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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-7310
Michigan Consolidated Gas Company, a Michigan corporation, meets the
conditions set forth in General Instruction I (1) (a) and (b) of Form 10-K and
is, therefore, filing this form with the reduced disclosure format.
MICHIGAN CONSOLIDATED GAS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-0478040
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 GRISWOLD STREET, DETROIT, MICHIGAN 48226
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
313-965-2430
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENTS TO
THIS FORM 10-K. X
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ALL OF THE REGISTRANT'S 10,300,000 OUTSTANDING SHARES OF COMMON STOCK, PAR
VALUE $1 PER SHARE, ARE INDIRECTLY OWNED BY MCN ENERGY GROUP INC.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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GLOSSARY
Antrim Gas........................ Natural gas produced from shallow wells in
the Devonian (Antrim) shale formations.
End User Transportation........... A gas delivery service provided to
large-volume commercial and industrial
customers who purchase natural gas directly
from producers or brokerage companies.
FERC.............................. Federal Energy Regulatory Commission; a
federal agency that determines the rates and
regulations of interstate pipelines.
Gas Storage....................... The process of injecting, storing and
withdrawing natural gas from a depleted
underground natural gas field or salt cavern.
GCR............................... Gas Cost Recovery; a process, in effect
through 1998, by which MichCon, through
annual gas cost proceedings before the
Michigan Public Service Commission, was
allowed to recover its reasonable and prudent
cost of gas sold.
Intermediate Transportation....... A gas delivery service provided to producers,
brokers and other gas companies that own the
natural gas, but are not the ultimate
consumers.
MCN............................... MCN Energy Group Inc. and its subsidiaries.
MichCon........................... Michigan Consolidated Gas Company; an
indirect wholly-owned natural gas
distribution and intrastate transmission
subsidiary of MCN.
MichCon Pipeline.................. MichCon Pipeline Co., a wholly-owned
subsidiary of MichCon that engages in
pipeline projects through its subsidiaries.
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GLOSSARY
(concluded)
MPSC.............................. Michigan Public Service Commission; the
regulator of intrastate aspects of the
natural gas industry within the State of
Michigan.
Normal Weather.................... The average daily temperature within
MichCon's service area during a recent
30-year period.
Spot Market....................... The buying and selling of natural gas on a
short-term basis, typically month to month.
Units of Measurement:
Bcf............................... Billion cubic feet of gas.
Mcf............................... Thousand cubic feet of gas.
MMcf.............................. Million cubic feet of natural gas.
/d................................ Added to various units of measure to denote
units per day.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
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<S> <C> <C>
Part I
Item 1. Business....................................................................... 1
Item 2. Properties .................................................................... 8
Item 3. Legal Proceedings.............................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............................ 10
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................................ 10
Item 6. Selected Financial Data........................................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................... 23
Item 8. Financial Statements and Supplementary Data.................................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................... 49
Part III
Item 10. Directors and Executive Officers of the Registrant............................. 49
Item 11. Executive Compensation......................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 49
Item 13. Certain Relationships and Related Transactions................................. 49
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8- K............... 49
Signatures................................................................................. 52
</TABLE>
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FORWARD-LOOKING STATEMENTS
This Form 10-K includes 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 phenomenon; (ii) increased competition from other
energy suppliers as well as alternative forms of energy; (iii) the capital
intensive nature of MichCon's business; (iv) economic climate and growth in the
geographic areas in which MichCon does business; (v) the uncertainty of gas
reserve estimates; (vi) the timing and extent of changes in commodity prices for
natural gas, electricity and crude oil; (vii) conditions of capital markets and
equity markets; (viii) the timing, nature and impact of Year 2000 activities;
and (ix) the effects of changes in governmental policies and regulatory actions,
including income taxes, environmental compliance and authorized rates.
ITEM 1. BUSINESS
MichCon, or the Company, 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's non-regulated
operations are not material.
On December 31, 1998, MichCon and its subsidiaries employed 2,724 persons.
Slightly less than half of MichCon's labor force is covered by five collective
bargaining agreements. In June 1998, MichCon successfully negotiated and signed
three 3-year collective bargaining agreements. The remaining two agreements will
expire December 2000.
RESULTS OF OPERATIONS
MichCon's earnings for 1998 were $77.0 million, a decrease of $2.0 million
from 1997. Results for 1998 include an unusual charge which reduced earnings by
$11.2 million, net of taxes and minority interest, relating to a write-down of
certain gas gathering properties, owned by Saginaw Bay Pipeline Company, a
wholly-owned subsidiary of MichCon Pipeline. A new gas reserve analysis was
performed in 1998 to determine the impact of the diversion of certain untreated
gas away from the gathering system. This analysis revealed that projected cash
flows from the gathering system were not sufficient to cover the system's
carrying value. Therefore, an impairment loss was recorded representing the
amount by which the carry value of the system exceeded its estimated fair value.
Excluding this unusual charge, MichCon had 1998 earnings of $88.2 million,
an improvement of $9.2 million over 1997. Earnings comparisons were impacted by
variations in weather and cost-saving initiatives resulting in significantly
lower operating costs. The cost-saving initiatives allowed MichCon to continue
its record of solid financial performance.
GAS SALES & TRANSPORTATION
MichCon serves 1.2 million customers in the 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 - Includes the sale and delivery of natural gas to residential and
small-volume commercial customers.
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End User Transportation - Through this service, large-volume commercial and
industrial customers that purchase natural gas directly from producers or
brokerage companies utilize the Company's network to transport the gas to their
facilities.
Intermediate Transportation - Provides transportation service through the
Company'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.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUE (in millions of dollars)
Gas Sales ......................... $ 823.8 $1,062.8 $1,085.8
End User Transportation ........... 82.0 84.5 82.2
Intermediate Transportation ....... 63.2 55.2 48.6
-------- -------- --------
Total Sales and Transportation .. 969.0 1,202.5 1,216.6
Other ............................. 64.7 51.2 42.2
-------- -------- --------
Total Operating Revenues ........ $1,033.7 $1,253.7 $1,258.8
======== ======== ========
MARKETS (Bcf)
Gas Sales ......................... 168.9 205.8 217.7
End User Transportation ........... 140.1 145.0 146.7
Intermediate Transportation ....... 537.5 586.4 527.5
-------- -------- --------
Total Sales and Transportation .. 846.5 937.2 891.9
======== ======== ========
</TABLE>
EFFECT OF WEATHER: MichCon's gas sales and end user transportation volumes,
revenues and net income are impacted by weather. Given the seasonal nature of
the business, revenues and net income tend to be higher in the first and fourth
quarters of the calendar year.
Effect of Weather on Gas Markets and Earnings
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Percentage Colder (Warmer) Than Normal .... (19.3)% 0.8% 5.4%
Increase (Decrease) From Normal in:
Gas Markets (in Bcf) .................... (40.3) 0.6 10.9
Net Income (in Millions) ................ $(35.3) $ 0.5 $ 9.9
</TABLE>
GAS SALES: Revenues decreased $239.0 million in 1998 due primarily to
weather, which was 20.1% warmer in 1998 compared to 1997, and a reduction in gas
sales rates resulting from lower gas costs. This market represents approximately
20% of total deliveries and produced approximately 64% of MichCon's gross profit
margin. The average margin per Mcf from gas sales was improved significantly to
$2.16 in 1998 from $2.07 in 1997.
Competition in the gas sales market comes primarily from alternative fuels
such as electricity, propane and, to a lesser degree, oil and wood, and other
natural gas providers in a few areas. Natural gas continues to be the preferred
fuel for Michigan residences and businesses. Nearly every residential and
commercial developer in MichCon's service territories selects natural gas in new
construction because of the convenience, cleanliness and price advantage of
natural gas compared to propane, fuel oil and other alternative fuels. Service
and price are the primary factors affecting this market.
MichCon continues to take steps to become the preferred provider of natural
gas and high-value energy services within Michigan and to achieve competitive
financial results. To accomplish this, MichCon will increase penetration of
existing markets by focusing on meeting the needs of customers and the
marketplace, will continue efforts to reduce cost of gas and operating costs,
and will take advantage of profitable opportunities to expand to new geographic
areas.
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The challenges and opportunities resulting from increased competition in the
natural gas industry have been a catalyst for MPSC action in the development of
major reforms in utility regulation aimed at giving all customers added choices
and greater price certainty. The overall package of regulatory changes
associated with the gas industry restructuring is expected to generate
additional revenue and cost savings opportunities. MichCon is positioning itself
to respond to changes in regulation and increased competition by reducing its
cost of operations while maintaining a safe and reliable system for customers.
See "Regulation and Rates" on page 6 for a discussion regarding Regulatory
Reform.
MichCon's Market Expansion Program is intended to spur demand for natural
gas in areas currently not served. The program primarily targets residential and
small-volume commercial markets. By financing the cost of main extensions, this
program makes it easier for users of higher-cost fuels, such as propane and fuel
oil, to switch to natural gas for space heat and other applications. This
program accounted for over 12,000 of the nearly 93,000 new customers added
during the past four years. In 1998, three new areas of Michigan were served by
MichCon, bringing the total number of new areas added since the program's
inception in 1984 to 140.
Cost of gas sold per Mcf for 1998 was $2.71, a decrease of $.40 (13%) from
1997. MichCon continued to retain a significant cost advantage over competing
fuels. Cost of gas sold per Mcf for 1997 increased from 1996 by $.19 (7%).
END USER TRANSPORTATION: Deliveries decreased slightly to 140.1 Bcf in 1998
due to warmer weather. In 1998, this market accounted for approximately 17% of
total gas deliveries and produced approximately 14% of MichCon's gross profit
margin.
At December 31, 1998, MichCon had end user transportation agreements
representing annual volumes of 154 Bcf. Approximately 53% of these volumes are
under contracts that extend to 2000 or beyond and include the majority of the
large, and most price-sensitive, customers. Contracts for the remaining volumes
are typically one-year contracts that expire at various times during 1999 and
relate to a large number of low-volume users with relatively low price
sensitivity.
Through technical and financial assistance, industrial and commercial
customers have been encouraged to increase their use of natural gas. The natural
gas-fueled power generation market accounted for approximately 31 Bcf of gas
deliveries in both 1998 and 1997. Gas engine driven technologies, along with
industrial process and heating, ventilation and air conditioning (HVAC)
conversion applications in certain businesses, also provide significant
opportunities for conversion to natural gas-powered equipment. The efficiencies
and price competitiveness of natural gas can significantly reduce operating
costs for customers, generally offsetting in a relatively short period of time
the typically higher initial cost of gas-burning equipment.
MichCon continues to be successful in converting customers' facilities to
natural gas from alternative fuels and in retaining those customers after
conversion. Also, it has not experienced any significant fuel switching by its
customers in recent years. In 1998, approximately 23 Bcf of MichCon's
transportation deliveries were to customers who substituted natural gas for
coal.
The primary focus of competition in this market is cost. Some large
commercial and industrial customers have the capacity to switch to alternative
fuel sources such as coal, electricity, oil and steam. In addition, some of
these customers could bypass MichCon's distribution system and obtain gas
directly from an interstate pipeline company. However, cost differentials must
be sufficient to offset the costs, risks and loss of service flexibility
associated with fuel switching or bypass. During 1998, none of MichCon's
industrial customers bypassed its distribution system. MichCon competes against
alternative fuel sources by providing competitive pricing and reliable supply
through the use of the Company's extensive storage capacity and multiple supply
sources. Almost all significant customers who could bypass MichCon are under
long-term transportation contracts.
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The MPSC has approved a direct access program for the state's two largest
electric utilities, which began in mid-1998, and allows large electric users to
directly purchase lower priced electricity. The program is not expected to
materially impact the competitiveness of natural gas.
INTERMEDIATE TRANSPORTATION: This service accounts for approximately 63% of
total gas deliveries, however, due to the lower costs and therefore rates
applicable to this service, it represents only 11% of MichCon's gross profit
margin. The decrease in intermediate transportation deliveries in 1998 reflects
lower off-system demand caused by the warmer weather and lower volumes
transported for fixed-fee customers. Although transported volumes for fixed-fee
customers may fluctuate, revenues from such customers are not affected.
In 1998, through efficient use of transmission and storage assets as well as
upstream supply, MichCon sold significant short-term services resulting in
increased revenues from 1997. MichCon's extensive transmission pipeline system
has enabled it to increase the volumes transported for Michigan gas producers,
marketers, distribution companies and other pipelines. MichCon operates in a
pivotal geographic location with links to major interstate pipelines that reach
markets elsewhere in the Midwest, the eastern United States and eastern Canada.
Michigan Antrim gas production has increased significantly over the past several
years, resulting in a growing demand by gas producers and brokers for
intermediate transportation services.
In 1997, in order to meet the increased demand, MichCon expanded the
transportation capacity of its northern Michigan gathering system. In December
1997, MichCon Pipeline purchased Thunder Bay Pipeline for approximately $13
million. During 1998, 175 Bcf was transported on this system, of which Thunder
Bay contributed 31.7 Bcf.
In January 1997, MichCon placed into service a $91 million, 59-mile loop of
its existing Milford-to-Belle River Pipeline. This new loop has improved the
overall reliability and efficiency of MichCon's gas storage and transmission
system by mitigating the risk associated with the disruption of the existing
pipeline or other facilities used to supply gas to MichCon's customers. In
addition, the pipeline provides significant off-system transportation
opportunities as discussed below.
MichCon is in an excellent position to increase revenues through providing
transportation of new supplies of western Canadian gas, coming into the Chicago
area beginning in December 1998, to third-party pipelines serving growing
markets in eastern Canada and the northeast United States. In December 1997,
MichCon entered into a long-term facility lease of its Milford-to-Belle River
Pipeline to the Vector Pipeline to effectuate transportation of Chicago supplies
to Dawn, Ontario, a significant Canadian natural gas market hub. An affiliate of
MichCon owns a 25% interest in Vector. Currently, Vector is contemplating
completing its proposed project in two phases. Phase One would be the
construction of approximately 19 miles of 42" pipeline by November 1, 1999 from
MichCon's Belle River Mills Compressor station to Dawn, Ontario. The remainder
of Vector is scheduled to be completed in October 2000. MichCon is reviewing the
possibility of providing transportation service to Vector for Phase One services
to be delivered at Vector's proposed Belle River receipt point. The bridging
service would commence on November 1, 1999 and terminate in October 31, 2000
when Phase Two of the Vector project is completed. Additional opportunities for
transportation services are being pursued which will further maximize the use of
MichCon's transmission infrastructure.
MichCon is negotiating with Washington 10 Storage Corporation to provide
transportation services to and from the storage field in southeastern Michigan
which is expected to be in service by mid-1999. In addition, MichCon has
identified firm, long-term capacity, available in late 1999, between its
southern interconnections with ANR Pipeline Company (ANR) at Willow Run and
Consumers Energy at Northville to various interconnections at the U.S./Canadian
border near the St. Clair River. MichCon is soliciting offers for this capacity
in the first quarter of 1999. MichCon also is investigating other firm and
interruptible transportation services for incremental revenue opportunities.
ENERGY ASSISTANCE PROGRAMS
Energy assistance programs funded by the federal government and the State of
Michigan, including the Home Heating Credit for low-income customers and the
Family Independence Agency's State Emergency Relief Program,
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remain critical to MichCon's ability to control its uncollectible gas account
expenses. MichCon has historically obtained favorable regulatory treatment of
its uncollectible gas account costs, including those related to these energy
assistance programs.
MichCon receives a significant amount of its heating assistance funding
through the Federal Low-Income Home Energy Assistance Program (LIHEAP) which
funds the State of Michigan's Home Heating Credit program. In 1998 Congress
provided $1.1 billion for LIHEAP funding for the 1998 fiscal year and
supplemented it with a $300 million emergency fund that could be tapped only
upon order of the President. Michigan received $54 million of the total $1.1
billion that was released in 1998. MichCon received $13.4 million through this
program in 1998. Home Heating Credits assisted 73,000 MichCon customers in 1998.
Congress voted to continue LIHEAP for federal fiscal years 1999 and 2000. For
federal fiscal year 1999, which began October 1, 1998, Congress maintained
LIHEAP funding at $1.1 billion and again authorized a $300 million emergency
fund. In addition, Congress appropriated $1.1 billion for federal Fiscal Year
2000 which is subject to revision during budget deliberations.
Gas Supply
MichCon obtains its natural gas supply from various sources in different
geographic areas (the Gulf Coast, the Midcontinent, Canada, and Michigan) under
agreements that vary in both pricing and terms. Looking forward to MichCon's
Regulatory Reform Plan, in 1998 MichCon issued and signed new base supply
contracts with its suppliers, ensuring price stability and supply reliability
(See "Regulation and Rates" on page 6 for a discussion regarding MichCon's
plan). This geographic diversity of supply ensures that MichCon will be able to
meet the requirements of its existing and future customers with reliable
supplies of natural gas at a known cost, free from the potentially severe swings
of a volatile gas market. Whereas prior to 1999 under GCR regulation gas supply
costs were a non-profit passthrough of prudently incurred costs. Beginning
January 1, 1999, MichCon has the ability to take full advantage of its assets
and expertise to generate profits from gas supply operations. By fixing the gas
cost component of MichCon's sales rates at $2.95/Mcf for three years, customers
benefit from greater price certainty while MichCon can take advantage of
opportunities to secure lower priced gas supplies. MichCon has secured 100% of
its 1999 warmer than normal weather requirements and approximately 90% of its
2000 and 2001 similar requirements at prices that help ensure profit
contributions from gas supply operations.
Gas Supply Purchases(Bcf)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Michigan Producers ........... 41.9 66.0 86.3
Interstate Suppliers ......... 29.0 13.8 14.5
Canadian Suppliers ........... 31.7 31.3 37.3
Spot Market and other ........ 73.0 85.8 90.6
------- ------- --------
175.6 196.9 228.7
======= ======= ========
</TABLE>
MichCon purchased 24% of its 1998 supply from Michigan producers, 58% from
producers in the southern and Midcontinent regions of the United States and 18%
from Canadian producers. These supplies are complemented by 124 Bcf of working
storage capacity from storage fields owned and operated by MichCon in Michigan,
of which 36 Bcf is leased to others, including 17 Bcf with an affiliate.
MichCon has long-term firm transportation agreements, expiring on various
dates through 2011, with ANR, Panhandle Eastern Pipe Line Co. (PEPL), Viking Gas
Transmission Company (Viking) and Great Lakes Gas Transmission Limited
Partnership (Great Lakes). ANR is obligated to transport for MichCon 375 MMcf/d
of supply from April through October 1999. Effective November 1, 1999, MichCon's
ANR capacity reduces to 285 MMcf/d. The capacity reduction results in roughly
$13 million in annual cost savings. ANR capacity delivers 117.5 MMcf/d of supply
sourced in the Gulf, 117.5 MMcf/d sourced in the Midcontinent and 50 MMcf/d is
Canadian supply. Viking transports 50 MMcf/d of Canadian supply to the ANR
system for delivery to MichCon and PEPL transports two MMcf/d of Gulf Coast
supply from the ANR system for delivery to MichCon. Additional Canadian supplies
of 30 MMcf/d are delivered through firm transport agreements with Great Lakes.
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MichCon has supply contracts, expiring on various dates through 2007, with
independent Michigan producers. Many of these contracts originally tied prices
to spot market indices coupled with transport rates. MichCon, as a result of a
recent MPSC Order and individually negotiated settlements, has successfully
amended a number of these contracts that were previously at above market prices
to a more competitive level.
At December 31, 1998, MichCon owned and operated four natural gas storage
fields in Michigan with a working storage capacity of approximately 124 Bcf.
These facilities play an important role in providing reliable and cost-effective
service. MichCon uses its storage capacity to supplement its supply during the
winter months, replacing the gas in April through October when demand and
prices, generally, are at the lowest levels. The use of this storage capacity
also allows MichCon to lower its peak-day entitlement, thereby reducing
interstate pipeline charges during the winter months. During 1998, MichCon's
maximum one-day sendout exceeded 2.1 Bcf, of which approximately 68% came from
its underground storage fields. MichCon's gas distribution system has a maximum
daily sendout capability of 2.8 Bcf, with the capacity to supply nearly 70% from
underground storage.
