Common use of Derivative Financial Instruments Clause in Contracts

Derivative Financial Instruments. The Company uses interest rate derivative instruments to hedge its exposure to interest rate volatility resulting from its Senior Facility (see Note 6). SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133) requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships, including a requirement that all designations must be made at the inception of each instrument. As such initial designations were not made, SFAS 133 requires changes in the fair value of the derivative instrument to be recognized in the current period statement of operations as other income or expense.