiveof their use or intendeduse), all immunity
on the groundsof sovereigntyor othersimilar groundsfrom (i) suit, (ii) jurisdiction of any court, (iii) relief
by way of injunction, order for specificperformanceor for recoveryof property, (iv) attachmentof its assets
(whetherbefore or after judgment) and (v) executionor enforcementof any judgment to which it or its
revenuesor assetsmight otherwise be entitled in any Proceedingsin the courts of any jurisdiction and
irrevocablyagrees,to the extentpermittedby applicablelaw, that it will not claim any suchimmunity in any
Proceedings.
12.
Definitions
As usedin this Agreement:"Additional TerminationEvent" hasthe meaningspecifiedin Section5(b).
"AffectedParty" hasthe meaningspecifiedin Section5(b).
10
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"Affected Transactions" means (a) with respectto any Termination Event consisting of an Illegality, all
Transactions affected by the occurrence of such Termination Event and (b) with respect to any other
Termination Event, all Transactions.
"Affiliate~ means, subject to the Schedule,in relation to any person, any entity controlled, directly or
indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person.For this purpose,"control" of any entity or personmeans
ownership of a majority of the voting power of the entity or person.
"Applicable Rate" means:(a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
by a Defaulting Party, the Default Rate;
(b) in respectof an obligation to pay an amountunder Section6(e) of eitherparty from and after the date
(determined in accordancewith Section 6(d)(ii)) on which that amountis payable,the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would have been but for
Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and
(d)
in all other cases,the Termination Rate.
"consent' includes a consent, approval, action, authorisation, exemption, notice, filing, registration or
exchangecontrol consent.
"Credit Event Upon Merger" hasthe meaningspecified in Section5(b).
"Credit Support Document' meansany agreementor instrumentthat is specified as such in this Agreement.
"Credit Support Provider" has the meaningspecified in the Schedule.
"Default Rate" meansa rate per annum equalto the cost (without proof or evidence of any actual cost) to
the relevantpayee(as certified by it) if it were to fund or of funding the relevant amountplus 1% per annum.
"Defaulting Party" has the meaningspecified in Section6(a).
"Early Termination Date" meansthe date determined in accordancewith Section 6(a) or 6(b)(iii).
"Event ofDefault' has the meaningspecified in Section5(a) and, if applicable, in the Schedule.
"Illegality" hasthe meaningspecified in Section5(b).
"law~ includesanytreaty, law, rule or regulationand"lawful" and"unlawfuP' will be construedaccordingly.
" Local BusinessDay" means, subject to the Schedule,a day on which commercial banks are open for
business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any
obligation under Section2(a)(i), in the place(s)specified in the relevant Confirmationor, if not so specified,
as otherwiseagreedby the parties in writing or determinedpursuantto provisionscontained,or incorporated
by reference,in this Agreement,(b) in relation to any otherpayment, in the place where the relevant account
is located, (c) in relation to any notice or other communication, including notice contemplated under
Section5(a)(i), in the city specified in the addressfor notice provided by the recipient and, in the case of a
notice contemplatedby Section2(b), in the place where the relevant new accountis to be located and (d) in
relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified
Transaction.
"Loss" means,with respectto this Agreementor one or more TerminatedTransactions,as the casemay be,
and a party, an amountthat party reasonablydeterminesin good faith to be its total lossesand costs(or gain,
in which case expressed as a negative number) in connection with this Agreement or that Terminated
Transactionor group of TerminatedTransactions,asthe casemay be, including any loss of bargain, cost of
funding or, at the election of such party but without duplication, loss or cost incurred as a result of its
terminating, liquidating, obtaining or reestablishingany hedge or related trading position (or any gain
11
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resulting from any of them). Loss includeslossesand costs (or gains) in respectof any payment or delivery
requiredto have beenmade (assumingsatisfactionof eachapplicable condition precedent)on or before the
relevantEarly TerminationDate and not made,except,so as to avoid duplication, if Section6(e)(i)(I) or (3)
or 6(e)(ii)(2)(A) applies.Loss does not include a party's legal fees and out-of-pocketexpensesrefeued to
under Section9. A party will determineits Loss as of the relevantEarly TerminationDate, or, if that is not
reasonablypracticable,as of the earliestdate thereafteras is reasonablypracticable.A party may (but need
not) determineits Loss by referenceto quotationsof relevantrates or prices from one or more leading dealers
in the relevantmarkets.
"Market Quotation" means,with respectto one or more TerminatedTransactionsand a party making the
determination, an amount determined on the basis of quotations from Reference Market-makers. Each
quotationwill be for an amount, if any, that would be paid to suchparty (expressedas a negative number)
or by suchparty (expressedasa positive number)in considerationof an agreementbetweensuchparty (taking
into accountany existing Credit SupportDocument with respectto the obligations of such party) and the
quoting ReferenceMarket-makerto enter into a transaction(the "ReplacementTransaction") that would
have the effect of preservingfor suchparty the economic equivalentof any payment or delivery (whether
the underlying obligation was absolute or contingent and assumingthe satisfaction of each applicable
condition precedent)by the parties under Section2(a)(i) in respectof suchTerminatedTransactionor group
of TerminatedTransactionsthat would, but for the occurrenceof the relevant Early TerminationDate, have
beenrequired after that date. For this purpose,Unpaid Amounts in respectof the TerminatedTransactionor
group of TerminatedTransactionsare to be excludedbut, without limitation, any payment or delivery that
would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each
applicable condition precedent) after that Early Termination Date is to be included. The Replacement
Transactionwould be subjectto suchdocumentationas suchparty and the ReferenceMarket-makermay, in
good faith, agree. The party making the determination (or its agent) will request each Reference
Market-makerto provide its quotation to the extent reasonablypracticable as of the same day and time
(without regard to different time zones) on or as soon as reasonablypracticable after the relevant Early
TerminationDate. The day and time as of which thosequotationsare to be obtainedwill be selectedin good
faith by the party obliged to make a determinationunder Section6(e), and, if eachparty is so obliged, after
consultationwith the other. If more than three quotationsare provided, the Market Quotation will be the
arithmetic mean of the quotations,without regardto the quotationshaving the highestand lowest values. If
exactly three such quotations are provided, the Market Quotation will be the quotation remaining after
disregardingthe highestand lowest quotations.For this purpose, if more than one quotationhas the same
highestvalue or lowestvalue, then one of suchquotationsshall be disregarded.If fewer than three quotations
areprovided, it will be deemedthat the Market Quotationin respectof suchTerminatedTransactionor group
of Terminated Transactionscannotbe determined.
"Non-default Rate" meansa rate per annum equalto the cost (without proof or evidenceof any actual cost)
to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount.
"Non-defaulting Party" has the meaningspecified in Section6(a).
" Potential Event ofDefault' meansany eventwhich, with the giving of notice or the lapse of time or both,
would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market selected by the party
determininga Market Quotation in good faith (a) from amongdealers of the highest credit standing which
satisfy all the criteria that suchparty applies generally at the time in deciding whetherto offer or to make
an extensionof credit and (b) to the extentpracticable,from amongsuchdealershaving an office in the same
city.
"Scheduled PaymentDate" meansa date on which a paymentor delivery is to be madeunder Section2(a)(i)
with respectto a Transaction.
"Set-off' meansset-off, offset, combination of accounts,right of retention or withholding or similar right
or requirementto which the payer of an amountunder Section6 is entitled or subject(whetherarising under
12
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this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such
payer.
"Settlement Amount" means,with respectto a party and any Early TerminationDate, the sum of:(a) the Market Quotations (whether positive or negative) for each Terminated Transaction or group of
Terminated Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without referenceto any Unpaid Amounts) for
eachTerminated Transactionor group of Terminated Transactionsfor which a Market Quotation cannot be
determined or would not (in the reasonable belief of the party making the determination) produce a
commercially reasonableresult.
"Specified Entity" has the meaningspecified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future,
contingent or otherwise, as principal or surety or otherwise) in respectof borrowed money.
"Specified Transaction" means,subjectto the Schedule,(a) anytransaction(includingan agreementwith respect
thereto) now existing or hereafterenteredinto betweenone party to this Agreement(or any Credit Support
Providerof suchparty or any applicableSpecifiedEntity of suchparty) andthe otherparty to this Agreement(or
any Credit SupportProvider of suchotherparty or any applicableSpecifiedEntity of suchother party) which is
a rate swaptransaction,basis swap, forward rate transaction,commodity swap, commod~tyoption, equity or
equity index swap, equity or equity index option, bond option, interestrate option, foreign exchangetransaction,
cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currencyrate swap
transaction,currency option or any other similar transaction(including any option with respectto any of these
transactions),(b) any combinationof these transactionsand (c) any other transactionidentified as a Specified
Transactionin this Agreement or the relevant confIrmation.
"Terminated Transaction/' means with respect to any Early Termination Date (a) if resulting from a
TerminationEvent, all Affected Transactionsand (b) if resulting from an Event of Default, all Transactions
(in either case)in effect immediatelybefore the effectivenessof the notice designatingthat Early Termination
Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date).
"Termination Event" meansan Illegality or, if specified to be applicable,a Credit Event Upon Merger or
an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or
evidence of any actual cost) to eachparty (as certified by such party) if it were to fund or of funding such
amounts.
"Unpaid Amounts" owing to any party means,with respectto an Early Termination Date, the aggregateof
(a) in respect of all Terminated Transactions,the amountsthat becamepayable (or that would have become
payable but for Section 2(a)(iii» to suchparty under Section 2(a)(i) on or prior to such Early Termination
Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated
Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for
Section 2(a)(iii» required to be settled by delivery to suchparty on or prior to such Early Termination Date
and which has not been so settled as at such Early Termination Date, an amount equal to the fair market
value of that which was (or would have been) required to be delivered as of the originally scheduled date
for delivery, in eachcasetogetherwith (to the extentpermitted underapplicable law) interest, in the currency
of suchamounts,from (and including) the date such amountsor obligationswere or would have beenrequired
to have beenpaid or performed to (but excluding) suchEarly TerminationDate, at the Applicable Rate. Such
amounts of interest will be calculated on the basis of daily compounding and the actual number of days
elapsed.The fair marketvalue of any obligation referredto in clause(b) above shall be reasonablydetermined
13
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SCHEDULE
Exhibit
to the
MASTER AGREEMENT
datedas of November---' 2007between
WACHOVIA BANK, NATIONAL ASSOCIATION ("Party A")
and UNIVERSITY OF SOUTH ALABAMA ("PartyB")
Part 1. Termination Provisions
(a)
"SpecifiedEntity": nonespecified.
(b)
"Specified Transaction" has its meaningasdefinedin Section12
(c)
"Cross Default" applies to both parties. With respectto Party B, "Cross Defaulf' is amendedby inserting atthe
end of Section 5(a)(vi): "or (3) any default, event of default or other similar condition or event (however
described)under any Financial Agreement (as defmed in the Schedule)."