REGULATION AND RATES
MichCon is subject to the jurisdiction of the MPSC as to various phases of
its operations, including gas sales and transportation rates, service and
accounting. MichCon is also subject to the requirements of other regulatory
agencies with respect to safety, the environment and health.
REGULATORY REFORM PLAN: In April 1998, the MPSC approved MichCon's
Regulatory Reform Plan. The plan includes a comprehensive experimental
three-year customer choice program, which is subject to annual caps on the level
of participation. The customer choice program begins April 1, 1999, when up to
75,000 customers will have the option of purchasing natural gas from suppliers
other than MichCon. Up to 75,000 additional customers can be added April 1 of
each of the next two years, eventually allowing up to 225,000 customers the
option to choose a gas supplier other than MichCon. MCN's gas marketing
affiliates also participate as alternative suppliers under the program. In each
of the three plan years, there is also a volume limitation on commercial and
industrial participants. The volume limitation for these participants is 10 Bcf
in 1999, 20 Bcf in 2000 and 30 Bcf in 2001. MichCon will continue to transport
and deliver the gas to the customers' premises at prices that maintain its
existing sales margins.
The plan also suspends the GCR mechanism for customers who continue to
purchase gas from MichCon and fixes the gas price component of MichCon's sales
rates at $2.95 per Mcf for the three-year period beginning on January 1, 1999.
Prior to January 1999, MichCon did not generate any earnings nor generally incur
any unrecovered costs on the gas supply portion of its operations. However,
under this plan, changes in cost of gas will directly impact earnings. As part
of its gas acquisition strategy, MichCon has entered into firm-price contracts
for a substantial portion of its expected gas supply requirements for the next
three years. These contracts, coupled with the use of MichCon's storage
facilities, will substantially mitigate risks from winter price and volume
fluctuations.
Also beginning in 1999, the plan established an income sharing mechanism
that will allow customers to share in profits if actual utility return on equity
exceeds predetermined thresholds. In October 1998, the MPSC denied a rehearing
and affirmed its approval of the plan. Various parties have appealed the MPSC's
decision to the Michigan Court of Appeals. While management believes that the
order will be upheld based upon applicable Michigan law, there can be no
assurance as to the outcome.
GENERAL RATE PROCEEDINGS: MichCon received authorization to defer
manufactured gas plant (MGP) investigation and remediation costs in excess of
the $11.7 million previously reserved by MichCon. The remaining balance of this
initial reserve at December 31, 1998 is approximately $0.1 million. Any excess
costs are to be deferred and amortized over a 10-year period beginning in the
year subsequent to the year environmental investigation and remediation costs
are paid. The recovery of any remediation costs incurred will be reviewed in a
future rate case.
MichCon filed an application with the MPSC in October 1996 requesting
authority to decrease depreciation rates from an average rate of 4.1% to 3.5%.
In December 1997, the MPSC issued an order approving a reduction in
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annual depreciation costs by more than $16 million. While the Michigan Attorney
General has appealed the depreciation order, management believes the MPSC order
approving the lower depreciation rates without a corresponding gas rate
reduction will be upheld.
GAS COST RECOVERY(GCR): Prior to January 1, 1999, the GCR process allowed
MichCon to recover its cost of gas sold if the MPSC determined that such costs
were reasonable and prudent. As previously discussed, beginning January 1, 1999,
the MichCon plan suspends the GCR mechanism and fixes the gas commodity
component of MichCon's sales rate at $2.95 per Mcf for three years.
The GCR process included an annual Gas Supply and Cost Review, in which the
MPSC approved maximum monthly GCR factors. A subsequent annual GCR
reconciliation proceeding provided a review of gas costs incurred during the
year, determined whether approved gas costs had been overcollected or
undercollected and, as a result, whether a refund or surcharge, including
interest, was required to be returned to or collected from GCR customers. In
September 1998, a settlement regarding MichCon's 1997 GCR Reconciliation Case
was approved by the MPSC indicating a net underrecovery of approximately $13
million, including interest. In April 1998, the MPSC issued an order in
MichCon's 1998 GCR Plan Case approving a $3.20 per Mcf maximum GCR factor
including the net underrecovery for 1997 referred to above. MichCon's 1998 GCR
overrecovery is approximately $15 million, including interest of $2.3 million.
Pursuant to the terms of the plan that approved suspension of the GCR clause,
MichCon will refund the overrecovery through surcharge credits during January
through March 1999. In February 1997, MichCon filed its 1996 GCR reconciliation
case indicating a net underrecovery of approximately $28 million, including
interest. The total 1996 underrecovery was rolled into MichCon's 1997 GCR cost
recovery. In September 1997, the MPSC issued an order finding that all of
MichCon's 1996 gas costs were reasonable and prudent.
FERC RATE MATTERS: In February 1998, FERC approved a settlement agreement in
an ANR rate case entitling MichCon to refunds totaling $9.4 million. In April
1998, MichCon received $5.5 million relating to transportation services provided
by ANR to MichCon. In June 1998, MichCon received the remaining refund, which
was reflected as a reduction to MichCon's cost of gas.
ENVIRONMENTAL MATTERS
Prior to the construction of major natural gas pipelines, gas for heating
and other uses was manufactured from processes involving coal, coke or oil.
MichCon owns, or previously owned, 16 such former MGP sites.
During the mid-1980s, preliminary environmental investigations were
conducted at these former MGP sites, and some contamination related to the
by-products of gas manufacturing was discovered at each site. The existence of
these sites and the results of the environmental investigations have been
reported to the Michigan Department of Environmental Quality (MDEQ). None of
these former MGP sites is on the National Priorities List prepared by the U.S.
Environmental Protection Agency (EPA).
MichCon is involved in an administrative proceeding before the EPA regarding
one of the former MGP sites. MichCon has executed an order with the EPA,
pursuant to which MichCon is legally obligated to investigate and remediate the
MGP site. MichCon is remediating four of the former MGP sites and conducting
more extensive investigations at four other former MGP sites. In 1998, MichCon
completed the remediation of one of the former MGP sites, which was confirmed by
the MDEQ. Additionally, the MDEQ has determined with respect to one other former
MGP site that MichCon is not a responsible party for the purpose of assessing
remediation expenditures.
In 1984, MichCon established an $11.7 million reserve for environmental
investigation and remediation. During 1993, MichCon received MPSC approval of a
cost deferral and rate recovery mechanism for investigation and remediation
costs incurred at former MGP sites in excess of this reserve.
7
<PAGE> 12
MichCon employed outside consultants to evaluate remediation alternatives
for these sites, to assist in estimating its potential liabilities and to review
its archived insurance policies. The findings of these investigations indicate
that the estimated total expenditures for investigation and remediation
activities for these sites could range from $30 million to $170 million based on
undiscounted 1995 costs. As a result of these studies, MichCon accrued an
additional liability and a corresponding regulatory asset of $32 million during
1995.
MichCon notified more than 40 current and former insurance carriers of the
environmental conditions at these former MGP sites. MichCon concluded settlement
negotiations with certain carriers in 1996 and 1997 and has received payments
from several carriers. In October 1997, MichCon filed suit against major
nonsettling carriers seeking recovery of incurred costs and a declaratory
judgment of the carriers' liability for future costs of environmental
investigation and remediation costs at former MGP sites. Discovery is ongoing in
the case, and a preliminary trial date has been scheduled for August 1999.
During 1998, 1997, and 1996, MichCon spent $1.6 million, $0.8 million, and
$0.9 million, respectively, investigating and remediating these former MGP
sites. At December 31, 1998, the reserve balance was $32.1 million, of which
$0.1 million was classified as current. Any significant change in assumptions,
such as remediation techniques, nature and extent of contamination and
regulatory requirements, could impact the estimate of remedial action costs for
the sites and, therefore, have an effect on MichCon's financial position and
cash flows. However, management believes that insurance coverage and the cost
deferral and rate recovery mechanism approved by the MPSC will prevent
environmental costs from having a material adverse impact on MichCon's results
of operations.
In 1998, MichCon received written notification from ANR, alleging that
MichCon has responsibility for a portion of the costs associated with responding
to environmental conditions present at a natural gas storage field in Michigan
currently owned and operated by an affiliate of ANR. At least some portion of
the natural gas storage field was formerly owned by MichCon. MichCon is
evaluating ANR's allegations to determine whether and to what extent, if any, it
may have legal responsibility for these costs. Management does not believe that
this matter will have a material impact on MCN's financial statements.
FRANCHISES
MichCon operates in more than 530 cities, villages and townships under
franchises or permits that typically are revocable at will and have a 30-year
maximum duration. In 1993, MichCon began a structured process to renew or
re-establish formal franchises in 233 municipalities. During the period
between January 1994 and December 1998, an additional 184 franchises expired. To
date, 391 franchises have been renewed, including nine renewed in 1998 that
account for gas sales volumes of approximately 115 MMcf annually. Additionally,
one new franchise was acquired. There were no franchises lost during 1998.
As for the 26 franchises that are currently expired, MichCon's gas
distribution systems are rightfully occupying the streets with the consent or
acquiescence of the municipalities. While MichCon could be ordered by any
municipality in which its franchise has expired to remove its property, it could
lose ownership only by its consent and the payment of an agreed upon
price, or by condemnation and the payment of the fair value of such property.
Should any of these municipalities seek to terminate MichCon's operations
therein and substitute another gas utility operation, publicly or privately
owned, the municipality must either (i) acquire and operate MichCon's system,
(ii) construct a new system or (iii) grant a franchise to another privately
owned utility to construct or acquire its own distribution system.
ITEM 2. PROPERTIES
MichCon operates natural gas distribution, transmission and storage
facilities in Michigan. At December 31, 1998, MichCon's distribution system
included 16,722 miles of distribution mains, 1,083,607 service lines and
8
<PAGE> 13
1,202,722 active meters. MichCon owns 2,604 miles of transmission and production
lines that deliver natural gas to the distribution districts and interconnect
its storage fields with the sources of supply and the market areas. MichCon also
owns properties relating to four underground storage fields with an aggregate
storage capacity of approximately 124 Bcf. Additionally, MichCon owns district
office buildings, service buildings and gas receiving and metering stations. In
January 1998, MichCon purchased its principal office building in Detroit, The
Guardian Building, ending its long-term capital lease obligation. MichCon
occupies its principal office building in Grand Rapids under a long-term lease.
Portions of these buildings are subleased to affiliates and others.
Most of MichCon's properties are held in fee, by easement, or under lease
agreements expiring at various dates to 2006, with renewal options extending
beyond that date. The principal plants and properties of MichCon are held
subject to the lien of MichCon's Indenture of Mortgage and Deed of Trust under
which MichCon's First Mortgage Bonds are issued. Some existing properties are
being fully utilized and new properties are being added to meet the requirements
of expansion into new areas. MichCon's capital expenditures for 1998 totaled
$153.5 million and for 1999 are anticipated to be approximately $132 million.
The Saginaw Bay Pipeline Company, a wholly-owned subsidiary of MichCon
Pipeline, owns a 66 2/3% interest in the Saginaw Bay Area Limited Partnership,
which owns substantially all of the properties used in the conduct of its
business, primarily a 126-mile major gathering line. The Saginaw Bay Lateral
Company, a wholly-owned subsidiary of MichCon Pipeline, owns a 46% interest in
the Saginaw Bay Lateral Limited Partnership, which owns substantially all of the
properties used in the conduct of its business, primarily lateral lines related
to the Saginaw Bay major gathering line. Westside Pipeline Company, a
wholly-owned subsidiary of MichCon Pipeline, owns an 82.62% interest in Jordan
Valley Pipeline, a 14-mile major gathering line, and the Terra-Hayes Pipeline,
an 18-mile major gathering line. MichCon Gathering Company, a wholly-owned
subsidiary of MichCon Pipeline, owns substantially all of the properties used in
the conduct of its business, including 44.7-mile, 8.6-mile, 11-mile and
25.2-mile major gathering lines and a 2,400 horsepower compressor station.
Thunder Bay Gathering Company, a wholly-owned subsidiary of MichCon
Pipeline, owns substantially all of the properties used in the conduct of its
business, including 44 miles of gathering lines.
ITEM 3. LEGAL PROCEEDINGS
In addition to the regulatory proceedings and other matters described in
Item 1, "Business," MichCon also is involved in a number of lawsuits and
administrative proceedings in the ordinary course of business with respect to
taxes, environmental matters, contracts, personal injury, property damage claims
and other matters.
ENVIRONMENTAL
In 1994, MichCon received a general notice of liability letter from the EPA
stating that it was one of two potentially responsible parties at the Lower
Ecorse Creek Superfund site in Wyandotte, Michigan. The EPA requested that
MichCon conduct a remedial investigation and feasibility the study at that site.
MichCon investigated its prior activities in the area and the EPA's bases for
its conclusion, and concluded that it was not the responsible for contamination
discovered at that site. MichCon informed the EPA of this belief and did not
undertake the requested activities.
In September 1996, the EPA sent MichCon a second general notice of liability
letter for the site and demanded reimbursement of approximately $2.3 million in
past costs, plus interest. The EPA then issued MichCon and the other potentially
responsible party a unilateral administrative order under section 106 of the
Comprehensive Environmental Response Compensation and Liability Act to implement
the remedy. The EPA estimates the cost of the remedy to be approximately
$650,000. MichCon again reviewed the EPA's bases for determining that it is a
potentially responsible party and concluded again that it was not responsible
for contamination discovered at that site and informed the EPA of its decision.
The EPA has not taken any subsequent action against MichCon. The EPA may sue
MichCon to force compliance with the order or may implement the remedy and then
sue MichCon for recovery of all incurred costs. If the EPA institutes and
prevails in such a suit and if the court determines that MichCon did not have
sufficient cause
9
<PAGE> 14
to comply with the order, the court may impose civil penalties and punitive
damages. Management believes that MichCon was not responsible for contamination
at the site and has sufficient cause not to comply with this order and that the
resolution of this matter will not have a material adverse effect on MichCon's
financial statements.
ENERGY CONSERVATION PROGRAMS
In July 1998, the Wayne County Michigan Circuit Court approved a settlement
of two class action lawsuits in relation to a discontinued energy conservation
program. There were 46,000 class members. The notice of settlement was sent in
June 1998 to the class members. Terms of the settlement included capped
co-payments for the repair of chimney damages or the installation of a chimney
liner and a reduced price for a carbon monoxide detector purchased from MichCon.
The request for reimbursement period ended on October 9, 1998, at which time
only 30 class members participated in the settlement. Claims totaling $3,105
were paid out in November 1998. MichCon is continuing its lawsuit against
certain of the manufacturers, contractors and installers of the plaintiffs'
furnaces.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted per general instruction I (2) (c) of Form 10-K for wholly-owned
subsidiaries (reduced disclosure format).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the 10,300,000 issued and outstanding shares of common stock of
MichCon, par value $1 per share, are indirectly owned by MCN, and constitute
100% of the voting securities of MichCon. Therefore, no market exists for
MichCon's common stock. On January 31, 1996, MichCon called for redemption the
remaining 104,732 shares of its redeemable cumulative preferred stock.
MichCon paid cash dividends of $46.1 million in 1998, $40.0 million in 1997
and $11.3 million in 1996 on its common stock.
10
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Selected Financial Data 1998 1997 1996 1995 1994
- --------------------------------------------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
INCOME AVAILABLE FOR COMMON STOCK ........... $ 76,976 $ 79,020 $ 79,824 $ 71,488 $ 59,387
=========== =========== =========== =========== ===========
Cash Dividends Declared on Common Stock ..... $ 46,084 $ 40,000 $ 11,263 $ 6,500 $ 8,500
=========== =========== =========== =========== ===========
RETURN ON AVERAGE COMMON SHAREHOLDER'S
EQUITY...................................... 12.2% 13.3% 14.7% 15.8% 15.2%
=========== =========== =========== =========== ===========
PROPERTY, PLANT AND EQUIPMENT ............... $ 2,889,020 $ 2,790,352 $ 2,668,294 $ 2,413,120 $ 2,189,150
Less - accumulated depreciation and
depletion................................... 1,396,940 1,322,392 1,243,060 1,151,160 1,071,588
----------- ----------- ----------- ----------- -----------
Net property, plant and equipment ........... $ 1,492,080 $ 1,467,960 $ 1,425,234 $ 1,261,960 $ 1,117,562
=========== =========== =========== =========== ===========
TOTAL ASSETS ................................ $ 2,172,525 $ 2,136,336 $ 2,058,344 $ 1,798,493 $ 1,571,910
=========== =========== =========== =========== ===========
CAPITAL EXPENDITURES ........................ $ 153,475 $ 155,208 $ 212,668 $ 235,767 $ 145,421
=========== =========== =========== =========== ===========
CAPITALIZATION
Long-term debt .............................. $ 615,419 $ 611,763 $ 536,561 $ 501,396 $ 431,870
Long-term capital lease obligations ......... 4,416 5,344 13,757 15,168 16,459
Redeemable cumulative preferred stock ....... -- -- -- -- 2,618
Common shareholder's equity ................. 646,843 616,024 577,004 489,821 417,833
----------- ----------- ----------- ----------- -----------
Total capitalization ........................ $ 1,266,678 $ 1,233,131 $ 1,127,322 $ 1,006,385 $ 868,780
=========== =========== =========== =========== ===========
SOURCES OF OPERATING REVENUES
Gas sales ................................... $ 853,463 $ 1,079,530 $ 1,058,499 $ 896,707 $ 954,537
Application of (provision for) refunds-net .. (29,717) (16,736) 27,346 20,473 223
End user transportation ..................... 82,016 84,516 82,210 80,360 76,228
Intermediate transportation ................. 63,218 55,221 48,570 31,913 28,745
Storage services ............................ 7,243 7,630 6,956 8,857 8,054
Conservation and other assistance programs .. -- (2,914) (2,483) 14,499 18,716
Other ....................................... 57,435 46,432 37,687 28,004 25,175
----------- ----------- ----------- ----------- -----------
Total operating revenues .................... $ 1,033,658 $ 1,253,679 $ 1,258,785 $ 1,080,813 $ 1,111,678
=========== =========== =========== =========== ===========
DISPOSITION OF GAS (MMcf)
Gas sales ................................... 168,906 205,760 217,672 206,951 201,423
End user transportation ..................... 140,051 144,963 146,662 145,288 139,800
Intermediate transportation ................. 537,532 586,496 527,510 341,550 303,617
----------- ----------- ----------- ----------- -----------
846,489 937,219 891,844 693,789 644,840
Company use and lost gas .................... 4,811 3,896 5,746 2,990 2,239
----------- ----------- ----------- ----------- -----------
Total disposition of gas .................... 851,300 941,115 897,590 696,779 647,079
=========== =========== =========== =========== ===========
EFFECT OF WEATHER
Degree days ................................. 5,471 6,830 7,171 6,777 6,489
Percent colder (warmer) than normal ......... (19.3)% .8 % 5.4 % .3 % (4.2)%
Increase (decrease) from normal in:
Gas markets (MMcf) ........................ (40,272) 589 10,909 1,488 (4,353)
Net income ................................ $ (35,314) $ 467 $ 9,886 $ 1,415 $ (3,984)
UTILITY CUSTOMERS
Residential ................................. 1,104,033 1,092,334 1,087,450 1,077,668 1,061,300
Total ....................................... 1,190,508 1,178,543 1,169,690 1,159,140 1,141,463
EMPLOYEES ................................... 2,724 2,867 3,062 3,128 3,273
</TABLE>
11
<PAGE> 16
ITEM 7. MANAGEMENT DISCUSSION & ANALYSIS
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
MichCon's earnings for 1998 were $77.0 million, a decrease of $2.0 million from
1997. Results for 1998 include an unusual charge which reduced earnings by $11.2
million. As subsequently discussed, the unusual charge represents the write-down
of certain gas gathering properties. Excluding the unusual charge, MichCon had
1998 earnings of $88.2 million, an improvement of $9.2 million over 1997.
Earnings for 1997 were $79.0 million, representing a slight decrease from 1996.
