SUBJECT
TO COMPLETION, DATED SEPTEMBER 14, 2007
THE
INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) IS
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
_____ __,
2007
STATEMENT
OF ADDITIONAL INFORMATION
Tortoise
Energy Infrastructure Corporation, a Maryland corporation (the “Company”, “we”
or “our”), is a nondiversified, closed-end management investment company that
commenced operations in February 2004.
This
Statement of Additional Information relates to the offering, on an immediate,
continuous or delayed basis, of up to $_____________ aggregate initial
offering
price of our common stock, preferred stock and debt securities in one or
more
offerings. This Statement of Additional Information does not
constitute a prospectus, but should be read in conjunction with our prospectus
dated ______ __, 2007 and any related prospectus supplement. This
Statement of Additional Information does not include all information that
you
should consider before purchasing any of our securities. You should
obtain and read our prospectus and any related prospectus supplements prior
to
purchasing any of our securities. A copy of our prospectus and any
related prospectus supplement may be obtained without charge by calling
(866) 362-9331. You also may obtain a copy of our prospectus and
any related prospectus supplement on the SEC’s web site
(http://www.sec.gov). Capitalized terms used but not defined in this
Statement of Additional Information have the meanings ascribed to them
in the
prospectus and any related prospectus supplement. This Statement of
Additional Information is dated _____ __, 2007.
Investment
Limitations
|
S-1
|
Investment
Objective and Principal Investment Strategies
|
S-3
|
Management
of the Company
|
S-16
|
Net
Asset Value
|
S-25
|
Portfolio
Transactions
|
S-27
|
Certain
Federal Income Tax Matters
|
S-28
|
Proxy
Voting Policies
|
S-36
|
Independent
Registered Public Accounting Firm
|
S-37
|
Internal
Accountant
|
S-37
|
Additional
Information
|
S-37
|
Financial
Statements
|
S-37
|
Appendix
A – Summary of Certain Provisions of the Indenture and Form of
Supplemental Indenture
|
A-1
|
Appendix
A-I – Auction Procedures
|
A-I-1
|
Appendix
B – Form of Articles Supplementary
|
B-1
|
Appendix
C – Rating of Investments
|
C-1
|
INVESTMENT
LIMITATIONS
This
section supplements the disclosure in the prospectus and provides additional
information on our investment limitations. Investment limitations
identified as fundamental may not be changed without the approval of the
holders
of a majority of our outstanding voting securities (which for this purpose
and
under the Investment Company Act of 1940, as amended (the “1940 Act”), means the
lesser of (1) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (2) more than 50% of the
outstanding shares).
Investment
limitations stated as a maximum percentage of our assets are only applied
immediately after, and because of, an investment or a transaction by us
to which
the limitation is applicable (other than the limitations on
borrowing). Accordingly, any later increase or decrease resulting
from a change in values, net assets or other circumstances will not be
considered in determining whether the investment complies with our investment
limitations. All limitations that are based on a percentage of total
assets include assets obtained through leverage.
Fundamental
Investment Limitations
The
following are our fundamental investment limitations set forth in their
entirety. We may not:
(1) issue
senior securities, except as permitted by the 1940 Act and the rules and
interpretive positions of the SEC thereunder;
(2) borrow
money, except as permitted by the 1940 Act and the rules and interpretive
positions of the SEC thereunder;
(3) make
loans, except by the purchase of debt obligations, by entering into repurchase
agreements or through the lending of portfolio securities and as otherwise
permitted by the 1940 Act and the rules and interpretive positions of the
SEC
thereunder;
(4) concentrate
(invest 25% or more of total assets) our investments in any particular
industry,
except that we will concentrate our assets in the group of industries
constituting the energy infrastructure sector;
(5) underwrite
securities issued by others, except to the extent that we may be considered
an
underwriter within the meaning of the Securities Act of 1933, as amended
(the
“1933 Act”), in the disposition of restricted securities held in our
portfolio;
(6) purchase
or sell real estate unless acquired as a result of ownership of securities
or
other instruments, except that we may invest in securities or other instruments
backed by real estate or securities of companies that invest in real estate
or
interests therein; and
(7) purchase
or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except that we may purchase or sell options
and
futures contracts or invest in securities or other instruments backed by
physical commodities.
All
other
investment policies are considered nonfundamental and may be changed by
the
Board of Directors of the Company (the “Board”) without prior approval of our
outstanding voting securities.
Nonfundamental
Investment Policies
We
have
adopted the following nonfundamental policies:
|
(1)
|
Under
normal circumstances, we will invest at least 90% of our total
assets in
securities of energy infrastructure
companies.
|
|
(2)
|
Under
normal circumstances, we will invest at least 70% of our total
assets in
equity securities issued by master limited partnerships
(“MLPs”).
|
|
(3)
|
We
may invest up to 30% of our total assets in restricted securities,
primarily through direct placements. Subject to this policy, we
may invest without limitation in illiquid securities. The types
of restricted securities that we may purchase include securities
of
private energy infrastructure companies and privately issued
securities of
publicly traded energy infrastructure companies. Restricted
securities, whether issued by public companies or private companies,
are
generally considered illiquid. Investments in private companies
that do not have any publicly traded shares or units are limited
to 5% of
total assets.
|
|
(4)
|
We
may invest up to 25% of our total assets in debt securities of
energy
infrastructure companies, including securities rated below investment
grade (commonly referred to as “junk bonds”). Below investment
grade debt securities will be rated at least B3 by Moody’s Investors
Service, Inc. (“Moody’s”) and at least B- by
Standard & Poor’s Ratings Group (“S&P”) at the time of
purchase, or comparably rated by another statistical rating organization
or if unrated, determined to be of comparable quality by the
Adviser.
|
|
(5)
|
We
will not invest more than 10% of our total assets in any single
issuer.
|
|
(6)
|
We
will not engage in short sales.
|
For
purposes of restrictions (3)-(5), during the periods in which we anticipate
receiving proceeds from an offering of securities pursuant to this registration
statement, we include the amount of the anticipated proceeds in our calculation
of total assets. Accordingly, holdings in the specified securities
may temporarily exceed the amounts shown.
Currently
under the 1940 Act, we are not permitted to incur indebtedness unless
immediately after such borrowing we have asset coverage of at least 300%
of the
aggregate outstanding principal balance of indebtedness (i.e., such indebtedness
may not exceed 33 1/3% of the value of our total assets including the amount
borrowed, less all liabilities and indebtedness not represented by senior
securities). Additionally, currently under the 1940 Act, we may not
declare any dividend or other distribution upon our common or preferred
stock,
or purchase any such stock, unless our aggregate indebtedness has, at the
time
of the declaration of any such dividend or distribution or at the time
of any
such purchase, an asset coverage of at least 300% after deducting the amount
of
such dividend, distribution, or purchase price, as the case may
be. Currently under the 1940 Act, we are not permitted to issue
preferred stock unless immediately after such issuance we have asset coverage
of
at least 200% of the total of the aggregate amount of senior securities
representing indebtedness plus the aggregate liquidation value of the
outstanding preferred stock (i.e., the aggregate principal amount of such
indebtedness and liquidation value may not exceed 50% of the value of our
total
assets, including the proceeds of such issuance, less liabilities and
indebtedness not represented by senior securities). In addition,
currently under the 1940 Act, we are not permitted to declare any cash
dividend
or other distribution on our common stock or purchase any such common stock
unless, at the time of such declaration or purchase, we would satisfy
this
200%
asset coverage requirement test after deducting the amount of such dividend,
distribution or share price.
Under
the
1940 Act, a “senior security” does not include any promissory note or evidence
of indebtedness where such loan is for temporary purposes only and in an
amount
not exceeding 5% of the value of the total assets of the issuer at the
time the
loan is made. A loan is presumed to be for temporary purposes if it
is repaid within sixty days and is not extended or renewed. Both
transactions involving indebtedness and any preferred stock issued by us would
be considered senior securities under the 1940 Act, and as such, are subject
to
the asset coverage requirements discussed above.
Currently
under the 1940 Act, we are not permitted to lend money or property to any
person, directly or indirectly, if such person controls or is under common
control with us, except for a loan from us to a company which owns all
of our
outstanding securities. Currently, under interpretative positions of
the staff of the SEC, we may not have on loan at any given time securities
representing more than one-third of our total assets.
We
interpret our policies with respect to borrowing and lending to permit
such
activities as may be lawful, to the full extent permitted by the 1940 Act
or by
exemption from the provisions therefrom pursuant to an exemptive order
of the
SEC.
We
interpret our policy with respect to concentration to include energy
infrastructure companies, as defined in the prospectus and below. See
“Investment Objective and Principal Investment Strategies.”
Under
the
1940 Act, we may, but do not intend to, invest up to 10% of our total assets
in
the aggregate in shares of other investment companies and up to 5% of our
total
assets in any one investment company, provided the investment does not
represent
more than 3% of the voting stock of the acquired investment company at
the time
such shares are purchased. As a shareholder in any investment
company, we will bear our ratable share of that investment company’s expenses,
and would remain subject to payment of our advisory fees and other expenses
with
respect to assets so invested. Holders of common stock would
therefore be subject to duplicative expenses to the extent we invest in
other
investment companies. In addition, the securities of other investment
companies also may be leveraged and will therefore be subject to the same
leverage risks described herein and in the prospectus. The net asset
value and market value of leveraged shares will be more volatile and the
yield
to shareholders will tend to fluctuate more than the yield generated by
unleveraged shares. A material decline in net asset value may impair
our ability to maintain asset coverage on preferred stock and debt securities,
including any interest and principal for debt securities.
INVESTMENT
OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The
prospectus presents our investment objective and the principal investment
strategies and risks. This section supplements the disclosure in the
prospectus and provides additional information on our investment policies,
strategies and risks. Restrictions or policies stated as a maximum
percentage of our assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable (other than
the
limitations on borrowing). Accordingly, any later increase or
decrease resulting from a change in values, net assets or other circumstances
will not be considered in determining whether the investment complies with
our
restrictions and policies.
Our
investment objective is to seek a high level of total return with an emphasis
on
current distributions paid to stockholders. For purposes of our
investment objective, total return includes capital appreciation of, and
all
distributions received from, securities in which we invest regardless of
the tax
character of the distribution. There is no assurance that we will
achieve our objective. Our investment
objective
and the investment policies discussed below are nonfundamental. Our
Board may change the investment objective, or any policy or limitation
that is
not fundamental, without a stockholder vote. Stockholders will
receive at least 60 days prior written notice of any change to the
nonfundamental investment policy of investing at least 90% of total assets
in
energy infrastructure companies. Unlike most other investment
companies, we will not be treated as a regulated investment company under
the
U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue
Code”). Therefore, we will be taxed as a “C” corporation and will be
subject to federal and applicable state corporate income taxes.
Under
normal circumstances, we invest at least 90% of total assets (including
assets
obtained through leverage) in securities of energy infrastructure
companies. Energy infrastructure companies engage in the business of
transporting, processing, storing, distributing or marketing natural gas,
natural gas liquids (primarily propane), coal, crude oil or refined petroleum
products, or exploring, developing, managing or producing such
commodities. Companies that provide energy-related services to the
foregoing businesses also are considered energy infrastructure companies,
if
they derive at least 50% of revenues from the provision of energy-related
services to such companies. We invest at least 70% of our total
assets in a portfolio of equity securities of energy infrastructure companies
that are MLPs that the Adviser believes offer attractive distribution rates
and
capital appreciation potential. MLP equity securities (known as
“units”) currently consist of common units, convertible subordinated units,
pay-in-kind units or I-Shares (“I-Shares”) and limited liability company common
units. We also may invest in other securities, consistent with our
investment objective and fundamental and nonfundamental policies.
The
following pages contain more detailed information about the types of issuers
and
instruments in which we may invest, strategies the Adviser may employ in
pursuit
of our investment objective and a discussion of related risks. The
Adviser may not buy these instruments or use these techniques unless it
believes
that doing so will help us achieve our objective.
Energy
Infrastructure Companies
For
purposes of our policy of investing 90% of our total assets in securities
of
energy infrastructure companies, an energy infrastructure company is one
that
derives each year at least 50% of its gross income from “Qualifying Income”
under Section 7704 of the Internal Revenue Code or one that derives at
least 50% of its revenues from the provision of services directly related
to the
generation of Qualifying Income. Qualifying Income is defined as
including any income and gains from the exploration, development, mining
or
production, processing, refining, transportation (including pipelines
transporting gas, oil or products thereof), or the marketing of any mineral
or
natural resource (including fertilizer, geothermal energy, and
timber).
MLPs
are
limited partnerships that derive each year at least 90% of their gross
income
from Qualifying Income and are taxed as partnerships for federal income
tax
purposes, thereby eliminating federal income tax at the entity
level. The business of energy infrastructure MLPs is affected by
supply and demand for energy commodities because most MLPs derive revenue
and
income based upon the volume of the underlying commodity transported, processed,
distributed, and/or marketed. Specifically, processing and coal MLPs
may be directly affected by energy commodity prices. Propane MLPs own
the underlying energy commodity, and therefore have direct exposure to
energy
commodity prices, although the Adviser seeks high quality MLPs that are
able to
mitigate or manage direct margin exposure to commodity
prices. Pipeline MLPs have indirect commodity exposure to oil and gas
price volatility because although they do not own the underlying energy
commodity, the general level of commodity prices may affect the volume
of the
commodity the MLP delivers to its customers and the cost of providing services
such as distributing natural gas liquids. The MLP sector in general
could be hurt by market perception that MLPs’ performance and valuation are
directly tied to commodity prices.
Energy
infrastructure companies (other than most pipeline MLPs) do not operate as
“public utilities” or “local distribution companies,” and therefore are not
subject to rate regulation by state or federal utility
commissions. However, energy infrastructure companies may be subject
to greater competitive factors than utility companies, including competitive
pricing in the absence of regulated tariff rates, which could cause a reduction
in revenue and which could adversely affect
profitability. Most pipeline MLPs are subject to government
regulation concerning the construction, pricing and operation of
pipelines. Pipeline MLPs are able to set prices (rates or
tariffs) to cover operating costs, depreciation and taxes, and provide a
return on investment. These rates are monitored by the Federal Energy
Regulatory Commission (FERC) which seeks to ensure that consumers receive
adequate and reliable supplies of energy at the lowest possible price while
providing energy suppliers and transporters a just and reasonable return
on
capital investment and the opportunity to adjust to changing market
conditions.
Energy
infrastructure MLPs in which we will invest generally can be classified
in the
following categories:
Pipeline
MLPs. Pipeline MLPs are common carrier transporters of natural
gas, natural gas liquids (primarily propane, ethane, butane and natural
gasoline), crude oil or refined petroleum products (gasoline, diesel fuel
and
jet fuel). Pipeline MLPs also may operate ancillary businesses such
as storage and marketing of such products. Revenue is derived from
capacity and transportation fees. Historically, pipeline output has
been less exposed to cyclical economic forces due to its low cost structure
and
government-regulated nature. In addition, most pipeline MLPs have
limited direct commodity price exposure because they do not own the product
being shipped.
Processing
MLPs. Processing MLPs are gatherers and processors of natural
gas as well as providers of transportation, fractionation and storage of
natural
gas liquids (“NGLs”). Revenue is derived from providing services to
natural gas producers, which require treatment or processing before their
natural gas commodity can be marketed to utilities and other end user
markets. Revenue for the processor is fee based, although it is not
uncommon to have some participation in the prices of the natural gas and
NGL
commodities for a portion of revenue.
Propane
MLPs. Propane MLPs are distributors of propane to homeowners for
space and water heating. Revenue is derived from the resale of the
commodity on a margin over wholesale cost. The ability to maintain
margin is a key to profitability. Propane serves approximately 3% of
the household energy needs in the United States, largely for homes beyond
the
geographic reach of natural gas distribution pipelines. Approximately
70% of annual cash flow is earned during the winter heating season
(October through March). Accordingly, volumes are weather
dependent, but have utility type functions similar to electricity and natural
gas.
Coal
MLPs. Coal MLPs own, lease and manage coal
reserves. Revenue is derived from production and sale of coal, or
from royalty payments related to leases to coal
producers. Electricity generation is the primary use of coal in the
United States. Demand for electricity and supply of alternative fuels
to generators are the primary drivers of coal demand. Coal MLPs are
subject to operating and production risks, such as: the MLP or a
lessee meeting necessary production volumes; federal, state and local laws
and
regulations which may limit the ability to produce coal; the MLP’s ability to
manage production costs and pay mining reclamation costs; and the effect
on
demand that the Clean Air Act standards or other laws, regulations or trends
have on coal end-users.
Marine
Shipping MLPs. Marine shipping MLPs are primarily marine
transporters of natural gas, crude oil or refined petroleum
products. Marine shipping MLPs derive revenue from
charging
customers for the transportation of these products utilizing the MLPs’
vessels. Transportation services are typically provided pursuant to a
charter or contract, the terms of which vary depending on, for example,
the
length of use of a particular vessel, the amount of cargo transported,
the
number of voyages made, the parties operating a vessel or other
factors.
MLPs
typically achieve distribution growth by internal and external
means. MLPs achieve growth internally by experiencing higher
commodity volume driven by the economy and population, and through the
expansion
of existing operations including increasing the use of underutilized capacity,
pursuing projects that can leverage and gain synergies with existing
infrastructure and pursuing so called “greenfield projects.” External
growth is achieved by making accretive acquisitions. While
opportunities for growth by acquisition appear abundant based on current
market
conditions, especially for smaller MLPs, the Adviser expects MLPs to grow
primarily through internal means.
MLPs
are
subject to various federal, state and local environmental laws and health
and
safety laws as well as laws and regulations specific to their particular
activities. Such laws and regulations address: health and
safety standards for the operation of facilities, transportation systems
and the
handling of materials; air and water pollution requirements and standards;
solid
waste disposal requirements; land reclamation requirements; and requirements
relating to the handling and disposition of hazardous
materials. Energy infrastructure MLPs are subject to the costs of
compliance with such laws applicable to them, and changes in such laws
and
regulations may affect adversely their results of operations.
MLPs
operating interstate pipelines and storage facilities are subject to substantial
regulation by FERC, which regulates interstate transportation rates, services
and other matters regarding natural gas pipelines including: the
establishment of rates for service; regulation of pipeline storage and
liquified
natural gas facility construction; issuing certificates of need for companies
intending to provide energy services or constructing and operating interstate
pipeline and storage facilities; and certain other matters. FERC also
regulates the interstate transportation of crude oil,
including: regulation of rates and practices of oil pipeline
companies; establishing equal service conditions to provide shippers with
equal
access to pipeline transportation; and establishment of reasonable rates
for
transporting petroleum and petroleum products by pipeline.
Energy
infrastructure MLPs may be subject to liability relating to the release
of
substances into the environment, including liability under federal “SuperFund”
and similar state laws for investigation and remediation of releases and
threatened releases of hazardous materials, as well as liability for injury
and
property damage for accidental events, such as explosions or discharges
of
materials causing personal injury and damage to property. Such
potential liabilities could have a material adverse effect upon the financial
condition and results of operations of energy infrastructure MLPs.
Energy
infrastructure MLPs are subject to numerous business related risks,
including: deterioration of business fundamentals reducing
profitability due to development of alternative energy sources, consumer
sentiment with respect to global warming, changing demographics in the
markets
served, unexpectedly prolonged and precipitous changes in commodity prices
and
increased competition which takes market share; the lack of growth of markets
requiring growth through acquisitions; disruptions in transportation systems;
the dependence of certain MLPs upon the energy exploration and development
activities of unrelated third parties; availability of capital for expansion
and
construction of needed facilities; a significant decrease in natural gas
production due to depressed commodity prices or otherwise; the inability
of MLPs
to successfully integrate recent or future acquisitions; and the general
level
of the economy.
Non-MLPs. Although
we emphasize investments in MLPs, we also may invest in energy infrastructure
companies that are not organized as MLPs. Non-MLP companies may
include companies that operate energy assets but which are organized as
corporations or limited liability companies rather than in partnership
form. Generally, the partnership form is more suitable for companies
that operate assets which generate more stable cash flows. Companies
that operate “midstream” assets (e.g., transporting, processing, storing,
distributing and marketing) tend to generate more stable cash flows than
those that engage in exploration and development or delivery of products
to the
end consumer. Non-MLP companies also may include companies that
provide services directly related to the generation of income from
energy-related assets, such as oil drilling services, pipeline construction
and
maintenance, and compression services.
The
energy industry and particular energy infrastructure companies may be adversely
affected by possible terrorist attacks, such as the attacks that occurred
on
September 11, 2001. It is possible that facilities of energy
infrastructure companies, due to the critical nature of their energy businesses
to the United States, could be direct targets of terrorist attacks or be
indirectly affected by attacks on others. They may incur significant
additional costs in the future to safeguard their assets. In
addition, changes in the insurance markets after September 11, 2001 may
make certain types of insurance more difficult to obtain or obtainable
only at
significant additional cost. To the extent terrorism results in a
lower level economic activity, energy consumption could be adversely affected,
which would reduce revenues and impede growth. Terrorist or war
related disruption of the capital markets could also affect the ability
of
energy infrastructure companies to raise needed capital.
Master
Limited Partnerships
Under
normal circumstances we invest at least 70% of our total assets in equity
securities of MLPs. An MLP is an entity that is taxed as a
partnership and that derives each year at least 90% of its gross income
from
Qualifying Income. An MLP is typically a limited partnership, the
interests in which (known as units) are traded on securities exchanges or
over-the-counter. Organization as a partnership and compliance with
the Qualifying Income rules eliminates federal income tax at the entity
level.
An
MLP
has one or more general partners (who may be individuals, corporations,
or other
partnerships) which manage the partnership, and limited partners, which
provide capital to the partnership but have no role in its
management. Typically, the general partner is owned by company
management or another publicly traded sponsoring corporation. When an
investor buys units in a MLP, he or she becomes a limited partner.
MLPs
are
formed in several ways. A nontraded partnership may decide to go
public. Several nontraded partnerships may roll up into a single
MLP. A corporation may spin-off a group of assets or part of its
business into a MLP of which it is the general partner, to realize the
assets’
full value on the marketplace by selling the assets and using the cash
proceeds
received from the MLP to address debt obligations or to invest in higher
growth
opportunities, while retaining control of the MLP. A corporation may
fully convert to a MLP, although the tax consequences make this an unappealing
option for most corporations. Also, a newly formed company may
operate as a MLP from its inception.
The
sponsor or general partner of an MLP, other energy companies, and utilities
may
sell assets to MLPs in order to generate cash to fund expansion projects
or
repay debt. The MLP structure essentially transfers cash flows
generated from these acquired assets directly to MLP limited partner unit
holders.
In
the
case of an MLP buying assets from its sponsor or general partner, the
transaction is intended to be based upon comparable terms in the acquisition
market for similar assets. To help insure that appropriate
protections are in place, the board of the MLP generally creates an
independent
committee
to review and approve the terms of the transaction. The committee
often obtains a fairness opinion and can retain counsel or other experts
to
assist its evaluation. Since both parties normally have a significant
equity stake in the MLP, both parties are aligned to see that the transaction
is
accretive and fair to the MLP.
MLPs
tend
to pay relatively higher distributions than other types of companies, and
we
intend to use these MLP distributions in an effort to meet our investment
objective.
As
a
motivation for the general partner to successfully manage the MLP and increase
cash flows, the terms of MLP partnership agreements typically provide that
the
general partner receives a larger portion of the net income as distributions
reach higher target levels. As cash flow grows, the general partner
receives a greater interest in the incremental income compared to the interest
of limited partners. Although the percentages vary among MLPs, the
general partner’s marginal interest in distributions generally increases from 2%
to 15% at the first designated distribution target level moving to up to
25% and
ultimately to 50% as pre-established distribution per unit thresholds are
met. Nevertheless, the aggregate amount of distributions to limited
partners will increase as MLP distributions reach higher target
levels. Given this incentive structure, the general partner has an
incentive to streamline operations and undertake acquisitions and growth
projects in order to increase distributions to all partners.
Because
the MLP itself does not pay federal income tax, its income or loss is allocated
to its investors, irrespective of whether the investors receive any cash
payment
or other distributions from the MLP. An MLP typically makes quarterly
cash distributions. Although they resemble corporate dividends, MLP
distributions are treated differently for federal income tax
purposes. The MLP distribution is treated as a return of capital to
the extent of the investor’s basis in his MLP interest and, to the extent the
distribution exceeds the investor’s basis in the MLP interest, capital
gain. The investor’s original basis is the price paid for the
units. The basis is adjusted downwards with each distribution and
allocation of deductions (such as depreciation) and losses, and upwards
with each allocation of income and gain.
The
partner generally will not incur federal income tax on distributions until
(1) he sells his MLP units and pays tax on his gain, which gain is
increased due to the basis decrease resulting from prior distributions;
or
(2) his basis reaches zero. When the units are sold, the
difference between the sales price and the investor’s adjusted basis is gain or
loss for federal income tax purposes.
For
a
further discussion and a description of MLP federal income tax matters,
see the
section entitled “Certain Federal Income Tax Matters–Federal Income Taxation of
MLPs.”
The
Company’s Investments
The
types
of securities in which we may invest include, but are not limited to, the
following:
Equity
Securities. Consistent with our investment objective, we may
invest up to 100% of our total assets in equity securities issued by energy
infrastructure MLPs, including common units, convertible subordinated units,
I-Shares and common units, and subordinated units and preferred units of
limited
liability companies (that are treated as MLPs for federal income tax purposes)
(“LLCs”) (each discussed below). We also may invest up to 30% of
total assets in equity securities of non-MLPs.
The
value
of equity securities will be affected by changes in the stock markets,
which may
be the result of domestic or international political or economic news,
changes
in interest rates or changing investor sentiment. At times, stock
markets can be volatile and stock prices can change
substantially. Equity securities risk will affect our net asset value
per share, which will fluctuate as the value of the securities held by
us
change. Not all stock prices change uniformly or at the same time,
and not all stock
markets
move in the same direction at the same time. Other factors affect a
particular stock’s prices, such as poor earnings reports by an issuer, loss of
major customers, major litigation against an issuer, or changes in governmental
regulations affecting an industry. Adverse news affecting one company
can sometimes depress the stock prices of all companies in the same
industry. Not all factors can be predicted.
Investing
in securities of smaller companies may involve greater risk than is associated
with investing in more established companies. Smaller capitalization
companies may have limited product lines, markets or financial resources;
may
lack management depth or experience; and may be more vulnerable to adverse
general market or economic developments than larger, more established
companies.
MLP
Common Units. MLP common units represent an equity ownership
interest in a partnership, providing limited voting rights and entitling
the
holder to a share of the company’s success through distributions and/or capital
appreciation. Unlike stockholders of a corporation, common unit
holders do not elect directors annually and generally have the right to
vote
only on certain significant events, such as mergers, a sale of substantially
all
of the assets, removal of the general partner or material amendments to
the
partnership agreement. MLPs are required by their partnership
agreements to distribute a large percentage of their current operating
earnings. Common unit holders generally have first right to a minimum
quarterly distribution (“MQD”) prior to distributions to the convertible
subordinated unit holders or the general partner (including incentive
distributions). Common unit holders typically have arrearage rights
if the MQD is not met. In the event of liquidation, MLP common unit
holders have first rights to the partnership’s remaining assets after
bondholders, other debt holders, and preferred unit holders have been paid
in
full. MLP common units trade on a national securities exchange or
over-the-counter.
Limited
Liability Company Common Units. Some energy infrastructure
companies in which we may invest have been organized as LLCs. Such
LLCs are generally treated in the same manner as MLPs for federal income
tax
purposes and, unless otherwise noted, the term MLP includes all entities
that
are treated in the same manner as MLPs for federal income tax purposes,
regardless of their form of organization. Consistent with our
investment objective and policies, we may invest in common units or other
securities of such LLCs including preferred and subordinated units and
debt
securities. LLC common units represent an equity ownership interest
in an LLC, entitling the holders to a share of the LLC’s success through
distributions and/or capital appreciation. Similar to MLPs, LLCs
typically do not pay federal income tax at the entity level and are required
by
their operating agreements to distribute a large percentage of their current
operating earnings. LLC common unit holders generally have first
right to a MQD prior to distributions to subordinated unit holders and
typically
have arrearage rights if the MQD is not met. In the event of
liquidation, LLC common unit holders have a right to the LLC’s remaining assets
after bondholders, other debt holders and preferred unit holders, if any,
have
been paid in full. LLC common units typically trade on a national
securities exchange or over-the-counter.
In
contrast to MLPs, LLCs have no general partner and there are no incentives
that
entitle management or other unit holders to increased percentages of cash
distributions as distributions reach higher target levels. In
addition, LLC common unit holders typically have voting rights with respect
to
the LLC, whereas MLP common units have limited voting rights.
MLP
Convertible Subordinated Units. MLP convertible subordinated
units typically are issued by MLPs to founders, corporate general partners
of
MLPs, entities that sell assets to MLPs, and institutional
investors. The purpose of the convertible subordinated units is to
increase the likelihood that during the subordination period there will
be
available cash to be distributed to common unit holders. We expect to
purchase convertible subordinated units in direct placements from such
persons. Convertible subordinated units generally are not entitled to
distributions until holders of common units have received
specified
MQD, plus any arrearages, and may receive less in distributions upon
liquidation. Convertible subordinated unit holders generally are
entitled to MQD prior to the payment of incentive distributions to the
general
partner, but are not entitled to arrearage rights. Therefore, they
generally entail greater risk than MLP common units. They are
generally convertible automatically into the senior common units of the
same
issuer at a one-to-one ratio upon the passage of time or the satisfaction
of
certain financial tests. These units generally do not trade on a
national exchange or over-the-counter, and there is no active market for
convertible subordinated units. The value of a convertible security
is a function of its worth if it were converted into the underlying common
units. Convertible subordinated units generally have similar voting
rights to MLP common units. Distributions may be paid in cash or
in-kind.
MLP
I-Shares. I-Shares represent an indirect investment in MLP
I-units. I-units are equity securities issued to affiliates of MLPs,
typically a limited liability company, that owns an interest in and manages
the
MLP. The issuer has management rights but is not entitled to
incentive distributions. The I-Share issuer’s assets consist
exclusively of MLP I-units. Distributions by MLPs to I-unit holders
are made in the form of additional I-units, generally equal in amount to
the
cash received by common unit holders of the MLP. Distributions to
I-Share holders are made in the form of additional I-Shares, generally
equal in
amount to the I-units received by the I-Share issuer. The issuer of
the I-Share is taxed as a corporation for federal income tax
purposes. Accordingly, investors receive a Form 1099, are not
allocated their proportionate share of income of the MLPs and are not subject
to
state income tax filing obligations solely as a result of holding such
I-Shares.
Equity
Securities of MLP Affiliates. In addition to equity securities
of MLPs, we may also invest in equity securities of MLP affiliates, by
purchasing securities of limited liability entities that own general partner
interests of MLPs. General partner interests of MLPs are typically
retained by an MLP’s original sponsors, such as its founders, corporate
partners, entities that sell assets to the MLP and investors such as the
entities from which we may purchase general partner interests. An
entity holding general partner interests, but not its investors, can be
liable
under certain circumstances for amounts greater than the amount of the
entity’s
investment in the general partner interest. General partner interests
often confer direct board participation rights and, in many cases, operating
control over the MLP. These interests themselves are generally not
publicly traded, although they may be owned by publicly traded
entities. General partner interests receive cash distributions,
typically 2% of the MLP’s aggregate cash distributions, which are contractually
defined in the partnership agreement. In addition, holders of general
partner interests typically hold incentive distribution rights (“IDRs”), which
provide them with a larger share of the aggregate MLP cash distributions
as the
distributions to limited partner unit holders are increased to prescribed
levels. General partner interests generally cannot be converted into
common units. The general partner interest can be redeemed by the MLP
if the MLP unitholders choose to remove the general partner, typically
with a
supermajority vote by limited partner unitholders.
Other
Non-MLP Equity Securities. In addition to equity securities of
MLPs, we may also invest in common and preferred stock, limited partner
interests, convertible securities, warrants and depository receipts of
companies
that are organized as corporations, limited liability companies or limited
partnerships. Common stock generally represents an equity ownership
interest in an issuer. Although common stocks have historically
generated higher average total returns than fixed-income securities over
the
long term, common stocks also have experienced significantly more volatility
in
those returns and may under-perform relative to fixed-income securities
during
certain periods. An adverse event, such as an unfavorable earnings
report, may depress the value of a particular common stock we
hold. Also, prices of common stocks are sensitive to general
movements in the stock market and a drop in the stock market may depress
the
price of common stocks to which we have exposure. Common stock prices
fluctuate for several reasons including changes in investors’ perceptions of the
financial condition of an issuer or the general condition of the relevant
stock
market, or when political or economic events affecting the
issuers
occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, which increases borrowing costs and the costs of capital.
Debt
Securities. We may invest up to 25% of our total assets in debt
securities of energy infrastructure companies, including certain securities
rated below investment grade (“junk bonds”). The debt securities we
invest in may have fixed or variable principal payments and all types of
interest rate and dividend payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent, deferred, payment in kind and
auction
rate features. If a security satisfies our minimum rating criteria at
the time of purchase and is subsequently downgraded below such rating,
we will
not be required to dispose of such security. If a downgrade occurs,
the Adviser will consider what action, including the sale of such security,
is
in our best interest and our stockholders’ best interests.
Below
Investment Grade Debt Securities. We may invest up to 25% of our
assets in below investment grade securities. The below investment
grade debt securities in which we invest are rated from B3 to Ba1 by Moody’s,
from B- to BB+ by S&P’s, are comparably rated by another nationally
recognized rating agency or are unrated but determined by the Adviser to
be of
comparable quality.
Investment
in below investment grade securities involves substantial risk of
loss. Below investment grade debt securities or comparable unrated
securities are commonly referred to as “junk bonds” and are considered
predominantly speculative with respect to the issuer’s ability to pay interest
and principal and are susceptible to default or decline in market value
due to
adverse economic and business developments. The market values for
high yield securities tend to be very volatile, and these securities are
less
liquid than investment grade debt securities. For these reasons,
investment in below investment grade securities is subject to the following
specific risks:
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·
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increased
price sensitivity to changing interest rates and to a deteriorating
economic environment;
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greater
risk of loss due to default or declining credit
quality;
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adverse
company specific events are more likely to render the issuer
unable to
make interest and/or principal payments;
and
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if
a negative perception of the below investment grade debt market
develops,
the price and liquidity of below investment grade debt securities
may be
depressed. This negative perception could last for a
significant period of time.
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Adverse
changes in economic conditions are more likely to lead to a weakened capacity
of
a below investment grade debt issuer to make principal payments and interest
payments than an investment grade issuer. The principal amount of
below investment grade securities outstanding has proliferated in the past
decade as an increasing number of issuers have used below investment grade
securities for corporate financing. An economic downturn could affect
severely the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. Similarly,
down-turns in profitability in specific industries, such as the energy
infrastructure industry, could adversely affect the ability of below investment
grade debt issuers in that industry to meet their obligations. The
market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level
of
interest rates. Factors having an adverse impact on the market value
of lower quality securities we own may have an adverse effect on our net
asset
value and the market value of our common stock. In addition, we may
incur additional expenses to the extent we are required to seek recovery
upon a
default in payment of principal or interest on our portfolio
holdings. In certain circumstances, we may be
required
to
foreclose on an issuer’s assets and take possession of its property or
operations. In such circumstances, we would incur additional costs in
disposing of such assets and potential liabilities from operating any business
acquired.
The
secondary market for below investment grade securities may not be as liquid
as
the secondary market for more highly rated securities, a factor which may
have
an adverse effect on our ability to dispose of a particular security when
necessary to meet our liquidity needs. There are fewer dealers in the
market for below investment grade securities than investment grade
obligations. The prices quoted by different dealers may vary
significantly and the spread between the bid and asked price is generally
much
larger than higher quality instruments. Under adverse market or
economic conditions, the secondary market for below investment grade securities
could contract further, independent of any specific adverse changes in
the
condition of a particular issuer, and these instruments may become
illiquid. As a result, we could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than
if
such securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances, may
be less
than the prices used in calculating our net asset value.
Because
investors generally perceive that there are greater risks associated with
lower
quality debt securities of the type in which we may invest a portion of
our
assets, the yields and prices of such securities may tend to fluctuate
more than
those for higher rated securities. In the lower quality segments of
the debt securities market, changes in perceptions of issuers’ creditworthiness
tend to occur more frequently and in a more pronounced manner than do changes
in
higher quality segments of the debt securities market, resulting in greater
yield and price volatility.
We
will
not invest in distressed, below investment grade securities (those that
are in
default or the issuers of which are in bankruptcy). If a debt
security becomes distressed while held by us, we may be required to bear
extraordinary expenses in order to protect and recover our investment if
it is
recoverable at all.
See
Appendix C to this Statement of Additional Information for a description of
ratings of Moody’s, Fitch Ratings (“Fitch”) and S&P.
Restricted,
Illiquid and Thinly-Traded Securities. We may invest up to 30%
of our total assets in restricted securities, primarily through direct
placements of MLP securities. Restricted securities obtained by means
of direct placement are less liquid than securities traded in the open
market;
therefore, we may not be able to readily sell such
securities. Investments currently considered by the Adviser to be
illiquid because of such restrictions include convertible subordinated
units and
certain direct placements of common units. Such securities are unlike
securities that are traded in the open market and which can be expected
to be
sold immediately if the market is adequate. The sale price of
securities that are not readily marketable may be lower or higher than
our most
recent determination of their fair value. Additionally, the value of
these securities typically requires more reliance on the judgment of the
Adviser
than that required for securities for which there is an active trading
market. Due to the difficulty in valuing these securities and the
absence of an active trading market for these investments, we may not be
able to
realize these securities’ true value, or may have to delay their sale in order
to do so.
Restricted
securities generally can be sold in privately negotiated transactions,
pursuant
to an exemption from registration under the 1933 Act, or in a registered
public
offering. The Adviser has the ability to deem restricted securities
as liquid. To enable us to sell our holdings of a restricted security
not registered under the 1933 Act, we may have to cause those securities
to be
registered. When we must arrange registration because we wish to sell
the security, a considerable period may elapse between the time
the
decision is made to sell the security and the time the security is registered
so
that we could sell it. We would bear the risks of any downward price
fluctuation during that period.
In
recent
years, a large institutional market has developed for certain securities
that
are not registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and
notes. These instruments are often restricted securities because the
securities are either themselves exempt from registration or sold in
transactions not requiring registration, such as Rule 144A
transactions. Institutional investors generally will not seek to sell
these instruments to the general public, but instead will often depend
on an
efficient institutional market in which such unregistered securities can
be
readily resold or on an issuer’s ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions is
not
dispositive of the liquidity of such investments.
Rule
144A
under the 1933 Act establishes a “safe harbor” from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities
that exist or may develop as a result of Rule 144A may provide both readily
ascertainable values for restricted securities and the ability to liquidate
an
investment. An insufficient number of qualified institutional buyers
interested in purchasing Rule 144A-eligible securities held by us, however,
could affect adversely the marketability of such portfolio securities and
we
might not be able to dispose of such securities promptly or at reasonable
prices.
We
also
may invest in securities that may not be restricted, but are
thinly-traded. Although securities of certain MLPs trade on the NYSE,
the AMEX, the NASDAQ National Market or other securities exchanges or markets,
such securities may trade less than those of larger companies due to their
relatively smaller capitalizations. Such securities may be difficult
to dispose of at a fair price during times when we believe it is desirable
to do
so. Thinly-traded securities are also more difficult to value, and
the Adviser’s judgment as to value will often be given greater weight than
market quotations, if any exist. If market quotations are not
available, thinly-traded securities will be valued in accordance with procedures
established by the Board. Investment of our capital in thinly-traded
securities may restrict our ability to take advantage of market
opportunities. The risks associated with thinly-traded securities may
be particularly acute in situations in which our operations require cash
and
could result in us borrowing to meet our short term needs or incurring
losses on
the sale of thinly-traded securities.
Commercial
Paper. We may invest in commercial paper. Commercial
paper is a debt obligation usually issued by corporations and may be unsecured
or secured by letters of credit or a surety bond. Commercial paper
usually is repaid at maturity by the issuer from the proceeds of the issuance
of
new commercial paper. As a result, investment in commercial paper is
subject to the risk that the issuer cannot issue enough new commercial
paper to
satisfy its outstanding commercial paper, also known as rollover
risk.
Asset-backed
commercial paper is a debt obligation generally issued by a corporate-sponsored
special purpose entity to which the corporation has contributed cash-flowing
receivables like credit card receivables, auto and equipment leases, and
other
receivables. Investment in asset-backed commercial paper is subject
to the risk that insufficient proceeds from the projected cash flows of
the
contributed receivables are available to repay the commercial
paper.
U.S.
Government Securities. We may invest in U.S. Government
Securities. There are two broad categories of U.S. Government-related
debt instruments: (a) direct obligations of the U.S. Treasury,
and (b) securities issued or guaranteed by U.S. Government
agencies.
Examples
of direct obligations of the U.S. Treasury are Treasury bills, notes, bonds
and
other debt securities issued by the U.S. Treasury. These instruments
are backed by the “full faith and credit” of the United States. They
differ primarily in interest rates, the length of maturities and the dates
of
issuance. Treasury bills have original maturities of one year or
less. Treasury notes have original
maturities
of one to ten years, and Treasury bonds generally have original maturities
of
greater than ten years.
Some
agency securities are backed by the full faith and credit of the United
States,
and others are backed only by the rights of the issuer to borrow from the
U.S.
Treasury (such as Federal Home Loan Bank Bonds and Federal National Mortgage
Association Bonds), while still others, such as the securities of the Federal
Farm Credit Bank, are supported only by the credit of the
issuer. With respect to securities supported only by the credit of
the issuing agency or by an additional line of credit with the U.S. Treasury,
there is no guarantee that the U.S. Government will provide support to
such
agencies, and such securities may involve risk of loss of principal and
interest.
Repurchase
Agreements. We may enter into “repurchase agreements” backed by
U.S. Government Securities. A repurchase agreement arises when we
purchase a security and simultaneously agree to resell it to the vendor
at an
agreed upon future date. The resale price is greater than the
purchase price, reflecting an agreed upon market rate of return that is
effective for the period of time we hold the security and that is not related
to
the coupon rate on the purchased security. Such agreements generally
have maturities of no more than seven days and could be used to permit
us to
earn interest on assets awaiting long term investment. We require
continuous maintenance by our custodian for our account in the Federal
Reserve/Treasury Book-Entry System of collateral in an amount equal to,
or in
excess of, the market value of the securities that are the subject of a
repurchase agreement. Repurchase agreements maturing in more than
seven days are considered illiquid securities. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, we could
experience both delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying
security during the period while we seek to enforce our rights thereto;
(b) possible subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing our rights.
Reverse
Repurchase Agreements. We may enter into reverse repurchase
agreements for temporary purposes with banks and securities dealers if
the
creditworthiness of the bank or securities dealer has been determined by
the
Adviser to be satisfactory. A reverse repurchase agreement is a
repurchase agreement in which we are the seller of, rather than the investor
in,
securities and agree to repurchase them at an agreed-upon time and
price. Use of a reverse repurchase agreement may be preferable to a
regular sale and later repurchase of securities because it avoids certain
market
risks and transaction costs.
At
the
time when we enter into a reverse repurchase agreement, liquid assets (cash,
U.S. Government Securities or other “high-grade” debt obligations) having a
value at least as great as the purchase price of the securities to be purchased
will be segregated on our books and held by our custodian throughout the
period
of the obligation. The use of reverse repurchase agreements creates
leverage which increases our investment risk. If the income and gains
on securities purchased with the proceeds of these transactions exceed
the cost,
our earnings or net asset value will increase faster than otherwise would
be the
case; conversely, if the income and gains fail to exceed the cost, earnings
or
net asset value would decline faster than otherwise would be the
case. We intend to enter into reverse repurchase agreements only if
the income from the investment of the proceeds is greater than the expense
of
the transaction, because the proceeds are invested for a period no longer
than
the term of the reverse repurchase agreement.
Margin
Borrowing. Although we do not currently intend to, we may in the
future use margin borrowing of up to 33 1/3% of total assets for investment
purposes when the Adviser believes it will enhance returns. Margin
borrowings create certain additional risks. For example, should the
securities that are pledged to brokers to secure margin accounts decline
in
value, or should brokers from which we have borrowed increase their maintenance
margin requirements (i.e., reduce the percentage of a position
that
can
be financed), then we could be subject to a “margin call,” pursuant to which we
must either deposit additional funds with the broker or suffer mandatory
liquidation of the pledged securities to compensate for the decline in
value. In the event of a precipitous drop in the value of our assets,
we might not be able to liquidate assets quickly enough to pay off the
margin
debt and might suffer mandatory liquidation of positions in a declining
market
at relatively low prices, thereby incurring substantial losses. For
these reasons, the use of borrowings for investment purposes is considered
a
speculative investment practice. Any use of margin borrowing by us
would be subject to the limitations of the 1940 Act, including the prohibition
from us issuing more than one class of senior securities, and the asset
coverage
requirements discussed earlier in this Statement of Additional
Information. See “Investment Limitations.”
Interest
Rate Transactions. In an attempt to reduce the interest rate
risk arising from our leveraged capital structure, we currently use, and
may in
the future use, interest rate transactions such as swaps, caps and
floors. There
is
no assurance that the interest rate hedging transactions into which we
enter
will be effective in reducing our exposure to interest rate
risk. Hedging transactions are subject to correlation risk, which is
the risk that payment on our hedging transactions may not correlate exactly
with
our payment obligations on senior securities.
The
use
of interest rate transactions is a highly specialized activity that involves
investment techniques and risks different from those associated with ordinary
portfolio security transactions. In an interest rate swap, we would
agree to pay to the other party to the interest rate swap (which is known
as the
“counterparty”) a fixed rate payment in exchange for the counterparty
agreeing to pay to us a variable rate payment that is intended to approximate
our variable rate payment obligation on any variable rate
borrowings. The payment obligations would be based on the notional
amount of the swap. In an interest rate cap, we would pay a premium
to the counterparty to the interest rate cap and, to the extent that a
specified
variable rate index exceeds a predetermined fixed rate, would receive from
the
counterparty payments of the difference based on the notional amount of
such
cap. In an interest rate floor, we would be entitled to receive, to
the extent that a specified index falls below a predetermined interest
rate,
payments of interest on a notional principal amount from the party selling
the
interest rate floor. Depending on the state of interest rates in
general, our use of interest rate transactions could enhance or decrease
distributable cash flow (generally, cash from operations less certain operating
expenses and reserves) available to the shares of our common
stock. To the extent there is a decline in interest rates, the value
of the interest rate transactions could decline, and could result in a
decline
in the net asset value of the shares of our common stock. In
addition, if the counterparty to an interest rate transaction defaults,
we would
not be able to use the anticipated net receipts under the interest rate
transaction to offset our cost of financial leverage. When interest
rate swap transactions are outstanding, we will segregate liquid assets
with our
custodian in an amount equal to our net payment obligation under the
swap.
Delayed-Delivery
Transactions. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a
commitment to purchase or sell specific securities at a predetermined price
or
yield, with payment and delivery taking place after the customary settlement
period for that type of security. Typically, no interest accrues to
the purchaser until the security is delivered. We may receive fees or
price concessions for entering into delayed-delivery transactions.