"Specified Indebtedness" means any obligation (whether present,future, contingent or otherwise, as principal
or surety or otherwise) in respectof borrowed money or relating to the paymentor delivery offunds, securities or
other property (including, without limitation, collateral), other than indebtednessin respectof anybank deposits
received in the ordinary course of business by any foreign branch of a party the repaymentofwmch is prevented,
hindered or delayed by any governmental or regulatory action or law unrelated to the financial condition or
solvency of such party or that foreign branch.
"Threshold Amount" means, with respectParty A, an amount (including its equivalent in another currency)
equal to the higher of $10,000,000 or 2% of its stockholders' equity as reflected on its most recent fmancial
statementsor call reports, and with respectto Party B, $5,000,000, provided that for any Specified Indebtedness
payable by Party B (or any Credit Support Provider of Party B) to Party A or to any of Party A's Affiliates,
Threshold Amount means any amount of such Specified Indebtedness.
(d)
Bankruptcy. Clause(6) of Section5(a)(vii)of this Agreementis herebyamendedto read in its entiretyas
follows:
"( 6)(A) seeksor becomes subjectto the appointmentof an administrator,provisional liquidator, conservator,
receiver,1rustee,custodian or other similar official for it or for all or substantially all its assetsor (B) in the
caseof the Government Entity, any Credit Support Provider of the Government Entity or any applicable
Specified Entity of the Government Entity, (I) there shall be appointed or designated with respectto it, an
entity such as an organization, board, commission, authority, agency or body to monitor, review, oversee,
recommend or declare a fmancial emergency or similar state offmancial distress with respectto it or (ll)
there shall be declared or introduced or proposed for consideration by it or by any legislative or regulatory
body with competentjurisdiction over it, the existence of a state of fmancial emergency or similar stateof
fmancial distress in respect of it;"
(e)
Merger Without Assumption. SectionS(a)(viii)of this Agreementis herebyamended
to readin its entiretyas
follows:
(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates
or amalgamateswith, or merges with or into, or transfers all or substantially all its assetsto, another entity
(or, without limiting the foregoing, if such party is a Government Entity, an entity suchas an organization.
Rev10/22/04
1
III
board, commission, authority, agency or body succeedsto the principal functions of, or powers and duties
granted to, such party or any Credit Support Provider of such party) and, at the time of such consolidation,
amalgamation, merger, transfer or succession:
(1) the resulting, surviving, transferee or successorentity fails to assumeall the obligations of such party or
such Credit Support Provider under this Agreement or any Credit Support Document to which it or its
predecessorwas a party by operation of law or pursuant to an agreementreasonably satisfactoryto the other
party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the consentof the other party) to the
performance by such resulting, surviving, transferee or successor entity of its obligations under this
Agreement."
(t)
"Credit Event Upon Merger" applies to both parties. Section 5(b )(ii) of this Agreement is hereby amended to
read in its entiretYas follows:
"(ii) Credit Event Upon Merger. If"Credit Event Upon Merger" is specified in the Schedule as applying
to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X
consolidates or anlalganlateswith, or merges with or into, or transfers all or substantially all its assetsto,
another entity (or, without limiting the foregoing, if X is the Government Entity, an entity such as an
organization, board, commission, authority, agency or body succeedstothe principal functions of, or powers
and duties granted to, X, any Credit Support Provider of X or any Specified Entity of X) and such action
does not constitute an event described in Section S(a)(viii) but the creditworthiness of the resulting,
surviving, transferee or successorentity is materially weakerthan that ofx, such Credit SupportProvider or
such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its
successoror transferee,as appropriate, will be the Affected Party); or"
(g)
(h)
(i)
"Automatic Early Termination" doesnot applyto eitherparty.
Payments on Early Termination. Except as otherwise provided in this Schedule,"Market Quotation" and
the "Second Method" apply. In the case of any Terminated Transaction that is, or is subject to, any
unexercised option, the words "economic equivalent of any paymentor delivery" appearing in the definition of
"Market Quotation" shall be construed to take into accountthe economic equivalent of the option.
"Additional Termination Event": nonespecified.
G)
Events orDerault. An Event of Default shall not occur with respect to a party under Section 5(a)(v)(l) or (2)
or Section 5(a)( vi) when the failure to payor deliver, or the default, event of default or other similar condition
or event,as the casemay be, arises solely (i) out of a wire transfer problem or an operational or administrative
error or omission (so long as the required funds or property required to make that payment or delivery were
otherwise available to that party), or (ii) from the general unavailability of the relevant currency due to
exchange controls or other similar governmental action, but in either case only if the payment or delivery is
made within three Local Business Days after the problem has been corrected,the error or omission has been
discovered or the currency becomes generally available.
(k)
Notice of Incipient EventsofDefault and Termination Events. Section5 of the Agreementis herebyfurther
amendedby adding newsubsection(d) atthe end thereof,suchnewsubsection(d)to readasfollows:
"(d) Notice oflncipient Events ofDefault and Termination Events. Upon learning of an event
or condition which could lead or give rise to an Event of Default or a Termination Event, the party learning
of such event shall give notice to the other party pursuant to provisions of Section 12 of the Agreement."
Rev 10/22/04
2
(1)
Right to Terminate Following Termination Event. Section6(b)(ili) of the Agreementis amendedby adding
the following last sentence:
Notwithstanding anything to the contrary in this Agreement, an Affected Party will not have the right to
designatean Early Termination Date under Section 6(b )(iii) as a result of an illegality under Section 5(b )(i) if
the Illegality relates to performance by such party of an obligation to make payment under Section 6( e) and
does not relate to an obligation to make payment or delivery under Section 2(a)(i).
(m)
Optional Termination. Party B may, upon at leasttwo (2) BusinessDays' written notice to Party A, terminate
any Transaction in whole or in part, on any Business Day, by designating to Party A the termination date for
suchTransaction. In the eventParty B exercises its right of optional termination hereunder,such termination
shall constitute an Additional Termination Event under Section 6(e) of this Agreementwith Party B asthe sole
Affected Party, and the identified Transaction as the sole Affected Transaction.
In such case, Party A will determine a u.s. Dollar value for the terminated
portion of the Transaction (the
"Cash Settlement Amounf') in accordance with Section 6(e)(i)(4) of the ISDAForm, where Party B is the sole
Affected Party and the Transaction is the sole Affected Transaction. If such Cash Settlement Amount is not
mutually acceptable to Party A and Party B, Party A shall determine the Cash Settlement Amount with respect
to the Transaction in accordance with Section 6(e)(i)(3) of the Agreement, where (A) Party B is the sole
Affected Party and the Transaction is the sole Affected Transaction, (B) the Reference Market Makers
providing quotations are acceptable to both Party A and Party B, and (C) each Reference Market Maker
certifies in writing that such Reference Market Maker is prepared to take an assignment of the Transaction
based upon their respective quotation.
If upon a termination by Party B pursuantto Section 6, Party B would owe a Cash Settlement Amount, then
Party B may terminate pursuant to Section 6 of the Agreement only upon demonstrating to the reasonable
satisfaction of Party A its ability to pay any amount due under Section 6( e) of the Agreement.
Documents
For the purpose of Section 4(a) of this Agreement, eachparty agreesto deliver the following documents:
Party required to
deliver document
Date by which to
be delivered
F 0 rm/Docu m ent/Certifica te
PartyA and
PartyB
Rev10/22/04
Covered by
Section 3(d)
Representation
Evidenceof the authorityandtrue
signaturesof eachofficial or
representative
signingthis
Agreementor, asthe casemaybe,
a Confirmation,on its behalf
On or before
executionof this
Agreementand each
Confirmation
forminga part of
this Agreement.
Yes
Opinionof counselto PartyA, in
form andsubstance
reasonably
satisfactory
to PartyB
On or before
executionof this
Agreementand each
Confirmation
hereunder
No
3
Party required to
deliver document
Date by which to
be delivered
F 0rm/Document/C ertifica te
Covered by
Section3(d)
Representation
PartyB
Opinion of legal counselto Party
B in form and substance
reasonably satisfactoryto Party A
On or before
executionof this
Agreementand each
Confirmation
hereunder
No
Party A and Party
A copyof the annualreportof
suchparty,which in the caseof
PartyA will beWachovia
Corporation,containingaudited
consolidated
financial statements
for eachsuchfiscal year,certified
by independent
certifiedpublic
accountants
Uponrequest,
within 180days(or
assoonas
practicableafter
becomingpublicly
available)afterthe
end of eachof its
fiscalyearswhile
thereare any
obligations
outstandingunder
this Agreement
providedthatParty
A will bedeemedto
havedeliveredsuch
annualreportupon
postingthe sameon
Wachovia
Yes
B
Corporation's
public websiteand
providedfurther
thatPartyB will be
deemedto have
deliveredsuch
annualreportupon
filing the samewith
a Nationally
Recognized
Municipal
Securities
Information
Repository,as
defmedin Rule
l5c2-l2 underthe
SecuritiesExchangeAct of 1934
Rev 10/22/04
4
Party required to
deliver document
Date by which to
be delivered
F 0rm/Docu mentlCertifica te
Coveredby
Section3(d)
Representation
CreditSupportDocument
describedin Part 3(c)
Uponexecutionof
this Agreement.
Yes
PartyB
A certifiedcopyof the most
currentversionof the Covered
Indenture
On or before
executionof this
Agreement
Yes
Party A and Party
Confmnations,updatesand
additionaldocumentation
concerningthe opinionof
counsel,resolutionsand
certificatesdeliveredpursuantto
eachof the foregoingdocuments
to be deliveredasthe otherparty
mayreasonably
request
Priorto the
EffectiveDate of
eachTransaction
afterthe initial
Transaction
hereunder
Yes
Suchotherdocumentsrelevantto
anyTransactionhereunder
asthe
otherpartymayreasonably
request.
Uponrequest
Yes
Party A
And
PartyB
B
Party A and
PartyB
Part 3. Miscellaneous
(a)
Addresses for Notices. For purposes of Section lO(a) of this Agreement, all notices to a party shall, with
respectto any particular Transaction, be sentto its address,telex number or facsimile number specified in the
relevant Confirmation (or as specified below if not specified in the relevant Confirmation), provided that any
notice under Section 5 or 6 of this Agreement, and any notice under this Agreement not related to a particular
Transaction, shall be sent to a party at its addressspecified below.
To Party A:
W ACBOVIA BANK, NAnONAL
301 South College, DC-8
ASSOCIAnON
Charlotte,NC 28202-0600
Attention:BruceM. Young
SeniorVice President,Risk Management
Fax: (704)383-0575
Phone:(704)383-8778
To Party B:
Rev10/22/04
5
UNIVERSITY OF SOUTH ALABAMA
Attention:
Fax:
Phone:
(b)
(c)
"Calculation Agent" means Party A.
