<PAGE> 1
Rule 424(b)5
PROSPECTUS SUPPLEMENT Registration Statement No. 333-56333
(TO PROSPECTUS DATED JUNE 17, 1998)
RATINGS:
STANDARD & POOR'S: "AAA"
MOODY'S: "AAA"
FITCH IBCA "AAA"
(SEE "RATINGS" HEREIN)
$55,000,000
Michigan Consolidated Gas Company
6.85% Senior Secured Insured Quarterly Notes due 2038
(IQ Notes(SM*))
------------------------
The Senior Secured Insured Quarterly Notes bear interest at the rate of 6.85%
per year. Interest on the Senior Secured Insured Quarterly Notes is payable
quarterly on March 1, June 1, September 1 and December 1 of each year, beginning
on September 1, 1999. The Senior Secured Insured Quarterly Notes will mature on
June 1, 2038. We can redeem the Senior Secured Insured Quarterly Notes on or
after June 1, 2004. We will also redeem the Senior Secured Insured Quarterly
Notes, subject to certain conditions, at the option of the representative of any
deceased noteholder. The Senior Secured Insured Quarterly Notes will be
available for purchase in denominations of $1,000.
We will issue collateral first mortgage bonds to secure the Senior Secured
Insured Quarterly Notes. On the date that we have retired all of our first
mortgage bonds, other than collateral mortgage bonds, the Senior Secured Insured
Quarterly Notes will either become unsecured and rank equally with all of our
other unsecured senior indebtedness or be secured by substitute collateral
mortgage bonds.
The timely payment of the regularly scheduled principal and interest on the
Senior Secured Insured Quarterly Notes will be insured by a financial guaranty
insurance policy issued by MBIA Insurance Corporation.
[MBIA LOGO]
Concurrently with the offering of these Senior Secured Insured Quarterly Notes,
we are offering $55,000,000 aggregate principal amount of senior debt securities
pursuant to a separate Prospectus Supplement. These two debt offerings are
independent of each other and each offering may be consummated whether or not
the other offering is consummated.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Edward D. Jones & Co., L.P. has agreed to purchase the Senior Secured Insured
Quarterly Notes at 96.85% of their principal amount ($53,267,500 aggregate
proceeds to Michigan Consolidated Gas Company, before deducting our expenses,
which we estimate to be $100,000), subject to the terms of our purchase
agreement. Edward D. Jones & Co., L.P. plans to sell the Senior Secured Insured
Quarterly Notes from time to time, in negotiated transactions or otherwise, at
prices based on either the prevailing market or negotiated prices.
We expect that the Senior Secured Insured Quarterly Notes will be ready for
delivery in book-entry form only through The Depository Trust Company ("DTC"),
on or about June 9, 1999.
------------------------
- -------------------------
*IQ Notes is a service mark of Edward D. Jones & Co., L.P.
EDWARD D. JONES & CO., L.P.
----------------
The date of this Prospectus Supplement is June 4, 1999.
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C>
Forward-Looking Statements.................................. S-3
Summary of the Offer........................................ S-4
Use of Proceeds............................................. S-7
Capitalization.............................................. S-7
Ratio of Earnings to Fixed Charges.......................... S-7
Description of the Senior Secured Insured Quarterly Notes... S-8
The Policy and the Insurer.................................. S-15
Ratings..................................................... S-18
Experts..................................................... S-19
Underwriting................................................ S-20
Legal Opinions.............................................. S-21
Appendix A -- Form of Policy................................ S-22
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 2
Forward-Looking Statements.................................. 3
The Company................................................. 4
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 4
Securities.................................................. 5
Description of the Senior Debt Securities................... 5
Description of the First Mortgage Bonds..................... 15
Plan of Distribution........................................ 18
Validity of Securities...................................... 20
Experts..................................................... 20
</TABLE>
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus. No one
has been authorized to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the Underwriter is not, making an offer to sell the Senior
Secured Insured Quarterly Notes in any jurisdiction where the offer to sell the
Senior Secured Insured Quarterly Notes is not permitted. You should assume that
the information appearing in this Prospectus Supplement and the accompanying
Prospectus, as well as information we previously filed with the Securities and
Exchange Commission and incorporated by reference, is accurate as of the date on
the front cover of those documents only. Our business, financial condition,
results of operations and prospects may have changed since that date. In this
Prospectus Supplement and the accompanying Prospectus, "MichCon", "we" and "our"
refer to Michigan Consolidated Gas Company.
S-2
<PAGE> 3
FORWARD-LOOKING STATEMENTS
Statements contained in or incorporated by reference into this Prospectus
Supplement or the accompanying Prospectus include forward-looking statements
within meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements involve certain risks and uncertainties that may cause future results
to differ materially from those contemplated, projected, estimated or budgeted
in such forward-looking statements. Factors that may impact forward-looking
statements include, but are not limited to, the following:
- - the effects of weather and other natural phenomena;
- - increased competition from other energy suppliers as well as alternative forms
of energy;
- - the capital intensive nature of MichCon's businesses;
- - economic climate and growth in the geographic areas in which MichCon does
business;
- - the uncertainty of gas reserve estimates;
- - the timing and extent of changes in commodity prices for natural gas,
electricity, crude oil, propane and other energy sources;
- - conditions of capital markets and equity markets;
- - the timing, nature and impact of Year 2000 activities; and
- - the effects of changes in governmental policies and regulatory actions,
including income taxes, environmental compliance and authorized rates.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
S-3
<PAGE> 4
SUMMARY OF THE OFFER
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus.
THE COMPANY
MichCon is a Michigan corporation that was organized in 1898 and, with its
predecessors, has been in business for 150 years. MichCon is a natural gas
utility primarily engaged in the distribution and transmission of natural gas in
the state of Michigan. MichCon also has subsidiaries involved in the gathering
and transmission of natural gas in northern Michigan. MichCon operates one of
the largest natural gas distribution and transmission systems in the United
States and the largest in Michigan.
MichCon serves 1.2 million customers in Detroit, Grand Rapids, Ann Arbor,
Traverse City and Muskegon metropolitan areas and in various other communities
throughout the state of Michigan. The following services are provided by
MichCon:
- - Gas Sales -- The sale and delivery of natural gas to residential and
small-volume commercial customers.
- - End User Transportation -- Through this service, large-volume commercial and
industrial customers that purchase natural gas directly from producers or
brokerage companies utilize MichCon's network to transport the gas to their
facilities.
- - Intermediate Transportation -- Provides transportation service through
MichCon's gathering and high pressure transmission system to producers,
brokers and other local distribution companies that own the natural gas, but
are not the ultimate consumer.
MichCon is a wholly-owned subsidiary of MCN Energy Group Inc. ("MCN"), a New
York Stock Exchange-listed company (ticker symbol: MCN). MCN's other principal
operating subsidiary is MCN Investment Corporation, a subsidiary holding company
for various diversified energy businesses.
THE NOTES OFFERING
Senior Secured Insured
Quarterly Notes Offered.... MichCon is offering $55,000,000 aggregate
principal amount of Senior Secured Insured
Quarterly Notes. The Senior Secured Insured
Quarterly Notes will bear interest at a rate of
6.85% per year, which will be payable quarterly
in arrears on March 1, June 1, September 1 and
December 1 of each year beginning on September
1, 1999.
Date of Maturity............. The Senior Secured Insured Quarterly Notes will
mature on June 1, 2038.
S-4
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Record Date.................. MichCon will make payments to the holder of
record on the 15th calendar day of the month
prior to each March 1, June 1, September 1 and
December 1.
MichCon's Optional
Redemption................. MichCon will have the option to redeem the
Senior Secured Insured Quarterly Notes, in whole
or in part, from time to time on or after June
1, 2004. If MichCon redeems the Senior Secured
Insured Quarterly Notes, it will pay 100% of the
principal amount plus the accrued interest
through the redemption date.
Redemption Option of a
Deceased Noteholder's
Representative............. MichCon will also redeem the Senior Secured
Insured Quarterly Notes at the option of the
representative of any deceased owner. MichCon
will pay 100% of the principal amount, plus
accrued interest, subject to the following
condition: the maximum principal amount MichCon
will redeem is $25,000 per deceased owner and
$1,650,000 per year in the aggregate for all
deceased owners during the initial period from
the date of the original issuance of the Senior
Secured Insured Quarterly Notes until (but not
including) June 1, 2000 and during each
twelve-month period thereafter.
Insurance.................... The timely payment of the regularly scheduled
principal and interest on the Senior Secured
Insured Quarterly Notes will be insured by a
financial guaranty insurance policy issued by
MBIA Insurance Corporation that will be issued
at the same time the Senior Secured Insured
Quarterly Notes are delivered.
Security..................... MichCon will issue collateral first mortgage
bonds to secure the Senior Secured Insured
Quarterly Notes. On the date that we have
retired all of our first mortgage bonds, other
than collateral mortgage bonds, the Senior
Secured Insured Quarterly Notes will either
become unsecured and rank equally with all of
our other unsecured senior indebtedness or be
secured by substitute collateral mortgage bonds.
Separate Notes Offering...... Concurrently with the offering of these Senior
Secured Insured Quarterly Notes, MichCon is
offering $55,000,000 aggregate principal amount
of senior debt securities pursuant to a separate
Prospectus Supplement. These two debt offerings
are independent of each other and each offering
may be consummated whether or not the other
offering is consummated.
S-5
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Ratings...................... MichCon anticipates that the Senior Secured
Insured Quarterly Notes will be rated "AAA" by
Standard & Poor's Ratings Group, "Aaa" by
Moody's Investors Services, Inc., "AAA" by Fitch
IBCA, Inc. and "AAA" by Duff & Phelps Rating Co.
Use of Proceeds.............. MichCon estimates that the net proceeds of the
offering will be approximately $53,267,500.
MichCon intends to use these proceeds from the
offering of the Senior Secured Insured Quarterly
Notes to refinance maturing long-term debt,
repay short-term debt obligations and for
general corporate purposes.
Ratio of Earnings to Fixed
Charges.................... MichCon's historical ratio of earnings to fixed
charges for the twelve months ended on March 31,
1999 and each of the preceding years ended
December 31, 1998, 1997, 1996, 1995 and 1994 was
3.46x, 2.87x, 3.17x, 3.27x, 3.47x and 3.26x,
respectively.
S-6
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USE OF PROCEEDS
MichCon will use the proceeds from the sale of the Senior Secured Insured
Quarterly Notes to refinance maturing long-term debt, repay short-term debt
obligations and for general corporate purposes.
CAPITALIZATION
The following table sets forth MichCon's capitalization at March 31, 1999,
as adjusted to reflect the issuance of the Senior Secured Insured Quarterly
Notes and use of proceeds and further adjusted to reflect the concurrent
separate notes offering and use of proceeds from such offering. The following
data are qualified in their entirety by reference to, and should be read
together with, the detailed information and financial statements appearing in
the documents incorporated in this Prospectus Supplement and the accompanying
Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-----------------------------------------------------
AS AS FURTHER
ACTUAL ADJUSTED(2) ADJUSTED(3)
---------- ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Long-Term Debt (including
capital leases and excluding
current maturities)(1)....... $ 613,945 $ 668,945 48.4% $ 723,945 50.4%
Common Shareholders' Equity.... $ 713,139 713,139 51.6 713,139 49.6
---------- ---------- ----- ---------- -----
Total Capitalization........... $1,327,084 $1,382,084 100% $1,437,084 100%
========== ========== ===== ========== =====
Short-Term Debt (including
current maturities of
long-term debt)(1)........... $ 166,111 $ 111,111 $ 56,111
========== ==========
</TABLE>
- -------------------------
(1) Current maturities of long-term debt were $58,211,000.
(2) Adjusted for the sale of the Senior Secured Insured Quarterly Notes at par.
MichCon targets an average ratio of 50% long-term debt to total
capitalization and anticipates retaining future earnings to achieve this
ratio.