When
purchasing securities on a delayed-delivery basis, the purchaser assumes
the
rights and risks of ownership, including the risks of price and yield
fluctuations and the risk that the security will not be issued as
anticipated. Because payment for the securities is not required until
the delivery date, these risks are in addition to the risks associated
with our
investments. If we remain substantially fully invested at a time when
delayed-delivery purchases are outstanding, the delayed-delivery purchases
may
result in a form of leverage. When delayed-delivery purchases are
outstanding, we will segregate appropriate liquid assets with our custodian
to
cover the purchase obligations. When we have sold a security on a
delayed-
delivery
basis, we do not participate in further
gains or losses with respect to the security. If the other party
to
a delayed-delivery transaction fails to deliver or pay for the securities,
we
could miss a favorable price or yield opportunity or suffer a
loss.
Securities
Lending. We may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows
us to retain ownership of the securities loaned and, at the same time,
to earn
additional income. Since there may be delays in the recovery of
loaned securities, or even a loss of rights in collateral supplied should
the
borrower fail financially, loans will be made only to parties deemed by
the
Adviser to be of good credit and legal standing. Furthermore, loans
of securities will only be made if, in the Adviser’s judgment, the consideration
to be earned from such loans would justify the risk.
The
Adviser understands that it is the current view of the SEC staff that we
may
engage in loan transactions only under the following
conditions: (1) we must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned (determined on a daily basis) rises above
the value of the collateral; (3) after giving notice, we must be able to
terminate the loan at any time; (4) we must receive reasonable interest on
the loan or a flat fee from the borrower, as well as amounts equivalent
to any
dividends, interest, or other distributions on the securities loaned and
to any
increase in market value; (5) we may pay only reasonable custodian fees in
connection with the loan; and (6) the Board must be able to vote proxies on
the securities loaned, either by terminating the loan or by entering into
an
alternative arrangement with the borrower.
Temporary
and Defensive Investments. Pending investment of offering or
leverage proceeds, we may invest such proceeds in securities issued or
guaranteed by the U.S. Government or its instrumentalities or agencies,
short-term debt securities, certificates of deposit, bankers’ acceptances and
other bank obligations, commercial paper rated in the highest category
by a
rating agency or other liquid fixed income securities deemed by the Adviser
to
be of similar quality (collectively, “short-term securities”), or we may invest
in cash or cash equivalents, all of which are expected to provide a lower
yield
than the securities of energy infrastructure companies. We also may
invest in short-term securities or cash on a temporary basis to meet working
capital needs including, but not limited to, for collateral in connection
with
certain investment techniques, to hold a reserve pending payment of
distributions, and to facilitate the payment of expenses and settlement
of
trades.
Under
adverse market or economic conditions, we may invest up to 100% of our
total
assets in short-term securities or cash. The yield on short-term
securities or cash may be lower than the returns on MLPs or yields on lower
rated fixed income securities. To the extent we invest in short-term
securities or cash for defensive purposes, such investments are inconsistent
with, and may result in us not achieving, our investment objective.
MANAGEMENT
OF THE COMPANY
Directors
and Officers
Our
business and affairs are managed under the direction of the Board of
Directors. Accordingly, the Board of Directors provides broad
supervision over our affairs, including supervision of the duties performed
by
the Adviser. Our officers are responsible for our day-to-day
operations. Our directors and officers and their principal
occupations and other affiliations during the past five years are set forth
below. Each director and officer will hold office until his successor
is duly elected and qualifies, or until he resigns or is removed in the
manner
provided by law. The Board of Directors is divided into three
classes. Directors of each class are elected to serve three year
terms and until their successors are duly
elected
and qualify. Each year only one
class of directors is elected by the stockholders. Unless
otherwise indicated, the address of each director and officer is 10801
Mastin
Boulevard, Suite 222, Overland Park, Kansas 66210. The Board of
Directors consists of a majority of directors who are not interested persons
(as
defined in the 1940 Act) of the Adviser or its affiliates.
|
Position(s)
Held With Company and Length of Time Served
|
Principal
Occupation During Past Five Years
|
Number
of Portfolios in Fund Complex Overseen by Director2
|
Other
Public Company Directorships Held by
Director
|
Independent
Directors
|
Conrad
S. Ciccotello, 47
|
Director
since 2003
|
Tenured
Associate Professor of Risk Management and Insurance, Robinson
College of
Business, Georgia State University (faculty member since 1999);
Director
of Graduate Personal Financial Planning (PFP) Programs, Editor,
“Financial
Services Review,” (an academic journal dedicated to the study of
individual financial management); formerly, faculty member, Pennsylvania
State University (1997-1999).
|
6
|
None
|
John
R. Graham, 62
|
Director
since 2003
|
Executive-in-Residence
and Professor of Finance, College of Business Administration,
Kansas State
University (has served as a professor or adjunct professor since
1970);
Chairman of the Board, President and CEO, Graham Capital Management,
Inc.,
primarily a real estate development and investment company and
a venture
capital company; and Owner of Graham Ventures, a business services
and
venture capital firm; formerly, CEO, Kansas Farm Bureau Financial
Services, including seven affiliated insurance or financial service
companies (1979-2000).
|
6
|
Kansas
State Bank
|
Charles
E. Heath, 65
|
Director
since 2003
|
Retired
in 1999. Formerly, Chief Investment Officer, GE Capital’s
Employers Reinsurance Corporation (1989-1999). Chartered
Financial Analyst (“CFA”) designation since 1974.
|
6
|
None
|
|
Position(s)
Held With Company and Length of Time Served
|
Principal
Occupation During Past Five Years
|
Number
of Portfolios in Fund Complex Overseen by Director2
|
Other
Public Company Directorships Held by
Director
|
Interested
Directors and Officers1
|
H.
Kevin Birzer, 47
|
Director
and Chairman of the Board since 2003
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital
(1990-present); formerly, Vice President, Corporate Finance
Department,
Drexel Burnham Lambert (1986-1989); Vice President, F. Martin
Koenig & Co., an investment management firm
(1983-1986). CFA designation since 1988.
|
6
|
None
|
Terry
C. Matlack, 51
|
Director
and Chief Financial Officer since 2003, Chief Compliance Officer
from 2004
through May 2006; Assistant Treasurer since November 2005;
Treasurer from 2003 to November 2005
|
Managing
Director of the Adviser since 2002; full-time Managing Director,
KCEP
(2001-2002); formerly, President, GreenStreet Capital, a private
investment firm (1998-2001). CFA designation since
1985.
|
6
|
None
|
David J.
Schulte, 46
|
President
and Chief Executive Officer since 2003
|
Managing
Director of the Adviser since 2002; full-time Managing Director,
KCEP
(1993-2002); CFA designation since 1992.
|
N/A
|
None
|
Zachary
A. Hamel, 41
|
Senior
Vice President since April 2007; Secretary from 2003 to
April 2007
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital
Management
(1997-present). CFA designation since 1998.
|
N/A
|
None
|
Kenneth
P. Malvey, 42
|
Treasurer
since November 2005; Senior Vice President since April 2007;
Assistant Treasurer from 2003 to November 2005
|
Managing
Director of the Adviser since 2002; Partner, Fountain Capital
Management
(2002-present); formerly, Investment Risk Manager and member
of the Global
Office of Investments, GE Capital’s Employers Reinsurance Corporation
(1996-2002). CFA designation since 1996.
|
N/A
|
None
|
_____________
(1)
|
As
a result of their respective positions held with the Adviser
or its
affiliates, these individuals are considered our “interested persons”
within the meaning of the 1940 Act.
|
(2)
|
This
number includes Tortoise North American Energy Corporation (“TYN”),
Tortoise Energy Capital Corporation (“TYY”), Tortoise Capital Resources
Corporation (“TTO”) and two privately held closed-end management
investment companies. The Adviser also serves as investment
adviser to TYN, TYY, TTO and two privately held closed-end management
investment companies.
|
The
following
individuals who are included in the table above hold the following positions
with TYN, TYY, TTO and two privately held closed-end management investment
companies:
Messrs. Ciccotello,
Graham and Heath are directors;
Mr. Birzer is a director and the Chairman of the Board; Mr. Matlack is
a director and the Chief Financial Officer and Assistant Treasurer;
Mr. Schulte is the President and Chief Executive Officer of TYN, TYY and
two privately held closed-end management investment companies and the Chief
Executive Officer of TTO; Mr. Hamel is Senior Vice President; and
Mr. Malvey is Senior Vice President and Treasurer.
We
have
an audit committee that consists of three directors (the “Audit Committee”) who
are not “interested persons” within the meaning of the 1940 Act (“Independent
Directors”). The Audit Committee members are Conrad S. Ciccotello
(Chairman), Charles E. Heath and John R. Graham. The Audit
Committee’s function is to oversee our accounting policies, financial reporting
and internal control system. The
Audit Committee makes recommendations regarding the selection of our
independent
auditors, reviews the independence of such firm, reviews the scope of
the audit
and internal controls, considers and reports to the Board on matters
relating to
our accounting and financial reporting practices, and performs such other
tasks
as the full Board deems necessary or appropriate. The Audit Committee
held 2 meetings in the fiscal year ended November 30,
2006.
We
also
have a Nominating and Governance Committee (formerly the Nominating Committee)
that consists exclusively of three Independent Directors. The
Nominating and Governance Committee’s function is to (i) identify
individuals qualified to become Board members and recommend to the Board
the
director nominees for the next annual meeting of stockholders and to fill
any
vacancies; (ii) monitor the structure and membership of Board committees;
recommend to the Board director nominees for each committee; (iii) review
issues and developments related to corporate governance issues and develop
and
recommend to the Board corporate governance guidelines and procedures,
to the
extent necessary or desirable; and (iv) actively seek individuals who meet
the standards for directors set forth in our Bylaws, who meet the requirements
of any applicable laws or exchange requirements and who are otherwise qualified
to become board members for recommendation to the Board. The
Nominating and Governance Committee will consider shareholder recommendations
for nominees for membership to the Board so long as such recommendations
are
made in accordance with our Bylaws. The Nominating and Governance
Committee members are Conrad S. Ciccotello, John R. Graham (Chairman),
and
Charles E. Heath. The Nominating Committee (which became the
Nominating and Governance Committee in December 2005) held 1 meeting in the
fiscal year ended November 30, 2006.
We
also
have a Compliance Committee formed in December 2005 that consists
exclusively of three Independent Directors. The Compliance
Committee’s function is to review and assess management’s compliance with
applicable securities laws, rules and regulations, monitor compliance with
our
Code of Ethics, and handle other matters as the Board or committee chair
deems
appropriate. The Compliance Committee members are Conrad S.
Ciccotello, John R. Graham and Charles E. Heath (Chairman). The
Compliance Committee held 1 meeting in the fiscal year ended November 30,
2006.
Directors
and officers who are interested persons of the Company or the Administrator
will
receive no salary or fees from us. For the current fiscal year, each
Independent Director receives from us an annual retainer of $15,000 (plus
an
additional $6,000 for the Chairman of the Audit Committee and an additional
$1,000 for each other committee Chairman) and a fee of $2,000 (and reimbursement
for related expenses) for each meeting of the Board or Audit Committee
attended
in person (or $1,000 for each Board or Audit Committee meeting attended
telephonically, or for each Audit Committee meeting attended in person
that is
held on the same day as a Board meeting), and an additional $1,000 for
each
other committee meeting attended in person or telephonically. No
director or officer is entitled to receive pension or retirement benefits
from
us.
The
table
below sets forth the compensation paid to the directors by us for the fiscal
year ended November 30, 2006.
Name
and Position With the Company
|
|
Aggregate
Compensation From the Company
|
|
|
Aggregate
Compensation From the Company and Fund Complex Paid to
Directors*
|
|
Independent
Directors
|
|
|
|
|
|
|
Conrad
S. Ciccotello
|
|
$ |
40,480
|
|
|
$ |
125,500
|
|
John
R. Graham
|
|
$ |
36,480
|
|
|
$ |
113,500
|
|
Charles
E. Heath
|
|
$ |
35,480
|
|
|
$ |
109,500
|
|
Interested
Directors
|
|
|
|
|
|
|
|
|
H.
Kevin Birzer
|
|
$ |
0
|
|
|
$ |
0
|
|
Terry
C. Matlack
|
|
$ |
0
|
|
|
$ |
0
|
|
The
following table sets forth the dollar range of equity securities beneficially
owned by each director of the Company as of December 31, 2006.
|
Aggregate
Dollar Range of Company Securities Beneficially Owned By
Director**
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment
Companies
Overseen by Director in Family of Investment
Companies*
|
Independent
Directors
|
|
|
Conrad
S. Ciccotello
|
$50,001-$100,000
|
Over
$100,000
|
John
R. Graham
|
Over
$100,000
|
Over
$100,000
|
Charles
E. Heath
|
Over
$100,000
|
Over
$100,000
|
Interested
Directors
|
|
|
H.
Kevin Birzer
|
Over
$100,000
|
Over
$100,000
|
Terry
C. Matlack
|
Over
$100,000
|
Over
$100,000
|
_____________
*
|
Includes
TYG, TYY, TYN and TTO.
|
**
|
As
of December 31, 2006, the officers and directors of the Company, as a
group, own less than 1% of any class of the Company’s outstanding shares
of stock.
|
Control
Persons
As
of August 31, 2007, the following persons owned of record or
beneficially more than 5% of our common shares:
Merrill
Lynch Safekeeping
4
Corporate Place
Piscataway,
NJ 08854
|
____%
|
Charles
Schwab & Co., Inc.
101
Montgomery St.
San
Francisco, CA 94104
|
|
Stifel,
Nicolaus & Company Inc.
501
North Broadway
St.
Louis, MO 63102
|
|
National
Financial Services LLC
200
Liberty Street
One
World Financial Center
New
York, NY 10281
|
|
RBC
Dain Rauscher
Inc.
1221
Avenue of the Americas
New
York, NY 10036
|
|
Indemnification
of Directors and Officers
Maryland
law permits a Maryland corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation
and its
stockholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty which is established by a
final judgment as being material to the cause of action. The Charter
contains such a provision which eliminates directors’ and officers’ liability to
the maximum extent permitted by Maryland law and the 1940 Act.
The
Charter authorizes us, to the maximum extent permitted by Maryland law
and the
1940 Act, to indemnify any present or former director or officer or any
individual who, while a director or officer of ours and at our request,
serves
or has served another corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise as a director,
officer, partner or trustee, from and against any claim or liability to
which
that person may become subject or which that person may incur by reason
of his
or her status as a present or former director or officer of ours and to
pay or
reimburse his or her reasonable expenses in advance of final disposition
of a
proceeding. The Bylaws obligate us, to the maximum extent permitted
by Maryland law and the 1940 Act, to indemnify any present or former director
or
officer or any individual who, while a director of ours and at our request,
serves or has served another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise
as
a director, officer, partner or trustee and who is made a party to the
proceeding by reason of his or her service in that capacity from and against
any
claim or liability to which that person may become subject or which that
person
may incur by reason of his or her status as a present or former director
or
officer of ours and to pay or reimburse his or her reasonable expenses
in
advance of final disposition of a proceeding. The Charter and Bylaws
also permit us to indemnify and advance expenses to any person who served
a
predecessor of ours in any of the capacities described above and any employee
or
agent of ours or a predecessor of ours. The 1940 Act prohibits us
from indemnifying any director, officer or other individual from any liability
resulting directly from the willful misconduct, bad faith, gross negligence
in
the performance of duties or reckless disregard of applicable obligations
and
duties of the directors, officers or other individuals.
Maryland
law requires a corporation (unless its charter provides otherwise, which
our
Charter does not) to indemnify a director or officer who has been successful
in
the defense of any proceeding to which he or she is made, or threatened
to be
made, a party by reason of his or her service in that
capacity. Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made, or threatened
to be
made, a party by reason of their service in those or other capacities unless
it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed
in bad faith or (ii) was the result of active and deliberate dishonesty,
(b) the director or officer actually received an improper personal benefit
in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that
the act
or omission was unlawful. However, under Maryland law, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or
in
the right of the corporation or for a judgment of
liability on the basis that personal benefit was improperly received, unless
in
either case a court orders indemnification and then only for
expenses. In addition, Maryland law permits a corporation to advance
reasonable expenses to a director or officer upon the corporation’s receipt of
(a) a written affirmation by the director or officer of his or her good
faith belief
that he or she has met the standard of conduct necessary for indemnification
by
the corporation and (b) a written undertaking by him or her or on his or
her behalf to repay the amount paid or reimbursed by the corporation if
it is
ultimately determined that the standard of conduct was not met.
Investment
Adviser
Tortoise
Capital Advisors, L.L.C. (the “Adviser”) serves as our investment
adviser. The Adviser specializes in managing portfolios of
investments in MLPs and other energy infrastructure companies. The
Adviser was formed by Fountain Capital Management, L.L.C. (“Fountain Capital”)
and Kansas City Equity Partners, L.C. (“KCEP”) in October 2002 to provide
portfolio management services exclusively with respect to energy infrastructure
investments. The Adviser is controlled equally by Fountain Capital
and KCEP, each of which own half of all of the voting shares of the
Adviser.
Fountain
Capital was formed in 1990 and is focused primarily on providing investment
advisory services to institutional investors with respect to below investment
grade debt. Atlantic Asset Management, L.L.C. (“Atlantic”) is a
minority owner, and an affiliate, of Fountain Capital. Atlantic was
formed in 1992 and provides, directly or through affiliates, a variety
of fixed
income investment advisory services including investment grade bond and
high-yield bond strategies, investment grade collateralized debt obligations
and
mortgage hedge funds.
KCEP
was
formed in 1993 and until recently, managed KCEP Ventures II, L.P.
(“KCEP II”), a private equity fund with committed capital of $55 million
invested in a variety of companies in diverse
industries. KCEP II wound up its operations in late 2006, has no
remaining portfolio investments and has distributed proceeds to its
partners. KCEP I, L.P. (“KCEP I”), a start-up and
early-stage venture capital fund launched in 1994 and previously managed
by
KCEP, also recently completed the process of winding down. As a part
of that process, KCEP I entered into a consensual order of receivership,
which was necessary to allow KCEP I to distribute its remaining $1.3
million of assets to creditors and the SBA. The consensual order
acknowledged a capital impairment condition and the resulting nonperformance
by
KCEP I of its agreement with the SBA, both of which were violations of the
provisions requiring repayment of capital under the Small Business Investment
Act of 1958 and the regulations thereunder.
The
Adviser is located at 10801 Mastin Boulevard, Suite 222, Overland Park,
Kansas
66210. As of August 31, 2007, the Adviser had approximately
$2.9 billion in assets under management in the energy sector.
Pursuant
to an Investment Advisory Agreement (the “Advisory Agreement”), the Adviser,
subject to overall supervision by the Board, manages our
investments. The Adviser regularly provides us with investment
research advice and supervision and will furnish continuously an investment
program for us, consistent with our investment objective and
policies.
The
investment management of our portfolio is the responsibility of a team
of
portfolio managers consisting of David J. Schulte, H. Kevin Birzer,
Zachary A. Hamel, Kenneth P. Malvey, and Terry C. Matlack, all of
whom are Managers of the Adviser and members of its investment committee
and
share responsibility for such investment management. It is the policy
of the investment committee, that any one member can require the Adviser
to sell
a security and any one member can veto the committee’s decision to invest in a
security. All members of our Adviser’s investment committee are
full-time employees of the Adviser.
The
following table provides information about the number of and total assets
in
other accounts managed on a day-to-day basis by each of the portfolio managers
as of November 30, 2006.
|
|
|
|
|
|
|
|
Number
of Accounts Paying a Performance Fee
|
|
|
Total
Assets of Accounts Paying a Performance Fee
|
|
H.
Kevin Birzer
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
investment companies
|
|
|
2
|
|
|
$ |
879,812,575
|
|
|
|
0
|
|
|
|
—
|
|
Other
pooled investment vehicles
|
|
|
5
|
|
|
$ |
1,928,523,567
|
|
|
|
1
|
|
|
$ |
42,933,012
|
|
Other
accounts
|
|
|
182
|
|
|
$ |
1,965,319,994
|
|
|
|
0
|
|
|
|
—
|
|
Zachary
A. Hamel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
investment companies
|
|
|
2
|
|
|
$ |
879,812,575
|
|
|
|
0
|
|
|
|
—
|
|
Other
pooled investment vehicles
|
|
|
5
|
|
|
$ |
1,928,523,567
|
|
|
|
1
|
|
|
$ |
42,933,012
|
|
Other
accounts
|
|
|
182
|
|
|
$ |
1,965,319,994
|
|
|
|
0
|
|
|
|
—
|
|
Kenneth
P. Malvey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
investment companies
|
|
|
2
|
|
|
$ |
879,812,575
|
|
|
|
0
|
|
|
|
—
|
|
Other
pooled investment vehicles
|
|
|
5
|
|
|
$ |
1,928,523,567
|
|
|
|
1
|
|
|
$ |
42,933,012
|
|
Other
accounts
|
|
|
182
|
|
|
$ |
1,965,319,994
|
|
|
|
0
|
|
|
|
—
|
|
Terry
C. Matlack
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
investment companies
|
|
|
2
|
|
|
$ |
879,812,575
|
|
|
|
0
|
|
|
|
—
|
|
Other
pooled investment vehicles
|
|
|
2
|
|
|
$ |
69,933,012
|
|
|
|
2
|
|
|
$ |
69,933,012
|
|
Other
accounts
|
|
|
160
|
|
|
$ |
185,779,727
|
|
|
|
0
|
|
|
|
—
|
|
David J.
Schulte
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
investment companies
|
|
|
2
|
|
|
$ |
879,812,575
|
|
|
|
0
|
|
|
|
—
|
|
Other
pooled investment vehicles
|
|
|
2
|
|
|
$ |
69,933,012
|
|
|
|
2
|
|
|
$ |
69,933,012
|
|
Other
accounts
|
|
|
160
|
|
|
$ |
185,779,727
|
|
|
|
0
|
|
|
|
—
|
|
None
of
Messrs. Schulte, Matlack, Birzer, Hamel or Malvey receive any direct
compensation from the Company or any other of the managed accounts reflected
in
the table above. All such accounts are managed by the Adviser or
Fountain Capital. Messrs. Birzer, Hamel, Malvey, Matlack and
Schulte are full-time employees of the Adviser and receive a fixed salary
for
the services they provide. Each of Messrs. Schulte, Matlack,
Birzer, Hamel and Malvey own an equity interest in either KCEP or Fountain
Capital, the two entities that control the Adviser, and each thus benefits
from
increases in the net income of the Adviser.
The
following table sets forth the dollar range of our equity securities
beneficially owned by each of the portfolio managers as of November 30,
2006.
|
Aggregate
Dollar Range of Company Securities Beneficially Owned by
Manager
|
H.
Kevin
Birzer
|
Over
$100,000
|
Zachary
A.
Hamel
|
Over
$100,000
|
Kenneth
P.
Malvey
|
Over
$100,000
|
Terry
C.
Matlack
|
Over
$100,000
|
David J.
Schulte
|
Over
$100,000
|
In
addition to portfolio management services, the Adviser is obligated to
supply
our Board and officers with certain statistical information and reports,
to
oversee the maintenance of various books and records and to arrange for
the
preservation of records in accordance with applicable federal law and
regulations. Under the Advisory Agreement, we pay to the Adviser
quarterly, as compensation for the
services
rendered and expenses paid by it, a fee equal on an annual basis to 0.95%
of our
average monthly Managed Assets. Managed Assets means the total assets
of the Company (including any assets attributable to leverage that may
be
outstanding) minus accrued liabilities other than (1) deferred taxes,
(2) debt entered into for the purpose of leverage and (3) the
aggregate liquidation preference of any outstanding preferred
stock.
The
Adviser has agreed contractually to reimburse us for expenses, including
the
investment advisory fee and other expenses in the amount of 0.10% of average
monthly Managed Assets through February 28, 2009.
Because
the management fees paid to the Adviser are based upon a percentage of
our
Managed Assets, fees paid to the Adviser will be higher if we are leveraged;
thus, the Adviser will have an incentive to use leverage. Because the
fee reimbursement agreement is based on Managed Assets, to the extent we
are
engaged in leverage, the gross dollar amount of the Adviser’s fee reimbursement
obligations to us will increase. The Adviser intends to use leverage
only when it believes it will serve the best interests of our
stockholders. Our average monthly Managed Assets are determined for
the purpose of calculating the management fee by taking the average of
the
monthly determinations of Managed Assets during a given calendar
quarter. The fees are payable for each calendar quarter within five
days of the end of that quarter.
For
our
initial fiscal year beginning February 27, 2004 and ending
November 30, 2004, the Adviser received $2,006,155 as compensation for
advisory services, net of $640,855, in reimbursed fees and
expenses. For our fiscal year ending November 30, 2005, the
Adviser received $4,804,810 as compensation for advisory services, net
of
$1,534,870, in reimbursed fees and expenses. For our fiscal year
ending November 30, 2006, the Adviser received $6,253,972 as compensation
for advisory services, net of $987,587, in reimbursed fees and
expenses.
The
Advisory Agreement provides that we will pay all expenses other than those
expressly stated to be payable by the Adviser, which expenses payable by
us
shall include, without implied limitation: (1) expenses of
maintaining the Company and continuing our existence and related overhead,
including, to the extent services are provided by personnel of the Adviser
or
its affiliates, office space and facilities and personnel compensation,
training
and benefits; (2) registration under the 1940 Act; (3) commissions,
spreads, fees and other expenses connected with the acquisition, holding
and
disposition of securities and other investments including placement and
similar
fees in connection with direct placements in which we participate;
(4) auditing, accounting and legal expenses; (5) taxes and interest;
(6) governmental fees; (7) expenses of listing our shares with a stock
exchange, and expenses of issuance, sale, repurchase and redemption (if
any) of our interests, including expenses of conducting tender offers for
the purpose of repurchasing our interests; (8) expenses of registering and
qualifying us and our shares under federal and state securities laws and
of
preparing and filing registration statements and amendments for such purposes;
(9) expenses of communicating with stockholders; including website expenses
and the expenses of preparing, printing and mailing press releases, reports
and
other notices to stockholders and of meetings of stockholders and proxy
solicitations therefor; (10) expenses of reports to governmental officers
and commissions; (11) insurance expenses; (12) association membership
dues; (13) fees, expenses and disbursements of custodians and subcustodians
for all services to us (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records,
and
determination of net asset values); (14) fees, expenses and disbursements
of transfer agents, dividend paying agents, stockholder servicing agents
and
registrars for all services to us; (15) compensation and expenses of our
directors who are not members of the Adviser’s organization; (16) pricing
and valuation services employed by us; (17) all expenses incurred in
connection with leveraging of our assets through a line of credit, or issuing
and maintaining preferred stock or instruments evidencing indebtedness
of the
Company; (18) all expenses incurred in connection with the offering of our
common and preferred stock
and
debt
securities; and (19) such non-recurring items as may arise, including
expenses incurred in connection with litigation, proceedings and claims
and our
obligation to indemnify our directors, officers and stockholders with respect
thereto.
The
Advisory Agreement provides that the Adviser will not be liable in any
way for
any default, failure or defect in any of the securities comprising our
portfolio
if it has satisfied the duties and the standard of care, diligence and
skill set
forth in the Advisory Agreement. However, the Adviser shall be liable
to us for any loss, damage, claim, cost, charge, expense or liability resulting
from the Adviser’s willful misconduct, bad faith or gross negligence or
disregard by the Adviser of the Adviser’s duties or standard of care, diligence
and skill set forth in the Advisory Agreement or a material breach or default
of
the Adviser’s obligations under the Advisory Agreement.
The
Advisory Agreement has a term ending on December 31st of each year and is
submitted to the Board of Directors for renewal each year. A
discussion regarding the basis of the Board of Directors’ decision to approve
the renewal of the Advisory Agreement is available in our Annual Report
to
stockholders for the fiscal year ended November 30, 2006. The
Advisory Agreement will continue from year to year, provided such continuance
is
approved by a majority of the Board or by vote of the holders of a majority
of
our outstanding voting securities. Additionally, the Advisory
Agreement must be approved annually by vote of a majority of the Independent
Directors. The Advisory Agreement may be terminated by the Adviser or
us, without penalty, on sixty (60) days’ written notice to the
other. The Advisory Agreement will terminate automatically in the
event of its assignment.
Code
of Ethics
We
and
the Adviser have each adopted a Code of Ethics under Rule 17j-1 of the
1940 Act,
which is applicable to officers, directors and designated employees of
ours and
the Adviser (collectively, the “Codes”). Subject to certain
limitations, the Codes permit covered persons to invest in securities,
including
securities that may be purchased or held by us. The Codes contain
provisions and requirements designed to identify and address certain conflicts
of interest between personal investment activities of covered persons and
the
interests of investment advisory clients such as us. Among other
things, the Codes prohibit certain types of transactions absent prior approval,
impose time periods during which personal transactions may not be made
in
certain securities, and require submission of duplicate broker confirmations
and
statements and quarterly reporting of securities
transactions. Exceptions to these and other provisions of the Codes
may be granted in particular circumstances after review by appropriate
personnel.
Our
Code
of Ethics can be reviewed and copied at the Securities and Exchange Commission’s
Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling the Securities
and Exchange Commission at (202) 551-5850. Our Code of Ethics is
also available on the EDGAR Database on the Securities and Exchange Commission’s
Internet site at http://www.sec.gov, and, upon payment of a duplicating
fee, by
electronic request at the following e-mail
address: publicinfo@sec.gov or by writing the Securities and Exchange
Commission’s Public Reference Section, Washington, D.C.
20549-0102. Our Code of Ethics is also available on our Adviser’s
website at www.tortoiseadvisors.com.
NET
ASSET VALUE
We
will
compute our net asset value for our shares of common stock as of the close
of
trading on the NYSE (normally 4:00 p.m. Eastern time) no less
frequently than the last business day of each calendar month and at such
other
times as the Board may determine. We make our net asset value
available for publication monthly. Our investment transactions are
generally recorded on a trade date plus one day
basis,
other than for quarterly and annual reporting purposes. For purposes
of determining the net asset value of a share of common stock, our net
asset
value will equal the value of our total assets (the value of the securities
we
hold, plus cash or other assets, including interest accrued but not yet
received) less (1) all of its liabilities (including without
limitation accrued expenses and both current and deferred income taxes),
(2) accumulated and unpaid interest payments and dividends on any
outstanding debt or preferred stock, respectively, (3) the aggregate
liquidation value of any outstanding preferred stock, (4) the aggregate
principal amount of any outstanding senior notes, including any series
of
Tortoise Notes, and (5) any distributions payable on the common
stock. The net asset value per share of our common stock will equal
our net asset value divided by the number of outstanding shares of common
stock.
Pursuant
to an agreement with U.S. Bancorp Fund Services, LLC (the “Accounting Services
Provider”), the Accounting Services Provider will value our assets in accordance
with Valuation Procedures adopted by the Board of Directors. The
Accounting Services Provider will obtain securities market quotations from
independent pricing services approved by the Adviser and ratified by the
Board. Securities for which market quotations are readily available
shall be valued at “market value.” Any other securities shall be
valued at “fair value.”
Valuation
of certain assets at market value will be as follows. For equity
securities, the Accounting Services Provider will first use readily available
market quotations and will obtain direct written broker-dealer quotations
if a
security is not traded on an exchange or quotations are not available from
an
approved pricing service. For fixed income securities, the Accounting
Services Provider will use readily available market quotations based upon
the
last sale price of a security on the day we value our assets or a market
value
from a pricing service or by obtaining a direct written broker-dealer quotation
from a dealer who has made a market in the security. For options,
futures contracts and options on futures contracts, the Accounting Services
Provider will use readily available market quotations. If no sales
are reported on any exchange or over-the-counter (“OTC”) market for an option,
futures contract or option on futures contracts, the Accounting Services
Provider will use the calculated mean based on bid and asked prices obtained
from the primary exchange or OTC market.
If
the
Accounting Services Provider cannot obtain a market value or the Adviser
determines that the value of a security as so obtained does not represent
a fair
value as of the valuation time (due to a significant development subsequent
to
the time its price is determined or otherwise), fair value for the security
shall be determined pursuant to the Valuation Procedures adopted by the
Board. The Valuation Procedures provide that the Adviser will
consider a variety of factors with respect to the individual issuer and
security
in determining and monitoring the continued appropriateness of fair value,
including, without limitation, financial statements and fundamental data
with
respect to the issuer, cost, the amount of any discount, restrictions on
transfer and registration rights and other information deemed
relevant. A report of any prices determined pursuant to certain
preapproved methodologies will be presented to the Board or a designated
committee thereof for approval no less frequently than quarterly. The
Valuation Procedures currently provide for methodologies to be used to
fair
value equity securities, debt securities and control securities. With
respect to equity securities, among the factors used to fair value a security
subject to restrictions on resale is whether the security has a common
share
counterpart trading in a public market. If a security does not have a
common share counterpart, the security shall be valued initially and thereafter
by the Adviser based on all relevant factors, including, but not limited
to,
cost, and such valuation will be presented to the Board for review and
ratification. If a security has a common share counterpart trading in
a public market or is convertible into publicly-traded common shares, the
Adviser shall determine an appropriate percentage discount for the security
in
light of its resale restrictions and other factors.
With
respect to debt securities, among the various factors that can affect the
value
of such securities are (i) whether the issuing company has freely trading
debt securities of the same maturity and interest rate; (ii) whether the
issuing company has an effective registration statement in place for the
securities; and whether a market is made in the securities. Subject
to the particular considerations of an issue, debt securities generally
will be
valued at amortized cost.
With
respect to control securities (equity securities of an issuer that is deemed
to
be an affiliate of ours due to our ownership or the beneficial ownership
of our
Adviser of 10% or more of the outstanding shares of the same class of such
issuer), if the class of security continues to trade in a public market
or is
covered by a currently effective registration statement, the security ordinarily
will be valued at the common share market price. If the class of the
security ceases to trade in a public market or is otherwise not tradeable,
the
security shall be valued by the Adviser based on all relevant factors,
including, but not limited to, cost, and such valuation will be presented
to the
our Board for review and ratification.
The
foregoing methods for fair valuing securities may be used only as long
as the
Adviser believes they continue to represent fair value and the discussion
above
is qualified in its entirety by our Valuation Procedures.
In
computing net asset value, we will review the valuation of the obligation
for
income taxes separately for current taxes and deferred taxes due to the
differing impact of each on (i) the anticipated timing of required tax
payments and (ii) on the treatment of distributions by us to our
stockholders.
The
allocation between current and deferred income taxes is determined based
upon
the value of assets reported for book purposes compared to the respective
net
tax bases of assets for federal income tax purposes. It is
anticipated that cash distributions from MLPs in which we invest will not
equal
the amount of taxable income allocable to us primarily as a result of
depreciation and amortization deductions recorded by the MLPs. This
may result, in effect, in a portion of the cash distribution received by
us not
being treated as income for federal income tax purposes. The relative
portion of such distributions not treated as income for tax purposes will
vary
among the MLPs, and also will vary year by year for each MLP, but in each
case
will reduce our remaining tax basis, if any, in the particular
MLP. The Adviser will be able to directly confirm the portion of each
distribution recognized as taxable income when it receives annual tax reporting
information from each MLP.
PORTFOLIO
TRANSACTIONS
Execution
of Portfolio Transactions
The
Adviser is responsible for decisions to buy and sell securities for the
Company,
broker-dealer selection, and negotiation of brokerage commission
rates. The Adviser’s primary consideration in effecting a security
transaction will be to obtain the best execution. In selecting a
broker-dealer to execute each particular transaction, the Adviser will
take the
following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the
size of
and the difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to our investment performance on a continuing
basis. Accordingly, our price in any transaction may be less
favorable than that available from another broker-dealer if the difference
is
reasonably justified by other aspects of the execution services
offered.
The
ability to invest in direct placements of MLP securities is critical to
our
ability to meet our investment objective because of the limited number
of MLP
issuers available for investment and, in some cases, the relative small
trading
volumes of certain securities. Accordingly, we may from time to time
enter into arrangements with placement agents in connection with direct
placement transactions.
In
evaluating placement agent proposals, we consider each broker’s access to
issuers of MLP securities and experience in the MLP market, particularly
the
direct placement market. In addition to these factors, we consider
whether the proposed services are customary, whether the proposed fee schedules
are within the range of customary rates, whether any proposal would obligate
us
to enter into transactions involving a minimum fee, dollar amount or volume
of
securities, or into any transaction whatsoever, and other terms such as
indemnification provisions.
Subject
to such policies as the Board may from time to time determine, the Adviser
shall
not be deemed to have acted unlawfully or to have breached any duty solely
by
reason of its having caused us to pay a broker or dealer that provides
brokerage
and research services to the Adviser an amount of commission for effecting
a
portfolio transaction in excess of the amount of commission another broker
or
dealer would have charged for effecting that transaction, if the Adviser
determines in good faith that such amount of commission was reasonable
in
relation to the value of the brokerage and research services provided by
such
broker or dealer, viewed in terms of either that particular transaction
or the
Adviser’s overall responsibilities with respect to us and to other clients of
the Adviser as to which the Adviser exercises investment
discretion. The Adviser is further authorized to allocate the orders
placed by it on our behalf to such brokers and dealers who also provide
research
or statistical material or other services to us or the Adviser. Such
allocation shall be in such amounts and proportions as the Adviser shall
determine and the Adviser will report on said allocations regularly to
the Board
indicating the brokers to whom such allocations have been made and the
basis
therefor. For the period beginning February 27, 2004 through
November 30, 2004 and for the fiscal years ended November 30, 2005 and
November 30, 2006, we paid aggregate brokerage commissions of $114,532,
$18,465 and $20,190, respectively, and direct placement fees of $1,668,861,
$80,000 and $0, respectively.
Portfolio
Turnover
Our
annual portfolio turnover rate may vary greatly from year to
year. Although we cannot accurately predict our annual portfolio
turnover rate, it is not expected to exceed 30% under normal
circumstances. For the fiscal years ended November 30, 2006 and
2005 the portfolio turnover rate was 2.18% and 4.92%,
respectively. However, portfolio turnover rate is not considered a
limiting factor in the execution of investment decisions for us. A
higher turnover rate results in correspondingly greater brokerage commissions
and other transactional expenses that are borne by us. High portfolio
turnover also may result in recognition of gains that will increase our
taxable
income, possibly resulting in an increased tax liability, as well as increasing
our current and accumulated earnings and profits resulting in a greater
portion
of the distributions on our stock being treated as taxable dividends for
federal
income tax purposes. See “Certain Federal Income Tax
Matters.”
CERTAIN
FEDERAL INCOME TAX MATTERS
The
following is a summary of certain material U.S. federal income tax
considerations relating to us and our investments in MLPs and to the purchase,
ownership and disposition of our securities. The discussion generally
applies only to holders of securities that are U.S. holders. You will
be a U.S. holder if you are an individual who is a citizen or resident
of the
United States, a U.S. domestic corporation, or any other person that is
subject
to U.S. federal income tax on a net income basis in respect of an investment
in
our securities. This summary deals only with U.S. holders that hold
our securities as capital assets and who purchase the securities in connection
with the offering(s) herein. It does not address considerations that
may be relevant to you if you are an investor that is subject to special
tax
rules, such as a financial institution, insurance company, regulated investment
company, real estate investment trust, investor in pass-through entities,
U.S.
holder of securities whose “functional currency” is not the United States
dollar, tax-exempt organization, dealer in securities or currencies, trader
in
securities or commodities that elects mark to market treatment, a person
who
holds the securities in a qualified tax
deferred
account such as an IRA, or a person who will hold the securities as a position
in a “straddle,” “hedge” or as part of a “constructive sale” for federal income
tax purposes. In addition, this discussion does not address the
possible application of the U.S. federal alternative minimum tax.
This
summary is based on the provisions of the Internal Revenue Code, the applicable
Treasury regulations promulgated thereunder, judicial authority and current
administrative rulings, as in effect on the date of this Statement of Additional
Information, all of which may change. Any change could apply
retroactively and could affect the continued validity of this
summary.
As
stated
above, this discussion does not discuss all aspects of U.S. federal income
taxation that may be relevant to a particular holder of our securities
in light
of such holder’s particular circumstances and income tax
situation. Prospective holders should consult their own tax advisors
as to the specific tax consequences to them of the purchase, ownership
and
disposition of the securities, including the application and the effect
of
state, local, foreign and other tax laws and the possible effects of changes
in
U.S. or other tax laws.
Taxation
of the Company
We
are
treated as a C corporation for federal and state income tax
purposes. We compute and pay federal and state income tax on our
taxable income. Thus, we are subject to federal income tax on our
taxable income at tax rates up to 35%. Additionally, in certain
instances we could be subject to the federal alternative minimum tax of
20% on
our alternative minimum taxable income to the extent that the alternative
minimum tax exceeds our regular federal income tax.
As
indicated above, we generally invest our assets primarily in
MLPs. MLPs generally are treated as partnerships for federal income
tax purposes. Since partnerships are generally not subject to federal
income tax, the partnership’s partners must report as their income their
proportionate share of the partnership’s income. Thus, as
a partner in MLPs, we will report our proportionate share of the MLPs’ income in
computing our federal taxable income, irrespective of whether any cash
or other
distributions are made by the MLPs to us. We will also take into
account in computing our taxable income any other items of our income,
gain,
deduction or loss. We anticipate that these may include interest
income earned on our investment in debt securities, deductions for our
operating
expenses and gain or loss recognized by us on the sale of MLP interests
or any
other security.
As
explained below, based upon the historic performance of MLPs, we anticipate
initially that our proportionate share of the MLPs’ taxable income will be
significantly less than the amount of cash distributions we receive from
the
MLPs. In such case, we anticipate that we will not incur federal
income tax on a significant portion of our cash flow, particularly after
taking
into account our current operational expenses. If the MLPs’ taxable
income is a significantly greater portion of the MLPs’ cash distributions, we
will incur additional current federal income tax liability, possibly in
excess
of the cash distributions we receive.
We
anticipate that each year we will turn over a certain portion of our investment
assets. We will recognize gain or loss on the disposition of all or a
portion of our interests in MLPs in an amount equal to the difference between
the sales price and our basis in the MLP interests sold. To the
extent we receive MLP cash distributions in excess of the taxable income
reportable by us with respect to such MLP interest, our basis in the MLP
interest will be reduced and our gain on the sale of the MLP interest likewise
will be increased.
We
are
not treated as a regulated investment company under the federal income
tax
laws. The Internal Revenue Code generally provides that a regulated
investment company does not pay an entity level income tax, provided that
it
distributes all or substantially all of its income. Our assets do
not, and
are
not
expected to, meet current tests for qualification as a regulated investment
company for federal income tax purposes. The regulated investment
company taxation rules have no application to us or our
stockholders. Although changes to the federal tax laws permit
regulated investment companies to invest up to 25% of the value of their
total
assets in securities of MLPs, such changes still would not allow us to
pursue
our objective. Accordingly, we do not intend to change our tax status
as a result of such legislation.
Federal
Income Taxation of MLPs
MLPs
are
similar to corporations in many respects, but differ in others, especially
in
the way they are taxed for federal income tax purposes. A corporation
is a distinct legal entity, separate from its stockholders and employees
and is
treated as a separate entity for federal income tax purposes as
well. Like individual taxpayers, a corporation must pay a federal
income tax on its income. To the extent the corporation distributes
its income to its stockholders in the form of dividends, the stockholders
must
pay federal income tax on the dividends they receive. For this
reason, it is said that corporate income is double-taxed, or taxed at two
levels.
An
MLP
that satisfies the Qualifying Income rules described below, and does not
elect
otherwise, is treated for federal income tax purposes as a pass-through
entity. No federal income tax is paid at the partnership
level. A partnership’s income is considered earned by all the
partners; it is allocated among all the partners in proportion to their
interests in the partnership (generally as provided in the partnership
agreement), and each partner pays tax on his, her or its share of the
partnership’s income. All the other items that go into determining
taxable income and tax owed are passed through to the partners as well
– capital
gains and losses, deductions, credits, etc. Partnership income is
thus said to be single-taxed or taxed only at one level – that of the
partner.
The
Internal Revenue Code generally requires “publicly-traded partnerships” to be
treated as corporations for federal income tax purposes. However, if
the publicly-traded partnership satisfies certain requirements and does
not
elect otherwise, the publicly-traded partnership will be taxed as a partnership
for federal income tax purposes, referred to herein as an MLP. Under
these requirements, an MLP must derive each year at least 90% of its gross
income from Qualifying Income.
Qualifying
Income for MLPs includes interest, dividends, real estate rents, gain from
the
sale or disposition of real property, certain income and gain from commodities
or commodity futures, and income and gain from certain mineral or natural
resources activities. Mineral or natural resources activities that
generate Qualifying Income include income and gains from the exploration,
development, mining or production, processing, refining, transportation
(including pipelines transporting gas, oil or products thereof), or the
marketing of any mineral or natural resource (including fertilizer, geothermal
energy, and timber). This means that most MLPs today are in energy,
timber, or real estate related businesses.
Because
the MLP itself does not pay federal income tax, its income or loss is allocated
to its investors, irrespective of whether the investors receive any cash
or
other payment from the MLP. It is important to note that an MLP
investor is taxed on his share of partnership income whether or not he
actually
receives any cash or other property from the partnership. The tax is
based not on money or other property he actually receives, but his proportionate
share of what the partnership earns. However, most MLPs make it a
policy to make quarterly distributions to their partners that will comfortably
exceed any income tax owed. Although they resemble corporate
dividends, MLP distributions are treated differently. The MLP
distribution is treated as a return of capital to the extent of the investor’s
basis in his MLP interest and, to the extent the distribution exceeds the
investor’s basis in the MLP interest, capital gain. The investor’s
original basis is generally the price paid for the units. The basis
is adjusted downward
with
each
distribution and allocation of deductions (such as depreciation) and
losses, and upwards with each allocation of income and gain.
The
partner generally will not be taxed on MLP distributions until (1) he sells
his MLP units and pays tax on his gain, which gain is increased due to
the basis
decrease resulting from prior distributions; or (2) his basis reaches
zero. When the units are sold, the difference between the sales price
and the investor’s adjusted basis is the gain or loss for federal income tax
purposes.
At
tax
filing season an MLP investor will receive a Schedule K-1 form showing the
investor’s share of each item of the partnership’s income, gain, loss,
deductions and credits. The investor will use that information to
figure the investor’s taxable income (MLPs generally provide their investors
with material that walks them through all the steps). If there is net
income derived from the MLP, the investor pays federal income tax at his,
her or
its tax rate. If there is a net loss derived from the MLP, it is
generally considered a “passive loss” under the Internal Revenue Code and
generally may not be used to offset income from other sources, but must
be
carried forward.
Because
we are a corporation, we, and not our stockholders, will report the income
or
loss of the MLPs. Thus, our stockholders will not have to deal with
any Schedules K-1 reporting income and loss items of the
MLPs. Stockholders, instead, will receive a Form 1099 from
us. In addition, due to our broad public ownership, we do not expect
to be subject to the passive loss limitation rules mentioned in the preceding
paragraph.
Common
and Preferred Stock
Federal
Income Tax Treatment of Common Stock Distributions. Unlike a
holder of a direct interest in MLPs, a stockholder will not include its
allocable share of our income, gains, losses or deductions in computing
its own
taxable income. Instead, since we are of the opinion that, under
present law, our shares of common stock will constitute equity, distributions
with respect to such shares (other than distributions in redemption of
shares
subject to Section 302(b) of the Internal Revenue Code) will generally
constitute dividends to the extent of our allocable current or accumulated
earnings and profits, as calculated for federal income tax
purposes. Generally, a corporation’s earnings and profits are
computed based upon taxable income, with certain specified
adjustments. As explained above, based upon the historic performance
of the MLPs, we anticipate that the distributed cash from the MLPs will
exceed
our share of the MLPs’ income. In addition, earnings and profits are
treated generally, for federal income tax purposes, as first being used
to pay
distributions on preferred stock, and then to the extent remaining, if
any, to
pay distributions on the common stock. Thus, we anticipate that only
a portion of the distributions of distributable cash flow (“DCF”) will be
treated as dividend income to common stockholders. To the extent that
distributions to a stockholder exceed our current and accumulated earnings
and
profits, such distributions will be treated as a return of capital and
the
stockholder’s basis in shares of stock with respect to which the distributions
are made will be reduced and, if a stockholder has no further basis in
the
shares, the stockholder will report any excess as capital gain if the
stockholder holds such shares as a capital asset.