Earnings comparisons were impacted by variations in weather and cost-saving
initiatives resulting in significantly lower operating costs. The cost-saving
initiatives allowed MichCon to continue its record of solid financial
performance.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EARNINGS COMPONENTS (IN MILLIONS)
---------------------------------------------------
Comparing 1998 To 1997 Comparing 1997 To 1996
---------------------- ----------------------
Dollar Percent Dollar Percent
Change Change Change Change
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues .............. $ (220.0) (17.6)% $ (5.1) (.4)%
Cost of Gas ..................... (180.7) (28.6) (4.4) (.7)
Gross Margin .................... (39.3) (6.3) (.7) (.1)
Operation and Maintenance ....... (30.2) (10.7) (11.6) (4.0)
Depreciation and Depletion ...... (10.8) (10.4) 5.6 5.7
Property and Other Taxes ........ (5.3) (8.7) (1.0) (1.7)
Property Write-down ............. 24.8 -- -- --
Other Income and Deductions ..... (5.9) (11.8) 3.0 6.4
Income Tax Provision ............ (9.8) (21.6) 4.2 10.1
Net Income ...................... (2.0) (2.6) (.8) (1.0)
</TABLE>
- --------------------------------------------------------------------------------
GROSS MARGIN
Gross margin (operating revenues less cost of gas) decreased $39.3 million and
$.7 million in 1998 and 1997, respectively, reflecting changes in gas sales and
end user transportation deliveries due primarily to abnormally warm weather in
1998 and significantly colder weather in 1996. Additionally, gross margins in
1998 and 1997 were favorably affected by the continued growth in intermediate
transportation services as well as increased other operating revenues resulting
from providing gas-related services.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Percentage Colder (Warmer) Than Normal ...... (19.3)% .8% 5.4%
Increase (Decrease) From Normal in:
Gas markets (in Bcf) ..................... (40.3) .6 10.9
Net income (in Millions) ................. $ (35.3) $ .5 $ 9.9
- ---------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 17
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
GAS SALES AND END USER TRANSPORTATION revenues in total decreased $241.5 million
in 1998 and $20.7 million in 1997. Revenues were affected by fluctuations in gas
sales and end user transportation deliveries that decreased by 41.8 Bcf to 309.0
Bcf in 1998 and decreased by 13.6 Bcf to 350.8 in 1997. The decreases in gas
sales and end user transportation deliveries for both periods were due primarily
to weather, which was 20.1% warmer in 1998 and 4.6% warmer in 1997 compared to
the previous years. The decrease in revenues in 1998 was also affected by a
reduction in gas sales rates resulting from lower gas costs. The impact of
reduced gas sales and transportation deliveries in 1997 was partially offset by
an increase in gas sales rates due to higher gas costs. As discussed in the
"Cost of Gas" section that follows, MichCon's sales rates through the end of
1998 were set to recover all of its reasonably and prudently incurred gas costs.
Therefore, the effect of any fluctuations in cost of gas sold was substantially
offset by a change in gas sales revenues.
End user transportation services are provided to large-volume commercial and
industrial customers who purchase gas directly from producers and brokers and
contract with MichCon to transport the gas to their facilities. MichCon
continues to enter into multi-year, competitively priced transportation
agreements with large-volume users to maintain these gas markets over the long
term.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating Revenues (in Millions)
Gas Sales ..................... $ 823.8 $1,062.8 $1,085.8
End User Transportation ....... 82.0 84.5 82.2
Intermediate Transportation ... 63.2 55.2 48.6
Other ......................... 64.7 51.2 42.2
-------- -------- --------
$1,033.7 $1,253.7 $1,258.8
======== ======== ========
Gas Markets (Bcf)
Gas Sales ..................... 168.9 205.8 217.7
End User Transportation ....... 140.1 145.0 146.7
Intermediate Transportation ... 537.5 586.4 527.5
-------- -------- --------
846.5 937.2 891.9
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
INTERMEDIATE TRANSPORTATION revenues increased by $8.0 million and $6.6 million
in 1998 and 1997, respectively, due in part to increased fees generated from the
transfer of gas title among and between intermediate transportation service
users and various gas owners. Intermediate transportation is a gas delivery
service provided to gas producers, gas brokers and other gas companies that own
the natural gas but are not the ultimate consumers.
Although intermediate transportation revenues increased in 1998, volumes
delivered decreased 48.9 Bcf. Intermediate transportation deliveries increased
in 1997 by 58.9 Bcf. The decrease in intermediate transportation deliveries in
1998 reflects lower off-system demand caused by the warmer weather and lower
volumes transported for fixed-fee customers. Although transported volumes for
fixed-fee customers may fluctuate, revenues from such customers are not
affected. Intermediate transportation revenues and volumes delivered for both
1998 and 1997 were affected by additional Antrim gas volumes transported for
Michigan gas producers and brokers. There has been a significant increase in
Michigan Antrim gas production over the past several years, resulting in a
growing demand by gas producers and brokers for intermediate transportation
services. In order to meet the increased demand, MichCon expanded the
transportation capacity of its northern Michigan gathering system in 1996. In
December 1997, MichCon purchased an existing pipeline system and further
expanded the capacity of this system.
13
<PAGE> 18
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Although intermediate transportation volumes are a significant part of total
markets, profit margins on this service are considerably less than margins on
gas sales or for end user transportation services.
OTHER OPERATING REVENUES increased $13.5 million in 1998 and $9.0 million in
1997. The improvement in both periods is due in part to an increase in late
payment fees, appliance maintenance services and other gas-related services. The
comparisons are also impacted by unfavorable adjustments in 1997 and 1996
related to the discontinuance of MichCon's energy conservation programs.
COST OF GAS
Cost of gas is affected by variations in sales volumes and the cost of purchased
gas as well as related transportation costs. Under the Gas Cost Recovery (GCR)
mechanism in effect through 1998 (Note 7b), MichCon adjusted its sales rates to
recover all of its reasonably and prudently incurred gas costs. Therefore,
fluctuations in cost of gas sold had little effect on gross margins.
Cost of gas sold decreased by $180.7 million in 1998 and by $4.4 million in 1997
as a result of lower sales volumes, primarily due to warmer weather. The
decrease in 1998 also reflects lower prices paid for gas purchased of $.40 (13%)
per thousand cubic feet (Mcf). Additionally, the decrease in 1997 was impacted
by supplier refunds, partially offset by higher prices paid for gas purchased of
$.19 per Mcf (7%).
OTHER OPERATING EXPENSES
OPERATION AND MAINTENANCE expenses declined by $30.2 million in 1998 and $11.6
million in 1997. These reductions reflect management's continuing efforts to
control operating costs. More specifically, the reductions for both 1998 and
1997 reflect lower benefit costs, primarily pension and retiree healthcare
costs, as well as lower uncollectible gas accounts expense.
MichCon has streamlined its organizational structure over the past several years
while increasing its customer base and expanding energy services to customers.
MichCon implemented an early retirement program in early 1998 that reduced its
net workforce by approximately 6%. The cost of the program and the related
savings were largely offsetting in 1998 but will contribute to lower operating
costs in future years. Since 1995, the number of employees has declined by 404
or 13%, while the number of customers has increased by over 30,000 or 3%.
MichCon's uncollectible gas accounts expense declined by $8.7 million in 1998
and $5.7 million in 1997 reflecting the impact of warmer weather on accounts
receivable balances, the successful implementation of a more aggressive
collection program, as well as increased home heating assistance funding
obtained by low-income customers.
MichCon's uncollectible gas accounts expense is directly affected by the level
of government funded heating assistance its qualifying customers receive. The
State of Michigan provides this assistance in the form of Michigan Home Heating
Credits that are funded almost exclusively by the Federal Low-Income Home Energy
Assistance Program (LIHEAP). Congress approved funding for the 1997 and 1998
fiscal years at $1 billion and $1.1 billion, respectively, compared to funding
of $.9 billion for the 1996 fiscal year. The State of Michigan's share of LIHEAP
funds was decreased from $64 million in fiscal year 1997 to $54 million in 1998.
MichCon received $13.4 million of these funds in 1998, $.7 million more than in
1997. Home Heating Credits assisted 73,000 MichCon customers in 1998, compared
to 83,000 in 1997. During 1998, Congress approved a budget that maintains
federal LIHEAP funding at $1.1 billion for fiscal year ending September 1999.
Any future change in this funding may impact MichCon's uncollectible gas
accounts expense.
14
<PAGE> 19
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
DEPRECIATION AND DEPLETION decreased by $10.8 million in 1998 and increased by
$5.6 million in 1997. The decrease in 1998 resulted from lower depreciation
rates for utility property, plant and equipment that became effective in January
1998. Depreciation on higher plant balances partially offset the 1998 rate
decrease and resulted in the increase in 1997. The higher plant balances reflect
capital expenditures of $153.5 million in 1998 and $155.2 million in 1997.
PROPERTY AND OTHER TAXES decreased $5.3 million in 1998 and $1.0 million in
1997. The decreases for both 1998 and 1997 are attributable to lower property
taxes based on pending appeals of personal property tax assessments. If MichCon
is unsuccessful in its appeals, that outcome is not expected to have a
significant adverse effect on its results of operations. The decrease in 1998 is
also due to lower Michigan Single Business taxes resulting from a decrease in
taxable income. Property and other taxes increased in 1996 as a result of higher
plant balances.
PROPERTY WRITE-DOWN of $24.8 million in 1998 reflects the impairment of certain
gas gathering properties in northern Michigan (Note 2). As a result of the need
to divert certain untreated gas away from the gathering system, a new gas
reserve analysis was performed. This analysis revealed that projected cash flows
from the gathering system were not sufficient to cover the system's carrying
value. Therefore, an impairment loss was recorded representing the amount by
which the carrying value of the system exceeded its estimated fair value.
OTHER INCOME AND DEDUCTIONS
Other income and deductions decreased $5.9 million in 1998 and increased $3.0
million in 1997. Other income and deductions for both 1998 and 1997 include
higher interest costs on increased borrowings required to finance capital
investments. MichCon issued $150 million of first mortgage bonds in 1998 and $85
million of first mortgage bonds in 1997. Additionally, nonutility subsidiaries
of MichCon borrowed $40 million in 1997 under a nonrecourse credit agreement.
Accordingly, interest expense increased $2.8 million in 1998 and $5.5 million in
1997. Offsetting the impact of higher interest costs in 1998 was a change in
minority interest reflecting joint venture partners' share of the write-down of
certain gas gathering properties (Note 2). Other income and deductions in 1998
were also affected by a gain recorded from the sale of land as well as by an
increase in the capitalization of the cost of equity funds used during
construction resulting from higher construction balances.
INCOME TAXES
Income taxes decreased in 1998 and increased in 1997. Income tax comparisons
were affected by variations in pre-tax earnings and by 1998 tax credits and a
provision for tax issues. Income taxes in 1997 and 1996 include amounts for the
favorable resolution of prior years' tax issues and tax credits.
ENVIRONMENTAL MATTERS
Prior to the construction of major natural gas pipelines, gas for heating and
other uses was manufactured from processes involving coal, coke or oil. MichCon
owns, or previously owned, 16 such former manufactured gas plant (MGP) sites.
During the mid-1980s, MichCon conducted preliminary environmental investigations
at former MGP sites, and some contamination related to the by-products of gas
manufacturing was discovered at each site. The existence of these sites and the
results of the environmental investigations have been reported to the Michigan
Department of Environmental Quality (MDEQ). None of these former MGP sites is on
the National Priorities List prepared by the U.S. Environmental Protection
Agency (EPA).
15
<PAGE> 20
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
MichCon is involved in an administrative proceeding before the EPA regarding one
of the former MGP sites. MichCon has executed an order with the EPA, pursuant to
which MichCon is legally obligated to investigate and remediate the MGP site.
MichCon is remediating four of the former MGP sites and conducting more
extensive investigations at four other former MGP sites. In 1998, MichCon
completed the remediation of one of the former MGP sites, which was confirmed by
the MDEQ. Additionally, the MDEQ has determined with respect to one other former
MGP site that MichCon is not a responsible party for the purpose of assessing
remediation expenditures.
In 1984, MichCon established an $11.7 million reserve for environmental
investigation and remediation. During 1993, MichCon received MPSC approval of a
cost deferral and rate recovery mechanism for investigation and remediation
costs incurred at former MGP sites in excess of this reserve.
MichCon employed outside consultants to evaluate remediation alternatives for
these sites, to assist in estimating its potential liabilities and to review its
archived insurance policies. The findings of these investigations indicate that
the estimated total expenditures for investigation and remediation activities
for these sites could range from $30 million to $170 million based on
undiscounted 1995 costs. As a result of these studies, MichCon accrued an
additional liability and a corresponding regulatory asset of $32 million during
1995.
MichCon notified more than 40 current and former insurance carriers of the
environmental conditions at these former MGP sites. MichCon concluded settlement
negotiations with certain carriers in 1996 and 1997 and has received payments
from several carriers. In October 1997, MichCon filed suit against major
nonsettling carriers seeking recovery of incurred costs and a declaratory
judgment of the carriers' liability for future costs of environmental
investigation and remediation costs at former MGP sites. Discovery is ongoing in
the case, and a preliminary trial date has been scheduled for August 1999.
During 1998, 1997, and 1996, MichCon spent $1.6 million, $.8 million and $.9
million, respectively, investigating and remediating these former MGP sites. At
December 31, 1998, the reserve balance is $32.1 million, of which $.1 million is
classified as current. Any significant change in assumptions, such as
remediation techniques, nature and extent of contamination and regulatory
requirements, could impact the estimate of remedial action costs for the sites
and, therefore, have an effect on MichCon's financial position and cash flows.
However, management believes that insurance coverage and the cost deferral and
rate recovery mechanism approved by the MPSC will prevent environmental costs
from having a material adverse impact on MichCon's results of operations.
In 1998, MichCon received written notification from ANR Pipeline Company (ANR)
alleging that MichCon has responsibility for a portion of the costs associated
with responding to environmental conditions present at a natural gas storage
field in Michigan currently owned and operated by an affiliate of ANR. At least
some portion of the natural gas storage field was formerly owned by MichCon.
MichCon is evaluating ANR's allegations to determine whether and to what extent,
if any, it may have legal responsibility for these costs. Management does not
believe this matter will have a material impact on MichCon's financial
statements.
16
<PAGE> 21
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MichCon's cash flow from operating activities increased $30.7 million in 1998
and $85.6 million in 1997. The increase for both years reflects lower working
capital requirements and higher earnings after adjusting for noncash items
(depreciation, the unusual charge and deferred taxes) as compared to prior
years.
FINANCING ACTIVITIES
MichCon maintains a relatively consistent amount of cash and cash equivalents
through the use of short-term borrowings. Short-term borrowings are normally
reduced in the first part of each year as gas inventories are depleted and funds
are received from winter heating sales. During the latter part of each year,
MichCon's short-term borrowings normally increase as funds are used to finance
increases in gas inventories and customer accounts receivable. To meet its
seasonal short-term borrowing needs, MichCon normally issues commercial paper
that is backed by credit lines with several banks. MichCon has established
credit lines to allow for borrowings of up to $150 million under a 364-day
revolving credit facility and up to $150 million under a three-year revolving
credit facility, both of which were renewed in July 1998. At December 31, 1998,
commercial paper of $218.4 million was outstanding under this program.
During 1998, MichCon issued $150 million of remarketable debt securities
(Note 5). Proceeds from these issuances were used to retire first mortgage
bonds, fund capital expenditures and for general corporate purposes.
Also during 1998, MichCon redeemed through a tender offer $89.7 million and
repaid $20 million of first mortgage bonds (Note 5).
During 1997, MichCon issued $85 million of first mortgage bonds. The funds from
this issuance were used to retire first mortgage bonds, fund capital
expenditures and for general corporate purposes. During 1997, nonutility
subsidiaries of MichCon borrowed $40 million under a nonrecourse credit
agreement that matures in 2005. Proceeds were used to finance the expansion of
the northern Michigan gathering system.
During 1997, MichCon redeemed $17 million of long-term debt and also repaid $50
million of first mortgage bonds.
During 1996, MichCon issued first mortgage bonds totaling $70 million. The
proceeds were used to repay short-term obligations, finance capital expenditures
and for general corporate purposes. Also during 1996, MichCon repaid all amounts
owing under its Trust Demand Note program and did not renew this program which
allowed for borrowings of up to $25 million.
As of December 1998, MichCon had an outstanding shelf registration with $250
million remaining to be issued in the form of debt securities.
17
<PAGE> 22
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The following table sets forth the ratings for securities issued by
MichCon:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Standard Duff &
& Poors Moody's Phelp's Fitch
-------- ------- ------- -----
<S> <C> <C> <C> <C>
Commercial paper ....................... A2 P1 D1 F1
First mortgage bonds ................... A- A2 A+ A
- ----------------------------------------------------------------------------------------
</TABLE>
INVESTING ACTIVITIES
MichCon's capital expenditures totaled $153.5 million during 1998, a decrease of
$1.7 million from 1997. Capital expenditures primarily represent the
construction of new distribution lines to attach new customers, new computer
systems and improvements to existing storage, distribution and transmission
systems. Capital expenditures for 1999 are expected to total $132 million.
In December 1998, MichCon invested $28.2 million in a Grantor Trust to meet
future cash flow obligations related to certain postretirement health care
costs.
It is management's opinion that MichCon will have sufficient capital resources,
both internal and external to meet anticipated capital requirements.
OUTLOOK
MichCon's strategy is to expand its role as the preferred provider of natural
gas and high-value energy services within Michigan. Accordingly, MichCon's
objectives are to grow its revenues and control its costs in order to deliver
strong shareholder returns and provide customers high-quality service at
competitive prices. Revenue growth will be achieved through initiatives to
expand MichCon's 900 Bcf of gas markets, its 1.2 million residential, commercial
and industrial customer base, as well as by providing new energy-related
services that capitalize on its expertise, capabilities and efficient systems.
MichCon expects to provide natural gas to approximately 13,000 new customers in
1999. MichCon's market share for residential heating customers in the
communities it serves is approximately 80%. While this saturation rate is high,
growth opportunities exist through conversion of existing homes from other fuels
as well as from new construction. MichCon continues to expand industrial and
commercial markets by aggressively facilitating the use of existing gas
technologies and equipment.
Management is continually assessing ways to improve cost competitiveness. Among
other cost saving initiatives, MichCon implemented an early retirement incentive
program in 1998 that reduced its net workforce by 6%. Although this program did
not have a material impact on 1998 net income, the early retirement of employees
is expected to contribute toward reducing operating costs in future years.
The challenges and opportunities resulting from increased competition in the
natural gas industry have been a catalyst for MPSC action in the development of
major reforms in utility regulation aimed at giving all customers added choices
and more price certainty. The overall package of regulatory changes connected
with the gas industry restructuring is expected to generate additional revenue
and cost savings opportunities. MichCon is positioning itself to respond to
changes in regulation and increased competition by reducing its cost of
operations while maintaining a safe and reliable system for customers.
18
<PAGE> 23
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
MichCon plans to capitalize on opportunities resulting from the gas industry
restructuring by implementing its Regulatory Reform Plan, which was approved by
the MPSC in April 1998. The plan includes a comprehensive experimental
three-year customer choice program that offers all sales customers added choices
and greater price certainty. Beginning April 1, 1999, a limited number of
customers will have the option of purchasing natural gas from suppliers other
than MichCon. However, MichCon will continue to transport and deliver the gas to
the customers' premises at prices that maintain its existing sales margins.
The plan also suspends the GCR mechanism for customers who continue to purchase
gas from MichCon and fixes the gas commodity component of MichCon's sales rates
at $2.95 per Mcf for the three-year period beginning on January 1, 1999. Prior
to 1999, MichCon did not generate earnings on the gas commodity portion of its
operations. However, under this plan, changes in the cost of gas will directly
impact gross margins and earnings. As part of its gas acquisition strategy,
MichCon has entered into firm-price contracts for a substantial portion of its
expected gas supply requirements for the next three years. These contracts,
coupled with the use of MichCon's storage facilities, will substantially
mitigate risks from winter price and volume fluctuations.