(3) Further adjusted for the sale of senior notes to be offered concurrently in
a separate offering at par.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth MichCon's ratio of earnings to fixed charges
for the periods indicated.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------------
1999 1998 1997 1996 1995 1994
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(1)....................... 3.46 2.87 3.17 3.27 3.47 3.26
</TABLE>
- -------------------------
(1) MichCon is a guarantor of certain other debt. Fixed charges related to such
debt, deemed to be immaterial, have been excluded in computing the above
ratios.
For the purpose of computing these ratios, earnings consist of net income
plus income taxes and fixed charges. Fixed charges consist of total interest,
amortization of debt discount, premium and expense and the estimated portion of
interest implicit in rentals.
S-7
<PAGE> 8
DESCRIPTION OF THE SENIOR SECURED INSURED QUARTERLY NOTES
Set forth below is a description of the specific terms of the Senior
Secured Insured Quarterly Notes. This description supplements, and should be
read together with, the description of the general terms and provisions of the
Securities set forth in the accompanying Prospectus under the caption
"Description of the Senior Debt Securities." The following description does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the description in the accompanying Prospectus and the indenture
dated as of June 1, 1998 (the "Senior Indenture") between MichCon and Citibank
N.A., as trustee (the "Senior Trustee") pursuant to which the Senior Secured
Insured Quarterly Notes will be issued.
GENERAL
The Senior Secured Insured Quarterly Notes will be issued as a series of
Senior Debt Securities under the Senior Indenture. The Senior Secured Insured
Quarterly Notes will be limited in aggregate principal amount to $55,000,000.
The entire principal amount of the Senior Secured Insured Quarterly Notes
will mature and become due and payable, together with any accrued and unpaid
interest thereon, on June 1, 2038. The Senior Secured Insured Quarterly Notes
are not subject to any sinking fund provision.
The Senior Secured Insured Quarterly Notes are available for purchase in
denominations of $1,000 and integral multiples of $1,000.
INTEREST
Each Senior Secured Insured Quarterly Note will bear interest at 6.85% per
year from the date of original issuance, payable quarterly in arrears on March
1, June 1, September 1 and December 1 of each year (each, an "Interest Payment
Date") to the person in whose name such Senior Secured Insured Quarterly Note is
registered at the close of business on the fifteenth calendar day of the month
preceding the respective Interest Payment Date. The initial Interest Payment
Date is September 1, 1999. The amount of interest payable will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any
Interest Payment Date is not a business day, then payment of the interest will
be made on the next business day (and without any interest or other payment in
respect of any such delay), except that, if such business day is in the next
calendar year, the payment will be made on the immediately preceding business
day, in each case with the same force and effect as if made on the original
date.
SPECIAL INSURANCE PROVISIONS OF THE SENIOR INDENTURE
Notwithstanding any other provision of the Senior Indenture, so long as
MBIA Insurance Corporation (the "Insurer") is not in default under the policy,
the Insurer shall be entitled to control and direct the enforcement of all
rights and remedies with respect to the Senior Secured Insured Quarterly Notes,
except for the rights provided under "-- Limited Right of Redemption Upon Death
of Beneficial Owner."
S-8
<PAGE> 9
No provision of the Senior Indenture may be amended in any manner without
the prior written consent of the Insurer.
OPTIONAL REDEMPTION
MichCon shall have the right to redeem the Senior Secured Insured Quarterly
Notes, in whole or in part, without premium, from time to time, on or after June
1, 2004, upon not less than 30 nor more than 60 days' notice, at a redemption
price equal to 100% of the principal amount to be redeemed plus any accrued and
unpaid interest to the redemption date.
If a redemption notice is given as described above, then the Senior Secured
Insured Quarterly Notes to be redeemed will become due and payable on the
redemption date. MichCon will pay the redemption price plus any accrued
interest. From the redemption date, the redeemed Senior Secured Insured
Quarterly Notes will cease to bear interest, unless MichCon defaults in the
payment of the redemption price and accrued interest. In the event of such
default, the principal amount on the Senior Secured Insured Quarterly Note
called for redemption will, until paid, continue to bear interest at the rate
indicated on the cover.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), MichCon or its affiliates
may, at any time and from time to time, purchase outstanding Senior Secured
Insured Quarterly Notes by tender, in the open market or by private agreement.
LIMITED RIGHT OF REDEMPTION UPON DEATH OF BENEFICIAL OWNER
Unless the Senior Secured Insured Quarterly Notes have been declared due
and payable prior to their maturity by reason of an Event of Default (as defined
in the accompanying Prospectus), the Representative (as defined herein) of a
deceased Beneficial Owner (as defined herein) has the right to request
redemption at par of all or part of its interest, expressed in integral
multiples of $1,000 principal amount, in the Senior Secured Insured Quarterly
Notes for payment prior to maturity, and MichCon will redeem the same subject to
the limitations that MichCon will not be obligated to redeem during the period
from the date of the original issuance of the Senior Secured Insured Quarterly
Notes until (but not including) June 1, 2000 (the "Initial Period"), and during
each twelve-month period thereafter up to (but not including) each June 1
thereafter (each such twelve-month period being hereinafter referred to as a
"Subsequent Period")
(i) on behalf of a deceased Beneficial Owner any interest in the Senior
Secured Insured Quarterly Notes which exceeds an aggregate principal amount of
$25,000; or
(ii) interests in the Senior Secured Insured Quarterly Notes in an
aggregate principal amount exceeding $1,650,000.
A request for redemption may be initiated by the Representative of a
deceased Beneficial Owner at any time and in any principal amount in integral
multiples of $1,000. Representatives of deceased Beneficial Owners must make
arrangements with the Participant (as defined herein) through whom the deceased
Beneficial Owner's interest is owned so that the Participant, and, in turn, DTC
can make redemption requests to the Trustee. If MichCon, although not obligated
to do so, chooses to redeem interests of a deceased Beneficial Owner in the
Senior Secured Insured Quarterly Notes in the Initial Period or in any
Subsequent Period in excess of the $25,000 limitation, such redemption, to the
extent that it exceeds the $25,000
S-9
<PAGE> 10
limitation for any deceased Beneficial Owner, shall not be included in the
computation of the $1,650,000 aggregate limitation for such Initial Period or
such Subsequent Period, as the case may be, or for any succeeding Subsequent
Period.
Subject to the $25,000 and the $1,650,000 limitations, MichCon will, after
the death of any Beneficial Owner, redeem the interest of the Beneficial Owner
in the Senior Secured Insured Quarterly Notes within 60 days following receipt
by the Senior Trustee of a Redemption Request (as defined herein). If, during
the Initial Period or any Subsequent Period, Redemption Requests exceed the
aggregate principal amount of interests in Senior Secured Insured Quarterly
Notes required to be redeemed, then such excess Redemption Requests will be
applied to successive Subsequent Periods, regardless of the number of Subsequent
Periods required to redeem such interests. All Redemption Requests will be
redeemed in the order in which the Senior Trustee receives the Redemption
Requests.
A request for redemption of an interest in the Senior Secured Insured
Quarterly Notes may be initiated by the personal representative or other person
authorized to represent the estate of a deceased Beneficial Owner or from a
surviving joint tenant(s) or tenant(s) by the entirety or tenant(s) in common
(each a "Representative"). The Representative shall deliver a request to the
Participant through whom the deceased Beneficial Owner owned such interest, in
form satisfactory to the Participant, together with evidence of the death of the
Beneficial Owner, evidence of the authority of the Representative satisfactory
to the Participant, such waivers, notices or certificates as may be required
under applicable state or federal law and such other evidence of the right to
such redemption as the Participant shall require. The request shall specify the
principal amount of the interest in the Senior Secured Insured Quarterly Notes
to be redeemed. The Participant shall thereupon deliver to DTC a request for
redemption substantially in the form attached as an exhibit to the Senior
Indenture (a "Redemption Request"), accompanied by the documents submitted to
the Participant as above provided, and DTC will forward the same to the Senior
Trustee. Documents accompanying Redemption Requests shall be in form
satisfactory to MichCon. The Senior Trustee may conclusively assume, without
independent investigation, that the statements contained in each Redemption
Request are true and correct and shall have no responsibility for reviewing any
documents accompanying a Redemption Request.
The price to be paid by MichCon for an interest in the Senior Secured
Insured Quarterly Notes to be redeemed pursuant to a request on behalf of a
deceased Beneficial Owner is one hundred percent (100%) of the principal amount
thereof plus accrued but unpaid interest to the date of payment. Subject to
arrangements with DTC, payment for interests in the Senior Secured Insured
Quarterly Notes which are to be redeemed shall be made to DTC upon presentation
of Senior Secured Insured Quarterly Notes to the Senior Trustee for redemption
in the aggregate principal amount specified in the Redemption Requests submitted
to the Senior Trustee by DTC which are to be fulfilled in connection with such
payment. Any acquisition of Senior Secured Insured Quarterly Notes by MichCon
other than by redemption at the option of any Representative of a deceased
Beneficial Owner shall not be included in the computation of either the $25,000
or the $1,650,000 limitation for the Initial Period or for any Subsequent
Period.
Interests in the Senior Secured Insured Quarterly Notes held in tenancy by
the entirety, joint tenancy or by tenants in common will be deemed to be held by
a single Beneficial Owner, and the death of a tenant in common, tenant by the
entirety or joint tenant will be deemed the death of a Beneficial Owner. The
death of a person who, during such person's lifetime, was entitled to
substantially all of the rights of a Beneficial Owner of an interest in
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<PAGE> 11
the Senior Secured Insured Quarterly Notes will be deemed the death of the
Beneficial Owner, regardless of the recordation of such interest on the records
of the Participant, if such rights can be established to the satisfaction of the
Participant and MichCon. Such interest shall be deemed to exist in typical cases
of nominee ownership, ownership under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act, community property or other similar joint
ownership arrangements, including individual retirement accounts of Keogh
[H.R.10] plans maintained solely by or for the decedent or by or for the
decedent and any spouse, and trust and certain other arrangements where one
person has substantially all of the rights of a Beneficial Owner during the
person's lifetime.
In the case of a Redemption Request which is presented on behalf of a
deceased Beneficial Owner and which has not been fulfilled at the time MichCon
gives notice of its election to redeem the Senior Secured Insured Quarterly
Notes, the interests in the Senior Secured Insured Quarterly Notes which are the
subject of such Redemption Request shall not be eligible for redemption pursuant
to MichCon's option to redeem but shall remain subject to redemption pursuant to
such Redemption Request.
Subject to the provisions of the immediately preceding paragraph, any
Redemption Request may be withdrawn upon delivery of a written request for such
withdrawal given to the Trustee by DTC prior to payment for redemption of the
interest in the Senior Secured Insured Quarterly Notes by reason of the death of
a Beneficial Owner.
MichCon is legally obligated to redeem Senior Secured Insured Quarterly
Notes and interests of Beneficial Owners therein properly presented for
redemption pursuant to a Redemption Request in accordance with and subject to
the terms, conditions and limitations of the Senior Indenture, as summarized
above. MichCon's redemption obligation is not cumulative. Nothing in the Senior
Indenture prohibits MichCon from redeeming, in fulfillment of Redemption
Requests made pursuant to the Senior Indenture, Senior Secured Insured Quarterly
Notes or interests therein of Beneficial Owners in excess of the principal
amount MichCon is obligated to redeem, nor does anything in the Senior Indenture
prohibit MichCon from purchasing any Senior Secured Insured Quarterly Notes or
interests therein in the open market. However, MichCon may not use any Senior
Secured Insured Quarterly Notes redeemed or purchased as described in the
immediately preceding sentence as a credit against its redemption obligation.
Because of the limitations of MichCon's requirement to redeem, no
Beneficial Owner can have any assurance that its interest in the Senior Secured
Insured Quarterly Notes will be paid prior to maturity.