Dividends
of current or accumulated earnings and profits generally will be taxable
as
ordinary income to holders but are expected to be treated as “qualified dividend
income” that is generally subject to reduced rates of federal income taxation
for noncorporate investors and are also expected to be eligible for the
dividends received deduction available to corporate stockholders under
Section 243 of the Internal Revenue Code. Under federal income
tax law, qualified dividend income received by individual and other noncorporate
stockholders is taxed at long-term capital gain rates, which currently
reach a
maximum of 15%. Qualified dividend income generally includes
dividends from domestic corporations and dividends from non-U.S. corporations
that meet certain criteria. To be treated as qualified dividend
income, the stockholder must hold the shares paying otherwise qualifying
dividend income more than 60
days
during the 121-day period beginning 60 days before the ex-dividend date
(or more
than 90 days during the 181-day period beginning 90 days before the ex-dividend
date in the case of certain preferred stock dividends). A
stockholder’s holding period may be reduced for purposes of this rule if the
stockholder engages in certain risk reduction transactions with respect
to the
common or preferred stock. The provisions of the Internal Revenue
Code applicable to qualified dividend income are effective through
2010. Thereafter, higher tax rates will apply unless further
legislative action is taken.
Corporate
holders should be aware that certain limitations apply to the availability
of
the dividends received deduction, including limitations on the aggregate
amount
of the deduction that may be claimed and limitations based on the holding period
of the shares on which the dividend is paid, which holding period may be
reduced
if the holder engages in risk reduction transactions with respect to its
shares. Corporate holders should consult their own tax advisors
regarding the application of these limitations to their particular
situation.
If
a
common stockholder participates in our Automatic Dividend Reinvestment
Plan,
such stockholder will be treated as receiving the amount of the distributions
made by the Company, which amount generally will be either equal to the
amount
of cash distribution the stockholder would have received if the stockholder
had
elected to receive cash or, for shares issued by the Company, the fair
market
value of the shares issued to the stockholder.
Federal
Income Tax Treatment of Preferred Stock Distributions. Under
present law, we believe that our preferred stock will constitute equity
for
federal income tax purposes, and thus distributions with respect to the
preferred stock (other than distributions in redemption of preferred stock
subject to Section 302(b) of the Internal Revenue Code) will generally
constitute dividends to the extent of our current or accumulated earnings
and
profits allocable to such shares, as calculated for federal income tax
purposes. Earnings and profits are generally treated, for federal
income tax purposes, as first being allocable to distributions on the preferred
stock and then to the extent remaining, if any, to distributions on our
common
stock. Dividends generally will be taxable as ordinary income to
holders, but are expected to be treated as “qualified dividend income” that is
generally subject to reduced rates of federal income taxation for noncorporate
investors, as described above. In the case of corporate holders of
preferred stock, subject to applicable requirements and limitations, dividends
may be eligible for the dividends received deduction available to corporations
under Section 243 of the Internal Revenue Code (see discussion
above). Distributions in excess of our earnings and profits allocable
to preferred stock, if any, will first reduce a shareholder’s adjusted tax basis
in his or her shares and, after the adjusted tax basis is reduced to zero,
will
constitute capital gains to a holder who holds such shares as a capital
asset. Because we have elected not to be treated as a regulated
investment company under the Internal Revenue Code, we are not entitled
to
designate any dividends made with respect to our stock as capital gain
distributions.
Sale
of Shares. The sale of shares of common or preferred stock by
holders will generally be a taxable transaction for federal income tax
purposes. Holders of shares who sell such shares will generally
recognize gain or loss in an amount equal to the difference between the
net
proceeds of the sale and their adjusted tax basis in the shares
sold. If the shares are held as a capital asset at the time of the
sale, the gain or loss will generally be a capital gain or
loss. Similarly, a redemption by us (including a redemption resulting
from our liquidation), if any, of all the shares actually and constructively
held by a stockholder generally will give rise to capital gain or loss
under
Section 302(b) of the Internal Revenue Code, provided that the redemption
proceeds do not represent declared but unpaid dividends. Other
redemptions may also give rise to capital gain or loss, but certain conditions
imposed by Section 302(b) of the Internal Revenue Code must be satisfied to
achieve such treatment.
Capital
gain or loss will generally be long-term capital gain or loss if the shares
were
held for more than one year and will be short-term capital gain or loss
if the
disposed shares were held for one year or less. Net long-term capital
gain recognized by a noncorporate U.S. holder generally will be subject
to
federal income tax at a lower rate (currently a maximum rate of 15%) than
net
short-term capital gain or ordinary income (currently a maximum rate of
35%). Under current law, the maximum federal income tax rate on
capital gain for noncorporate holders is scheduled to increase to 20% for
taxable years after 2010. For corporate holders, capital gain is
generally taxed at the same rate as ordinary income, that is, currently
at a
maximum rate of 35%. A holder’s ability to deduct capital losses may
be limited.
Investment
by Tax-Exempt Investors and Regulated Investment
Companies. Employee benefit plans, other tax-exempt
organizations and regulated investment companies may want to invest in
our
securities. Employee benefit plans and most other organizations
exempt from federal income tax, including individual retirement accounts
and
other retirement plans, are subject to federal income tax on unrelated
business
taxable income (“UBTI”). Because we are a corporation for federal
income tax purposes, an owner of shares will not report on its federal
income
tax return any of our items of income, gain, loss and
deduction. Therefore, a tax-exempt investor generally will not have
UBTI attributable to its ownership or sale of our stock unless its ownership
of
the stock is debt-financed. In general, stock would be debt-financed
if the tax-exempt owner of stock incurs debt to acquire the stock or otherwise
incurs or maintains debt that would not have been incurred or maintained
if the
stock had not been acquired.
For
federal income tax purposes, a regulated investment company, or “mutual fund,”
may not have more than 25% of the value of its total assets, at the close
of any
fiscal quarter, invested in the securities of one or more qualified publicly
traded partnerships, which will include most MLPs. Shares of our
stock are not securities of a qualified publicly traded partnership and
will not
be treated as such for purposes of calculating the limitation imposed upon
regulated investment companies.
Backup
Withholding. We may be required to withhold, for U.S. federal
income tax purposes, a portion of all taxable distributions (including
redemption proceeds) payable to stockholders who fail to provide us with
their
correct taxpayer identification number, who fail to make required certifications
or who have been notified by the Internal Revenue Service (“IRS”) that they are
subject to backup withholding (or if we have been so
notified). Certain corporate and other stockholders specified in the
Internal Revenue Code and the regulations thereunder are exempt from backup
withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the stockholder’s
U.S. federal income tax liability provided the appropriate information
is
furnished to the IRS in a timely manner.
Other
Taxation. Foreign stockholders, including stockholders who are
nonresident alien individuals, may be subject to U.S. withholding tax on
certain
distributions at a rate of 30% or such lower rates as may be prescribed
by any
applicable treaty. Our distributions also may be subject to state and
local taxes.
Debt
Securities
Federal
Income Tax Treatment of Holders of Debt Securities. Under
present law, we are of the opinion that our debt securities will constitute
indebtedness for federal income tax purposes, which the discussion below
assumes. We intend to treat all payments made with respect to the
debt securities consistent with this characterization.
Taxation
of Interest. Payments or accruals of interest on debt securities
generally will be taxable to you as ordinary interest income at the time
such
interest is received (actually or constructively) or accrued, in accordance
with
your regular method of accounting for federal income tax purposes.
Purchase,
Sale and Redemption of Debt Securities. Initially, your tax
basis in debt securities acquired generally will be equal to your cost
to
acquire such debt securities. This basis will increase by the
amounts, if any, that you include in income under the rules governing market
discount, and will decrease by the amount of any amortized premium on such
debt
securities, as discussed below. When you sell or exchange any of your
debt securities, or if any of your debt securities are redeemed, you generally
will recognize gain or loss equal to the difference between the amount
you
realize on the transaction (less any accrued and unpaid interest, which
will be
subject to tax as interest in the manner described above) and your tax
basis in
the debt securities relinquished.
Except
as
discussed below with respect to market discount, the gain or loss that
you
recognize on the sale, exchange or redemption of any of your debt securities
generally will be capital gain or loss. Such gain or loss will
generally be long-term capital gain or loss if the disposed debt securities
were
held for more than one year and will be short-term capital gain or loss
if the
disposed debt securities were held for one year or less. Net
long-term capital gain recognized by a noncorporate U.S. holder generally
will
be subject to federal income tax at a lower rate (currently a maximum rate
of
15%, although this rate will increase to 20% after 2010) than net short-term
capital gain or ordinary income (currently a maximum rate of
35%). For corporate holders, capital gain is generally taxed at the
same rate as ordinary income, that is, currently at a maximum rate of
35%. A holder’s ability to deduct capital losses may be
limited.
Amortizable
Premium. If you purchase debt securities at a cost
greater than their stated principal amount, plus accrued interest, you
will be
considered to have purchased the debt securities at a premium, and you
generally
may elect to amortize this premium as an offset to interest income, using
a
constant yield method, over the remaining term of the debt
securities. If you make the election to amortize the premium, it
generally will apply to all debt instruments that you hold at the time
of the
election, as well as any debt instruments that you subsequently
acquire. In addition, you may not revoke the election without the
consent of the IRS. If you elect to amortize the premium, you will be
required to reduce your tax basis in the debt securities by the amount
of the
premium amortized during your holding period. If you do not elect to
amortize premium, the amount of premium will be included in your tax basis
in
the debt securities. Therefore, if you do not elect to amortize the
premium and you hold the debt securities to maturity, you generally will
be
required to treat the premium as a capital loss when the debt securities
are
redeemed.
Market
Discount. If you purchase debt securities at a price
that reflects a “market discount,” any principal payments on, or any gain that
you realize on the disposition of, the debt securities generally will be
treated
as ordinary interest income to the extent of the market discount that accrued
on
the debt securities during the time you held such debt
securities. “Market discount” is defined under the Internal Revenue
Code as, in general, the excess of the stated redemption price at maturity
over
the purchase price of the debt security, except that if the market discount
is
less than 0.25% of the stated redemption price at maturity multiplied by
the
number of complete years to maturity, the market discount is considered
to be
zero. In addition, you may be required to defer the deduction of all
or a portion of any interest paid on any indebtedness that you incurred
or
continued to purchase or carry the debt securities that were acquired at
a
market discount. In general, market discount will be treated as
accruing ratably over the term of the debt securities, or, at your election,
under a constant yield method.
You
may
elect to include market discount in gross income currently as it accrues
(on
either a ratable or constant yield basis), in lieu of treating a portion
of any
gain realized on a sale of the debt securities as ordinary income. If
you elect to include market discount on a current basis, the
interest
deduction
deferral rule described above will not apply and you will increase your
basis in
the debt security by the amount of market discount you include in gross
income. If you do make such an election, it will apply to all market
discount debt instruments that you acquire on or after the first day of
the
first taxable year to which the election applies. This election may
not be revoked without the consent of the IRS.
Information
Reporting and Backup Withholding. In general, information
reporting requirements will apply to payments of principal, interest, and
premium, if any, paid on debt securities and to the proceeds of the sale
of debt
securities paid to U.S. holders other than certain exempt recipients (such
as
certain corporations). Information reporting generally will apply to
payments of interest on the debt securities to non-U.S. Holders (as defined
below) and the amount of tax, if any, withheld with respect to such
payments. Copies of the information returns reporting such interest
payments and any withholding may also be made available to the tax authorities
in the country in which the non-U.S. Holder resides under the provisions
of an
applicable income tax treaty. In addition, for non-U.S. Holders,
information reporting will apply to the proceeds of the sale of debt securities
within the United States or conducted through United States-related financial
intermediaries unless the certification requirements described below have
been
complied with and the statement described below in “Taxation of Non-U.S.
Holders” has been received (and the payor does not have actual knowledge or
reason to know that the holder is a United States person) or the holder
otherwise establishes an exemption.
We
may be
required to withhold, for U.S. federal income tax purposes, a portion of
all
taxable payments (including redemption proceeds) payable to holders of
debt
securities who fail to provide us with their correct taxpayer identification
number, who fail to make required certifications or who have been notified
by
the IRS that they are subject to backup withholding (or if we have been
so
notified). Certain corporate and other shareholders specified in the
Internal Revenue Code and the regulations thereunder are exempt from backup
withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the holder’s U.S.
federal income tax liability provided the appropriate information is furnished
to the IRS. If you are a non-U.S. Holder, you may have to comply with
certification procedures to establish your non-U.S. status in order to
avoid
backup withholding tax requirements. The certification procedures
required to claim the exemption from withholding tax on interest income
described below will satisfy these requirements.
Taxation
of Non-U.S. Holders. If you are a non-resident alien individual
or a foreign corporation (a “non-U.S. Holder”), the payment of interest on the
debt securities generally will be considered “portfolio interest” and thus
generally will be exempt from United States federal withholding
tax. This exemption will apply to you provided that (1) interest
paid on the debt securities is not effectively connected with your conduct
of a
trade or business in the United States, (2) you are not a bank whose
receipt of interest on the debt securities is described in
Section 881(c)(3)(A) of the Internal Revenue Code, (3) you do not
actually or constructively own 10 percent or more of the combined voting
power of all classes of our stock entitled to vote, (4) you are not a
controlled foreign corporation that is related, directly or indirectly
to us
through stock ownership, and (5) you satisfy the certification requirements
described below.
To
satisfy the certification requirements, either (1) the holder of any debt
securities must certify, under penalties of perjury, that such holder is
a
non-U.S. person and must provide such owner’s name, address and taxpayer
identification number, if any, on IRS Form W-8BEN, or (2) a securities
clearing organization, bank or other financial institution that holds customer
securities in the ordinary course of its trade or business and holds the
debt
securities on behalf of the holder thereof must certify, under penalties
of
perjury, that it has received a valid and properly executed IRS Form W-8BEN
from
the beneficial holder and comply with certain other
requirements. Special certification rules apply for debt securities
held by a foreign partnership and other intermediaries.
Interest
on debt securities received by a non-U.S. Holder that is not excluded from
U.S.
federal withholding tax under the portfolio interest exemption as described
above generally will be subject to withholding at a 30% rate, except where
a
non-U.S. Holder can claim the benefits of an applicable tax treaty to reduce
or
eliminate such withholding tax and such non-U.S. Holder provides us with
a
properly executed IRS Form W-8BEN claiming such exemption or
reduction.
Any
capital gain that a non-U.S. Holder realizes on a sale, exchange or other
disposition of debt securities generally will be exempt from United States
federal income tax, including withholding tax. This exemption will
not apply to you if your gain is effectively connected with your conduct
of a
trade or business in the U.S. or you are an individual holder and are present
in
the U.S. for 183 days or more in the taxable year of the disposition and
either your gain is attributable to an office or other fixed place of business
that you maintain in the U.S. or you have a tax home in the United
States.
PROXY
VOTING POLICIES
We
and
the Adviser have adopted proxy voting policies and procedures (“Proxy Policy”),
which we believe are reasonably designed to ensure that proxies are voted
in our
best interests and our stockholders best interests. Subject to the
oversight of the Board, the Board has delegated responsibility for implementing
the Proxy Policy to the Adviser. Because of the unique nature of MLPs
in which we primarily invest, the Adviser shall evaluate each proxy on
a
case-by-case basis. Because proxies of MLPs are expected to relate
only to extraordinary measures, we do not believe it is prudent to adopt
pre-established voting guidelines.
In
the
event requests for proxies are received with respect to the voting of equity
securities other than MLP equity units, on routine matters, such as election
of
directors or approval of auditors, the proxies usually will be voted with
management unless the Adviser determines it has a conflict or the Adviser
determines there are other reasons not to vote with management. On
non-routine matters, such as amendments to governing instruments, proposals
relating to compensation and stock option and equity compensation plans,
corporate governance proposals and stockholder proposals, the Adviser will
vote,
or abstain from voting if deemed appropriate, on a case-by-case basis in
a
manner it believes to be in the best economic interest of our
stockholders. In the event requests for proxies are received with
respect to debt securities, the Adviser will vote on a case-by-case basis
in a
manner it believes to be in the best economic interest of our
stockholders.
The
Chief
Executive Officer is responsible for monitoring corporate actions and ensuring
that (1) proxies are received and forwarded to the appropriate decision
makers; and (2) proxies are voted in a timely manner upon receipt of voting
instructions. We are not responsible for voting proxies we do not
receive, but will make reasonable efforts to obtain missing
proxies. The Chief Executive Officer shall implement procedures to
identify and monitor potential conflicts of interest that could affect
the proxy
voting process, including (1) significant client relationships;
(2) other potential material business relationships; and (3) material
personal and family relationships. All decisions regarding proxy
voting shall be determined by the Investment Committee of the Adviser,
or a
Manager of the Adviser designated by the Investment Committee, and shall
be
executed by the Chief Executive Officer or, if the proxy may be voted
electronically, electronically voted by the Chief Executive Officer or
his
designee. Every effort shall be made to consult with the portfolio
manager and/or analyst covering the security. We may determine not to
vote a particular proxy, if the costs and burdens exceed the benefits of
voting
(e.g., when securities are subject to loan or to share blocking
restrictions).
If
a
request for proxy presents a conflict of interest between our stockholders
on
the one hand, and the Adviser, the principal underwriters, or any affiliated
persons of us, on the other hand, management may (i) disclose the potential
conflict to the Board of Directors and obtain consent; or
(ii) establish
an ethical wall or other informational barrier between the persons involved
in
the conflict and the persons making the voting decisions.
Information
regarding how we voted proxies for the period from our commencement of
operations through June 30, 2007, is available without charge by calling us
at 1-866-362-9331. You also may access this information on the SEC’s
website at http://www.sec.gov. The Adviser’s website at
www.tortoiseadvisors.com provides a link to all of our reports filed
with the SEC.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst &
Young LLP, 1200 Main Street, Kansas City, Missouri, serves as our independent
registered public accounting firm. Ernst & Young LLP
provides audit and audit-related services, tax return preparation and assistance
and consultation in connection with review of our filings with the
SEC.
INTERNAL
ACCOUNTANT
U.S.
Bancorp Fund Services, LLC (“U.S. Bancorp”) serves as our internal
accountant. For its services, we pay U.S. Bancorp a fee computed at
$24,000 for the first $50 million of our net assets, 0.0125% on the next
$200
million of net assets and 0.0075% on the balance of our net
assets. For the period beginning February 27, 2004 through
November 30, 2004, we paid U.S. Bancorp $40,061 for internal accounting
services. For the fiscal years ended November 30, 2006 and 2005,
we paid U.S. Bancorp $67,856 and $60,831, respectively, for internal accounting
services.
ADDITIONAL
INFORMATION
A
Registration Statement on Form N-2, including amendments thereto, relating
to
the common stock, preferred stock and debt securities offered hereby, has
been
filed by us with the SEC. The prospectus, prospectus supplement, and
this Statement of Additional Information do not contain all of the information
set forth in the Registration Statement, including any exhibits and schedules
thereto. Please refer to the Registration Statement for further
information with respect to us and the offering of our
securities. Statements contained in the prospectus, prospectus
supplement, and this Statement of Additional Information as to the contents
of
any contract or other document referred to are not necessarily complete
and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to a Registration Statement, each such statement being
qualified in all respects by such reference. Copies of the
Registration Statement may be inspected without charge at the SEC’s principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the SEC upon the payment of certain fees prescribed by the
SEC.
FINANCIAL
STATEMENTS
Our
2007
Semi-Annual Report, which contains our financial statements as of May 31,
2007, notes thereto, and other information about us, has been filed with
the
SEC, and is hereby incorporated by reference into, and shall accompany,
this
Statement of Additional Information.
In
addition, our 2006 Annual Report, which contains our audited financial
statements as of November 30, 2006, notes thereto, and other information
about us, has been filed with the SEC, and is hereby incorporated by reference
into, and shall accompany, this Statement of Additional
Information. Our 2006 Annual Report and 2007 Semi-Annual Report
include supplemental financial information which presents selected ratios
as a
percentage of our total investment portfolio and a calculation of
our
distributable
cash flow (“DCF”) and related information. You may request a free
copy of the Statement of Additional Information, our annual, semi-annual
and
quarterly reports, or make other requests for information about us, by
calling
toll-free 1-866-362-9331, or by writing to us at 10801 Mastin Boulevard,
Suite 222, Overland Park, Kansas 66210.
Event
(Unaudited) Subsequent to the Date of the Report of Independent Registered
Public Accounting Firm
Our
currently outstanding Tortoise Notes and MMP Shares generally may be
bought and
sold at auctions normally held every 28 days (every 7 days for Series
C Tortoise
Notes). However, with respect to several series of our outstanding
Tortoise Notes and MMP Shares, we have exercised our option to designate
special
rate periods for these securities. We may exercise our option to
designate special rate periods for other series of our outstanding Tortoise
Notes and MMP Shares in the future. See “Leverage—Effects
of Leverage” in our prospectus.
SUMMARY
OF CERTAIN PROVISIONS OF THE INDENTURE
AND
FORM OF SUPPLEMENTAL INDENTURE
The
following is a summary of certain provisions of the indenture dated
July 13, 2004 (the “Original Indenture”) and the form of Supplemental
Indenture dated ___________. This summary does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
a copy
of which is on file with the SEC.
DEFINITIONS
“‘AA’
Composite Commercial Paper Rate” on any date means (i) the
interest equivalent of (1) the 7-day rate, in the case of a Rate Period
which is 7 days or shorter, (2) the 30-day rate, in the case of a Rate
Period which is a Standard Rate Period greater than 7 days but fewer than
or equal to 31 days, or (3) the 180-day rate, in the case of all other
Rate Periods, on financial commercial paper on behalf of issuers whose
corporate
bonds are rated “AA” by S&P, or the equivalent of such rating by another
nationally recognized rating agency, as announced by the Federal Reserve
Bank of
New York for the close of business on the Business Day immediately preceding
such date; or (ii) if the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the interest equivalent
of
such rates on financial commercial paper placed on behalf of such issuers,
as
quoted on a discount basis or otherwise by the Commercial Paper Dealers
to the
Auction Agent for the close of business on the Business Day immediately
preceding such date (rounded to the next highest .001 of 1%). If any
Commercial Paper Dealer does not quote a rate required to determine the
“AA”
Composite Commercial Paper Rate, such rate shall be determined on the basis
of
the quotations (or quotation) furnished by the remaining Commercial Paper
Dealers (or Dealer), if any, or, if there are no such Commercial Paper
Dealers,
a nationally recognized dealer in commercial paper of such issues then
making
such quotations selected by the Company. For purposes of this
definition, (A) “Commercial Paper Dealers” shall mean (1) Citigroup
Global Markets Inc., Lehman Brothers Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Goldman Sachs & Co.;
(2) in lieu of any thereof, its respective Affiliate or successor; and
(3) in the event that any of the foregoing shall cease to quote rates for
financial commercial paper of issuers of the sort described above, in
substitution therefor, a nationally recognized dealer in financial commercial
paper of such issuers then making such quotations selected by the Company,
and
(B) “interest equivalent” of a rate stated on a discount basis for
financial commercial paper of a given number of days’ maturity shall mean a
number equal to the quotient (rounded upward to the next higher one-thousandth
of 1%) of (1) such rate expressed as a decimal, divided by (2) the
difference between (x) 1.00 and (y) a fraction, the numerator of which
shall be the product of such rate expressed as a decimal, multiplied by
the
number of days in which such commercial paper shall mature and the denominator
of which shall be 360.
“Affiliate”
means any person controlled by, in control of or under common control with
the
Company; provided that no Broker-Dealer controlled by, in control of or
under
common control with the Company shall be deemed to be an Affiliate nor
shall any
corporation or any person controlled by, in control of or under common
control
with such corporation one of the directors or executive officers of which
is
also a Director of the Company be deemed to be an Affiliate solely because
such
director or executive officer is also a Director of the Company.
“Agent
Member” means a member of or participant in the Securities Depository
that will act on behalf of a Bidder.
“All
Hold Rate” means 80% of the “AA” Composite Commercial Paper
Rate.
“Applicable
Rate” means the rate determined in accordance with the procedures in
paragraph (c)(i) of Interest in this Appendix A.
“Auction”
means each periodic implementation of the Auction Procedures.
“Auction
Agent” means The Bank of New York unless and until another commercial
bank, trust company, or other financial institution appointed by a resolution
of
the Board of Directors enters into an agreement with the Company to follow
the
Auction Procedures for the purpose of determining the Applicable
Rate.
“Auction
Agreement” means the agreement between the Auction Agent and the
Company pursuant to which the Auction Agent agrees to follow the procedures
specified in Appendix A-I Tortoise Notes Auction Procedures, as such
agreement may from time to time be amended or supplemented.
“Auction
Date” means the first Business Day next preceding the first day of a
Rate Period for each series of Tortoise Notes.
“Auction
Desk” means the business unit of a Broker-Dealer that fulfills the
responsibilities of the Broker-Dealer under a Broker-Dealer Agreement,
including
soliciting Bids for the Tortoise Notes, and units of the Broker-Dealer
which are
not separated from such business unit by information controls appropriate
to
control, limit and monitor the inappropriate dissemination of information
about
Bids.
“Auction
Procedures” means the procedures for conducting Auctions set forth in
Appendix A-I hereto.
“Auction
Rate” means for each series of Tortoise Notes for each Auction Period,
(i) if Sufficient Clearing Bids exist, the Winning Bid Rate, provided,
however, if all of the Tortoise Notes are the subject of Submitted Hold
Orders,
the All Hold Rate for such series of Tortoise Notes and (ii) if Sufficient
Clearing Bids do not exist, the Maximum Rate for such series of Tortoise
Notes.
“Authorized
Denomination” means $25,000 and any integral multiple
thereof.
“Available
Tortoise Notes” means for each series of Tortoise Notes on each Auction
Date, the number of Units of Tortoise Notes of such series that are not
the
subject of Submitted Hold Orders.
“Beneficial
Owner,” with respect to each series of Tortoise Notes, means a customer
of a Broker-Dealer who is listed on the records of that Broker-Dealer (or,
if
applicable, the Auction Agent) as a holder of such series of Tortoise
Notes.
“Bid”
shall have the meaning specified in Appendix A-I Tortoise Notes Auction
Procedures.
“Bidder”
means each Beneficial Owner, Potential Beneficial Owner and Broker Dealer
who
places an Order.
“Board
of Directors” or “Board” means the Board of Directors
of the Company or any duly authorized committee thereof as permitted by
applicable law.
“Broker-Dealer”
means any broker-dealer or broker-dealers, or other entity permitted by
law to
perform the function required of a Broker-Dealer by the Auction Procedures,
that
has been selected by the Company and that is a party to a Broker-Dealer
Agreement with the Auction Agent. The “Broker-
Dealer”
of record with respect to any Tortoise Notes is the Broker-Dealer which
placed
the Order for such Tortoise Note or whom the Existing Holder of such Tortoise
Note has designated as its Broker-Dealer with respect to such Tortoise
Note, in
each case as reflected in the records of the Auction Agent.
“Broker-Dealer
Agreement” means an agreement between the Auction Agent and a
Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the
Auction
Procedures.
“Broker-Dealer
Deadline” means, with respect to an Order, the internal deadline
established by the Broker-Dealer through which the Order was placed after
which
it will not accept Orders or any change in any Order previously placed
with such
Broker-Dealer; provided, however, that nothing shall prevent the Broker-Dealer
from correcting Clerical Errors by the Broker-Dealer with respect to Orders
from
Bidders after the Broker-Dealer Deadline pursuant to the provisions
herein. Any Broker-Dealer may change the time or times of its
Broker-Dealer Deadline as it relates to such Broker-Dealer by giving notice
not
less than two Business Days prior to the date such change is to take effect
to
Bidders who place Orders through such Broker-Dealer.
“Business
Day” means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks
in the
City of New York, New York are authorized or obligated by law to close,
days on
which the Federal Reserve Bank of New York is not open for business, days
on
which banking institutions or trust companies located in the state in which
the
operations of the Auction Agent are conducted are authorized or required
to be
closed by law, regulation or executive order of the state in which the
Auction
Agent conducts operations with respect to the Tortoise Notes.
“Clerical
Error” means a clerical error in the processing of an Order, and
includes, but is not limited to, the following: (i) a
transmission error, including but not limited to, an Order sent to the
wrong
address or number, failure to transmit certain pages or illegible transmission,
(ii) failure to transmit an Order received from one or more Existing
Holders or Potential Beneficial Owners (including Orders from the Broker-Dealer
which were not originated by the Auction Desk) prior to the Broker-Dealer
Deadline or generated by the Broker-Dealer’s Auction Desk for its own account
prior to the Submission Deadline or (iii) a typographical
error. Determining whether an error is a “Clerical Error” is within
the reasonable judgment of the Broker-Dealer, provided that the Broker-Dealer
has a record of the correct Order that shows it was so received or so generated
prior to the Broker-Dealer Deadline or the Submission Deadline, as
applicable.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Commercial
Paper Dealers” has the meaning set forth in the definition of AA
Composite Commercial Paper Rate.
“Commission”
means the Securities and Exchange Commission.
“Default
Rate” means the Reference Rate multiplied by three (3).
“Deposit
Securities” means cash and any obligations or securities, including
short term money market instruments that are Eligible Assets, rated at
least
AAA, A-2 or SP-2 by Fitch, except that, such obligations or securities
shall be
considered “Deposit Securities” only if they are also rated at least P-2 by
Moody’s.
“Discount
Factor” means the Moody’s Discount Factor (if Moody’s is then rating
the Tortoise Notes), Fitch Discount Factor (if Fitch is then rating the
Tortoise
Notes) or an Other Rating Agency Discount Factor, whichever is
applicable.
“Discounted
Value” means the quotient of the Market Value of an Eligible Asset
divided by the applicable Discount Factor, provided that with respect to
an
Eligible Asset that is currently callable, Discounted Value will be equal
to the
quotient as calculated above or the call price, whichever is lower, and
that
with respect to an Eligible Asset that is prepayable, Discounted Value
will be
equal to the quotient as calculated above or the par value, whichever is
lower.
“Eligible
Assets” means Moody’s Eligible Assets or Fitch’s Eligible Assets (if
Moody’s or Fitch are then rating the Tortoise Notes) and/or Other Rating Agency
Eligible Assets, whichever is applicable.
“Error
Correction Deadline” means one hour after the Auction Agent completes
the dissemination of the results of the Auction to Broker-Dealers without
regard
to the time of receipt of such results by any Broker-Dealer; provided,
however,
in no event shall the Error Correction Deadline extend past 4:00 p.m., New
York City time unless the Auction Agent experiences technological failure
or
force majeure in disseminating the Auction results which causes a delay
in
dissemination past 3:00 p.m., New York City time.
“Existing
Holder,” with respect to Tortoise Notes of a series, shall mean a
Broker-Dealer (or any such other Person as may be permitted by the Company)
that
is listed on the records of the Auction Agent as a holder of Tortoise Notes
of
such series.
“Fitch”
means Fitch Ratings and its successors at law.
“Fitch
Discount Factor” means the discount factors set forth in the Fitch
Guidelines for use in calculating the Discounted Value of the Company’s assets
in connection with Fitch’s ratings of Tortoise Notes.
“Fitch
Eligible Asset” means assets of the Company set forth in the Fitch
Guidelines as eligible for inclusion in calculating the Discounted Value
of the
Company’s assets in connection with Fitch’s ratings of Tortoise
Notes.
“Fitch
Guidelines” mean the guidelines provided by Fitch, as may be amended
from time to time, in connection with Fitch’s ratings of Tortoise
Notes.
“Hold
Order” shall have the meaning specified in Appendix A-I Tortoise
Notes Auction Procedures or an Order deemed to have been submitted as provided
in paragraph (a) of Section 1 of Appendix A-I Tortoise Notes
Auction Procedures.
“Holder”
means, with respect to Tortoise Notes, the registered holder of notes of
each
series of Tortoise Notes as the same appears on the books or records of
the
Company.
“Index”
means on any Auction Date with respect to Tortoise Notes in any Auction
Period
of 35 days or less the applicable LIBOR rate. The Index with respect
to Tortoise Notes in any Auction Period of more than 35 days shall be the
rate
on United States Treasury Securities having a maturity which most closely
approximates the length of the Auction Period as last published in The
Wall
Street Journal or such other source as may be mutually agreed upon by the
Trustee and the Broker-Dealers. If either rate is unavailable, the
Index shall be an index or rate agreed to by all Broker-Dealers and consented
to
by the Company. For the purpose of this definition an Auction Period
of 35 days or less means a 35-day Auction Period or shorter Auction Period,
i.e., a 35-day Auction Period which is extended because of a holiday would
still
be considered an Auction Period of 35 days or less.
“Interest
Payment Date” when used with respect to any Tortoise Notes, means the
date on which an installment of interest on such Tortoise Notes shall be
due and
payable which generally shall be the day next following an Auction
Date.
“LIBOR”
means, for purposes of determining the Reference Rate, (i) the
rate for deposits in U.S. dollars for the designated Rate Period, which
appears
on display page 3750 of Moneyline’s Telerate Service (“Telerate
Page 3750”) (or such other page as may replace that page on that
service, or such other service as may be selected by Lehman Brothers Inc.
or its
successors) as of 11:00 a.m., London time, on the day that is the Business
Day on the Auction Date or, if the Auction Date is not a Business Day,
the
Business Day preceding the Auction Date (the “LIBOR Determination Date”), or
(ii) if such rate does not appear on Telerate Page 3750 or such other
page as may replace such Telerate Page 3750, (A) Lehman Brothers
Inc. shall determine the arithmetic mean of the offered quotations of the
reference banks to leading banks in the London interbank market for deposits
in
U.S. dollars for the designated Rate Period in an amount determined by
Lehman
Brothers Inc. by reference to requests for quotations as of approximately
11:00 a.m. (London time) on such date made by Lehman Brothers Inc. to the
reference banks, (B) if at least two of the reference banks provide such
quotations, LIBOR shall equal such arithmetic mean of such quotations,
(C) if only one or none of the reference banks provide such quotations,
LIBOR shall be deemed to be the arithmetic mean of the offered quotations
that
leading banks in The City of New York, New York selected by Lehman Brothers
Inc.
(after obtaining the Company’s approval) are quoting on the relevant LIBOR
Determination Date for deposits in U.S. dollars for the designated Rate
Period
in an amount determined by Lehman Brothers Inc. (after obtaining the Company’s
approval) that is representative of a single transaction in such market
at such
time by reference to the principal London office of leading banks in the
London
interbank market; provided, however, that if Lehman Brothers Inc. is not
a
Broker-Dealer or does not quote a rate required to determine LIBOR, LIBOR
will
be determined on the basis of the quotation or quotations furnished by
any other
Broker-Dealer selected by the Company to provide such rate or rates not
being
supplied by Lehman Brothers Inc.; provided further, that if Lehman Brothers
Inc.
and/or a substitute Broker-Dealer are required but unable to determine
a rate in
accordance with at least one of the procedures provided above, LIBOR shall
be
the most recently determinable LIBOR. If the number of Rate Period
days shall be (i) 7 or more but fewer than 21 days, such rate shall be the
seven-day LIBOR rate; (ii) more than 21 but fewer than 49 days, such rate
shall be one-month LIBOR rate; (iii) 49 or more but fewer than 77 days,
such rate shall be the two-month LIBOR rate; (iv) 77 or more but fewer than
112 days, such rate shall be the three-month LIBOR rate; (v) 112 or more
but fewer than 140 days, such rate shall be the four-month LIBOR rate;
(vi) 140 or more but fewer than 168 days, such rate shall be the five-month
LIBOR rate; (vii) 168 or more but fewer 189 days, such rate shall be the
six-month LIBOR rate; (viii) 189 or more but fewer than 217 days, such rate
shall be the seven-month LIBOR rate; (ix) 217 or more but fewer than 252
days, such rate shall be the eight-month LIBOR rate; (x) 252 or more but
fewer than 287 days, such rate shall be the nine-month LIBOR rate; (xi) 287
or more but fewer than 315 days, such rate shall be the ten-month LIBOR
rate;
(xii) 315 or more but fewer than 343 days, such rate shall be the
eleven-month LIBOR rate; and (xiii) 343 or more days but fewer than 365
days, such rate shall be the twelve-month LIBOR rate.
“Market
Value” means the market value of an asset of the Company determined as
follows: For equity securities, the value obtained from readily
available market quotations. If an equity security is not traded on
an exchange or not available from a Board-approved pricing service, the
value
obtained from written broker-dealer quotations. For fixed-income
securities, the value obtained from readily available market quotations
based on
the last sale price of a security on the day the Company values its assets
or
the market value obtained from a pricing service or the value obtained
from a
direct written broker-dealer quotation from a dealer who has made a market
in
the security. “Market Value” for other securities will mean the value
obtained pursuant to the Company’s valuation procedures. If the
market value of a security cannot be obtained, or the Company’s investment
adviser determines that the value of a security
as
so
obtained does not represent the fair value of a security, fair value for
that
security shall be determined pursuant to the valuation procedures adopted
by the
Board of Directors.
“Maximum
Rate” means, on any date on which the Applicable Rate is determined,
the rate equal to the applicable percentage of the Reference Rate, subject
to
upward but not downward adjustment in the discretion of the Board of Directors
after consultation with the Broker-Dealers, provided that immediately following
any such increase the Company would be in compliance with the Tortoise
Notes
Basic Maintenance Amount.
“Minimum
Rate” means, on any Auction Date with respect to a Rate Period of __
days or fewer, 70% of the AA Composite Commercial Paper Rate at the close
of
business on the Business Day next preceding such Auction Date. There
shall be no Minimum Rate on any Auction Date with respect to a Rate Period
of
more than the Standard Rate Period.
“Moody’s”
means Moody’s Investors Service, Inc., a Delaware corporation, and its
successors at law.
“Moody’s
Discount Factor” means the discount factors set forth in the Moody’s
Guidelines for use in calculating the Discounted Value of the Company’s assets
in connection with Moody’s ratings of Tortoise Notes.
“Moody’s
Eligible Assets” means assets of the Company set forth in the Moody’s
Guidelines as eligible for inclusion in calculating the Discounted Value
of the
Company’s assets in connection with Moody’s ratings of Tortoise
Notes.
“Moody’s
Guidelines” mean the guidelines provided by Moody’s, as may be amended
from time to time, in connection with Moody’s ratings of Tortoise
Notes.
“1940
Act Tortoise Notes Asset Coverage” means asset coverage, as determined
in accordance with Section 18(h) of the Investment Company Act, of at least
300% with respect to all outstanding senior securities representing indebtedness
of the Company, including all Outstanding Tortoise Notes (or such other
asset
coverage as may in the future be specified in or under the Investment Company
Act as the minimum asset coverage for senior securities representing
indebtedness of a closed-end investment company as a condition of declaring
dividends on its common stock), determined on the basis of values calculated
as
of a time within 48 hours next preceding the time of such
determination.
“Notes”
means Securities of the Company ranking on a parity with the Tortoise Notes
that
may be issued from time to time pursuant to the Indenture.
“Order”
means a Hold Order, Bid or Sell Order.
“Original
Issue Date” means, with respect to the Tortoise Notes, Series __,
_________.
“Other
Rating Agency” means each rating agency, if any, other than Moody’s or
Fitch then providing a rating for the Tortoise Notes pursuant to the request
of
the Company.
“Other
Rating Agency Discount Factor” means the discount factors set forth in
the Other Rating Agency Guidelines of each Other Rating Agency for use
in
calculating the Discounted Value of the Company’s assets in connection with the
Other Rating Agency’s rating of Tortoise Notes.
“Other
Rating Agency Eligible Assets” means assets of the Company set forth in
the Other Rating Agency Guidelines of each Other Rating Agency as eligible
for
inclusion in calculating the
Discounted
Value of the Company’s assets in connection with the Other Rating Agency’s
rating of Tortoise Notes.
“Other
Rating Agency Guidelines” mean the guidelines provided by each Other
Rating Agency, as may be amended from time to time, in connection with
the Other
Rating Agency’s rating of Tortoise Notes.
“Outstanding”
or “outstanding” means, as of any date, Tortoise Notes
theretofore issued by the Company except, without duplication, (i) any
Tortoise Notes theretofore canceled, redeemed or repurchased by the Company,
or
delivered to the Trustee for cancellation or with respect to which the
Company
has given notice of redemption and irrevocably deposited with the Paying
Agent
sufficient funds to redeem such Tortoise Notes and (ii) any Tortoise Notes
represented by any certificate in lieu of which a new certificate has been
executed and delivered by the Company. Notwithstanding the foregoing,
(A) in connection with any Auction, any series of Tortoise Notes as to
which the Company or any person known to the Auction Agent to be an Affiliate
of
the Company shall be the Existing Holder thereof shall be disregarded and
deemed
not to be Outstanding; and (B) for purposes of determining the Tortoise
Notes Basic Maintenance Amount, Tortoise Notes held by the Company shall
be
disregarded and not deemed Outstanding but Tortoise Notes held by any Affiliate
of the Company shall be deemed Outstanding.
“Paying
Agent” means BNY Midwest Trust Company unless and until another entity
appointed by a resolution of the Board of Directors enters into an agreement
with the Company to serve as paying agent, transfer agent, registrar, and
redemption agent with respect to the Tortoise Notes, which Paying Agent
may be
the same as the Trustee or the Auction Agent.
“Person”
or “person” means and includes an individual, a corporation, a
partnership, a trust, a company, an unincorporated association, a joint
venture
or other entity or a government or any agency or political subdivision
thereof.
“Potential
Beneficial Owner,” with respect to a series of Tortoise Notes, shall
mean a customer of a Broker-Dealer that is not a Beneficial Owner of Tortoise
Notes of such series but that wishes to purchase Tortoise Notes of such
series,
or that is a Beneficial Owner of Tortoise Notes of such series that wishes
to
purchase additional Tortoise Notes of such series; provided, however, that
for
purposes of conducting an Auction, the Auction Agent may consider a
Broker-Dealer acting on behalf of its customer as a Potential Beneficial
Owner.
“Potential
Holder,” with respect to Tortoise Notes of such series, shall mean a
Broker-Dealer (or any such other person as may be permitted by the Company)
that
is not an Existing Holder of Tortoise Notes of such series or that is an
Existing Holder of Tortoise Notes of such series that wishes to become
the
Existing Holder of additional Tortoise Notes of such series; provided,
however,
that for purposes of conducting an Auction, the Auction Agent may consider
a
Broker-Dealer acting on behalf of its customer as a Potential
Holder.
“Rate
Period” means, with respect to a series of Tortoise Notes, the period
commencing on the Original Issue Date thereof and ending on the date specified
for such series on the Original Issue Date thereof and thereafter, as to
such
series, the period commencing on the day following each Rate Period for
such
series and ending on the day established for such series by the
Company.
“Rating
Agency” means each of Fitch (if Fitch is then rating Tortoise Notes),
Moody’s (if Moody’s is then rating Tortoise Notes) and any Other Rating
Agency.
“Rating
Agency Guidelines” mean Fitch Guidelines (if Fitch is then rating
Tortoise Notes), Moody’s Guidelines (if Moody’s is then rating Tortoise Notes)
and any Other Rating Agency Guidelines (if any other Rating Agency is then
rating Tortoise Notes), whichever is applicable.
“Redemption
Date,” when used with respect to any Tortoise Note to be redeemed,
means the date fixed for such redemption by or pursuant to the
Indenture.
“Redemption
Price,” when used with respect to any Tortoise Note to be redeemed,
means the price at which it is to be redeemed pursuant to the
Indenture.
“Reference
Rate” means, with respect to the determination of the Maximum Rate and
Default Rate, the greater of (i) the applicable AA Composite Commercial
Paper Rate (for a Rate Period of fewer than 184 days) or the applicable
Treasury Index Rate (for a Rate Period of 184 days or more), or
(ii) the applicable LIBOR Rate.
“Securities
Act” means the Securities Act of 1933, as amended from time to
time.
“Securities
Depository” means The Depository Trust Company and its successors and
assigns or any successor securities depository selected by the Company
that
agrees to follow the procedures required to be followed by such securities
depository in connection with the Tortoise Notes Series __.
“Sell
Order” shall have the meaning specified in Appendix A-I Tortoise Notes
Auction Procedures.
“Special
Auction Period” means an Auction Period that is not a Standard Auction
Period.
“Special
Rate Period” means a Rate Period that is not a Standard Rate
Period.
“Specific
Redemption Provisions” means, with respect to any Special Rate Period
of more than one year, either, or any combination of a period (a “Non-Call
Period”) determined by the Board of Directors after consultation with the
Broker-Dealers, during which the Tortoise Notes subject to such Special
Rate
Period are not subject to redemption at the option of the Company consisting
of
a number of whole years as determined by the Board of Directors after
consultation with the Broker-Dealers, during each year of which the Tortoise
Notes subject to such Special Rate Period shall be redeemable at the Company’s
option and/or in connection with any mandatory redemption at a price equal
to
the principal amount plus accrued but unpaid interest plus a premium expressed
as a percentage or percentages of $25,000 or expressed as a formula using
specified variables as determined by the Board of Directors after consultation
with the Broker-Dealers.
“Standard
Auction Period” means an Auction Period of ___ days.
“Standard
Rate Period” means a Rate Period of ____ days.
“Stated
Maturity” with respect to Tortoise Notes Series __, shall mean
_________.
“Submission
Deadline” means 1:00 P.M., New York City time, on any Auction Date
or such other time on such date as shall be specified by the Auction Agent
from
time to time pursuant to the Auction Agreement as the time by which the
Broker-Dealers are required to submit Orders to the Auction
Agent. Notwithstanding the foregoing, the Auction Agent will follow
the Securities Industry and Financial Markets Association’s Early Market Close
Recommendations for shortened trading days for the bond markets (the “SIFMA
Recommendation”) unless the Auction Agent is instructed otherwise
in
writing
by the Company. In the event of a SIFMA Recommendation with respect
to an Auction Date, the Submission Deadline will be 11:30 A.M., instead of
1:00 P.M., New York City time.
“Submitted
Bid” shall have the meaning specified in Appendix A-I Tortoise Notes
Auction Procedures.
“Submitted
Hold Order” shall have the meaning specified in Appendix A-I Tortoise
Notes Auction Procedures.
“Submitted
Order” shall have the meaning specified in Appendix A-I Tortoise Notes
Auction Procedures.
“Submitted
Sell Order” shall have the meaning specified in Appendix A-I Tortoise
Notes Auction Procedures.
“Sufficient
Clearing Bids” means for each series of Tortoise Notes, an Auction for
which the number of Units of Tortoise Notes of such series that are the
subject
of Submitted Bids by Potential Beneficial Owners specifying one or more
rates
not higher than the Maximum Rate is not less than the number of Units of
Tortoise Notes of such series that are the subject of Submitted Sell Orders
and
of Submitted Bids by Existing Holders specifying rates higher than the
Maximum
Rate.
“Tortoise
Notes Basic Maintenance Amount” as of any Valuation Date has the
meaning set forth in the Rating Agency Guidelines.
