WILLIAMS MULLEN Direct Dial 804.420.6442 wfowier@willizmsmullen.com March 30, 2015 VIA EMAIL @ ashley.taylor@troutmansanders.com AND U.S. MAIL Ashley L. Taylor, Jr., Esquire ‘TROUTMAN SANDERS, Troutman Sanders Building 1001 Haxall Point Richmond, Virginia 23219 Re: Sweet Briar College Dear Ashley: | write to respond to your letter on behalf of Saving Sweet Briar, Inc. ("SSB") dated March 23, 2015, as well as recent internet postings and public pronouncements from that organization accusing Sweet Briar's Board of Directors of misconduct in connection with the decision to close the College. The Board of Directors of Sweet Briar includes 20 alumnae of the College and three men Who are friends of the school. The oldest of the alumnae Directors graduated in 1961, and the youngest in 2014. They are diverse in age, geographic location, occupation, and socio- economic status. In short, the Board of Directors is a representative sample of Sweet Briar's alumnae population. The Board includes a Harvard IV.B.A., the President of the Moody's Foundation, the General Counsel of a large national insurance underwriting company specializing in Directors and Officers liability insurance, the Dean of the College of Education, Health and Public Policy at Delaware State University, and a Professor Emeritus in the Economics of Education at the University of Virginia. In addition to serving Sweet Briar, various Directors have served on the boards of other colleges, as well as public companies and non- profit organizations. The qualifications of Sweet Briar’s Board of Directors are beyond reproach. So, too, are their motivations. The Board members share their fellow alumnae’s deep loyalty to the College, having devoted substantial time, energy, and financial resources to Sweet Briar over the years. Each member of the Board was guided by her or his individual conscience and prudence, and none of the Directors received any benefit - monetary, emotional, or otherwise ~ by making the extremely difficult decision to close the College. This makes the recent attacks published by SSB all the more unfortunate. Criticism and questions are to be expected following a decision like this, but SSB’s recent accusations of statutory violations, breaches of fiduciary duty and even fraud are not only unwarranted, but defamatory. Such attacks also make one question the motivations of SSB. Is the primary focus \Witiams Mullen Center| 200 South 10th Steet, Suite 1600 (23219) P.0. Box 1320 Richmond, VA 23218 williamsmullen.com T 804.420.6000 F 804.420.6507 OC NC VA | A Professional CorporationWILLIAMS MULLEN Ashley L. Taylor, Jr., Esquire ‘TROUTMAN SANDERS, March 30, 2015 Page 2 of SSB the continued operation of the College, or is it to vent the painful emotions many alumnae are experiencing by impugning the integrity and competence of the current Board? ‘Sweet Briar’s Financial Condition Regardless of SSB's attacks, the Board believes that the entire Sweet Briar community — including those involved with SSB — deserves to understand the insurmountable obstacles that ultimately caused the College's closure. While Sweet Briar has been forging its way against financial headwinds for several decades (as have many small liberal arts schools around the country), the challenges for the College have increased rapidly in recent years. Notably, those obstacles should come as no surprise to the members of SSB, some of whom sat on the Board of Directors of the College as recently as 2014, The following factors contributed to Sweet Briar’s unfortunate and untenable financial situation: 1. Student Enrollment © Fora period of years, Sweet Briar has faced declining enrollment. To be sustainable, the College needs around 800 students. However, it had only 532 students at the start of this semester. ‘© While Sweet Briar continues to provide an excellent academic and unique social experience for its students in an idyllic setting, the fact is that young women have never had greater opportunities and options for higher education, and Sweet Briar's rural location puts it at a competitive disadvantage. ‘© Recent initiatives to increase marketing and recruiting efforts have not yielded higher enrollment at the College. Last year, due to increased marketing and recruiting efforts, Sweet Briar had 936 students apply ~ a record high ~ and issued 738 acceptances. However, the first-year class entering in the fall of 2014 was only 184, one of the smallest classes in years, and the lowest yield (percentage of acceptances enrolled) in the College’s history. This yield has been trending downward steadily for the last five years. ‘0 Even among those students who choose to enroll, Sweet Briar has experienced troubling rates of attrition. The percentage of students who matriculate and stay at the College for four years through graduation eroded to 54% for the class that graduated in May 2014. 