"Credit Support Document" means with respectto Party A, the Credit Support Annex dated as of the date
hereto, and with respect to Party B, means the Credit Support Annex dated as of the date hereto and each
document which by its terms secures,guaranteesor otherwise supportsParty B' sobligations hereunderfrom time
to time, whether or not this Agreement, any Transaction, or any type of Transaction entered into hereunderis
specifically referenced or described in any such document.
"Credit Support Default" is amendedby addingatthe end of SectionS(a)(iii)(l):
", any default, event of default or other similar condition or event (however described)exists under any Credit
Support Document, any action is taken to realize upon any collateral provided to secure such party's
obligations hereunder or under any Transaction, or the other party fails at any time to have a valid and
perfected first priority security interest in any such collateral;"
(d)
"Credit Support Provider" meanseachparty to a CreditSupportDocumentthatprovidesor is obligatedto
providesecurity,a guarantyor othercredit supportfor PartyB's obligationshereunder.
(e)
GoverningLaw. This Agreementwill be governedby andconstruedin accordance
with the law(andnotthe
lawof conflicts)of the Stateof NewYork.
(t)
Waiver of Jury Trial. To the extent permitted by applicable law, each party irrevocably waives any and all
right to trial by jury in any legal proceeding in connection with this Agreement, any Credit Support Documentto
which it is a party, or any Transaction.
(g)
Netting of Payments. Section 2(c)(ii) will apply in respectof all Transactionsfrom the date of this
Agreement,provided that Section 2(c)(ii) will not apply with respectto any Transactionsor group of
Transactionsfor whichthe partiesmutuallyagreeshall benettedoperationally.
(h)
Notice of Incipient Illegality. If an Incipient Illegality occurs,the GovernmentEntity will, promptlyupon
becomingawareof it, notify PartyA, specifyingthe natureof that Incipientillegality and will alsogive such
otherinformationaboutthat IncipientIllegalityas PartyA mayreasonably
require.
"'Incipientlllegality'
means (a)the enactmentby any legislative body with competentjurisdiction over the
Government Entity of legislation which. if adopted as law, would render unlawful (i) the performance by the
Government Entity of any absolute or contingent obligation to make a payment or delivery or to receive a
payment or delivery in respectof a Transaction or the compliance by the Government Entity with any other
material provision of this Agreement relating to such Transactionor (ii) the performance by the Government
Entity or a Credit Support Provider of the Government Entity of any contingent or other obligation which
the Government Entity (or such Credit Support Provider)has under any Credit Support Document relating to
suchTransaction, (b) any assertionin any proceeding, forum or action by the Government Entity, in respect
Rev10/22/04
6
of the Government Entity or in respectof any entity located or organized underthe lawsof the statein which
the Government Entity is located to the effect that performance underthis Agreement or similar agreements
is unlawful or (c) the occurrence with respectto the Government Entity or any Credit Support Provider of
the Government Entity of any event that constitutes an illegality."
(i)
Jurisdiction. Section11(b)of this Agreementis herebyamendedto readin its entiretyasfollows:
"(b) Jurisdiction. With respectto any suit, action or proceedingsrelating to this Agreement ('Proceedings'),
each party irrevocably:
(i) submits, to the fullest extent pemlitted by applicable law, to the non-exclusive jurisdiction of each of the
courts of the State of New York, the United States District Court located in the Borough of Manhattan in
New York City, the courts of the state in which the Government Entity or the principal executive offices of
the other party are located and the United States District Court with jurisdiction over the location of the
Government Entity or the principal executive offices of the other party; and
(ii) waives,to the fullest extent pennitted by applicable law, (1) any objection which it may have at anytime
to the laying of venue of any Proceedings brought in any such court, (2) any claim that such Proceedings
have been brought in an inconvenient forum and (3) the right to object, with respectto such Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction nor
will the bringing of Proceedings in anyone or more jurisdictions precludethe bringing of Proceedingsin any
otherjurisdiction."
G)
Deferral of Paymentsand Deliveries in Connectionwith Illegality and Incipient Illegality; Interest on
Deferred Payments. Section2(a)(iii)is herebyamendedto readin its entiretyasfollows:
"(iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no
Event of Default, Illegality, Potential Event ofDefault or Incipient Illegality with respectto the other party
has occurred and is continuing, (2)the condition precedentthat no Early Termination Date in respectof the
relevant Transaction has occurred or been effectively designated and (3) each other applicable condition
precedentspecified in this Agreement."
(k)
Representations. (i) The introductory clause of Section 3 of this Agreement is hereby amendedto read in its
entirety asfollows:"Each party represents to the other party (which representations will be deemed to be repeated by each party
on each date on which a Transaction is entered into and, in the case of the representations in Section 3(a)
and 3(e), at all times until the termination
of this Agreement) that:"
(ii) Section 3(a)(ii) of this Agreement is hereby amendedto read in its entirety asfollows:
"(ii) Powers. It has the power to execute this Agreement and any other documentation relating to this
Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to perform its obligations under this
Agreement and any obligations it has under any Credit Support Document to which it is a party and has
taken all necessary action and made all necessary determinations and findings to authorize such execution.
delivery and performance, the individual(s) executing and delivering this Agreement and any other
documentation (including any Credit Support Document) relating to this Agreement to which it is a pl!rtY or
Rev 10/22/04
7
that it is requiredto deliverareduly empoweredand authorizedto do so,and it has duly executedand
deliveredthis Agreementand anyCreditSupportDocumentto which it is a party";
(iii) Section3(b)of this Agreementis herebyamendedto readin its entiretyasfollows:
"(b) Absence of Certain Events. No Event of Default or Potential Event ofDefault or, to its knowledge,
Incipient Illegality (in the case of the Government Entity) or Termination Event with respect to it has
occurred and is continuing and no such event or circumstancewould occur as a result of its entering into or
performing its obligations under this Agreement or any Credit Support Document to which it is a party."
(1)
Additional Representations. Section 3 is amended by adding the following Sections 3(e), (t), (g), (h), (i), G),
(k), and (1):
"(e) Arm's Length. For any Relevant Agreement: (i) it actsas principal and not as agent, (ii) it acknowledges
that the other party acts only at arm's length and is not its agent,broker, advisor or fiduciary in any respect,and
any agency,brokerage, advisory or fiduciary services that the other party (or any of its Affiliates) may otherwise
provide to the party (or to any of its Affiliates) excludes the Relevant Agreement, (iii) it is relying solely upon its
own evaluation of the Relevant Agreement (including the presentand future results, consequences,risks, and
benefits thereof, whether financial, accounting, tax, legal, or otherwise) and upon advice from its own
professional advisors, (iv) it understands the Relevant Agreement and those risks, has determined they are
appropriate for it, and willingly assumesthose risks, and (v) it has not relied and will not be relying upon any
evaluation or advice (including any recommendation, opinion, or representation) from the other party, its
Affiliates or the representatives or advisors of the other party or its Affiliates (exceptrepresentations expressly
made in the Relevant Agreement or an opinion of counselrequired thereunder).
"Relevant Agreement" means this Agreement, each Transaction, each Confirmation, any Credit Support
Document, and any agreement(including any amendment,modification, transfer or early termination) between
the parties relating to any of the foregoing.
(f) Eligibility. It is an "eligible contractparticipant"within themeaningof the CommodityExchangeAct (as
amendedbythe CommodityFuturesModernizationAct of 2000).
(g) Enforcement of Government Entity's Obligations. The Government Entity representsthat Party A may,
under the laws of the State of Alabama, compel by writ of mandamuspayment by the Government Entity or any
appropriate officer thereof of any amount detennined to be due and owing by the Government Entity under the
tenns of this Agreement and each Transaction hereunder.
(h)Non-Speculation. The GovernmentEntity representsthatthis Agreementhasbeen,andeachTransaction
hereunderwill be (and, if applicable,has been),enteredinto for purposesof managingits borrowingsor
investments
and not for purposesof speculation.
(i) Hedging Purposes. The Government Entity representsthat this Agreementhas been,and eachTransaction
hereunderwill be (and, if applicable, has been), entered into for the purpose of hedging againstan interest rate,
payment, investment, or other similar risk that arises in connection with, or incidental to, the proper activities of
the Government Entity.
G) Net Worth of Party A. PartyA representsthatits networth exceedsUSD100,000,000.
(k) Compliance with Swap Statute. The Government Entity representsthat this Agreement has been, and
each Transaction hereunder will be (and, if applicable, has been), entered into in compliance with Article 3 of
Chapter 1 of Title 41 of the Code of Alabama (1975).
Rev10/22/04
8
(1) Compliance with Derivatives Policy. The Government Entity representsthat (i) the governing body of the
Government Entity has duly adopted that certain Derivatives Policy dated September24,2007 and prepared by
Porter, White & Company (the "Derivatives Policy") and (ii) this Agreement has been, and each Transaction
hereunder will be (and, if applicable, has been),entered into in compliance with the Derivatives Policy.
(m)
Government Entity. As used in this Agreement, "Government Entity" means Party B.
Part4. Other Provisions
(a)
2000
ISDA
(including
Definitions.
its Annex)
This
published
Agreement
and each Transaction
by the International
Swaps
are subject
and Derivatives
to the
2006
Association,
ISDA
Inc.
Definitions
(together,
the
"2006 ISDA Definitions") and will be governed by the provisions of the 2006 ISDA Defmitions. The
provisions of the 2006 ISDA Definitions are incorporated by reference in, and shall form part of, this
Agreement and eachConfirmation. Any referenceto a "Swap Transaction" in the 2006 ISDA Definitions is
deemed to be a reference to a "Transaction" for purposes of this Agreement or any Confirmation, and any
reference to a "Transaction" in this Agreement or any Conflnnation is deemed to be a reference to a "Swap
Transaction" for purposes of the 2006 ISDA Defmitions. The provisions of this Agreement (exclusive of the
2006 ISDA Defmitions) shall prevail in the eventof any conflict between suchprovisions and the 20061SDA
Definitions.
(b)
Scope of Agreement. Any Specified Transaction now existing or hereafterentered into betweenthe parties
(whether or not evidenced by a Confirmation) which constitutes (i) a swap, cap, collar, floor or option on
interest rates in which the transaction is denominated U.S. Dollars, (ii) any other interest rate derivatives
transactiondenominated in U.S. Dollars, (iii) any option on or with respectto any of the foregoing, or (iv) any
combination of any of the foregoing, shall constitutea "Transaction" under this Agreementand shallbe subject
to, governed by, and construed in accordance with the terms of this Agreement, unless the confirming
document(s) for that Specified Transaction provide(s) otherwise. For any such Specified Transaction not
evidenced by a Confirmation, Section 2(a)(i) of this Agreement is amendedto read as follows: "(i) Each party
will make eachpayment or delivery to be made by it under eachTransaction,as specified in eachConfirmation
(or otherwise in accordancewith the terms of that Transaction if not evidenced by a Confirmation), subjectto
the other provisions of this Agreement." In addition, any Specified Transactionbetweenthe parties evidenced
by a Confirmation that by its terms specifies that it is subject to or governed by this Agreement (or an ISDA
Master Agreement betweenthe parties), whether entered into before, on or after the date of this Agreement,
shall constitute a Transaction under this Agreement and shall be subject to, governed by, and construed in
accordance with the terms of this Agreement.