Also beginning in 1999 under the plan, an income sharing mechanism will allow
customers to share in profits when actual utility return on equity exceeds
predetermined thresholds. Although the plan increases MichCon's risk associated
with generating margins that cover its gas costs, management believes this
program will have a favorable impact on future earnings. In October 1998, the
MPSC denied a request for rehearing and affirmed its approval of the plan.
Various parties have appealed the MPSC's decision to the Michigan Court of
Appeals.
As described in Note 7a to the consolidated financial statements, MichCon
complies with the provisions of Statement of Financial Accounting Standards
(SFAS), No. 71, "Accounting for the Effects of Certain Types of Regulation."
Future regulatory changes or changes in the competitive environment could result
in MichCon discontinuing the application of SFAS No. 71 for all or part of its
business and require the write-off of the portion of any regulatory asset or
liability that was no longer probable of recovery or refund. If MichCon were to
discontinue application of SFAS No. 71 for all of its operations as of December
31, 1998, it would have an extraordinary, noncash increase to net income of
approximately $65.8 million. Factors that could give rise to the discontinuance
of SFAS No. 71 include (1) increasing competition that restricts MichCon's
ability to establish prices to recover specific costs, and (2) a significant
change in the manner in which rates are set by regulators from cost-based
regulation to another form of regulation. Based on a current evaluation of the
various factors and conditions that are expected to impact future regulation,
management believes currently available facts support the continued application
of SFAS No. 71.
YEAR 2000
Background - As a result of computer programs being written using two digits
rather than four digits to define the year, any programs that have time
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This Year 2000 issue, if not addressed, could cause computer
systems to malfunction and have a material adverse impact on MichCon's
operations and business processes. The effects of the Year 2000 issue could be
exacerbated as a result of companies' dependence on partners, operators,
suppliers and government agencies.
Plan and State of Readiness - MichCon, aware of the Year 2000 potential impact,
initiated a business systems replacement program in 1995. Additionally, MichCon
established a corporate-wide program in 1997 under the direction of a Year 2000
Project Office. The Year 2000 project is overseen by a vice president of the
company who reports regularly to the Chairman and Board of Directors of MCN
19
<PAGE> 24
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Energy Group Inc., MichCon's parent company. MichCon has also retained the
services of expert consultants to evaluate its Year 2000 program and to
independently assess and validate its processes. MichCon has implemented a
four-phase Year 2000 approach consisting of: i) inventory - identification of
the components of MichCon's systems, equipment and facilities; ii) assessment
assessing Year 2000 readiness and prioritizing the risks of items identified in
the inventory phase; iii) remediation - upgrading, repairing and replacing
non-compliant systems, equipment and facilities; and iv) testing - verifying
items remediated. MichCon is on schedule to have its mission critical business
systems and measurement and control systems (including embedded microprocessors)
Year 2000 ready by mid-1999, as detailed below. MichCon's business systems
primarily consist of general ledger, payroll, customer billing and inventory
control systems and their related hardware. MichCon's measurement and control
systems primarily consist of the "SCADA" system, which measures and monitors the
transportation and distribution of gas, as well as regulators, pressure controls
and meters. The estimated completion status of these systems and the projected
status for the future follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inventory Assessment Remediation Testing
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Business Systems:
December 31, 1998 ............ 100% 95% 15% 15%
March 31, 1999 ............... 100% 100% 80% 70%
June 30, 1999 ................ 100% 100% 100% 100%
Measurement and Control Systems:
December 31, 1998 ............ 98% 90% 70% 60%
March 31, 1999 ............... 100% 100% 95% 90%
June 30, 1999 ................ 100% 100% 100% 100%
</TABLE>
- --------------------------------------------------------------------------------
MichCon also has visited key operators and suppliers to review their Year 2000
issues and share information. To the extent that any of these parties experience
Year 2000 problems in their systems, MichCon's operations may be adversely
affected. The majority of MichCon's key operators and suppliers have represented
to MichCon that they have completed their Year 2000 inventory and assessment
phases. MichCon is continuing to monitor the progress of these key operators and
suppliers toward their completion of the remediation and testing phases.
Cost of Remediation - Costs associated with the Year 2000 issue are not expected
to have a material adverse effect on MichCon's results of operation, liquidity
or financial condition. The total costs are estimated to be between $3 million
and $4 million, of which approximately $2.3 million was incurred through
December 1998.
The anticipated costs are not higher due in part to the ongoing replacement of
significant older systems, particularly MichCon's customer information system.
MichCon has made a substantial investment in new systems that are in process of
being installed, as well as those installed over the past few years. The
replacement of these systems, and the customer information system in particular,
was necessary to maintain a high level of customer satisfaction and to respond
to changes in regulation and increased competition within the energy industry.
While the system replacements were not accelerated due to Year 2000 issues, MCN
expects the new systems to be Year 2000 ready.
20
<PAGE> 25
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Risk and Contingency Planning - MichCon anticipates a smooth transition to the
Year 2000. However, the failure to correct a material Year 2000 problem could
result in an interruption in or a failure of certain business activities and
operations such as: i) delivery of gas to customers; ii) control and operation
of the distribution system by electronic devices; iii) communication with
customers for purposes of service calls or inquiries; and iv) timely billing and
collection. The risk and impact of such failures is largely dependent on
critical vendors and the external infrastructure that includes
telecommunications providers and gas suppliers. The most reasonably likely worst
case scenarios would be the extended inability to deliver gas due to the failure
of embedded systems in the distribution process or the extended inability to
communicate with and respond to customers due to the loss of telecommunications.
Such failures could have a material adverse effect on MichCon's results of
operations, liquidity and financial condition. Due to the uncertainty inherent
in the Year 2000 issue, resulting in part from the uncertainty of the Year 2000
readiness of key operators, suppliers and government agencies, MichCon cannot
certify that it will be unaffected by Year 2000 complications. MichCon has
addressed the Year 2000 risks of its business by prioritizing such risks based
on the worst case scenarios and their impact on the business. Focusing first on
the safety and welfare of MichCon's customers and employees, the following two
mission-critical processes were identified: gas supply and distribution, and
leak management emergency response.
While MichCon believes it will be able to remediate and test all internal
systems that support these processes, it fully recognizes its dependence on
operators, suppliers and government agencies. In order to reduce its Year 2000
risk, MichCon is developing contingency plans for mission-critical processes in
the event of a Year 2000 complication. Through failure scenario identification,
MichCon's approach is to develop reasonable and practical contingency plans to
maintain operations in case of non-performance. Ten contingency planning teams
have been established to address specific scenarios and mission critical
functions identified in support of the safety and welfare of customers and
employees. External suppliers have been contacted for their participation in the
contingency planning efforts for gas supply and transportation, and materials
management. Contingency plans for several essential gas transmission facilities
were tested during December 1998 under a "power outage" scenario and achieved
excellent results. Contingency plans will continue to be refined throughout 1999
as MichCon works with operators, suppliers and governmental agencies.
MARKET RISK INFORMATION
MichCon's primary market risk arises from fluctuations in natural gas prices and
interest rates. MichCon manages natural gas price and interest rate risk through
the use of various derivative instruments and limits the use of such instruments
to hedging activities. If MichCon did not use derivative instruments, its
exposure to such risk would be higher. A further discussion of MichCon's risk
management activities is included in Note 10 to the Consolidated Financial
Statements.
NATURAL GAS PRICE RISK
MichCon closely monitors and manages its exposure to natural gas price risk
through a variety of risk management techniques. Natural gas swap agreements are
used to manage MichCon's exposure to the risk of market price fluctuations on
natural gas purchase contracts.
A sensitivity analysis model was used to calculate the fair values of MichCon's
natural gas swap agreements utilizing applicable forward commodity rates in
effect at December 31, 1998. The sensitivity analysis involved increasing or
decreasing the forward rates by a hypothetical 10% and calculating the resulting
unfavorable change in the fair values of the natural gas swap agreements.
21
<PAGE> 26
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
INTEREST RATE RISK
MichCon is subject to interest rate risk in connection with the issuance of
variable- and fixed-rate debt. In order to manage interest costs, MichCon uses
interest rate swap agreements to exchange fixed- and variable-rate interest
payment obligations over the life of the agreements without exchange of the
underlying principal amounts. MichCon's exposure to interest rate risk arises
primarily from changes in U.S. Treasury rates and London Inter-Bank Offered
Rates (LIBOR).
A sensitivity analysis model was used to calculate the fair values or cash flows
of MichCon's debt and interest rate swaps, utilizing applicable forward interest
rates in effect at December 31, 1998. The sensitivity analysis involved
increasing and decreasing the forward rates by a hypothetical 10% and
calculating the resulting unfavorable change in the fair values or cash flows of
the interest rate sensitive instruments.
The results of the sensitivity model calculations follow:
<TABLE>
<CAPTION>
AMOUNT UNFAVORABLE
RISK (IN MILLIONS) CHANGE IN
------------- -----------
<S> <C> <C>
Commodity Price Sensitive:*
Swaps - pay fixed/receive variable............................... $ 3.8 Fair Value
Interest Rate Sensitive:
Debt - fixed rate................................................ $ 66.0 Fair Value
- variable rate............................................. $ .6 Cash Flow
Swaps - pay fixed/receive variable............................... $ .2 Fair Value
- pay variable/receive fixed............................... $ 1.8 Fair Value
</TABLE>
*Includes only the risk related to the swaps that serve as hedges and does not
include the related underlying hedged item.
NEW ACCOUNTING PRONOUNCEMENTS
COMPUTER SOFTWARE
In March 1998, the Accounting Standards Executive Committee (AcSEC) of the
American Institute of Certified Public Accountants issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 requires the capitalization of internal-use software
and specifically identifies which costs should be capitalized and which costs
should be expensed. The statement is effective for fiscal years beginning after
December 15, 1998. Management does not expect the SOP to have a material impact
on MichCon's financial statements.
START-UP ACTIVITIES
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires organizational and start-up costs to be expensed
as incurred and is effective for fiscal years beginning after December 15, 1998.
Management does not expect the SOP to have a material impact on MichCon's
financial statements.
22
<PAGE> 27
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONCLUDED)
DERIVATIVE AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" effective for
fiscal years beginning after June 15, 1999. SFAS No. 133 expands the definition
of the types of contracts considered derivatives, requires all derivatives to be
recognized in the balance sheet as either assets or liabilities measured at
their fair value, and sets forth conditions in which a derivative instrument may
be designated as a hedge. The Statement requires that changes in the fair value
of derivatives be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to be recorded to other comprehensive income or to
offset related results on the hedged item in earnings.
MichCon manages gas price risk and interest rate risk through the use of various
derivative instruments and limits the use of such instruments to hedging
activities. The effects of SFAS No. 133 on MichCon's financial statements are
subject to fluctuations in the market value of hedging contracts, which are, in
turn, affected by variations in gas prices and in interest rates. Management
cannot quantify the effects of adopting SFAS No. 133 at this time.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes 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 phenomenon; (ii) increased competition
from other energy suppliers as well as alternative forms of energy; (iii) the
capital intensive nature of MichCon's business; (iv) economic climate and growth
in the geographic areas in which MichCon does business; (v) the uncertainty of
gas reserve estimates; (vi) the timing and extent of changes in commodity prices
for natural gas, electricity and crude oil; (vii) conditions of capital markets
and equity markets; (viii) the timing, nature and impact of Year 2000
activities; and (ix) the effects of changes in governmental policies and
regulatory actions, including income taxes, environmental compliance and
authorized rates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk is contained in
Item 7. Management Discussion and Analysis - Market Risk Information, page 21
of this Report.
23
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- --------------------------------------------- ----------- ----------- -----------
(Thousands of Dollars) Note(s)
OPERATING REVENUES
<S> <C> <C> <C> <C>
Gas Sales ................................. $ 823,746 $ 1,062,794 $ 1,085,845
Transportation and storage services ....... 12 152,477 147,367 137,737
Other ..................................... 12 57,435 43,518 35,203
----------- ----------- -----------
Total Operating Revenues ................ 1,033,658 1,253,679 1,258,785
----------- ----------- -----------
OPERATING EXPENSES
Cost of gas ............................... 451,529 632,229 636,594
Operation and maintenance ................. 12 252,397 282,640 294,281
Depreciation and depletion ................ 92,883 103,703 98,147
Property and other taxes .................. 55,438 60,744 61,762
Property write-down ....................... 2 24,800 -- --
----------- ----------- -----------
Total operating expenses ................ 877,047 1,079,316 1,090,784
----------- ----------- -----------
OPERATING INCOME ............................ 156,611 174,363 168,001
----------- ----------- -----------
OTHER INCOME AND (DEDUCTIONS)
Interest income ........................... 12 5,688 4,659 3,900
Interest on long-term debt ................ (44,884) (45,526) (40,703)
Other interest expense .................... (12,113) (8,664) (8,012)
Minority interest ......................... 2 5,727 (1,882) (988)
Equity in earnings - joint ventures ....... 1,946 1,199 886
Other ..................................... (182) 536 (1,756)
----------- ----------- -----------
Total other income and (deductions) ..... (43,818) (49,678) (46,673)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................. 112,793 124,685 121,328
INCOME TAX PROVISION ........................ 13 35,817 45,665 41,486
----------- ----------- -----------
NET INCOME .................................. 76,976 79,020 79,842
DIVIDENDS ON PREFERRED STOCK ................ -- -- 18
----------- ----------- -----------
NET INCOME AVAILABLE FOR COMMON STOCK ....... $ 76,976 $ 79,020 $ 79,824
=========== =========== ===========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
24
<PAGE> 29
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31 1998 1997
- --------------------------------------------------------------------- ---------- ----------
(Thousands of Dollars) Note(s)
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents. ...................................... $ 6,603 $ 14,353
Accounts receivable, less allowance for doubtful accounts of
$8,928 and $15,015 respectively ............................... 142,818 195,662
Accrued unbilled revenues ....................................... 86,767 91,896
Gas in inventory ................................................ 3 56,969 40,201
Property taxes assessed applicable to future periods ............ 71,165 64,827
Accrued gas cost recovery revenues .............................. 7a -- 12,862
Other ........................................................... 30,169 33,361
---------- ----------
394,491 453,162
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Investment in and advances to joint ventures .................... 19,343 19,643
Long-term investments ........................................... 9c 65,556 35,110
Deferred environmental costs .................................... 6b,7a 28,169 27,699
Prepaid benefit costs ........................................... 9 113,879 85,790
Other 59,007 46,972
---------- ----------
285,954 215,214
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST ............................ 8 2,889,020 2,790,352
Less - Accumulated depreciation and depletion ................... 1,396,940 1,322,392
---------- ----------
1,492,080 1,467,960
---------- ----------
$2,172,525 $2,136,336
========== ==========
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Accounts payable ................................................ $ 98,891 $ 130,267
Notes payable ................................................... 4 221,169 241,691
Current portion of long-term debt and capital lease obligations . 5a,8 58,288 34,956
Federal income, property and other taxes payable ................ 61,059 78,630
Deferred gas cost recovery revenues ............................. 7a 14,980 --
Exchange gas payable ............................................ 25,337 2,063
Customer deposits ............................................... 18,769 16,363
Other ........................................................... 67,222 65,717
---------- ----------
565,715 569,687
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes ........................................... 13 88,567 83,905
Unamortized investment tax credit ............................... 29,784 32,745
Tax benefits amortizable to customers ........................... 7a 130,120 122,922
Accrued environmental costs ..................................... 6b 32,000 32,000
Minority interest ............................................... 2 8,201 17,283
Other ........................................................... 51,460 44,663
---------- ----------
340,132 333,518
---------- ----------
COMMITMENTS AND CONTINGENCIES 6,8
CAPITALIZATION (SEE ACCOMPANYING STATEMENT)
Long-term debt, including capital lease obligations ............. 5a,8,10 619,835 617,107
Common shareholder's equity ..................................... 646,843 616,024
---------- ----------
1,266,678 1,233,131
---------- ----------
$2,172,525 $2,136,336
========== ==========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
25
<PAGE> 30
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------- --------- --------- ---------
(Thousands of Dollars) Note(s)
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income ................................................... $ 76,976 $ 79,020 $ 79,842
Adjustments to reconcile net income to net cash flow provided
from operating activities:
Depreciation and depletion
Per statement of income ................................ 92,883 103,703 98,147
Charged to other accounts 7,946 7,663 7,579
Property write-down , net of taxes and minority
interest................................................ 2 11,200 -- --
Deferred income taxes - current .......................... (961) (3,130) 4,963
Deferred income taxes and investment tax credit, net ..... 15,005 10,853 6,999
Other .................................................... (4,430) (679) (2,629)
Changes in assets and liabilities, exclusive of changes
shown separately ....................................... 19,299 (10,167) (93,207)
--------- --------- ---------
Net cash provided from operating activities .......... 217,918 187,263 101,694
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable, net ........................................... 4 (20,522) (23,435) 68,491
Issuance of long-term debt ................................... 5a 153,052 124,051 69,645
Cash dividend paid:
Common Stock .............................................. (46,084) (40,000) (11,263)
Preferred Stock ........................................... -- -- (54)
Equity Investment ............................................ -- -- 1,614
Retirement of long-term debt ................................. 5a (126,292) (76,854) (6,384)
--------- --------- ---------
Net cash provided from (used for)
financing activities ............................... (39,846) (16,238) 122,049
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Notes receivable - affiliate, net ............................ 12 (3,249) -- --
Capital expenditures ......................................... (153,475) (155,208) (212,668)
Other, net ................................................... (29,098) (11,474) (9,534)
--------- --------- ---------
Net cash used for investing activities ............... (185,822) (166,682) (222,202)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... (7,750) 4,343 1,541
CASH AND CASH EQUIVALENTS, JANUARY 1 ........................... 14,353 10,010 8,469
--------- --------- ---------
CASH AND CASH EQUIVALENTS, DECEMBER 31 ......................... $ 6,603 $ 14,353 $ 10,010
========= ========= =========
CHANGES IN ASSETS AND LIABILITIES,
EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Accounts receivable - net .................................. $ 50,174 $ (43,510) $ 7,807
Accrued/deferred gas cost recovery revenues ................ 27,843 14,810 (28,250)
Accrued unbilled revenues .................................. 5,129 15,481 (16,243)
Gas in inventory ........................................... (16,768) 28,008 (27,719)
Property taxes assessed applicable to future periods ....... (6,338) (4,235) (3,643)
Accounts payable ........................................... (30,617) (585) 21,401
Federal income, property and other taxes payable ........... (17,602) (6,228) (2,424)
Exchange gas payable ....................................... 23,274 2,063 --
Deferred and prepaid benefit costs ......................... (28,089) (16,620) (44,021)
Other current assets and liabilities ....................... 11,191 (2,353) 6,312
Deferred assets and liabilities ............................ 1,102 3,002 (6,427)
--------- --------- ---------
$ 19,299 $ (10,167) $ (93,207)
========= ========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest, net of amounts capitalized ...................... $ 56,250 $ 52,172 $ 48,254
========= ========= =========
Federal income taxes ...................................... $ 27,090 $ 46,984 $ 31,927
========= ========= =========
Noncash financing activities:
Transfer of pipeline net assets from MCN .................. $ -- $ -- $ 17,008
========= ========= =========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
26
<PAGE> 31
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITALIZATION
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- ---------------------------------------------------------------------- -------------- -------------- --------------
(Thousands of dollars) Note(s)
LONG-TERM DEBT, EXCLUDING CURRENT REQUIREMENTS 5A
FIRST MORTGAGE BONDS, INTEREST PAYABLE SEMI-ANNUALLY
<S> <C> <C> <C> <C>
6.3 % series due 1998 .............................................. $ -- $ -- $ 20,000
6.51 % series due 1999 ............................................. -- 30,000 30,000
5.75 % series due 2001 ............................................. 40,000 60,000 60,000
8 % series due 2002 ................................................ 17,314 70,000 70,000
6.72 % series due 2003 ............................................. 4,150 4,150 4,150
6.8 % series due 2003 .............................................. 15,850 15,850 15,850
9.125 % series due 2004 ............................................ 18,000 55,000 55,000
7.15 % series due 2006 ............................................. 40,000 40,000 40,000
7.21 % series due 2007 ............................................. 30,000 30,000 --
7.06 % series due 2012 ............................................. 40,000 40,000 --
8.25 % series due 2014 ............................................. 80,000 80,000 80,000
7.6 % series due 2017 .............................................. 14,980 14,990 --
9.5 % series due 2019 .............................................. -- -- 5,000
7.5 % series due 2020 .............................................. 29,641 29,641 29,812
9.5 % series due 2021 .............................................. 40,000 40,000 40,000
6.75 % series due 2023 ............................................. 16,617 17,177 17,782
7 % series due 2025 ................................................ 40,000 40,000 40,000
Unamortized discount ............................................... (1,130) (1,235) (1,349)
Remarketable securities, interest payable semi-annually
6.2 % series due 2038 ............................................. 75,000 -- --
6.45 % series due 2038 ............................................. 75,000 -- --
Unamortized premium ................................................ 3,871 -- --
Unsecured Notes - 9.750 % series due 2000 ............................ -- -- 12,000
Long-term capital lease obligations .................................. 8 4,416 5,344 13,757
Other long-term debt ................................................. 36,126 46,190 18,316
---------- ---------- ----------
Total............................................................... 619,835 617,107 550,318
---------- ---------- ----------
COMMON SHAREHOLDER'S EQUITY
COMMON STOCK, PAR VALUE $1 PER SHARE - AUTHORIZED, FOR
all periods, 15,100,000 shares; outstanding 10,300,000 shares .... 10,300 10,300 10,300
---------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL
Balance - beginning of period .................................... 230,399 230,399 211,777
Equity investment ................................................ -- -- 18,622
---------- ---------- ----------
Balance - end of period .......................................... 230,399 230,399 230,399
---------- ---------- ----------
RETAINED EARNINGS
Balance - beginning of period .................................... 375,325 336,305 267,744
Net income ....................................................... 76,976 79,020 79,842
Dividends declared:
Common stock ................................................... (46,157) (40,000) (11,263)
Preferred stock ................................................ -- -- (18)
---------- ---------- ----------
Balance - end of period .......................................... 406,144 375,325 336,305
---------- ---------- ----------
Total common shareholder's equity .................................... 646,843 616,024 577,004
---------- ---------- ----------
Total capitalization ................................................. $1,266,678 $1,233,131 $1,127,322
========== ========== ==========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
27
<PAGE> 32
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
COMPANY DESCRIPTION
Michigan Consolidated Gas Company (MichCon) is a public utility engaged
in the distribution and transmission of natural gas in the state of
Michigan. MichCon is subject to the accounting requirements of and rate
regulation by the Michigan Public Service Commission (MPSC) with respect
to the distribution and intrastate transportation of natural gas. The
major services provided by MichCon are gas sales, end user
transportation and intermediate transportation. MichCon serves more than
1.2 million residential, commercial and industrial customers. MichCon is
not dependent upon any one customer or group of customers. Its principal
markets are located in the Detroit, Grand Rapids, Ann Arbor, Traverse
City, and Muskegon metropolitan areas. MichCon's non-regulated operations
are not material. MichCon is an indirect wholly owned subsidiary of MCN
Energy Group Inc. (MCN).