SECURITY; RELEASE DATE
Upon the issuance of the Senior Secured Insured Quarterly Notes, MichCon
will simultaneously issue and deliver to the Senior Trustee as security for the
Senior Secured Insured Quarterly Notes, a series of First Mortgage Bonds (the
"Collateral Bonds"), under the Twenty-Ninth Supplemental Indenture dated as of
July 15, 1989, providing for the restatement of the Indenture of Mortgage and
Deed of Trust dated as of March 1, 1944 between MichCon and Citibank N.A. (the
"Mortgage Trustee") and Robert T. Kirchner (the "Individual Trustee" and,
together with the Mortgage Trustee, the "Secured Trustees"), as supplemented by
the Thirty-Fifth Supplemental Indenture relating to the Collateral Bonds (as so
supplemented, the "Mortgage Indenture") in an aggregate principal amount of
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<PAGE> 12
$55,000,000. MichCon has agreed to issue the Collateral Bonds in the name of the
Senior Trustee in its capacity as trustee under the Senior Indenture and the
Senior Trustee has agreed to hold the Collaterals Bonds in such capacity under
all circumstances and not transfer the Collateral Bonds until the earlier of the
Release Date or the prior retirement of the Senior Secured Insured Quarterly
Notes through redemption, repurchase or otherwise. The interest rates, interest
payment dates, method of paying interest, stated maturity date and redemption
provisions for the Collateral Bonds will mirror those of the Senior Secured
Insured Quarterly Notes.
Prior to the Release Date, MichCon shall make payments of the principal of,
and premium or interest on, the Collateral Bonds to the Senior Trustee, which
payments shall be applied by the Senior Trustee to satisfaction of all
obligations then due on the related Senior Secured Insured Quarterly Notes.
For a description of the circumstances under which all or part of the
Collateral Bonds will cease to be held by the Senior Trustee as security for the
Senior Secured Insured Quarterly Notes, see "Description of Senior Debt
Securities -- Security; Release Date" in the accompanying Prospectus. As
explained in the Prospectus, the Senior Secured Insured Quarterly Notes will
cease to be secured by the Collateral Bonds on the Release Date and, at the
option of MichCon either:
- will become unsecured obligations of MichCon; or
- will be secured by first mortgage bonds issued under a mortgage indenture
other than the Mortgage Indenture (the "Substituted Collateral Bonds").
If MichCon does not elect to have the Senior Secured Insured Quarterly
Notes become unsecured on the Release Date, MichCon will simultaneously issue
and deliver to the Senior Trustee, as security for such Senior Secured Insured
Quarterly Notes, Substituted Collateral Bonds. The Substituted Collateral Bonds
will have the same interest rate, interest payment dates, stated maturity date
and redemption provisions, and will be in the same aggregate principal amount,
as the Senior Secured Insured Quarterly Notes then issued. MichCon will be
required to give notice to the holders of the Senior Secured Insured Quarterly
Notes of the occurrence of the Release Date.
In the event MichCon elects to have the Senior Secured Insured Quarterly
Notes become unsecured on the Release Date, MichCon's ability to create, assume
or incur certain liens or to enter into certain financing transactions will be
restricted as described in "Description of the Senior Debt
Securities -- Restrictions" in the accompanying Prospectus.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as the initial securities depositary for the Senior Secured
Insured Quarterly Notes. The Senior Secured Insured Quarterly Notes will be
issued only as fully registered securities registered in the name of Cede & Co.,
DTC's nominee. One or more fully registered global Senior Secured Insured
Quarterly Notes will be issued, representing in the aggregate the total
principal amount of Senior Secured Insured Quarterly Notes, and will be
deposited with DTC.
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<PAGE> 13
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participant's accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Securities and Exchange Commission.
Purchases of Senior Secured Insured Quarterly Notes within the DTC system
must be made by or through Direct Participants, which will receive a credit for
the Senior Secured Insured Quarterly Notes on DTC's records. The ownership
interest of each actual purchaser of Senior Secured Insured Quarterly Notes
(such purchaser, or the person to whom such purchaser conveys his or her
ownership interest, a "Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Senior Secured
Insured Quarterly Notes. Transfers of ownership interests in the Senior Secured
Insured Quarterly Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Senior Secured
Insured Quarterly Notes, except in the event that use of the book-entry system
for the Senior Secured Insured Quarterly Notes is discontinued, MichCon
determines that Beneficial Owners may exchange their ownership interests for
such certificates or there shall have occurred an Event of Default.
DTC will have no knowledge of the actual Beneficial Owners of the Senior
Secured Insured Quarterly Notes. DTC's records reflect only the identity of the
Direct Participants to whose accounts such Senior Secured Insured Quarterly
Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices will be sent to DTC. If less than all of the Senior
Secured Insured Quarterly Notes are being redeemed, DTC will reduce the amount
of the interest of each
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<PAGE> 14
Direct Participant in the Senior Secured Insured Quarterly Notes in accordance
with its procedures.
Although voting with respect to the Senior Secured Insured Quarterly Notes
is limited, in those cases where a vote is required, neither DTC nor Cede & Co.
will itself consent or vote with respect to Senior Secured Insured Quarterly
Notes. Under its usual procedures, DTC would mail an Omnibus Proxy to MichCon as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Senior Secured Insured Quarterly Notes are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Payments on the Senior Secured Insured Quarterly Notes will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers registered in "street name," and will be the
responsibility of such Participant and not of DTC or MichCon, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment to DTC is the responsibility of MichCon, disbursements of such payments
to Direct Participants is the responsibility of DTC and disbursements of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
Except as provided herein, a Beneficial Owner of an interest in a global
Senior Secured Insured Quarterly Note will not be entitled to receive physical
delivery of Senior Secured Insured Quarterly Notes. Accordingly, each Beneficial
Owner must rely on the procedures of DTC to exercise any rights under the Senior
Secured Insured Quarterly Notes. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in a global Senior Secured Insured Quarterly Note.
DTC may discontinue providing its services as security depositary with
respect to the Senior Secured Insured Quarterly Notes at any time by giving
reasonable notice to MichCon. Under such circumstances, in the event that a
successor securities depositary is not obtained, Senior Secured Insured
Quarterly Note certificates will be printed and delivered to the holders of
record. Additionally, MichCon may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary) with respect to the
Senior Secured Insured Quarterly Notes. In that event, certificates for the
Senior Secured Insured Quarterly Notes will be printed and delivered to the
holders of record.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that MichCon believes to be reliable, but MichCon
takes no responsibility for the accuracy thereof. MichCon has no responsibility
for the performance by DTC or its Participants of their respective obligations
as described herein or under the rules and procedures governing their respective
operations.
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<PAGE> 15
THE POLICY AND THE INSURER
The following information has been furnished by MBIA Insurance Corporation
(the "Insurer") for use in this Prospectus Supplement. Reference is made to
Appendix A for a specimen of the Insurer's policy. The Insurer does not accept
any responsibility for the accuracy or completeness of this Prospectus
Supplement or any information or disclosure contained herein, or omitted
herefrom, other than with respect to the accuracy of the information regarding
the Insurer's policy and Insurer set forth under the heading "The Policy and the
Insurer." Additionally, the Insurer makes no representation regarding the Senior
Secured Insured Quarterly Notes or the advisability of investing in the Senior
Secured Insured Quarterly Notes.
THE POLICY
The Insurer's policy unconditionally and irrevocably guarantees the full
and complete payment required to be made by or on behalf of MichCon to the
Paying Agent or its successor of an amount equal to (i) the principal of (at the
stated maturity) and interest on, the Senior Secured Insured Quarterly Notes as
such payments shall become due but shall not be so paid (except that in the
event of any acceleration of the due date of such principal by reason of
mandatory or optional redemption or acceleration resulting from default or
otherwise, the payments guaranteed by the Insurer's policy shall be made in such
amounts and at such times as such payments of principal would have been due had
there not been any such acceleration); and (ii) the reimbursement of any such
payment which is subsequently recovered from any owner of the Senior Secured
Insured Quarterly Notes pursuant to a final judgment by a court of competent
jurisdiction that such payment constitutes an avoidable preference to such owner
within the meaning of any applicable bankruptcy law (a "Preference").
The Insurer's policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any Senior Secured Insured
Quarterly Note. The Insurer's policy does not, under any circumstance, insure
against loss relating to: (i) optional or mandatory redemptions (other than
mandatory sinking fund redemptions); (ii) any payments to be made on an
accelerated basis; (iii) payments of the purchase price of the Senior Secured
Insured Quarterly Notes upon tender by an owner thereof; or (iv) any Preference
relating to (i) through (iii) above. The Insurer's policy also does not insure
against nonpayment of principal of or interest on the Senior Secured Insured
Quarterly Notes resulting from the insolvency, negligence or any other act or
omission of the Paying Agent or any other paying agent for the Senior Secured
Insured Quarterly Notes.
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by the Insurer from the Paying Agent or
any owner of Senior Secured Insured Quarterly Notes the payment of an insured
amount for which is then due, that such required payment has not been made, the
Insurer on the due date of such payment or within one business day after receipt
of notice of such nonpayment, whichever is later, will make a deposit of funds,
in an account with State Street Bank and Trust Company, N.A., in New York, New
York, or its successor, sufficient for the payment of any such insured amounts
which are then due. Upon presentment and surrender of such Senior Secured
Insured Quarterly Notes or presentment of such other proof of ownership of the
Senior Secured Insured Quarterly Notes, together with any appropriate
instruments of assignment to evidence the assignment of the insured amounts due
on the Senior Secured Insured Quarterly Notes as
S-15
<PAGE> 16
are paid by the Insurer, and appropriate instruments to effect the appointment
of the Insurer as agent for such owners of the Senior Secured Insured Quarterly
Notes in any legal proceeding related to payment of insured amounts on the
Senior Secured Insured Quarterly Notes, such instruments being in a form
satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and
Trust Company, N.A., shall disburse to such owners or the Paying Agent payment
of the insured amounts due on such Senior Secured Insured Quarterly Notes, less
any amount held by the Paying Agent for the payment of such insured amounts and
legally available therefor.
The Insurer's policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
THE INSURER
The Insurer is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts of or
claims against the Insurer. The Insurer is domiciled in the State of New York
and licensed to do business in and subject to regulation under the laws of all
50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
INSURER FINANCIAL INFORMATION
The consolidated financial statements of the Insurer, a wholly owned
subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1998 and
December 31, 1997 and for each of the three years in the period ended December
31, 1998, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1998 and the consolidated financial statements of the Insurer and
its subsidiaries as of March 31, 1999 and for the three-month periods ended
March 31, 1999 and March 31, 1998 included in the Quarterly Report on Form 10-Q
of MBIA Inc. for the period ended March 31, 1999 are hereby incorporated by
reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus Supplement and prior
to the termination of the offering of the Senior Secured Insured Quarterly Notes
shall be deemed to be incorporated by reference into
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<PAGE> 17
this Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
----------------------------------
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets............................... $6,521 $6,742
Liabilities................................... 4,231 4,412
Capital and Surplus........................... 2,290 2,330
</TABLE>
<TABLE>
<CAPTION>
GAAP
DECEMBER MARCH 31,
31, 1998 1999
--------- -----------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets..................................................... $7,488 $7,625
Liabilities................................................ 3,211 3,370
Shareholder's Equity....................................... 4,277 4,255
</TABLE>
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION ABOUT THE INSURER
Copies of the financial statements of the Insurer incorporated by reference
herein and copies of the Insurer's 1998 year-end audited financial statements
prepared in accordance with statutory accounting practices are available,
without charge, from the Insurer. The address of the Insurer is 113 King Street,
Armonk, New York 10504. The telephone number of the Insurer is (914) 273-4545.
FINANCIAL STRENGTH RATINGS OF THE INSURER
Moody's Investors Services, Inc. ("Moody's") rates financial strength of
the Insurer "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P") rates the financial strength of the Insurer "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates
the financial strength of the Insurer "AAA."
Each rating of the Insurer should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Senior
Secured Insured Quarterly Notes, and such ratings may be subject to revision or
withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of any of the above ratings may have an adverse effect on the market
price of the Senior Secured Insured Quarterly Notes. The Insurer does not
guaranty the market price of the Senior Secured Insured
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<PAGE> 18
Quarterly Notes nor does it guaranty that the ratings on the Senior Secured
Insured Quarterly Notes will not be revised or withdrawn.