(c)
Set-off. Any amount ("Early Temlination Amounf') payable to one party ("Payee") by the other party
("Payer") under Section 6(e), in circumstanceswhere there is a Defaulting Party or one Affected Party in the
casewhere a Termination Event under Section 5(b )(ii) has occurred, will, atthe option of the party ("X") other
than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected
Party), bereduced by meansof set off againstany amount(s)("Other Agreement Amounf') payable (whether at
suchtime or in the future or upon the occurrenceof a contingency) by the Payeeto the Payeror to anyAffiliate
of the Payer(irrespective of the currency,place of payment or booking office of the obligation) under any other
agreement(s)between the Payee and the Payer (or between the Payee and any Affiliate of the Payer) or
instrument(s) orundertaking(s) issued or executed by the Payeeto, orin the favor of, the Payeror any Affiliate
of the Payer(and the Other Agreement Amount will be discharged promptly and in all respectsto the extent it
is so set-off). X will give notice to the other party of any set-off effected under this paragraph.
Rev10/22/04
9
For this purpose, either the Early Teffilination Amount or the Other Agreement Amount (or the relevant
portion of such amounts)may be converted by X into the currency in which the otheris denominatedatthe rate
of exchange at which suchparty would be able, acting in a reasonablemauner and in good faith, to purchase
the relevant amountof suchcurrency. The teffil "rate of exchange" includes,without limitation, anypremiums
and costs of exchange payable in connection with the purchase of or conversion into the relevant currency.
Nothing in this paragraph shall be effective to create a charge or other security interest. This paragraph shall
be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to
which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise).
(d)
Change of Account. Any account designated by a party pursuant to Section 2(b) shall be in the same legal
and tax jurisdiction as the original account.
(e)
Recorded Conversations. Each party and any of its Affiliates may electronically record any of its telephone
conversations with the other party or with any of the other party's Affiliates in connectionwith this Agreement
or any Transaction, and any suchrecordings may be submitted in evidence in anyproceeding to establish any
matters pertinent to this Agreement or any Transaction.
(t)
Confirmation Procedures. Upon receipt thereof, Party B shall examine the terms of eachConfirmation sent
by Party A, and unless Party B objects to the terms within three New York businessdays after receipt of that
Confmnation, those terms shall be deemed accepted and correct absent manifest error, in which case that
Confmnation will be sufficient to form a binding supplementto this Agreement notwithstanding Section
8(e)(ii) of this Agreement.
(g)
Covenantsof Financial Agreements.
(i) Party B shall provide Party A at all times hereunder with the same covenant protection as Party A requires
of Party B under Financial Agreements. Therefore, in addition to the Cross Default provisions of this
Agreement, and notwithstanding the satisfaction of any obligation or promise to pay money to Party A under
any Financial Agreement, or the termination or cancellationof any Financial Agreement,Party B herebyagrees
to perform, comply with and observe for the benefit of Party A hereunder all affIrmative and negative
covenantscontained in eachFinancial Agreementapplicableto Party B (excluding any obligation or promise to
pay money under any Financial Agreement) at any time Party B has any obligation (whether absolute or
contingent) under this Agreement.
(ii) For purposeshereof: (A) the affirmative and negative covenantsof eachFinancial Agreementapplicable to
Party B (together with related definitions and ancillary provisions, but in any eventexcluding any obligation or
promise to pay money under any Financial Agreement) are incorporated (and upon execution of any future
Financial Agreement, shall automatically be incorporated) by reference herein (mutatismutandis); (B) if other
lenders or creditors are parties to any Financial Agreement, then references therein to the lenders or creditors
shall be deemed references to Party A; and (C) for any such covenant applying only when any loan, other
extension of credit, obligation or commitment under the Financial Agreement is outstanding, that covenant
shall be deemedto apply hereunder at any time Party B has any obligation {whether absolute or contingent)
under this Agreement
(iii) Notwithstanding the foregoing, if the incorporation of any provision by reference from any Financial
Agreement would result in the violation by Party B of the terms of that Financial Agreement, or be in violation
of any law, rule or regulation (as interpreted by any court of competentjurisdiction), thenthis Agreement shall
not incorporate that provision.
Rev10/22/04
10
(h) "Financial Agreernent" rneans (i) each existing or future agreernent or instrument relating to any loan or
extension of credit frorn Party A to Party B (whether or not anyone else is a party thereto), asthe sameexists
when executedand without regard to any termination or cancellation thereof, or unlessconsentedto in writing by
Party A, any amendment, modification, addition, waiver or consent thereto or thereof, and (ii) the Covered
Indenture, as the same exists when executed and without regard to any termination or cancellation thereof, or
unless consented to in writing by Party A for purposes of this Agreement, any amendment, modification,
addition, waiver or consentthereto or thereof.
"Covered Indenture" means that certain r
] dated as of
by and [among]
[between] r
], as amendedand supplemented prior to the date hereof in accordancewith the
terms thereof and asamendedand supplementedfollowing the date hereof in accordance with the terms hereof
and thereof.
(i)
Section4 of this Agreementis herebyamendedby addingthe following subsection"(d)" thereto:
"(d) The obligation of Party B to make payments to Party A under this Agreement and any Transaction
hereunderconstitutes a general obligation of Party B, payable from any legally available source. Except for
Additional Bonds permitted by the Covered Indenture, Party B will not voluntarily create or permit to be
created or causethe creation of any lien on Pledged Revenues that is superior to the obligations of Party B to
make payments to Party A under this Agreement and any Transaction hereunder without the prior written
consentof Party A. Without the prior written consentof Party A, Party B will not voluntarily create or permit
to be created or causethe creation of any lien on any real or tangible personal property or revenues (other than
Pledged Revenues)of Party B in favor of a swap or other derivative provider as security for a swap or other
derivative agreementobligation, unless such lien is also granted to Party A on a parity basis.
For purpose of subsection (d) of Section 4, capitalized tenns used but not defined in this Agreement shallhave
the respective meanings ascribed to them in the covered Indenture."
Rev 10/22/04
11
IN WITNESS WHEREOF, the parties have executedthis Schedule by their duly authorizedsignatoriesas of the date
hereof.
WACHOVIA BANK, NAllONAL ASSOCIAllON
By:
~
Name:
Title:
UNIVERSITY OF SOUTH ALABAMA
By:
Name:
Title:
015679512
Rev10/22/04
12
(C)
"Credit Support Amount" has the meaning specified in Paragraph3
(ii)
Eligible Collateral. The following items will qualify as "Eligible Collateral" for$e party specified,
provided that the SecuredParty shall be entitled at any time, and from time to time, not to accept as
Eligible Collateral any of the following which constitute Ineligible Securities as defmed below:
Party
A~
Party B Valuation
Percentage
(A)
Cash:U.s. Dollars in depositaryaccountform.
YES
YES
100%
(B)
Treasury Bills: negotiable debt obligations issued by the U.S.
Treasury Department having a remaining maturity of not more
than one year.
YES
YFJs
98%
(C)
Treasury Notes: negotiable debt obligations issued by the U.S.
Treasury Department having a remaining maturity of more than
one year but not more than 10 years.
YES
YES
98%
(D)
Treasury Bonds: negotiable debt obligations issued by the U.S.
Treasury Department having a remaining maturity of more than
10 years but not more than 30 years.
YES
YES
98%
(E)
Agency Securities: negotiable debt obligations of the Federal
National Mortgage Association (FNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Federal Home Loan Banks
(FHLB), Federal Farm Credit Banks (FFCB), Student Loan
Marketing Association (SLMA), TennesseeValley Authority
(TV A) having a remaining maturity of not more than 30 years.
NO
YES
92%
(F)
FHLMC Certificates. Mortgage participation certificatesissued
by FHLMC evidencing undivided interests or participations in
pools of first lien conventional or FRAN A residential
mortgages or deedsof trust, guaranteedby FHLMC, and having
a remaining maturity of not more than 30 years.
NO
YES
92%
(G)
FN.MA Certificates. Mortgage-backed pass-throughcertificates
issued by FNMA evidencing undivided interests in pools of
first lien mortgages or deeds of trust on residential properties,
guaranteed by FNMA, and having a remaining maturity of not
more than 30 years.
NO
YES
92%
Rev7/28/04
2
Illegality
Party A
Party B
YES
YES
provided that if the Affected Party would be entitled to receive Eligible Credit Support or Posted Credit
Support but for that Specified Condition, then notwithstanding Sections6(bXii) and (iii) of this Agreement,the
Affected Party may designatean Early Termination Date in respectof all Affected Transactions pursuant to
Section 6(b )(iv) asthe result of any such Termination Event( s) regardlessof whether the condition set forth in
Section 6(b)(iv)(1) has been satisfied.
(e)
(t)
(g)
Substitution.
(i)
"SubstitutionDate" hasthe meaningspecifiedin Paragraph4(d)(ii).
(ii)
Consent. The Pledgor is not required to obtain the Secured Party's consent for any substitution
pursuant to Paragraph4( d) unless the Pledgor is organized under the laws of England or Wales, in
which case such consentshall not be unreasonablywithheld.
DisputeResolution.
(i)
"Resolution Time" means1 :00 p.m., New York time, on the Local Business Day following the date
on which the notice is given that gives rise to a dispute under Paragraph5.
(ii)
Value. For the purpose of Paragraphs5(i)(C) and 5(ii), the Value of Posted Credit Support otherthan
Cashwill be calculated basedupon the mid-point betweenthe bid and offered purchaseratesor prices
for that Posted Credit Support as reported on the Bloomberg electronic service as of the Resolution
Time, or if unavailable, as quoted to the Valuation Agent as of the Resolution Time by a dealer in that
Posted Credit Support of recognized standing selected in good faith by the Valuation Agent, which
calculation shall include any unpaid interest on that Posted Credit Support.
(iii)
Alternative. The provisionsof Paragraph5 will apply.
Holding and UsingPostedCollateraL
(i)
Eligibility to Hold PostedCollateral; Custodians.
(A)
Party A will be entitled to hold Posted Collateral itself or through a Custodian pursuant to Paragraph
6(b), provided that the following conditions applicable to it are satisfied:
(B)
Rev7/28/04
(1)
Party A is not a DefaultingParty.