BASIS OF PRESENTATION
The accompanying consolidated financial statements were prepared in
conformity with generally accepted accounting principles. In connection
with their preparation, management was required to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and the disclosure of contingent liabilities. Actual
results could differ from those estimates. Certain reclassifications
have been made to prior years' statements to conform to the 1998
presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MichCon
and all of its subsidiaries. Investments in 50% or less owned entities
have been accounted for under the equity method because MichCon has
significant but not controlling influence over these entities.
REVENUES AND COST OF GAS
MichCon accrues revenues for gas service provided but unbilled at month
end. Through December 31, 1998, MichCon's accrued revenues included a
component for cost of gas sold that was recoverable through the gas cost
recovery (GCR) mechanism. Prior to 1999, GCR proceedings before the MPSC
permitted MichCon to recover the prudent and reasonable cost of gas
sold. The overcollection of gas costs totaling $14,980,000 at December
31, 1998, including interest, will be refunded to customers through
reduced rates.
Beginning in 1999, MichCon implemented a Regulatory Reform Plan,
approved by the MPSC. The plan suspends the GCR mechanism and fixes the
gas component of MichCon's sales rates for the three-year period
beginning January 1, 1999.
28
<PAGE> 33
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and includes amounts for
labor, materials, overhead, and an allowance for funds used during
construction. Upon retirement, the cost of property, plant and equipment
and net removal costs are charged to accumulated depreciation.
MichCon records depreciation for a major portion of its property, plant
and equipment on the basis of straight-line rates prescribed by the
MPSC. Unit of production depreciation and depletion is used for certain
production and transmission property. Depreciation rates vary by class
of property. The ratio of the provision for depreciation to the average
cost of depreciable property was 3.5% in 1998, 4.1% in 1997 and 4.4% in
1996.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
MichCon capitalizes an allowance for both debt and equity funds used
during construction in the cost of major additions to utility plant. The
total amount capitalized was $4,699,000, $3,188,000 and $5,233,000 in
1998, 1997 and 1996, respectively.
DEFERRED DEBT COSTS
In accordance with MPSC regulations, MichCon defers reacquisition and
unamortized issuance costs of reacquired long-term debt when such debt
is refinanced. These costs are amortized over the term of the
replacement debt.
INCOME TAXES AND INVESTMENT TAX CREDIT
Tax Benefits Amortizable to Customers represents the net revenue
equivalent of the difference in property-related accumulated deferred
income taxes computed in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as compared
to the amounts previously reflected in setting utility rates. This
amount is primarily due to current tax rates being lower than the rates
in effect when the original deferred taxes were recorded and because of
temporary differences, including accumulated investment tax credits, for
which deferred income taxes were not previously recorded in setting
utility rates. These net tax benefits are being amortized in accordance
with the regulatory treatment over the life of the related plant, as the
temporary differences reverse.
Investment tax credits relating to property placed into service were
deferred and are being credited to income over the life of the related
property.
CONSOLIDATED STATEMENT OF CASH FLOWS
For purposes of this statement, MichCon considers all highly liquid
investments purchased with a maturity of three months or less, to be
cash equivalents.
29
<PAGE> 34
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. PROPERTY WRITE-DOWN
During 1998, MichCon recognized a $24,800,000 pre-tax loss ($11,200,000 net of
taxes and minority interest) from the write-down of a gas gathering pipeline
system. A new gas reserve analysis was performed in 1998 to determine the
impact of the diversion of certain untreated gas away from the gathering
system. This analysis revealed that projected cash flows from the gathering
system were not sufficient to cover the system's carrying value. Therefore, an
impairment loss was recorded representing the amount by which the carrying
value of the system exceeded its estimated fair value.
3. GAS IN INVENTORY
Inventory gas is priced on a last-in, first-out (LIFO) basis. At December 31,
1998, the replacement cost exceeded the $56,969,000 LIFO cost by $151,381,000.
At December 31, 1997, the replacement cost exceeded the $40,201,000 LIFO cost
by $170,240,000.
A portion of gas in underground storage used as a pressure base is included in
"Property, Plant and Equipment" in the amount of $32,041,000 at December 31,
1998 and $32,493,000 at December 31, 1997.
4. CREDIT FACILITIES AND SHORT-TERM BORROWINGS
At December 31, 1998, MichCon had credit lines permitting borrowings of up to
$150,000,000 under a 364-day revolving credit facility and up to $150,000,000
under a three-year revolving credit facility, both of which were renewed in
July 1998. MichCon issues commercial paper in lieu of an equivalent amount of
borrowings under these lines of credit. Commercial paper outstanding at
December 31, 1998 and 1997 totaled $218,447,000 and $236,740,000 and was at
weighted average interest rates of 5.6% and 5.8%, respectively. This debt is
classified as short-term. Fees are paid to compensate banks for lines of
credit.
5. CAPITALIZATION
a. LONG-TERM DEBT
In 1998, MichCon issued a total of $150,000,000 of remarketable debt
securities with various interest rates. These securities are "fall-away
mortgage" debt and, as such, are secured debt as long as MichCon's
current first mortgage bonds are outstanding and become senior unsecured
debt thereafter. The securities are structured such that the interest
rates of the issues can be reset at various remarketing dates over the
life of the debt. The initial remarketing dates are in June 2003 and
2008. MichCon received option premiums in return for granting options to
the underwriters to reset the interest rate for a period of ten years at
the initial remarketing dates. The option premiums received, net of
financing costs incurred, totaled $3,052,000 and are being amortized to
income over the initial interest and corresponding option periods. If
the underwriters elect not to exercise their reset options, the
securities become subject to the remarketing feature. If MichCon and the
remarketing agent cannot agree on an interest rate or the remarketing
agent is unable to remarket the securities, MichCon will be required to
repurchase the securities at their principal amounts.
30
<PAGE> 35
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In 1998, MichCon redeemed through a tender offer $37,000,000 of the
outstanding $55,000,000 balance of 9.125% first mortgage bonds due 2004,
and $52,686,000 of the outstanding $70,000,000 balance of 8% first
mortgage bonds due 2002.
During 1997, nonutility subsidiaries of MichCon borrowed $40,000,000
under a nonrecourse credit agreement. Under the terms of the agreement,
certain alternative variable interest rates are available at the
borrowers' option during the life of the agreement. Quarterly principal
payments commenced in 1997, with a final installment due November 2005.
The loan is secured by a pledge of stock of the borrowers and a security
interest in certain of their assets. MichCon may be required to support
the credit agreement through limited capital contributions to the
subsidiaries if certain cash flow and operating targets are not met. At
December 31, 1998 and 1997, $29,200,000 and $36,400,000 were outstanding
at weighted average interest rates of 5.8% and 6.4%, respectively.
MichCon has variable interest rate swap agreements with notional
principal amounts aggregating $92,000,000 in connection with its first
mortgage bonds. Swap agreements of $40,000,000 through May 2002 have
reduced the average cost of the related debt from 7.3% to 6.3% for the
year ended December 31, 1998. Swap agreements of $40,000,000 through May
2005 have reduced the average cost of the related debt from 7.1% to 5.9%
for the year ended December 31, 1998. Swap agreements of $12,000,000
through April 2000 have reduced the average cost of the related debt
from 8.3% to 4.4% for the year ended December 31, 1998. A nonutility
subsidiary of MichCon has an interest rate swap agreement on the
$14,080,000 outstanding balance of its project loan agreement at
December 31, 1998, that effectively fixes the interest rate at 7.5%
through February 2003.
Substantially all of the net utility properties of MichCon in the
approximate amount of $1,240,000,000, are pledged as security for the
payment of outstanding first mortgage bonds.
Maturities and sinking fund requirements during the next five years for
long-term debt outstanding at December 31, 1998, are $57,360,000 in
1999, $26,960,000 in 2000, $26,560,000 in 2001, $23,674,000 in 2002, and
$25,960,000 in 2003.
b. CUMULATIVE PREFERRED AND PREFERENCE STOCK
MichCon is authorized to issue 7,000,000 shares of $1 per share par
value preferred stock and 4,000,000 shares of $1 per share par value
preference stock. At December 31, 1998, no issuances of preferred or
preference stock were made under these authorizations.
6. COMMITMENTS AND CONTINGENCIES
a. GUARANTY
A subsidiary of MichCon and an unaffiliated corporation have formed a
series of partnerships engaged in the construction and development of a
residential community on the Detroit riverfront (Harbortown). One of the
partnerships obtained $12,000,000 of tax-exempt financing due June 2004
through the Michigan State Housing Development Authority. Both partners
and their parent corporations have issued guaranties for the full amount
of this financing and each parent corporation has agreed to reimburse
the other for 50% of any payments made as a result of these guaranties.
31
<PAGE> 36
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
b. ENVIRONMENTAL MATTERS
Prior to the construction of major natural gas pipelines, gas for
heating and other uses was manufactured from processes involving coal,
coke or oil. MichCon owns, or previously owned, 16 such former
manufactured gas plant (MGP) sites.
During the mid-1980s, MichCon conducted preliminary environmental
investigations at former MGP sites, and some contamination related to
the by-products of gas manufacturing was discovered at each site. The
existence of these sites and the results of the environmental
investigations have been reported to the Michigan Department of
Environmental Quality (MDEQ). None of these former MGP sites is on the
National Priorities List prepared by the U.S. Environmental Protection
Agency (EPA).
MichCon is currently involved in an administrative proceeding before the
EPA regarding one of the former MGP sites. MichCon has executed an order
with the EPA, pursuant to which MichCon is legally obligated to
investigate and remediate the MGP site. MichCon is remediating four of
the former MGP sites and is conducting more extensive investigations at
four other former MGP sites. In 1998, MichCon completed the remediation
of one of the former MGP sites, which was confirmed by the MDEQ.
Additionally, the MDEQ has determined with respect to one other former
MGP site that MichCon is not a responsible party for the purpose of
assessing remediation expenditures.
In 1984, MichCon established an $11,700,000 reserve for environmental
investigation and remediation. During 1993, MichCon received MPSC
approval of a cost deferral and rate recovery mechanism for
investigation and remediation costs incurred at former MGP sites in
excess of this reserve.
MichCon employed outside consultants to evaluate remediation
alternatives for these sites, to assist in estimating its potential
liabilities and to review its archived insurance policies. The findings
of these investigations indicate that the estimated total expenditures
for investigation and remediation activities for these sites could range
from $30,000,000 to $170,000,000 based on undiscounted 1995 costs. As a
result of these studies, MichCon accrued an additional liability and a
corresponding regulatory asset of $32,000,000 during 1995.
MichCon notified more than 40 current and former insurance carriers of
the environmental conditions at these former MGP sites. MichCon
concluded settlement negotiations with certain carriers in 1996 and 1997
and has received payments from several carriers. In October 1997,
MichCon filed suit against major nonsettling carriers seeking recovery
of incurred costs and a declaratory judgment of the carriers' liability
for future costs of environmental investigation and remediation costs at
former MGP sites. Discovery is ongoing in the case, and a preliminary
trial date has been scheduled for August 1999.
During 1998, 1997 and 1996, MichCon spent $1,649,000, $835,000 and
$900,000, respectively, investigating and remediating these former MGP
sites. At December 31, 1998, the reserve balance was $32,092,000, of
which $92,000 was classified as current. Any significant change in
assumptions, such as remediation techniques, nature and extent of
contamination and regulatory
32
<PAGE> 37
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
requirements, could impact the estimate of remedial action costs for the
sites and, therefore, have an effect on MichCon's financial position and
cash flows. However, management believes that insurance coverage and the
cost deferral and rate recovery mechanism approved by the MPSC will
prevent environmental costs from having a material adverse impact on
MichCon's results of operations.
In 1998, MichCon received written notification from ANR Pipeline Company
(ANR), alleging that MichCon has responsibility for a portion of the
costs associated with responding to environmental conditions present at
a natural gas storage field in Michigan currently owned and operated by
an affiliate of ANR. At least some portion of the natural gas storage
field was formerly owned by MichCon. Presently, MichCon is evaluating
ANR's allegations to determine whether and to what extent, if any, that
MichCon may have legal responsibility for these costs. Pending the
completion of this evaluation, MichCon has not recognized any liability
for this matter. Management does not believe this will have a material
impact on MichCon's financial statements.
c. COMMITMENTS
MichCon has entered into long-term purchase and transportation contracts
with various suppliers and producers. In general, purchase prices are
under fixed price and volume contracts. MichCon has firm purchase
commitments through 2001 for approximately 487 Bcf of gas. MichCon
expects that sales, based on normal weather, will approximate its
minimum purchase commitments. MichCon has long-term transportation
contracts with various pipeline companies expiring on various dates
through the year 2011. MichCon is committed to pay demand charges of
approximately $53,100,000 during 1999 related to firm transportation
agreements.
Capital investments for 1999 are expected to approximate $132,000,000
and certain commitments have been made in connection with such capital
investments.
d. OTHER
MichCon is involved in certain legal and administrative proceedings
before various courts and governmental agencies concerning claims
arising in the ordinary course of business. Management cannot predict
the final disposition of such proceedings, but believes that adequate
provision has been made for probable losses. It is management's belief,
after discussion with legal counsel, that the ultimate resolution of
those proceedings still pending will not have a material adverse effect
on MichCon's financial statements.
7. REGULATORY MATTERS
a. REGULATORY ASSETS AND LIABILITIES
MichCon's operations are subject to the provisions SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation." As a
result, several regulatory assets and liabilities are recorded in
MichCon's financial statements. Regulatory assets represent costs that
will be recovered from customers through the ratemaking process.
Regulatory liabilities represent benefits that will be refunded to
customers through reduced rates.
33
<PAGE> 38
]
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following regulatory assets and liabilities were reflected in the
Consolidated Statement of Financial Position as of December 31:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands) 1998 1997
-------- --------
Regulatory Assets:
<S> <C> <C>
Accrued gas cost recovery revenues ............. $ -- $ 12,862
Unamortized loss on retirement of debt ......... 15,548 10,181
Deferred environmental costs (Note 6b) ......... 28,169 27,699
Other .......................................... 196 986
-------- --------
$ 43,913 $ 51,728
======== ========
Regulatory Liabilities:
Deferred gas cost recovery revenues ............ $ 14,980 $ --
Tax benefits amortizable to customers .......... 130,120 122,922
-------- --------
$145,100 $122,922
======== ========
</TABLE>
- -------------------------------------------------------------------------------
MichCon currently has regulatory precedents and orders in effect which
provide for the probable recovery or refund of its regulatory assets and
liabilities. Future regulatory changes or changes in the competitive
environment could result in MichCon discontinuing the application of
SFAS No. 71 for all or part of its business and require the write-off of
the portion of any regulatory asset or liability which was no longer
probable of recovery or refund. If MichCon were to have discontinued the
application of SFAS No. 71 for all of its operations as of December 31,
1998, it would have had an extraordinary, noncash increase to net income
of approximately $65,800,000. Management believes that currently
available facts support the continued application of SFAS No. 71.
b. REGULATORY REFORM PLAN
In April 1998, the MPSC approved MichCon's Regulatory Reform Plan. The
plan includes a comprehensive experimental three-year customer choice
program, which is subject to annual caps on the level of participation.
The customer choice program begins April 1, 1999, when up to 75,000
customers will have the option of purchasing natural gas from suppliers
other than MichCon. Up to 75,000 additional customers can be added by
April 1 of each of the next two years, eventually allowing up to 225,000
customers the option to choose a gas supplier other than MichCon. In each
of the three plan years, there is also a volume limitation on commercial
and industrial participants. The volume limitation for these participants
is 10 Bcf in 1999, 20 Bcf in 2000 and 30 Bcf in 2001. MichCon will
continue to transport and deliver the gas to the customers' premises at
prices that maintain its existing sales margins.
The plan also suspends the GCR mechanism for customers who continue to
purchase gas from MichCon and fixes the gas commodity component of
MichCon's sales rates at $2.95 per Mcf for
34
<PAGE> 39
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the three-year period beginning on January 1, 1999. Prior to January
1999, MichCon did not generate earnings on the gas commodity portion of
its operations. However, under this plan, changes in cost of gas will
directly impact earnings. As part of its gas acquisition strategy,
MichCon has entered into firm-price contracts for a substantial portion
of its expected gas supply requirements for the next three years. These
contracts, coupled with the use of MichCon's storage facilities, will
substantially mitigate risks from winter price and volume fluctuations.
Also beginning in 1999, the plan established an income sharing mechanism
that will allow customers to share in profits if actual utility return
on equity exceeds predetermined thresholds. In October 1998, the MPSC
denied a rehearing and affirmed its approval of the plan. Various
parties have appealed the MPSC's decision to the Michigan Court of
Appeals. While management believes that based upon applicable Michigan
law the order will be upheld on appeal, there can be no assurance as to
the outcome.
8. CAPITAL AND OPERATING LEASES
MichCon leases certain property (principally a warehouse, office building and
parking structure) under lease arrangements expiring at various dates to 2006,
with renewal options extending beyond that date. Portions of the office
building and parking structure are subleased to various tenants.