“Tortoise
Notes Series __” means the Series __ Tortoise Notes or any other Notes
hereinafter designated as Series _ of the Tortoise Notes.
“Treasury
Index Rate” means the average yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities having the same
number
of 30-day periods to maturity as the length of the applicable Rate Period,
determined, to the extent necessary, by linear interpolation based upon
the
yield for such securities having the next shorter and next longer number
of
30-day periods to maturity treating all Rate Periods with a length greater
than
the longest maturity for such securities as having a length equal to such
longest maturity, in all cases based upon data set forth in the most recent
weekly statistical release published by the Board of Governors of the Federal
Reserve System (currently in H.15(519)); provided, however, if the most
recent
such statistical release shall not have been published during the 15 days
preceding the date of computation, the foregoing computations shall be
based
upon the average of comparable data as quoted to the Company by at least
three
recognized dealers in U.S. Government securities selected by the
Company.
“Trustee”
means BNY Midwest Trust Company or such other person who is named as a
trustee
pursuant to the terms of the Indenture.
“Unit”
means, with respect to each series of Tortoise Notes, the principal amount
of
the minimum Authorized Denomination of the Tortoise Notes.
“Valuation
Date” means every Friday, or, if such day is not a Business Day, the
next preceding Business Day; provided, however, that the first Valuation
Date
may occur on any other date established by the Company; provided, further,
however, that such first Valuation Date shall be not more than one week
from the
date on which Tortoise Notes Series ___ initially are issued.
“Winning
Bid Rate” means for each series of Tortoise Notes, the lowest rate
specified in any Submitted Bid of such series of Tortoise Notes which if
selected by the Auction Agent as the Applicable
Rate
would cause the number of Units of Tortoise Notes of such series that are
the
subject of Submitted Bids specifying a rate not greater than such rate
to be not
less than the number of Units of Available Tortoise Notes of such
series.
NOTE
DETAILS, FORM OF NOTES AND REDEMPTION OF NOTES
Interest
(a) The
Holders of any series of Tortoise Notes shall be entitled to receive interest
payments on their Tortoise Notes at the Applicable Rate, determined as
set forth
in paragraph (c) below, and no more, payable on the respective dates determined
as set forth in paragraph (b) of this Section 2.02. Interest on
the Outstanding Tortoise Notes of any series issued on the Original Issue
Date
shall accumulate from the Original Issue Date.
(b)(i) Interest
shall be payable, subject to subparagraph (b)(ii) below, on each series
of
Tortoise Notes, with respect to any Rate Period on the first Business Day
following the last day of such Rate Period; provided, however, if the Rate
Period is greater than 30 days then on a monthly basis on the first
Business Day of each month within such Rate Period, not including the initial
Rate Period, and on the Business Day following the last day of such Rate
Period.
(ii) If
a day for payment of interest resulting from the application of subparagraph
(b)(i) above is not a Business Day, then the Interest Payment Date shall
be the
first Business Day following such day for payment of interest in the case
of a
series of Tortoise Notes designated as “Series __.”
(iii) The
Company shall pay to the Paying Agent not later than 3:00 p.m., New York
City time, on the Business Day next preceding each Interest Payment Date
for
each series of Tortoise Notes, an aggregate amount of funds available on
the
next Business Day in the City of New York, New York, equal to the interest
to be
paid to all Holders of such Tortoise Notes on such Interest Payment
Date. The Company shall not be required to establish any reserves for
the payment of interest.
(iv) All
moneys paid to the Paying Agent for the payment of interest shall be held
in
trust for the payment of such interest by the Paying Agent for the benefit
of
the Holders specified in subparagraph (b)(v) below. Any moneys paid
to the Paying Agent in accordance with the foregoing but not applied by
the
Paying Agent to the payment of interest, including interest earned on such
moneys, will, to the extent permitted by law, be repaid to the Company
at the
end of 90 days from the date on which such moneys were to have been so
applied.
(v) Each
interest payment on a series of Tortoise Notes shall be paid on the Interest
Payment Date therefor to the Holders of that series as their names appear
on the
security ledger or security records of the Company on the Business Day
next
preceding such Interest Payment Date. Interest in arrears for any
past Rate Period may be declared and paid at any time, without reference
to any
regular Interest Payment Date, to the Holders as their names appear on
the books
or records of the Company on such date, not exceeding 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors. No
interest will be payable in respect of any Interest Payment or payments
which
may be in arrears.
(c)(i) The
interest rate on Outstanding Tortoise Notes of each series during the period
from and after the Original Issue Date to and including the last day of
the
initial Rate Period therefor shall be equal to __%. For each
subsequent Rate Period with respect to the Tortoise Notes Outstanding
thereafter, the
interest
rate shall be equal to the rate per annum that results from an Auction;
provided, however, that if an Auction for any subsequent Rate Period of
a series
of Tortoise Notes is not held for any reason or if Sufficient Clearing
Bids have
not been made in an Auction (other than as a result of all series of Tortoise
Notes being the subject of Submitted Hold Orders), then the interest rate
on a
series of Tortoise Notes for any such Rate Period shall be the Maximum
Rate
(except during a Default Period (as defined below) when the interest rate
shall
be the Default Rate, as set forth in (c)(ii) below). The All Hold
Rate will apply automatically following an Auction in which all of the
Outstanding series of Tortoise Notes are subject (or are deemed to be subject)
to Hold Orders. The rate per annum at which interest is payable on a
series of Tortoise Notes as determined pursuant to this Section 2(c)(i)
shall be the “Applicable Rate.” For Standard Rate Periods or shorter
periods only, the Applicable Rate resulting from an Auction will not be
less
than the Minimum Rate.
(ii) Subject
to the cure provisions below, a “Default Period” with respect to a particular
series will commence on any date the Company fails to deposit irrevocably
in
trust in same-day funds, with the Paying Agent by 12:00 noon, New York
City
time, (A) the full amount of any redemption price (the “Redemption Price”)
payable on the date fixed for redemption (the “Redemption Date”) (a “Redemption
Default,” which shall constitute an Event of Default pursuant to
Section 5.1(7) of the Original Indenture) or (B) the full amount of
any accrued interest on that series payable on the Interest Payment Date
(an
“Interest Default” and together with a Redemption Default, hereinafter referred
to as “Default”). Subject to the cure provisions of (c)(iii) below, a
Default Period with respect to an Interest Default or a Redemption Default
shall
end on the Business Day on which, by 12:00 noon, New York City time, all
unpaid
interest and any unpaid Redemption Price shall have been deposited irrevocably
in trust in same-day funds with the Paying Agent. In the case of an
Interest Default, the Applicable Rate for each Rate Period commencing during
a
Default Period will be equal to the Default Rate, and each subsequent Rate
Period commencing after the beginning of a Default Period shall be a Standard
Rate Period; provided, however, that the commencement of a Default Period
will
not by itself cause the commencement of a new Rate Period. No Auction
shall be held during a Default Period with respect to an Interest Default
applicable to that series of Tortoise Notes.
(iii) No
Default Period with respect to an Interest Default or Redemption Default
shall
be deemed to commence if the amount of any interest or any Redemption Price
due
(if such default is not solely due to the willful failure of the Company)
is
deposited irrevocably in trust, in same-day funds with the Paying Agent
by 12:00
noon, New York City time within three Business Days after the applicable
Interest Payment Date or Redemption Date, together with an amount equal
to the
Default Rate applied to the amount of such non-payment based on the actual
number of days comprising such period divided by 360 for each
series. The Default Rate shall be equal to the Reference Rate
multiplied by three (3).
(iv) The
amount of interest per Unit of Tortoise Notes payable on each Interest
Payment
Date of each Rate Period of less than one (1) year (or in respect of interest
on
another date in connection with a redemption during such Rate Period) shall
be
computed by multiplying the Applicable Rate (or the Default Rate) for such
Rate
Period (or a portion thereof) by a fraction, the numerator of which will
be the
number of days in such Rate Period (or portion thereof) that such Tortoise
Notes
were outstanding and for which the Applicable Rate or the Default Rate
was
applicable and the denominator of which will be 360, multiplying the amount
so
obtained by $25,000, and rounding the amount so obtained to the nearest
cent. During any Rate Period of one (1) year or more, the amount of
interest per Unit of Tortoise Notes payable on any Interest Payment Date
(or in
respect of interest on another date in connection with a redemption during
such
Rate Period) shall be computed as described in the preceding
sentence.
(d) Any
Interest Payment made on any series of Tortoise Notes shall first be credited
against the earliest accrued but unpaid interest due with respect to such
series.
Redemption
(a)(i) After
the initial Rate Period, subject to the provisions of the Indenture and
to the
extent permitted under the Investment Company Act, the Company may, at
its
option, redeem in whole or in part out of funds legally available therefor
a
series of Tortoise Notes designated in the Indenture as (A) having a Rate
Period of one year or less, on the Business Day after the last day of such
Rate
Period by delivering a notice of redemption not less than 15 days and not
more than 40 days prior to the date fixed for such redemption, at a
redemption price equal to the aggregate principal amount, plus an amount
equal
to accrued but unpaid interest thereon (whether or not earned) to the date
fixed
for redemption (“Redemption Price”), or (B) having a Rate Period of more
than one year, on any Business Day prior to the end of the relevant Rate
Period
by delivering a notice of redemption not less than 15 days and not more
than 40 days prior to the date fixed for such redemption, at the Redemption
Price, plus a redemption premium, if any, determined by the Board of Directors
after consultation with the Broker-Dealers and set forth in any applicable
Specific Redemption Provisions at the time of the designation of such Rate
Period as set forth in the Indenture; provided, however, that during a
Rate
Period of more than one year no series of Tortoise Notes will be subject
to
optional redemption except in accordance with any Specific Redemption Provisions
approved by the Board of Directors after consultation with the Broker-Dealers
at
the time of the designation of such Rate Period. Notwithstanding the
foregoing, the Company shall not give a notice of or effect any redemption
pursuant to this paragraph (a)(i) unless, on the date on which the Company
intends to give such notice and on the date of redemption (a) the Company
has available certain Deposit Securities with maturity or tender dates
not later
than the day preceding the applicable redemption date and having a value
not
less than the amount (including any applicable premium) due to Holders
of a
series of Tortoise Notes by reason of the redemption of such Tortoise Notes
on
such date fixed for the redemption and (b) the Company would have Eligible
Assets with an aggregate Discounted Value at least equal the Tortoise Notes
Basic Maintenance Amount immediately subsequent to such redemption, if
such
redemption were to occur on such date, it being understood that the provisions
of paragraph (d) below shall be applicable in such circumstances in the
event
the Company makes the deposit and takes the other action required
thereby.
(ii) If
the Company fails to maintain, as of any Valuation Date, Eligible Assets
with an
aggregate Discounted Value at least equal to the Tortoise Notes Basic
Maintenance Amount or, as of the last Business Day of any month, the 1940
Act
Tortoise Notes Asset Coverage, and such failure is not cured within ten
Business
Days following such Valuation Date in the case of a failure to maintain
the
Tortoise Notes Basic Maintenance Amount or on the last Business Day of
the
following month in the case of a failure to maintain the 1940 Act Tortoise
Notes
Asset Coverage as of such last Business Day (each an “Asset Coverage Cure
Date”), the Tortoise Notes will be subject to mandatory redemption out of funds
legally available therefor. The aggregate principal amount of
Tortoise Notes to be redeemed in such circumstances will be equal to the
lesser
of (A) the minimum principal amount of Tortoise Notes the redemption of
which, if deemed to have occurred immediately prior to the opening of business
on the relevant Asset Coverage Cure Date, would result in the Company having
Eligible Assets with an aggregate Discounted Value at least equal to the
Tortoise Notes Basic Maintenance Amount, or sufficient to satisfy 1940
Act
Tortoise Notes Asset Coverage, as the case may be, in either case as of
the
relevant Asset Coverage Cure Date (provided that, if there is no such minimum
principal amount of Tortoise Notes the redemption of which would have such
result, all Tortoise Notes then Outstanding will be redeemed), and (B) the
maximum principal amount of Tortoise Notes that can be redeemed out of
funds
expected to be available therefor on the Mandatory Redemption Date at the
Mandatory Redemption Price set forth in subparagraph (a)(iii)
below.
(iii) In
determining the Tortoise Notes required to be redeemed in accordance with
the
foregoing subparagraph (a)(ii), the Company shall allocate the aggregate
principal amount of Tortoise Notes required to be redeemed to satisfy the
Tortoise Notes Basic Maintenance Amount or the 1940 Act Tortoise Notes
Asset
Coverage, as the case may be, pro rata among the Holders of Tortoise Notes
in
proportion to the aggregate principal amount of Tortoise Notes they hold,
by lot
or by such other method as the Company shall deem equitable, subject to
the
further provisions of this subparagraph (iii). The Company shall
effect any required mandatory redemption pursuant to subparagraph (a)(ii)
above
no later than 40 days after the Asset Coverage Cure Date (the “Mandatory
Redemption Date”), except that if the Company does not have funds legally
available for the redemption of, or is not otherwise legally permitted
to
redeem, the aggregate principal amount of Tortoise Notes which would be
required
to be redeemed by the Company under clause (A) of subparagraph (a)(ii)
above if
sufficient funds were available, or the Company otherwise is unable to
effect
such redemption on or prior to such Mandatory Redemption Date, the Company
shall
redeem those Tortoise Notes, and other Notes, on the earliest practicable
date
on which the Company will have such funds available, upon notice pursuant
to
paragraph (b) below to record owners of the Tortoise Notes to be redeemed
and
the Paying Agent. The Company will deposit with the Paying Agent
funds sufficient to redeem the specified aggregate principal amount of
Tortoise
Notes with respect to a redemption required under subparagraph (a)(ii)
above, by
1:00 p.m., New York City time, of the Business Day immediately preceding
the Mandatory Redemption Date. If fewer than all of the Outstanding
Tortoise Notes are to be redeemed pursuant to this subparagraph (iii),
the
aggregate principal amount of Tortoise Notes to be redeemed shall be redeemed
pro rata from the Holders of such Tortoise Notes in proportion to the aggregate
principal amount of such Tortoise Notes held by such Holders, by lot or
by such
other method as the Company shall deem fair and equitable, subject, however,
to
the terms of any applicable Specific Redemption
Provisions. “Mandatory Redemption Price” means the Redemption Price
plus (in the case of a Rate Period of one year or more only) a redemption
premium, if any, determined by the Board of Directors after consultation
with
the Broker-Dealers and set forth in any applicable Specific Redemption
Provisions.
(b) In
the event of a redemption pursuant to paragraph (a) above, the Company
will file
a notice of its intention to redeem with the Commission so as to provide
at
least the minimum notice required under Rule 23c-2 under the Investment
Company
Act or any successor provision. In addition, the Company shall
deliver a notice of redemption to the Auction Agent and the Trustee (the
“Notice
of Redemption”) containing the information set forth below (i) in the case
of an optional redemption pursuant to subparagraph (a)(i) above, at least
three
Business Days prior to the giving of notice to the Holders and (ii) in the
case of a mandatory redemption pursuant to subparagraph (a)(ii) above,
on or
prior to the 30th day preceding the Mandatory Redemption Date. The
Trustee will use its reasonable efforts to provide notice to each Holder
of
Tortoise Notes called for redemption by electronic or other reasonable
means not
later than the close of business on the Business Day immediately following
the
day on which the Trustee determines the Tortoise Notes to be redeemed (or,
during a Default Period with respect to such Tortoise Notes, not later
than the
close of business on the Business Day immediately following the day on
which the
Trustee receives Notice of Redemption from the Company). The Trustee
shall confirm such notice in writing not later than the close of business
on the
third Business Day preceding the date fixed for redemption by providing
the
Notice of Redemption to each Holder of Tortoise Notes called for redemption,
the
Paying Agent (if different from the Trustee) and the Securities
Depository. Notice of Redemption will be addressed to the registered
owners of each series of Tortoise Notes at their addresses appearing on
the
books or records of the Company. Such Notice of Redemption will set
forth (i) the date fixed for redemption, (ii) the principal amount and
identity of Tortoise Notes to be redeemed, (iii) the redemption price
(specifying the amount of accrued interest to be included therein and any
redemption premium, if any), (iv) that interest on the Tortoise Notes to be
redeemed will cease to accrue on such date fixed for redemption,
(v) applicable cusip number(s) and (vi) the provision under which
redemption shall
be
made. No defect in the Notice of Redemption or in the transmittal or
mailing thereof will affect the validity of the redemption proceedings,
except
as required by applicable law. If fewer than all Tortoise Notes held
by any Holder are to be redeemed, the Notice of Redemption mailed to such
Holder
shall also specify the principal amount of Tortoise Notes to be redeemed
from
such Holder.
(c) Notwithstanding
the provisions of paragraph (a) above, no Tortoise Notes may be redeemed
unless
all interest on the Outstanding Tortoise Notes and all Notes of the Company
ranking on a parity with the Tortoise Notes, have been or are being
contemporaneously paid or set aside for payment; provided, however, that
the
foregoing shall not prevent the purchase or acquisition of all Outstanding
Tortoise Notes pursuant to the successful completion of an otherwise lawful
purchase or exchange offer made on the same terms to, and accepted by,
Holders
of all Outstanding Tortoise Notes.
(d) Upon
the deposit of funds sufficient to redeem any Tortoise Notes with the Paying
Agent and the giving of the Notice of Redemption to the Trustee under paragraph
(b) above, interest on such Tortoise Notes shall cease to accrue and such
Tortoise Notes shall no longer be deemed to be Outstanding for any purpose
(including, without limitation, for purposes of calculating whether the
Company
has maintained the requisite Tortoise Notes Basic Maintenance Amount or
the 1940
Act Tortoise Notes Asset Coverage), and all rights of the Holder of the
Tortoise
Notes so called for redemption shall cease and terminate, except the right
of
such Holder to receive the redemption price specified herein, but without
any
interest or other additional amount. Such redemption price shall be
paid by the Paying Agent to the nominee of the Securities
Depository. The Company shall be entitled to receive from the Paying
Agent, promptly after the date fixed for redemption, any cash deposited
with the
Paying Agent in excess of (i) the aggregate redemption price of the
Tortoise Notes called for redemption on such date and (ii) such other
amounts, if any, to which Holders of the Tortoise Notes called for redemption
may be entitled. Any funds so deposited that are unclaimed at the end
of two years from such redemption date shall, to the extent permitted by
law, be
paid to the Company, after which time the Holders of Tortoise Notes so
called
for redemption may look only to the Company for payment of the redemption
price
and all other amounts, if any, to which they may be entitled. The
Company shall be entitled to receive, from time to time after the date
fixed for
redemption, any interest earned on the funds so deposited.
(e) To
the extent that any redemption for which Notice of Redemption has been
given is
not made by reason of the absence of legally available funds therefor,
or is
otherwise prohibited, such redemption shall be made as soon as practicable
to
the extent such funds become legally available or such redemption is no
longer
otherwise prohibited. Failure to redeem any series of Tortoise Notes
shall be deemed to exist at any time after the date specified for redemption
in
a Notice of Redemption when the Company shall have failed, for any reason
whatsoever, to deposit in trust with the Paying Agent the redemption price
with
respect to any Tortoise Notes for which such Notice of Redemption has been
given. Notwithstanding the fact that the Company may not have
redeemed any Tortoise Notes for which a Notice of Redemption has been given,
interest may be paid on a series of Tortoise Notes and shall include those
Tortoise Notes for which Notice of Redemption has been given but for which
deposit of funds has not been made.
(f) All
moneys paid to the Paying Agent for payment of the redemption price of
any
Tortoise Notes called for redemption shall be held in trust by the Paying
Agent
for the benefit of Holders of Tortoise Notes to be redeemed.
(g) So
long as any Tortoise Notes are held of record by the nominee of the Securities
Depository, the redemption price for such Tortoise Notes will be paid on
the
date fixed for redemption to the nominee of the Securities Depository for
distribution to Agent Members for distribution to the persons for whom
they are
acting as agent.
(h) Except
for the provisions described above, nothing contained herein limits any
right of
the Company to purchase or otherwise acquire any Tortoise Notes outside
of an
Auction at any price, whether higher or lower than the price that would
be paid
in connection with an optional or mandatory redemption, so long as, at
the time
of any such purchase, there is no arrearage in the payment of interest
on, or
the mandatory or optional redemption price with respect to, any series
of
Tortoise Notes for which Notice of Redemption has been given and the Company
is
in compliance with the 1940 Act Tortoise Notes Asset Coverage and has Eligible
Assets with an aggregate Discounted Value at least equal to the Tortoise
Notes
Basic Maintenance Amount after giving effect to such purchase or acquisition
on
the date thereof. If fewer than all the Outstanding Tortoise Notes of
any series are redeemed or otherwise acquired by the Company, the Company
shall
give notice of such transaction to the Trustee, in accordance with the
procedures agreed upon by the Board of Directors.
(i) The
Board of Directors may, without further consent of the holders of the Tortoise
Notes or the holders of shares of capital stock of the Company, authorize,
create or issue any class or series of Notes, including other series of
Tortoise
Notes, ranking prior to or on a parity with the Tortoise Notes to the extent
permitted by the Investment Company Act, if, upon issuance, either (A) the
net proceeds from the sale of such Notes (or such portion thereof needed
to
redeem or repurchase the Outstanding Tortoise Notes) are deposited with
the
Trustee in accordance with paragraph (d), Notice of Redemption as contemplated
by Section 2.03(b) has been delivered prior thereto or is sent
promptly thereafter, and such proceeds are used to redeem all Outstanding
Tortoise Notes or (B) the Company would meet the 1940 Act Tortoise Notes
Asset Coverage, the Tortoise Notes Basic Maintenance Amount and the requirements
set forth below in “Certain Other Restrictions.”
(j) If
any Tortoise Notes are to be redeemed and such Tortoise Notes are held
by the
Securities Depository, the Company shall include in the notice of redemption
delivered to the Securities Depository: (i) under an item
entitled “Publication Date for Securities Depository Purposes”, the Interest
Payment Date prior to the Redemption Date, and (ii) an instruction to the
Securities Depository to (x) determine on such Publication Date after the
Auction held on the immediately preceding Auction Date has settled, the
Depository participants whose Securities Depository positions will be redeemed
and the principal amount of such Tortoise Notes to be redeemed from each
such
position (the “Securities Depository Redemption Information”), and
(y) notify the Auction Agent immediately after such determination of
(A) the positions of the Depository Participants in such Tortoise Notes
immediately prior to such Auction settlement, (B) the positions of the
Depository Participants in such Tortoise Notes immediately following such
Auction settlement and (C) the Securities Depository Redemption
Information. “Publication Date” shall mean three Business Days after
the Auction Date next preceding such Redemption Date.
Designation
of Rate Period
The
initial Rate Period for each series of Tortoise Notes is as set forth under
“Designation” in the Indenture. The Company will designate the
duration of subsequent Rate Periods of each series of Tortoise Notes; provided,
however, that no such designation is necessary for a Standard Rate Period
and,
provided further, that any designation of a Special Rate Period shall be
effective only if (i) notice thereof shall have been given as provided
herein, (ii) any failure to pay in a timely manner to the Trustee the full
amount of any interest on, or the redemption price of, Tortoise Notes shall
have
been cured as provided above, (iii) Sufficient Clearing Bids shall have
existed in an Auction held on the Auction Date immediately preceding the
first
day of such proposed Special Rate Period, (iv) if the Company shall have
mailed a Notice of Redemption with respect to any Tortoise Notes, the redemption
price with respect to such Tortoise Notes shall have been deposited with
the
Paying Agent, and (v) in the case of the designation of a Special Rate
Period, the Company has confirmed that as of the Auction Date next preceding
the
first day of such Special Rate Period, it has Eligible Assets with an aggregate
Discounted
Value
at
least equal to the Tortoise Notes Basic Maintenance Amount, and the Company
has
consulted with the Broker-Dealers and has provided notice of such designation
and otherwise complied with the Rating Agency Guidelines.
If
the
Company proposes to designate any Special Rate Period, not fewer than 7
(or two
Business Days in the event the duration of the Rate Period prior to such
Special
Rate Period is fewer than 8 days) nor more than 30 Business Days prior to
the first day of such Special Rate Period, notice shall be (i) made by
press release and (ii) communicated by the Company by telephonic or other
means to the Trustee and confirmed in writing promptly
thereafter. Each such notice shall state (A) that the Company
proposes to exercise its option to designate a succeeding Special Rate
Period,
specifying the first and last days thereof and (B) that the Company will by
3:00 p.m., New York City time, on the second Business Day next preceding
the first day of such Special Rate Period, notify the Auction Agent and
the
Trustee, who will promptly notify the Broker-Dealers, of either (x) its
determination, subject to certain conditions, to proceed with such Special
Rate
Period, subject to the terms of any Specific Redemption Provisions, or
(y) its determination not to proceed with such Special Rate Period, in
which latter event the succeeding Rate Period shall be a Standard Rate
Period.
No
later
than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Rate Period, the Company
shall
deliver to the Auction Agent and Trustee, who will promptly deliver to
the
Broker-Dealers and Existing Holders, either:
(i) a
notice stating (A) that the Company has determined to designate the next
succeeding Rate Period as a Special Rate Period, specifying the first and
last
days thereof and (B) the terms of any Specific Redemption Provisions;
or
(ii) a
notice stating that the Company has determined not to exercise its option
to
designate a Special Rate Period.
If
the
Company fails to deliver either such notice with respect to any designation
of
any proposed Special Rate Period to the Auction Agent or is unable to make
the
confirmation described above by 3:00 p.m., New York City time, on the
second Business Day next preceding the first day of such proposed Special
Rate
Period, the Company shall be deemed to have delivered a notice to the Auction
Agent with respect to such Rate Period to the effect set forth in clause
(ii)
above, thereby resulting in a Standard Rate Period.
Restrictions
on Transfer
Tortoise
Notes may be transferred only (a) pursuant to an order placed in an
Auction, (b) to or through a Broker-Dealer or (c) to the Company or
any Affiliate. Notwithstanding the foregoing, a transfer other than
pursuant to an Auction will not be effective unless the selling Existing
Holder
or the Agent Member of such Existing Holder, in the case of an Existing
Holder
whose Tortoise Notes are listed in its own name on the books of the Auction
Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in the
case
of a transfer between persons holding Tortoise Notes through different
Broker-Dealers, advises the Auction Agent of such transfer. The
certificates representing the Tortoise Notes issued to the Securities Depository
will bear legends with respect to the restrictions described above and
stop-transfer instructions will be issued to the Transfer Agent and/or
Registrar.
1940
Act Tortoise Notes Asset Coverage
The
Company shall maintain, as of the last Business Day of each month in which
any
Tortoise Notes are Outstanding, asset coverage with respect to the Tortoise
Notes which is equal to or greater than the 1940 Act Tortoise Notes Asset
Coverage; provided, however, that subparagraph (a)(ii) of “Redemption” above
shall be the sole remedy in the event the Company fails to do
so.
Tortoise
Notes Basic Maintenance Amount
So
long
as the Tortoise Notes are Outstanding and any Rating Agency is then rating
the
Tortoise Notes, the Company shall maintain, as of each Valuation Date,
Eligible
Assets having an aggregate Discounted Value equal to or greater than the
Tortoise Notes Basic Maintenance Amount; provided, however, that
Section 2.03(a)(ii) shall be the sole remedy in the event the Company fails
to do so.
Certain
Other Restrictions
For
so
long as any Tortoise Notes are Outstanding and any Rating Agency is then
rating
the Tortoise Notes, the Company will not engage in certain proscribed
transactions set forth in the Rating Agency Guidelines, unless it has received
written confirmation from each such Rating Agency that proscribes the applicable
transaction in its Rating Agency Guidelines that any such action would
not
impair the rating then assigned by such Rating Agency to a series of Tortoise
Notes.
For
so
long as any Tortoise Notes are Outstanding, the Company will not declare,
pay or
set apart for payment any dividend or other distribution (other than a
dividend
or distribution paid in shares of, or options, warrants or rights to subscribe
for or purchase, common shares or other shares of capital stock of the
Company)
upon any class of shares of capital stock of the Company, unless, in every
such
case, immediately after such transaction, the 1940 Act Tortoise Notes Asset
Coverage would be achieved after deducting the amount of such dividend,
distribution, or purchase price, as the case may be; provided, however,
that
dividends may be declared upon any preferred shares of capital stock of
the
Company if the Tortoise Notes and any other senior securities representing
indebtedness of the Company have an asset coverage of at least 200% at
the time
of declaration thereof, after deducting the amount of such
dividend.
A
declaration of a dividend or other distribution on or purchase or redemption
of
any common or preferred shares of capital stock of the Company is prohibited
(i) at any time that an Event of Default under the Indenture has occurred
and is continuing, (ii) if after giving effect to such declaration, the
Company would not have Eligible Assets with an aggregate Discounted Value
at
least equal to the Tortoise Notes Basic Maintenance Amount or the 1940
Act
Tortoise Notes Asset Coverage, or (iii) the Company has not redeemed the
full amount of Tortoise Notes required to be redeemed by any provisions
for
mandatory redemption contained herein.
Compliance
Procedures for Asset Maintenance Tests
For
so
long as any Tortoise Notes are Outstanding and any Rating Agency is then
rating
such Tortoise Notes:
(a) As
of each Valuation Date, the Company shall determine in accordance with
the
procedures specified herein (i) the Market Value of each Eligible Asset
owned by the Company on that date, (ii) the Discounted Value of each such
Eligible Asset using the Discount Factors, (iii) whether the Tortoise Notes
Basic Maintenance Amount is met as of that date, (iv) the value of the
total assets of the Company, less all liabilities, and (v) whether the 1940
Act Tortoise Notes Asset Coverage is met as of that date.
(b) Upon
any failure to maintain the required Tortoise Notes Basic Maintenance Amount
or
1940 Act Tortoise Notes Asset Coverage on any Valuation Date, the Company
may
use reasonable commercial efforts (including, without limitation, altering
the
composition of its portfolio, purchasing Tortoise Notes outside of an Auction
or
in the event of a failure to file a Rating Agency Certificate (as defined
below)
on a timely basis, submitting the requisite Rating Agency Certificate)
to
re-attain (or certify in the case of a failure to file on a timely basis,
as the
case may be) the required Tortoise Notes
Basic
Maintenance Amount or 1940 Act Tortoise Notes Asset Coverage on or prior
to the
Asset Coverage Cure Date.
(c) Compliance
with the Tortoise Notes Basic Maintenance Amount and 1940 Act Tortoise
Notes
Asset Coverage tests shall be determined with reference to those Tortoise
Notes
which are deemed to be Outstanding under the Indenture.
(d) The
Company shall deliver to each Rating Agency which is then rating Tortoise
Notes
and any other party specified in the Rating Agency Guidelines all certificates
that are set forth in the respective Rating Agency Guidelines regarding
1940 Act
Tortoise Notes Asset Coverage, Tortoise Notes Basic Maintenance Amount
and/or
related calculations at such times and containing such information as set
forth
in the respective Rating Agency Guidelines (each, a “Rating Agency
Certificate”).
(e) In
the event that any Rating Agency Certificate is not delivered within the
time
periods set forth in the Rating Agency Guidelines, the Company shall be
deemed
to have failed to maintain the Tortoise Notes Basic Maintenance Amount
or the
1940 Act Tortoise Notes Asset Coverage, as the case may be, on such Valuation
Date for purposes of paragraph (b) above. In the event that any
Rating Agency Certificate with respect to an applicable Asset Coverage
Cure Date
is not delivered within the time periods set forth in the Rating Agency
Guidelines, the Company shall be deemed to have failed to have Eligible
Assets
with an aggregate Discounted Value at least equal to the Tortoise Notes
Basic
Maintenance Amount or to meet the 1940 Tortoise Notes Asset Coverage, as
the
case may be, as of the related Valuation Date, and such failure shall be
deemed
not to have been cured as of such Asset Coverage Cure Date for purposes
of the
mandatory redemption provisions.
Delivery
of Notes
Upon
the
execution and delivery of the Supplemental Indenture, the Company shall
execute
and deliver to the Trustee and the Trustee shall authenticate the Tortoise
Notes
and deliver them to The Depository Trust Company and as hereinafter in
this
Section provided.
Prior
to
the delivery by the Trustee of any of the Tortoise Notes, there shall have
been
filed with or delivered to the Trustee the following:
(a) A
resolution duly adopted by the Company, certified by the Secretary or other
Authorized Officer thereof, authorizing the execution and delivery of the
Supplemental Indenture and the issuance of the Tortoise Notes.
(b) Duly
executed copies of the Supplemental Indenture and a copy of the
Indenture.
(c) Rating
letters from each Rating Agency rating the Tortoise Notes.
(d) An
Opinion of Counsel and an Officers’ Certificate pursuant to Sections 3.3
and 9.3 of the Original Indenture.
Trustee’s
Authentication Certificate
The
Trustee’s authentication certificate upon the Tortoise Notes shall be
substantially in the forms provided. No Tortoise Note shall be
secured hereby or entitled to the benefit hereof, or shall be valid or
obligatory for any purpose, unless a certificate of authentication,
substantially in such form, has been duly executed by the Trustee; and
such
certificate of the Trustee upon any Tortoise Note shall be conclusive evidence
and the only competent evidence that such Bond has been authenticated and
delivered. The Trustee’s certificate of authentication shall be
deemed to have been duly executed by it if
manually
signed by an authorized officer of the Trustee, but it shall not be necessary
that the same person sign the certificate of authentication on all of the
Tortoise Notes issued.
EVENTS
OF DEFAULT; REMEDIES
Events
of Default
An
“Event
of Default” means any one of the following events set forth below (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default
in the payment of any interest upon a series of Tortoise Notes when it
becomes
due and payable and the continuance of such default for thirty (30) days;
or
(b) default
in the payment of the principal of, or any premium on, a series of Tortoise
Notes at its Stated Maturity; or
(c) default
in the performance, or breach, of any covenant or warranty of the Company
in the
Indenture, and continuance of such default or breach for a period of ninety
(90) days after there has been given, by registered or certified mail, to
the Company by the Trustee a written notice specifying such default or
breach
and requiring it to be remedied and stating that such notice is a “Notice of
Default”; or
(d) the
entry by a court having jurisdiction in the premises of (A) a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization
or
other similar law or (B) a decree or order adjudging the Company a bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the
Company or of any substantial part of its property, or ordering the winding
up
or liquidation of its affairs, and the continuance of any such decree or
order
for relief or any such other decree or order unstayed and in effect for
a period
of 60 consecutive days; or
(e) the
commencement by the Company of a voluntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt
or
insolvent, or the consent by it to the entry of a decree or order for relief
in
respect of the Company in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar
law or
to the commencement of any bankruptcy or insolvency case or proceeding
against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or
the
consent by it to the filing of such petition or to the appointment of or
taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or of any substantial part of
its
property, or the making by it of an assignment for the benefit of creditors,
or
the admission by it in writing of its inability to pay its debts generally
as
they become due, or the taking of corporate action by the Company in furtherance
of any such action; or
(f) if,
pursuant to Section 18(a)(1)(c)(ii) of the 1940 Act on the last business
day of each of twenty-four (24) consecutive calendar months, the 1940 Act
Tortoise Notes Asset Coverage is less than 100%; or
(g) any
other Event of Default provided with respect to a series of Tortoise Notes,
including a default in the payment of any Redemption Price payable on the
date
fixed for redemption.
Unless
otherwise noted, an Event of Default that relates only to one series of
Tortoise
Notes will not affect any other series.
Acceleration
of Maturity; Rescission and Annulment
If
an
Event of Default with respect to Tortoise Notes of a series at the time
Outstanding occurs and is continuing, then in every such case the Trustee
or the
holders of not less than a majority in principal amount of the Outstanding
Tortoise Notes of that series may declare the principal amount of all the
Tortoise Notes of that series to be due and payable immediately, by a notice
in
writing to the Company (and to the Trustee if given by holders), and upon
any
such declaration such principal amount (or specified amount) shall become
immediately due and payable. If an Event of Default specified in
paragraphs (d) and (e) above with respect to Tortoise Notes of any series
at the
time Outstanding occurs, the principal amount of all the Tortoise Notes
of that
series shall automatically, and without any declaration or other action
on the
part of the Trustee or any holder, become immediately due and
payable.
At
any
time after such a declaration of acceleration with respect to Tortoise
Notes of
any series has been made and before a judgment or decree for payment of
the
money due has been obtained by the Trustee, the holders of a majority in
principal amount of the Outstanding Tortoise Notes of that series, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(a) the
Company has paid or deposited with the Trustee a sum sufficient to
pay
(i) all
overdue interest on all Tortoise Notes of that series,
(ii) the
principal of (and premium, if any, on) any Tortoise Notes of that series
which
have become due otherwise than by such declaration of acceleration and
any
interest thereon at the rate or rates prescribed therefor in such Tortoise
Notes,
(iii) to
the extent that payment of such interest is lawful, interest upon overdue
interest at the rate or rates prescribed therefor in such Tortoise
Notes,
(iv) all
sums paid or advanced by the Trustee and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel;
and
(b) all
Events of Default with respect to Tortoise Notes of that series, other
than the
non-payment of the principal of Tortoise Notes of that series which have
become
due solely by such declaration of acceleration, have been cured or
waived.
No
such
rescission shall affect any subsequent default or impair any right consequent
thereon.
Collection
of Indebtedness and Suits for Enforcement by Trustee
The
Company covenants that if:
(a) default
is made in the payment of any interest on any Tortoise Notes when such
interest
becomes due and payable and such default continues for a period of 90 days,
or
(b) default
is made in the payment of the principal of (or premium, if any, on) any
Tortoise
Notes at the Maturity thereof, the Company will, upon demand of the
Trustee, pay to it, for the benefit of the holders of such Tortoise Notes,
the
whole amount then due and payable on such Tortoise Notes for principal
and any
premium and interest and, to the extent that payment of such interest shall
be
legally enforceable, interest on any overdue principal and premium and
on any
overdue interest, at the rate or rates prescribed therefor in such Tortoise
Notes, and, in addition thereto, such further amount as shall be sufficient
to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents
and counsel.
If
an
Event of Default with respect to Tortoise Notes of any series occurs and
is
continuing, the Trustee may in its discretion proceed to protect and enforce
its
rights and the rights of the holders of Tortoise Notes of such series by
such
appropriate judicial proceedings as the Trustee shall deem most effectual
to
protect and enforce any such rights, whether for the specific enforcement
of any
covenant or agreement in the Indenture or in aid of the exercise of any
power
granted in the Indenture, or to enforce any other proper remedy.
Application
of Money Collected
Any
money
collected by the Trustee pursuant to the provisions of the Indenture relating
to
an Event of Default shall be applied in the following order, at the date
or
dates fixed by the Trustee and, in case of the distribution of such money
on
account of principal or any premium or interest, upon presentation of the
Tortoise Notes and the notation thereon of the payment if only partially
paid
and upon surrender thereof if fully paid:
FIRST: To
the payment of all amounts due the Trustee under the Indenture;
and
SECOND: To
the payment of the amounts then due and unpaid for principal of and any
premium
and interest on the Tortoise Notes in respect of which or for the benefit
of
which such money has been collected, ratably, without preference or priority
of
any kind, according to the amounts due and payable on such Tortoise Notes
for
principal and any premium and interest, respectively.
Limitation
On Suits
No
holder
of any Tortoise Notes of any series shall have any right to institute any
proceeding, judicial or otherwise, with respect to the Indenture, or for
the
appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(a) such
holder has previously given written notice to the Trustee of a continuing
Event
of Default with respect to the Tortoise Notes of that series;
(b) the
holders of not less than a majority in principal amount of the Outstanding
Tortoise Notes of that series shall have made written request to the Trustee
to
institute proceedings in respect of such Event of Default in its own name
as
Trustee hereunder;
(c) such
holder or holders have offered to the Trustee indemnity reasonably satisfactory
to it against the costs, expenses and liabilities to be incurred in compliance
with such request;
(d) the
Trustee for 60 days after its receipt of such notice, request and offer of
indemnity has failed to institute any such proceeding; and
(e) no
direction inconsistent with such written request has been given to the
Trustee
during such 60-day period by the holders of a majority in principal amount
of
the Outstanding Tortoise Notes of that series;
it
being
understood and intended that no one or more of such holders shall have
any right
in any manner whatever by virtue of, or by availing of, any provision of
the
Indenture to affect, disturb or prejudice the rights of any other of such
holders, or to obtain or to seek to obtain priority or preference over
any other
of such holders or to enforce any right under the Indenture, except in
the
manner provided and for the equal and ratable benefit of all of such
holders.
Unconditional
Right of Holders to Receive Principal, Premium and
Interest
Notwithstanding
any other provision in the Indenture, the holder of any Tortoise Notes
shall
have the right, which is absolute and unconditional, to receive payment
of the
principal of and any premium and (subject to the provisions of any supplemental
indenture) interest on such Tortoise Notes on the respective Stated
Maturities expressed in such Tortoise Notes (or, in the case of redemption,
on
the Redemption Date), and to institute suit for the enforcement of any
such
payment and such rights shall not be impaired without the consent of such
holder.
Restoration
of Rights and Remedies
If
the
Trustee or any holder has instituted any proceeding to enforce any right
or
remedy under the Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee
or to
such holder, then and in every such case, subject to any determination
in such
proceeding, the Company, the Trustee and the holders shall be restored
severally
and respectively to their former positions and thereafter all rights and
remedies of the Trustee and the holders shall continue as though no such
proceeding had been instituted.
Rights
and Remedies Cumulative
Except
as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Tortoise Notes, no right or remedy conferred
upon or
reserved to the Trustee or to the holders is intended to be exclusive of
any
other right or remedy, and every right and remedy shall, to the extent
permitted
by law, be cumulative and in addition to every other right and remedy given
or
now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy, or otherwise, shall not
prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
Control
By Holders
The
holders of not less than a majority in principal amount of the Outstanding
Tortoise Notes of any series shall have the right to direct the time, method
and
place of conducting any proceeding for any remedy available to the Trustee,
or
exercising any trust or power conferred on the Trustee, with respect to
the
Tortoise Notes of such series, provided that
(1) such
direction shall not be in conflict with any rule of law or with the Indenture,
and
(2) the
Trustee may take any other action deemed proper by the Trustee which is
not
inconsistent with such direction.
Waiver
of Past Defaults
The
holders of not less than a majority in principal amount of the Outstanding
Tortoise Notes of any series may on behalf of the holders of all the Tortoise
Notes of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(1) in
the payment of the principal of or any premium or interest on any Tortoise
Notes
of such series, or
(2) in
respect of a covenant or provision which cannot be modified or amended
without
the consent of the holder of each Outstanding Tortoise Notes of such series
affected.
Upon
any
such waiver, such default shall cease to exist, and any Event of Default
arising
therefrom shall be deemed to have been cured, for every purpose of the
Indenture; but no such waiver shall extend to any subsequent or other default
or
impair any right consequent thereon.
SATISFACTION
AND DISCHARGE OF INDENTURE
The
Indenture shall upon request of the Company cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange
of
any Tortoise Notes expressly provided for herein or in the terms of such
security), and the Trustee, at the expense of the Company, shall execute
proper
instruments acknowledging satisfaction and discharge of the Indenture,
when
(a) Either:
(i) all
Tortoise Notes theretofore authenticated and delivered (other than
(1) securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in the Indenture; and (2) Tortoise Notes
for whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in the Indenture) have been delivered
to
the Trustee for cancellation; or
(ii) all
such Tortoise Notes not theretofore delivered to the Trustee for cancellation
have become due and payable, or will become due and payable at their Stated
Maturity within one year, or are to be called for redemption within one
year
under arrangements satisfactory to the Trustee for the giving of notice
of
redemption by the Trustee in the name, and at the expense, of the Company,
and
the Company, in the case of this subsection (ii) has deposited or caused
to be
deposited with the Trustee as trust funds in trust money in an amount sufficient
to pay and discharge the entire indebtedness on such securities not theretofore
delivered to the Trustee for cancellation, for principal and any premium
and
interest to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as
the
case may be;
(b) the
Company has paid or caused to be paid all other sums payable hereunder
by the
Trust; and
(c) the
Company has delivered to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that all conditions precedent herein provided for
relating
to the satisfaction and discharge of the Indenture have been complied
with.
Notwithstanding
the satisfaction and discharge of the Indenture, the obligations of the
Company
to the Trustee under the Indenture and, if money shall have been deposited
with
the Trustee pursuant to subparagraph (ii) of paragraph (a) above, the
obligations of the Trustee under certain provisions of the Indenture shall
survive.
THE
TRUSTEE
Certain
Duties and Responsibilities
(1) Except
during the continuance of an Event of Default,
(A) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in the Indenture and as required by the Trust Indenture
Act, and no implied covenants or obligations shall be read into the Indenture
against the Trustee; and
(B) in
the absence of bad faith on its part, the Trustee may conclusively rely,
as to
the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of the Indenture; but in the case of any such certificates
or opinions which by any provision of the Indenture are specifically required
to
be furnished to the Trustee, the Trustee shall be under a duty to examine
the
same to determine whether or not they conform to the requirements of the
Indenture (but need not confirm or investigate the accuracy of mathematical
calculations or other facts stated therein).
(2) In
case an Event of Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by the Indenture, and
use
the same degree of care and skill in their exercise, as a prudent person
would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(3) In
no event shall the Trustee be responsible or liable for special, indirect,
or
consequential loss or damage of any kind whatsoever (including, but not
limited
to, loss of profit) irrespective of whether the Trustee has been advised
of the
likelihood of such loss or damage and regardless of the form of
action.
(4) In
no event shall the Trustee be responsible or liable for any failure or
delay in
the performance of its obligations arising out of or caused by, directly
or
indirectly, forces beyond its control, including, without limitation, strikes,
work stoppages, accidents, acts of war or terrorism, civil or military
disturbances, nuclear or natural catastrophes or acts of God, and interruptions,
loss or malfunctions of utilities, communications or computer (software
and
hardware) services; it being understood that the Trustee shall use reasonable
efforts which are consistent with accepted practices in the banking industry
to
resume performance as soon as practicable under the circumstances.
(5) No
provision of the Indenture shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure to act,
or its
own willful misconduct, except that:
(A) this
Subsection shall not be construed to limit the effect of Subsection (1)(A)
of this Section;
(B) the
Trustee shall not be liable for any error of judgment made in good faith
by a
Responsible Officer, unless it shall be proved that the Trustee was negligent
in
ascertaining the pertinent facts;
(C) the
Trustee shall not be liable with respect to any action taken or omitted
to be
taken by it in good faith in accordance with the direction of the holders
of a
majority in principal amount of the Outstanding securities of any series,
determined as provided in the Indenture, relating to the time, method and
place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under the Indenture
with respect to the Securities of such series; and
(D) no
provision of the Indenture shall require the Trustee to expend or risk
its own
funds or otherwise incur any financial liability in the performance of
any of
its duties, or in the exercise of any of its rights or powers, if it shall
have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
Notice
of Defaults
If
a
default occurs hereunder with respect to Tortoise Notes of any series,
the
Trustee shall give the Holders of Tortoise Notes of such series notice
of such
default as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default with respect to Tortoise Notes
of such
series, no such notice to Holders shall be given until at least 90 days
after the occurrence thereof. For the purpose hereof, the term
“default” means any event which is, or after notice or lapse of time or both
would become, an Event of Default with respect to Tortoise Notes of such
series.