(2)
PostedCollateralmaybe held only in the followingjurisdiction: the United States.
(3)
The party or entity holdingthe Collateralmaintainsa Credit Rating of at leastBBB+ from
S&P and Baal from Moody's.
(4)
The Custodianis a bank or trust companyhavingtotal assetsin excessof $10 billion.
Party B will be entitled to hold Posted Collateral itself or through its Custodian pursuant to Paragraph
6(b), provided that the following conditions applicable to it are satisfied:
4
1/8
Exhibit
WACHOVIA
V
DRAFT
SWAP TRANSACTION CONFIRMATION
Date:
To:
Address:
Fax:
Attention:
From:
Sir or Madam
WachoviaBank,N.A. ("Wachovia")
Ref.No.
XXXXX
November26,2007
TBD ("Counterparty")
USA
XXX-XXX -:x:xxx
Dear Sir or Madam:
This confinns the tenns of the Transactiondescribed below betweenCounterparty and Wachovia. The defmitions and
provisions contained in the 2006 ISDA Definitions, aspublished by the International Swaps and Derivatives Association,
Inc., are incorporated into this Confinnation. In the event of any inconsistency betweenthose definitions and provisions and
this Confirmation, this Confinnation will govern. Fixed Amounts and Floating Amounts for eachapplicable PaymentDate
hereunderwill be calculated in accordancewith the ISDA Defmitions, and if any Fixed Amount and Floating Amount are
due for the same PaymentDate hereunder,then those amounts shall not be payable and instead the Fixed Rate Payer shall
pay the positive difference, if any, betweenthe Fixed Amount and the Floating Amount, and the Floating Rate Payer shall
pay the positive difference, if any, betweenthe Floating Amount and the Fixed Amount.
The Transactionto which this Confirmation relates is a Swaption, the terms of which are as follows:
1. SwaptionTerms:
Trade Date:
XXXXXXXXXX
Option Style:
Seller:
Buyer:
Premium:
Premium PaymentDate:
Exercise BusinessDays:
2. Procedure for Exercise:
Expiration Date:
Earliest Exercise Time:
European
Counterparty
Wachovia
Expiration Time:
Partial Exercise:
Automatic Exercise:
Fallback Exercise:
Written Confirmation:
3. SettlementTerms:
Settlement:
11:00 a.m. New York time
Inapplicable
Inapplicable
Applicable
Applicable as provided in Section 12.2 of the ISDA Defmitions.
New York
December 16,2013
9:00 a.m. New York time
Physical
4. The terms of the particular Underlying Swap Transactionto which this Swaption relates are as
TransactionType:
Currency for Pavments:
I.em1;.
Trade Date:
Effective Date:
Termination Date:
Interest Rate Swap
U.S. Dollars
XXXXXXXXXX
March 15,2014
March 15, 2024 in respect of Fixed Amounts
March 15,2024 in respectof Floating Amounts, subject to the Following Business
Day Convention.
Wachovia:DRAFT
2/8
FixedAmounts:
FixedRatePayer:
NotionalAmount:
Counterparty
Fora CalculationPeriod,the amountsetforthoppositethat CalculationPeriodon
AttachmentI hereto
PeriodEndDates:
Semi-annually on the 15th of each Septemberand March commencing September15,
2014, through and including the Termination Date; No Adjustment.
PaymentDates:
Semi-annually on the 15th of each September and March commencing September 15,
2014, through and including the Termination Date.
BusinessDayConvention:
BusinessDay:
FixedRate:
FixedRateDay Count
Fraction:
Following
New York
4.9753%
AdditionalFixedAmount:
Fixed AmountPayer:
FixedAmount:
PaymentDate:
30/360
Wachovia
USD 803,215.00
March 15,2014
FloatingAmounts:
FloatingRatePayer:
NotionalAmount:
PeriodEndDates:
PaymentDates:
BusinessDayConvention:
BusinessDay:
FloatingRateOption:
DesignatedMaturity:
Spread:
FloatingRateDay Count
Fraction:
ResetDates:
Methodof Averaging:
Compounding:
Roundingconvention:
Wachovia
For a Calculation Period, the amount set forth opposite that Calculation Period on
Attachment n hereto
Monthly on the 15th of eachmonth, commencing April 15, 2014, through and
including the Termination Date, subjectto adjustment in accordancewith the
Following Business Day Convention.
Monthly on the 15th of eachmonth, commencing April 15, 2014, through and
including the Termination Date.
Following
New York
68% ofUSD-LffiOR-BBA, provided that for purposes of this Transactionthe
defmition ofUSD-LffiOR-BBA appearing in the ISDA Definitions, is amendedby
replacing the words "the day that is two London Banking Days preceding" with the
words "the day that is one London Banking Day preceding". This means that USDLffiOR-BBA for any ResetDate will be setone London Banking Day prior to that
ResetDate rather than two London Banking Days prior to that ResetDate.
1 Month
Plus 0.25%
Actual/Actual
Weeklyon Thursday
WeightedAverage
Inapplicable
5 decimalplacesperthe ISDA Definitions.
5. The additional provisions of this Confmnation are as follows:
Calculation Agent:
PaymentInstructions:
Wachovia
WachoviaBank,N.A.
CIB Group,ABA 053000219
Ref: Derivative Desk (Trade No: XXXXX)
Account #: 04659360006116
Wachovia Contacts:
Settlements
and/orRateResets:
Wachovia: DRAFT
3/8
Tel: (800)249-3865
Fax: (704)383-9139
Documentation:
Tel: (704)383-4599
Fax: (704)383-9139
Collateral:
Tel: (704)383-9529
Payments
to CountefR~:
Pleasequote transactionreferencenumber.
Pleaseprovide written payment instructions.
Wachovia will make no paymentsuntil
written payment instructions are received.
Phone: 1-800-249-3865Fax: 1-704-383-8429
Documentation
If at any time there exists an executedISDA Master Agreement betweenthe parties governing this Transaction,this
Confirmation supplements,forms part of and will be governed by that ISDA Master Agreement, and all provisions contained
or incorporated by reference in that ISDA Master Agreement will govern this Confirmation except as expresslymodified
herein. In the absenceof that ISDA Master Agreement,this Confirmation shall supplement,form a part of, and be subject to
an agreementin the form of the ISDA Master Agreement (Local Currency-Single Jurisdication) published in 1992 by the
International Swaps and Derivatives Association, Inc. asif the parties had executedan agreementin such form (the
provisions of which are hereby incorporated by reference),but without any Schedule except for the election of New York
law (without regard to conflicts of law principles) asthe governing law. Referencesin this Confirmation to the "ISDA
Master Agreement" shall be to whichever of the foregoing is applicable. Neither party is acting as the other party's financial
advisor for this Transaction nor is it relying on the other party for any evaluation of the present or future results,
consequences,risks, and benefits of this transaction, whether financial, accounting, tax, legal, or otherwise.
Wachovia:DRAFT
4/8
Pleaseconfirm that the foregoing correctly setsforth the terms of our agreementby executing a copy of this Confirmation
and returning it to us.
Very truly yours,
WachoviaBank,N.A.
By:
DRAFT
Name:
Title:
Ref.No. XXXXX
Accepted and confinned asof date first abovewritten:
TBD
By:
Name:
Title:
DRAFT
Wachovia:DRAFT
5/8
ATTACHMENT
I -DRAFT
AmortizationSchedulefor xx:xxx
Calculation Period
(from and including, to but excluding)
15 Mar 14
to
15 Sep 14
15 Sep 14
to
15 Mar 15
15 Mar 15
to
15 Sep 15
15 Sep 15
to
15 Mar 16
15 Mar 16
to
15 Sep 16
15 Sep 16
to
15 Mar 17
15 Mar 17
to
15 Sep 17
15 Sep 17
to
15 Mar 18
15 Mar 18
to
15 Sep 18
15 Sep 18
to
15 Mar 19
15 Mar 19
to
15 Sep 19
15 Sep 19
to
15 Mar 20
15 Mar 20
to
15 Sep20
15 Sep20
to
15 Mar 21
15 Mar 21
to
15Sep21
15 Sep21
to
15 Mar 22
15 Mar 22
to
15 Sep22
15 Sep 22
to
15 Mar 23
15 Mar 23
to
15 Sep23
15 Sep23
to
15 Mar 24
USD Notional Amount
us» NotionalReduction
(at
41,245,000.00
41,245,000.00
40,775,000.00
40,775,000.00
40,285,000.00
40,285,000.00
39,670,000.00
39,670,000.00
39,030,000.00
39,030,000.00
38,365,000.00
38,365,000.00
31,440,000.00
31,440,000.00
24,160,000.00
24,160,000.00
16,505,000.00
16,505,000.00
8,455,000.00
8,455,000.00
Dates subject to the Business Day Convention set forth in the Confinnation.
Wachovia:DRAFT
end
of
period)
0.00
470,000.00
0.00
490,000.00
0,00
615,000.00
0.00
640,000.00
0.00
665,000.00
0.00
6,925,000.00
0.00
7,280,000.00
0.00
7,655,000.00
0.00
8,050,000.00
0.00
8,455,000.00
6/8
AlTACHMENT
11- DRAFT
AmortizationSchedulefor XXXXX
Calculation Period
(from and including, to but excluding)
15 Mar 14
to
15 Apr 14
15 Apr 14
to
15 May 14
15 May 14
to
16 Jun 14
16 Jun 14
to
15 Jul14
15 Jul14
to
15 Aug 14
15 Aug 14
to
15 Sep 14
15 Sep 14
to
15 Oct 14
15 Oct 14
to
17Nov14
17 Nov 14
to
15 Dec 14
15 Dec 14
to
15 Jan 15
15 Jan 15
to
17 Feb 15
17 Feb 15
to
16 Mar 15
16 Mar 15
to
15 Apr 15
15 Apr 15
to
15 May 15
15 May 15
to
15 Jun 15
15 Jun 15
to
15 Jul15
15 Jul15
to
17Aug 15
17 Aug 15
to
15 Sep 15
15 Sep 15
to
15 Oct 15
15 Oct 15
to
16 Nov 15
16 Nov 15
to
15 Dec 15
15 Dec 15
to
15 Jan 16
15 Jan 16
to
16 Feb 16
16 Feb 16
to
15 Mar 16
15 Mar 16
to
15 Apr 16
15 Apr 16
to
16 May 16
16 May 16
to
15 Jun 16
15 Jun 16
to
15 Jul16
15 Jul16
to
15 Aug 16
15 Aug 16
to
15 Sep 16
15 Sep 16
to
17 Oct 16
17 Oct 16
to
15 Nov 16
15 Nov 16
to
15 Dec 16
15 Dec 16
to
17 Jan 17
17Jan17
to
15Feb17
15 Feb 17
to
15 Mar 17
15Mar17
to
17Apr17
17Apr17
to
15 May 17
15 May 17
to
15Jun17
15 Jun 17
to
17Jul17
17Jul17
to
15Aug17
15Aug17
to
15Sep17
15 Sep 17
to
16 Oct 17
16 Oct 17
to
15 Nov 17
15Nov17
to
15Dec17
usn NotionalAmount
usn NotionalReduction
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,OaO.00
41,245,000.00
41,245,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
(at endof period)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
470,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
490,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
615,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Wachovia:DRAFT
8/8
CalculationPeriod
(from and including,to but excluding)
15Dec21
to
18Jan22
18Jan22
to
15 Feb22
15 Feb22
to
15Mar 22
15Mar 22
to
15 Apr 22
15 Apr 22
to
16 May 22
16 May 22
to
15Jon22
15Jon 22
to
15Jul22
15Jul22
to
15Aug 22
15Aug 22
to
15 Sep22
15 Sep22
to
17Oct22
17Oct22
to
15Nov 22
15 Nov 22
to
15Dec22
15Dec 22
to
17Jan23
17Jan23
to
15 Feb23
15 Feb23
to
15Mar 23
15Mar 23
to
17Apr23
17Apr23
to
15 May 23
15 May 23
to
15Jon23
15Jon23
to
17Jul23
17Jul23
to
15Aug 23
15Aug 23
to
15 Sep23
15 Sep23
to
16 Oct23
16 Oct23
to
15Nov 23
15 Nov 23
to
15Dec23
15Dec23
to
16Jan24
16Jan24
to
15 Feb24
15 Feb24
to
15Mar 24
usn NotionalAmount
24,160,000.00
24,160,000.00
24,160,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
Wachovia:DRAFT
USD Notional Reduction
0.00
0.00
7,655,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,050,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,455,000.00
1/11
Exh~bit VI
WACHOVIA
Date:To:
Address:
Fax:
Attention:
From:
Ref.No.