2. Tuition Discounts © Inits efforts to attract and keep students, Sweet Briar has had to steadily increase its tuition discount rate (the percentage of tuition that is paid by the school in the form of scholarships and grants). The average tuition discount rateWILLIAMS MULLEN Ashley L. Taylor, Jr., Esquire TROUTMAN SANDERS March 30, 2015 Page 3 for the current first-year class was 62%, reflecting a significant increase from 2008 when it was already 42%, Such discount rates are well above national averages. © The increasing discount rate has eroded Sweet Briar’s tuition based revenues. Even as gross tuition revenues increased from approximately $17,000,000 in 2009 to almost $20,000,000 in 2014, net tuition revenues (after subtracting out the costs of scholarships and grants) declined from around $11,000,000 to less. than $8,500,000 in that same time frame. © Inshort, Sweet Briar has had to provide more and more aid to attract fewer and fewer students who in tun are paying less and less to attend. Sweet Briar’s extension of financial aid in order to attract and educate new students is not financially sustainable absent an endowment substantially larger than Sweet Briar's. 3. Endowment © Because the issues above lead to decreased net tuition revenues, Sweet Briar has had to draw down on its endowment for a number of years in order to pay for its operations, and the current level of use of the unrestricted endowment is unsustainable. ° There is currently about $84.8 million in the endowment, roughly $65 million of which is restricted as to time and/or purpose. The College has approximately $25 million in debt in two outstanding bond issues. Thus, the debt exceeds the unrestricted funds in the endowment. ° ‘Sweet Briar College has approximately $28 million in maintenance needs, some of which—such as the need for a new heating system—are both urgent and costly. ° Based on the financial situation at the time of the Board's decision, in order to operate the College going forward, Sweet Briar College would have needed to raise $10-$12 million per year in unrestricted funds in order to operate the College for the 2015-2016 academic year. The College would need to raise a similar amount for each year of operation into the indefinite future, unless and nti it could increase the endowment by an additional $200-$250 million to fill the gap between operating revenues and expenses permanently. ‘© Sweet Briar College has only 7,001 alumnae who agree to be solicited for donations, and while an impressive 40 percent of them give each year, their average annual gift is $600. This donor base simply cannot give $10-12 million per year, much less do so while also building the endowment to the required level.WILLIAMS MULLEN Ashley L. Taylor, Jr., Esquire ‘TROUTMAN SANDERS March 30, 2015 Page 4 ‘As much as we would like the financial situation to be different, it is not. Sweet Briar College simply cannot survive. With declining enrollment, unsustainable tuition discount rates, and a dwindling endowment, Sweet Briar's closing was inevitable. The only decision for the Board to make was when that closing should occur. The Board's Conduct The President and the Board engaged in a careful and diligent process to find a way to shore up Sweet Briar's enrollment and financial shortfalls. They considered a multitude of ‘options and alternatives, including mergers, consolidations and/or affiliations with other schools, changes in curriculum and co-education. The Board selectively retained appropriate consultants to provide market research, analysis and insight regarding the viability of these options. Further research was conducted regarding Sweet Briar's ability to raise funds through alumnae giving. The administration of Sweet Briar directly contacted other institutions to discuss various types of partnerships that might strengthen Sweet Briar's financial picture. In short, the Board explored numerous options in hopes of finding a way to shore up Sweet Briar's financial condition and future viability. Contrary to the published assertions of SSB, the Board did not “give up on the College." Notably, many of these options previously had been explored and/or implemented at Sweet Briar, but they did not provide the long-term financial return needed to ensure Sweet Briar’s continued viability. Alumnae will recall the "Shape for Our Future” initiative begun under President Betsy Muhlenfeld, which focused on increased marketing outreach and capital improvement projects to attract higher enrollment. Subsequently, under President Jo Ellen Parker's "Plan for Sustainable Excellence,” Sweet Briar implemented various cost-cutting measures and considered curricular and programmatic changes to attract students and improve the College's long term viability. Unfortunately, these efforts did not provide a permanent solution to Sweet Briar's financial problems. We understand that many alumnae are upset and frustrated by the perceived lack of transparency of the Board's process. Yet, at recent Reunions and other alumnae gatherings, the College has shared its concems about its declining admissions yield and overall enrollment, increasing and ultimately unsustainable levels of financial aid and overall financial concerns. Such information has also been shared with College faculty through the faculty governance structure. In recent years, the faculty has participated in collaborative efforts with the administration to reduce costs. The Board has also made known its efforts to pursue strategic options and its commissioning of market research and a fundraising feasibility study. Moreover, had the College discussed its financial challenges and the Board's pursuit of multiple strategies and strategic alternatives more broadly than it did, the Board would not have been able to pursue confidential merger and partnership talks, and uncertainty regarding the College's future would have further eroded enrollment. But perhaps most importantly, as long as the