Certain
Rights of Trustee
Subject
to the provisions under “Certain Duties and Responsibilities”
above:
(a) the
Trustee may conclusively rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
other
evidence of indebtedness or other paper or document believed by it to be
genuine
and to have been signed or presented by the proper party or
parties;
(b) any
request or direction of the Company shall be sufficiently evidenced by
a Company
Request or Company Order, and any resolution of the Board of Directors
shall be
sufficiently evidenced by a Board Resolution;
(c) whenever
in the administration of the Indenture the Trustee shall deem it desirable
that
a matter be proved or established prior to taking, suffering or omitting
any
action hereunder, the Trustee may, in the absence of bad faith on its part,
rely
upon an Officers’ Certificate;
(d) the
Trustee may consult with counsel of its selection and the written advice
of such
counsel or any Opinion of Counsel shall be full and complete authorization
and
protection in respect of any action taken, suffered or omitted by it in
good
faith and in reliance thereon;
(e) the
Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by the Indenture at the request or direction of any of the
holders
pursuant to the Indenture, unless such holders shall have offered to the
Trustee
security or indemnity reasonably satisfactory to it against the costs,
expenses
and liabilities which might be incurred by it in compliance with such request
or
direction;
(f) the
Trustee shall not be bound to make any investigation into the facts or
matters
stated in any resolution, certificate, statement, instrument, opinion,
report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in
its
discretion, may make such further inquiry or investigation into such facts
or
matters as it may see fit, and,
if
the
Trustee shall determine to make such further inquiry or investigation,
it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(g) the
Trustee may execute any of the trusts or powers or perform any duties hereunder
either directly or by or through agents or attorneys and the Trustee shall
not
be responsible for any misconduct or negligence on the part of any agent
or
attorney appointed with due care by it hereunder;
(h) the
Trustee shall not be liable for any action taken, suffered or omitted to
be
taken by it in good faith and reasonably believed by it to be authorized
or
within the discretion or rights or powers conferred upon it by the
Indenture;
(i) the
Trustee shall not be deemed to have notice of any default or Event of Default
unless a Responsible Officer of the Trustee has actual knowledge thereof
or
unless written notice of any event which is in fact such a default is received
by the Trustee at the Corporate Trust Office of the Trustee, and such notice
references the Tortoise Notes and the Indenture;
(j) the
rights, privileges, protections, immunities and benefits given to the Trustee,
including its rights to be indemnified, are extended to, and shall be
enforceable by, the Trustee in each of its capacities hereunder;
and
(k) the
Trustee may request that the Company deliver an Officers’ Certificate setting
forth the names of individuals and/or titles of officers authorized at
such time
to take specified actions pursuant to the Indenture, which Officers’ Certificate
may be signed by any person authorized to sign an Officers’ Certificate,
including any person specified as so authorized in any such certificate
previously delivered and not superceded.
Compensation
and Reimbursement
The
Company agrees:
(a) to
pay to the Trustee from time to time such compensation as shall be agreed
in
writing between the parties for all services rendered by it (which compensation
shall not be limited by any provision of law in regard to the compensation
of a
trustee of an express trust);
(b) except
as otherwise expressly provided, to reimburse the Trustee upon its request
for
all reasonable expenses, disbursements and advances incurred or made by
the
Trustee in accordance with any provision of the Indenture (including the
reasonable compensation and the expenses and disbursements of its agents
and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(c) to
indemnify each of the Trustee or any predecessor Trustee for, and to
hold it harmless against, any and all losses, liabilities, damages, claims
or
expenses including taxes (other than taxes imposed on the income of the
Trustee)
incurred without negligence or bad faith on its part, arising out of or
in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against
any
claim (whether asserted by the Company, a holder or any other Person) or
liability in connection with the exercise or performance of any of its
powers or
duties hereunder.
When
the
Trustee incurs expenses or renders services in connection with an Event
of
Default, the expenses (including the reasonable charges and expenses of
its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable Federal or State bankruptcy,
insolvency or other similar law.
The
provisions hereof shall survive the termination of the Indenture.
Conflicting
Interests
If
the
Trustee has or shall acquire a conflicting interest within the meaning
of the
Trust Indenture Act, the Trustee shall either eliminate such interest or
resign,
to the extent and in the manner provided by, and subject to the provisions
of,
the Trust Indenture Act and the Indenture. To the extent not
prohibited by the Trust Indenture Act, the Trustee shall not be deemed
to have a
conflicting interest by virtue of being a trustee under the Indenture with
respect to Tortoise Notes of more than one series.
Resignation
and Removal; Appointment of Successor
No
resignation or removal of the Trustee and no appointment of a successor
Trustee
shall become effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements.
The
Trustee may resign at any time with respect to the Tortoise Notes of one
or more
series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee shall not have been delivered
to
the Trustee within 60 days after the giving of such notice of resignation,
the resigning Trustee may petition, at the expense of the Company, any
court of
competent jurisdiction for the appointment of a successor Trustee with
respect
to the Tortoise Notes of such series.
The
Trustee may be removed at any time with respect to the Tortoise Notes of
any
series by Act of the holders of a majority in principal amount of the
Outstanding Tortoise Notes of such series, delivered to the Trustee and
to the
Company. If the instrument of acceptance by a successor Trustee shall
not have been delivered to the Trustee within 30 days after the giving of a
notice of removal pursuant to this paragraph, the Trustee being removed
may
petition, at the expense of the Company, any court of competent jurisdiction
for
the appointment of a successor Trustee with respect to the Tortoise Notes
of
such series.
If
at any
time:
(a) the
Trustee shall fail to comply after written request therefor by the Company
or by
any holder who has been a bona fide holder of Tortoise Notes for at least
six
months, or
(b) the
Trustee shall cease to be eligible and shall fail to resign after written
request therefor by the Company or by any such holder, or
(c) the
Trustee shall become incapable of acting or shall be adjudged a bankrupt
or
insolvent or a receiver of the Trustee or of its property shall be appointed
or
any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, (i) the Company by a Board Resolution
may remove the Trustee with respect to all Tortoise Notes, or (ii) any
holder who has been a bona fide holder of Tortoise Notes for at least six
months
may, on behalf of himself and all others similarly situated, petition any
court
of competent jurisdiction for the removal of the Trustee with respect to
all
Tortoise Notes and the appointment of a successor Trustee or
Trustees.
If
the
Trustee shall resign, be removed or become incapable of acting, or if a
vacancy
shall occur in the office of Trustee for any cause, with respect to the
Tortoise
Notes of one or more series, the Company, by a Board Resolution, shall
promptly
appoint a successor Trustee or Trustees with respect to the Tortoise Notes
of
that or those series (it being understood that any such successor Trustee
may be
appointed with respect to the Tortoise Notes of one or more or all of such
series and that at any time there
shall
be
only one Trustee with respect to the Tortoise Notes of any particular series)
and shall comply with the applicable requirements. If, within one
year after such resignation, removal or incapability, or the occurrence
of such
vacancy, a successor Trustee with respect to the Tortoise Notes of any
series
shall be appointed by Act of the holders of a majority in principal amount
of
the Outstanding Tortoise Notes of such series delivered to the Company
and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon
its
acceptance of such appointment in accordance with the applicable requirements,
become the successor Trustee with respect to the Tortoise Notes of such
series
and to that extent supersede the successor Trustee appointed by the
Company.
If
no
successor Trustee with respect to the Tortoise Notes of any series shall
have
been so appointed by the Company or the holders and accepted appointment
in the
manner required, any holder who has been a bona fide holder of Tortoise
Notes of
such series for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Tortoise Notes of
such
series.
The
Company shall give notice of each resignation and each removal of the Trustee
with respect to the Tortoise Notes of any series and each appointment of
a
successor Trustee with respect to the Tortoise Notes of any series to all
holders of Tortoise Notes of such series in the manner provided. Each
notice shall include the name of the successor Trustee with respect to
the
Tortoise Notes of such series and the address of its Corporate Trust
Office.
Acceptance
of Appointment by Successor
In
case
of the appointment hereunder of a successor Trustee with respect to all
Tortoise
Notes, every such successor Trustee so appointed shall execute, acknowledge
and
deliver to the Company and to the retiring Trustee an instrument accepting
such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further
act, deed
or conveyance, shall become vested with all the rights, powers, trusts
and
duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee
all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held
by
such retiring Trustee hereunder.
In
case
of the appointment hereunder of a successor Trustee with respect to the
Tortoise
Notes of one or more (but not all) series, the Company, the retiring Trustee
and
each successor Trustee with respect to the Tortoise Notes of one or more
series
shall execute and deliver a supplemental indenture wherein each successor
Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to,
and to
vest in, each successor Trustee all the rights, powers, trusts and duties
of the
retiring Trustee with respect to the Tortoise Notes of that or those series
to
which the appointment of such successor Trustee relates, (2) if the
retiring Trustee is not retiring with respect to all Tortoise Notes, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee
with
respect to the Tortoise Notes of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee,
and
(3) shall add to or change any of the provisions of the Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing in
the
Indenture shall constitute such Trustees co-trustees of the same trust
and that
each such Trustee shall be trustee of a trust or trusts hereunder separate
and
apart from any trust or trusts hereunder administered by any other such
Trustee;
and upon the execution and delivery of such supplemental indenture the
resignation or removal of the retiring Trustee shall become effective to
the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts
and duties of the retiring Trustee with respect to the
Tortoise
Notes of that or those series to which the appointment of such successor
Trustee
relates; but, on request of the Company or any successor Trustee, such
retiring
Trustee shall duly assign, transfer and deliver to such successor Trustee
all
property and money held by such retiring Trustee hereunder with respect
to the
Tortoise Notes of that or those series to which the appointment of such
successor Trustee relates.
Upon
request of any such successor Trustee, the Company shall execute any and
all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts referred to in the
first or
second preceding paragraph, as the case may be.
No
successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible.
Merger,
Conversion, Consolidation or Succession to Business
Any
corporation into which the Trustee may be merged or converted or with which
it
may be consolidated, or any corporation resulting from any merger, conversion
or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of
the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible, without the execution
or
filing of any paper or any further act on the part of any of the parties
hereto. In case any Tortoise Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Tortoise Notes so authenticated with the
same
effect as if such successor Trustee had itself authenticated such Tortoise
Notes.
CONSOLIDATION,
MERGER, CONVEYANCE, TRANSFER OR LEASE
Company
May Consolidate, Etc., Only On Certain Terms
The
Company shall not consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety
to any
Person, and the Company shall not permit any Person to consolidate with
or merge
into the Company, unless:
(a) in
case the Company shall consolidate with or merge into another Person or
convey,
transfer or lease its properties and assets substantially as an entirety
to any
Person, the Person formed by such consolidation or into which the Company
is
merged or the Person which acquires by conveyance or transfer, or which
leases,
the properties and assets of the Company substantially as an entirety shall
be a
corporation, partnership or trust, shall be organized and validly existing
under
the laws of any domestic or foreign jurisdiction and shall expressly assume,
by
an indenture supplemental hereto, executed and delivered to the Trustee,
in form
satisfactory to the Trustee, the due and punctual payment of the principal
of
and any premium and interest on all the Tortoise Notes and the performance
or
observance of every covenant of the Indenture on the part of the Company
to be
performed or observed;
(b) immediately
after giving effect to such transaction and treating any indebtedness which
becomes an obligation of the Company or any subsidiary as a result of such
transaction as having been incurred by the Company or such Subsidiary at
the
time of such transaction, no Event of Default, and no event which, after
notice
or lapse of time or both, would become an Event of Default, shall have
happened
and be continuing;
(c) the
Company has delivered to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, transfer
or
lease and, if a supplemental
indenture
is required in connection with such transaction, such supplemental indenture
comply and that all conditions precedent in the Indenture provided for
relating
to such transaction have been complied with.
Successor
Substituted
Upon
any
consolidation of the Company with, or merger of the Company into, any other
Person or any conveyance, transfer or lease of the properties and assets
of the
Company substantially as an entirety, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and
may
exercise every right and power of, the Company under the Indenture with
the same
effect as if such successor Person had been named as the Company in the
Indenture, and thereafter, except in the case of a lease, the predecessor
Person
shall be relieved of all obligations and covenants under the Indenture
and the
Tortoise Notes.
DEFEASANCE
AND COVENANT DEFEASANCE
Defeasance
and Discharge
Upon
the
Company’s exercise of its option (if any) to have the provisions of the
Indenture relating to Defeasance applied to any Tortoise Notes or any series
of
Tortoise Notes, as the case may be, the Company shall be deemed to have
been
discharged from its obligations, with respect to such Tortoise Notes as
provided
in the Indenture on and after the date the conditions set forth are satisfied
(hereinafter called “Defeasance”). For this purpose, such Defeasance
means that the Company shall be deemed to have paid and discharged the
entire
indebtedness represented by such Tortoise Notes and to have satisfied all
its
other obligations under such Tortoise Notes and the Indenture insofar as
such
Tortoise Notes are concerned (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), subject to the
following which shall survive until otherwise terminated or discharged
hereunder: (1) the rights of holders of such Tortoise Notes to
receive, solely from the trust fund, payments in respect of the principal
of and
any premium and interest on such Tortoise Notes when payments are due,
(2) the Company’s obligations with respect to such Tortoise Notes,
(3) the rights, powers, trusts, duties and immunities of the
Trustee.
Covenant
Defeasance
Upon
the
Company’s exercise of its option (if any) to have provisions of the Indenture
relating to Covenant Defeasance applied to any Tortoise Notes or any series
of
Tortoise Notes, as the case may be, (1) the Company shall be released from
its obligations under certain provisions of the Indenture for the benefit
of the
holders of such Tortoise Notes and (2) the occurrence of any event
specified in the Indenture, and any such covenants provided pursuant to
certain
provisions of the Indenture shall be deemed not to be or result in an Event
of
Default, in each case with respect to such Tortoise Notes as provided in
the
Indenture on and after the date the conditions are satisfied (hereinafter
called
“Covenant Defeasance”). For this purpose, such Covenant Defeasance
means that, with respect to such Tortoise Notes, the Company may omit to
comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such specified section of the Indenture, whether directly
or
indirectly by reason of any reference elsewhere in the Indenture, or by
reason
of any reference in any such section or article of the Indenture to any
other
provision in the Indenture or in any other document, but the remainder
of the
Indenture and such Tortoise Notes shall be unaffected thereby.
Conditions
to Defeasance or Covenant Defeasance
(a) The
Company shall irrevocably have deposited or caused to be deposited with
the
Trustee (or another trustee which satisfies the requirements and agrees
to
comply with the provisions of the relevant Article of the Indenture
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated
solely
to, the benefits of the holders of such Tortoise Notes, (i) money in an
amount, or (ii) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with
their
terms will provide, not later than one day before the due date of any payment,
money in an amount, or (iii) such other obligations or arrangements as may
be specified with respect to such Tortoise Notes, or (iv) a combination
thereof, in each case sufficient, in the opinion of a nationally recognized
firm
of independent public accountants expressed in a written certification
thereof
delivered to the Trustee, to pay and discharge, and which shall be applied
by
the Trustee (or any such other qualifying trustee) to pay and discharge,
the
principal of and any premium and interest on such Tortoise Notes on the
respective Stated Maturities, in accordance with the terms of the Indenture
and
such Tortoise Notes. As used in the Indenture, “U.S. Government
Obligation” means (x) any security which is (i) a direct obligation of
the United States of America for the payment of which the full faith
and credit of the United States of America is pledged or (ii) an obligation
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United
States of America, which, in either case (i) or (ii), is not callable or
redeemable at the option of the Company thereof, and (y) any depositary
receipt issued by a bank (as defined in Section 3(a)(2) of the Tortoise
Notes Act) as custodian with respect to any U.S. Government Obligation
which is
specified in Clause (x) above and held by such bank for the account of
the
holder of such depositary receipt, or with respect to any specific payment
of
principal of or interest on any U.S. Government Obligation which is so
specified
and held, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder
of such
depositary receipt from any amount received by the custodian in respect
of the
U.S. Government Obligation or the specific payment of principal or interest
evidenced by such depositary receipt.
(b) In
the event of an election to have Defeasance and Discharge apply to any
Tortoise
Notes or any series of Tortoise Notes, as the case may be, the Company
shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue
Service a ruling or (ii) since the date of this instrument, there has been
a change in the applicable Federal income tax law, in either case (i) or
(ii) to
the effect that, and based thereon such opinion shall confirm that, the
holders
of such Tortoise Notes will not recognize gain or loss for Federal income
tax
purposes as a result of the deposit, Defeasance and discharge to be effected
with respect to such Tortoise Notes and will be subject to Federal income
tax on
the same amount, in the same manner and at the same times as would be the
case
if such deposit, Defeasance and discharge were not to occur.
(c) In
the event of an election to have Covenant Defeasance apply to any Tortoise
Notes
or any series of Tortoise Notes, as the case may be, the Company shall
have
delivered to the Trustee an Opinion of Counsel to the effect that the holders
of
such Tortoise Notes will not recognize gain or loss for Federal income
tax
purposes as a result of the deposit and Covenant Defeasance to be effected
with
respect to such Tortoise Notes and will be subject to Federal income tax
on the
same amount, in the same manner and at the same times as would be the case
if
such deposit and Covenant Defeasance were not to occur.
(d) The
Company shall have delivered to the Trustee an Officers’ Certificate to the
effect that neither such Tortoise Notes nor any other Tortoise Notes of
the same
series, if then listed on any Tortoise Notes exchange, will be delisted
as a
result of such deposit.
(e) No
event which is, or after notice or lapse of time or both would become,
an Event
of Default with respect to such Tortoise Notes or any other Tortoise Notes
shall
have occurred and be continuing at the time of such deposit or, with regard
to
any such event specified, at any time on or prior to the 90th day after
the date
of such deposit (it being understood that this condition shall not be deemed
satisfied until after such 90th day).
(f) Such
Defeasance or Covenant Defeasance shall not cause the Trustee to have a
conflicting interest within the meaning of the Trust Indenture Act (assuming
all
Tortoise Notes are in default within the meaning of such Act).
(g) Such
Defeasance or Covenant Defeasance shall not result in a breach or violation
of,
or constitute a default under, any other agreement or instrument to which
the
Company is a party or by which it is bound.
(h) Such
Defeasance or Covenant Defeasance shall not result in the trust arising
from
such deposit constituting an investment company within the meaning of the
Investment Company Act unless such trust shall be registered under the
Investment Company Act or exempt from registration thereunder.
(i) No
event or condition shall exist that would prevent the Company from making
payments of the principal of (and any premium) or interest on the Tortoise
Notes
of such series on the date of such deposit or at any time on or prior to
the
90th day after the date of such deposit (it being understood that this
condition
shall not be deemed satisfied until after such 90th day).
(j) The
Company shall have delivered to the Trustee an Officers’ Certificate and an
Opinion of Counsel, each stating that all conditions precedent with respect
to
such Defeasance or Covenant Defeasance have been complied with.
(k) The
Company shall have delivered to the Trustee an Opinion of Counsel substantially
to the effect that (i) the trust funds deposited pursuant hereto will not
be subject to any rights of any holders of indebtedness or equity of the
Company, and (ii) after the 90th day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors’ rights generally, except
that if a court were to rule under any such law in any case or proceeding
that
the trust funds remained property of the Company, no opinion is given as
to the
effect of such laws on the trust funds except the
following: (A) assuming such trust funds remained in the
possession of the trustee with whom such funds were deposited prior to
such
court ruling to the extent not paid to holders of such Tortoise Notes,
such
trustee would hold, for the benefit of such holders, a valid and perfected
security interest in such trust funds that is not avoidable in bankruptcy
or
otherwise and (B) such holders would be entitled to receive adequate
protection of their interests in such trust funds if such trust funds were
used.
APPENDIX
A-I –
AUCTION
PROCEDURES
1. Orders
by Existing Holders and Potential Beneficial Owners. (a) Prior to
the Broker-Dealer Deadline for each Series of Tortoise Notes on each Auction
Date:
(i) each
Existing Holder may submit to a Broker-Dealer, in writing or by such other
method as shall be reasonably acceptable to such Broker-Dealer, one or
more
Orders as to:
(A) the
principal amount of Tortoise Notes, if any, of the series held by the Existing
Holder which the Existing Holder commits to continue to hold for the next
succeeding Auction Period without regard to the Applicable Rate for such
Auction
Period;
(B) the
principal amount of Tortoise Notes, if any, of the series held by the Existing
Holder which the Existing Holder commits to continue to hold for the next
succeeding Auction Period if the Applicable Rate for Tortoise Notes for
the next
succeeding Auction Period is not less than the rate per annum specified
in such
Order (and if the Auction Rate is less than such specified rate, the effect
of
the Order shall be as set forth in paragraph (b)(i)(A) of this Section);
and/or
(C) the
principal amount of Tortoise Notes, if any, of the series held by the Existing
Holder which the Existing Holder offers to sell on the first Business Day
of the
next succeeding Auction Period without regard to the Applicable Rate for
Tortoise Notes for the next succeeding Auction Period; and
(ii) each
Potential Beneficial Owner may submit to a Broker-Dealer, in writing or
by such
other method as shall be reasonably acceptable to such Broker-Dealer, an
Order
as to the principal amount of outstanding Tortoise Notes of a series which
each
such Potential Beneficial Owner offers to purchase if the Applicable Rate
for
the Tortoise Notes of such series for the next succeeding Rate Period is
not
less than the rate per annum then specified by such Potential Beneficial
Owner.
For
the
purposes of the Auction Procedures, an Order containing the information
referred
to in clause (i)(A) of this paragraph (a) is referred to as a “Hold
Order,” an Order containing the information referred to in clause (i)(B) or
(ii) of this paragraph (a) is referred to as a “Bid,” and an Order
containing the information referred to in clause (i)(C) of this
paragraph (a) is referred to as a “Sell Order.”
No
Auction Desk of a Broker-Dealer shall accept as an Order a submission (whether
received from an Existing Holder or a Potential Beneficial Owner or generated
by
the Broker-Dealer for its own account) which does not conform to the
requirements of the Auction Procedures, including, but not limited to,
submissions which are not in Authorized Denominations, specify a rate which
contains more than three figures to the right of the decimal point or specify
an
amount greater than the amount of outstanding Tortoise Notes. No
Auction Desk of a Broker-Dealer shall accept a Bid or Sell Order which
is
conditioned on being filled in whole or a Bid which does not specify a
specific
interest rate.
(b) (i) A
Bid by an Existing Holder shall constitute an offer to sell on the first
Business Day of the next succeeding Auction Period:
(A) the
principal
amount of outstanding Tortoise Notes specified in the Bid if the Applicable
Rate
for the next succeeding Auction Period shall be less than the rate specified
in
such Bid; or
(B) the
principal amount or a lesser principal amount of outstanding Tortoise Notes
to
be determined as described in clause (v) of paragraph (a) of
Section 5 of this Appendix A-I if the Applicable Rate for the next
succeeding Auction Period shall be equal to such specified rate; or
(C) a
lesser principal amount of outstanding Tortoise Notes be determined as
described
in clause (iv) of paragraph (b) of Section 5 of this
Appendix A-I if the rate specified therein shall be higher than the Maximum
Rate and Sufficient Clearing Bids do not exist.
(ii) A
Sell Order by an Existing Holder shall constitute an offer to sell:
(A) the
principal amount of outstanding Tortoise Notes of the series specified
in the
Sell Order; or
(B) the
principal amount or a lesser principal amount of outstanding Tortoise Notes
of
the series as set forth in clause (iv) of paragraph (b) of
Section 5 of this Appendix A-I if Sufficient Clearing Bids for
Tortoise Notes of the series do not exist;
(iii) A
Bid by a Potential Holder of Tortoise Notes shall constitute an offer to
purchase:
(A) the
principal amount of outstanding Tortoise Notes of the series specified
in the
Bid if the Applicable Rate for the next succeeding Auction Period shall
be
higher than the rate specified therein; or
(B) the
principal amount or a lesser principal amount of outstanding Tortoise Notes
of
the series as set forth in clause (vi) of paragraph (a) of
Section 5 of this Appendix A-I if the Applicable Rate for the Tortoise
Notes determined on the Auction Date shall be equal to the rate specified
therein.
(C) Anything
herein to the contrary notwithstanding:
(1) if
an Order or Orders covering all of the Tortoise Notes of a particular series
held by any Existing Holder is not submitted to the Broker-Dealer prior
to the
Broker-Dealer Deadline, such Broker-Dealer shall deem a Hold Order to have
been
submitted on behalf of the Existing Holder covering the principal amount
of
outstanding Tortoise Notes of the series held by the Existing Holder and
not
subject to Orders submitted to the Auction Agent; provided, however, that
if
there is a conversion from one Auction Period to a longer Auction Period
and
Orders have not been submitted to such Broker-Dealer prior to the Broker-Dealer
Deadline covering the aggregate principal amount of Tortoise Notes of a
particular series to be converted held by such Existing Holder, such
Broker-Dealer shall deem a Sell Order to have been submitted on behalf
of the
Existing Holder covering the principal amount of Tortoise Notes to be converted
held by the Existing Holder and not subject to Orders submitted to such
Broker-Dealer;
(2) for
purposes of any Auction, any Order by an Existing Holder or Potential Holder
shall be revocable until the Broker-Dealer Deadline, and after the Broker-Dealer
Deadline all such Orders shall be irrevocable except as provided in
Sections 2(e)(ii) and 2(f); and
(3) for
purposes of any Auction, any Tortoise Notes sold or purchased pursuant
to
clauses (i), (ii) or (iii) of paragraph (b) of this Section 1
shall be sold or purchased at a price equal to 100% of the principal amount
thereof.
2. Submission
of Orders by Broker-Dealers to Auction Agent.
(a) Each
Broker-Dealer shall submit to the Auction Agent in writing, or by such
other
electronic means, as shall be reasonably acceptable to the Auction Agent,
prior
to the Submission Deadline on each Auction Date for Tortoise Notes of a
series,
all Orders with respect to Tortoise Notes of such series accepted by such
Broker-Dealer in accordance with Section 1 above and specifying with
respect to each Order or aggregation of Orders pursuant to paragraph (b) of
this Section 2:
(i) the
name of the Broker-Dealer;
(ii) the
number of Bidders placing Orders, if requested by the Auction
Agent;
(iii) the
aggregate number of Units of Tortoise Notes of the series, if any, that
are the
subject of the Order;
(iv) to
the extent that the Bidder is an Existing Holder of Tortoise Notes of the
series:
(A) the
number of Units of Tortoise Notes, if any, of the series subject to any
Hold
Order placed by the Existing Holder;
(B) the
number of Units of Tortoise Notes, if any, of the series subject to any
Bid
placed by the Existing Holder and the rate specified in the Bid;
and
(C) the
number of Units of Tortoise Notes, if any, of the series subject to any
Sell
Order placed by the Existing Holder; and
(v) to
the extent the Bidder is a Potential Holder of Tortoise Notes of the series,
the
rate specified in such Bid.
(b) If
more than one Bid is submitted to a Broker-Dealer on behalf of any single
Potential Beneficial Owner, the Broker-Dealer shall aggregate each Bid
on behalf
of such Potential Beneficial Owner submitted with the same rate and consider
such Bids as a single Bid and shall consider each Bid submitted with a
different
rate a separate Bid with the rate and the number of Units of Tortoise Notes
of
the series specified therein.
A
Broker-Dealer may aggregate the Orders of different Potential Beneficial
Owners
with those of other Potential Beneficial Owners on whose behalf the
Broker-Dealer is submitting Orders and may aggregate the Orders of different
Existing Holders with other Existing Holders on whose behalf the Broker-Dealer
is submitting Orders; provided, however, Bids may only be aggregated if
the
interest rates on the Bids are the same.
(c) None
of
the Company, the Trustee or the Auction Agent shall be responsible for
the
failure of any Broker-Dealer to submit an Order to the Auction Agent on
behalf
of any Beneficial Owner, Potential Beneficial Owner, Existing Holder or
Potential Holder.
(d) Nothing
contained herein shall preclude a Broker-Dealer from placing an Order for
some
or all of the Tortoise Notes of a series for its own account.
(e) Until
the Submission Deadline, a Broker-Dealer may withdraw or modify any Order
previously submitted to the Auction Agent (i) for any reason if the Order
was generated by the Auction Desk of the Broker-Dealer for the account
of the
Broker-Dealer or (ii) to correct a Clerical Error on the part of the
Broker-Dealer in the case of any other Order, including Orders from the
Broker-Dealer which were not originated by the Auction Desk.
(f) After
the Submission Deadline, and prior to the Error Correction Deadline, a
Broker-Dealer may:
(i) submit
to the Auction Agent an Order received from an Existing Holder, Potential
Beneficial Owner or a Broker-Dealer which is not an Order generated by
the
Auction Desk, in each case prior to the Broker-Dealer Deadline, or an Order
generated by the Broker-Dealer’s Auction Desk for its own account prior to the
Submission Deadline (provided that in each case the Broker-Dealer has a
record
of such Order and the time when such Order was received or generated) and
not
submitted to the Auction Agent prior to the Submission Deadline (provided
that
the Broker-Dealer has a record of such Order and the time when such Order
was
received or granted) as a result of (A) an event of force majeure or a
technological failure which made delivery prior to the Submission Deadline
impossible or, under the conditions then prevailing, impracticable or (B) a
clerical error on the part of the Broker-Dealer; or
(ii) modify
or withdraw an Order received from an Existing Holder or a Potential Beneficial
Owner or generated by the Broker-Dealer (whether generated by the
Broker-Dealer’s Auction Desk or elsewhere within the Broker-Dealer) for its own
account and submitted to the Auction Agent prior to the Submission Deadline
or
pursuant to clause (i) above, if the Broker-Dealer determines that such
Order contained a Clerical Error on the part of the Broker-Dealer.
In
the
event a Broker-Dealer makes a submission, modification or withdrawal pursuant
to
this Section 2(f) and the Auction Agent has already run the Auction, the
Auction Agent shall rerun the Auction, taking into account such submission,
modification or withdrawal. Each submission, modification or
withdrawal of an Order submitted pursuant to this Section 2(f) by a
Broker-Dealer after the Submission Deadline and prior to the Error Correction
Deadline shall constitute a representation by the Broker-Dealer that (A) in
the case of a newly submitted Order or portion thereof or revised Order,
the
failure to submit such Order prior to the Submission Deadline resulted
from an
event described in clause (i) above and such Order was received from an
Existing Holder or Potential Beneficial Owner or is an Order received from
the
Broker-Dealer that was not originated by the Auction Desk, in each case,
prior
to the Broker-Dealer Deadline, or generated internally by such Broker-Dealer’s
Auction Desk for its own account prior to the Submission Deadline or (B) in
the case of a modified or withdrawn Order, such Order was received from
an
Existing Holder, a Potential Beneficial Owner or the Broker-Dealer which
was not
originated by the Auction Desk prior to the Broker-Dealer Deadline, or
generated
internally by such Broker-Dealer’s Auction Desk for its own account prior to the
Submission Deadline and such Order as submitted to the Auction Agent contained
a
Clerical Error on the part of the Broker-Dealer and that such Order has
been
modified or withdrawn solely to effect a correction of such Clerical Error,
and
in the case of either (A) or (B), as applicable, the Broker-Dealer has
a record
of such Order and the time when such Order was received or
generated. The
Auction Agent shall be entitled to rely conclusively (and shall have no
liability for relying) on such representation for any and all purposes
of the
Auction Procedures.
(g) If
after the Auction Agent announces the results of an Auction, a Broker-Dealer
becomes aware that an error was made by the Auction Agent, the Broker-Dealer
shall communicate such awareness to the Auction Agent prior to 5:00 p.m.,
New York City time on the Auction Date. If the Auction Agent
determines there has been such an error (as a result of either a communication
from a Broker-Dealer or its own discovery) prior to 3:00 p.m., New York
City time on the first day of the Auction Period with respect to which
such
Auction was conducted, the Auction Agent shall correct the error and notify
each
Broker-Dealer that submitted Bids or held a position in the Tortoise Notes
of
the series subject to such Auction of the corrected results.
(h) Nothing
contained herein shall preclude the Auction Agent from:
(i) advising
a Broker-Dealer prior to the Submission Deadline that it has not received
Sufficient Clearing Bids for Tortoise Notes of the series, provided, however,
that if the Auction Agent so advises any Broker-Dealer, it shall so advise
all
Broker-Dealers; or
(ii) verifying
the Orders of a Broker-Dealer prior to the Submission Deadline, provided,
however, that if the Auction Agent verifies the Orders of any Broker-Dealer,
it
shall verify the Orders of all Broker-Dealers requesting such
verification.
3. Treatment
of Orders by the Auction Agent. Anything herein to the contrary
notwithstanding:
(a) If
the Auction Agent receives an Order which does not conform to the requirements
of the Auction Procedures, the Auction Agent may contact the Broker-Dealer
submitting such Order until one hour after the Submission Deadline and
inform
such Broker-Dealer that it may resubmit such Order so that it conforms
to the
requirements of the Auction Procedures. Upon being so informed, such
Broker-Dealer may correct and resubmit to the Auction Agent any such Order
that,
solely as a result of a Clerical Error on the part of such Broker-Dealer,
did
not conform to the requirements of the Auction Procedures when previously
submitted to the Auction Agent. Any such resubmission by a
Broker-Dealer shall constitute a representation by such Broker-Dealer that
the
failure of such Order to have so conformed was solely as a result of a
Clerical
Error on the part of such Broker-Dealer. If the Auction Agent has not
received a corrected conforming Order within one hour and fifteen minutes
of the
Submission Deadline, the Auction Agent shall, if and to the extent applicable,
adjust or apply such Order, as the case may be, in conformity with the
provisions of subsections (b), (c) or (d) of this Section 3 and, if
the Auction Agent is unable to so adjust or apply such Order, the Auction
Agent
shall reject such Order.
(b) If
any rate specified in any Bid contains more than three figures to the right
of
the decimal point, the Auction Agent shall round the rate up to the next
highest
one thousandth of one percent (0.001%).
(c) If
one or more Orders covering in the aggregate more than the number of Units
of
Tortoise Notes of a particular series are submitted by a Broker-Dealer
to the
Auction Agent, such Orders shall be considered valid in the following order
of
priority:
(i) all
Hold Orders for Tortoise Notes of a series shall be considered Hold Orders,
but
only up to and including in the aggregate the number of Units of outstanding
Tortoise Notes of the series for which such Broker-Dealer is the Broker-Dealer
of record;
(ii) (A) any
Bid of a Broker-Dealer shall be considered valid as a Bid of an Existing
Holder
up to and including the excess of the number of Units of outstanding Tortoise
Notes of such series for which such Broker-Dealer is the Broker-Dealer
of record
over the number of Units of Tortoise Notes of such series subject to any
Hold
Orders referred to in clause (i) above;
(B) subject
to subclause (A), all Bids of a Broker-Dealer with the same rate shall be
aggregated and considered a single Bid of an Existing Holder up to and
including
the excess of the number of Units of Tortoise Notes of the series for which
such
Broker-Dealer is the Broker-Dealer of record over the number of Units of
Tortoise Notes of such series for which the Broker-Dealer is the Broker-Dealer
of record subject to any Hold Orders referred to in clause (i)
above;
(C) subject
to subclause (A), if more than one Bid with different rates is submitted by
a Broker-Dealer, such Bids shall be considered Bids of an Existing Holder
in the
ascending order of their respective rates up to the amount of excess of
the
number of Units of Tortoise Notes of the series for which such Broker-Dealer
is
the Broker-Dealer of record over the number of Units of Tortoise Notes
of such
Series for which such Broker-Dealer is the Broker-Dealer of record subject
to
any Hold Orders referred to in clause (i) above;
(D) the
number of Units, if any, of outstanding Tortoise Notes of the series subject
to
Bids not considered to be Bids for which such Broker-Dealer is the Broker-Dealer
of record under this clause (ii) shall be treated as the subject of a Bid
for Tortoise Notes of the series by a Potential Beneficial Owner;
and
(iii) all
Sell Orders shall be considered Sell Orders, but only up to and including
the
number of Units of Tortoise Notes of such series equal to the excess of
the
number of Units of Tortoise Notes of such series for which such Broker-Dealer
is
the Broker-Dealer of record over the sum of the number of Units of Tortoise
Notes of such series subject to Hold Orders referred to in clause (i) above
and the number of Units of Tortoise Notes of such series considered to
be
subject to Bids for which such Broker-Dealer is the Broker-Dealer of record
pursuant to clause (ii) above.
(d) If
an Order is for other than an integral number of Units, then the Auction
Agent
shall round the number down to the nearest number of whole Units, and the
Auction Agent shall conduct the Auction Procedures as if such Order had
been
submitted in such number of Units.
(e) If
the Auction Agent has been notified by the Trustee or the Company that
any
portion of an Order by a Broker-Dealer relates to a Tortoise Note of a
series
that has been called for redemption on or prior to the Interest Payment
Date
next succeeding such Auction, the Order shall be invalid with respect to
such
portion and the Auction Agent shall conduct the Auction Procedures as if
such
portion of such Order had not been submitted.
(f) No
Tortoise Note of a series which the Auction Agent has been notified by
the
Trustee or the Company has been called for redemption on or prior to the
Interest Payment Date next succeeding such Auction shall be included in
the
calculation of Available Tortoise Notes for such Auction.
(g) If
an Order or Orders covering all of the Tortoise Notes of a particular series
is
not submitted by a Broker-Dealer of record prior to the Submission Deadline,
the
Auction Agent shall deem a Hold Order to have been submitted on behalf
of such
Broker-Dealer covering the number of Units
of
Tortoise Notes for which such Broker-Dealer is the Broker-Dealer of record
and
not subject to Orders submitted to the Auction Agent; provided, however,
that if
there is a conversion from one Auction Period to a longer Auction Period
and
Orders have not been submitted by such Broker-Dealer prior to the Submission
Deadline covering the number of Units of Tortoise Notes of a particular
series
to be converted for which such Broker-Dealer is the Broker-Dealer of record,
the
Auction Agent shall deem a Sell Order to have been submitted on behalf
of such
Broker-Dealer covering the number of Units of Tortoise Notes to be converted
for
which such Broker-Dealer is the Broker-Dealer of record not subject to
Orders
submitted by such Broker-Dealer.
4. Determination
of Applicable Rate. (a) If requested by the Trustee or a
Broker-Dealer, not later than 10:30 a.m., New York City time (or such other
time as may be agreed to by the Auction Agent and all Broker-Dealers),
on each
Auction Date for each series of Tortoise Notes, the Auction Agent shall
advise
such Broker-Dealer (and thereafter confirm to the Trustee, if requested)
of the
All Hold Rate. Such advice, and confirmation, shall be made by
telephone or other electronic means acceptable to the Auction
Agent.
(b) Promptly
after the Submission Deadline for the Tortoise Notes of a series on each
Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed submitted
to it by the Broker-Dealers (each such Order as submitted or deemed submitted
by
a Broker-Dealer being hereinafter referred to as a “Submitted Hold Order,” a
“Submitted Bid” or a “Submitted Sell Order,” as the case may be, and
collectively as a “Submitted Order”) and shall determine (i) the Available
Tortoise Notes, (ii) whether there are Sufficient Clearing Bids, and
(iii) the Applicable Rate.
(c) In
the event the Auction Agent shall fail to calculate or, for any reason,
fails to
provide the Auction Rate on the Auction Date, for any Auction Period (i) if
the preceding Auction Period was a period of 35 days or less, (A) a new
Auction Period shall be established for the same length of time as the
preceding
Auction Period, if the failure to make such calculation was because there
was
not at the time a duly appointed and acting Auction Agent or Broker-Dealer,
and
the Applicable Rate for the new Auction Period shall be the percentage
of the
Index set forth in Section 4(f) below if the Index is ascertainable on such
date (by the Auction Agent, if there is at the time an Auction Agent, or
the
Trustee, if at the time there is no Auction Agent) or, (B) if the failure
to make such calculation was for any other reason or if the Index is not
ascertainable on such date, the prior Auction Period shall be extended
to the
seventh day following the day that would have been the last day of the
preceding
Auction Period (or if such seventh day is not followed by a Business Day
then to
the next succeeding day that is followed by a Business Day) and the Applicable
Rate for the period as so extended shall be the same as the Applicable
Rate for
the Auction Period prior to the extension, and (ii) if the preceding
Auction Period was a period of greater than 35 days, (A) a new Auction
Period shall be established for a period that ends on the seventh day following
the day that was the last day of the preceding Auction Period, (or if such
seventh day is not followed by a Business Day then to the next succeeding
day
which is followed by a Business Day) if the failure to make such calculation
was
because there was not at the time a duly appointed and acting Auction Agent
or
Broker-Dealer, and the Applicable Rate for the new Auction Period shall
be the
percentage of the Index set forth in Section 4(f) below if the Index is
ascertainable on such date (by the Auction Agent, if there is at the time
an
Auction Agent, or the Trustee, if at the time there is no Auction Agent)
or,
(B) if the failure to make such calculation was for any other reason or if
the Index is not ascertainable on such date, the prior Auction Period shall
be
extended to the seventh day following the day that would have been the
last day
of the preceding Auction Period (or if such seventh day is not followed
by a
Business Day then to the next succeeding day that is followed by a Business
Day)
and the Applicable Rate for the period as so extended shall be the same
as the
Applicable Rate for the Auction Period prior to the extension. In the
event a new Auction Period is established as set forth in clause (ii) (A)
above, an Auction shall be held on the last Business Day of the new Auction
Period to determine an Auction Rate for an Auction Period beginning on
the
Business Day immediately following the last day of
the
new
Auction Period and ending on the date on which the Auction Period otherwise
would have ended had there been no new Auction Period or Auction Periods
subsequent to the last Auction Period for which a Winning Bid Rate had
been
determined. In the event an Auction Period is extended as set forth
in clause (i) (B) or (ii) (B) above, an Auction shall be held on the last
Business Day of the Auction Period as so extended to determine an Auction
Rate
for an Auction Period beginning on the Business Day immediately following
the
last day of the extended Auction Period and ending on the date on which
the
Auction Period otherwise would have ended had there been no extension of
the
prior Auction Period.
Notwithstanding
the foregoing, neither new nor extended Auction Periods shall total more
than 35
days in the aggregate. If at the end of the 35 days the Auction Agent
fails to calculate or provide the Auction Rate, or there is not at the
time a
duly appointed and acting Auction Agent or Broker-Dealer, the Applicable
Rate
shall be the Maximum Rate.
(d) In
the event of a failed conversion from an Auction Period to any other period
or
in the event of a failure to change the length of the current Auction Period
due
to the lack of Sufficient Clearing Bids at the Auction on the Auction Date
for
the first new Auction Period, the Applicable Rate for the next Auction
Period
shall be the Maximum Rate and the Auction Period shall be a seven-day Auction
Period.
(e) If
the Tortoise Notes are no longer maintained in book-entry-only form by
the
Securities Depository, then the Auctions shall cease and the Applicable
Rate
shall be the Maximum Rate.
(f) The
percentage of the Index in Section 4(c) is 100%.
5. Allocation
of Tortoise Notes. (a) In the event of Sufficient Clearing
Bids for the Tortoise Notes of a series subject to the further provisions
of
paragraphs (c) and (d) of this Section 5. Submitted Orders
for Tortoise Notes of the series shall be accepted or rejected as follows
in the
following order of priority:
(i) the
Submitted Hold Order of each Existing Holder shall be accepted, thus requiring
each such Existing Holder to continue to hold the Tortoise Notes that are
the
subject of such Submitted Hold Order;
(ii) the
Submitted Sell Order of each Existing Holder shall be accepted and the
Submitted
Bids of each Existing Holder specifying any rate that is higher than the
Winning
Bid Rate shall be rejected, thus requiring each Existing Holder to sell
the
Tortoise Notes that are the subject of such Submitted Sell Order or Submitted
Bid;
(iii) the
Submitted Bid of each Existing Holder specifying any rate that is lower
than the
Winning Bid Rate shall be accepted, thus requiring each such Existing Holder
to
continue to hold the Tortoise Notes that are the subject of the Submitted
Bid;
(iv) the
Submitted Bid of each Potential Holder specifying any rate that is lower
than
the Winning Bid Rate for Tortoise Notes of the series shall be accepted,
thus
requiring each such Potential Holder to purchase the Tortoise Notes that
are the
subject of the Submitted Bid;
(v) the
Submitted Bid of each Existing Holder specifying a rate that is equal to
the
Winning Bid Rate shall be accepted, thus requiring each such Existing Holder
to
continue to hold the Tortoise Notes of the series that are the subject
of the
Submitted Bid, but only up to and including the number of Units of Tortoise
Notes of such series obtained by multiplying (A) the
aggregate number of Units of Tortoise Notes which are not the subject of
Submitted Hold
Orders
described in clause (i) of this paragraph (a) or of Submitted Bids
described in clauses (iii) and (iv) of this paragraph (a) by
(B) a fraction, the numerator of which shall be the number of Units of
Tortoise Notes held by such Existing Holder subject to such Submitted Bid
and
the denominator of which shall be the aggregate number of Units of Tortoise
Notes subject to such Submitted Bids made by all such Existing Holders
that
specified a rate equal to the Winning Bid Rate, and the remainder, if any,
of
such Submitted Bid shall be rejected, thus requiring each such Existing
Holder
to sell any excess amount of Tortoise Notes;
(vi) the
Submitted Bid of each Potential Holder specifying a rate that is equal
to the
Winning Bid Rate shall be accepted, thus requiring each such Potential
Holder to
purchase the Tortoise Notes of the series that are the subject of such
Submitted
Bid, but only in an amount equal to the number of Units of Tortoise Notes
of
such series obtained by multiplying (A) the aggregate number of Units of
Outstanding Tortoise Notes which are not the subject of Submitted Hold
Orders
described in clause (i) of this paragraph (a) or of Submitted Bids
described in clauses (iii), (iv) or (v) of this paragraph (a) by
(B) a fraction, the numerator of which shall be the number of Units of
Tortoise Notes subject to such Submitted Bid and the denominator of which
shall
be the sum of the aggregate number of Units of Tortoise Notes subject to
such
Submitted Bids made by all such Potential Holders that specified a rate
equal to
the Winning Bid Rate, and the remainder of such Submitted Bid shall be
rejected;
and
(vii) the
Submitted Bid of each Potential Holder specifying any rate that is higher
than
the Winning Bid Rate shall be rejected.
(b) In
the event there are not Sufficient Clearing Bids for the Tortoise Notes
of a
series, Submitted Orders for the Tortoise Notes of the series shall be
accepted
or rejected as follows in the following order of priority:
(i) the
Submitted Hold Order of each Existing Holder shall be accepted, thus requiring
each such Existing Holder to continue to hold the Tortoise Notes that are
the
subject of such Submitted Hold Order;
(ii) the
Submitted Bid of each Existing Holder specifying any rate that is not higher
than the Maximum Rate shall be accepted, thus requiring each such Existing
Holder to continue to hold the Tortoise Notes that are the subject of such
Submitted Bid;
(iii) the
Submitted Bids specifying any rate that is not higher than the Maximum
Rate for
the Tortoise Notes shall be accepted, thus requiring each such Potential
Holder
to purchase the Tortoise Notes that are the subject of such Submitted Bid;
and
(iv) the
Submitted Sell Orders of each Existing Holder shall be accepted as Submitted
Sell Orders and the Submitted Bids of each Existing Holder specifying any
rate
that is higher than the Maximum Rate shall be deemed to be and shall be
accepted
as Submitted Sell Orders, in both cases only up to and including the number
of
Units of Tortoise Notes of such series obtained by multiplying (A) the
number of Units of Tortoise Notes subject to Submitted Bids described in
clause (iii) of this paragraph (b) by (B) a fraction, the
numerator of which shall be the number of Units of Tortoise Notes held
by such
Existing Holder subject to such Submitted Sell Order or such Submitted
Bid
deemed to be a Submitted Sell Order and the denominator of which shall
be the
number of Units of Tortoise Notes subject to all such Submitted Sell Orders
and
such Submitted Bids deemed to be Submitted Sell Orders, and the remainder
of
each such Submitted Sell Order or Submitted Bid shall be deemed to be and
shall
be accepted as a Hold Order
and each such Existing Holder shall be required to continue to hold such
excess
amount of Tortoise Notes; and
(v) the
Submitted Bid of each Potential Holder specifying any rate that is higher
than
the Maximum Rate shall be rejected.