DRAFf
SWAP TRANSACTION CONFIRMATION
November13,2007
TBD("Counterparty")
USA
XXX-XXX -XXXX
Sir or Madam
WachoviaBank,N.A.("Wachovia")
x:xx:xx
Dear Sir or Madam:
This confinns the tenus of the Transactiondescribedbelow betweenCounterpaIiy and Wachovia. The definitions and
provisions contained in the 2006 ISDA Definitions, as published by the International Swapsand Derivatives Association,
Inc., are incorporated into this Confinnation. In the event of any inconsistencybetweenthose defmitions and provisions and
this Confinnation, this Conflrtnation will govern. Fixed Amounts and Floating Amounts for eachapplicable PaymentDate
hereunderwill be calculated in accordancewith the ISDA Defmitions, and if any Fixed Amount and Floating Amount are
due for the same PaymentDate hereunder,then those amounts shall not be payable and insteadthe Fixed Rate Payer shall
pay the positive difference, if any, betweenthe Fixed Amount and the Floating Amount, and the Floating Rate Payer shall
pay the positive difference, if any, betweenthe Floating Amount and the Fixed Amount.
The Transactionto which this Confirmation relates is a Swaption,the terms of which are asfollows:
1. Swaption Terms:
Trade Date:
XXXXXXXXXX
Option Style:
Seller:
Buyer:
Premiunt:
Premiunt PaymentDate:
Exercise BusinessDays:
2. Procedure for Exercise:
Expiration Date:
Earliest Exercise Time:
European
Counterparty
Wachovia
Expiration Time:
Partial Exercise:
Automatic Exercise:
Fallback Exercise:
Written Confirmation:
3. SettlementTerms:
Settlement:
11:00 a.m. New York time
Inapplicable
Inapplicable
Applicable
Applicable as provided in Section 12.2 of the ISDA Definitions.
New York
September01, 2016
9:00 a.m. New York time
Physical
4. The tenns of the particular Underlying Swap Transaction to which this Swaption relates are asfollows:
TransactionTYl2e:
Currency for Pavments:
InterestRate Swap
U.S. Dollars
Tenn:
Trade
Date:
Effective Date:
Tennination Date:
XXXXXXXXXX
I
December01,2016
December 01, 2036 in respectof Fixed Amounts
December01,2036 in respect of Floating Amounts, subjectto the Following Business
Day Convention.
Wachovia: DRAFT
2/11
FixedAmounts:
FixedRatePayer:
NotionalAmount:
PeriodEndDates:
PaymentDates:
BusinessDayConvention:
BusinessDay:
FixedRate:
FixedRateDay Count
Fraction:
AdditionalFixedAmount:
Fixed AmountPayer:
FixedAmount:
Paymentdate:
FloatingAmounts:
FloatingRatePayer:
NotionalAmount:
PeriodEndDates:
PaymentDates:
BusinessDayConvention:
BusinessDay:
FloatingRateOption:
Designated
Maturity:
Spread:
FloatingRateDay Count
Fraction:
ResetDates:
Methodof Averaging:
Compounding:
Roundingconvention:
Counterparty
For a Calculation Period, the amount set forth opposite that Calculation Period on
Attachment I hereto
Semi-annually on the 1st of eachJune and Decembercpmmencing June 01, 2017,
through and including the Termination Date; No Adjustment.
Semi-annually on the 1stof eachJune and Decembercommencing June 01, 2017,
through and including the Termination Date.
Following
New York
5.00%
30/360
Wachovia
USD 2,212,814.00
December1,2016
Wachovia
For a Calculation Period, the amount set forth opposite that Calculation Period on
Attachment II hereto
Monthly on the 1st of eachmonth, commencing January 03, 2017, through and
including the Termination Date, subject to adjustment in accordancewith the
Following Business Day Convention.
Monthly on the 1st of eachmonth, commencing January 03, 2017, through and
including the Termination Date.
Following
New York
68% ofUSD-LmOR-BBA, provided that for purposes of this Transactionthe
definition ofUSD-LmOR-BBA appearing in the ISDA Defmitions, is amended by
replacing the words "the day that is two London Banking Days preceding" with the
words "the day that is one London Banking Day preceding". This means that USDLmOR-BBA for any ResetDate will be setone London Banking Day prior to that
ResetDate rather than two London Banking Days prior to that ResetDate.
1 Month
Plus 0.25%
Actual/Actual
Weeklyon Thursday
WeightedAverage
Inapplicable
5 decimalplacesperthe ISDA Definitions.
5. The additional provisions of this Confirmation are as follows:
CalculationAgent:
PaymentInstructions:
WachoviaContacts:
Wachovia
WachoviaBank,N.A.
CIB Group,ABA 053000219
Ref: DerivativeDesk(TradeNo: XXXXX)
Account#: 04659360006116
Settlements
and/orRateResets:
Tel: (800)249-3865
Wachovia:DRAFT
3/11
Fax: (704)383-9139
Documentation:
Tel: (704)383-4599
Fax: (704)383-9139
Collateral:
Tel: (704)383-9529
Paymentsto Counte!:12~:
Pleasequote transactionreferencenumber.
Pleaseprovide written payment instructions.
Wachovia will make no payments until
written payment instructions are received.
Phone: 1-800-249-3865Fax: 1-704-383-8429
Documentation
If at any time there exists an executedISDA Master Agreement betweenthe parties governing this Transaction,this
Confirmation supplements,forms part of and will be governed by that ISDA Master Agreement, and all provisions contained
or incorporated by reference in that ISDA Master Agreement will govern this Confmnation exceptas expresslymodified
herein. In the absenceof that ISDA Master Agreement,this Confirmation shall supplement,form a part of, and be subjectto
an agreementin the form of the ISDA Master Agreement (Local Currency-Single Jurisdication) published in 1992 by the
International Swaps and Derivatives Association, Inc. as if the parties had executedan agreementin such form (the
provisions of which are hereby incorporated by reference),but without any Schedule except for the election of New York
law (without regard to conflicts of law principles) as the governing law. Referencesin this Confirmation to the "ISDA
Master Agreement" shall be to whichever of the foregoing is applicable. Neither party is acting as the other party's financial
advisor for this Transactionnor is it relying on the other party for any evaluation of the presentor future results,
consequences,risks, and benefits of this transaction, whether financial, accounting, tax, legal, or otherwise.
Wachovia:DRAFT
4/11
Please confinn that the foregoing correctly sets forth the tenDSof our agreementby executing a copy of this Confinnation
and returning it to us.
Very truly yours,
WachoviaBank,N.A.
By:
Name:
Title:
DRAFT
Ref.No.xxx:xx
Accepted and continued asof date first above written:
TBD
By:
Name:
Title:
DRAFT
Wachovia:DRAFT
5/11
ATTACHMENT I -DRAFT
Amortization Schedule for XXXXX
Calculation Period
(from andincluding,to but excluding)
01 Dec 16
to
01 Jun 17
01 Jun 17
to
01 Dec 17
01 Dec 17
to
01 Jun 18
01 Jun 18
to
01 Dec 18
01 Dec 18
to
01 Jun19
01 Jun19
to
01 Dec 19
01 Dec 19
to
01 Jun20
01 Jun20
to
01 Dec 20
01 Dec20
to
01 Jun21
01 Jun21
to
01 Dec21
01 Dec21
to
01 Jun22
01 Jun22
to
01 Dec 22
01 Dec22
to
01 Jun23
01 Jun23
to
01 Dec 23
01 Dec23
to
01 Jun 24
01 Jun24
to
01 Dec 24
01 Dec 24
to
01 Jun25
01 Jun25
to
01 Dec 25
01 Dec25
to
01 Jun26
01 Jun26
to
01 Dec26
01 Dec26
to
01 Jun27
01 Jun27
to
01 Dec 27
01 Dec 27
to
01 Jun28
01 Jun28
to
01 Dec28
01 Dec28
to
01 Jun29
01 Jun29
to
01 Dec 29
01 Dec 29
to
01 Jun30
01 Jun30
to
01 Dec30
01 Dec30
to
01 Jun31
01 Jun31
to
01Dec31
01 Dec31
to
01 Jun32
01 Jun32
to
01 Dec32
01 Dec32
to
01 Jun33
01 Jun33
to
01 Dec33
01 Dec33
to
01 Jun 34
01 Jun34
to
01 Dec 34
01 Dec 34
to
01 Jun35
01 Jun35
to
01 Dec 35
01 Dec 35
to
01 Jun36
01 Jun36
to
01 Dec 36
usn Notional Amount
us» NotionalReduction
(at
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
94,400,000.00
94,400,000.00
88,515,000.00
88,515,000.00
82,325,000.00
82,325,000.00
75,820,000.00
75,820,000.00
68,980,000.00
68,980,000.00
61,790,000.00
61,790,000.00
54,230,000.00
54,230,000.00
46,285,000.00
46,285,000.00
37,930,000.00
37,930,000.00
29,145,000.00
29,145,000.00
19,910,000.00
19,910,000.00
10,205,000.00
10,205,000.00
Dates subject to the Business Day Convention set forth in the Confirmation.