YEAR 2000 READINESS DISCLOSURE
MBIA Inc. is actively managing a high-priority Year 2000 ("Y2K") program.
MBIA Inc. has established an independent Y2K testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the project.
MBIA Inc. has a budget of $1.13 million for its 1998-2000 Y2K efforts.
Expenditures are proceeding as anticipated, and MBIA Inc. does not expect the
project budget to materially exceed this amount. MBIA Inc. has initiated a
comprehensive Y2K plan that includes assessment, remediation, testing and
contingency planning. This plan covers "mission-critical" internally developed
systems, vendor software, hardware and certain third-party entities through
which MBIA Inc. conducts its business. Testing to date indicates that functions
critical to the financial guarantee business, both domestic and international,
were Y2K-ready as of December 31, 1998. Additional testing will continue
throughout 1999.
RATINGS
It is anticipated that S&P, Moody's and Fitch IBCA will assign the Senior
Secured Insured Quarterly Notes the ratings set forth on the cover page hereof
conditioned upon the issuance and delivery by the Insurer at the time of
delivery of the Senior Secured Insured Quarterly Notes of the policy, insuring
the timely payment of the principal of and interest on the Senior Secured
Insured Quarterly Notes. It is anticipated that Duff & Phelps will assign the
Senior Secured Insured Quarterly Notes the rating of "AAA", conditioned upon the
issuance and delivery by the Insurer at the time of delivery of the Senior
Secured Insured Quarterly Notes of the policy, insuring timely payment of the
principal and interest on the Senior Secured Insured Quarterly Notes and Duff &
Phelps' belief, based on available information, that the claims paying ability
of the Insurer is commensurate with that of guarantors currently rated "AAA" by
Duff & Phelps. Such ratings reflect only the views of such rating agencies, and
an explanation of the significance of such ratings may be obtained only from
such rating agencies at the following addresses: Moody's Investors Service,
Inc., 99 Church Street, New York, New York 10007; and Standard & Poor's, 25
Broadway, New York, New York 10004; Fitch IBCA, Inc., One State Street Plaza,
New York, New York, 10004 and Duff & Phelps Rating Co., 55 E. Monroe, Chicago,
IL 60603. There is no assurance that such ratings will remain in effect for any
period of time or that they will not be revised downward or withdrawn entirely
by the rating agencies if, in their judgment, circumstances warrant. Neither
MichCon nor the Underwriter has undertaken any responsibility to oppose any
proposed downward revision or withdrawal of a rating on the Senior Secured
Insured Quarterly Notes. Any such downward revision or withdrawal of such
ratings may have an adverse effect on the market price of the Senior Secured
Insured Quarterly Notes.
At present, each of such rating agencies maintains four categories of
investment grade ratings. They are for S&P, Fitch IBCA and Duff & Phelps -- AAA,
AA, A and BBB and for Moody's -- Aaa, Aa, A and Baa. S&P defines "AAA" as the
highest rating assigned to a debt obligation. Moody's defines "Aaa" as
representing the best quality debt obligation carrying the smallest degree of
investment risk. Fitch IBCA defines "AAA" as representing the
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<PAGE> 19
highest credit quality and denoting the lowest expectation of credit risk. Duff
& Phelps defines "AAA" as the highest credit quality.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in the Prospectus by reference to MichCon's Form 10-K have
been audited by Deloitte & Touch LLP, independent auditors, as stated in their
report which is incorporated herein by reference and have been so incorporated
in reliance upon the report of such firm given upon the authority of said firm
as experts in accounting.
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1998 and December 31, 1997 and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1998,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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<PAGE> 20
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, MichCon
has agreed to sell to Edward D. Jones & Co., L.P. (the "Underwriter"), and the
Underwriter has agreed to purchase from MichCon, the entire principal amount of
the Senior Secured Insured Quarterly Notes.
The Underwriter has advised MichCon that it proposes to offer the Senior
Secured Insured Quarterly Notes from time to time for sale in one or more
negotiated transactions or otherwise, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Underwriter may effect such transactions by selling the Senior
Secured Insured Quarterly Notes to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter and/or the purchasers of the Senior Secured
Insured Quarterly Notes for whom they may act as agent. The Underwriter and any
dealers that participate with the Underwriter in the distribution of the Senior
Secured Insured Quarterly Notes may be deemed to be underwriters, and any
discounts or commissions received by them and any profit on the resale of the
Senior Secured Insured Quarterly Notes by them may be deemed to be underwriting
discounts or commissions, under the Securities Act of 1933.
Prior to this offer, there has been no public market for the Senior Secured
Insured Quarterly Notes. The Underwriter has advised MichCon that it intends to
make a market in the Senior Secured Insured Quarterly Notes. The Underwriter
will have no obligation to make a market in the Senior Secured Insured Quarterly
Notes, however, and may cease market making activities, if commenced, at any
time. The Senior Secured Insured Quarterly Notes will not be listed on the New
York Stock Exchange.
MichCon has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933 to
contribute to payments the Underwriter may be required to make in respect
thereof.
In order to facilitate the offering of the Senior Secured Insured Quarterly
Notes, the Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the Senior Secured Insured Quarterly Notes.
Specifically, the Underwriter may over-allot in connection with the offering,
creating a short position in the Senior Secured Insured Quarterly Notes for its
own account. In addition, to cover over-allotments or to stabilize the price of
the Senior Secured Insured Quarterly Notes, the Underwriter may bid for, and
purchase, Senior Secured Insured Quarterly Notes in the open market. The
Underwriter may reclaim selling concessions allowed to a dealer for distributing
Senior Secured Insured Quarterly Notes in the offering, if the Underwriter
repurchases previously distributed Senior Secured Insured Quarterly Notes in
transactions to cover short positions in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price of
the Senior Secured Insured Quarterly Notes above independent market levels. The
Underwriter is not required to engage in these activities, and may end any of
these activities at any time.
Other than the concurrent offering of senior debt securities discussed
below, to which the Underwriter has consented, MichCon has agreed, during the
period of 15 days from the date on which the Senior Secured Insured Quarterly
Notes are purchased by the Underwriter, not to sell, offer to sell, grant any
option for the sale of, or otherwise dispose of any Senior Secured Insured
Quarterly Notes, any security convertible into or exchangeable into or
exercisable for
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<PAGE> 21
Senior Secured Insured Quarterly Notes or any debt securities substantially
similar to the Senior Secured Insured Quarterly Notes, without the prior written
consent of the Underwriter.
Concurrently with the offering of these Senior Secured Insured Quarterly
Notes, MichCon is offering $55,000,000 aggregate principal amount of senior debt
securities pursuant to a separate Prospectus Supplement. These two debt
offerings are independent of each other and each offering may be consummated
whether or not the other offering is consummated.
The Underwriter has performed services for MichCon and its affiliates in
the past.
LEGAL OPINIONS
The validity of the Indentures and the Senior Secured Insured Quarterly
Notes will be passed upon for MichCon by Ronald E. Christian, Vice President,
General Council and Secretary of MichCon. Certain matters will be passed upon
for the Underwriters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited
liability partnership including professional corporations, 125 West 55th Street,
New York, New York 10019-5389. LeBoeuf, Lamb, Greene & MacRae, L.L.P. from time
to time renders legal services to MichCon and its affiliates.
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<PAGE> 22
APPENDIX A -- FORM OF POLICY
FINANCIAL GUARANTY INSURANCE POLICY
MBIA INSURANCE CORPORATION
ARMONK, NEW YORK 10504
[NUMBER]
MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of
the premium and subject to the terms of this policy, hereby unconditionally and
irrevocably guarantees to any owner, as hereinafter defined, of the following
described obligations, the full and complete payment required to be made by or
on behalf of the Issuer to or its successor (the "Paying Agent") of an
amount equal to (i) the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on, the Obligations (as that term is defined below) as such payments
shall become due but shall not be so paid (except that in the event of any
acceleration of the due date of such principal by reason of mandatory or
optional redemption or acceleration resulting from default or otherwise, other
than any advancement of maturity pursuant to a mandatory sinking fund payment,
the payments guaranteed hereby shall be made in such amounts and at such times
as such payments of principal would have been due had there not been any such
acceleration); and (ii) the reimbursement of any such payment which is
subsequently recovered from any owner pursuant to a final judgment by a court of
competent jurisdiction that such payment constitutes an avoidable preference to
such owner within the meaning of any applicable bankruptcy law. The amounts
referred to in clauses (i) and (ii) of the preceding sentence shall be referred
to herein collectively as the "Insured Amounts." "Obligations" shall mean:
[PAR]
[LEGAL NAME OF ISSUE]
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by the Insurer from the Paying Agent or
any owner of an Obligation the payment of an Insured Amount for which is then
due, that such required payment has not been made, the Insurer on the due date
of such payment or within one business day after receipt of notice of such
nonpayment, whichever is later, will make a deposit of funds, in an account with
State Street Bank and Trust Company, N.A., in New York, New York, or its
successor, sufficient for the payment of any such Insured Amounts which are then
due. Upon presentment and surrender of such Obligations or presentment of such
other proof of ownership of the Obligations, together with any appropriate
instruments of assignment to evidence the assignment of the Insured Amounts due
on the Obligations as are paid by the Insurer, and appropriate instruments to
effect the appointment of the Insurer as agent for such owners of the
Obligations in any legal proceeding related to payment of Insured Amounts on the
Obligations, such instruments being in a form satisfactory to State Street Bank
and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall
disburse to such owners, or the Paying Agent payment of the Insured Amounts due
on such Obligations, less any amount held by the Paying Agent for the payment of
such Insured Amounts and legally available therefor. This policy does not insure
against loss of any prepayment premium which may at any time be payable with
respect to any Obligation.
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<PAGE> 23
As used herein, the term "owner" shall mean the registered owner of any
Obligation as indicated in the books maintained by the Paying Agent, the Issuer,
or any designee of the Issuer for such purpose. The term owner shall not include
the Issuer or any party whose agreement with the Issuer constitutes the
underlying security for the Obligations.
Any service of process on the Insurer may be made to the Insurer at its
offices located at 113 King Street, Armonk, New York 10504 and such service of
process shall be valid and binding.
This policy is non-cancellable for any reason. The premium on this policy
is not refundable for any reason including the payment prior to maturity of the
Obligations.
This policy is not covered by the Property/Casualty Insurance Security Fund
specified in Article 76 of the New York Insurance Law.
IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in
facsimile on its behalf by its duly authorized officers, this [DAY] day of
[MONTH, YEAR].
MBIA INSURANCE CORPORATION
----------------------------------
President
Attest:
----------------------------------
Assistant Secretary
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<PAGE> 24
PROSPECTUS
$400,000,000
MICHIGAN CONSOLIDATED GAS COMPANY
SENIOR DEBT SECURITIES
-------------------------
Michigan Consolidated Gas Company ("MichCon" or the "Company") from time to
time may offer, in an aggregate principal amount not to exceed $400,000,000, in
one or more series, its senior debt securities (the "Senior Debt Securities").
Prior to the Release Date (as defined below), the Senior Debt Securities will be
secured by the issuance and delivery to the Senior Trustee (as defined below) in
trust for the benefit of the holders of Senior Debt Securities first mortgage
bonds (the "First Mortgage Bonds") issued under the Company's Mortgage Indenture
(as defined below). The Senior Debt Securities will be issued under the
indenture (the "Senior Indenture") to be entered into between MichCon and
Citibank, N.A., as trustee (the "Senior Trustee"). The Senior Debt Securities
may be offered in amounts, at prices and on terms to be determined at the time
of sale. Certain terms of the Senior Debt Securities including, where
applicable, the specific designation, aggregate principal amount, interest rate,
interest payment dates, maturity, public offering price, any redemption terms or
other specific terms of each series of the Senior Debt Securities in respect of
which this Prospectus is being delivered will be set forth in an accompanying
Prospectus Supplement or Supplements (a "Prospectus Supplement").