In January 1998, MichCon purchased its home office building, thereby
eliminating the related long-term capital lease obligation. As a result, the
long-term capital lease obligation of $6,818,000 was reclassified as a current
capital lease obligation at December 31, 1997. Other long-term capital lease
obligations are not significant.
Operating lease payments for the years ended December 31, 1998, 1997, and 1996
were $2,050,000, $2,015,000, and $2,239,000, respectively.
9. RETIREMENT BENEFITS AND TRUSTEED ASSETS
In 1998, MichCon adopted SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," which standardizes the disclosure
requirements for pensions and other postretirement benefits.
a. PENSION PLAN BENEFITS
MichCon participates in separate defined benefit retirement plans,
maintained by MCN, for union and nonunion employees. The plans are
noncontributory, cover substantially all employees and provide for
normal retirement at age 65, but with the option to retire earlier or
later under certain conditions. The plans provide pension benefits that
are based on each employee's compensation and years of credited service.
Currently these plans meet the full funding limitations of the Internal
Revenue Code. Accordingly, no contributions for the 1998, 1997 or 1996
plan years were made, and none is expected to be made for the 1999 plan
year.
35
<PAGE> 40
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Net pension credit for the years ended December 31 includes the following
components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(in Thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service Cost ................................ $ 9,719 $ 9,406 $ 10,400
Interest Cost ............................... 36,195 34,408 33,262
Expected Return on Plan Assets .............. (71,780) (61,615) (55,765)
Amortization of:
Net gain ................................. (6,479) (5,177) (1,664)
Prior service cost ....................... 1,031 (163) (163)
Net transition asset ..................... (4,938) (4,993) (4,993)
Special Termination Benefits ................ 5,054 -- --
Settlements ................................. (6,935) (3,250) --
-------- -------- --------
Net Pension Credit .......................... $(38,133) $(31,384) $(18,923)
======== ======== ========
- ------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 41
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth a reconciliation of the obligations,
assets and funded status of the plans as well as the amounts recognized
as prepaid pension cost in the Consolidated Statement of Financial
Position:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(in Thousands) 1998 1997
----------- -----------
Measurement Date October 31 October 31
<S> <C> <C>
Accumulated Benefit Obligation at the End of the Period ... $ 441,296 $ 396,265
=========== ===========
Projected Benefit Obligation at the Beginning of the Period $ 465,098 $ 430,100
Service Cost .............................................. 9,719 9,406
Interest Cost ............................................. 36,195 34,408
Plan Amendments ........................................... 22,564 --
Actuarial Loss ............................................ 45,200 24,294
Special Termination Benefits .............................. 5,054 --
Settlements Due to Lump Sums .............................. (20,639) (8,490)
Regular Benefits .......................................... (28,355) (24,620)
----------- -----------
Projected Benefit Obligation at the End of the Period ..... $ 534,836 $ 465,098
=========== ===========
Plan Assets at Fair Value at the Beginning of the Period .. $ 814,548 $ 707,987
Actual Return on Plan Assets .............................. 102,153 138,863
Settlements Due to Lump Sums .............................. (15,956) (5,145)
Regular Benefits .......................................... (28,355) (27,157)
----------- -----------
Plan Assets at Fair Value at the End of the Period ........ $ 872,390 $ 814,548
=========== ===========
Funded Status of the Plans ................................ $ 337,554 $ 349,450
Unrecognized:
Net gain ............................................... (214,328) (237,923)
Prior service cost ..................................... 19,298 (1,439)
Net transition asset ................................... (28,645) (34,342)
----------- -----------
Prepaid Pension Cost and Total Recognized ................. $ 113,879 $ 75,746
=========== ===========
- -------------------------------------------------------------------------------------------------------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the weighted average discount rate was 6.5%, 7.5% and 8% for
1998, 1997 and 1996, respectively. The rate of increase in future
compensation levels used was 5% for 1998 and 1997. The expected
long-term rate of return on plan assets, which are invested primarily in
equity and fixed income securities, was 9.5% for 1998 and 9.25% for 1997
and 1996.
In 1998, MichCon implemented an early retirement program under which
approximately 6% of its workforce retired in 1998 with incentives. The
program increased the projected benefit obligation and 1998 pension
costs by $5,054,000.
37
<PAGE> 42
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MichCon also sponsors defined contribution retirement savings plans.
Participation in one of these plans is available to substantially all
union and nonunion employees. MichCon matches employee contributions up
to certain predefined limits based upon salary and years of credited
service. The cost of these plans was $4,800,000 in 1998, $5,200,000 in
1997 and $5,300,000 in 1996.
b. OTHER POSTRETIREMENT BENEFITS
MichCon provides certain healthcare and life insurance benefits for
retired employees who may become eligible for these benefits if they
reach retirement age while working for MichCon. These benefits are being
accounted for under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires the use of
accrual accounting. Upon adoption of SFAS No. 106 MichCon deferred its
1993 postretirement costs in excess of claims paid (including the
amortization of the initial transition obligation) until 1994, when new
rates to recover such costs became effective.
MichCon's policy is to fund certain trusts to the extent its
postretirement benefit costs are recognized in rates. Separate qualified
Voluntary Employees' Beneficiary Association (VEBA) trusts exist for
union and nonunion employees. Funding to the VEBA trusts totaled
$2,000,000, $6,500,000 and $41,600,000 in 1998, 1997 and 1996,
respectively. The expected long-term rate of return on plan assets that
are invested in life insurance policies, equity securities and fixed
income securities, was 9.8% for 1998 and 9.1% for 1997 and 1996.
Net postretirement cost for the years ended December 31 includes the
following components:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(in Thousands) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service Cost ........................... $ 3,699 $ 4,094 $ 4,259
Interest Cost .......................... 16,423 17,430 16,395
Expected Return on Plan Assets ......... (13,482) (11,026) (9,838)
Amortization of:
Net gain ............................ (5,684) (4,872) (4,307)
Net transition obligation ........... 12,702 13,391 13,391
Special Termination Benefits ........... 1,186 -- --
---------- ---------- ----------
Total Postretirement Cost .............. 14,844 19,017 19,900
Regulatory Adjustment .................. -- 4,863 7,509
---------- ---------- ----------
Net Postretirement Cost ................ $ 14,844 $ 23,880 $ 27,409
========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 43
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth a reconciliation of the obligations,
assets and funded status of the plans as well as the amounts recorded as
accrued postretirement cost in the Consolidated Statement of Financial
Position:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(in Thousands) 1998 1997
Measurement Date ---------- ----------
October 31 October 31
<S> <C> <C>
Accumulated Postretirement Benefit Obligation at the Beginning of the Period ........ $ 223,124 $ 217,883
Service Cost ........................................................................ 3,699 4,094
Interest Cost ....................................................................... 16,423 17,430
Plan Amendments ..................................................................... (8,269) --
Actuarial (Gain) Loss ............................................................... 24,320 (4,909)
Special Termination Benefits ........................................................ 1,186 --
Benefits Paid ....................................................................... (11,546) (11,374)
---------- ----------
Accumulated Postretirement Benefit Obligation at the End of the Period .............. $ 248,937 $ 223,124
========== ==========
Plan Assets at Fair Value at the Beginning of the Period ............................ $ 151,645 $ 126,282
Actual Return on Plan Assets ........................................................ 25,677 26,125
Company Contributions ............................................................... 6,500 7,000
Regular Benefits .................................................................... (10,674) (7,762)
---------- ----------
Plan Assets at Fair Value at the End of the Period .................................. $ 173,148 $ 151,645
========== ==========
Funded Status of the Plans .......................................................... $ (75,789) $ (71,479)
Unrecognized:
Net gain ......................................................................... (116,191) (124,760)
Net transition obligation ........................................................ 188,026 200,728
Contributions Made After Measurement Date ........................................... 2,000 6,500
Regular Benefits Made After Measurement Date ........................................ (11,720) (945)
---------- ----------
Accrued Postretirement Asset (Liability) ............................................ $ (13,674) $ 10,044
========== ==========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The rate at which healthcare costs are assumed to increase is the most
significant factor in estimating MichCon's postretirement benefit
obligation. MichCon used a rate of 6% for 1999, and a rate that
gradually declines each year until it stabilizes at 5% in 2003. A one
percentage point increase in the assumed rates would increase the
accumulated postretirement benefit obligation at December 31, 1998 by
$31,854,000 (13%) and increase the sum of the service and interest rate
cost by $2,863,000 (14%) for the year then ended. A one percentage point
decrease in the assumed rates would decrease the accumulated
postretirement benefit obligation at December 31, 1998 by $27,946,000
(11%) and decrease the sum of the service and interest rate cost by
$2,474,000 (12%) for the year then ended.
The discount rate used in determining the accumulated postretirement
benefit obligation was 6.5%, 7.5% and 8% for 1998, 1997 and 1996,
respectively.
39
<PAGE> 44
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In 1998, MichCon implemented an early retirement program under which
approximately 6% of its workforce retired in 1998 with incentives. The
program increased the postretirement benefit obligation and 1998
postretirement costs by $1,186,000.
c. GRANTOR TRUST
MichCon established a Grantor Trust and contributed $28,200,000 in 1998
and $31,300,000 in 1997 to the trust, which invested such proceeds in
life insurance contracts and income securities. By funding the Grantor
Trust and the VEBA trusts (Note 9b), MichCon is complying with MPSC
directives that it fund various trusts to the extent its postretirement
benefit costs are recognized in rates. Employees and retirees have no
right, title or interest in the assets of the Grantor Trust, and MichCon
can revoke such trust subject to providing the MPSC with prior
notification.
10. RISK MANAGEMENT ACTIVITIES AND DERIVATIVE FINANCIAL INSTRUMENTS
a. NATURAL GAS PRICE HEDGING
As part of its gas acquisition strategy (Note 7b), MichCon has entered
into firm-price contracts, including natural gas swap agreements, for a
substantial portion of its expected gas supply requirements for the
three year period 1999-2001. These swap agreements are used to manage
MichCon's exposure to the risk of market price fluctuations on gas
purchase commitments and effectively fixes the commodity rate portion of
certain gas purchase agreements. If MichCon did not use natural gas swap
agreements, its exposure to such risk would be higher. Although this
strategy reduces risk, it also limits potential gains from favorable
changes in gas prices.
Changes in the market value of the swap agreements are deferred and
included in inventory costs until the hedged transaction is completed,
at which time the realized gain or loss is included in the cost of gas.
As of December 31, 1998, MichCon's deferred loss from swap contracts was
$3,313,000. Any unrealized gains and losses on natural gas swap
agreements that were to be terminated or sold would continue to be
deferred until such time as the initial hedged transactions are
completed. In the instance when a hedged item no longer exists or is no
longer probable of occurring, unrealized gains and losses would be
included in income unless the derivative is redesignated to a similar
transaction and qualifies for hedge accounting.
b. INTEREST RATE HEDGING
In order to manage interest costs, MichCon uses interest rate swap
agreements to exchange fixed and variable rate interest payment
obligations over the life of the agreements without exchange of the
underlying principal amounts. Interest rate swaps are subject to market
risk as interest rates fluctuate. The difference to be received or paid
on these agreements is accrued and recorded as an adjustment to interest
expense over the life of the agreements. The fair value of the swap
agreements and changes in the fair value as a result of changes in
market interest rates are not recognized in the financial statements. In
the event of an interest rate swap termination, any associated gains and
losses would be deferred and amortized as an adjustment to interest
expense related to the debt over the remaining term of the original
contract life of the terminated swap
40
<PAGE> 45
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
agreement. In the event of an early extinguishment of a designated debt
obligation, unrealized gains and losses would be included in income,
unless the swap agreement is redesignated as a hedge of another
outstanding debt obligation with similar characteristics and qualifies
for hedge accounting.
At December 31, 1998, MichCon had interest rate swap agreements with
notional principal amounts totaling $106,100,000 (Note 5a) and a
weighted average remaining life of 4.3 years. At December 31, 1997, the
notional principal amount of outstanding interest rate swaps totaled
$107,800,000. The notional principal amounts are used solely to
calculate amounts to be paid or received under the interest rate swap
agreements and approximate the principal amount of the underlying debt
being hedged.
11. FINANCIAL INSTRUMENTS
MichCon has estimated the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment is required in developing the estimates of the fair value
of financial instruments and, therefore, the values are not necessarily
indicative of the amounts that MichCon could realize in a current market
exchange. The carrying amounts of certain financial instruments, such as notes
payable, customer deposits and notes receivable, are assumed to approximate
fair value due to their short-term nature.
The carrying amount and fair value of other financial instruments consist of
the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(in Thousands) 1998 1997
- ------------------------------------------------------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
Assets:
<S> <C> <C> <C> <C>
Long-term investments .................. $ 65,556 $ 65,556 $ 35,110 $ 35,110
Liabilities and Shareholders' Equity:
Long-term debt, excluding capital
lease obligations .................... 615,419 668,063 611,763 651,980
Derivative Financial Instruments:
Natural gas swaps:
with unrealized losses ............... 3,313 3,313 -- --
Interest rate swaps:
with unrealized gains ................ 6,340 4,048
with unrealized losses ............... 696 415
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The fair values are determined based on the following:
Long-term investments - carrying amount approximates fair value taking
into consideration interests rates available to MichCon for investments
with similar provisions.
41
<PAGE> 46
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt - interest rates available to MichCon for issuance of
debt with similar terms and remaining maturities.
Natural gas and interest rate swaps - estimated amounts that MichCon
would receive or pay to terminate the swap agreements, taking into
account current gas prices, interest rates and the credit-worthiness of
the counterparties.
Guaranty - management is unable to practicably estimate the fair value
of the Harbortown guaranty (Note 6a) due to the nature of the
transaction.
The fair value estimates presented herein are based on information available to
management as of December 31, 1998 and 1997. Management is not aware of any
subsequent factors that would significantly affect the estimated fair value
amounts.
12. RELATED PARTY TRANSACTIONS
MichCon enters into transactions with affiliated companies to provide
transportation and storage services. MichCon purchased computer operations
services from an affiliated company that was sold by MCN in June 1996. Under a
service agreement with MCN, MichCon receives various tax, financial and legal
services and provides construction, engineering, human resources, information
technology and other services. The following is a summary of transactions with
affiliated companies:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars) 1998 1997 1996
------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Storage and transportation services............... $ 11,566 $ 14,744 $ 14,542
Other services ................................... 6,820 1,774 898
Interest revenue.................................. 1,502 -- --
Costs:
Computer operations services...................... -- -- 6,800
Corporate expenses and other services............. 15,534 20,179 16,486
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
MichCon's accounts receivable from affiliated companies totaled $21,640,000 and
$20,990,000, and accounts payable to affiliated companies totaled $11,501,000
and $28,942,000 at December 31, 1998 and 1997, respectively.
MichCon is a participant in an intercompany credit agreement whereby it can
borrow needed cash from and loan available cash to MCN and its subsidiaries. The
outstanding balance of notes receivable from affiliated companies was $3,249,000
at December 31, 1998, with interest at the prime rate of 7.75%. There was no
outstanding balance of notes receivable from affiliated companies at December
31, 1997. MichCon had no outstanding balances of notes payable to affiliated
companies at December 31, 1998 and 1997.
42
<PAGE> 47
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. SUMMARY OF INCOME TAXES
MichCon is part of the consolidated federal income tax return of MCN. The
federal income tax expense for MichCon and its subsidiaries is determined on an
individual company basis with no allocation of tax benefits or expenses from
other affiliates of MCN.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(in Thousands) 1998 1997 1996
- -------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Effective Federal Income Tax Rate 31.5 % 36.4 % 33.8 %
========== ========== ==========
Income Taxes Consist of:
Current provision .................................. $ 27,768 $ 37,901 $ 31,318
Deferred provision ................................. 11,010 9,607 12,018
Investment tax credits ............................. (2,961) (1,843) (1,850)
---------- ---------- ----------
$ 35,817 $ 45,665 $ 41,486
========== ========== ==========
Reconciliation Between Statutory and Actual
Income Taxes:
Statutory Federal Income Taxes at a Rate of 35% ....... $ 39,477 $ 43,640 $ 42,465
Adjustments to Federal Tax Expense:
Book over tax depreciation ......................... 1,071 5,301 6,367
Adjustments to taxes provided in prior periods ...... 1,080 300 (3,368)
Investment tax credits ............................. (2,961) (1,843) (1,850)
Other - net ........................................ (2,850) (1,733) (2,128)
---------- ---------- ----------
$ 35,817 $ 45,665 $ 41,486
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated future tax
effect of temporary differences between the tax basis of assets or liabilities
and the reported amounts in the financial statements. Deferred tax assets and
liabilities are classified as current or noncurrent according to the
classification of the related assets or liabilities.
43
<PAGE> 48
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The tax effect of temporary differences that gave rise to MichCon's deferred tax
assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(in Thousands) 1998 1997
- --------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Employee Benefits............................................................. $ 5,406 $ 9,391
Uncollectibles................................................................ 3,125 4,671
Vacation accrual.............................................................. 2,259 3,442
Postretirement benefits....................................................... 5,394 --
Other......................................................................... 1,351 2,283
------------ ------------
17,535 19,787
------------ ------------
Deferred Tax Liabilities:
Depreciation and other property related basis
differences, net.......................................................... 51,965 58,215
Pensions...................................................................... 37,911 24,564
Property taxes................................................................ 13,360 13,313
Gas cost recovery undercollection............................................. 57 4,502
Postretirement benefits....................................................... -- 3,515
Other......................................................................... 12,060 9,795
------------ ------------
115,353 113,904
------------ ------------
Net Deferred Tax Liability....................................................... 97,818 94,117
Less: Net Deferred Tax Liability-Current....................................... 9,251 10,212
------------ ------------
Net Deferred Tax Liability-Noncurrent............................................ $ 88,567 $ 83,905
============ ============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
14. STOCK INCENTIVE PLAN
MCN's Stock Incentive Plan authorizes the use of performance units, restricted
stock, stock options or other stock-related awards to key employees, primarily
management. MichCon's current policy is to issue performance units which
encourages a strategic focus on long-term performance and has a high employee
retention value. The performance units are denominated in shares of MCN common
stock and issued to employees based on total shareholder return over a six year
period, as compared to a group of peer companies. The initial number of
performance units granted is based on total shareholder return relative to the
peer group during the previous three year period. Participants receive dividend
equivalents on the units granted. The initial grants will be adjusted upward or
downward based on total shareholder return relative to the peer group for the
subsequent three-year period. The final awards are then payable in shares of
MCN common stock or can be deferred. Participants must retain 50% of any common
shares paid until certain stock ownership guidelines are met. The deferred units
must be retained by the participants until their employment with MichCon ceases.
During 1998, 1997 and 1996, MichCon granted 125,016, 102,750 and 122,669
performance units, respectively, with a weighted-average grant date fair value
of $37.00, $31.00 and $24.625 per unit, respectively. MichCon accounts for
stock-based compensation awards under the fair value-based method as prescribed
under SFAS No. 123, "Accounting for Stock-Based Compensation."
44
<PAGE> 49
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
Accordingly, the costs of performance units awarded, measured at their fair
value on the grant date, are being recorded as compensation expense over their
vesting period. MichCon adjusts compensation expense and Additional Paid-in
Capital for changes in the number of performance units that are expected to
vest. A stock-based compensation benefit of $1,493,000 was recognized during
1998 for all awards outstanding as a result of a reduction in the number of
performance units expected to vest. Stock-based compensation cost recognized
during 1997 and 1996 for all awards outstanding totaled $7,430,000, and
$6,885,000, respectively.
In February 1999, MichCon revised its policy whereby a portion of any
stock-related awards under the Stock Incentive Plan will be in the form of
stock options. The remaining portion of any awards will continue to be in the
form of performance units.
45
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
Michigan Consolidated Gas Company:
We have audited the accompanying consolidated statements of financial position
of Michigan Consolidated Gas Company and subsidiaries (the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of income,
cash flows and capitalization for each of the three years in the period ended
December 31, 1998. Our audits also included the consolidated financial
statement schedule listed in Item 8. These financial statements and the
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information shown therein.