Wachovia: DRAFT
end
of
period)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,600,000.00
0.00
5,885,000.00
0.00
6,190,000.00
0.00
6,505,000.00
0.00
6,840,000.00
0.00
7,190,000.00
0.00
7,560,000.00
0.00
7,945,000.00
0.00
8,355,000.00
0.00
8,785,000.00
0.00
9,235,000.00
0.00
9,705,000.00
0.00
10,205,000.00
6/11
ATTACHMENT 11-DRAFT
AmortizationSchedulefor XXXXX
Calculation Period
(from and including, to but excluding)
01 Dec 16
to
03 Jan 17
03 Jan 17
to
01 Feb 17
01Feb17
to
01 Mar 17
01 Mar 17
to
03Apr17
03 Apr 17
to
01 May 17
01 May 17
to
01 Jun 17
01 Jun 17
to
03Jul17
03 Jul17
to
01 Aug 17
01Aug17
to
01 Sep 17
01 Sep 17
to
02 Oct 17
02 Oct 17
to
01Nov17
01Nov17
to
01Dec17
01 Dec 17
to
02 Jan 18
02 Jan 18
to
01 Feb 18
01 Feb 18
to
01 Mar 18
01 Mar 18
to
02 Apr 18
02 Apr 18
to
01 May 18
01 May 18
to
01 Jun 18
01 Jun 18
to
02 Jul18
02 Jul18
to
01 Aug 18
01 Aug 18
to
04 Sep 18
04 Sep 18
to
01 Oct 18
01 Oct 18
to
01 Nov 18
01 Nov 18
to
03 Dec 18
03 Dec 18
to
02 Jan 19
02 Jan 19
to
01 Feb 19
01 Feb 19
to
01 Mar 19
01 Mar 19
to
01 Apr 19
01 Apr 19
to
01 May 19
01 May 19
to
03 Jun 19
03 Jun 19
to
01 Jul19
01 Jul19
to
01 Aug 19
01 Aug 19
to
03 Sep 19
03 Sep 19
to
01 Oct 19
01 Oct 19
to
01 Nov 19
01 Nov 19
to
02 Dec 19
02 Dec 19
to
02 Jan 20
02 Jan 20
to
03 Feb 20
03 Feb 20
to
02 Mar 20
02 Mar 20
to
01 Apr 20
01 Apr20
to
01 May 20
01 May 20
to
01 Jun20
01 Jun 20
to
01 Jul20
01 Jul20
to
03 Aug 20
03 Aug 20
to
01 Sep20
usn Notional Amount
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
Wachovia: DRAFT
usn Notional Reduetion
(atend of period)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7/11
Calculation Period
(from and including, to but excluding)
01 Sep20
to
01 Oct 20
01 Oct 20
to
02 Nov 20
02 Nov 20
to
01 Dec 20
01 Dec 20
to
04 Ian 21
04 Ian 21
to
01 Feb21
01 Feb21
to
01 Mar 21
01 Mar 21
to
01 Apr 21
01 Apr 21
to
03 May 21
03 May 21
to
01 IuD 21
01 Iun 21
to
01 Iul21
01 Iul21
to
02 Aug 21
02 Aug 21
to
01 Sep21
01 Sep21
to
01 Oct 21
01 Oct 21
to
01 Nov 21
01 Nov 21
to
01 Dec 21
01 Dec 21
to
03 Ian 22
03 Ian 22
to
01 Feb 22
01 Feb 22
to
01 Mar 22
01 Mar 22
to
01 Apr22
01 Apr 22
to
02 May 22
02 May 22
to
01 Iun 22
01 Iun 22
to
01 Iul22
01 Iul22
to
01 Aug 22
01 Aug 22
to
01 Sep 22
01 Sep22
to
03 Oct 22
03 Oct 22
to
01 Nov 22
01 Nov 22
to
01 Dec 22
01 Dec 22
to
03 Ian 23
03 Ian 23
to
01 Feb 23
01 Feb 23
to
01 Mar 23
01 Mar 23
to
03 Apr 23
03 Apr 23
to
01 May 23
01 May 23
to
01 Iun 23
01 Iun 23
to
03 IuI 23
03 Iul23
to
01 Aug 23
01 Aug 23
to
01 Sep23
01 Sep23
to
02 Oct 23
02 Oct 23
to
01 Nov 23
01 Nov23
to
01 Dec23
01 Dec 23
to
02 Ian 24
02 Ian 24
to
01 Feb 24
01 Feb 24
to
01 Mar 24
01 Mar 24
to
01 Apr24
01 Apr 24
to
01 May 24
01 May 24
to
03 Iun 24
03 Iun 24
to
01 Iul24
01 Iul24
to
01 Aug 24
01 Aug 24
to
03 Sep 24
usn Notiona! Amount
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
Wachovia:DRAFT
usn Notional Reduction
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8/11
Calculation Period
(from and including, to but excluding)
03 Sep 24
to
01 Oct 24
01 Oct 24
to
01 Nov24
01 Nov 24
to
02 Dec 24
02 Dec 24
to
02 Jan 25
02 Jan 25
to
03 Feb 25
03 Feb 25
to
03 Mar 25
03 Mar 25
to
01 Apr 25
01 Apr 25
to
01 May 25
01 May 25
to
02 Jon 25
02 Jon 25
to
01 Jul25
01 Ju125
to
01 Aug 25
01 Aug 25
to
02 Sep25
02 Sep25
to
01 Oct 25
01 Oct 25
to
03 Nov 25
03 Nov 25
to
01 Dec 25
01 Dec 25
to
02 Jan 26
02 Jan 26
to
02 Feb 26
02 Feb 26
to
02 Mar 26
02 Mar 26
to
01 Apr26
01 Apr26
to
01 May 26
01 May 26
to
01 Jon 26
01 Jon 26
to
01 Ju126
01 Jol26
to
03 Aug 26
03 Aug 26
to
01 Sep26
01 Sep26
to
01 Oct 26
01 Oct 26
to
02 Nov 26
02 Nov 26
to
01 Dec 26
01 Dec 26
to
04 Jan 27
04 Jan 27
to
01 Feb 27
01 Feb 27
to
01 Mar 27
01 Mar 27
to
01 Apr27
01 Apr 27
to
03 May 27
03 May 27
to
01 Jon 27
01 Jon 27
to
01 Ju127
01 Jol27
to
02 Aug 27
02 Aug 27
to
01 Sep 27
01 Sep 27
to
01 Oct 27
01 Oct 27
to
01 Nov27
01 Nov 27
to
01 Dec 27
01 Dec 27
to
03 Jan 28
03 Jan 28
to
01 Feb 28
01 Feb 28
to
01 Mar 28
01 Mar 28
to
03 Apr 28
03 Apr 28
to
01 May 28
01 May 28
to
01 Jon 28
01 Jon 28
to
03 Ju128
03 Jul28
to
01 Aug 28
01 Aug 28
to
01 Sep28
USD Notional Amount
100,000,000.00
100,000,000.00
100,000,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
Wachovia: DRAFT
USD Notional Reduction
0.00
0.00
5,600,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,885,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6,190,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6,505,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9/11
Calculation Period
(from and including, to but excluding)
01 Sep28
to
02 Oct 28
02 Oct 28
to
01 Nov 28
01 Nov 28
to
01 Dec 28
01 Dec 28
to
02 Jan 29
02 Jan 29
to
01 Feb 29
01 Feb 29
to
01 Mar 29
01 Mar 29
to
02 Apr 29
02 Apr 29
to
01 May 29
01 May 29
to
01 Jun 29
01 Jun 29
to
02 Jul29
02 Jul29
to
01 Aug 29
01 Aug 29
to
04 Sep 29
04 Sep 29
to
01 Oct 29
01 Oct 29
to
01 Nov 29
01 Nov 29
to
03 Dec 29
03 Dec 29
to
02 Jan 30
02 Jan 30
to
01 Feb 30
01 Feb 30
to
01 Mar 30
01 Mar 30
to
01 Apr 30
01 Apr 30
to
01 May 30
01 May 30
to
03 Jun 30
03 Jun 30
to
01 Jul30
01 Jul 30
to
01 Aug 30
01 Aug 30
to
03 Sep30
03 Sep30
to
01 Oct 30
01 Oct 30
to
01 Nov 30
01 Nov 30
to
02 Dec 30
02 Dec 30
to
02 Jan31
02 Jan31
to
03 Feb 31
03 Feb31
to
03 Mar 31
03 Mar 31
to
01 Apr31
01 Apr 31
to
01 May 31
01 May 31
to
02 Jun31
02 Jun31
to
01 Jul31
01 Jul31
to
01 Aug31
01 Aug 31
to
02 Sep31
02 Sep31
to
01 Oct 31
01 Oct 31
to
03 Nov 31
03 Nov 31
to
01 Dec 31
01 Dec 31
to
02 Jan 32
02 Jan 32
to
02 Feb 32
02 Feb 32
to
01 Mar 32
01 Mar 32
to
01 Apr 32
01 Apr 32
to
03 May 32
03 May 32
to
01 Jun 32
01 Jun 32
to
01 Jul32
01 Jul32
to
02 Aug 32
02 Aug 32
to
01 Sep32
usn Notional Amount
75,820,000.00
75,820,000.00
75,820,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
Wachovia:DRAFT
usn NotionalReduction
0.00
0.00
6,840,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,190,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,560,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,945,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
10/11
Calculation Period
(from and including, to but excluding)
01 Sep32
to
01 Oct 32
01 Oct 32
to
01 Nov 32
01 Nov 32
to
01 Dec 32
01 Dec 32
to
03 Jan 33
03 Jan 33
to
01 Peb 33
01 Feb 33
to
01 Mar 33
01 Mar 33
to
01 Apr 33
01 Apr 33
to
02 May 33
02 May 33
to
01 Jun 33
01 Jun 33
to
01 Jul33
01 Jul33
to
01 Aug 33
01 Aug 33
to
01 Sep33
01 Sep33
to
03 Oct 33
03 Oct 33
to
01 Nov 33
01 Nov 33
to
01 Dec 33
01 Dec 33
to
03 Jan 34
03 Jan 34
to
01 Peb 34
01 Feb 34
to
01 Mar 34
01 Mar 34
to
03 Apr 34
03 Apr 34
to
01 May 34
01 May 34
to
01 Jun 34
01 Jun 34
to
03 Jul34
03 Jul34
to
01 Aug 34
01 Aug 34
to
01 Sep 34
01 Sep 34
to
02 Oct 34
02 Oct 34
to
01 Nov 34
01 Nov 34
to
01 Dec 34
01 Dec 34
to
02 Jan 35
02 Jan 35
to
01 Feb 35
01 Feb 35
to
01 Mar 35
01 Mar 35
to
02 Apr35
02 Apr 35
to
01 May 35
01 May 35
to
01 Jun 35
01 Jun 35
to
02 Jul 35
02 Jul35
to
01 Aug 35
01 Aug 35
to
04 Sep 35
04 Sep35
to
01 Oct 35
01 Oct 35
to
01 Nov 35
01 Nov 35
to
03 Dec 35
03 Dec 35
to
02 Jan 36
02 Jan 36
to
01 Feb 36
01 Feb 36
to
03 Mar 36
03 Mar 36
to
01 Apr 36
01 Apr 36
to
01 May 36
01 May 36
to
02 Jun 36
02 Jun 36
to
01 Jul36
01 Jul36
to
01 Aug 36
01 Aug 36
to
02 Sep36
usn Notional Amount
46,285,000.00
46,285,000.00
46,285,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
Wachovia: DRAFT
USD Notional Reduction
0.00
0.00
8,355,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,785,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,235,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,705,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
11/11
Calculation Period
(from and including, to but excluding)
02 Sep36
to
01 Oct 36
01 Oct 36
to
03 Nov 36
03 Nov 36
to
01 Dec 36
usn Notional Amount
10,205,000.00
10,205,000.00
10,205,000.00
Wachovia: DRAFT
USD Notional Reduction
0.00
0.00
10,205,000.00
Name:
Exhibit
VII
GENERALCERTIFICATEOFUNIVERSITY OFSOUm ALABAMA
The undersignedofficers of University of SouthAlabama,a public corporationorganizedunder
the laws of the Stateof Alabama(the "Party B"), do herebycertify asfollows:
1.