MichCon may sell the Senior Debt Securities to or through underwriters,
through dealers, directly to purchasers or through agents. See "Plan of
Distribution". The Prospectus Supplement will set forth the names of such
underwriters, dealers or agents, if any, any applicable commissions or discounts
and the proceeds to MichCon from such sale.
This Prospectus may not be used to consummate sales of the Senior Debt
Securities unless accompanied by a Prospectus Supplement applicable to the
Senior Debt Securities being sold.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
The date of this Prospectus is June 17, 1998.
<PAGE> 25
AVAILABLE INFORMATION
MichCon is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "SEC"). Such reports and other information can be inspected and copied at
the SEC's Public Reference Room; Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the following Regional Offices of the SEC: 7
World Trade Center, Suite 1300, New York, New York 10048; and Northwestern
Atrium Center, 5000 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a Web Site on the
Internet that contains reports and other information regarding registrants that
file electronically with the Commission (http://www.sec.gov).
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by MichCon with the SEC under the Securities Act of 1933, as
amended (the "1933 Act"), with respect to the Senior Debt Securities. This
Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Reference is made to such Registration
Statement and to the exhibits relating thereto for further information with
respect to MichCon and the Senior Debt Securities. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC or incorporated by
reference herein are not necessarily complete, and in each instance reference is
made to the copy of such document so filed for a more complete description of
the matter involved. Each such statement is qualified in its entirety by such
reference.
-------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are hereby incorporated by reference in this Prospectus and made a
part hereof the following documents heretofore filed with the SEC pursuant to
the 1934 Act:
1. MichCon's Annual Report on Form 10-K for the year ended December 31,
1997
("Form 10-K").
2. MichCon's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
3. MichCon's Current Report on Form 8-K dated June 2, 1998.
All documents filed by MichCon pursuant to Sections 13(a), 13(c), 14 or
15(d) of the 1934 Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference in this Prospectus or in any Prospectus Supplement
shall be deemed to be modified or superseded for purposes of this Prospectus or
any Prospectus Supplement to the extent that a statement contained in this
Prospectus or in any Prospectus Supplement or in any other subsequently filed
document which also is or is deemed to be incorporated by
2
<PAGE> 26
reference in this Prospectus or in any Prospectus Supplement modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any Prospectus Supplement.
MichCon hereby undertakes to provide without charge to each person to whom
a copy of this Prospectus has been delivered, on the written or oral request of
any such person, a copy of any or all of the documents referred to above which
have been or may be incorporated by reference in this Prospectus, other than
exhibits to such documents. Requests for such copies should be directed to:
Investor Relations, MCN Energy Group Inc., 500 Griswold Street, Detroit,
Michigan 48226; telephone 1-800-548-4655.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OR THE PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
THE PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
FORWARD-LOOKING STATEMENTS
Statements contained in or incorporated by reference into this Prospectus
which are not historical in nature are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve certain risks and uncertainties that may cause actual future
results to differ materially from those contemplated, projected, estimated or
budgeted in such forward-looking statements. Factors that may impact
forward-looking statements include, but are not limited to, the following: (i)
the effects of weather and other natural phenomena; (ii) increased competition
from other energy suppliers as well as alternative forms of energy; (iii) the
capital intensive nature of the Company's business; (iv) the economic climate
and growth in the geographic areas in which the Company does business; (v) the
uncertainty of gas reserve estimates; (vi) the timing and extent of changes in
prices for natural gas, electricity and crude oil; (vii) conditions of capital
markets and equity markets; and (viii) the effects of changes in governmental
policies and regulatory actions, including income taxes, environmental
compliance and authorized rates. See "Incorporation of Certain Documents by
Reference" above.
3
<PAGE> 27
THE COMPANY
MichCon is a Michigan corporation that was organized in 1898 and, with its
predecessors, has been in business for nearly 150 years. The Company is a public
utility engaged in the distribution and transmission of natural gas in the State
of Michigan. The Company serves 1.2 million residential, commercial and
industrial customers in the Detroit, Grand Rapids, Ann Arbor, Traverse City and
Muskegon metropolitan areas and in various other communities throughout the
state of Michigan. MichCon's gas sales and transportation markets were
approximately 937 billion cubic feet (Bcf) for the twelve months ended December
31, 1997. MichCon is a wholly-owned subsidiary of MCN Energy Group Inc., a
Michigan corporation.
At December 31, 1997, MichCon and its subsidiaries employed 2,867 persons.
The mailing address of MichCon's principal executive office is 500 Griswold
Street, Detroit, Michigan 48226, and its telephone number is (313) 965-2430.
USE OF PROCEEDS
Except as otherwise stated in the applicable Prospectus Supplement, net
proceeds from the sale of the Senior Debt Securities offered hereby will be used
for the acquisition of property; the construction, completion, extension or
improvement of facilities; working capital requirements; the improvement or
maintenance of service; the discharge or lawful retirement of short or long-term
debt and borrowings made or expected to be made; and for other corporate
purposes. Specific allocations of proceeds for such purposes have not been made
at this time. Funds may be borrowed in anticipation of future requirements.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth MichCon's ratio of earnings to fixed charges
for the periods indicated.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------------------
1998 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(1)(2)..................... 3.17 3.17 3.27 3.47 3.26 3.58
</TABLE>
- -------------------------
(1) The Company is a guarantor of certain other debt. Fixed charges related
to such debt, deemed to be immaterial, have been excluded in computing
the above ratios.
(2) For the purpose of computing these ratios, earnings consists of net
income plus income taxes and fixed charges. Fixed charges consist of
total interest, amortization of debt discount, premium and expense and
the estimated portion of interest implicit in rentals.
4
<PAGE> 28
SECURITIES
The Senior Debt Securities may be issued, from time to time, in one or more
series (i) secured by the Company's First Mortgage Bonds issued and delivered to
the Senior Trustee under the Twenty-Ninth Supplemental Indenture dated as of
July 15, 1989 providing for the restatement of the Indenture of Mortgage and
Deed of Trust dated as of March 1, 1944 between the Company and Citibank, N.A.
("Citibank" or the "Mortgage Trustee") and Robert T. Kirchner (the "Individual
Trustee" and, together with Citibank, the "Secured Trustees") which became
effective on April 1, 1994, as supplemented and amended by the supplemental
indentures thereto (collectively, the "Mortgage Indenture") or (ii) following
the Release Date (as defined below), as either unsecured senior notes or as
senior notes secured by first mortgage bonds issued under a mortgage indenture
other than the Mortgage Indenture. On the Release Date, any outstanding Senior
Debt Securities secured by the Company's First Mortgage Bonds when issued will
cease to be secured by First Mortgage Bonds issued under the Company's Mortgage
Indenture and, at the Company's option, either (a) will become unsecured general
obligations of the Company or (b) will be secured by first mortgage bonds issued
under a mortgage indenture other than the Mortgage Indenture.
Senior Debt Securities will be issued under the Senior Indenture, the form
of which is an exhibit to the Registration Statement, and are described below
under the caption "Description of the Senior Debt Securities." Prior to the
Release Date, First Mortgage Bonds securing the Senior Debt Securities (the
"Collateral Bonds") will be issued under the Mortgage Indenture.
There is no requirement, under either the Senior Indenture or the Mortgage
Indenture (collectively, the "Indentures"), that future issues of debt
securities of the Company be issued under the Indentures, and, subject to
certain restrictions following the Release Date which are described in
"Description of the Senior Debt Securities -- Restrictions," the Company will be
free to employ other indentures or documentation, containing provisions
different from those included in the Indentures or applicable to one or more
issues of Senior Debt Securities, in connection with future issues of such other
debt securities. Certain capitalized terms herein are defined in the Indentures.
DESCRIPTION OF THE SENIOR DEBT SECURITIES
GENERAL
Until the Release Date (as defined below), the Senior Debt Securities will
be secured by one or more series of Collateral Bonds issued and delivered to the
Senior Trustee under the Mortgage Indenture. See "-- Security; Release Date." ON
THE RELEASE DATE (AS DEFINED BELOW), THE SENIOR DEBT SECURITIES WILL CEASE TO BE
SECURED BY THE COLLATERAL BONDS AND, AT THE COMPANY'S OPTION, EITHER (I) WILL
BECOME UNSECURED GENERAL OBLIGATIONS OF THE COMPANY OR (II) WILL BE SECURED BY
FIRST MORTGAGE BONDS (THE "SUBSTITUTED COLLATERAL BONDS") ISSUED UNDER A
MORTGAGE INDENTURE OTHER THAN THE MORTGAGE INDENTURE. The Senior Indenture
provides that, in addition to the Senior Debt Securities offered hereby,
additional Senior Debt Securities may be issued thereunder, without limitation
as to aggregate principal amount, from time to time, in one or more series,
provided that, prior to the Release Date, the amount of Senior Debt Securities
that may be issued cannot exceed the aggregate principal amount of First
Mortgage Bonds that the Company is able to issue under its Mortgage Indenture.
5
<PAGE> 29
The Senior Indenture does not contain any debt covenants or provisions
which would afford holders of Senior Debt Securities protection in the event of
a highly leveraged transaction.
Reference is made to the Prospectus Supplement relating to the Senior Debt
Securities being offered (the "Offered Senior Debt Securities") for, among other
things, the following terms thereof: (1) the title of the Offered Senior Debt
Securities; (2) any limit on the aggregate principal amount of the Offered
Senior Debt Securities; (3) the date or dates on which the Offered Senior Debt
Securities will mature; (4) the rate or rates (which may be fixed or variable)
per annum at which the Offered Senior Debt Securities will bear interest or the
method by which such rate or rates shall be determined and the date from which
such interest will accrue or the method by which such date or dates shall be
determined; (5) the dates on which such interest will be payable and the Regular
Record Dates for such Interest Payment Dates; (6) the dates, if any, on which,
and the price or prices at which, the Offered Senior Debt Securities may,
pursuant to any mandatory or optional sinking fund provisions, be redeemed by
the Company and other detailed terms and provisions of such sinking funds; (7)
the date, if any, after which, and the price or prices at which, the Offered
Senior Debt Securities may, pursuant to any optional redemption provisions, be
redeemed at the option of the Company or of the Holder thereof and other
detailed terms and provisions of such optional redemption; and (8) any other
terms of the Offered Senior Debt Securities (which terms shall not be
inconsistent with the Senior Indenture). For a description of the terms of the
Offered Senior Debt Securities, reference must be made to both the Prospectus
Supplement relating thereto and to the description of Senior Debt Securities set
forth herein.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal of, and any premium or interest on, the Offered Senior Debt
Securities will be payable, and the Offered Senior Debt Securities will be
exchangeable and transfers thereof will be registrable, at the Place of Payment,
provided that, at the option of the Company, payment of interest may be made by
check mailed or wire transferred to the address of the person entitled thereto
as it appears in the Security Register.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Senior Debt Securities will be issued in United States dollars in
fully registered form, without coupons, in denominations of $1,000 or any
integral multiple thereof. No service charge will be made for any transfer or
exchange of the Offered Senior Debt Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
For purposes of the descriptions of the Senior Debt Securities, certain
defined terms have the following meanings:
"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all
obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all obligations under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters
6
<PAGE> 30
of credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit); (v) all obligations of the type referred to in clauses
(i) through (iv) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable as
obligor, guarantor or otherwise; and (vi) all obligations of the type referred
to in clauses (i) through (v) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation is assumed by
such Person), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured.
"Significant Subsidiary" means a Subsidiary or Subsidiaries of the Company
possessing assets (including the assets of its own Subsidiaries but without
regard to the Company or any other Subsidiary) having a book value, in the
aggregate, equal to not less than 10% of the book value of the aggregate assets
of the Company and its Subsidiaries calculated on a consolidated basis.
"Capitalized Lease Obligations" means an obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with such
principles.