(c) If,
as a result of the undertakings described in Section 5(a) or (b) above,
any
Existing Holder or Potential Holder would be required to purchase or sell
an
aggregate principal amount of Tortoise Notes that is not an integral multiple
of
an Authorized Denomination on any Auction Date, the Auction Agent shall
by lot,
in such manner as it shall determine in its sole discretion, round up or
down
the principal amount of the Tortoise Notes to be purchased or sold by any
Existing Holder or Potential Holder on such Auction Date so that the aggregate
principal amount of the Tortoise Notes purchased or sold by each Existing
Holder
or Potential Holder on such Auction Date shall be an integral multiple
of such
Authorized Denomination, even if such allocation results in one or more
of such
Existing Holder or Potential Holder not purchasing or selling any Tortoise
Notes
on such Auction Date.
(d) If,
as a result of the undertakings described in Section 5(a) above, any Potential
Holder would be required to purchase less than an Authorized Denomination
in
principal amount of the Tortoise Notes on any Auction Date, the Auction
Agent
shall by lot, in such manner as it shall determine in its sole discretion,
allocate the Tortoise Notes for purchase among Potential Holders so that
the
principal amount of the Tortoise Notes purchased on such Auction Date by
any
Potential Holder shall be an integral multiple of such Authorized Denomination,
even if such allocation results in one or more of such Potential Holders
not
purchasing the Tortoise Notes on such Auction Date.
6. Notice
of Applicable Rate. (a) On each Auction Date, the Auction Agent
shall notify each Broker-Dealer that participated in the Auction held on
such
Auction Date by electronic means acceptable to the Auction Agent and the
applicable Broker-Dealer of the following, with respect to the Tortoise
Notes of
a series for which an Auction was held on such Auction Date:
(i) the
Applicable Rate determined on such Auction Date for the succeeding Auction
Period;
(ii) whether
Sufficient Clearing Bids existed for the determination of the Winning Bid
Rate;
(iii) if
such Broker-Dealer submitted a Bid or a Sell Order on behalf of an Existing
Holder, whether such Bid or Sell Order was accepted or rejected and the
number
of Units of Tortoise Notes of the series, if any, to be sold by such Existing
Holder;
(iv) if
such Broker-Dealer submitted a Bid on behalf of a Potential Holder, whether
such
Bid was accepted or rejected and the number of Units of Tortoise Notes
of the
series, if any, to be purchased by such Potential Holder;
(v) if
the aggregate number of Units of Tortoise Notes of a series to be sold
by all
Existing Holders on whose behalf such Broker-Dealer submitted Bids or Sell
Orders is different from the aggregate number of Units of Tortoise Notes
of such
series to be purchased by all Potential Holders on whose behalf such
Broker-Dealer submitted a Bid, the name or names of one or more Broker-Dealers
(and the Agent Member, if any, of each such other Broker-Dealer) and the
number
of Units of Tortoise Notes of such series to be (A) purchased from one or
more Existing Holders on whose behalf such other Broker-Dealers submitted
Bids
or Sell Orders or (B) sold to one or more Potential Holders on whose behalf
such Broker-Dealer submitted Bids;
(vi) the
amount of interest payable per Unit on each Interest Payment Date with
respect
to such Auction Period; and
(vii) the
immediately succeeding Auction Date.
(b) On
each Auction Date, with respect to each series of Tortoise Notes for which
an
Auction was held on such Auction Date, each Broker-Dealer that submitted
an
Order on behalf of any Existing Holder or Potential Holder
shall: (i) if requested by an Existing Holder or a Potential
Holder advise such Existing Holder or Potential Holder on whose behalf
such
Broker-Dealer submitted an Order as to (A) the Applicable Rate determined
on such Auction Date, (B) whether any Bid or Sell Order submitted on behalf
of each such Owner was accepted or rejected and (C) the immediately
succeeding Auction Date; (ii) instruct each Potential Holder on whose
behalf such Broker-Dealer submitted a Bid that was accepted, in whole or
in
part, to instruct such Potential Holder’s Agent Member to pay to such
Broker-Dealer (or its Agent Member) through the Securities Depository the
amount
necessary to purchase the number of Units of Tortoise Notes of such series
to be
purchased pursuant to such Bid against receipt of such Tortoise Notes;
and
(iii) instruct each Existing Holder on whose behalf such Broker-Dealer
submitted a Sell Order that was accepted or a Bid that was rejected in
whole or
in part, to instruct such Existing Holder’s Agent Member to deliver to such
Broker-Dealer (or its Agent Member) through the Securities Depository the
number
of Units of Tortoise Notes of the series to be sold pursuant to such Bid
or Sell
Order against payment therefor.
(c) The
Auction Agent shall give notice of the Auction Rate to the Company and
the
Trustee by mutually acceptable electronic means and the Trustee shall promptly
give notice of such Auction Rate to the Securities Depository.
7. Miscellaneous
Provisions Regarding Auctions. (a) In this
Appendix A-I, each reference to the purchase, sale or holding of Tortoise
Notes shall refer to beneficial interests in Tortoise Notes, unless the
context
clearly requires otherwise.
(b) During
an auction Rate Period with respect to each series of Tortoise Notes, the
provisions of the Indenture and the definitions contained therein and described
in this Appendix A-I, including without limitation the definitions of All
Hold Rate, Interest Payment Date, Maximum Rate, and Applicable Rate, may
be
amended pursuant to the Indenture by obtaining the consent of the majority
of
the owners of the affected Outstanding Tortoise Notes of a series bearing
interest at the Applicable Rate as follows. If on the first Auction
Date occurring at least 20 days after the date on which the Trustee mailed
notice of such proposed amendment to the registered owners of the affected
Outstanding Tortoise Notes of the series, (i) the Applicable Rate which is
determined on such date is the Winning Bid Rate or the All Hold Rate and
(ii) there is delivered to the Company and the Trustee an opinion of
counsel to the effect that such amendment shall not adversely affect the
validity of the Tortoise Notes of the series, the proposed amendment shall
be
deemed to have been consented to by the owners of all affected Outstanding
Tortoise Notes of the series bearing interest at the Applicable
Rate.
(c) If
the Securities Depository notifies the Company that it is unwilling or
unable to
continue as registered owner of the Tortoise Notes of a series or if at
any time
the Securities Depository shall no longer be registered or in good standing
under the Securities Exchange Act of 1934, as amended, or other applicable
statute or regulation and a successor to the Securities Depository is not
appointed by the Company within 90 days after the Company receives notice
or
becomes aware of such condition, as the case may be, the Auctions shall
cease
and the Company shall execute and the Trustee shall authenticate and deliver
certificates representing the Tortoise Notes of the series. Such
Tortoise Notes shall be registered in such names and Authorized Denominations
as
the Securities Depository, pursuant to instructions from the Agent Members
or
otherwise, shall instruct the Company and the Trustee.
(d) During
an Auction Period, so long as the ownership of the Tortoise Notes of a
series is
maintained in book-entry form by the Securities Depository, an Existing
Holder
or a Beneficial Owner may sell, transfer or otherwise dispose of a Tortoise
Note
only pursuant to a Bid or Sell Order in
accordance
with the Auction Procedures or to or through a Broker-Dealer, provided
that
(i) in the case of all transfers other than pursuant to Auctions such
Existing Holder or its Broker-Dealer or its Agent Member advises the Auction
Agent of such transfer and (ii) a sale, transfer or other disposition of
Tortoise Notes of the series from a customer of a Broker-Dealer who is
listed on
the records of that Broker-Dealer as the holder of such Tortoise Notes
to that
Broker-Dealer or another customer of that Broker-Dealer shall not be deemed
to
be a sale, transfer or other disposition for purposes of this paragraph
if such
Broker-Dealer remains the Existing Holder of the Tortoise Notes so sold,
transferred or disposed or immediately after such sale, transfer or
disposition.
8. Changes
in Auction Period or Auction Date.
(a) Changes
in Auction Period.
(i) During
any Auction Period, the Issuer, may, from time to time on the Interest
Payment
Date immediately following the end of any Auction Period, change the length
of
the Auction Period with respect to all of the Tortoise Notes of a series
in
order to accommodate economic and financial factors that may affect or
be
relevant to the length of the Auction Period and the rate of Tortoise Notes
of
such series. The Company shall initiate the change in the length of
the Auction Period by giving written notice to the Trustee, Auction Agent,
the
Broker-Dealers and the Securities Depository that the Auction Period shall
change if the conditions described herein are satisfied and the proposed
effective date of the change, at least 10 Business Days prior to the Auction
Date for such Auction Period.
(ii) Any
such changed Auction Period shall be for a period of one day, seven-days,
28-days, 35-days, three months, six months and shall be for all of the
Tortoise
Notes of such series.
(iii) The
change in length of the Auction Period shall take effect only if Sufficient
Clearing Bids exist at the Auction on the Auction Date for such new Auction
Period. For purposes of the Auction for such new Auction Period only,
except to the extent any Existing Holder submits an Order with respect
to such
Tortoise Notes of any series each Existing Holder shall be deemed to have
submitted Sell Orders with respect to all of its Tortoise Notes of such
series
if the change is to a longer Auction Period and a Hold Order if the change
is to
a shorter Auction Period. If there are not Sufficient Clearing Bids
for the first Auction Period, the Auction Rate for the new Auction Period
shall
be the Maximum Rate, and the Auction Period shall be a seven-day Auction
Period.
(b) Changes
in Auction Date. During any Auction Period, the Auction Agent,
at the direction of the Company, may specify an earlier or later Auction
Date
(but in no event more than five Business Days earlier or later) than the
Auction
Date that would otherwise be determined in accordance with the definition
of
“Auction Date” in order to conform with then current market practice with
respect to similar securities or to accommodate economic and financial
factors
that may affect or be relevant to the day of the week constituting an Auction
Date and the rate of the Tortoise Notes of the series. The Auction
Agent shall provide notice of the Company’s direction to specify an earlier
Auction Date for an Auction Period by means of a written notice delivered
at
least 45 days prior to the proposed changed Auction Date to the Company
and the
Broker-Dealers with a copy to the Securities Depository. In the event
the Auction Agent is instructed to specify an earlier or later Auction
Date, the
days of the week on which an Auction Period begins and ends and the Interest
Payment Dates shall be adjusted accordingly.
(c) Changes
Resulting from Unscheduled Holidays. If, in the opinion of the
Auction Agent and the Broker-Dealers, there is insufficient notice of an
unscheduled holiday to allow the efficient implementation of the Auction
Procedures set forth herein, the Auction Agent and the
Broker-Dealers
may,
as
they deem appropriate, and after providing notice to the Company, set a
different Auction Date and adjust any Interest Payment Dates and Auction
Periods
affected by such unscheduled holiday. In the event there is not
agreement among the Broker-Dealers, the Auction Agent shall set the different
Auction Date and make such adjustments as directed by a majority of the
Broker-Dealers (based on the number of Units for which a Broker-Dealer
is listed
as the Broker-Dealer in the Existing Holder registry maintained by the
Auction
Agent pursuant to Section 2.2 of the Auction Agreement), and, if there
is not a
majority so directing, the Auction Date shall be moved to the next succeeding
Business Day following the scheduled Auction Date, and the Interest Payment
Date
and the Auction Period shall be adjusted accordingly.
9. Index.
(a) If
for any reason on any Auction Date the Index shall not be determined as
provided
in Appendix A-I Tortoise Notes Auction Procedures, the Index shall be the
Index
for the prior Business Day.
(b) The
determination of the Index as provided in the Indenture and Appendix A-I
Tortoise Notes Auction Procedures shall be conclusive and binding upon
the
Company, the Trustee, the Broker-Dealers, the Auction Agent and the holders
of
the Tortoise Notes.
APPENDIX
B – FORM OF ARTICLES SUPPLEMENTARY
SERIES __
MONEY MARKET CUMULATIVE PREFERRED SHARES
Tortoise
Energy Infrastructure Corporation (the “Company”), a Maryland corporation,
certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Under
a power contained in Article V, of the charter of the Company (the
“Charter”), the Board of Directors by duly adopted resolutions classified and
designated _____ shares of authorized but unissued Preferred Stock (as
defined
in the Charter) as shares of Series __ Money Market Cumulative Preferred
Shares, liquidation preference $______ per share, with the following
preferences, rights, voting powers, restrictions, limitations as to dividends
and other distributions, qualifications and terms and conditions of redemption,
which, upon any restatement of the Charter, shall become part of Article V
of the Charter, with any necessary or appropriate renumbering or relettering
of
the sections or subsections hereof.
MONEY
MARKET CUMULATIVE PREFERRED SHARES
DESIGNATION
MMP
Shares: _____ shares of Preferred Stock are classified and designated
as Series __ Money Market Cumulative Preferred Shares, liquidation
preference $______ per share (“Series __ MMP Shares”). The
initial Dividend Period for the MMP Shares shall be the period from and
including the Original Issue Date thereof to but excluding _________,
200_. Each MMP Share shall have an Applicable Rate for its initial
Dividend Period equal to ____% per annum and an initial Dividend Payment
Date of
___________, 200_. Each MMP Share shall have such other preferences,
rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption, in
addition to those required by applicable law or set forth in the Charter
applicable to shares of Preferred Stock (“Preferred Shares”), as are set forth
in Part I and Part II of these terms of the MMP Shares. The
MMP Shares shall constitute a separate series of Preferred Shares.
Subject
to the provisions of Section 11 of Part I hereof, the Board of
Directors of the Company may, in the future, authorize the issuance of
additional MMP Shares with the same preferences, rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption and other terms herein
described, except that the initial Dividend Period, the Applicable Rate
for the
initial Dividend Period and the initial Dividend Payment Date shall be
as set
forth in the Articles Supplementary relating to such additional MMP
Shares.
As
used
in Part I and Part II of these terms of the MMP Shares, capitalized
terms shall have the meanings provided in Section 17 of
Part I.
PART
I. MMP SHARES TERMS
1. Number
of Shares; Ranking. (a) The initial number of authorized MMP
Shares is _____ shares. No fractional MMP Shares shall be
issued.
(b) Any
MMP Shares which at any time have been redeemed or purchased by the Company
shall, after redemption or purchase, be returned to the status of authorized
but
unissued Preferred Shares, without further designation as to
series.
(c) The
MMP Shares shall rank on a parity with shares of any other series of Preferred
Shares (including any other MMP Shares) as to the payment of dividends
to which
the shares
are
entitled and the distribution of assets upon dissolution, liquidation or
winding
up of the affairs of the Company.
(d) No
Holder of MMP Shares shall have, solely by reason of being a Holder, any
preemptive right, or, unless otherwise determined by the Board of Directors,
other right to acquire, purchase or subscribe for any MMP Shares, shares
of
common stock of the Company (“Common Shares”) or other securities of the Company
which it may hereafter issue or sell.
(e) No
Holder of MMP Shares shall be entitled to exercise the rights of an objecting
stockholder under Title 3, Subtitle 2 of the Maryland General Corporation
Law
(the “MGCL”) or any successor provision.
2. Dividends. (a)
The Holders of MMP Shares shall be entitled to receive cash dividends,
when, as
and if authorized by the Board of Directors and declared by the Company,
out of
funds legally available therefor, at the rate per annum equal to the Applicable
Rate, determined as set forth in paragraph (c) of this Section 2, and
no more, payable on the respective dates determined as set forth in
paragraph (b) of this Section 2. Dividends on Outstanding
MMP Shares issued on the Original Issue Date shall accumulate from the
Original
Issue Date.
(b) (i) Dividends
shall be payable when, as and if authorized by the Board of Directors and
declared by the Company following the initial Dividend Payment Date, subject
to
subparagraph (b)(ii) of this Section 2, on MMP Shares, with respect to
any Dividend Period on the first Business Day following the last day of
the
Dividend Period; provided, however, if the Dividend Period is greater than
30 days, then on a monthly basis on the first Business Day of each month
within the Dividend Period and on the Business Day following the last day
of the
Dividend Period.
(ii) If
a day for payment of dividends resulting from the application of
subparagraph (b)(i) above is not a Business Day, then the Dividend Payment
Date shall be the first Business Day that falls after such day for payment
of
dividends.
(iii) The
Company shall pay to the Paying Agent not later than 3:00 p.m., New York
City time, on the Business Day next preceding each Dividend Payment Date
for the
MMP Shares, an aggregate amount of federal funds or similar same-day funds,
equal to the dividends to be paid to all Holders of such shares on such
Dividend
Payment Date. The Company shall not be required to establish any
reserves for the payment of dividends.
(iv) All
moneys paid to the Paying Agent for the payment of dividends shall be held
in
trust for the payment of such dividends by the Paying Agent for the benefit
of
the Holders specified in subparagraph (b)(v) of this
Section 2. Any moneys paid to the Paying Agent in accordance
with the foregoing but not applied by the Paying Agent to the payment of
dividends, will, to the extent permitted by law, be repaid to the Company
at the
end of 90 days from the date on which such moneys were to have been so
applied.
(v) Each
dividend on MMP Shares shall be paid on the Dividend Payment Date therefor
to
the Holders as their names appear on the share ledger or share records
of the
Company on the Business Day next preceding such Dividend Payment
Date. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend
Payment
Date, to the Holders as their names appear on the share ledger or share
records
of the Company on such date, not exceeding 15 days preceding the payment
date
thereof, as may be fixed by the Board of Directors. No
interest will be payable in respect of any dividend payment or payments
which
may be in arrears.
(c) (i) The
dividend rate on Outstanding MMP Shares during the period from and after
the
Original Issue Date to and including the last day of the initial Dividend
Period
therefor shall be equal to the rate per annum set forth under “Designation”
above. For each subsequent Dividend Period with respect to the MMP
Shares Outstanding thereafter, the dividend rate shall be equal to the
rate per
annum that results from an Auction; provided, however, that if Sufficient
Clearing Bids have not been made in an Auction (other than as a result
of all
MMP Shares being the subject of Submitted Hold Orders), then the dividend
rate
on the MMP Shares for any such Dividend Period shall be the Maximum Rate
(except
during a Default Period when the dividend rate shall be the Default
Rate). If an Auction for any subsequent Dividend Period is not held
for any reason, including because there is no Auction Agent or Broker-Dealer,
then the dividend rate on the MMP Shares for such Dividend Period shall
be the
Maximum Rate (except during a Default Period when the dividend rate shall
be the
Default Rate).
The
All
Hold Rate will apply automatically following an Auction in which all of
the
Outstanding MMP Shares are subject (or are deemed to be subject) to Hold
Orders. The rate per annum at which dividends are payable on MMP
Shares as determined pursuant to this Section 2(c)(i) shall be the
“Applicable Rate.”
(ii) Subject
to the cure provisions below, a “Default Period” will commence on any Dividend
Payment Date or any date fixed for redemption, as applicable, if the Company
fails to deposit irrevocably in trust in federal funds or similar same-day
funds, with the Paying Agent by 12:00 noon, New York City time, (A) the
full amount of any declared dividend payable on the Dividend Payment Date
(a
“Dividend Default”) or (B) the full amount of any Redemption Price payable
on the date fixed for redemption (the “Redemption Date”) (a “Redemption
Default”, and together with a Dividend Default, hereinafter referred to as
“Default”). Subject to the cure provisions of Section 2(c)(iii)
below, a Default Period with respect to a Dividend Default or a Redemption
Default shall end on the Business Day on which, by 12:00 noon, New York
City
time, all unpaid dividends and any unpaid Redemption Price shall have been
deposited irrevocably in trust in same-day funds with the Paying
Agent. In the case of a Dividend Default, the Applicable Rate for
each Dividend Period commencing during a Default Period will be equal to
the
Default Rate, and each subsequent Dividend Period commencing after the
beginning
of a Default Period shall be a Standard Dividend Period; provided, however,
that
the commencement of a Default Period will not by itself cause the commencement
of a new Dividend Period. No Auction shall be held during a Default
Period.
(iii) No
Default Period with respect to a Dividend Default or Redemption Default
shall be
deemed to commence if the amount of any dividend or any Redemption Price
due (if
such default is not solely due to the willful failure of the Company) is
deposited irrevocably in trust, in same-day funds with the Paying Agent
by 12:00
noon, New York City time within three Business Days after the applicable
Dividend Payment Date or Redemption Date, together with an amount equal
to the
Default Rate applied to the amount of such non-payment based on the actual
number of days comprising such period divided by 360.
(iv) The
amount of dividends per share payable (if declared) on each Dividend Payment
Date of each Dividend Period (or in respect of dividends on another date
in
connection with a redemption during such Dividend Period) shall be computed
by
multiplying the Applicable Rate (or the Default Rate) for such Dividend
Period
(or a portion thereof) by a fraction, the numerator of which will be the
number
of days in such Dividend Period (or portion thereof) that such share was
Outstanding and for which the Applicable Rate or the Default Rate was applicable
and the denominator of which will be 360, multiplying the amount so obtained
by
the liquidation preference per share, and rounding the amount so obtained
to the
nearest cent.
(d) Any
dividend payment made on MMP Shares shall first be credited against the
earliest
accumulated but unpaid dividends due with respect to such MMP
Shares.
(e) For so long
as the MMP Shares are Outstanding, except as contemplated by Part I of
these terms of the MMP Shares, the Company will not declare, pay or set
apart
for payment any dividend or other distribution (other than a dividend or
distribution paid in shares of, or options, warrants or rights to subscribe
for
or purchase, Common Shares or other shares of capital stock, if any, ranking
junior to the MMP Shares as to dividends or upon liquidation) with respect
to
Common Shares or any other shares of the Company ranking junior to or on
a
parity with the MMP Shares as to dividends or upon liquidation, or call
for
redemption, redeem, purchase or otherwise acquire for consideration any
Common
Shares or any other such junior shares (except by conversion into or exchange
for shares of the Company ranking junior to the MMP Shares as to dividends
and
upon liquidation) or any such parity shares (except by conversion into
or
exchange for shares of the Company ranking junior to or on a parity with
the MMP
Shares as to dividends and upon liquidation), unless (1) there is no event
of default under any borrowings (including the Tortoise Notes) that is
continuing; (2) immediately after such transaction, the Company would have
Eligible Assets with an aggregate Discounted Value at least equal to the
MMP
Shares Basic Maintenance Amount and the 1940 Act MMP Shares Asset Coverage
would
be achieved, (3) immediately after the transaction, the Company would have
eligible portfolio holdings with an aggregated discounted value at least
equal
to the asset coverage requirements, if any, under any Borrowings, (4) full
cumulative dividends on the MMP Shares due on or prior to the date of the
transaction have been declared and paid and (5) the Company has redeemed
the full number of MMP Shares required to be redeemed by any provision
for
mandatory redemption contained in Section 3(a)(ii).
3. Redemption. (a)
(i) After the initial Dividend Period, subject to the provisions of this
Section 3 and to the extent permitted under the 1940 Act and Maryland law,
the Company may, at its option, redeem in whole or in part out of funds
legally
available therefor MMP Shares herein designated as (A) having a Dividend
Period of one year or less, on the Business Day after the last day of such
Dividend Period by delivering a notice of redemption to the Auction Agent
not
less than 15 calendar days and not more than 40 calendar days prior to
the date
fixed for such redemption, at a redemption price per share equal to $______,
plus an amount equal to accumulated but unpaid dividends thereon (whether
or not
earned or declared) to the date fixed for redemption (“Redemption Price”), or
(B) having a Dividend Period of more than one year, on any Business Day
prior to the end of the relevant Dividend Period by delivering a notice
of
redemption to the Auction Agent not less than 15 calendar days and not
more than
40 calendar days prior to the date fixed for such redemption, at the Redemption
Price, plus a redemption premium, if any, determined solely by the Board
of
Directors and set forth in any applicable Specific Redemption Provisions
at the
time of the designation of such Dividend Period as set forth in Section 4
of these terms of the MMP Shares; provided, however, that during a Dividend
Period of more than one year no MMP Shares will be subject to optional
redemption except in accordance with any Specific Redemption Provisions
approved
by the Board of Directors after consultation with the Broker-Dealers at
the time
of the designation of such Dividend Period. Notwithstanding the
foregoing, the Company shall not give a notice of or effect any redemption
pursuant to this Section 3(a)(i) unless, on the date on which the Company
intends to give such notice and on the date of redemption (1) the Company
has available certain Deposit Securities with maturity or tender dates
not later
than the day preceding the applicable redemption date and having a value
not
less than the amount (including any applicable premium) due to Holders
of MMP
Shares by reason of the redemption of such MMP Shares on such date fixed
for the
redemption and (2) the Company would have Eligible Assets with an aggregate
Discounted Value at least equal to the MMP Shares Basic Maintenance Amount
immediately subsequent to such redemption, if such redemption were to occur
on
such date.
(ii) If
the Company fails to maintain, as of any Valuation Date, Eligible Assets
with an
aggregate Discounted Value at least equal to the MMP Shares Basic
Maintenance
Amount
or, as of the last Business Day of any month, the 1940 Act MMP Shares Asset
Coverage, and such failure is not cured within ten Business Days following
such
Valuation Date in the case of a failure to maintain the MMP Shares Basic
Maintenance Amount or on the last Business Day of the following month in
the
case of a failure to maintain the 1940 Act MMP Shares Asset Coverage (each
an
“Asset Coverage Cure Date”), the MMP Shares will be subject to mandatory
redemption out of funds legally available therefor. The number of MMP
Shares to be redeemed in such circumstances will be equal to the lesser
of
(1) the minimum number of MMP Shares the redemption of which, if deemed to
have occurred immediately prior to the opening of business on the relevant
Asset
Coverage Cure Date, would result in the Company having Eligible Assets
with an
aggregate Discounted Value at least equal to the MMP Shares Basic Maintenance
Amount, or sufficient to satisfy the 1940 Act MMP Shares Asset Coverage,
as the
case may be, in either case as of the relevant Asset Coverage Cure Date
(provided that, if there is no such minimum number of MMP Shares the redemption
of which would have such result, all MMP Shares then Outstanding will be
redeemed), and (2) the maximum number of MMP Shares that can be redeemed
out of funds expected to be available therefor on the Mandatory Redemption
Date
at the Mandatory Redemption Price set forth in subparagraph (a)(iii) of
this Section 3.
(iii) In
determining the MMP Shares required to be redeemed in accordance with the
foregoing Section 3(a)(ii), the Company shall allocate the number of shares
required to be redeemed to satisfy the MMP Shares Basic Maintenance Amount
or
the 1940 Act MMP Shares Asset Coverage, as the case may be, pro rata among
the
Holders of MMP Shares in proportion to the number of shares they hold by
lot or
by such other method as the Company shall deem fair and equitable, subject
to
any mandatory redemption provisions, subject to the further provisions
of this
subparagraph (iii). The Company shall effect any required
mandatory redemption pursuant to subparagraph (a)(ii) of this
Section 3 no later than 40 calendar days after the Asset Coverage Cure
Date (the “Mandatory Redemption Date”), except that if the Company does not have
funds legally available for the redemption of, or is not otherwise legally
permitted to redeem, the number of MMP Shares which would be required to
be
redeemed by the Company under subparagraph (a)(ii) of this Section 3
if sufficient funds were available, together with shares of other Preferred
Shares which are subject to mandatory redemption under provisions similar
to
those contained in this Section 3, or the Company otherwise is unable to
effect such redemption on or prior to such Mandatory Redemption Date, the
Company shall redeem those MMP Shares, and shares of other Preferred Shares
which it was unable to redeem, on the earliest practicable date on which
the
Company will have such funds available, upon notice pursuant to
Section 3(b) to record owners of the MMP Shares to be redeemed and the
Paying Agent. The Company will deposit with the Paying Agent funds
sufficient to redeem the specified number of MMP Shares with respect to
a
redemption required under subparagraph (a)(ii) of this Section 3, by
12:00 p.m., New York City time, on the Mandatory Redemption
Date. If fewer than all of the Outstanding MMP Shares are to be
redeemed pursuant to this Section 3(a)(iii), the number of shares to be
redeemed shall be redeemed pro rata from the Holders of such shares in
proportion to the number of such shares held by such Holders, by lot or
by such
other method as the Company shall deem fair and equitable, subject, however,
to
the terms of any applicable Specific Redemption
Provisions. “Mandatory Redemption Price” means the Redemption Price
plus (in the case of a Dividend Period of one year or more only) a redemption
premium, if any, determined by the Board of Directors after consultation
with
the Broker-Dealers and set forth in any applicable Specific Redemption
Provisions.
(b) In
the event of a redemption pursuant to Section 3(a), the Company will file a
notice of its intention to redeem with the Commission so as to provide
at least
the minimum notice required under Rule 23c-2 under the 1940 Act or any
successor provision. In addition, the Company shall deliver
a notice of redemption to the Auction Agent (the “Notice of Redemption”)
containing the
information
set forth below (1) in the case of an optional redemption pursuant to
subparagraph (a)(i) above, one Business Day prior to the giving of notice
to the Holders, and (2) in the case of a mandatory redemption pursuant to
subparagraph (a)(ii) above, on or prior to the 30th day preceding the
Mandatory Redemption Date. The Auction Agent will use its reasonable
efforts to provide notice to each Holder of MMP Shares called for redemption
by
electronic or other reasonable means not later than the close of business
on the
Business Day immediately following the day on which the Auction Agent determines
the shares to be redeemed (or, during a Default Period with respect to
such
shares, not later than the close of business on the Business Day immediately
following the day on which the Auction Agent receives Notice of Redemption
from
the Company). The Auction Agent shall confirm such notice in writing
not later than the close of business on the third Business Day preceding
the
date fixed for redemption by providing the Notice of Redemption to each
Holder
of shares called for redemption, the Paying Agent (if different from the
Auction
Agent) and the Securities Depository. Notice of Redemption will be
addressed to the registered owners of MMP Shares at their addresses appearing
on
the share records of the Company. Such Notice of Redemption will set
forth (1) the date fixed for redemption, (2) the number and identity
of MMP Shares to be redeemed, (3) the redemption price (specifying the
amount of accumulated dividends to be included therein and the amount of
the
redemption premium, if any), (4) that dividends on the shares to be
redeemed will cease to accumulate on such date fixed for redemption, and
(5) the provision under which redemption shall be made. No
defect in the Notice of Redemption or in the transmittal or mailing thereof
will
affect the validity of the redemption proceedings, except as required by
applicable law. If fewer than all shares held by any Holder are to be
redeemed, the Notice of Redemption mailed to such Holder shall also specify
the
number of shares to be redeemed from such Holder.
(c) Notwithstanding
the provisions of paragraph (a) of this Section 3, but subject to
Section 7(f), no MMP Shares may be redeemed unless all dividends in arrears
on the Outstanding MMP Shares and all shares of capital stock of the Company
ranking on a parity with the MMP Shares with respect to payment of dividends
or
upon liquidation, have been or are being contemporaneously paid or set
aside for
payment; provided, however, that the foregoing shall not prevent the purchase
or
acquisition of all Outstanding MMP Shares pursuant to the successful completion
of an otherwise lawful purchase or exchange offer made on the same terms
to, and
accepted by, Holders of all Outstanding MMP Shares.
(d) Upon
the deposit of funds sufficient to redeem MMP Shares with the Paying Agent
on
the date fixed for redemption and the giving of the Notice of Redemption
to the
Auction Agent under paragraph (b) of this Section 3, dividends on such
shares shall cease to accumulate and such shares shall no longer be deemed
to be
Outstanding for any purpose (including, without limitation, for purposes
of
calculating whether the Company has maintained the requisite MMP Shares
Basic
Maintenance Amount or the 1940 Act MMP Shares Asset Coverage), and all
rights of
the Holder of the shares so called for redemption shall cease and terminate,
except the right of such Holder to receive the redemption price specified
herein, but without any interest or other additional amount. Such
redemption price shall be paid by the Paying Agent to the nominee of the
Securities Depository. Upon written request, the Company shall be
entitled to receive from the Paying Agent, promptly after the date fixed
for
redemption, any cash deposited with the Paying Agent in excess of (1) the
aggregate redemption price of the MMP Shares called for redemption on such
date
and (2) such other amounts, if any, to which Holders of MMP Shares called
for redemption may be entitled. Any funds so deposited that are
unclaimed at the end of two years from such redemption date shall, to the
extent
permitted by law, be paid to the Company upon its written request, after
which
time the Holders of MMP Shares so called for redemption may look only to
the
Company for payment of the redemption price and all other amounts, if any,
to
which they may be entitled.
(e) To
the extent that any redemption for which a Notice of Redemption has been
given
is not made by reason of the absence of legally available funds therefor,
or is
otherwise prohibited, such redemption shall be made as soon as practicable
to
the extent such funds become legally available or
such
redemption is no longer otherwise prohibited. Failure to redeem MMP
Shares shall be deemed to exist when the Company shall have failed, for
any
reason whatsoever, to deposit in trust with the Paying Agent the redemption
price with respect to any shares for which such Notice of Redemption has
been
given in accordance with Section 2(c)(ii)
hereof. Notwithstanding the fact that the Company may not have
redeemed MMP Shares for which a Notice of Redemption has been given, dividends
may be declared and paid on MMP Shares and shall include those MMP Shares
for
which Notice of Redemption has been given but for which deposit of funds
has not
been made.
(f) All
moneys paid to the Paying Agent for payment of the redemption price of
MMP
Shares called for redemption shall be held in trust by the Paying Agent
for the
benefit of Holders of shares so to be redeemed.
(g) So
long as any MMP Shares are held of record by the nominee of the Securities
Depository, the redemption price for such shares will be paid on the date
fixed
for redemption to the nominee of the Securities Depository for distribution
to
Agent Members for distribution to the persons for whom they are acting
as
agent.
(h) Except
for the provisions described above, nothing contained in these terms of
the MMP
Shares limits any right of the Company to purchase or otherwise acquire
any MMP
Shares outside of an Auction at any price, whether higher or lower than
the
price that would be paid in connection with an optional or mandatory redemption,
so long as, at the time of any such purchase, there is no arrearage in
the
payment of dividends on, or the mandatory or optional redemption price
with
respect to, any MMP Shares for which Notice of Redemption has been given
and the
Company is in compliance with the 1940 Act MMP Shares Asset Coverage and
has
Eligible Assets with an aggregate Discounted Value at least equal to the
MMP
Shares Basic Maintenance Amount after giving effect to such purchase or
acquisition on the date thereof. If fewer than all the Outstanding
MMP Shares are redeemed or otherwise acquired by the Company, the Company
shall
give notice of such transaction to the Auction Agent, in accordance with
the
procedures agreed upon by the Board of Directors.
(i) In
the case of any redemption pursuant to this Section 3, only whole MMP
Shares shall be redeemed, and in the event that any provision of the Charter
would require redemption of a fractional share, the Auction Agent shall
be
authorized to round up so that only whole shares are redeemed.
(j) Notwithstanding
anything herein to the contrary, including, without limitation,
Sections 2(e) and 6(f) hereof, the Board of Directors may authorize, create
or issue any class or series of shares of capital stock, including other
series
of MMP Shares, ranking prior to or on a parity with the MMP Shares with
respect
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Company, to the extent
permitted
by the 1940 Act, as amended, if, upon issuance, the Company would meet
the 1940
Act MMP Shares Asset Coverage, the MMP Shares Basic Maintenance Amount
and the
requirements of Section 11 of Part I hereof.
4. Designation
of Dividend Period. (a) The initial Dividend Period for the MMP
Shares is as set forth under “Designation” above. The Company will
designate the duration of subsequent Dividend Periods of MMP Shares; provided,
however, that no such designation is necessary for a Standard Dividend
Period
and, provided further, that any designation of a Special Dividend Period
shall
be effective only if (1) notice thereof shall have been given as provided
herein, (2) any failure to pay in a timely manner to the Auction Agent the
full amount of any dividend on, or the redemption price of, MMP Shares
shall
have been cured as provided above, (3) Sufficient Clearing Bids shall have
existed in an Auction
held on the Auction Date immediately preceding the first day of such proposed
Special Dividend Period, (4) if the Company shall have mailed a Notice of
Redemption with respect to any shares, the redemption price with respect
to such
shares shall have been deposited with the Paying Agent, and
(5) in
the
case
of the designation of a Special Dividend Period, the Company has confirmed
that
as of the Auction Date next preceding the first day of such Special Dividend
Period, it has Eligible Assets with an aggregate Discounted Value at least
equal
to the MMP Shares Basic Maintenance Amount, and the Company has consulted
with
the Broker-Dealers and has provided notice of such designation and a MMP
Shares
Basic Maintenance Report to Moody’s (if Moody’s is then rating the MMP Shares),
Fitch (if Fitch is then rating the MMP Shares) and any Other Rating Agency
which
is then rating the MMP Shares and so requires.
(b) If
the Company proposes to designate any Special Dividend Period, not fewer
than
seven (or two Business Days in the event the duration of the Dividend Period
prior to such Special Dividend Period is fewer than eight days) nor more
than 30
Business Days prior to the first day of such Special Dividend Period, notice
shall be (1) made by press release and (2) communicated by the Company
by telephonic or other means to the Auction Agent and confirmed in writing
promptly thereafter. Each such notice shall state (A) that the
Company proposes to exercise its option to designate a succeeding Special
Dividend Period, specifying the first and last days thereof and (B) that
the Company will by 3:00 p.m., New York City time, on the second Business
Day next preceding the first day of such Special Dividend Period, notify
the
Auction Agent, who will promptly notify the Broker-Dealers and the Existing
Holders, of either (x) its determination, subject to certain conditions, to
proceed with such Special Dividend Period, subject to the terms of any
Specific
Redemption Provisions, or (y) its determination not to proceed with such
Special Dividend Period, in which latter event the succeeding Dividend
Period
shall be a Standard Dividend Period.
No
later
than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Dividend Period, the Company
shall deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(i) a
notice stating (A) that the Company has determined to designate the next
succeeding Dividend Period as a Special Dividend Period, specifying the
first
and last days thereof and (B) the terms of any Specific Redemption
Provisions; or
(ii) a
notice stating that the Company has determined not to exercise its option
to
designate a Special Dividend Period.
If
the
Company fails to deliver either such notice with respect to any designation
of
any proposed Special Dividend Period to the Auction Agent or is unable
to make
the confirmation provided in clause (v) of paragraph (a) of this
Section 4 by 3:00 p.m., New York City time, on the second Business Day
next preceding the first day of such proposed Special Dividend Period,
the
Company shall be deemed to have delivered a notice to the Auction Agent
with
respect to such Dividend Period to the effect set forth in clause (ii)
above, thereby resulting in a Standard Dividend Period.
5. Restrictions
on Transfer. MMP Shares may be transferred only (a) pursuant
to an order placed in an Auction, (b) to or through a Broker-Dealer or
(c) to the Company or any Affiliate. Notwithstanding the
foregoing, a transfer other than pursuant to an Auction will not be effective
unless the selling Existing Holder or the Agent Member of such Existing
Holder,
in the case of an Existing Holder whose shares are listed in its own name
on the
books of the Auction Agent, or the Broker-Dealer or Agent Member of such
Broker-Dealer, in the case of a transfer between persons holding MMP Shares
through different Broker-Dealers, advises the Auction Agent of such
transfer. The certificate representing the
MMP Shares issued to the Securities Depository will bear legends with respect
to
the restrictions described above and stop-transfer instructions will be
issued
to the Transfer Agent and/or Registrar.
6. Voting
Rights. (a) Except for matters which do not require the vote of
holders of Preferred Shares under the 1940 Act and except as otherwise
provided
in the Charter or Bylaws, herein or
as
otherwise required by applicable law, (1) each holder of MMP Shares shall
be entitled to one vote for each MMP Share held on each matter submitted
to a
vote of stockholders of the Company, and (2) the holders of Outstanding
Preferred Shares, including the MMP Shares, and Common Shares shall vote
together as a single class on all matters submitted to stockholders; provided,
however, that the holders of Outstanding Preferred Shares, including the
MMP
Shares, shall be entitled, as a class, to the exclusion of the holders
of shares
of all other classes of stock of the Company, to elect two Directors of
the
Company at all times. The identity and class (if the Board of
Directors is then classified) of the nominees for such Directors may be
fixed by
the Board of Directors. Subject to paragraph (b) of this
Section 6, the holders of outstanding Common Shares and Preferred Shares,
including the MMP Shares, voting together as a single class, shall elect
the
balance of the Directors.
(b) During
any period in which any one or more of the conditions described below shall
exist (such period being referred to herein as a “Voting Period”), the number of
Directors constituting the Board of Directors shall automatically increase
by
the smallest number that, when added to the two Directors elected exclusively
by
the holders of Preferred Shares, including the MMP Shares, would constitute
a
majority of the Board of Directors as so increased by such smallest number;
and
the holders of Preferred Shares, including the MMP Shares, shall be entitled,
voting as a class on a one-vote-per-share basis (to the exclusion of the
holders
of all other securities and classes of shares of the Company), to elect
such
smallest number of additional Directors, together with the two Directors
that
such holders are in any event entitled to elect. A Voting Period
shall commence:
(i) if
at the close of business on any Dividend Payment Date accumulated dividends
(whether or not earned or declared) on Preferred Shares equal to at least
two
full years’ dividends shall be due and unpaid; or
(ii) if
at any time holders of any Preferred Shares are entitled under the 1940
Act to
elect a majority of the Directors of the Company.
Upon
the
termination of a Voting Period, the voting rights described in this
paragraph (b) of Section 6 shall cease, subject always, however, to
the revesting of such voting rights in the holders of Preferred Shares,
including the MMP Shares, upon the further occurrence of any of the events
described in this paragraph (b) of Section 6.
(c) As
soon as practicable after the accrual of any right of the holders of Preferred
Shares, including the MMP Shares, to elect additional Directors as described
in
paragraph (b) of this Section 6, the Company shall notify the Auction
Agent, and the Auction Agent shall instruct the Directors to call a special
meeting of such holders, and mail a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 30 calendar
days
after the date of mailing of such notice. If the Company fails to
send such notice to the Auction Agent or if a special meeting is not called,
it
may be called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such special
meeting shall be the close of business on the fifth Business Day preceding
the
day on which such notice is mailed. At any such special meeting and
at each meeting of holders of Preferred Shares, including the MMP Shares,
held
during a Voting Period at which Directors are to be elected, such holders,
voting together as a class (to the exclusion of the holders of all
other securities
and classes of capital stock of the Company), shall be entitled to elect
the
number of Directors prescribed in paragraph (b) of this Section 6 on a
one-vote-per-share basis.
(d) The
terms of office of all persons who are Directors of the Company at the
time of a
special meeting of holders of the MMP Shares and holders of other Preferred
Shares to elect Directors shall continue, notwithstanding the election
at such
meeting by the holders of the MMP Shares and such holders of other Preferred
Shares of the number of Directors that they are entitled to elect,
and
the
persons so elected by such holders, together with the two incumbent Directors
elected by such holders and the remaining incumbent Directors, shall constitute
the duly elected Directors of the Company.
(e) Simultaneously
with the termination of a Voting Period, the terms of office of the additional
Directors elected by the holders of the MMP Shares and holders of other
Preferred Shares pursuant to paragraph (b) of this Section 6 shall
terminate, the number of Directors constituting the Board of Directors
shall
decrease accordingly, the remaining Directors shall constitute the Directors
of
the Company and the voting rights of such holders to elect additional Directors
pursuant to paragraph (b) of this Section 6 shall cease, subject to
the provisions of the last sentence of paragraph (b) of this
Section 6.
(f) So
long as any of the shares of Preferred Shares, including the MMP Shares,
are
Outstanding, the Company will not, without the affirmative vote of the
holders
of a majority of the outstanding Preferred Shares determined with reference
to a
“majority of outstanding voting securities” as that term is defined in
Section 2(a)(42) of the 1940 Act (a “1940 Act Majority”), voting as a
separate class:
(i) amend,
alter or repeal any of the preferences, rights or powers of such class
of
Preferred Shares so as to affect materially and adversely such preferences,
rights or powers as defined in Section 6(h) below;
(ii) create,
authorize or issue shares of any class of capital stock ranking senior
to or on
a parity with the Preferred Shares with respect to the payment of dividends
or
the distribution of assets, or any securities convertible into, or warrants,
options or similar rights to purchase, acquire or receive, such shares
of
capital stock ranking senior to or on a parity with the Preferred Shares
or
reclassify any authorized shares of capital stock of the Company into any
shares
ranking senior to or on a parity with the Preferred Shares (except that,
notwithstanding the foregoing, but subject to the provisions of either
Section 3(j) or 11, as applicable, the Board of Directors, without the vote
or consent of the holders of the Preferred Shares, including the MMP Shares,
may
from time to time authorize, create and classify, and the Company may from
time
to time issue, shares or series of Preferred Shares, including other series
of
MMP Shares, ranking on a parity with the MMP Shares with respect to the
payment
of dividends and the distribution of assets upon dissolution, liquidation
or
winding up of the affairs of the Company, and may authorize, reclassify
and/or
issue any additional MMP Shares, including shares previously purchased
or
redeemed by the Company, subject to continuing compliance by the Company
with
1940 Act MMP Shares Asset Coverage and MMP Shares Basic Maintenance Amount
requirements);
(iii) institute
any proceedings to be adjudicated bankrupt or insolvent, or consent to
the
institution of bankruptcy or insolvency proceedings against it, or file
a
petition seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy or insolvency, or consent to
the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other
similar official) of the Company or a substantial part of its property,
or make
any assignment for the benefit of creditors, or, except as may be required
by
applicable law, admit in writing its inability to pay its debts generally
as
they become due or take any corporate action in furtherance of any such
action;
(iv) create,
incur or suffer to exist, or agree to create, incur or suffer to exist,
or
consent to cause or permit in the future (upon the happening of a contingency
or
otherwise) the creation, incurrence or existence of any material lien,
mortgage,
pledge, charge, security interest, security agreement, conditional sale
or trust
receipt or other material encumbrance of any kind upon any of the Company’s
assets as a whole, except (A) liens the validity of which are being
contested in good faith by appropriate proceedings, (B) liens for taxes
that are not then due and
payable
or that can be paid thereafter without penalty, (C) liens, pledges,
charges, security interests, security agreements or other encumbrances
arising
in connection with any indebtedness senior to the MMP Shares or arising
in
connection with any futures contracts or options thereon, interest rate
swap or
cap transactions, forward rate transactions, put or call options, short
sales of
securities or other similar transactions; (D) liens, pledges, charges,
security interests, security agreements or other encumbrances arising in
connection with any indebtedness permitted under clause (vi) below and
(E) liens to secure payment for services rendered including, without
limitation, services rendered by the Company’s custodian and the Auction Agent;
or
(v) create,
authorize, issue, incur or suffer to exist any indebtedness for borrowed
money
or any direct or indirect guarantee of such indebtedness for borrowed money
or
any direct or indirect guarantee of such indebtedness, except the Company
may
borrow and issue senior securities as may be permitted by the Company’s
investment restrictions or as may be permitted by the 1940 Act; provided,
however, that transfers of assets by the Company subject to an obligation
to
repurchase shall not be deemed to be indebtedness for purposes of this
provision
to the extent that after any such transaction the Company has Eligible
Assets
with an aggregate Discounted Value at least equal to the MMP Shares Basic
Maintenance Amount as of the immediately preceding Valuation Date.