Board believed that there might be viable ways to increase enrollment and address financial concerns, the Board was focused on revitalizing the College's financial healthWILLIAMS MULLEN Ashley L. Taylor, Jr., Esquire TROUTMAN SANDERS March 30, 2015 Page 5 Unfortunately, it became clear that none of the strategies considered by the Board would provide the solution that Sweet Briar requires to operate on firm financial footing, Disappointing events, including an extremely small entering first-year class for 2014, ongoing retention challenges, and continued lower net tuition revenues, along with recent reports from the market research consultants, negative feedback from a fundraising feasibility study, and the lack of serious interest from other institutions in collaborating or partnering with Sweet Briar, accelerated the need for a decision. While many alumnae have questions about that decision and the process that led to the closure of Sweet Briar, itis not realistic to expect the Board of Directors to "go public” prior to undertaking such deliberations. As with most charitable non-stock organizations, the operations of Sweet Briar are managed under the direction of its Board of Directors, and it is not feasible to expect any Board to publicize its deliberations, especially when it is faced with important and highly-sensitive issues such as the potential closure of the organization. Moreover, decisions such as these cannot be made by referendum. Sweet Briar has a Board of Directors for the precise purpose of leading the College. Ultimately, the difficult decision to close Sweet Briar was a burden that fell to the Board. The Board made the conscientious and unanimous decision that it is in the best interest of the current students, faculty and staff to close Sweet Briar at the end of this academic term rather than trying to press forward into the fall of 2015, only to close the College mid-year. By closing now, the College hopes to have resources to provide faculty and staff with severance and other support. Itis unlikely that the College would have been able to provide any such assistance to its faculty and staff if it tried to press forward only to close during the year. Furthermore, as the dire financial situation came fully to light, the College could not, in good conscience, actively recruit and admit a new first-year class to startin the fall of 2015, or even reenroll existing students, without telling them of the likelihood of closure. Closure during the academic year would have put the students in the extremely difficult position of trying to transfer mid-year, without any significant lead time to identify or develop new scholastic opportunities. By closing at the end of this year, the College has been able to assist its students in the transition to a new academic home at a natural break point in the academic cycle. Sweet Briar has entered into “teach out” agreements with 15 different colleges, each of whom has graciously agreed to accept any Sweet Briar students who are in good academic standing. In fact, the majority of these schools will accept Sweet Briar students without regard to their current academic standing. Though they cannot guarantee it, these schools have also endeavored to offer Sweet Briar students financial packages so that the net amount paid by each student to attend her new college will be no greater than what that particular student paid to attend Sweet Briar Thus, while the announcement of the Board's decision certainly caught many people off- guard, the timing of the decision was motivated by the Board's desire that Sweet Briar’s closing should be carried out with the same grace, dignity and concer for its students that have defined ‘Sweet Briar for over 100 years,WILLIAMS MULLEN Ashley L. Taylor, Jr., Esquire ‘TROUTMAN SANDERS March 30, 2015 Page 6 SSB's Unfounded Accusations There is no validity to the accusations of unlawful conduct in your letter, The President and the Board did not breach any fiduciary duties or requirements of the Virginia Non-Stock Corporation Act, nor did they violate Virginia's Uniform Trust Act or any common law of trusts. ‘SSB does not even have legal standing to assert any such claims. Perhaps more importantly, the President and Board have at all times performed their duties as set forth in the College's Articles of Incorporation and Bylaws in accord with their best business judgment. They have devoted countless hours, energy and personal resources to serve in their posts for the benefit of ‘Sweet Briar, and conclusory allegations that mischaracterize the College's current financial health and future prospects are not a sufficient basis to accuse these Board members of any type of misconduct or failure in their service to the school In addition, neither the President nor the Board has violated Virginia's charitable solicitation statutes. Fundamentally, we disagree with the assertion that anything the Board has done, or any action that it has authorized, is in any way inconsistent with the charitable purposes and mission of Sweet Briar. Not only are funds currently being used to operate the College through August 25, 2015, but the Board properly concluded that taking action to cease academic operations in a way that best protects students, faculty and staff was the course most consistent with the charitable purposes and mission of the College. Furthermore, the Board has initiated communications