"Project Finance Indebtedness" means Indebtedness of a Subsidiary secured
by a Lien on any property, acquired, constructed or improved by such Subsidiary
after the date of the Indenture which Lien is created or assumed
contemporaneously with, or within 120 days after, such acquisition or completion
of such construction or improvement, or within six months thereafter pursuant to
a firm commitment for financing arranged with a lender or investor within such
120-day period, to secure or provide for the payment of all or any part of the
purchase price of such property or the cost of such construction or improvement,
or on any property existing at the time of acquisition thereof; provided that
such a Lien shall not apply to any property theretofore owned by any such
Subsidiary other than, in the case of any such construction or improvement, any
theretofore unimproved real property on which the property so constructed or the
improvement is located; and provided further that such Indebtedness, by its
terms, shall limit the recourse of any holder of such Indebtedness (or trustee
on such holder's behalf) in the event of any default in such Indebtedness to the
assets subject to such Liens and the capital stock of the Subsidiary issuing
such Indebtedness. Notwithstanding the foregoing, Project Finance Indebtedness
shall include all Indebtedness that would constitute Project Finance
Indebtedness but for the fact that such Indebtedness was issued prior to the
date of the Indenture and taking into account the fact that the property subject
to the Lien may have been acquired prior to the date of the Indenture.
The Senior Debt Securities may be issued under the Senior Indenture as
Original Issue Discount Securities to be offered and sold at a substantial
discount below their principal amount. Special federal income tax, accounting
and other considerations applicable to any such Original Issue Discount
Securities will be described in any Prospectus Supplement relating thereto.
"Original Issue Discount Security" means any security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof as a result of the
occurrence of an Event of Default and the continuation thereof.
7
<PAGE> 31
SECURITY; RELEASE DATE
Until the Release Date (as defined below), the Senior Debt Securities will
be secured by one or more series of the Collateral Bonds issued and delivered by
the Company to the Senior Trustee. See "Description of the First Mortgage
Bonds." Upon the issuance of Senior Debt Securities prior to the Release Date,
the Company will simultaneously issue and deliver Collateral Bonds to the Senior
Trustee, as security for such Senior Debt Securities. Such Collateral Bonds will
have the same stated rate or rates of interest (or interest calculated in the
same manner), interest payment dates, stated maturity date and redemption
provisions, and will be in the same aggregate principal amount as the Senior
Debt Securities being issued. The Company has agreed to issue a related series
of Collateral Bonds in the name of the Senior Trustee in its capacity as trustee
under the Senior Indenture concurrently with the issuance of each series of
Senior Debt Securities and the Senior Trustee has agreed to hold each series of
Collateral Bonds in such capacity under all circumstances and not transfer such
Collateral Bonds until the earlier of the Release Date or the prior retirement
of the related series of Senior Debt Securities through redemption, repurchase
or otherwise. Prior to the Release Date, the Company shall make payments of the
principal of, and premium or interest on, each series of Collateral Bonds to the
Senior Trustee, which payments shall be applied by the Senior Trustee to
satisfaction of all obligations then due on the related series of Senior Debt
Securities.
The "Release Date" will be the date that all First Mortgage Bonds of the
Company issued and outstanding under the Mortgage Indenture, other than the
Collateral Bonds, have been retired (at, before or after the maturity thereof)
through payment, redemption or otherwise. On the Release Date, the Senior
Trustee will deliver to the Company for cancellation all Collateral Bonds, and
the Company will cause the Senior Trustee to provide notice to all holders of
Senior Debt Securities of the occurrence of the Release Date. As a result, on
the Release Date, the Collateral Bonds will cease to secure the Senior Debt
Securities, and, at the option of the Company, the Senior Debt Securities,
either (i) will become unsecured general obligations of the Company or (ii) will
be secured by Substituted Collateral Bonds. Each issue of Collateral Bonds will
be secured by a lien on certain property owned by the Company. In certain
circumstances prior to the Release Date, the Company is permitted to reduce the
aggregate principal amount of an issue of Collateral Bonds held by the Senior
Trustee, but in no event to an amount lower than the aggregate outstanding
principal amount of the Senior Debt Securities initially issued
contemporaneously with such Collateral Bonds. Following the Release Date, the
Company will cause the Mortgage Indenture to be closed, and the Company will not
issue any additional bonds under such Mortgage Indenture.
RESTRICTIONS
The Senior Indenture provides that the Company shall not consolidate with,
merge with or into any other corporation (whether or not the Company shall be
the surviving corporation), or sell, assign, transfer or lease all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to any Person or group of affiliated Persons, in one transaction
or a series of related transactions, unless: (1) either the Company shall be the
continuing Person or the Person (if other than the Company) formed by such
consolidation or with which or into which the Company is merged or the Person
(or group of affiliated Persons) to which all or substantially all the
properties and assets of the Company are sold, assigned, transferred or leased
is a corporation (or constitute corporations) organized under
8
<PAGE> 32
the laws of the United States or any State thereof or the District of Columbia
and expressly assumes, by an indenture supplemental to the Senior Indenture, all
the obligations of the Company under the Senior Debt Securities and the Senior
Indenture, executed and delivered to the Trustee in form satisfactory to the
Trustee; (2) immediately before and after giving effect to such transaction or
series of transactions, no Event of Default, and no Default, with respect to the
Senior Debt Securities shall have occurred and be continuing; and (3) the
Company shall have delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indentures comply with the Senior Indenture.
The Senior Indenture also provides that, except as described below and
unless Substituted Pledged Bonds are issued to secure the Senior Debt Securities
from and after the Release Date, the Company will not, nor will it permit any
Significant Subsidiary to, issue, assume or guarantee any Indebtedness that is
secured by any Lien in, of or on the property of the Company or any of its
Subsidiaries, without effectively securing all Senior Debt Securities (other
than such Senior Debt Securities, if any, which by their terms, are expressly
excluded from this provision), equally and ratably with such Indebtedness;
except that this restriction shall not apply to: (i) Liens for taxes,
assessments or governmental charges or levies on its property if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or are
being contested in good faith and by appropriate proceedings; (ii) Liens imposed
by law, such as carriers', warehousemen's and mechanics' liens and other similar
liens arising in the ordinary course of business which secure payment of
obligations not more than 60 days past due or which are being contested in good
faith by appropriate proceedings; (iii) Liens arising out of pledges or deposits
under worker's compensation laws, unemployment insurance, old age pensions, or
other social security or retirement benefits, or similar legislation; (iv)
utility easements, rights of way, exceptions, agreements for the joint or common
use of property, restrictions and such other encumbrances or charges against
property as are of a nature generally existing with respect to properties of a
similar character and which do not in any material way affect the marketability
of the same or interfere with the use thereof in the business of the Company or
its Subsidiaries; (v) Liens on the capital stock, partnership interest, or other
evidence of ownership of any Subsidiary or such Subsidiary's assets that secure
project financing for such Subsidiary; (vi) purchase money liens upon or in
property now owned or hereafter acquired in the ordinary course of business
(consistent with the Company's business practices) to secure (A) the purchase
price of such property or (B) Indebtedness incurred solely for the purpose of
financing the acquisition, construction, or improvement of any such property to
be subject to such liens, or Liens existing on any such property at the time of
acquisition, or extensions, renewals, or replacements of any of the foregoing
for the same or a lesser amount, provided that no such lien shall extend to or
cover any property other than the property being acquired, constructed, or
improved and replacements, modifications, and proceeds of such property, and no
such extension, renewal, or replacement shall extend to or cover any property
not theretofore subject to the Lien being extended, renewed, or replaced; (vii)
Liens existing on the date the Senior Debt Securities are first issued; (viii)
Liens for no more than 90 days arising from a transaction involving accounts
receivable of the Company (including the sale of such accounts receivable),
where such accounts receivable arose in the ordinary course of the Company's
business; (ix) the right reserved to, or vested in, any municipality or public
authority by the terms of any franchise, grant, license or permit, or by any
provision of law, to terminate such franchise, grant, license or permit or to
purchase or appropriate or recapture or to designate a purchaser of any of the
mortgaged property, or to demand and collect from the Company any tax or other
compensa-
9
<PAGE> 33
tion for the use of streets, alleys or other public places; (x) rights reserved
to, or vested in, any municipality or public authority to use, control, remove
or regulate any property of the Company; (xi) zoning laws and ordinances; (xii)
possible adverse rights or interests and inconsequential defects or
irregularities in title which, in the opinion of counsel, may be properly
disregarded; and (xiii) rights reserved to or vested in others to take or
receive any part of the gas, power, oil or other minerals or timber generated,
developed, manufactured or produced by, or grown on, or acquired with, any
property of the Company.
The Senior Indenture provides that, from and after the Release Date, the
Company will not, nor will it permit any Subsidiary to, enter into any
arrangement with any lender or investor (other than the Company or a
Subsidiary), or to which such lender or investor (other than the Company or a
Subsidiary) is a party, providing for the leasing by the Company or such
Subsidiary for a period, including renewals, in excess of three years of any
real property located within the United States which has been owned by the
Company or such Subsidiary for more than six months and which has been or is to
be sold or transferred by the Company or such Subsidiary to such lender or
investor or to any person to whom funds have been or are to be advanced by such
lender or investor on the security of such real property unless either (a) the
Company or such Subsidiary could create Indebtedness secured by a lien
consistent with the restrictions set forth in the foregoing paragraph on the
real property to be leased in an amount equal to the Value of such transaction
without equally and ratably securing the Senior Debt Securities or (b) the
Company, within six months after the sale or transfer shall have been made,
applies an amount equal to the greater of (i) the net proceeds of the sale of
the real property leased pursuant to such arrangement or (ii) the fair market
value of the real property so leased to the retirement of the Senior Debt
Securities and other obligations of the Company ranking on a parity with the
Senior Debt Securities.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following are Events of Default under the Senior Indenture with respect
to the Senior Debt Securities of any series; (1) failure to pay interest on any
Senior Debt Security of that series when due, continued for 30 days; (2) failure
to pay the principal of (or premium, if any, on) any Senior Debt Security of
that series when due and payable at Maturity, upon redemption or otherwise; (3)
failure to observe or perform any other covenant, warranty or agreement
contained in the Senior Debt Securities of that series or in the Senior
Indenture (other than a covenant, agreement or warranty included in the Senior
Indenture solely for the benefit of Senior Debt Securities other than that
series), continued for a period to 60 days after notice has been given to the
Company by the Trustee or Holders of at least 25% in aggregate principal amount
of the Outstanding Senior Debt Securities of that series; (4) failure to pay at
final maturity, or acceleration of, Indebtedness of the Company having an
aggregate principal amount of more than 1% of the Company's consolidated total
assets (determined as of its most recent fiscal year-end), unless cured within
10 days after notice has been given to the Company by the Trustee or Holders of
at least 10% in aggregate principal amount of the Outstanding Senior Debt
Securities of that series; (5) prior to the Release Date, the occurrence of a
default under the Mortgage Indenture, of which default the Mortgage Trustee or
the Holders of a majority in aggregate principal amount of the outstanding
Senior Debt Securities have given written notice to the Mortgage Trustee; (6) if
any Substituted Collateral Bonds are outstanding, the occurrence of a default
under the Substituted Mortgage, of which default the trustee under such
Substituted Mortgage or the Holders of a majority in aggregate principal amount
of the outstanding Senior Debt Securities
10
<PAGE> 34
have given written notice to the Senior Trustee; (7) certain events of
bankruptcy, insolvency or reorganization relating to the Company; and (8) any
other Event of Default with respect to the Senior Debt Securities of that series
specified in the Prospectus Supplement relating thereto or Supplemental
Indenture under which such series of Senior Debt Securities is issued.
The Senior Indenture provides that the Trustee shall, within 30 days after
the occurrence of any Default or Event of Default with respect to Senior Debt
Securities of any series, give the Holders of Senior Debt Securities of that
series notice of all uncured Defaults or Events of Default known to it (the term
"Default" includes any event which after notice or passage of time or both would
be an Event of Default); provided, however, that, except in the case of an Event
of Default or a Default in payment on any Senior Debt Securities of any series,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or directors or responsible officers
of the Trustee in good faith determine that the withholding of such notice is in
the interest of the Holders of Senior Debt Securities of that series.