(g) The
affirmative vote of the holders of a 1940 Act Majority of the Outstanding
Preferred Shares, including the MMP Shares, voting as a separate class,
shall be
required to approve any plan of reorganization (as such term is used in
the 1940
Act) adversely affecting such shares or any action requiring a vote of
security
holders of the Company under Section 13(a) of the 1940 Act.
(h) The
affirmative vote of the holders of a 1940 Act Majority of the Outstanding
Preferred Shares, including the MMP Shares, voting separately from any
other
series, shall be required with respect to any matter that materially and
adversely affects the rights, preferences, or powers of that series in
a manner
different from that of other series of classes of the Company’s shares of
capital stock. For purposes of the foregoing, no matter shall be
deemed to adversely affect any right, preference or power unless such matter
(i) alters or abolishes any preferential right of such series;
(ii) creates, alters or abolishes any right in respect of redemption of
such series; or (iii) creates or alters (other than to abolish) any
restriction on transfer applicable to such series. The vote of
holders of any shares described in this Section 6(h) will in each case be
in addition to a separate vote of the requisite percentage of Common Shares
and/or Preferred Shares, if any, necessary to authorize the action in
question.
(i) The
rights of the MMP Shares or the Holders thereof, including, without limitation,
the interpretation or applicability of any or all covenants or other obligations
of the Company contained herein or of the definitions of the terms contained
herein, all such covenants, obligations and definitions having been adopted
pursuant to Rating Agency Guidelines, may from time to time be modified,
altered
or repealed by the Board of Directors in its sole discretion, based on
a
determination by the Board of Directors that such action is necessary or
appropriate in connection with obtaining or maintaining the rating of any
Rating
Agency with respect to the MMP Shares or revising the Company’s investment
restrictions or policies consistent with guidelines of any Rating Agency,
and
any such modification, alteration or repeal will not be deemed to affect
the
preferences, rights or powers of MMP Shares or the Holders thereof, provided
that the Board of Directors receives written confirmation from each
relevant Rating Agency (with such confirmation in no event being required
to be
obtained from a particular Rating Agency with respect to definitions or
other
provisions relevant only to and adopted in connection with another Rating
Agency’s rating of the MMP Shares) that any such modification, alteration or
repeal would not adversely affect the rating then assigned by such Rating
Agency.
The
terms
of the MMP Shares are subject to the Rating Agency Guidelines, as reflected
in a
written document and as amended from time to time by the respective Rating
Agency, for so long as the MMP Shares are then rated by the applicable
Rating
Agency. Such Rating Agency Guidelines may be amended by the
respective Rating Agency without the vote, consent or approval of the Company,
the Board of Directors and any holder of shares of Preferred Shares, including
any series of MMP Shares, or any other stockholder of the Company.
In
addition, subject to compliance with applicable law, the Board of Directors
may
modify the definition of Maximum Rate to increase the percentage amount
by which
the Reference Rate is multiplied to determine the Maximum Rate shown therein
without the vote or consent of the holders of the Preferred Shares, including
the MMP Shares, or any other stockholder of the Company, and without receiving
any confirmation from any rating agency after consultation with the
Broker-Dealers, provided that immediately following any such increase the
Company would be in compliance with the MMP Shares Basic Maintenance
Amount.
(j) Unless
otherwise required by law, Holders of MMP Shares shall not have any relative
rights or preferences or other special rights other than those specifically
set
forth herein. The Holders of MMP Shares shall have no rights to
cumulative voting. If the Company fails to pay any dividends on the
MMP Shares, the exclusive remedy of the Holders shall be the right to vote
for
Directors pursuant to the provisions of this Section 6.
(k) The
foregoing voting provisions will not apply with respect to the MMP Shares
if, at
or prior to the time when a vote is required, such shares have been
(i) redeemed or (ii) called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
7. Liquidation
Rights. (a) Upon the dissolution, liquidation or winding up of
the affairs of the Company, whether voluntary or involuntary, the Holders
of MMP
Shares then outstanding, together with holders of shares of any class of
shares
ranking on a parity with the MMP Shares upon dissolution, liquidation or
winding
up, shall be entitled to receive and to be paid out of the assets of the
Company
(or the proceeds thereof) available for distribution to its stockholders
after
satisfaction of claims of creditors of the Company an amount equal to the
liquidation preference with respect to such shares. The liquidation
preference for MMP Shares shall be $______ per share, plus an amount equal
to
all accumulated dividends thereon (whether or not earned or declared but
without
interest) to the date payment of such distribution is made in full or a
sum
sufficient for the payment thereof is set apart with the Paying
Agent. No redemption premium shall be paid upon any liquidation even
if such redemption premium would be paid upon optional or mandatory redemption
of the relevant shares. In determining whether a distribution (other
than upon voluntary or involuntary liquidation), by dividend, redemption
or
otherwise, is permitted under the MGCL, amounts that would be needed, if
the
Company were to be dissolved at the time of distribution, to satisfy the
liquidation preference of the MMP Shares will not be added to the Company’s
total liabilities.
(b) If,
upon any liquidation, dissolution or winding up of the affairs of the Company,
whether voluntary or involuntary, the assets of the Company available for
distribution among the holders of all outstanding Preferred Shares, including
the MMP Shares, shall be insufficient to permit the payment in full to
holders
of the amounts to which they are entitled, then the available assets shall
be distributed
among the holders of all outstanding Preferred Shares, including the MMP
Shares,
ratably in any distribution of assets according to the respective amounts
which
would be payable on all the shares if all amounts thereon were paid in
full.
(c) Upon
the dissolution, liquidation or winding up of the affairs of the Company,
whether voluntary or involuntary, until payment in full is made to the
holders
of MMP Shares of the
liquidation
distribution to which they are entitled, (1) no dividend or other
distribution shall be made to the holders of Common Shares or any other
class of
shares of capital stock of the Company ranking junior to MMP Shares upon
dissolution, liquidation or winding up and (2) no purchase, redemption or
other acquisition for any consideration by the Company shall be made in
respect
of the Common Shares or any other class of shares of capital stock of the
Company ranking junior to MMP Shares upon dissolution, liquidation or winding
up.
(d) A
consolidation, reorganization or merger of the Company with or into any
other
trust or company, or a sale, lease or exchange of all or substantially
all of
the assets of the Company in consideration for the issuance of equity securities
of another trust or company shall not be deemed to be a liquidation, dissolution
or winding up, whether voluntary or involuntary, for the purposes of this
Section 7.
(e) After
the payment to the holders of Preferred Shares, including MMP Shares, of
the
full preferential amounts provided for in this Section 7, the holders of
Preferred Shares, including MMP Shares, as such shall have no right or
claim to
any of the remaining assets of the Company.
(f) If
the assets of the Company or proceeds thereof available for distribution
to the
Holders of MMP Shares, upon any dissolution, liquidation or winding up
of the
affairs of the Company, whether voluntary or involuntary, shall be insufficient
to pay in full all amounts to which such holders are entitled pursuant
to
paragraph (a) of this Section 7, no such distribution shall be made on
account of any shares of any other class or series of Preferred Shares
ranking
on a parity with MMP Shares unless proportionate distributive amounts shall
be
paid on account of the MMP Shares, ratably, in proportion to the full
distributable amounts to which holders of all such parity shares are entitled
upon such dissolution, liquidation or winding up.
(g) Subject
to the rights of the holders of shares of any series or class or classes
of
stock ranking on a parity with MMP Shares with respect to the distribution
of
assets upon dissolution, liquidation or winding up of the affairs of the
Company, after payment shall have been made in full to the holders of the
MMP
Shares as provided in paragraph (a) of this Section 7, but not prior
thereto, any other series or class or classes of stock ranking junior to
MMP
Shares with respect to the distribution of assets upon dissolution, liquidation
or winding up of the affairs of the Company shall, subject to any respective
terms and provisions (if any) applying thereto, be entitled to receive
any and
all assets remaining to be paid or distributed, and the holders of the
MMP
Shares shall not be entitled to share therein.
8. Auction
Agent. For so long as any MMP Shares are Outstanding, the Auction
Agent, duly appointed by the Company to so act, shall be in each case a
commercial bank, trust company or other financial institution independent
of the
Company and its Affiliates (which, however, may engage or have engaged
in
business transactions with the Company or its Affiliates) and at no time
shall
the Company or any of its Affiliates act as the Auction Agent in connection
with
the Auction Procedures. If the Auction Agent resigns or for any
reason its appointment is terminated during any period that any MMP Shares
are
outstanding, the Company shall use its best efforts promptly thereafter
to
appoint another qualified commercial bank, trust company or financial
institution to act as the Auction Agent.
9. 1940
Act MMP Shares Asset Coverage. The Company shall maintain, as of
the last Business Day of each month in which any shares of the MMP Shares
are
Outstanding, asset coverage with
respect to the MMP Shares which is equal to or greater than the 1940 Act
MMP
Shares Asset Coverage; provided, however, that Section 3(a)(ii) shall be
the sole remedy if the Company fails to do so.
10. MMP
Shares Basic Maintenance Amount. So long as the MMP Shares are
Outstanding and Moody’s, Fitch or any Other Rating Agency which so requires is
then rating the shares of the MMP Shares, the Company shall maintain, as
of each
Valuation Date, Moody’s Eligible Assets (if Moody’s is
then
rating the MMP Shares), Fitch Eligible Assets (if Fitch is then rating
the MMP
Shares) and (if applicable) Other Rating Agency Eligible Assets having
an
aggregate Discounted Value equal to or greater than the MMP Shares Basic
Maintenance Amount; provided, however, that Section 3(a)(ii) shall be the
sole remedy in the event the Company fails to do so.
11. Certain
Other Restrictions. For so long as any MMP Shares are Outstanding
and any Rating Agency is then rating such shares, the Company will not,
unless
it has received written confirmation from each such rating agency that
any such
action would not impair the rating then assigned by such Rating Agency
to such
shares, engage in certain proscribed transactions set forth in the Rating
Agency
Guidelines.
12. Compliance
Procedures for Asset Maintenance Tests. For so long as any MMP
Shares are Outstanding and Moody’s, Fitch or any Other Rating Agency which so
requires is then rating such shares, the Company shall deliver to each
rating
agency which is then rating MMP Shares and any other party specified in
the
Rating Agency Guidelines all certificates that are set forth in the respective
Rating Agency Guidelines regarding 1940 Act MMP Shares Asset Coverage,
MMP
Shares Basic Maintenance Amount and/or related calculations at such times
and
containing such information as set forth in the respective Rating Agency
Guidelines.
13. Notice. All
notices or communications hereunder, unless otherwise specified in these
terms
of the MMP Shares, shall be sufficiently given if in writing and delivered
in
person, by telecopier, by electronic means or mailed by first-class mail,
postage prepaid. Notices delivered pursuant to this Section 13
shall be deemed given on the earlier of the date received or the date five
days
after which such notice is mailed, except as otherwise provided in these
terms
of the MMP Shares or by the MGCL for notices of Stockholders’
meetings.
14. Waiver. To
the extent permitted by Maryland law, holders of a 1940 Act Majority of
the
Outstanding Preferred Shares, including the MMP Shares, acting collectively
or
voting separately from any other series, may by affirmative vote waive
any
provision hereof intended for their respective benefit in accordance with
such
procedures as may from time to time be established by the Board of
Directors.
15. Termination. If
no MMP Shares are outstanding, all rights and preferences of such shares
established and designated hereunder shall cease and terminate, and all
obligations of the Company under these terms of the MMP Shares, shall
terminate.
16. Facts
Ascertainable Outside Charter. Subject to the provisions of these
terms of the MMP Shares, the Board of Directors may, by resolution duly
adopted,
without stockholder approval (except as otherwise provided by these terms
of the
MMP Shares or required by applicable law), modify these terms of the MMP
Shares
to reflect any modification hereto which the Board of Directors is entitled
to
adopt pursuant to the terms of Section 6(i) hereof or otherwise without
stockholder approval. To the extent permitted by applicable law, the
Board of Directors may interpret, modify or adjust the provisions of these
terms
of the MMP Shares to resolve any inconsistency or ambiguity or to remedy
any
defect.
17. Definitions. As
used in Part I and Part II of these terms of the MMP Shares, the
following terms shall have the following meanings (with terms defined in
the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
(a) “AA”
Composite Commercial Paper Rate” on any date means (i) the interest
equivalent of the 30-day rate, in the case of a Dividend Period which is
a
Standard Dividend Period or shorter, or the 180-day rate, in the case of
all
other Dividend Periods, on commercial paper on behalf of issuers whose
corporate
bonds are rated “AA” by Standard & Poor’s, or the equivalent of such
rating by another nationally recognized rating agency, as announced by
the
Federal Reserve Bank of New York for
the
close
of business on the Business Day immediately preceding such date; or (ii) if
the Federal Reserve Bank of New York does not make available such a rate,
then
the arithmetic average of the interest equivalent of such rates on commercial
paper placed on behalf of such issuers, as quoted on a discount basis or
otherwise by the Commercial Paper Dealers to the Auction Agent for the
close of
business on the Business Day immediately preceding such date (rounded to
the
next highest .001 of 1%). If any Commercial Paper Dealer does not
quote a rate required to determine the “AA” Composite Commercial Paper Rate,
such rate shall be determined on the basis of the quotations (or quotation)
furnished by the remaining Commercial Paper Dealers (or Dealer), if any,
or, if
there are no such Commercial Paper Dealers, by a nationally recognized
dealer in
commercial paper of such issuers then making such quotations selected by
the
Company. For purposes of this definition, (A) ”Commercial Paper
Dealers” shall mean (1) Citigroup Global Markets Inc., Lehman Brothers
Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman
Sachs & Co.; (2) in lieu of any thereof, its respective Affiliate
or successor; and (3) if any of the foregoing shall cease to quote rates
for commercial paper of issuers of the sort described above, in substitution
therefor, a nationally recognized dealer in commercial paper of such issuers
then making such quotations selected by the Company, and (B) ”interest
equivalent” of a rate stated on a discount basis for commercial paper of a given
number of days’ maturity shall mean a number equal to the quotient (rounded
upward to the next higher one-thousandth of 1%) of (1) such rate expressed
as a decimal, divided by (2) the difference between (x) 1.00 and
(y) a fraction, the numerator of which shall be the product of such rate
expressed as a decimal, multiplied by the number of days in which such
commercial paper shall mature and the denominator of which shall be
360.
(b) “Affiliate”
or “affiliate” means any person controlled by, in control of or under common
control with the Company; provided that no Broker-Dealer controlled by,
in
control of or under common control with the Company shall be deemed to
be an
Affiliate nor shall any corporation or any person controlled by, in control
of
or under common control with such corporation, one of the directors or
executive
officers of which also is a Director of the Company be deemed to be an
Affiliate
solely because such director or executive officer also is a Director of
the
Company.
(c) “Agent
Member” means a member of, or participant in, the Securities Depository who
shall act on behalf of a Bidder.
(d) “All
Hold Rate” means 80% of the “AA” Composite Commercial Paper Rate.
(e) “Applicable
Percentage” means the percentage associated with the lower of the credit ratings
assigned to the MMP Shares by Moody’s or Fitch, as follows:
|
|
|
Aa3
or above
|
AA-
or above
|
200%
|
A3
to A1
|
A-
to A+
|
250%
|
Baa3
to Baa1
|
BBB-
to BBB+
|
275%
|
Below
Baa3
|
Below
BBB-
|
300%
|
(f) “Applicable
Rate” means, with respect to the MMP Shares for each Auction Period (i) if
Sufficient Clearing Bids exist for the Auction in respect thereof, the
Winning
Bid Rate, (ii) if Sufficient Clearing Bids do not exist for the Auction in
respect thereof, the Maximum Rate, (iii) in the case where all the MMP
Shares are the subject of Hold Orders for the Auction in respect thereof,
the
All Hold Rate, (iv) if a Default Period is occurring, the Default Rate, and
(v) if an Auction is not held for any reason (including the circumstance
where there is no Auction Agent or Broker-Dealer), the Maximum
Rate.
(g) “Asset
Coverage Cure Date” has the meaning set forth in
Section 3(a)(ii).
(h) “Auction”
means each periodic implementation of the Auction Procedures.
(i) “Auction
Agent” means The Bank of New York unless and until another commercial bank,
trust company, or other financial institution appointed by a resolution
of the
Board of Directors enters into an agreement with the Company to follow
the
Auction Procedures for the purpose of determining the Applicable
Rate.
(j) “Auction
Agreement” means the agreement between the Auction Agent and the Company
pursuant to which the Auction Agent agrees to follow the procedures specified
in
Part II of these terms of the MMP Shares, as such agreement may from time
to time be amended or supplemented.
(k) “Auction
Date” means the first Business Day next preceding the first day of a Dividend
Period.
(l) “Auction
Desk” means the business unit of a Broker-Dealer that fulfills the
responsibilities of the Broker-Dealer under a Broker-Dealer Agreement,
including
soliciting Bids for the MMP Shares, and units of the Broker-Dealer which
are not
separated from such business unit by information controls appropriate to
control, limit and monitor the inappropriate dissemination of information
about
Bids.
(m) “Auction
Period” means with respect to the MMP Shares, either a Standard Auction Period
or a Special Auction Period, as applicable.
(n) “Auction
Procedures” means the procedures for conducting Auctions set forth in
Part II hereof.
(o) “Available
MMP Shares” means for each series of MMP Shares on each Auction Date, the number
of Outstanding MMP Shares of the series that are not the subject of Submitted
Hold Orders.
(p) “Beneficial
Owner,” with respect to the MMP Shares, means a customer of a Broker-Dealer who
is listed on the records of that Broker-Dealer (or, if applicable, the
Auction
Agent) as a holder of shares of the series.
(q) “Bid”
shall have the meaning specified in paragraph (a) of Section 1 of
Part II of these terms of the MMP Shares.
(r) “Bidder”
means each Beneficial Owner, Potential Beneficial Owner and Broker Dealer
who
places an Order.
(s) “Board
of Directors” or “Board” means the Board of Directors of the Company or any duly
authorized committee thereof as permitted by applicable law.
(t) “Broker-Dealer”
means any broker-dealer or broker-dealers, or other entity permitted by
law to
perform the function required of a Broker-Dealer by the Auction Procedures,
that
has been selected by the Company and that is a party to a Broker-Dealer
Agreement with the Auction Agent. The “Broker-Dealer” of record with
respect to any MMP Share is the Broker-Dealer which placed the Order for
such
MMP Share or whom the Existing Holder of such MMP Share has designated
as its
Broker-Dealer with respect to such MMP Share, in each case as reflected
in the
records of the Auction Agent.
(u) “Broker-Dealer
Agreement” means an agreement between the Auction Agent and a Broker-Dealer,
pursuant to which the Broker-Dealer agrees to follow the Auction
Procedures.
(v) “Broker-Dealer
Deadline” means, with respect to an Order, the internal deadline established by
the Broker-Dealer through which the Order was placed after which it will
not
accept Orders or any change in any Order previously placed with such
Broker-Dealer; provided, however, that nothing shall prevent the Broker-Dealer
from correcting Clerical Errors by the Broker-Dealer with respect to Orders
from
Bidders after the Broker-Dealer Deadline pursuant to the provisions
herein. Any Broker-Dealer may change the time or times of its
Broker-Dealer Deadline as it relates to such Broker-Dealer by giving notice
not
less than two Business Days prior to the date such change is to take effect
to
Bidders who place Orders through such Broker-Dealer.
(w) “Business
Day” means a day on which the New York Stock Exchange is open for trading and
which is not a Saturday, Sunday or other day on which banks in the City
of New
York, New York are authorized or obligated by law to close, days on which
the
Federal Reserve Bank of New York is not open for business, days on which
banking
institutions or trust companies located in the state in which the operations
of
the Auction Agent are conducted are authorized or required to be closed
by law,
regulation or executive order of the state in which the Auction Agent conducts
operations with respect to the MMP Shares.
(x) “Clerical
Error” means a clerical error in the processing of an Order, and includes, but
is not limited to, the following: (i) a transmission error,
including but not limited to, an Order sent to the wrong address or number,
failure to transmit certain pages or illegible transmission, (ii) failure
to transmit an Order received from one or more Existing Holders or Potential
Beneficial Owners (including Orders from the Broker-Dealer which were not
originated by the Auction Desk) prior to the Broker-Dealer Deadline or
generated
by the Broker-Dealer’s Auction Desk for its own account prior to the Submission
Deadline or (iii) a typographical error. Determining whether an
error is a “Clerical Error” is within the reasonable judgment of the
Broker-Dealer, provided that the Broker-Dealer has a record of the correct
Order
that shows it was so received or so generated prior to the Broker-Dealer
Deadline or the Submission Deadline, as applicable.
(y) “Commercial
Paper Dealers” has the meaning set forth in the definition of “AA” Composite
Commercial Paper Rate.
(z) “Commission”
means the Securities and Exchange Commission.
(aa) “Common
Shares” means the shares of common stock, par value $.001 per share, of the
Company.
(bb) “Default”
has the meaning set forth in Section 2(c)(ii) of this
Part I.
(cc) “Default
Period” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(dd) “Default
Rate” means the Reference Rate multiplied by three (3).
(ee) “Deposit
Securities” means cash and any obligations or securities, including short-term
money market instruments that are Eligible Assets, rated at least AAA,
A-1 or
SP-1 by Standard & Poor’s, except that, for purposes of
section 3(a)(i) of this Part I, such obligations or securities shall
be considered “Deposit Securities” only if they are also rated at least P-2 by
Moody’s.
(ff) “Discount
Factor” means the Fitch Discount Factor (if Fitch is then rating the MMP
Shares), the Moody’s Discount Factor (if Moody’s is then rating the MMP Shares)
or any Other
Rating
Agency Discount Factor (if any Other Rating Agency is then rating the MMP
Shares), whichever is applicable.
(gg) “Discounted
Value” has the meaning set forth in the Rating Agency Guidelines.
(hh) “Dividend
Default” has the meaning set forth in Section 2(c)(ii) of this
Part I.
(ii) “Dividend
Payment Date” with respect to the MMP Shares means any date on which dividends
are payable pursuant to Section 2(b) of this Part I.
(jj) “Dividend
Period” means, with respect to the MMP Shares, the period commencing on the
Original Issue Date thereof and ending on the date specified for such series
on
the Original Issue Date thereof and thereafter, as to such series, the
period
commencing on the day following each Dividend Period for such series and
ending
on the day established for such series by the Company.
(kk) “Eligible
Assets” means Fitch’s Eligible Assets or Moody’s Eligible Assets (if Moody’s or
Fitch are then rating the MMP Shares) and/or Other Rating Agency Eligible
Assets
(if any Other Rating Agency is then rating the MMP Shares), whichever is
applicable.
(ll) “Error
Correction Deadline” means one hour after the Auction Agent completes the
dissemination of the results of the Auction to Broker-Dealers without regard
to
the time of receipt of such results by any Broker-Dealer; provided, however,
in
no event shall the Error Correction Deadline extend past 4:00 p.m., New
York City time unless the Auction Agent experiences technological failure
or
force majeure in disseminating the Auction results which causes a delay
in
dissemination past 3:00 p.m., New York City time.
(mm) “Existing
Holder,” with respect to the MMP Shares, shall mean a Broker-Dealer (or any such
other Person as may be permitted by the Company) that is listed on the
records
of the Auction Agent as a holder of shares of such series.
(nn) “Fitch”
means Fitch Ratings and its successors at law.
(oo) “Fitch
Discount Factor” means the discount factors set forth in the Fitch Guidelines
for use in calculating the Discounted Value of the Company’s assets in
connection with Fitch’s ratings of MMP Shares.
(pp) “Fitch
Eligible Assets” means the assets of the Company set forth in the Fitch
Guidelines as eligible for inclusion in calculating the Discounted Value
of the
Company’s assets in connection with Fitch’s ratings of MMP Shares.
(qq) “Fitch
Guidelines” mean the guidelines provided by Fitch, as may be amended from time
to time, in connection with Fitch’s ratings of MMP Shares.
(rr) “Hold
Order” shall have the meaning specified in paragraph (a) of Section 1 of
Part II of these terms of the MMP Shares or an Order deemed to have been
submitted as provided in paragraph (c) of Section 1 of Part II of
these terms of the MMP Shares.
(ss) “Holder”
means, with respect to MMP Shares, the registered holder of MMP Shares
as the
same appears on the share ledger or share records of the Company.
(tt) “LIBOR”
on any Auction Date, means (i) the rate for deposits in U.S. dollars for
the designated Dividend Period, which appears on display page 3750 of
Moneyline’s Telerate Service (“Telerate Page 3750”) (or such other
page as may replace that page on that service, or such other
service
as
may be
selected by Lehman Brothers Inc. or its successors) as of 11:00 a.m.,
London time, on the day that is the London Business Day on the Auction
Date or,
if the Auction Date is not a London Business Day, the London Business Day
preceding the Auction Date (the “LIBOR Determination
Date”), or (ii) if such rate does not appear on Telerate Page 3750 or
such other page as may replace such Telerate Page 3750,
(A) Lehman Brothers Inc. shall determine the arithmetic mean of the offered
quotations of the reference banks to leading banks in the London interbank
market for deposits in U.S. dollars for the designated Dividend Period
in an
amount determined by Lehman Brothers Inc. by reference to requests for
quotations as of approximately 11:00 a.m. (London time) on such date made
by Lehman Brothers Inc. to the reference banks, (B) if at least two of the
reference banks provide such quotations, LIBOR shall equal such arithmetic
mean
of such quotations, (C) if only one or none of the reference banks provide
such quotations, LIBOR shall be deemed to be the arithmetic mean of the
offered
quotations that leading banks in The City of New York selected by Lehman
Brothers Inc. (after obtaining the Company’s approval) are quoting on the
relevant LIBOR Determination Date for deposits in U.S. dollars for the
designated Dividend Period in an amount determined by Lehman Brothers Inc.
(after obtaining the Company’s approval) that is representative of a single
transaction in such market at such time by reference to the principal London
offices of leading banks in the London interbank market; provided, however,
that
if Lehman Brothers Inc. is not a Broker-Dealer or does not quote a rate
required
to determine the LIBOR, the LIBOR will be determined on the basis of the
quotation or quotations furnished by any other Broker-Dealer selected by
the
Company to provide such rate or rates not being supplied by Lehman Brothers
Inc.; provided further, that if Lehman Brothers Inc. and/or a substitute
Broker-Dealer are required but unable to determine a rate in accordance
with at
least one of the procedures provided above, the LIBOR shall be the most
recently
determinable LIBOR. If the number of Dividend Period days shall be
(i) 7 or more but fewer than 21 days, such rate shall be the seven-day
LIBOR rate; (ii) more than 21 but fewer than 49 days, such rate shall be
one-month LIBOR rate; (iii) 49 or more but fewer than 77 days, such rate
shall be the two-month LIBOR rate; (iv) 77 or more but fewer than 112 days,
such rate shall be the three-month LIBOR rate; (v) 112 or more but fewer
than 140 days, such rate shall be the four-month LIBOR rate; (vi) 140 or
more but fewer than 168 days, such rate shall be the five-month LIBOR rate;
(vii) 168 or more but fewer than 189 days, such rate shall be the six-month
LIBOR rate; (viii) 189 or more but fewer than 217 days, such rate shall be
the seven-month LIBOR rate; (ix) 217 or more but fewer than 252 days, such
rate shall be the eight-month LIBOR rate; (x) 252 or more but fewer than
287 days, such rate shall be the nine-month LIBOR rate; (xi) 287 or more
but fewer than 315 days, such rate shall be the ten-month LIBOR rate;
(xii) 315 or more but fewer than 343 days, such rate shall be the
eleven-month LIBOR rate; and (xiii) 343 or more days but fewer than 365
days, such rate shall be the twelve-month LIBOR rate.
(uu) “London
Business Day” means any day on which commercial banks are generally open for
business in London.
(vv) “MMP
Shares” means Money Market Cumulative Preferred Shares, liquidation preference
$25,000 per share.
(ww) “MMP
Shares Basic Maintenance Amount” as of any Valuation Date has the meaning set
forth in the Rating Agency Guidelines.
(xx) “Mandatory
Redemption Date” has the meaning set forth in Section 3(a)(iii) of this
Part I.
(yy) “Mandatory
Redemption Price” has the meaning set forth in Section 3(a)(iii) of this
Part I.
(zz) “Market
Value” means the market value of an asset of the Company determined as
follows: For equity securities, the value obtained from readily
available market quotations. If an
equity
security is not traded on an exchange or not available from a Board-approved
pricing service, the value obtained from written broker-dealer
quotations. For fixed-income securities, the value obtained from
readily available market quotations based on the last sale price of a security
on the day the Company values its assets or the market value obtained from
a
pricing service or the value obtained from a direct written broker-dealer
quotation from a dealer who has made a market in the
security. “Market Value” for other securities will mean the value
obtained pursuant to the Company’s valuation procedures. If the
market value of a security cannot be obtained, or the Company’s investment
adviser determines that the value of a security as so obtained does not
represent the fair value of a security, fair value for that security shall
be
determined pursuant to the valuation procedures adopted by the Board of
Directors.
(aaa) “Maximum
Rate” means, on any date on which the Applicable Rate is determined, the rate
equal to the Applicable Percentage of the Reference Rate, subject to upward
but
not downward adjustment in the discretion of the Board of Directors after
consultation with the Broker-Dealers, provided that immediately following
any
such increase the Company would be in compliance with the MMP Shares Basic
Maintenance Amount.
(bbb) “Minimum
Rate” means, on any Auction Date with respect to an Auction Period of 30 days
or
fewer, 70% of the “AA” Composite Commercial Paper Rate at the close of business
on the Business Day next preceding such Auction Date. There shall be
no Minimum Rate on any Auction Date with respect to an Auction Period of
more
than the Standard Auction Period.
(ccc) “Moody’s”
means Moody’s Investors Service, Inc., a Delaware corporation, and its
successors at law.
(ddd) “Moody’s
Discount Factor” means the discount factors set forth in the Moody’s Guidelines
as eligible for use in calculating the Discounted Value of the Company’s assets
in connection with Moody’s ratings of MMP Shares.
(eee) “Moody’s
Eligible Assets” means assets of the Company set forth in the Moody’s Guidelines
as eligible for inclusion in calculating the Discounted Value of the Company’s
assets in connection with Moody’s ratings of MMP Shares.
(fff)
“Moody’s Guidelines” mean the guidelines provided by
Moody’s, as may be amended from time to time, in connection with Moody’s
ratings of MMP Shares.
(ggg) “1940
Act” means the Investment Company Act of 1940, as amended from time to
time.
(hhh) “1940
Act Majority” has the meaning set forth in Section 6(f) of this
Part I.
(iii)
“1940 Act MMP Shares Asset Coverage” means asset coverage, as determined in
accordance with Section 18(h) of the 1940 Act, of at least 200% with
respect to all outstanding senior securities of the Company which are stock,
including all outstanding MMP Shares (or such other asset coverage as may
in the
future be specified in or under the 1940 Act as the minimum asset coverage
for
senior securities which are stock of a closed-end investment company as
a
condition of declaring dividends on its common stock), determined on the
basis
of values calculated as of a time within 48 hours next preceding the time
of
such determination.
(jjj) “Notice
of Redemption” means any notice with respect to the redemption of MMP Shares
pursuant to Section 3.
(kkk) “Order”
means a Hold Order, Bid or Sell Order.
(lll) “Original
Issue Date” means, with respect to the MMP Shares, Series ___, ________,
200_.
(mmm) “Other
Rating Agency” means each rating agency, if any, other than Fitch or Moody’s
then providing a rating for the MMP Shares pursuant to the request of the
Company.
(nnn) “Other
Rating Agency Discount Factor” means the discount factors set forth in the Other
Rating Agency Guidelines as eligible for use in calculating the Discounted
Value
of the Company’s assets in connection with such Other Rating Agency’s ratings of
MMP Shares.
(ooo) “Other
Rating Agency Eligible Assets” means assets of the Company designated by any
Other Rating Agency as eligible for inclusion in calculating the Discounted
Value of the Company’s assets in connection with such Other Rating Agency’s
rating of MMP Shares.
(ppp) “Other
Rating Agency Guidelines” means the guidelines provided by each Other Rating
Agency, as may be amended from time to time, in connection with the Other
Rating
Agency’s rating of MMP Shares.
(qqq) “Outstanding”
or “outstanding” means, as of any date, MMP Shares theretofore issued by the
Company except, without duplication, (i) any MMP Shares theretofore
canceled, redeemed or repurchased by the Company, or delivered to the Auction
Agent for cancellation or with respect to which the Company has given notice
of
redemption and irrevocably deposited with the Paying Agent sufficient funds
to
redeem such MMP Shares and (ii) any MMP Shares represented by any
certificate in lieu of which a new certificate has been executed and delivered
by the Company. Notwithstanding the foregoing, (A) for purposes
of voting rights (including the determination of the number of shares required
to constitute a quorum), any of the MMP Shares to which the Company or
any
Affiliate of the Company shall be the Existing Holder shall be disregarded
and
not deemed outstanding; (B) in connection with any Auction, any MMP Shares
as to which the Company or any person known to the Auction Agent to be
an
Affiliate of the Company shall be the Existing Holder thereof shall be
disregarded and deemed not to be outstanding; and (C) for purposes of
determining the MMP Shares Basic Maintenance Amount, MMP Shares held by
the
Company shall be disregarded and not deemed outstanding but shares held
by any
Affiliate of the Company shall be deemed outstanding.
(rrr) “Paying
Agent” means The Bank of New York unless and until another entity appointed by
a
resolution of the Board of Directors enters into an agreement with the
Company
to serve as paying agent.
(sss) “Person”
or “person” means and includes an individual, a corporation, a partnership, a
trust, a company, an unincorporated association, a joint venture or other
entity
or a government or any agency or political subdivision thereof.
(ttt) “Potential
Beneficial Owner,” with respect to shares of a series of MMP Shares, shall mean
a customer of a Broker-Dealer that is not a Beneficial Owner of shares
of such
series but that wishes to purchase shares of such series, or that is a
Beneficial Owner of shares of such series that wishes to purchase additional
shares of such series; provided, however, that for purposes of conducting
an
Auction, the Auction Agent may consider a Broker-Dealer acting on behalf
of its
customer as a Potential Beneficial Owner.
(uuu) “Potential
Holder,” with respect to shares of a series of MMP Shares, shall mean a
Broker-Dealer (or any such other person as may be permitted by the Company)
that
is not an Existing Holder of MMP Shares of such series or that is an Existing
Holder of MMP Shares of such series that wishes to become the Existing
Holder of
additional MMP Shares of such series; provided, however, that
for
purposes of conducting an Auction, the Auction Agent may consider a
Broker-Dealer acting on behalf of its customer as a Potential
Holder.
(vvv) “Preferred
Shares” means the shares of preferred stock, par value $.001 per share,
including the MMP Shares, of the Company from time to time.
(www) “Rating
Agency” means each of Fitch (if Fitch is then rating MMP Shares), Moody’s (if
Moody’s is then rating MMP Shares), and any Other Rating Agency.
(xxx) “Rating
Agency Guidelines” mean Fitch Guidelines (if Fitch is then rating MMP Shares),
Moody’s Guidelines (if Moody’s is then rating MMP Shares) and any Other Rating
Agency Guidelines (if any Other Rating Agency is then rating MMP Shares),
whichever is applicable.
(yyy)
“Redemption Default” has the meaning set forth in Section 2(c)(ii) of
this Part I.
(zzz) “Redemption
Price” has the meaning set forth in Section 3(a)(i) of this
Part I.
(aaaa)
“Reference Rate” means, with respect to the determination of the Maximum Rate
and Default Rate, the greater of (1) the applicable “AA” Composite
Commercial Paper Rate (for a Dividend Period of fewer than 184 days) or
the
applicable Treasury Index Rate (for a Dividend Period of 184 days or more),
or
(2) the applicable LIBOR.
(bbbb) “Securities
Act” means the Securities Act of 1933, as amended from time to
time.
(cccc) “Securities
Depository” means The Depository Trust Company and its successors and assigns or
any successor securities depository selected by the Company that agrees
to
follow the procedures required to be followed by such securities depository
in
connection with the MMP Shares.
(dddd) “Sell
Order” shall have the meaning specified in paragraph (a) of Section 1
of Part II of these terms of the MMP Shares.
(eeee) “Special
Auction Period” means an Auction Period that is not a Standard Auction
Period.
(ffff) “Special
Dividend Period” means a Dividend Period that is not a Standard Dividend
Period.
(gggg)
“Specific Redemption Provisions” means, with respect to any Special Dividend
Period of more than one year, either, or any combination of (i) a period (a
“Non-Call Period”) determined by the Board of Directors after consultation with
the Broker-Dealers, during which the shares subject to such Special Dividend
Period are not subject to redemption at the option of the Company pursuant
to
Section 3(a)(ii) and (ii) a period (a “Premium Call Period”),
consisting of a number of whole years as determined by the Board of Directors
after consultation with the Broker-Dealers, during each year of which the
shares
subject to such Special Dividend Period shall be redeemable at the Company’s
option pursuant to Section 3(a)(i) and/or in connection with any mandatory
redemption pursuant to Section 3(a)(ii) at a price per share equal to
$25,000 plus accumulated but unpaid dividends plus a premium expressed
as a
percentage or percentages of $25,000 or expressed as a formula using specified
variables as determined by the Board of Directors after consultation with
the
Broker-Dealers.
(hhhh) “Standard
Auction Period” means an Auction Period of ___ days.
(iiii) “Standard
Dividend Period” means a Dividend Period of ___ days.
(jjjj)
“Submission Deadline” means 1:00 P.M., New York City time, on any
Auction Date or such other time on such date as shall be specified by the
Auction Agent from time to time pursuant to the Auction Agreement as the
time by
which the Broker-Dealers are required to submit Orders to the Auction
Agent. Notwithstanding the foregoing, the Auction Agent will follow
the Securities Industry and Financial Markets Association’s Early Market Close
Recommendations for shortened trading days for the bond markets (the “SIFMA
Recommendation”) unless the Auction Agent is instructed otherwise in writing by
the Company. In the event of a SIFMA Recommendation with respect to
an Auction Date, the Submission Deadline will be 11:30 A.M., instead of
1:00 P.M., New York City time.
(kkkk)
“Submitted Bid” shall have the meaning
specified in paragraph (a) of Section 3 of Part II of these terms
of the MMP Shares.
(llll) “Submitted
Hold Order” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the MMP Shares.
(mmmm) “Submitted
Order” shall have the meaning specified in
paragraph (a) of Section 3 of Part II of
these terms of the MMP Shares.
(nnnn) “Submitted
Sell Order” shall have the meaning specified in paragraph (a) of
Section 3 of Part II of these terms of the MMP Shares.
(oooo) “Sufficient
Clearing Bids” means for each series of MMP Shares, an Auction for which the
number of outstanding MMP Shares subject to Submitted Bids by Potential
Beneficial Owners specifying one or more rates not higher than the Maximum
Rate
is not less than the number of outstanding MMP Shares subject to Submitted
Sell
Orders and of Submitted Bids by Existing Holders specifying rates higher
than
the Maximum Rate.
(pppp) “Tortoise
Notes” shall mean the $__________ in principal amount of the Company’s currently
outstanding Auction Rate Senior Notes Series A, B, C, D and E and any additional
series of such notes which may be issued from time to time by the
Company.
(qqqq)
“Treasury Index Rate” means the average
yield to maturity for actively traded marketable U.S. Treasury fixed interest
rate securities having the same number of 30-day periods to maturity as
the
length of the applicable Dividend Period, determined, to the extent necessary,
by linear interpolation based upon the yield for such securities having
the next
shorter and next longer number of 30-day
periods to maturity treating all Dividend Periods with a length greater
than the
longest maturity for such securities as having a length equal to such longest
maturity, in all cases based upon data set forth in the most recent weekly
statistical release published by the Board of Governors of the Federal
Reserve
System (currently in H.15(519)); provided, however, if the most recent
such
statistical release shall not have been published during the 15 days preceding
the date of computation, the foregoing computations shall be based upon
the
average of comparable data as quoted to the Company by at least three recognized
dealers in U.S. Government securities selected by the Company.
(rrrr)
“Valuation Date” has the meaning set forth in the Rating Agency
Guidelines.
(ssss)
“Winning Bid Rate” means for the MMP Shares of a series, the lowest rate
specified in any Submitted Bid of the MMP Shares, which if selected by
the
Auction Agent as the Applicable Rate would cause the number of MMP Shares
of
such series that are the subject of Submitted Bids specifying a rate not
greater
than such rate to be not less than the number of Available MMP
Shares.
18. Interpretation. References
to sections, subsections, clauses, sub-clauses, paragraphs and subparagraphs
are
to such sections, subsections, clauses, sub-clauses, paragraphs and
subparagraphs contained in this Part I or Part II hereof, as the case
may be, unless specifically identified otherwise.
PART II: AUCTION
PROCEDURES
1. Orders
by Existing Holders and Potential Beneficial Owners. (a) Prior to
the Broker-Dealer Deadline for each series of MMP Shares on each Auction
Date:
(i) each
Existing Holder may submit to a Broker-Dealer, in writing or by such other
method as shall be reasonably acceptable to such Broker-Dealer, one or
more
Orders as to:
(A) the
number of MMP Shares, if any, of the series held by the Existing Holder
which
the Existing Holder commits to continue to hold for the next succeeding
Auction
Period without regard to the Applicable Rate for such Auction
Period;
(B) the
number of MMP Shares, if any, of the series held by the Existing Holder
which
the Existing Holder commits to continue to hold for the next succeeding
Auction
Period if the Applicable Rate for MMP Shares for the next succeeding Auction
Period is not less than the rate per annum specified in such Order (and
if the
Auction Rate is less than such specified rate, the effect of the Order
shall be
as set forth in paragraph (b)(i)(A) of this Section); and/or
(C) the
number of MMP Shares, if any, of the series held by the Existing Holder
which
the Existing Holder offers to sell on the first Business Day of the next
succeeding Auction Period without regard to the Applicable Rate for MMP
Shares
for the next succeeding Auction Period; and
(ii) each
Potential Beneficial Owner may submit to a Broker-Dealer, in writing or
by such
other method as shall be reasonably acceptable to such Broker-Dealer, an
Order
as to the number of outstanding MMP Shares of a series which each such
Potential
Beneficial Owner offers to purchase if the Applicable Rate for the MMP
Shares of
a series for the next succeeding Dividend Period is not less than the rate
per
annum then specified by such Potential Beneficial Owner.
For
the purposes of
the Auction Procedures, an Order containing the information referred to
in
clause (i)(A) of this paragraph (a) is referred to as a “Hold Order,”
an Order containing the information referred to in clause (i)(B) or
(ii) of this paragraph (a) is referred to as a “Bid,” and an Order
containing the information referred to in clause (i)(C) of this
paragraph (a) is referred to as a “Sell Order.” No Auction Desk
of a Broker-Dealer shall accept as an Order a submission (whether received
from
an Existing Holder or a Potential Beneficial Owner or generated by the
Broker-Dealer for its own account) which does not conform to the requirements
of
the Auction Procedures, including, but not limited to, submissions which
are not
in Authorized Denominations, specify a rate which contains more than three
figures to the right of the decimal point or specify an amount greater
than the
number of outstanding MMP Shares. No Auction Desk of a Broker-Dealer
shall accept a Bid or Sell Order which is conditioned on being filled in
whole
or a Bid which does not specify a specific dividend rate.
(b) (i) A
Bid by an Existing Holder shall constitute an offer to sell on the first
Business Day of the next succeeding Auction Period:
(A) the
number of outstanding Series __ MMP Shares specified in the Bid if the
Applicable Rate for the next succeeding Auction Period shall be less than
the
rate specified in such Bid; or
(B) the
number or a lesser number of outstanding Series __ MMP Shares to be determined
as described in clause (v) of paragraph (a) of Section 5 of this
Part II if the Applicable Rate for the next succeeding Auction Period shall
be equal to such specified rate; or
(C) a
lesser number of outstanding Series __ MMP Shares to be determined as described
in clause (iv) of paragraph (b) of Section 5 of this Part II
if the rate specified therein shall be higher than the Maximum Rate for
shares
of the series and Sufficient Clearing Bids for shares of the series do
not
exist.
(ii) A
Sell Order by an Existing Holder shall constitute an offer to sell:
(A) the
number of outstanding MMP Shares of the series specified in the Sell Order;
or
(B) the
number or a lesser number of outstanding MMP Shares of the series as set
forth
in clause (iv) of paragraph (b) of Section 5 of this Part II
if Sufficient Clearing Bids for MMP Shares of the series do not
exist;
(iii) A
Bid by a Potential Holder of MMP Shares shall constitute an offer to
purchase:
(A) the
number of outstanding MMP Shares of the series specified in the Bid if
the
Applicable Rate for the next succeeding Auction Period shall be higher
than the
rate specified therein; or
(B) the
number or a lesser number of outstanding MMP Shares of the series as set
forth
in clause (vi) of paragraph (a) of Section 5 of this Part II
if the Applicable Rate for the MMP Shares determined on the Auction Date
shall
be equal to the rate specified therein.
(C) Anything
herein to the contrary notwithstanding:
(1) if
an Order or Orders covering all of the MMP Shares of a particular series
held by
any Existing Holder is not submitted to the Broker-Dealer prior to the
Broker-Dealer Deadline, such Broker-Dealer shall deem a Hold Order to have
been
submitted on behalf of the Existing Holder covering the number of outstanding
MMP Shares of the series held by the Existing Holder and not subject to
Orders
submitted to the Auction Agent; provided, however, that if there is a conversion
from one Auction Period to a longer Auction Period and Orders have not
been
submitted to such Broker-Dealer prior to the Broker-Dealer Deadline covering
the
number of outstanding MMP Shares of a particular series to be converted
held by
such Existing Holder, such Broker-Dealer shall deem a Sell Order to have
been
submitted on behalf of the Existing Holder covering the
number
of
MMP Shares to be converted held by the Existing Holder and not subject
to Orders
submitted to the Broker-Dealer;
(2) for
purposes of any Auction, any Order by an Existing Holder or Potential Holder
shall be revocable until the Broker-Dealer Deadline, and after the Broker-Dealer
Deadline all such Orders shall be irrevocable except as provided in
Section 2(e)(ii) and 2(f); and
(3) for
purposes of any Auction, any MMP Shares sold or purchased pursuant to clauses
(i), (ii) or (iii) of paragraph (b) of this Section 1 shall be sold or
purchased at a price equal to 100% of the liquidation preference
thereof.
2. Submission
of Orders by Broker-Dealers to Auction Agent. (a) Each
Broker-Dealer shall submit to the Auction Agent in writing, or by such
other
electronic means, as shall be reasonably acceptable to the Auction Agent,
prior
to the Submission Deadline on each Auction Date for MMP Shares of a series,
all
Orders with respect to MMP shares of such series accepted by such Broker-Dealer
in accordance with Section 1 above and specifying with respect to each
Order or aggregation of Orders pursuant to paragraph (b) of this
Section 2:
(i) the
name of the Broker-Dealer;
(ii) the
number of Bidders placing Orders if requested by the Auction Agent;
(iii) the
aggregate number of MMP Shares of the series, if any, that are the subject
of
the Order;
(iv) to
the extent that the Bidder is an Existing Holder of MMP Shares of the
series:
(A) the
number of MMP Shares, if any, of the series subject to any Hold Order placed
by
the Existing Holder;
(B) the
number of MMP Shares, if any, of the series subject to any Bid placed by
the
Existing Holder and the rate specified in the Bid; and
(C) the
number of MMP Shares, if any, of the series subject to any Sell Order placed
by
the Existing Holder; and
(v) to
the extent the Bidder is a Potential Holder of MMP Shares of the series,
the
rate specified in such Bid.