with the Office of the Attorney General to ensure that any expenditure of restricted funds for purposes beyond the original gift is properly authorized. These ‘communications illustrate the Board's intent to comply with the letter and the spirit of Virginia's Uniform Prudent Management of Institutional Funds Act. See Va. Code §64.2-1100, et seq. Such efforts to comply with applicable law directly belie your clients’ accusations that the College has somehow violated Virginia law governing the solicitation of contributions. Itis ironic that $SB’s “plan” for saving the school includes the very same steps undertaken by Sweet Briar over the past decade. A recent posting on SSB's website opines that Sweet Briar can overcome its challenges "through a series of steps including enhanced marketing, more aggressive recruitment, cost cutting and increased alumnae giving.” However, the increased marketing and recruitment efforts begun during the "Shape for Our Future" Campaign and continuing through the present have not resulled in higher enrollment. Cost cutting measures undertaken as part of the “Plan for Sustainable Excellence’ in 2011 helped, but did not solve the College's problems. Without increased revenue streams, Sweet Briar cannot simply “cost cut” its way to financial stability As for SSB's proposal to “increase alumnae giving,” Sweet Briar's alumnae have along history of generosity to the College, but there simply are not sufficient resources within the alumnae base to solve Sweet Briar's insufficient endowment and/or operating shortfalls. Your letter refers to a recent $110 million capital campaign. However, that campaign ended in 2006, before the Great Recession, Just as importantly, the $110 milion figure included approximately $31.5 million in revocable bequests, most of which have not yet been received, another $5 million in uncollected pledges, and approximately eight years’ worth of annual gifts that wereWILLIAMS MULLEN Ashley L. Taylor, Jr., Esquire TROUTMAN SANDERS March 30, 2015 Page 7 counted toward the capital campaign goal. Those annual gifts routinely go toward closing the gap between the College's revenues and expenses. Most of the funds that were received during the campaign were devoted to specific “bricks and mortar” projects such as a new athletic facility, They did little to increase the College's endowment, More recently, consultants have determined that Sweet Briar’s alumnae base simply is not able to provide the financial support required by the College.’ SSB's recent threats of litigation — as well as its attempts to pressure the County Attorney of Amherst to pursue legal action against Sweet Briar ~ could have unintended negative consequences for the College's current students, faculty and staff. Even if there were a viable basis for such litigation, an injunction which keeps the College open into the next academic year would further erode the limited resources available to help students identify and transfer to new schools and to provide severance and career assistance for faculty and staff. Your client's stated goal of keeping Sweet Briar open is admirable, and itis a goal the current Board tried ardently to achieve. However, by keeping Sweet Briar open until the very last dollar is spent, your proposed replacement Board would not save Sweet Briar, but instead do great harm to its students, faculty and staff when the College inevitably falls. In so doing, they would prioritize their own emotional attachment to Sweet Briar above providing the College's students, faculty, and staff with the best possible result in the face of insurmountable obstacles. It is our hope that the legacy of Sweet Briar will rest on its commitment to its students and faculty, not upon litigation between factions of alumnae, all of whom are deeply saddened by the closure of their alma mater. Conclusion We understand the sadness and frustration that comes with the closing of such a wonderful institution. Obviously, no one on the Board wanted to see Sweet Briar close. However, the Board members have legal, ethical and fiduciary responsibilities to Sweet Briar that go beyond their love of the College. With those duties in mind, the Board's goal is to conclude the operations of Sweet Briar College with dignity, respect and compassion for all involved, The Board must act now to meet the College's obligations to creditors, to help place students at other institutions in an orderly fashion and to have a chance to provide severance to faculty and staff. Allowing Sweet Briar to continue to operate until all remaining liquid assets were exhausted would have resulted in an abrupt, mid-year closure and the elimination of the possibility of making any such arrangements. " Their conclusions appear spot on, given that SSB's well-publicized efforts to raise funds appear tohave completely stalled out, While the $3.2 milion in pledges to SSB are a heartening manifestation of the alumnae's affection and loyalty to the College, the sum — even ifit can be converted to cash ~ is not nearly sufficient to keep Sweet Briar open next fall, much less to close the operating gap for years to come,WILLIAMS MULLEN Ashley L. Taylor, Jr., Esquire TROUTMAN SANDERS March 30, 2015 Page 8 ‘The Board and the President made a very difficult decision to close Sweet Briar. It was the right decision, and they will see it through. Very-truty a Cali W. Fowler, Jr. WF ir cc: Tom Connally, Esquire