/s/ Deloitte & Touche LLP
- -------------------------
Detroit, Michigan
February 25, 1999
46
<PAGE> 51
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY OPERATING RESULTS (UNAUDITED)
Due to the seasonal nature of MichCon's business, revenues and net income
tend to be higher in the first and fourth quarters of the calendar year.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
1998
<S> <C> <C> <C> <C>
Operating Revenue ............ $ 429,227 $ 172,787 $ 122,428 $ 309,216
Operating Income (Loss)....... 109,669 15,962 (25,997) 56,977
Net Income (Loss)............. 61,664 3,014 (18,338) 30,636
1997
Operating Revenue ............ $ 527,445 $ 209,800 $ 119,114 $ 397,320
Operating Income (Loss)....... 106,772 14,810 (11,369) 64,150
Net Income (Loss)............. 62,193 931 (16,036) 31,932
</TABLE>
47
<PAGE> 52
SCHEDULE II
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
------------------------
Provisions charged to Deductions
------------------------ for Purposes
Balance at Utility Plant/ for Which the Balance
Beginning Regulatory Reserves Were at End
Description of Period Income Asset Provided of Period
-------- --------- -------- -------- - --------
YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C>
Reserve deducted from Assets in
Consolidated Statement of Financial Position:
Allowance for doubtful accounts........................ $ 15,015 $ 13,029 $ -- $ 19,116 $ 8,928
======== ======== ======== ======== ========
Reserve included in Current Liabilities - Other and in Accrued
Environmental
Costs in Consolidated Statement of Financial Position:
Environmental testing.................................. $ 33,741 $ -- $ -- $ 1,649 $ 32,092
======== ======== ======== ======== ========
Reserves included in Deferred Credits and
Other Liabilities - Other
in Consolidated Statement of Financial Position:
Injuries and damages................................. $ 4,838 $ (328) $ 438 $ 2,433 $ 2,515
======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1997
Reserve deducted from Assets in
Consolidated Statement of Financial Position:
Allowance for doubtful accounts........................ $ 17,707 $ 21,680 $ -- $ 24,372 $ 15,015
======== ======== ======== ======== ========
Reserve included in Current Liabilities - Other
in Consolidated Statement of Financial Position:
Environmental testing.................................. $ 34,576 $ -- $ -- $ 835 $ 33,741
======== ======== ======== ======== ========
Reserves included in Deferred Credits and
Other Liabilities - Other
in Consolidated Statement of Financial Position:
Injuries and damages................................. $ 9,182 $ 1,400 $ 608 $ 6,352 $ 4,838
======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1996
Reserve deducted from Assets in
Consolidated Statement of Financial Position:
Allowance for doubtful accounts........................ 13,250 $ 29,052 $ -- $ 24,595 $ 17,707
======== ======== ======== ======== ========
Reserve included in Current Liabilities - Other
in Consolidated Statement of Financial Position:
Environmental testing.................................. $ 35,451 $ -- $ -- $ 875 $ 34,576
======== ======== ======== ======== ========
Reserves included in Deferred Credits and
Other Liabilities - Other
in Consolidated Statement of Financial Position:
Injuries and damages................................. $ 8,013 $ 3,052 $ 674 $ 2,557 $ 9,182
======== ======== ======== ======== ========
</TABLE>
48
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted per general instruction I (2) (c) of Form 10-K for wholly-owned
subsidiaries (reduced disclosure format).
ITEM 11. EXECUTIVE COMPENSATION
Omitted per general instruction I (2) (c) of Form 10-K for wholly-owned
subsidiaries (reduced disclosure format).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Omitted per general instruction I (2) (c) of Form 10-K for wholly-owned
subsidiaries (reduced disclosure format).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted per general instruction I (2) (c) of Form 10-K for wholly-owned
subsidiaries (reduced disclosure format).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 10-K
(A) LIST OF DOCUMENTS FILED AS PART OF THE REPORT:
1. For a list of the financial statements included herein, see the section
titled "Financial Statements and Supplementary Data", page 24 in Part II, Item 8
of this Report.
2. For the financial statement schedule included herein, see the section
titled "Financial Statements and Supplementary Data", page 24 in Part II, Item 8
of this Report.
Schedules other than those referred to above are omitted as not applicable
or not required, or the required information is shown in the financial
statements or notes thereto.
49
<PAGE> 54
3. Exhibits, including those incorporated by reference:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3-1 Restated Articles of Incorporation of MichCon (Exhibit 3-1
to March 31, 1993 Form 10-Q).
3-2 By-Laws of MichCon (Exhibit 3-2 to March 31, 1993 Form
10-Q).
4-1 MichCon's Indenture of Mortgage and Deed of Trust dated
March 1, 1944 (Exhibit 7-D to Registration Statement No.
2-5252); Twenty-ninth Supplemental Indenture, dated July
15, 1989 (Exhibit 4-1 to July 27, 1989 Form 8-K); Thirtieth
Supplemental Indenture, dated September 1, 1991 (Exhibit
4-1 to September 27, 1991 Form 8-K); Thirty-first
Supplemental Indenture, dated December 15, 1991 (Exhibit
4-1 to February 28, 1992 Form 8-K); Thirty-second
Supplemental Indenture, dated January 1, 1993 (Exhibit 4-1
to 1992 Form 10-K); Thirty-third Supplemental Indenture,
dated May 5, 1995 (Exhibit 4-2 to Registration Statement
No. 33-59093); and Thirty-fourth Supplemental Indenture,
dated November 1, 1996 (Exhibit 4-2 to Registration
Statement No. 333-16285; Note - MichCon hereby agrees to
furnish to the SEC, upon request, a copy of any instruments
defining the rights of holders of long-term debt issued by
MichCon.
10-1 MCN Stock Option Plan Post-Effective Amendment No. 1 (MCN
Registration Statement No. 33-21930-99).
10-2 Form of Employment Agreement (Exhibit 99-2 to MCN's June
30, 1997 Form 10-Q).
10-3 MCN Energy Group Inc. Executive Annual Performance Plan (As
amended effective January 1, 1998).*
10-4 MCN Energy Group Inc. Stock Incentive Plan (Exhibit 10-1 to
MCN's March 31, 1995 Form 10-Q).
10-5 MCN Executive Deferred Compensation Plan, as amended
(Exhibit 10-1 to MCN's September 30, 1996 Form 10-Q).
10-6 MichCon Supplemental Death Benefit and Retirement Income
Plan (Exhibit 10-2 to MCN's September 30, 1996 Form 10-Q).
10-7 MichCon Supplemental Retirement Plan (Exhibit 10-3 to MCN's
September 30, 1996 Form 10-Q).
10-8 MCN Mandatory Deferred Compensation Plan, as amended
(Exhibit 10-11 to MCN's 1996 Form 10-K).
10-9 MCN Energy Group Inc. Supplemental Savings Plan (Exhibit
10-12 to MCN's 1996 Form 10-K).
10-10 MCN Energy Group Inc. Long-Term Incentive Performance Share
Plan (As amended and restated October 1, 1997).*
10-11 MCN Energy Group Savings and Stock Ownership Plan (As
amended and restated effective as of January 1, 1998).*
10-12 MichCon Investment and Stock Ownership Plan (As amended and
restated effective as of January 1, 1998).*
12-1 Computation of Ratio of Earnings to Fixed Charges.*
</TABLE>
50
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C>
23-1 Independent Auditors' Consent - Deloitte & Touche LLP.*
24-1 Powers of Attorney.*
27-1 Financial Data Schedule.*
</TABLE>
(B) REPORTS ON FORM 8-K:
None.
- ----------------------
* Indicates document filed herewith.
References are to MichCon (File No. 1-7310) for MichCon documents incorporated
by reference. References are to MCN (File No. 1-10070) for MCN documents
incorporated by reference.
51
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MICHIGAN CONSOLIDATED GAS COMPANY
(Registrant)
By: /s/ Harold Gardner
--------------------------------------------
Harold Gardner
VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
MARCH 11, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
TITLE DATE
----- ----
<S> <C> <C>
* Director and Chairman March 11, 1999
------------------------------------
Alfred R. Glancy III
* Director, President and Chief March 11, 1999
------------------------------------ Executive Officer
Stephen E. Ewing
* Director, Senior Vice President, March 11, 1999
------------------------------------ Treasurer, and Chief Financial Officer
Howard L. Dow III
/s/ Harold Gardner Vice President, Chief Accounting March 11, 1999
------------------------------------ Officer
Harold Gardner
* Director, Vice President, General March 11, 1999
------------------------------------ Counsel and Secretary
Ronald E. Christian
* Director, Vice President, Marketing March 11, 1999
------------------------------------ and Sales
Anne R. Cooke
* Director, Senior Vice President, March 11, 1999
------------------------------------ Regional Operations
Steven Kurmas
* Director March 11, 1999
------------------------------------
William K. McCrackin
*By: /s/ Harold Gardner
-----------------------------------
Harold Gardner
Attorney-in-Fact
</TABLE>
52
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3-1 Restated Articles of Incorporation of MichCon (Exhibit 3-1
to March 31, 1993 Form 10-Q).
3-2 By-Laws of MichCon (Exhibit 3-2 to March 31, 1993 Form
10-Q).
4-1 MichCon's Indenture of Mortgage and Deed of Trust dated
March 1, 1944 (Exhibit 7-D to Registration Statement No.
2-5252); Twenty-ninth Supplemental Indenture, dated July
15, 1989 (Exhibit 4-1 to July 27, 1989 Form 8-K); Thirtieth
Supplemental Indenture, dated September 1, 1991 (Exhibit
4-1 to September 27, 1991 Form 8-K); Thirty-first
Supplemental Indenture, dated December 15, 1991 (Exhibit
4-1 to February 28, 1992 Form 8-K); Thirty-second
Supplemental Indenture, dated January 1, 1993 (Exhibit 4-1
to 1992 Form 10-K); Thirty-third Supplemental Indenture,
dated May 5, 1995 (Exhibit 4-2 to Registration Statement
No. 33-59093); and Thirty-fourth Supplemental Indenture,
dated November 1, 1996 (Exhibit 4-2 to Registration
Statement No. 333-16285; Note - MichCon hereby agrees to
furnish to the SEC, upon request, a copy of any instruments
defining the rights of holders of long-term debt issued by
MichCon.
10-1 MCN Stock Option Plan Post-Effective Amendment No. 1 (MCN
Registration Statement No. 33-21930-99).
10-2 Form of Employment Agreement (Exhibit 99-2 to MCN's June
30, 1997 Form 10-Q).
10-3 MCN Energy Group Inc. Executive Annual Performance Plan (As
amended effective January 1, 1998).*
10-4 MCN Energy Group Inc. Stock Incentive Plan (Exhibit 10-1 to
MCN's March 31, 1995 Form 10-Q).
10-5 MCN Executive Deferred Compensation Plan, as amended
(Exhibit 10-1 to MCN's September 30, 1996 Form 10-Q).
10-6 MichCon Supplemental Death Benefit and Retirement Income
Plan (Exhibit 10-2 to MCN's September 30, 1996 Form 10-Q).
10-7 MichCon Supplemental Retirement Plan (Exhibit 10-3 to MCN's
September 30, 1996 Form 10-Q).
10-8 MCN Mandatory Deferred Compensation Plan, as amended
(Exhibit 10-11 to MCN's 1996 Form 10-K).
10-9 MCN Energy Group Inc. Supplemental Savings Plan (Exhibit
10-12 to MCN's 1996 Form 10-K).
10-10 MCN Energy Group Inc. Long-Term Incentive Performance Share
Plan (As amended and restated October 1, 1997).*
10-11 MCN Energy Group Savings and Stock Ownership Plan (As
amended and restated effective as of January 1, 1998).*
10-12 MichCon Investment and Stock Ownership Plan (As amended and
restated effective as of January 1, 1998).*
12-1 Computation of Ratio of Earnings to Fixed Charges.*
</TABLE>
53
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
23-1 Independent Auditors' Consent - Deloitte & Touche LLP.*
24-1 Powers of Attorney.*
27-1 Financial Data Schedule.*
</TABLE>
(B) REPORTS ON FORM 8-K:
None.
- ----------------------
* Indicates document filed herewith.
References are to MichCon (File No. 1-7310) for MichCon documents incorporated
by reference. References are to MCN (File No. 1-10070) for MCN documents
incorporated by reference.
54
<PAGE> 1
EXHIBIT 10.3
MCN ENERGY GROUP INC.
EXECUTIVE ANNUAL PERFORMANCE PLAN
(AS AMENDED EFFECTIVE JANUARY 1, 1998)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I - Title, Purpose and Effective Date ....................................................................1
1.1 Title ..........................................................................................1
1.2 Purpose ........................................................................................1
1.3 Effective Date .................................................................................1
ARTICLE 2 - Definitions...........................................................................................1
2.1 Affiliated Company .............................................................................1
2.2 Adjusted Standard Award Fund ...................................................................1
2.3 Average Common Stockholders Equity..............................................................1
2.4 Award ..........................................................................................1
2.5 Board of Directors or Board.....................................................................1
2.6 Cause ..........................................................................................2
2.7 Code ...........................................................................................2
2.8 Committee ......................................................................................2
2.9 Eligible Employee ..............................................................................2
2.10 EPS Growth Rate ................................................................................2
2.11 Executive Management ...........................................................................2
2.12 Net Income ....................................................................................2
2.13 Net Income Goal ................................................................................2
2.14 Operating Goal .................................................................................2
2.15 Participating Company ..........................................................................2
2.16 Plan Year ......................................................................................2
2.17 Return on Equity or ROE ........................................................................2
2.18 Standard Award Fund ............................................................................2
2.19 Tier............................................................................................2
ARTICLE 3 - Administration .......................................................................................3
ARTICLE 4 - Awards................................................................................................3
4.1 Eligibility For Awards .........................................................................3
4.2 Determination of Awards and Award Funds.........................................................3
4.3 Payment of Awards ..............................................................................4
4.4 Change in Employee Status ......................................................................4
ARTICLE 5 - Deferral of Receipt of Awards.........................................................................6
ARTICLE 6 - Beneficiary Designations .............................................................................6
6.1 Beneficiary Designation ........................................................................6
6.2 Change in Beneficiary Designation ..............................................................6
ARTICLE 7 - Amendment, Suspension or Termination .................................................................7
</TABLE>
i
<PAGE> 3
\
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
PAGE
<CAPTION>
<S> <C> <C>
ARTICLE 8 - Miscellaneous ........................................................................................7
8.1 Assignment Prohibited ..........................................................................7
8.2 Effect on Employee Benefits ....................................................................7
8.3 No Right To An Award ...........................................................................7
8.4 No Employment Rights ...........................................................................7
8.5 Law Applicable .................................................................................7
8.6 Gender, Number and Heading .....................................................................8
8.7 Joint and Several Liability ....................................................................8
ARTICLE 9 - Change in Control ....................................................................................9
9.1 General ........................................................................................9
9.2 Joint and Several Liability ....................................................................9
9.3 Definition of Change in Control ................................................................9
Attachment I - Target Percentages................................................................................10
Attachment II - MCN CORPORATE Scaling............................................................................11
Attachment III - MCNIC Scaling...................................................................................12
Attachment IV - MICHCON Scaling..................................................................................13
Attachment V - CITIZENS Scaling..................................................................................14
Attachment VI - Beneficiary Designation Form.....................................................................15
</TABLE>
ii
<PAGE> 4
MCN ENERGY GROUP INC.
EXECUTIVE ANNUAL PERFORMANCE PLAN
(as amended and restated effective January 1, 1998)
ARTICLE I
TITLE, PURPOSE, AND EFFECTIVE DATE
1.1 TITLE. The title of this Plan shall be the "MCN Energy Group Inc.
Executive Annual Performance Plan" and is referred to in this document as the
"Plan."
1.2 PURPOSE. The purpose of the Plan is to provide a direct financial
incentive to employees of MCN Energy Group Inc. ("MCN") and its subsidiaries
(individually a "Company" and collectively the "Companies") who contribute to
the overall success of MCN and to its particular achievements in the areas of
earnings, operating efficiency, customer satisfaction, and employee
satisfaction. In addition, the Plan is designed to place the compensation of
Company employees at competitive levels with similar industries and thereby to
assist in motivating them, retaining them in the employ of the Company, and in
attracting new highly qualified personnel to the Companies.
1.3 EFFECTIVE DATE. The Plan is effective January 1, 1998.
ARTICLE 2
DEFINITIONS
The following terms have the meaning described below when used in the
Plan:
2.1 "AFFILIATED COMPANY" means any corporation while such corporation
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Corporation or any other employing entity
while such entity is under common control (within the meaning of Section 414(c)
of the Code) of the Corporation.
2.2 "ADJUSTED STANDARD AWARD FUND" shall mean the total maximum dollar
amount that is required for the Final Award Fund which has been adjusted to
reflect the performance level regarding the financial and operating goals (if
applicable).
2.3 "AVERAGE COMMON STOCKHOLDERS EQUITY" shall mean the sum of (i) the
common stockholders equity of a Company at the end of the previous Plan Year,
less any adjustments specified on Attachments II though V, plus (ii) the common
stockholders equity at the end of the current Plan Year, less any adjustments
specified on Attachments II through V, divided by 2.
2.4 "AWARD" shall mean the payment of cash compensation under this
Plan.
2.5 "BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors
of MCN.
2.6 "CAUSE" shall mean repeated material breaches of an employee's
duties of employment which are not cured after receipt by the employee of
written notice specifying such breaches or the employee's conviction of a felony
involving moral turpitude.
<PAGE> 5
2.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
2.8 "COMMITTEE" shall mean the Compensation Committee of the Board.
2.9 "ELIGIBLE EMPLOYEE" shall mean any regular full-time or part-time
employee of a Participating Company who is in Tiers I through V.
2.10 "EPS GROWTH RATE" shall mean the simple average of the
year-to-year percentage change in earnings per share for MCN for each of any 3
consecutive years, which include the current Plan Year and the 2 preceding Plan
Years.
2.11 "EXECUTIVE MANAGEMENT" shall mean the Chief Executive Officer of
MCN, MCNIC and Michigan Consolidated Gas Company and any other individual so
designated by the MCN Chief Executive Officer.
2.12 "NET INCOME" shall mean the net income available for common stock
of a Company, as reported in the Income Statement of the Company for the Plan
Year, less any adjustments specified on Attachments II through V.
2.13 "NET INCOME GOAL" shall mean the net income approved as a goal by
the Board.
2.14 "OPERATING GOAL" shall mean the non-financial performance targets
related to the operating priorities of a Participating Company.
2.15 "PARTICIPATING COMPANY" shall mean MCN, an Affiliated Company, or
other affiliated entity (whether or not incorporated) designated by the Board of
Directors.
2.16 "PLAN YEAR" shall mean the period beginning January 1 and ending
December 31 of each year (the calendar year).
2.17 "RETURN ON EQUITY" OR "ROE" shall mean a rate for a Participating
Company, expressed as a percent, which represents Net Income, divided by Average
Common Stockholders Equity.
2.18 "STANDARD AWARD FUND" shall mean the total maximum dollar amount
which would be required for an award fund if the financial goal and the
operating goal (if applicable) for a Company is achieved exactly.
2.19 "TIER" shall mean the ranking assigned to each group of employees
defined by level of responsibility and contribution, not titling nomenclature.
The Tiers are set forth in Attachment I.
ARTICLE 3
ADMINISTRATION
The Vice Presidents of the Participating Companies' Human Resource
Departments ("HR Vice Presidents") shall administer the Plan. The HR Vice
Presidents shall have full authority and responsibility to
2
<PAGE> 6
interpret and administer the terms of the Plan and may develop guidelines or
adopt rules and regulations governing the administration of the Plan. The
administration of this Plan is subject to the annual approval of the Board.
Executive Management shall be responsible for making recommendations to
the Committee with respect to employees of the Companies who are to receive
Awards under the Plan and the amount of such Awards. In discharging this
responsibility, Executive Management may consult with individual members of the
Committee or the Board, with the management of MCN and any of the Companies, or
with such other persons as Executive Management may deem appropriate. The
Committee shall submit the recommendations to the Board for approval.
Any member of the Board who is also an employee eligible to receive
Awards under the Plan shall not vote or act on any matter relating solely to
such member during the period the member is eligible to participate in the Plan.