If an Event of Default with respect to Senior Debt Securities of any series
(other than due to events of bankruptcy, insolvency or reorganization) occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Outstanding Senior Debt Securities of that series, by
notice in writing to the Company (and to the Trustee if given by the Holders of
at least 25% in aggregate principal amount of the Senior Debt Securities of that
series), may declare the unpaid principal of and accrued interest to the date of
acceleration on all the Outstanding Senior Debt Securities of that series to be
due and payable immediately and, upon any such declaration, the Senior Debt
Securities of that series shall become immediately due and payable.
If an Event of Default occurs due to bankruptcy, insolvency or
reorganization, all unpaid principal of and accrued interest on the Outstanding
Senior Debt Securities of any series will become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder of
any Senior Debt Security of that series. Upon any acceleration of the Senior
Debt Securities prior to the Release Date, the Senior Trustee is empowered to
cause the mandatory redemption of the Collateral Bonds or Substituted Collateral
Bonds, as the case may be.
Any such declaration with respect to Senior Debt Securities of any series
may be annulled and past Events of Default and Defaults (except, unless
theretofore cured, an Event of Default or a Default in payment of principal of
or interest on the Senior Debt Securities of that series) may be waived by the
Holders of a majority of the principal amount of the Outstanding Senior Debt
Securities, upon the conditions provided in the Senior Indenture. For purposes
of the provisions described herein, the Company may cure an Event of Default or
Default in payment of principal or interest on the Senior Debt Securities at any
time after an acceleration of the Senior Debt Securities has been declared, but
before a judgment or decree for the immediate payment of the principal amount of
the Senior Debt Securities has been obtained, and, prior to the Release Date, so
long as all first mortgage bonds have not been accelerated, if the Company pays
or deposits with the Trustee a sum sufficient to pay all matured installments of
interest, the principal and any premium which has become due otherwise than by
acceleration and any other amounts due the Trustee, and all defaults shall have
been cured or waived, then such payment or deposit will cause an automatic
rescission and annulment of the acceleration of the Senior Debt Securities.
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The Senior Indenture provides that the Company shall periodically file
statements with the Trustee regarding compliance by the Company with certain of
the respective covenants thereof and shall specify any Event of Default or
Defaults with respect to Senior Debt Securities of any series, in performing
such covenants, of which the signers may have knowledge.
MODIFICATION OF THE SENIOR INDENTURE; WAIVER
The Senior Indenture may be modified by the Company and the Trustee without
the consent of any Holders with respect to certain matters, including (i) to
cure any ambiguity, defect or inconsistency or to correct or supplement any
provision which may be inconsistent with any other provision of the Senior
Indenture and (ii) to make any change that does not materially adversely affect
the interests of any Holder of Senior Debt Securities of any series. In
addition, under the Senior Indenture, certain rights and obligations of the
Company and the rights of Holders of the Senior Debt Securities may be modified
by the Company and the Trustee with the written consent of the Holders of at
least a majority in aggregate principal amount of the Outstanding Senior Debt
Securities of each series affected thereby; but no extension of the maturity of
any Senior Debt Securities of any series, reduction in the interest rate or
extension of the time for payment of interest, change in the optional redemption
or repurchase provisions in a manner adverse to any Holder of Senior Debt
Securities of any series, modification that would adversely impair the interest
of the Senior Trustee in the Collateral Bonds held by it or, prior to the
Release Date, reduce the principal amount of any issue of Collateral Bonds
securing the Senior Debt Securities to an amount less than the principal amount
of the related issue of Senior Debt Securities or alter the payment provisions
of such Collateral Bonds in a manner adverse to the holders of the Senior Debt
Securities, other modification in the terms of payment of the principal of, or
interest on, any Senior Debt Securities of any series, or reduction of the
percentage required for modification, will be effective against any Holder of
any Outstanding Senior Debt Security of any series affected thereby without the
Holder's consent. The Senior Indenture does not limit the aggregate amount of
Senior Debt Securities of the Company which may be issued thereunder.
The Holders of a majority in aggregate principal amount of the Outstanding
Senior Debt Securities of any series may on behalf of the Holders of all Senior
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain restrictive covenants of the Senior
Indenture. The Holders of not less than a majority in aggregate principal amount
of the Outstanding Senior Debt Securities of any series may on behalf of the
Holders of all Senior Debt Securities of that series waive any past Event of
Default or Default under the Senior Indenture with respect to that series,
except an Event of Default or a Default in the payment of the principal of, or
premium, if any, or any interest on any Senior Debt Security of that series or
in respect of a provision which under the Senior Indenture cannot be modified or
amended without the consent of the Holder of each Outstanding Senior Debt
Security of that series affected.
DEFEASANCE
The Company may terminate its substantive obligations in respect of the
Senior Debt Securities of any series (except for its obligations to pay the
principal of (and premium, if any, on) and the interest on the Senior Debt
Securities of that series) by (i) depositing with the Trustee, under the terms
of an irrevocable trust agreement, money or U.S. Government
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Obligations sufficient to pay all remaining indebtedness on the Senior Debt
Securities of that series, (ii) delivering to the Trustee either an Opinion of
Counsel or a ruling directed to the Trustee from the Internal Revenue Service to
the effect that the Holders of the Senior Debt Securities of that series will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and termination of obligations, and (iii) complying with certain
other requirements set forth in the Senior Indenture.
VOTING OF COLLATERAL BONDS HELD BY SENIOR TRUSTEE
The Senior Trustee, as holder of Collateral Bonds, will attend any meeting
of holders of First Mortgage Bonds under the Mortgage Indenture, as to which it
receives due notice, or, at its option, will deliver its proxy in connection
therewith. Either at such meeting, or otherwise where the consent of holders of
First Mortgage Bonds is sought without a meeting, the Senior Trustee will vote
all of the Collateral Bonds held by it, or will consent with respect thereto, as
directed by the holders of a majority in aggregate principal amount of the
outstanding Senior Debt Securities; provided, however, that the Senior Trustee
shall not be required to vote the Collateral Bonds of any particular issue in
favor of, or give consent to, any action except upon notification by the Senior
Trustee to the holders of the related issue of Senior Debt Securities of such
proposal and consent thereto of the holders of a majority in principal amount of
the outstanding Senior Debt Securities of such issue.
CONCERNING THE SENIOR TRUSTEE
Citibank is the Senior Trustee under the Senior Indenture. Citibank is also
Trustee under the Mortgage Indenture and a depositary of funds of the Company.
See "Description of the First Mortgage Bonds -- Concerning the Secured
Trustees."
BOOK-ENTRY SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Senior Debt Securities of a series may be issued in whole or in part in the form
of one or more Global Securities (as such term is defined below) that will be
deposited with, or on behalf of, a depositary ("Depositary") or its nominee
identified in the applicable Prospectus Supplement. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denomination
equal to the portion of the aggregate principal amount of outstanding Senior
Debt Securities of the series to be represented by such Global Security or
Global Securities. Unless and until it is exchanged in whole or in part for
Senior Debt Securities in registered form, a Global Security may not be
registered for transfer or exchange except as a whole by the Depositary for such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any nominee to a successor Depositary or a nominee of such
successor Depositary and except in the circumstances described in the applicable
Prospectus Supplement. The term "Global Security", when used with respect to any
series of Senior Debt Securities, means a Security that is executed by the
Company and authenticated and delivered by the Trustee to the Depositary or
pursuant to the Depositary's instruction, which shall be registered in the name
of the Depositary or its nominee and which shall represent, and shall be
denominated in an amount equal to the aggregate principal amount of, all of the
Outstanding Securities of such series or any portion thereof, in either case
having the same
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terms, including, without limitation, the same original issue date, date or
dates on which principal is due, and interest rate or method of determining
interest.
The specific terms of the depositary arrangement with respect to any
portion of a series of Senior Debt Securities to be represented by a Global
Security will be described in the applicable Prospectus Supplement. The Company
expects that the following provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Senior
Debt Securities which are to be represented by a Global Security to be deposited
with or on behalf of a Depositary will be represented by a Global Security
registered in the name of such Depositary or its nominee. Upon the issuance of
such Global Security, and the deposit of such Global Security with or on behalf
of the Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Senior Debt Securities represented by such Global Security to the accounts
of institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Senior Debt Securities or, if such Senior Debt
Securities are offered and sold directly by the Company, by the Company.
Ownership of beneficial interests in such Global Security will be limited to
participants or Persons that may hold interests through participants. Ownership
of beneficial interests by participants in such Global Security will be shown
on, and the transfer of that ownership interest will be effected only through,
records maintained by the Depositary or its nominee for such Global Security.
Ownership of beneficial interests in such Global Security by Persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in such Global Securities.
Unless otherwise specified in the applicable Prospectus Supplement, so long
as the Depositary for a Global Security, or its nominee, is the registered owner
of such Global Security, such Depositary or such nominee, as the case may be,
will be considered the sole owner or Holder of the Senior Debt Securities
represented by such Global Security for all purposes under the Senior Indenture.
Unless otherwise specified in the applicable Prospectus Supplement, owners of
beneficial interests in such Global Security will not be entitled to have Senior
Debt Securities of the series represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Senior Debt Securities of such series in certificated form and will not be
considered the Holders thereof for any purposes under the Senior Indenture.
Accordingly, each Person owning a beneficial interest in such Global Security
must rely on the procedures of the Depositary and, if such Person is not a
participant, on the procedures of the participant through which such Person owns
its interest, to exercise any rights of a Holder under the Senior Indenture. The
Company understands that under existing industry practices, if the Company
requests any action of Holders or an owner of a beneficial interest in such
Global Security desires to give any notice or take any action a Holder is
entitled to give or take under the Senior Indenture, the Depositary would
authorize the participants to give such notice or take such action, and
participants would authorize beneficial owners owning through such participants
to give such notice or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
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Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
DESCRIPTION OF THE FIRST MORTGAGE BONDS
The following summaries of certain provisions of the First Mortgage Bonds
and the Mortgage Indenture do not purport to be complete and are subject to, and
are qualified in their entirety by express reference to, all the provisions of
the Mortgage Indenture, including the definitions therein of certain terms.
Certain capitalized terms herein are defined in the Mortgage Indenture.
GENERAL
Prior to the Release Date, any series of First Mortgage Bonds issued as
Collateral Bonds will be issued to the Senior Trustee. Each issue of such
Collateral Bonds to the Senior Trustee will be in a principal amount equal to
the principal amount of the Senior Debt Securities issued contemporaneously with
such Collateral Bonds. Prior to the Release Date, the Company shall make
payments of the principal of, and premium or interest on, each series of
Collateral Bonds to the Senior Trustee, which payments shall be applied by the
Senior Trustee to satisfaction of all obligations then due on the related series
of Senior Debt Securities. The Collateral Bonds will be exchangeable for a like
aggregate principal amount of Collateral Bonds of the same series of other
authorized denominations at the office of the Secured Trustees in New York, New
York.
SECURITY AND PRIORITY
The Mortgage Indenture constitutes a first mortgage lien (subject to
exceptions and reservations set forth therein, to "permissible encumbrances,"
and to various matters specified under "Business; Franchises" and "Properties"
in MichCon's Form 10-K) upon substantially all of the fixed property and
franchises of MichCon, consisting principally of gas distribution and
transmission lines and systems, underground storage fields and buildings,
including property of the character initially mortgaged which has been or may be
acquired by MichCon subsequent to the execution and delivery of the Mortgage
Indenture. It prohibits creation of prior liens upon the mortgaged property,
other than "permissible encumbrances," but, within specified limitations in
certain cases, property may be acquired subject to preexisting liens or purchase
money and other liens created at the time or in connection with the acquisition
of such property. The property excepted from the lien of the Mortgage Indenture
consists principally of cash (unless deposited with the Mortgage Trustee under
the Mortgage Indenture), accounts receivable, gas stored in reservoirs except to
the extent specially pledged, materials and supplies, securities, vehicles and
leases.