This certificate is being delivered in connectionwith the executionand delivery of the
Master Agreement dated as of
, 2007 between Party B and Wachovia Bank, National
Association("Party A") (the "ISDA MasterAgreement"),a Scheduleto the Master Agreementdatedas
of
, 2007betweenParty A andParty B (the "ISDA Schedule"),and a Credit SupportAnnex to
the Master Agreementdatedas of
.2007 betweenParty A and Party B (the "ISDA Credit
SupportAnnex", together with the ISDA Master Agreementand the ISDA Schedule,the "Master
Agreement"). The Master Agreementis supplementedby a Confirmationof a Transactiondated as of
.2007 of a $
swaption between Party A and Party B (the "2014
Confmnation") and by a Confmnation of a Transaction dated as of
.2007 of a
$
swaptionbetweenParty A and Party B (the "2016 Confmnation", together with the
Master Agreementand the 2014 Confmnation, the "Financing Documents"). Capitalized terms not
otherwisedefmedhereinshallhavethe meaningassignedin the FinancingDocuments.
2.
Eachof the following namedpersonsis (and was at the time of executionby him or her
of anydocumentsor instrumentsdeliveredon behalfof Party B in connectionwith executionand delivery
of the FinancingDocuments)a duly elected,qualified and acting officer of Party B holding the office or
offices setforth belowhis or hername:
Name and Office
Signature
Title:
Name:
Title:
Name:
Title:
The signatureappearingoppositethe nameof eachpersonidentified aboveis his or her genuinesignature.
3.
Attached hereto as Exhibit A is a true, correct and complete copy of the original
certificate of incorporationof Party B and any amendments
thereto. Said certificateof incorporationhas
not beenamendedor changed(exceptas setforth in the amendments,if any, includedin Exhibit A) and is
in full force and effect.
4.
Attachedheretoas Exhibit B is a true, correctand completecopy of the bylaws of Party
B. Saidbylaws have not beenamendedor changedandare in full force and effect.
01567102.2
Dated:
Secretary
[S EAL]
2
01567102.2
Exhibit A
Certificate of Incorporation
Seeattached.
01567102.2
Exhibit B
Bylaws
Seeattached.
01567102.2
Exhibit C
Derivatives Policy
Seeattached.
01567102.2
Exhibit D
Authorizing Resolution
Seeattached.
01567102.2
Exhibit E
CoveredIndenture
Seeattached.
01567102.2
Exhibit
VIII
XXXX,2007
University of SouthAlabama
Attn: Ken Davis
380 Administration Building
Mobile, Alabama 36688
Fairness Opinion on Series 2004 and 2006 Swaptions
Executed on [ J with Wachovia Bank N.A.
Dear Mr. Davis
We perfonned a mid-market valuation at the time of executionof the Series
2004 and 2006 Swaptionstransactedwith Wachovia Bank N .A. on [ ]. The details of
the transactionsare as specified in the attachedtrade confirmationsnumberedXX and
YY. It is our opinion that the transactionswere [fairly] priced and [confonned] to the
terms negotiatedprior to execution.
Prior to transactingthe Swaptions,Wachovia and the University had agreed
that Wachovia would earn a spreadof 6.5 basis points on eachtransaction.! The present
value of one basispoint, at the time of transaction,was approximatelyequal to $[19,500]
and $[65,500] for the series2004 and 2006 swaptionsand would result in a dollar spread
of$[126,750] and $[425,750] respectively. It is our opinion that theseare reasonable
spreadsbased on the negotiatedterms of the Schedule,Credit SupportAnnex, and Trade
ConflrInations as well current marketconditions.
At the time of the transactions,the mid-marketvalue, transactionprice, and
actual spreadsfrom mid-marketwere asfollows:
Transaction
Series2004 Swaption
Series2006 Swaption
Mid-Market Value
TransactionPrice
TransactionSpread
1 Wachovia' s breakdown of the spreadis 1.5 bps for hedging, 1 bps for credit, and 4 bps for profit.
G:\721-3\docs\fairness opinion xx.xx.2007 .doc 111/30/200711:57 PM 11
The method used by Porter,White & Companyto value swapsis
commonly referred to asthe zero couponmethod, which as~umesthat future floating
rates arethosepredicted by the currentterm structureof interestrates. Expectedfuture
cashflows are then discountedto a presentvalue using discountfactors derived from
current interestrates. Options on swapsare accountedfor using an option valuation
model that takes into accountmarketimplied volatility of future interestrates.
Do not hesitateto contactme if you have anyquestions.
Sincerely,
C. JohanGrabs
Enclosures:
Trade ConfIrmations
Market Data Sheet
G:\721-3\docs\fairness opinion xx.xx.2007.doc 111/30/200711:57 PM 12
2.2 HedgeEffectiveness/Summary:Underthe LffiOR basedoption, the
cashflows tied to the floating rate interestrate paymentscan reasonably
be expected,basedon historicalrates,to effectivelyhedgethe floating
rate interestpaymentsonthe assumedVariable RateDemandNotes
(VRDN) issues,assumingall othercritical tenns areequal. However,
dueto factorsthat may affectthe tax-exemptmarketand lor the LffiOR
market,additionalbasisrisk will needto be considered.
2.3 InterestRateRisks: If the Universitychoosesto collateralizethe value of
the swaption,it will haveto postadditionalcollateralif long-term.
interestratesdecrease.
2.4 MarketAccessRisk: If the University is unableto issueVRDNs at the
time of exercisethey will still be requiredto make swappayments
without a relatedbond issuance.
2.5 BasisRisk: Underthe LffiOR basedoption,if the swaptionis exercised,
the floating paymentreceivedmay not fully offsetthe variable rate
paymentsdue on the VRDNs.
2.6 Mark-to-MarketRisk: If the proposalfor derivativesaccounting
changesunderGASB anychangesin the swaptionswapvalue may need
to passthroughthe incomestatement.
2.7 CounterpartyRisk: If exercised,the University is at risk if Wachoviais
unableto fulfill its obligationsunderthe contracts. Counterpartyrisk is
mitigatedthrough mutual collateralpostingsequalto the marketvalue of
the swaptions. The Universitywill initially post collateral
approximatelyequalto the cashproceedsfrom the transactions.
2.8 TenninationRisk: The University may needto tenninatethe swapfor
different circumstancessuchas a credit downgrade. This may require
the University to pay a substantialamountat the time of early
tennination.
2.9 Tax Risk: Underthe LffiOR basedoptionthe University is at risk if
thereare any changesto tax laws or tax rates. For example,if marginal
tax ratesdecreasethe expectedratio of i-month LmOR that would be
necessaryto offset paymentsdue on the VRDNs would increase.
2.10 RolloverRisk: Thereis no rollover risk sincethe underlying swaps
would coverthe life of the assumedVRDNs.
2.11 Insurance,Liquidity, Remarketing,and Expensesof IssuancesRisk:
The University hasmadeassumptionson the costof insurance,liquidity,
remarketing,and expenses.If theseassumptionsdo not hold true for
futurecostthe Universitynms the risk of payinga substantialamount
largerthan that budgeted.
2.12 CreditRisk: If the University's creditrating is downgradedthe costof
bond insurancewould likely increase.
2.12 ContractLiquidity: Sincethe University hasoptedfor the more widely
usedLIB OR basedoption, contractliquidity is more transparentthanthe
SIFMA basedoption.
3. StressedValues:
3.1 StressedValue for SwaptionsFollowing Transaction: The value of the
LffiOR basedSwaptionon September12,2007was $7,999,000.Based
on volatility, the highestpoint recordedby BloombergsinceJanuary26,
2004 immediatelyfollowing execution,the University would have
suffereda lossof $587,000. Basedon volatility andthe term structureof
interestmtes,in the eventthat volatility wereto reachits highestlevel
andthe term structureof interestmtesfall 100basispointsthe
University would have suffereda lossof $6,087,000.This is very
unlikely.
3.2 StressedValues for Swapsas SwaptionsExpire: The expectedvalue of
the swaptionsat maturity is $2,496,000for the 2004bondsand
$9,747,000for the 2006bonds. Assumingthe samevolatility and rate
structureasin 3.1, the stressedvalueswould be $6,690,000for the 2004
bondsand$21,187,000for the 2006bonds.
4. OtherFinancialBenefits:
4.1 Fully Liquidating the Call Options: SinceWachoviacan only exercise
its right on March 15,2014and December1,2016 it is the economic
equivalentto partially liquidating the call optionsembeddedin the fixed
ratebonds. The fixed ratebondscanbe called at the beginning on those
datesand on any subsequent
datesthrough maturity of the bonds. By
restructuringthe proposedswaptionssuchthat they are exercisableby
Wachoviaeverysix months,startingon the datesabovethrough
maturity of the bonds,the call optionswould be fully liquidated. The
e~ated additionalproceedsfrom sucha restructuringwould be
approximately$1,126,000.
4.2 TransactionCosts: The costsassociatedwith the swapon page22 of
the full analysisappearto be reasonable.Wachovia'sprofit of 4 basis
pointsis fair and reasonablebasedon the sizeof the transactionand
currentmarketconditions. Wachoviawill chargeadditionalspreadfor
credit andhedgingcosts. As a resultof negotiations,the total spread
Wachoviahascommittedto is 6.5basispoints.