(b) If
more than one Bid is submitted to a Broker-Dealer on behalf of any single
Potential Beneficial Owner, the Broker-Dealer shall aggregate each Bid
submitted
on behalf of such Potential Beneficial Owner with the same rate and consider
such Bids as a single Bid and shall consider each Bid submitted with a
different
rate a separate Bid with the rate and the number of MMP Shares of the series
specified therein.
A
Broker-Dealer may aggregate the Orders of different Potential Beneficial
Owners
with those of other Potential Beneficial Owners on whose behalf the
Broker-Dealer is submitting Orders and may aggregate the Orders of different
Existing Holders with other Existing Holders on whose behalf the
Broker-Dealer
is submitting Orders; provided, however, Bids may only be aggregated if
the
dividend rates on the Bids are the same.
(c) None
of the Company or the Auction Agent shall be responsible for the failure
of any
Broker-Dealer to submit an Order to the Auction Agent on behalf of any
Beneficial Owner, Potential Beneficial Owner, Existing Holder or Potential
Holder.
(d) Nothing
contained herein shall preclude a Broker-Dealer from placing an Order for
some
or all of the MMP Shares of a series for its own account.
(e) Until
the Submission Deadline, a Broker-Dealer may withdraw or modify any Order
previously submitted to the Auction Agent (i) for any reason if the Order
was generated by the Auction Desk of the Broker-Dealer for the account
of the
Broker-Dealer or (ii) to correct a Clerical Error on the part of the
Broker-Dealer in the case of any other Order, including Orders from the
Broker-Dealer which were not originated by the Auction Desk.
(f) After
the Submission Deadline, and prior to the Error Correction Deadline, a
Broker-Dealer may:
(i) submit
to the Auction Agent an Order received from an Existing Holder, Potential
Beneficial Owner or a Broker-Dealer which is not generated by the Auction
Desk,
in each case prior to the Broker-Dealer Deadline, or an Order generated
by the
Broker-Dealer’s Auction Desk for its own account prior to the Submission
Deadline (provided that in each case the Broker-Dealer has a record of
such
Order and the time when such Order was received or generated) and not submitted
to the Auction Agent prior to the Submission Deadline as a result of (A) an
event of force majeure or a technological failure which made delivery prior
to
the Submission Deadline impossible or, under the conditions then prevailing,
impracticable or (B) a clerical error on the part of the Broker-Dealer;
or
(ii) modify
or withdraw an Order received from an Existing Holder or a Potential Beneficial
Owner or generated by the Broker-Dealer (whether generated by the
Broker-Dealer’s Auction Desk or elsewhere within the Broker-Dealer) for its own
account and submitted to the Auction Agent prior to the Submission Deadline
or
pursuant to clause (i) above, if the Broker-Dealer determines that such
Order contained a Clerical Error on the part of the Broker-Dealer.
In
the
event a Broker-Dealer makes a submission, modification or withdrawal pursuant
to
this Section 2(f) and the Auction Agent has already run the Auction, the
Auction Agent shall rerun the Auction, taking into account such submission,
modification or withdrawal. Each submission, modification or
withdrawal of an Order submitted pursuant to this Section 2(f) by a
Broker-Dealer after the
Submission Deadline and prior to the Error Correction Deadline shall constitute
a representation by the Broker-Dealer that (A) in the case of a newly
submitted Order or portion thereof or revised Order, the failure to submit
such
Order prior to the Submission Deadline resulted from an event described
in
clause (i) above and such Order was received from an Existing Holder or
Potential Beneficial Owner or is an Order received from the Broker-Dealer
that
was not originated by the Auction Desk, in each case, prior to the Broker-Dealer
Deadline, or generated internally by such Broker-Dealer’s Auction Desk for its
own account prior to the Submission Deadline or (B) in the case of a
modified or withdrawn Order, such Order was received from an Existing Holder,
a
Potential Beneficial Owner or the Broker-Dealer which was not originated
by the
Auction Desk prior to the Broker-Dealer Deadline, or generated internally
by
such Broker-Dealer’s Auction Desk for its own account prior to the Submission
Deadline and such Order as submitted to the Auction Agent contained a Clerical
Error on the part of the Broker-Dealer and that such Order has been modified
or
withdrawn solely to effect a correction of such Clerical Error, and in
the
case
of
either
(A) or (B), as applicable, the Broker-Dealer has a record of such Order
and the
time when such Order was received or generated. The Auction Agent
shall be entitled to rely conclusively (and shall have no liability for
relying)
on such representation for any and all purposes of the Auction
Procedures.
(g) If
after the Auction Agent announces the results of an Auction, a Broker-Dealer
becomes aware that an error was made by the Auction Agent, the Broker-Dealer
shall communicate such awareness to the Auction Agent prior to 5:00 p.m.
New York City time on the Auction Date. If the Auction Agent
determines there has been such an error (as a result of either a communication
from a Broker-Dealer or its own discovery) prior to 3:00 p.m., New York
City time on the first day of the Auction Period with respect to which
such
Auction was conducted, the Auction Agent shall correct the error and notify
each
Broker-Dealer that submitted Bids or held a position in the MMP Shares
subject
to such Auction of the corrected results.
(h) Nothing
contained herein shall preclude the Auction Agent from:
(i) advising
a Broker-Dealer prior to the Submission Deadline that it has not received
Sufficient Clearing Bids for MMP Shares of the series, provided, however,
that
if the Auction Agent so advises any Broker-Dealer, it shall so advise all
Broker-Dealers; or
(ii) verifying
the Orders of a Broker-Dealer prior to the Submission Deadline, provided,
however, that if the Auction Agent verifies the Orders of any Broker-Dealer,
it
shall verify the Orders of all Broker-Dealers requesting such
verification.
3. Treatment
of Orders by the Auction Agent. Anything herein to the contrary
notwithstanding:
(a) If
the Auction Agent receives an Order which does not conform to the requirements
of the Auction Procedures, the Auction Agent may contact the Broker-Dealer
submitting such Order until one hour after the Submission Deadline and
inform
such Broker-Dealer that it may resubmit such Order so that it conforms
to the
requirements of the Auction Procedures. Upon being so informed, such
Broker-Dealer may correct and resubmit to the Auction Agent any such Order
that,
solely as a result of a Clerical Error on the part of such Broker-Dealer,
did
not conform to the requirements of the Auction Procedures when previously
submitted to the Auction Agent. Any such resubmission by a
Broker-Dealer shall constitute a representation by such Broker-Dealer that
the
failure of such Order to have so conformed was solely as a result of a
Clerical
Error on the part of such Broker-Dealer. If the Auction Agent has not
received a corrected conforming Order within one hour and fifteen minutes
of the
Submission Deadline, the Auction Agent shall, if and to the extent applicable,
adjust or apply such Order, as the case may be, in conformity with the
provisions of subsections (b), (c) or (d) of this Section 3 and, if
the Auction Agent is unable to so adjust or apply such Order, the Auction
Agent
shall reject such Order.
(b) If
any rate specified in any Bid contains more than three figures to the right
of
the decimal point, the Auction Agent shall round the rate up to the next
highest
one thousandth of one percent (0.001%).
(c) If
one or more Orders covering in the aggregate more than the number of outstanding
MMP Shares of a particular series are submitted by a Broker-Dealer to the
Auction Agent, such Orders shall be considered valid in the following order
of
priority:
(i) all
Hold Orders for MMP Shares of a series shall be considered Hold Orders,
but only
up to and including in the aggregate the number of outstanding MMP Shares
of the
series for which such Broker-Dealer is the Broker-Dealer of record;
(ii) (A) any
Bid of a Broker-Dealer shall be considered valid as a Bid of an Existing
Holder
up to and including the excess of the number of outstanding MMP Shares
of such
series for which such Broker-Dealer is the Broker-Dealer of record over
the
number of MMP Shares of such series subject to any Hold Orders referred
to in
clause (i) above;
(B) subject
to subclause (A), all Bids of a Broker-Dealer with the same rate shall be
aggregated and considered a single Bid of an Existing Holder up to and
including
the excess of the number of outstanding MMP Shares of the series for which
such
Broker-Dealer is the Broker Dealer of record over the number of MMP Shares
of
such series for which the Broker-Dealer is the Broker-Dealer of record
subject
to any Hold Orders referred to in clause (i) above;
(C) subject
to subclause (A), if more than one Bid with different rates is submitted by
a Broker-Dealer, such Bids shall be considered Bids of an Existing Holder
in the
ascending order of their respective rates up to the amount of excess of
the
number of outstanding MMP Shares of the series for which such Broker-Dealer
is
the Broker-Dealer of record over the number of MMP Shares of such Series
for
which such Broker-Dealer is the Broker-Dealer of record subject to any
Hold
Orders referred to in clause (i) above;
(D) the
number, if any, of outstanding MMP Shares of the series subject to Bids
not
considered to be Bids for which the Broker-Dealer is the Broker-Dealer
of record
under this clause (ii) shall be treated as the subject of a Bid for MMP
Shares of the series by a Potential Beneficial Owner; and
(iii) all
Sell Orders shall be considered Sell Orders, but only up to and including
a
number of MMP Shares of such series equal to the excess of the number of
outstanding MMP Shares of such series for which such Broker-Dealer is the
Broker-Dealer of record over the sum of the number of MMP Shares of such
series
subject to Hold Orders referred to in clause (i) above and the number of
MMP Shares of such series considered to be subject to Bids for which such
Broker-Dealer is the Broker-Dealer of record pursuant to clause (ii)
above.
(d) If
any Order is for other than an integral number of MMP Shares, then the
Auction
Agent shall round the number down to the nearest number of whole MMP Shares,
and
the Auction Agent shall conduct the Auction Procedures as if such Order
had been
submitted in such number of MMP Shares.
(e) If
the Auction Agent has been notified by the Company that any portion of
an Order
by a Broker-Dealer relates to an MMP Share that has been called for redemption
on or prior to the Dividend Payment Date next succeeding such Auction,
the Order
shall be invalid with respect to such portion
and the Auction Agent shall conduct the Auction Procedures as if such portion
of
such Order had not been submitted.
(f) No
MMP Share which the Auction Agent has been notified by the Company has
been
called for redemption on or prior to the Dividend Payment Date next succeeding
such Auction shall be included in the calculation of Available MMP Shares
for
such Auction.
(g) If
an Order or Orders covering all of the MMP Shares of a particular series
is not
submitted by a Broker-Dealer of record prior to the Submission Deadline,
the
Auction Agent shall deem a Hold Order to have been submitted on behalf
of such
Broker-Dealer covering the number of MMP Shares for which such Broker-Dealer
is
the Broker-Dealer of record and not subject to Orders submitted to the
Auction
Agent; provided, however, that if there is a conversion from one Auction
Period
to a longer
Auction
Period and Orders have not been submitted by such Broker-Dealer prior to
the
Submission Deadline covering the number of MMP Shares of a particular series
to
be converted for which such Broker-Dealer is the Broker-Dealer of record,
the
Auction Agent shall deem a Sell Order to have been submitted on behalf
of such
Broker-Dealer covering the number of MMP Shares to be converted for which
such
Broker-Dealer is the Broker-Dealer of record not subject to Orders submitted
by
such Broker-Dealer.
4. Determination
of Applicable Rate. (a) If requested by a Broker-Dealer, not
later than 10:30 a.m., New York City time (or such other time as may be
agreed to by the Auction Agent and all Broker-Dealers), on each Auction
Date for
each series of MMP Shares, the Auction Agent shall advise such Broker-Dealer
of
the All Hold Rate. Such advice, and confirmation, shall be made by
telephone or other electronic means acceptable to the Auction
Agent.
(b) Promptly
after the Submission Deadline for the MMP Shares of a series on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed submitted
to it by the Broker-Dealers (each such Order as submitted or deemed submitted
by
a Broker-Dealer being hereinafter referred to as a “Submitted Hold Order,” a
“Submitted Bid” or a “Submitted Sell Order,” as the case may be, and
collectively as a “Submitted Order”) and shall determine (i) the Available
MMP Shares, (ii) whether there are Sufficient Clearing Bids, and
(iii) the Applicable Rate.
(c) In
the event the Auction Agent shall fail to calculate or, for any reason,
fails to
provide the Applicable Rate on the Auction Date, for any Auction Period
(i) if
the preceding Auction Period was a period of 35 days or less, (A) a new
Auction
Period shall be established for the same length of time as the preceding
Auction
Period, if the failure to make such calculation was because there was not
at the
time a duly appointed and acting Auction Agent or Broker-Dealer, and the
Applicable Rate for the new Auction Period shall be the percentage of the
Index
set forth in Section 4(f) below if the Index is ascertainable on such date
(by
the Auction Agent, if there is at the time an Auction Agent, or the Company,
if
at the time there is no Auction Agent) or, (B) if the failure to make such
calculation was for any other reason or if the Index is not ascertainable
on
such date, the prior Auction Period shall be extended to the seventh day
following the day that would have been the last day of the preceding Auction
Period (or if such seventh day is not followed by a Business Day then to
the
next succeeding day that is followed by a Business Day) and the
Applicable Rate for the period as so extended shall be the same as the
Applicable Rate for the Auction Period prior to the extension, and (ii)
if the
preceding Auction Period was a period of greater than 35 days, (A) a new
Auction
Period shall be established for a period that ends on the seventh day following
the day that was the last day of the preceding Auction Period, (or if such
seventh day is not followed by a Business Day then to the next succeeding
day
which is followed by a Business Day) if the failure to make such calculation
was
because there was not at the time a duly appointed and acting Auction Agent
or
Broker-Dealer, and the Applicable Rate for the new Auction Period shall
be the
percentage of the Index set forth in Section 4(f) below if the Index is
ascertainable on such
date (by the Auction Agent, if there is at the time an Auction Agent, or
the
Company, if at the time there is no Auction Agent) or, (B) if the failure
to
make such calculation was for any other reason or if the Index is not
ascertainable on such date, the prior Auction Period shall be extended
to the
seventh day following the day that would have been the last day of the
preceding
Auction Period (or if such seventh day is not followed by a Business Day
then to
the next succeeding day that is followed by a Business Day) and the
Applicable Rate for the period as so extended shall be the same as the
Applicable Rate for the Auction Period prior to the extension. In the
event a new Auction Period is established as set forth in clause (ii) (A)
above,
an Auction shall be held on the last Business Day of the new Auction Period
to
determine an Applicable Rate for an Auction Period beginning on the Business
Day
immediately following the last day of the new Auction Period and ending
on the
date on which the Auction Period otherwise would have ended had there been
no
new Auction Period or Auction Periods subsequent to the last Auction Period
for
which a Winning Bid Rate had been determined. In the event an Auction
Period is
extended
as set forth in clause (i) (B) or (ii) (B) above, an Auction shall be held
on
the last Business Day of the Auction Period as so extended to determine
an
Applicable Rate for an Auction Period beginning on the Business Day immediately
following the last day of the extended Auction Period and ending on the
date on
which the Auction Period otherwise would have ended had there been no extension
of the prior Auction Period.
Notwithstanding
the foregoing, neither new nor extended Auction Periods shall total more
than 35
days in the aggregate. If at the end of the 35 days the Auction Agent
fails to calculate or provide the Applicable Rate, or there is not at the
time a
duly appointed and acting Auction Agent or Broker-Dealer, the Applicable
Rate
shall be the Maximum Rate.
(d) In
the event of a failed conversion from an Auction Period to any other period
or
in the event of a failure to change the length of the current Auction Period
due
to the lack of Sufficient Clearing Bids at the Auction on the Auction Date
for
the first new Auction Period, the Applicable Rate for the next Auction
Period
shall be the Maximum Rate and the Auction Period shall be a seven-day Auction
Period.
(e) If
the MMP Shares are no longer maintained in book-entry-only form by the
Securities Depository, then the Auctions shall cease and the Applicable
Rate
shall be the Maximum Rate.
(f) The
percentage of the Index in Section 4(c) is ___%.
(g) Promptly
after the Auction Agent has made such determination, it shall advise the
Company
of the Applicable Rate for the next succeeding Dividend Period.
5. Allocation
of Shares. (a) In the event of Sufficient Clearing Bids for the
MMP Shares of a series subject to the further provisions of paragraphs (c)
and (d) of this Section 5. Submitted Orders for shares of the
series shall be accepted or rejected as follows in the following order
of
priority:
(i) the
Submitted Hold Order of each Existing Holder shall be accepted, thus requiring
each such Existing Holder to continue to hold the MMP Shares that are the
subject of such Submitted Hold Order;
(ii) the
Submitted Sell Order of each Existing Holder shall be accepted and the
Submitted
Bids of each Existing Holder specifying any rate that is higher than the
Winning
Bid Rate shall be rejected, thus requiring each Existing Holder to sell
the MMP
Shares that are the subject of such Submitted Sell Order or Submitted
Bid;
(iii) the
Submitted Bid of each Existing Holder specifying any rate that is lower
than the
Winning Bid Rate shall be accepted, thus requiring each such Existing Holder
to
continue to hold the MMP Shares that are the subject of the Submitted
Bid;
(iv) the
Submitted Bid of each Potential Holder specifying any rate that is lower
than
the Winning Bid Rate for shares of the series shall be accepted, thus requiring
each such Potential Holder to purchase the MMP Shares that are the subject
of
the Submitted Bid;
(v) the
Submitted Bid of each Existing Holder specifying a rate that is equal to
the
Winning Bid Rate shall be accepted, thus requiring each such Existing Holder
to
continue to hold the MMP Shares of the series that are the subject of the
Submitted Bid, but only up to and including the number of MMP Shares of
such
series obtained by multiplying (A) the aggregate number of Outstanding MMP
Shares which are not the subject of Submitted Hold Orders described in
clause
(i) of this paragraph (a) or of Submitted Bids described in clauses (iii)
and
(iv)
of
this
paragraph (a) by (B) a fraction, the numerator of which shall be the
principal amount of Outstanding MMP Shares held by such Existing Holder
subject
to such Submitted Bid and the denominator of which shall be the aggregate
number
of MMP Shares subject to such Submitted Bids made by all such Existing
Holders
that specified a rate equal to the Winning Bid Rate, and the remainder,
if any,
of such Submitted Bid shall be rejected, thus requiring each such Existing
Holder to sell any excess amount of MMP Shares;
(vi) the
Submitted Bid of each Potential Holder specifying a rate that is equal
to the
Winning Bid Rate shall be accepted, thus requiring each such Potential
Holder to
purchase the MMP Shares of the series that are the subject of such Submitted
Bid, but only in an amount equal to the number of MMP Shares of such series
obtained by multiplying (A) the aggregate number of Outstanding MMP Shares
which are not the subject of Submitted Hold Orders described in clause
(i) of
this paragraph (a) or of Submitted Bids described in clauses (iii), (iv)
or (v)
of this paragraph (a) by (B) a fraction, the numerator of which shall be
the Outstanding MMP Shares subject to such Submitted Bid and the denominator
of
which shall be the sum of the aggregate number of MMP Shares subject to
such
Submitted Bids made by all such Potential Holders that specified a rate
equal to
the Winning Bid Rate, and the remainder of such Submitted Bid shall be
rejected;
and
(vii) the
Submitted Bid of each Potential Holder specifying any rate that is higher
than
the Winning Bid Rate shall be rejected.
(b) In
the event there are not Sufficient Clearing Bids for the MMP Shares of
a series,
Submitted Orders for the MMP Shares of the series shall be accepted or
rejected
as follows in the following order of priority:
(i) the
Submitted Hold Order of each Existing Holder shall be accepted, thus requiring
each such Existing Holder to continue to hold the MMP Shares that are the
subject of such Submitted Hold Order;
(ii) the
Submitted Bid of each Existing Holder specifying any rate that is not higher
than the Maximum Rate shall be accepted, thus requiring each such Existing
Holder to continue to hold the MMP Shares that are the subject of such
Submitted
Bid;
(iii) the
Submitted Bids specifying any rate that is not higher than the Maximum
Rate for
the MMP Shares shall be accepted, thus requiring each such Potential Holder
to
purchase the MMP Shares that are the subject of such Submitted Bid;
and
(iv) the
Submitted Sell Orders of each Existing Holder shall be accepted as Submitted
Sell Orders and the Submitted Bids of each Existing Holder specifying any
rate
that is higher than the Maximum Rate shall be deemed to be and shall be
accepted
as Submitted Sell Orders, in both cases only up to and including the number
of
MMP Shares of such series obtained by multiplying (A) the number of MMP
Shares subject to Submitted Bids described in clause (iii) of this
paragraph (b) by (B) a fraction, the numerator of which shall be the
Outstanding MMP Shares held by such Existing Holder subject to such Submitted
Sell Order or such Submitted Bid deemed to be a Submitted Sell Order and
the
denominator of which shall be the aggregate number of Outstanding MMP Shares
subject to all such Submitted Sell Orders and such Submitted Bids deemed
to be
Submitted Sell Orders, and the remainder of each such Submitted Sell Order
or
Submitted Bid shall be deemed to be and shall be accepted as a Hold Order
and
each such Existing Holder shall be required to continue to hold such excess
amount of MMP Shares; and
(v) the
Submitted Bid of each Potential Holder specifying any rate that is higher
than
the Maximum Rate shall be rejected.
(c) If,
as a result of the undertakings described in Section 5(a) or (b) above,
any
Existing Holder or Potential Holder would be required to purchase or sell
an
aggregate number of MMP Shares that is not an integral multiple of $25,000
on
any Auction Date, the Auction Agent shall by lot, in such manner as it
shall
determine in its sole discretion, round up or down the number of MMP Shares
to
be purchased or sold by any Existing Holder or Potential Holder on such
Auction
Date so that the number of MMP Shares purchased or sold by each Existing
Holder
or Potential Holder on such Auction Date shall be an integral multiple
of
$25,000, even if such allocation results in one or more of such Existing
Holder
or Potential Holder not purchasing or selling any MMP Shares on such Auction
Date.
(d) If,
as a result of the undertakings described in Section 5(a) above, any Potential
Holder would be required to purchase less than $25,000 or an integral multiple
thereof of MMP Shares on any Auction Date, the Auction Agent shall by lot,
in
such manner as it shall determine in its sole discretion, allocate the
MMP
Shares for purchase among Potential Holders so that the number of MMP Shares
purchased on such Auction Date by any Potential Holder shall be an integral
multiple of $25,000, even if such allocation results in one or more of
such
Potential Holders not purchasing the MMP Shares on such Auction
Date.
6. Notice
of Applicable Rate. (a) On each Auction Date, the Auction Agent shall
notify each Broker-Dealer that participated in the Auction held on such
Auction
Date by electronic means acceptable to the Auction Agent and the applicable
Broker-Dealer of the following, with respect to the MMP Shares of a series
for
which an Auction was held on such Auction Date:
(i) the
Applicable Rate determined on such Auction Date for the succeeding Auction
Period;
(ii) whether
Sufficient Clearing Bids existed for the determination of the Winning Bid
Rate;
(iii) if
such Broker-Dealer submitted a Bid or a Sell Order on behalf of an Existing
Holder, whether such Bid or Sell Order was accepted or rejected and the
number
of MMP Shares of a series, if any, to be sold by such Existing
Holder;
(iv) if
such Broker-Dealer submitted a Bid on behalf of a Potential Holder, whether
such
Bid was accepted or rejected and the number of MMP Shares of a series,
if any,
to be purchased by such Potential Holder;
(v) if
the aggregate number of MMP Shares of a series to be sold by all Existing
Holders on whose behalf such Broker-Dealer submitted Bids or Sell Orders
is
different from the aggregate number of MMP Shares of such series to be
purchased
by all Potential Holders on whose behalf such Broker-Dealer submitted a
Bid, the
name or names of one or more Broker-Dealers (and the Agent Member, if any,
of
each such other Broker-Dealer) and the number of MMP Shares of such series
to be
(A) purchased from one or more Existing Holders on whose behalf such other
Broker-Dealers submitted Bids or Sell Orders or (B) sold to one or more
Potential Holders on whose behalf such Broker-Dealer submitted
Bids;
(vi) the
amount of dividends payable per share on each Dividend Payment Date with
respect
to such Auction Period; and
(vii) the
immediately succeeding Auction Date.
(b) On
each Auction Date, with respect to each series of MMP Shares for which
an
Auction was held on such Auction Date, each Broker-Dealer that submitted
an
Order on behalf of any Existing Holder or Potential Holder
shall: (i) if requested by an Existing Holder or Potential
Holder advise such Existing Holder or Potential Holder on whose behalf
such
Broker-Dealer submitted an Order as to (A) the Applicable Rate determined
on such Auction Date, (B) whether any Bid or Sell Order submitted on behalf
of each such Owner was accepted or rejected and (C) the immediately
succeeding Auction Date; (ii) instruct each Potential Holder on whose
behalf such Broker-Dealer submitted a Bid that was accepted, in whole or
in
part, to instruct such Potential Holder’s Agent Member to pay to such
Broker-Dealer (or its Agent Member) through the Securities Depository the
amount
necessary to purchase the number of MMP Shares of such series to be purchased
pursuant to such Bid against receipt of such shares; and (iii) instruct
each Existing Holder on whose behalf such Broker-Dealer submitted a Sell
Order
that was accepted or a Bid that was rejected in whole or in part, to instruct
such Existing Holder’s Agent Member to deliver to such Broker-Dealer (or its
Agent Member) through the Securities Depository the number of MMP Shares
of the
series to be sold pursuant to such Bid or Sell Order against payment
therefor.
(c) The
Auction Agent shall give notice of the Auction Rate to the Company by mutually
acceptable electronic means and the Company shall promptly give notice
of such
Auction Rate to the Securities Depository.
7. Miscellaneous
Provisions Regarding Auctions.
(a) If
the Securities Depository notifies the Company that it is unwilling or
unable to
continue as registered owner of the MMP Shares or if at any time the Securities
Depository shall no longer be registered or in good standing under the
Securities Exchange Act of 1934, as amended, or other applicable statute
or
regulation and a successor to the Securities Depository is not appointed
by the
Company within 90 days after the Company receives notice or becomes aware
of
such condition, as the case may be, the Auctions shall cease and the Company
shall execute and the Transfer Agent shall authenticate and deliver certificates
representing the MMP Shares. Such MMP Shares shall be registered in
such names and Authorized Denominations as the Securities Depository, pursuant
to instructions from the Agent Members or otherwise, shall instruct the
Company
and the Transfer Agent.
(b) During
an Auction Period, so long as the ownership of the MMP Shares is maintained
in
book-entry form by the Securities Depository, an Existing Holder or a Beneficial
Owner may sell, transfer or otherwise dispose of an MMP Share only pursuant
to a
Bid or Sell Order in accordance with the Auction Procedures or to or through
a
Broker-Dealer, provided that (i) in the case of all transfers other than
pursuant to Auctions, such Existing Holder or its Broker-Dealer or its
Agent
Member advises the Auction Agent of such transfer and (ii) a sale, transfer
or other disposition of MMP Shares
from a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer as the holder of such MMP Shares to that Broker-Dealer or
another
customer of that Broker-Dealer shall not be deemed to be a sale, transfer
or
other disposition for purposes of this paragraph if such Broker-Dealer
remains
the Existing Holder of the MMP Shares so sold, transferred or disposed
of
immediately after such sale, transfer or disposition.
8. Changes
in Auction Period or Auction Date.
(a) Changes
in Auction Period. (i) During any Auction Period, the Company,
may, from time to time on the Dividend Payment Date immediately following
the
end of any Auction Period, change the length of the Auction Period with
respect
to all of the MMP Shares of a series in order to accommodate economic and
financial factors that may affect or be relevant to the length of the Auction
Period and the rate of MMP Shares of such series. The Company shall
initiate the change in the length of the Auction Period by giving written
notice
to the Auction Agent, the Broker-Dealers and the Securities
Depository
that the Auction Period shall change if the conditions described herein
are
satisfied and the proposed effective date of the change, at least 10 Business
Days prior to the Auction Date for such Auction Period.
(ii) Any
such changed Auction Period shall be for a period of one day, seven-days,
28-days, 35-days, three months, six months and shall be for all of the
shares of
a series of MMP Shares in an Auction Period.
(iii) The
change in length of the Auction Period shall take effect only if Sufficient
Clearing Bids exist at the Auction on the Auction Date for such new Auction
Period. For purposes of the Auction for such new Auction Period only,
except to the extent any Existing Holder submits an Order with respect
to such
MMP Shares of any series each Existing Holder shall be deemed to have submitted
Sell Orders with respect to all of its MMP Shares of such series if the
change
is to a longer Auction Period and a Hold Order if the change is to a shorter
Auction Period. If there are not Sufficient Clearing Bids for the
first Auction Period, the Auction Rate for the new Auction Period shall
be the
Maximum Rate, and the Auction Period shall be a seven-day Auction
Period.
(b) Changes
in Auction Date. During any Auction Period, the Auction Agent,
at the direction of the Company, may specify an earlier or later Auction
Date
(but in no event more than five Business Days earlier or later) than the
Auction
Date that would otherwise be determined in accordance with the definition
of
“Auction Date” in order to conform with then current market practice with
respect to similar securities or to accommodate economic and financial
factors
that may affect or be relevant to the day of the week constituting an Auction
Date and the rate of the shares of the series of MMP Shares. The
Auction Agent shall provide notice of the Company’s direction to specify an
earlier Auction Date for an Auction Period by means of a written notice
delivered at least 45 days prior to the proposed changed Auction Date to
the
Company and the Broker-Dealers with a copy to the Securities
Depository. In the event the Auction Agent is instructed to specify
an earlier or later Auction Date, the days of the week on which an Auction
Period begins and ends and the Dividend Payment Dates shall be adjusted
accordingly.
(c) Changes
Resulting from Unscheduled Holidays. If, in the opinion of the
Auction Agent and the Broker-Dealers, there is insufficient notice of an
unscheduled holiday to allow the efficient implementation of the Auction
Procedures set forth herein, the Auction Agent and the Broker-Dealers may,
as
they deem appropriate, and after providing notice to the Company, set a
different Auction Date and adjust any Interest Payment Dates and Auction
Periods
affected by such unscheduled holiday. In the event there is not
agreement among the Broker-Dealers, the Auction Agent shall set the different
Auction Date and make such adjustments as directed by a majority of the
Broker-Dealers (based on the number of shares for which a Broker-Dealer
is
listed as the Broker-Dealer in the Existing Holder registry
maintained by
the Auction Agent pursuant to Section 2.2 of the Auction Agreement), and,
if
there is not a majority so directing, the Auction Date shall be moved to
the
next succeeding Business Day following the scheduled Auction Date, and
the
Dividend Payment Date and the Auction Period shall be adjusted
accordingly.
9. Index.
(a) If
for any reason on any Auction Date the Index shall not be determined as
provided
in Part II of these terms of the MMP Shares, the Index shall be the Index
for
the prior Business Day.
(b) The
determination of the Index as provided in the Articles Supplementary and
Part II
of these terms of the MMP Shares shall be conclusive and binding upon the
Company, the Broker-Dealers, the Auction Agent and the holders of the MMP
Shares.
SECOND: The
Series ____ Money Market Cumulative Preferred Shares have been classified
and designated by the Board of Directors under the authority contained
in the
charter.
THIRD: These
Articles Supplementary have been approved by the Board of Directors in
the
manner and by the vote required by law.
FOURTH: The
undersigned President of the Company acknowledges these Articles Supplementary
to be the corporate act of the Company and, as to all matters or facts
required
to be verified under oath, the undersigned President acknowledges that,
to the
best of his knowledge, information and belief, these matters and facts
are true
in all material respects and that this statement is made under the penalties
for
perjury.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS
WHEREOF, the Company has caused these Articles Supplementary to be signed
in its
name and on its behalf by its President and attested to by its Secretary
on this
___ day of __________, 200_.
ATTEST:
____________________________________________________
Name: Connie
J. Savage
Title: Secretary
|
TORTOISE
ENERGY INFRASTRUCTURE CORPORATION
______________________________________________
Name: David J.
Schulte
Title: President
|
APPENDIX
C – RATING OF INVESTMENTS
MOODY’S
INVESTORS SERVICE, INC.
Moody’s
long-term obligation ratings are opinions of the relative credit risk of
fixed-income obligations with an original maturity of one year or
more. They address the possibility that a financial obligation will
not be honored as promised. Such ratings reflect both the likelihood
of default and any financial loss suffered in the event of default.
“Aaa” Obligations
rated Aaa are judged to be of the highest quality, with minimal credit
risk.
“Aa” Obligations
rated Aa are judged to be of high quality and are subject to very low credit
risk.
“A” Obligations
rated A are considered upper-medium grade and are subject to low credit
risk.
“Baa” Obligations
rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative
characteristics.
“Ba” Obligations
rated Ba are judged to have speculative elements and are subject to substantial
credit risk.
“B” Obligations
rated B are considered speculative and are subject to high credit
risk.
“Caa” Obligations
rated Caa are judged to be of poor standing and are subject to very high
credit
risk.
“Ca” Obligations
rated Ca are highly speculative and are likely in, or very near, default,
with
some prospect of recovery of principal and interest.
“C” Obligations
rated C are the lowest rated class of bonds and are typically in default,
with
little prospect for recovery of principal and interest.
Note: Moody’s
appends numerical modifiers 1, 2, and 3 to each generic rating classification
from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2
indicates
a mid-range; and the modifier 3 indicates a ranking in the lower end of
that
generic rating category.
US
Municipal and Tax-Exempt Ratings
Municipal
ratings are based upon the analysis of four primary factors relating to
municipal finance: economy, debt, finances, and
administration/management strategies. Each of the factors is
evaluated individually and for its effect on the other factors in the context
of
the municipality’s ability to repay its debt.
“Aaa”
Issuers or issues rated Aaa demonstrate the strongest creditworthiness
relative
to other US municipal or tax-exempt issuers or issues.
“Aa”
Issuers or issues rated Aa demonstrate very strong creditworthiness relative
to
other US municipal or tax-exempt issuers or issues.
“A” Issuers
or issues rated A present above average creditworthiness relative to other
US
municipal or tax-exempt issuers or issues.
“Baa” Issuers
or issues rated Baa represent average creditworthiness relative to other
US
municipal or tax-exempt issuers or issues.
“Ba” Issuers
or issues rated Ba demonstrate below-average creditworthiness relative
to other
US municipal or tax-exempt issuers or issues.
“B”
Issuers or issues rated B demonstrate weak creditworthiness relative to
other US
municipal or tax-exempt issuers or issues.
“Caa” Issuers
or issues rated Caa demonstrate very weak creditworthiness relative to
other US
municipal or tax-exempt issuers or issues.
“Ca”
Issuers or issues rated Ca demonstrate extremely weak creditworthiness
relative
to other US municipal or tax-exempt issuers or issues.
“C” Issuers
or issues rated C demonstrate the weakest creditworthiness relative to
other US
municipal or tax-exempt issuers or issues.
Note: Moody’s
appends numerical modifiers 1, 2, and 3 to each generic rating category
from Aa
through Caa. The modifier 1 indicates that the issuer or obligation
ranks in the higher end of its generic rating category; the modifier 2
indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower
end of
that generic rating category.
Description
of Moody’s Highest Ratings of State and Municipal Notes and Other Short-Term
Loans
Moody’s
ratings for state and municipal notes and other short-term loans are designated
“Moody’s Investment Grade” (“MIG” or, for variable or floating rate obligations,
“VMIG”). Such ratings recognize the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of
the borrower and short-term cyclical elements are critical in short-term
ratings. Symbols used will be as follows:
“MIG-1” This
designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support,
or
demonstrated broad-based access to the market for refinancing.
“MIG-2” This
designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.
“MIG-3” This
designation denotes acceptable credit quality. Liquidity and
cash-flow protection may be narrow, and market access for refinancing is
likely
to be less well-established.
“SG” This
designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of
protection. Demand features rated in this category may be supported
by a liquidity provider that does not have an investment grade short-term
rating
or may lack the structural and/or legal protections necessary to ensure
the
timely payment of purchase price upon demand.
“VMIG
1” This designation denotes superior credit
quality. Excellent protection is afforded by the superior short-term
credit strength of the liquidity provider and structural and legal protections
that ensure the timely payment of purchase price upon demand.
“VMIG
2” This designation denotes strong credit quality. Good
protection is afforded by the strong short-term credit strength of the
liquidity
provider and structural and legal protections that ensure the timely payment
of
purchase price upon demand.
“VMIG
3” This designation denotes acceptable credit
quality. Adequate protection is afforded by the satisfactory
short-term credit strength of the liquidity provider and structural and
legal
protections that ensure the timely payment of purchase price upon
demand.
Description
of Moody’s Short-Term Ratings
Moody’s
short-term ratings are opinions of the ability of issuers to honor short-term
financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such
obligations generally have an original maturity not exceeding thirteen
months,
unless explicitly noted.
“P-1” Issuers
(or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
“P-2” Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
“P-3” Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations.
“NP” Issuers
(or supporting institutions) rated Not Prime do not fall within any of the
Prime rating categories.
A
brief
description of the applicable Fitch Ratings (“Fitch”) ratings symbols and
meanings (as published by Fitch) follows:
Long-Term
Credit Ratings
Investment
Grade
“AAA”
—
Highest credit quality. ‘AAA’ ratings denote the lowest expectation
of credit risk. They are assigned only in case of exceptionally
strong capacity for timely payment of financial commitments. This
capacity is highly unlikely to be affected adversely by foreseeable
events.
“AA”
—
Very high credit quality. ‘AA’ ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
“A”
—
High credit quality. ‘A’ ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions than is
the
case for higher ratings.
“BBB”
—
Good credit quality. ‘BBB’ ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
Speculative
Grade
“BB”
—
Speculative. ‘BB’ ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change
over time; however, business or financial alternatives may be available
to allow
financial commitments to be met. Securities rated in this category
are not investment grade.
“B”
—
Highly speculative. ‘B’ ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued payment
is
contingent upon a sustained, favorable business and economic
environment.
“CCC”,
“CC”, “C” — High default risk. Default is a real
possibility. Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic
developments. A ‘CC’ rating indicates that default of some kind
appears probable. ‘C’ ratings signal imminent default.
“DDD”,
“DD”, And “D” Default — The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a reorganization
or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve
as
general guidelines. ‘DDD’ obligations have the highest potential for
recovery, around 90%-100% of outstanding amounts and accrued
interest. ‘DD’ indicates potential recoveries in the range of
50%-90%, and ‘D’ the lowest recovery potential, i.e., below
50%. Entities rated in this category have defaulted on some or all of
their obligations. Entities rated ‘DDD’ have the highest prospect for
resumption of performance or continued operation with or without a formal
reorganization process. Entities rated ‘DD’ and ‘D’ are generally
undergoing a formal reorganization or liquidation process; those rated
‘DD’ are
likely to satisfy a higher portion of their outstanding obligations, while
entities rated ‘D’ have a poor prospect for repaying all
obligations.
Short-Term
Credit Ratings
A
short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and
thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
“F1”
—
Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added “+” to denote any
exceptionally strong credit feature.
“F2”
—
Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case
of the higher ratings.
“F3”
—
Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result
in a
reduction to non-investment grade.
“B”
—
Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial
and
economic conditions.
“C”
—
High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
“D”
—
Default. Denotes actual or imminent payment default.
Notes
to
Long-term and Short-term ratings:
“+”
or
“-” may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the ‘AAA’ Long-term rating
category, to categories below ‘CCC’, or to Short-term ratings other than
‘F1’.
“NR”
indicates that Fitch Ratings does not rate the issuer or issue in
question.
“Withdrawn”
— A rating is withdrawn when Fitch Ratings deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
“Rating
Watch” — Ratings are placed on Rating Watch to notify investors that
there is a reasonable probability of a rating change and the likely direction
of
such change. These are designated as “Positive”, indicating a
potential upgrade, “Negative”, for a potential downgrade, or “Evolving”, if
ratings may be raised, lowered or maintained. Rating Watch typically
is resolved over a relatively short period.
A
Rating
Outlook indicates the direction a rating is likely to move over a one to
two
year period. Outlooks may be positive, stable, or
negative. A positive or negative Rating Outlook does not imply a
rating change is inevitable. Similarly, ratings for which outlooks
are `stable’ could be downgraded before an outlook moves to positive or negative
if circumstances warrant such an action. Occasionally, Fitch Ratings
may be unable to identify the fundamental trend. In these cases, the
Rating Outlook may be described as evolving.
STANDARD &
POOR’S CORPORATION
A
brief
description of the applicable Standard & Poor’s Corporation, a division
of The McGraw-Hill Companies (“Standard & Poor’s” or “S&P”), rating
symbols and their meanings (as published by S&P) follows:
A
Standard & Poor’s issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium term note programs and commercial paper
programs). It takes into consideration the creditworthiness of
guarantors, insurers, or other forms of credit enhancement on the
obligation. The issue credit rating is not a recommendation to
purchase, sell, or hold a financial obligation, inasmuch as it does not
comment
as to market price or suitability for a particular investor.
Issue
credit ratings are based on current information furnished by the obligors
or
obtained by Standard & Poor’s from other sources it considers
reliable. Standard & Poor’s does not perform an audit in
connection with any credit rating and may, on occasion, rely on unaudited
financial information. Credit ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information,
or
based on other circumstances.
Issue
credit ratings can be either long-term or short-term. Short-term
ratings are generally assigned to those obligations considered short-term
in the
relevant market. In the U.S., for example, that means obligations
with an original maturity of no more than 365 days - including commercial
paper.
Short-term
ratings are also used to indicate the creditworthiness of an obligor with
respect to put features on long-term obligations. The result is a
dual rating, in which the short-term ratings address the put feature, in
addition to the usual long-term rating. Medium-term notes are
assigned long-term ratings.
Long-Term
Issue Credit Ratings
Issue
credit ratings are based in varying degrees, on the following
considerations:
1. Likelihood
of payment - capacity and willingness of the obligor to meet its financial
commitment on an obligation in accordance with the terms of the
obligation;
2. Nature
of and provisions of the obligation; and
3. Protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors’ rights. The issue ratings
definitions are expressed in terms of default risk. As such, they
pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority
in
bankruptcy, as noted above.
“AAA”
—
An obligation rated ‘AAA’ has the highest rating assigned by Standard &
Poor’s. The obligor’s capacity to meet its financial commitment on
the obligation is extremely strong.
“AA”
—
An
obligation rated ‘AA’ differs from the highest-rated obligations only in small
degree. The obligor’s capacity to meet its financial commitment on
the obligation is very strong.
“A”
—
An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its
financial commitment on the obligation is still strong.
BBB
—
An
obligation rated ‘BBB’ exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor
to
meet its financial commitment on the obligation.
BB,
B,
CCC, CC, AND C — Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded
as having significant speculative characteristics. ‘BB’ indicates the
least degree of speculation and ‘C’ the highest. While such
obligations will likely have some quality and protective characteristics,
these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB
—
An
obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to
the
obligor’s inadequate capacity to meet its financial commitment on the
obligation.
B
—
An
obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated
‘BB’, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor’s capacity or willingness to
meet its financial commitment on the obligation.
CCC
—
An
obligation rated ‘CCC’ is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor
to
meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not
likely
to have the capacity to meet its financial commitment on the
obligation.
CC
—
An
obligation rated ‘CC’ is currently highly vulnerable to nonpayment.
C
—
The
‘C’ rating may be used to cover a situation where a bankruptcy petition has
been
filed or similar action has been taken, but payments on this obligation
are
being continued.
D
—
An
obligation rated ‘D’ is in payment default. The ‘D’ rating category
is used when payments on an obligation are not made on the date due even
if the
applicable grace period has not expired, unless Standard & Poor’s
believes that such payments will be made during such grace
period. The ‘D’ rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
“+/-”
—
Plus (+) or minus (-). The ratings from ‘AA’ to ‘CCC’ may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
“c”
—
The
‘c’ subscript is used to provide additional information to investors that the
bank may terminate its obligation to purchase tendered bonds if the long-term
credit rating of the issuer is below an investment-grade level and/or the
issuer’s bonds are deemed taxable.
“P”
—
The
letter ‘p’ indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the
debt
being rated and indicates that payment of debt service requirements is
largely
or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood
of
or the risk of default upon failure of such completion. The investor
should exercise his own judgment with respect to such likelihood and
risk.
“*”
—
Continuance of the ratings is contingent upon Standard & Poor’s receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
“r”
—
The
‘r’ highlights derivative, hybrid, and certain other obligations that
Standard & Poor’s believes may experience high volatility or high
variability in expected returns as a result of noncredit
risks. Examples of such obligations are securities with principal or
interest return indexed to equities, commodities, or currencies; certain
swaps
and options; and interest-only and principal-only mortgage
securities. The absence of an ‘r’ symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability
in total
return.
N.R.
—
Not rated.
Debt
obligations of issuers outside the United States and its territories are
rated
on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into
account
currency exchange and related uncertainties.
Bond
Investment Quality Standards
Under
present commercial bank regulations issued by the Comptroller of the Currency,
bonds rated in the top four categories (‘AAA’, ‘AA’, ‘A’, ‘BBB’, commonly known
as investment-grade ratings) generally are regarded as eligible for bank
investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies,
and
fiduciaries in general.
Short-Term
Issue Credit Ratings
Notes
Standard &
Poor’s note ratings reflects the liquidity factors and market access risks
unique to notes. Notes due in three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used
in making that assessment:
Amortization
schedule -- the larger the final maturity relative to other maturities,
the more
likely it will be treated as a note; and
Source
of
payment -- the more dependent the issue is on the market for its refinancing,
the more likely it will be treated as a note.
Note
rating symbols are as follows:
“SP-1”
—
Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus
(+) designation.
“SP-2”
—
Satisfactory capacity to pay principal and interest, with some vulnerability
to
adverse financial and economic changes over the term of the notes.
“SP-3”
—
Speculative capacity to pay principal and interest.
A
note
rating is not a recommendation to purchase, sell, or hold a security inasmuch
as
it does not comment as to market price or suitability for a particular
investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers
reliable.
S&P
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of
such
information or based on other circumstances.
Commercial
Paper
An
S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days. Ratings are graded into several categories, ranging from ‘A-1’
for the highest quality obligations to ‘D’ for the lowest. These
categories are as follows:
“A-1”
—
A
short-term obligation rated ‘A-1’ is rated in the highest category by
Standard & Poor’s. The obligor’s capacity to meet its
financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign
(+). This indicates that the obligor’s capacity to meet its financial
commitment on these obligations is extremely strong.
“A-2”
—
A
short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in
higher rating categories. However, the obligor’s capacity to meet its
financial commitment on the obligation is satisfactory.
“A-3”
—
A
short-term obligation rated ‘A-3’ exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor
to
meet its financial commitment on the obligation.
“B”
—
A
short-term obligation rated ‘B’ is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor’s inadequate capacity to meet its
financial commitment on the obligation.
“C”
—
A
short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for
the
obligor to meet its financial commitment on the obligation.
“D”
—
A
short-term obligation rated ‘D’ is in payment default. The ‘D’ rating
category is used when payments on an obligation are not made on the date
due
even if the applicable grace period has not expired, unless Standard &
Poor’s believes that such payments will be made during such grace
period. The ‘D’ rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
A
commercial rating is not a recommendation to purchase, sell, or hold a
security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information
furnished to S&P by the issuer or obtained by S&P from other sources it
considers reliable.
S&P
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of
such
information or based on other circumstances.
Tortoise
Energy Infrastructure Corporation
_____________________________________________________
STATEMENT
OF ADDITIONAL INFORMATION
_____________________________________________________
___________,
2007