The Mortgage Indenture does not contain any debt covenants or provisions
which would afford holders of First Mortgage Bonds protection in the event of a
highly leveraged transaction.
The First Mortgage Bonds will rank equally and ratably (except as to
sinking fund and other analogous funds established for the exclusive benefit of
a particular series) with all First Mortgage Bonds, regardless of series, from
time to time issued and outstanding under the Indenture.
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RELEASE OF PROPERTY
Unless an event of default shall have occurred and be continuing, the
Company is entitled to possess, use and enjoy all the property and
appurtenances, franchise and rights conveyed by the Mortgage Indenture. Subject
to various limitations and requirements, the Company may obtain a release of any
part of the mortgaged property, except prior lien bonds, upon receipt by
Citibank of cash, as adjusted, equal to the consideration, if any, received or
to be received from the sale, surrender or other disposition of the property to
be released or the then fair value thereof (whichever shall be greater).
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
Additional First Mortgage Bonds may be issued under the Mortgage Indenture
in principal amounts (unlimited except as provided by law) equal to:
(1) 70% of the cost or fair value to the Company, whichever is less, of
unbonded net property additions made after December 31, 1943 (subject to
deductions in certain cases, if such net property additions secure prior
lien bonds);
(2) the sum of the principal amount of First Mortgage Bonds previously
issued under the Indenture, and of prior lien bonds theretofore deducted
under the Indenture, which have been retired or are then being retired and
have not theretofore been bonded; and
(3) the amount of cash deposited with Citibank for such purpose.
First Mortgage Bonds may be issued on the basis of net property additions
which include substantially all utility property subject to the Mortgage
Indenture or deposit of cash only if net earnings available for interest and
depreciation (before deduction for income taxes) for any specified 12
consecutive calendar months within the preceding 15 months equal 2 1/2 times
annual interest charges on the First Mortgage Bonds and any prior lien bonds.
Such earnings requirement need not be met where First Mortgage Bonds are to be
issued against First Mortgage Bonds or prior lien bonds which have been or are
being retired as described in (2) above if the First Mortgage Bonds to be issued
bear interest at a lower rate than the First Mortgage Bonds or prior lien bonds
which have been or are to be retired, or if the proceeds from the First Mortgage
Bonds to be issued are used to refund First Mortgage Bonds or prior lien bonds
which have been retired within two years prior to such issuance unless
additional First Mortgage Bonds requiring an earnings certificate have been
issued in the period between the retirement of the retired First Mortgage Bonds
and the issuance of the First Mortgage Bonds.
As of March 31, 1998, MichCon had approximately $1.235 billion of unbonded
net property additions, which would entitle it to issue approximately $864
million principal amount of additional First Mortgage Bonds on the basis of
unbonded net property additions as discussed under (1) in the second preceding
paragraph.
WITHDRAWAL OF CERTAIN CASH
Cash deposited with the Mortgage Trustee as a basis for the issuance of
additional First Mortgage Bonds may be withdrawn by MichCon in amounts described
in (1) and (2) under "Issuance of Additional Bonds".
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DEFEASANCE
The Company may require the discharge of the Mortgage Indenture or treat a
series of First Mortgage Bonds as no longer outstanding thereunder if: (1) the
Company deposits with Citibank monies or certain obligations of the United
States of America or certain securities which are guaranteed by, or backed by
obligations of, the United States of America, in an amount sufficient to pay,
when due, the principal, premium if any, and any interest due and to become due;
and (2) the Company delivers an opinion of counsel to the effect that
registration is not required under the Investment Company Act of 1940, as
amended, applicable laws are not violated, and such discharge will not result in
a taxable event with respect to the First Mortgage Bonds the payment of which is
being provided for. In such event, the obligation of the Company duly and
punctually to pay and cause to be paid the principal, premium, if any, and
interest in respect of such First Mortgage Bonds shall be completely discharged.
Thereafter, the holders of such First Mortgage Bonds shall be entitled to
payment only out of funds on deposit with Citibank as aforesaid for their
payment.
MODIFICATION OF MORTGAGE INDENTURE
In general, modifications or alterations of the Mortgage Indenture and of
the rights or obligations of the Company and of the holders of First Mortgage
Bonds, as well as waivers of compliance with the Mortgage Indenture, may be made
with the consent of holders of 60% of the First Mortgage Bonds, or, if less than
all series of the First Mortgage Bonds are adversely affected, the consent of
the holders of 60% of the First Mortgage Bonds adversely affected. No such
modification, alteration or waiver may be made which will (1) permit the
extension of the time or times of payment of the principal of, or the interest
or the premium (if any) on, any First Mortgage Bond, or a reduction in the rate
of interest thereon, or otherwise affect the terms of payment of the principal
of, or the interest or the premium (if any) on, any First Mortgage Bond, or
affect the right of any holder of First Mortgage Bonds to institute suit for the
enforcement of any such payment on or after the due date thereof, (2) otherwise
than as permitted by the Mortgage Indenture, permit the creation of any lien
ranking prior or equal to the lien of the Mortgage Indenture with respect to any
of the mortgaged properties or (3) permit the reduction of the percentage of
First Mortgage Bonds required for the making of any such modification,
alteration or waiver.
CONCERNING THE SECURED TRUSTEES
Citibank is the Mortgage Trustee under the Mortgage Indenture. Citibank has
acted as paying agent on the outstanding First Mortgage Bonds and will act in
the same capacity with respect to any additional First Mortgage Bonds issued
under the Mortgage Indenture. It is also a depositary of funds of the Company.
Robert T. Kirchner, Individual Trustee under the Mortgage Indenture, is an
Officer of Citibank. Citibank also serves as trustee for the Senior Debt
Securities.
DEFAULT AND NOTICE THEREOF TO HOLDERS OF FIRST MORTGAGE BONDS
The Mortgage Indenture provides that, in case of an event of default as
defined therein, Citibank or the holders of not less than 25% in principal
amount of the First Mortgage Bonds may declare the principal and all accrued and
unpaid interest of all First Mortgage Bonds, if not already due, to be
immediately due and payable. Citibank, upon request of the holders of a
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majority in principal amount of the outstanding First Mortgage Bonds, shall
waive such default and rescind any such declaration if such default is cured.
The holders of a majority in principal amount of the First Mortgage Bonds shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Secured Trustees and of exercising any power or
trust conferred upon the Secured Trustees, but under certain circumstances, the
Secured Trustees may decline to follow such directions or to exercise certain of
their powers.
Holders of First Mortgage Bonds have no right to enforce any remedy under
the Mortgage Indenture unless the Secured Trustees have first had a reasonable
opportunity to do so following notice of default to Citibank and request by the
holders of 25% in principal amount of the First Mortgage Bonds for action by the
Secured Trustees with offer of indemnity satisfactory to the Secured Trustees
against cost, expenses and liabilities that may be incurred thereby, but this
provision does not impair the absolute right of any holder of First Mortgage
Bonds to enforce payment of the principal of and interest on his First Mortgage
Bond when due.
The Mortgage Indenture provides that the following shall constitute events
of default: failure to pay any installment of interest on any First Mortgage
Bond when due and payable, and continuance of such failure for 60 days; failure
to pay the principal of any First Mortgage Bond when due and payable, whether at
maturity, in connection with any sinking fund payment, or otherwise; failure to
pay any installment of interest on any prior lien bonds, and continuance of such
failure for the period of grace, if any, specified in the prior lien securing
such bonds; failure to pay any installment applied to the purchase or redemption
of any First Mortgage Bond, and continuance of such failure for 60 days; failure
to pay the principal of any prior lien bond when due and payable, whether at
maturity or otherwise; failure on the part of the Company to perform or observe
any other covenant, agreement or condition contained in the Mortgage Indenture
or in the First Mortgage Bonds or any prior lien bonds, continuance of such
failure for 90 days after written notice to the Company by Citibank or by the
holders of not less than 25% in principal amount of the First Mortgage Bonds;
and insolvency or bankruptcy, receivership or similar proceedings initiated by
the Company, or initiated against the Company and not dismissed or stayed within
45 days; and failure to renew or extend its corporate charter upon or prior to
the expiration of such under the provision of its Articles of Incorporation or
of law.
The Mortgage Indenture provides that the Secured Trustees shall give to the
holders of First Mortgage Bonds notice of the happening of a default known to
them within 90 days after the occurrence thereof (disregarding any period of
grace in the defaults referred to above) unless such default shall have been
cured, but except in case of default in the payment of principal, premium, if
any, or interest on the First Mortgage Bonds or in the payment of any sinking
fund installment, the Secured Trustees may withhold such notice if and so long
as the board of directors, the executive committee or a trust committee of
directors or responsible officers of Citibank in good faith determine that the
withholding of such notice is in the interest of the holders of First Mortgage
Bonds.
PLAN OF DISTRIBUTION
The Company may sell any series of the Senior Debt Securities (i) to or
through underwriters; (ii) to or through dealers; (iii) directly to purchasers;
or (iv) through agents. A
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Prospectus Supplement will set forth the terms of the offering of the Senior
Debt Securities; including the name or names of any underwriters, dealers or
agents, the purchase price of such Senior Debt Securities and the proceeds to
the Company from such sale, any underwriting discounts and other items
constituting underwriters' or agents' compensation, any initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers and
any securities exchange on which such Senior Debt Securities may be listed. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time. Only firms named
in the Prospectus Supplement or a related pricing supplement, if applicable,
will be deemed to be underwriters, dealers or agents in connection with the
Senior Debt Securities offered thereby, and if any of the firms expressly
referred to below is not named in such Prospectus Supplement or a related
pricing supplement, then such firm will not be a party to the underwriting or
distribution agreement in respect of such Senior Debt Securities, will not be
purchasing any such Senior Debt Securities from the Company and will have no
direct or indirect participation in the underwriting or other distribution of
such Senior Debt Securities, although it may participate in the distribution of
such Senior Debt Securities under circumstances entitling it to a dealer's
commission.
If underwriters are used in the sale, the Senior Debt Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Senior Debt Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Senior Debt Securities will be
named in the Prospectus relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement, the obligations of the underwriters to purchase the
Senior Debt Securities offered thereby will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all of such Senior
Debt Securities if any are purchased.
The Senior Debt Securities may be sold directly by the Company or through
agents designated by the Company, from time to time. The Prospectus Supplement
will set forth the name of any agent involved in the offer or sale of the Senior
Debt Securities in respect of which the Prospectus Supplement is delivered and
any commissions payable by the Company to such agent. Unless otherwise indicated
in the Prospectus Supplement, any such agent will be acting on a best efforts
basis for the period of its appointment.
The Senior Debt Securities may be sold directly by the Company to investors
or others who may be deemed to be underwriters within the meaning of the 1933
Act with respect to any resale thereof. The terms of any such sales will be
described in the Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers from certain types of
institutions to purchase the Senior Debt Securities from the Company at the
public offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject only to those conditions set forth in the
Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
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Underwriters, dealers and agents may be entitled under agreements entered
into with the Company, to indemnification by the Company against certain civil
liabilities, including liabilities under the 1933 Act, or to contribution with
respect to payments which such underwriters, dealers or agents may be required
to make in respect thereof. Underwriters, dealers and agents may engage in
transactions with, or perform services for the Company in the ordinary course of
business.
The Senior Debt Securities may or may not be listed on a national
securities exchange. No assurance can be given that there will be a market for
the Senior Debt Securities.
VALIDITY OF SECURITIES
The validity of the Senior Debt Securities offered hereby will be passed
upon for the Company by Ronald E. Christian, Esq., Vice President, General
Counsel and Secretary of MichCon and for any agents or underwriters by LeBoeuf,
Lamb, Greene & MacRae, L.L.P., a limited liability partnership including
professional corporations, 125 West 55th Street, New York, New York. LeBoeuf,
Lamb, Greene & MacRae, L.L.P. from time to time renders legal services to
MichCon and its affiliates. Certain legal matters with respect to the Senior
Debt Securities will be passed upon for the Company by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this prospectus by reference from MichCon's Form 10-K
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
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