ARTICLE 4
AWARDS
4.1 ELIGIBILITY FOR AWARDS. All Eligible Employees shall participate in
the Plan. Each Participating Company may set minimum service and performance
requirements for its employees. The level of participation in the Plan is based
on position and relative contribution to a set of financial measures and other
strategic and operational objectives. The target percentages for each Tier and
business unit are set forth in Attachment I.
4.2 DETERMINATION OF AWARDS AND AWARD FUNDS. The following formula will
be used in determining respective bonus amounts recommended to be awarded to
Eligible Employees. The HR Vice Presidents will consider the results for each
Company separately:
(a) The HR Vice Presidents will first confirm the financial and
operating goals (if applicable) for the Plan Year.
(b) The HR Vice Presidents will then determine the size of the
Standard Award Fund. In determining the size of this fund, the HR Vice
Presidents will compile a report containing the salaries (in dollars) of
Eligible Employees for the Plan Year. Individual Standard Awards are calculated
using the percent of base salary Target Percentages, shown in Attachment I. The
ranges and percentages used in the computation of the Standard Award Fund may be
revised from time to time, in the discretion of the Committee or the Board.
(c) The Standard Award Fund is determined by adding the Individual
Standard Awards. The Individual Standard Award amounts used in computing the
Standard Award Fund will be adjusted upward or downward based on actual
performance on the Financial Goal and the Operating Goal (if applicable). See
Attachments II through V. The total of these adjusted Individual Standard Award
amounts is the Adjusted Award Fund.
The HR Vice Presidents will make their recommendations to the Executive
Management with respect to the employees who are to receive awards with respect
to the Plan Year and the amount of such awards. Such amounts shall be by
individual for Tiers I and II and in total for Tiers III through V. Executive
Management shall present such recommendations to the Committee for approval.
3
<PAGE> 7
The Committee will determine which employees shall receive awards with
respect to the Plan Year and the amount of the awards based upon the
recommendations of Executive Management and the Committee's own consideration of
the criteria established under the Plan for granting awards. The Committee shall
submit the recommendations to the Board for approval. Any member of the
Committee or Board who is also an Eligible Employee shall not vote.
Any determination concerning the establishment of any Award Fund, once
made, shall be conclusive and binding upon all employees eligible to participate
in the Plan and their beneficiaries or successor(s) in interest.
4.3 PAYMENT OF AWARDS. Payment of Awards to Eligible Employees shall be
made by the employing Company in the calendar year following the Plan Year for
which the Award is made and within a reasonable period following approval of the
award by the Board.
4.4 CHANGE IN EMPLOYEE STATUS. In the case of an employee who was
eligible at the beginning of the Plan Year, but whose status has changed during
the Plan Year so that the employee would not be eligible if eligibility for the
Plan Year were determined at the end of the Plan Year, the following guidelines
will apply, except where Executive Management proposes and the Committee
determines, in its sole discretion, that factors shall be considered with
respect to an Eligible Employee which make departure therefrom appropriate:
(A) DEATH, RETIREMENT. An Eligible Employee who dies or
retires during the Plan Year will be recommended for an Award in an amount that
reflects the proportionate part of the Plan Year in which the Eligible Employee
was an active employee.
(B) RESIGNATION. An Eligible Employee who resigns during the
Plan Year wherein the primary reason for the employee's resignation relates to
ill health in the employee's immediate family or other compelling personal
reasons, the Eligible Employee may be recommended for an Award in an amount
which reflects the proportionate part of the Plan Year in which the Eligible
Employee was an active employee. An Eligible Employee who resigns prior to the
payment of an Award for a Plan Year for other reasons will not normally receive
an Award.
(C) TERMINATION. An Eligible Employee who is terminated prior
to payment of an Award for a Plan Year for reasons related to organizational
changes, such as the discontinuation of an organization unit or redundancy, may
be recommended for an Award in an amount which reflects the proportionate part
of the Plan Year in which the Eligible Employee was an active employee. An
Eligible Employee who is terminated prior to the payment of an Award for a Plan
Year for other reasons will not normally receive an Award.
The Committee will not recommend an Eligible Employee who is terminated for
Cause for an Award.
(D) LEAVE OF ABSENCE - PAID. An Eligible Employee who is on a
paid leave of absence for a portion of the Plan Year will be recommended to
receive an Award in an amount that would have otherwise been recommended had the
Eligible Employee been an active employee through the date the Award is paid for
the Plan Year.
4
<PAGE> 8
(E) LEAVE OF ABSENCE - UNPAID. An Eligible Employee who is on
an unpaid leave of absence for health reasons for a portion of the Plan Year
will be recommended to receive an Award in an amount, which reflects the
proportionate part of the Plan Year in which the Eligible Employee was an active
employee. An Eligible Employee who is on an unpaid leave of absence for any
other reason during a portion of a Plan Year may be recommended for an Award in
an amount that reflects the proportionate part of the Plan Year in which the
Eligible Employee was an active employee.
(F) DEMOTION. An Eligible Employee who was demoted during the
Plan Year for poor performance will not be recommended for an Award. In the case
of an Eligible Employee demoted for any other reason during the Plan year, who
would not have been an Eligible Employee if eligibility for such Plan Year were
determined on the date(s) with respect to which the employee's changed status as
a result of the demotion or transfer applied, the employee may be recommended
for an Award which excludes the proportionate part of the Plan Year with respect
to which the employee's status was changed.
(G) TRANSFER TO A NON-PARTICIPATING AFFILIATED COMPANY. An
Eligible Employee who transfers during the Plan Year from a Company whose
employees are eligible for consideration to a Company whose employees are not
eligible for consideration may be recommended by the Committee to receive an
Award in an amount which reflects the proportionate part of the Plan Year in
which the Eligible Employee was an active employee of the Company whose
employees are eligible for consideration.
(H) TRANSFER TO A PARTICIPATING AFFILIATED COMPANY. An
Eligible Employee who transfers during the Plan Year from one Participating
Company to another participating Company wherein the plans are different may be
recommended for an Award in an amount which reflects the employee's performance
on behalf of the respective companies.
(I) NEW HIRE OR TRANSFER FROM A NON-PARTICIPATING AFFILIATED
COMPANY. An employee who is not an Eligible Employee at the beginning of the
Plan Year who subsequently becomes eligible by reason of being hired by or
transferred to a Participating Company may be recommended for an Award that
reflects the full Plan Year or the proportionate part of the Plan Year in which
the employee was an Eligible Employee.
(J) TERMINATION AFTER END OF PLAN YEAR AND PRIOR TO PAYMENT.
If an Eligible Employee ceases to be an active employee subsequent to the Plan
Year to which the Award relates but prior to distribution of the Award, the
Award may be payable to the employee, or the designated beneficiary, equal to
all, none, or a prorated amount of the Award the Eligible Employee would have
received if he were still employed.
ARTICLE 5
DEFERRAL OF RECEIPT OF AWARDS
An Eligible Employee may elect to defer receipt of all or a
percentage of an Award granted to him under the Plan under the terms and subject
to the provisions of the MCN Executive Deferred Compensation Plan in effect for
the Plan Year for which the Award is to be paid.
ARTICLE 6
5
<PAGE> 9
BENEFICIARY DESIGNATIONS
6.1 BENEFICIARY DESIGNATION. An Eligible Employee shall designate a
beneficiary on his Beneficiary Designation Form, as provided in Attachment VI.
The designation of a beneficiary other than the Eligible Employee's spouse must
be consented to in writing by the spouse. If an Eligible Employee has not
designated a beneficiary, or if a designated beneficiary is not living or in
existence at the time of the Eligible Employee's death, any death benefits
payable under the Plan shall be paid to the Eligible Employee's spouse, if then
living, and if the Eligible Employee's spouse is not then living, to the
Eligible Employee's estate.
6.2 CHANGE IN BENEFICIARY DESIGNATION. An Eligible Employee may change
the designated beneficiary, subject to the restriction in Section 6.1, from time
to time by filing a new written designation with the Committee or Board. Such
designation shall be effective upon receipt by the Committee or Board. Employees
eligible to participate in the Plan may designate to the Committee, on a form
approved by the Committee for that purpose, a beneficiary or beneficiaries to
receive any amounts due under the Plan to the employee upon death. Such
designation may be canceled or changed by the employee at the employee's
discretion, but no cancellation or change will be recognized by the Committee
unless effected in writing on a form approved by the Committee for that purpose
and filed with the Committee. In the absence of a valid beneficiary designation,
the amounts due hereunder shall be paid to the deceased employee's lawful
successor(s) in interest in a lump sum as soon as practicable, but in no event
later than one year following the employee's death.
ARTICLE 7
AMENDMENT, SUSPENSION OR TERMINATION
The Plan may be amended, suspended or terminated at any time by MCN
by action of its Board or the Committee. However, no amendment, suspension or
termination of the Plan shall affect the rights of employees to receive Awards
approved but unpaid as of the date of such amendment, suspension or termination.
ARTICLE 8
MISCELLANEOUS
8.1 ASSIGNMENT PROHIBITED. The rights and benefits under this Plan are
personal and shall not be subject to any voluntary or involuntary alienation,
assignment, pledge, transfer, or other disposition.
8.2 EFFECT ON EMPLOYEE BENEFITS. Awards under this Plan will not be
considered compensation under any other employee benefit plan maintained by MCN
or its subsidiaries, unless specifically included as compensation in such other
plan's written plan document.
8.3 NO RIGHT TO AN AWARD. No employee or other person shall have any
claim or right to be granted an Award under the Plan. The receipt of an Award
with respect to any Plan year shall not entitle an employee to an award with
respect to any subsequent Plan Year.
8.4 NO EMPLOYMENT RIGHTS. Neither the Plan nor any action taken
pursuant to the provisions of the Plan shall be construed as a contract of
employment between an employee and any Company, or as a right of any employee to
be continued in the employment of any Company, or as a limitation of the right
of any
6
<PAGE> 10
Company to discharge any employee at any time, with or without cause, or
as a limitation of the right of the employee to terminate employment at any
time.
8.5 LAW APPLICABLE. This Plan and all actions hereunder shall be
governed by and construed according to the laws of the State of Michigan.
8.6 GENDER, NUMBER AND HEADING. Whenever any words are used herein in
the masculine gender, they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply. Whenever any words
used herein are in the singular form, they shall be construed as though they
were also used in the plural form in all cases where they would so apply.
Headings of sections and subsections as used herein are inserted solely for
convenience and reference and constitute no part of the Plan.
8.7 JOINT AND SEVERAL LIABILITY. The liability under the Plan for the
Companies shall be joint and several so that each Company shall be liable for
all obligations under the Plan to each employee covered by the Plan, regardless
of the entity by which such employee is employed.
ARTICLE 9
CHANGE IN CONTROL
9.1 GENERAL. Notwithstanding any other provision in this Plan, upon a
Change of Control in MCN, as that term is defined in Section 9.3, the following
shall be paid in cash to all Eligible Employees within twenty (20) days
following a Change of Control:
(a) Awards for the prior Plan Year if not then paid; and
(b) Awards for the current Plan Year, payable pro rata based upon
a fraction whose numerator is the number of days between December 31 of the
prior year and the date of the Change of Control and whose denominator is 365.
Each such Award shall be calculated based on the most recent performance
appraisal completed for each Eligible Employee prior to the Change of Control
and with respect to any pro rata Award, calculated as if the Company's earnings
were exactly equal to its Net Income Goal.
9.2 JOINT AND SEVERAL LIABILITY. Upon and at all times after a Change
in Control, the liability under the Plan of MCN and each Affiliated Company that
has adopted the Plan shall be joint and several so that MCN and each such
Affiliated Company shall each be liable for all obligations under the Plan to
each employee covered by the Plan, regardless of the corporation by which such
employee is employed.
9.3 DEFINITION OF CHANGE IN CONTROL. "Change of Control" means:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
or 20 percent or more of either (i) the then outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock"); or (ii) the combined
voting power of the then outstanding voting securities of the
7
<PAGE> 11
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control:
(i) Any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege);
(ii) Any acquisition by the Company;
(iii) Any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(iv) Any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (a) of this Section 9.3 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless following such
reorganization, merger or consolidation, (i) more than sixty percent (60%) of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization, merger
or consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be; (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, twenty percent (20%) or more of the
Outstanding Company Common Stock or Outstanding Voting Securities, as the case
may be) beneficially owns, directly or indirectly, twenty percent (20%) or more
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors; and (iii) at least a
majority of the members of the Board of Directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the Shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the
8
<PAGE> 12
Company, other than to a corporation, with respect to which following such sale
or other disposition, (A) more than sixty percent (60%) of, respectively, the
then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, twenty percent (20%) or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors; and (C) at
least a majority of the members of the Board of Directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
IN WITNESS WHEREOF, the undersigned officer of MCN has executed this Plan as of
this ____ day of December 1998.
MCN Energy Group Inc.
By:
---------------------------------
Alfred R. Glancy III
Chairman and Chief Executive Officer
9
<PAGE> 13
ATTACHMENT I
<TABLE>
<CAPTION>
1998 TARGET PERCENTAGES
-------------------------------------------------------------------------------------------------------
MCN MICHCON TARGET MCNIC* CITIZEN'S
TARGET% TARGET% TARGET% TARGET%
TIER DESCRIPTION BASE SALARY BASE SALARY BASE SALARY BASE SALARY
=======================================================================================================
<S> <C> <C> <C> <C>
I Chairman & CEO 60% N/A N/A N/A
-------------------------------------------------------------------------------------------------------
II Vice Chairman/Pres 50% 50% 55% N/A
-------------------------------------------------------------------------------------------------------
III VP/Officer 40% 35% 45% 35%
-------------------------------------------------------------------------------------------------------
IV Director 30% 25% 35% 25%
-------------------------------------------------------------------------------------------------------
V Director/Key Execs 20% 15% 25% 15%
=======================================================================================================
</TABLE>
Eligibility is defined by level of responsibility and contribution, not titling
nomenclature.
Actual awards may be from 0 to 125% of an Eligible Employee's Individual
Standard Award. However, the aggregate of all awards may not exceed the total
Adjusted Award Fund.
FUNDING
The 1998 Executive Annual Performance Plan Standard Award Fund is based on the
attainment of targeted ROE and then related to tier-target percents, shown
above, of base annual salaries of Eligible Employees.
<TABLE>
<CAPTION>
MEASURE WEIGHT TARGET
------- ------ ------
<S> <C> <C> <C>
MichCon ROE 100% 11.0%
MCNIC* ROE 100% 13%
MCN ROE 100% 12%
Citizens ROE 100% 13%
</TABLE>
* Includes Mobile Bay Gathering Company and Reed Holdings.
10
<PAGE> 14
ATTACHMENT II
MCN CORPORATE
EXECUTIVE ANNUAL PERFORMANCE PLAN
1998 SCALING OF AWARD
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RELATED
RANGE OF ROES SCALING FUNDING PERCENTAGE
==============================================================================================================================
<S> <C> <C>
Less than 10% No Award
- ------------------------------------------------------------------------------------------------------------------------------
10% to 12% Reduced 5% for each 0.1% ROE under 12% 0% to 100%
- ------------------------------------------------------------------------------------------------------------------------------
12% 100%
- ------------------------------------------------------------------------------------------------------------------------------
12% to 14% Increased 3% for each 0.1% ROE from 12% to 14% 100% to 160%
- ------------------------------------------------------------------------------------------------------------------------------
14% to 15% Increased 1.5% for each 0.1% ROE from 14% to 15% 160% to 175%
- ------------------------------------------------------------------------------------------------------------------------------
Above 15% Increased 0.4% for each 0.1% ROE above 15% Above 175%
==============================================================================================================================
</TABLE>
If ROE exceeds 12.5% and MCN attains a 3-year average EPS Growth Rate
of 12%, an additional 25% will be added to the fund resulting in 200% funding at
15% ROE.
ADJUSTMENTS TO AVERAGE COMMON STOCKHOLDERS EQUITY
Average Common Stockholders Equity shall be adjusted by:
1. Any gains or losses recorded to "Other Comprehensive Income
Within Equity".
11
<PAGE> 15
ATTACHMENT III
MCNIC
EXECUTIVE ANNUAL PERFORMANCE PLAN
1998 SCALING OF AWARD
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RELATED
RANGE OF ROES SCALING FUNDING PERCENTAGE
==============================================================================================================================
<S> <C> <C>
Less than 11% No Award
- ------------------------------------------------------------------------------------------------------------------------------
11% to 13% Reduced 5% for each 0.1% ROE under 13% 0% to 100%
- ------------------------------------------------------------------------------------------------------------------------------
13% 100%
- ------------------------------------------------------------------------------------------------------------------------------
13% to 15% Increased 3% for each 0.1% ROE from 13% to 15% 100% to 160%
- ------------------------------------------------------------------------------------------------------------------------------
15% to 16% Increased 1.5% for each 0.1% ROE from 15% to 16% 160% to 175%
- ------------------------------------------------------------------------------------------------------------------------------
Above 16% Increased 0.4% for each 0.1% ROE above 16% Above 175%
==============================================================================================================================
</TABLE>
If ROE exceeds 13.5% and MCN attains a 3-year average EPS Growth Rate
of 12%, an additional 25% will be added to the fund resulting in 200% funding at
16% ROE.
Note: These targets and scaling will also apply to Mobile Bay Gathering
Company and Reed Holdings.
ADJUSTMENTS TO AVERAGE COMMON STOCKHOLDERS EQUITY
Average Common Stockholders Equity shall be adjusted by:
- 1. Any gains or losses recorded to "Other Comprehensive Income
Within Equity".
12
<PAGE> 16
ATTACHMENT IV
MICHCON
EXECUTIVE ANNUAL PERFORMANCE PLAN
1998 SCALING OF AWARD
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RELATED
RANGE OF ROES SCALING FUNDING PERCENTAGE
==============================================================================================================================
<S> <C> <C>
Less than 9% No Award
- ------------------------------------------------------------------------------------------------------------------------------
9% to 11% Reduced 5% for each 0.1% ROE under 11% 0% to 100%
- ------------------------------------------------------------------------------------------------------------------------------
11% 100%
- ------------------------------------------------------------------------------------------------------------------------------
11% to 13% Increased 3% for each 0.1% ROE from 11% to 13% 100% to 160%
- ------------------------------------------------------------------------------------------------------------------------------
13% to 14% Increased 1.5% for each 0.1% ROE from 13% to 14% 160% to 175%
- ------------------------------------------------------------------------------------------------------------------------------
Above 14% Increased 0.4% for each 0.1% ROE above 14% Above 175%
==============================================================================================================================
</TABLE>
If ROE exceeds 11.5% and MCN attains a 3-year average EPS Growth Rate
of 12%, an additional 25% will be added to the fund resulting in 200% funding at
14% ROE.
ADJUSTMENTS TO AVERAGE COMMON STOCKHOLDERS EQUITY
Average Common Stockholders Equity shall be adjusted by:
1. Any gains or losses recorded to "Other Comprehensive Income Within
Equity".
13
<PAGE> 17
ATTACHMENT V
CITIZENS
EXECUTIVE ANNUAL PERFORMANCE PLAN
1998 SCALING OF AWARD
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
RELATED
RANGE OF ROES SCALING FUNDING PERCENTAGE
=============================================================================================================================
<S> <C> <C>
Less than 11% No Award
- -----------------------------------------------------------------------------------------------------------------------------
11% to 13% Reduced 5% for each 0.1% ROE under 13% 0% to 100%
- -----------------------------------------------------------------------------------------------------------------------------
13% 100%
- -----------------------------------------------------------------------------------------------------------------------------
13% to 15% Increased 3% for each 0.1% ROE from 13% to 15% 100% to 160%
- -----------------------------------------------------------------------------------------------------------------------------
15% to 16% Increased 1.5% for each 0.1% ROE from 15% to 16% 160% to 175%
- -----------------------------------------------------------------------------------------------------------------------------
Above 16% Increased 0.4% for each 0.1% ROE above 16% Above 175%
=============================================================================================================================
</TABLE>
If ROE exceeds 13.5% and MCN attains a 3-year average EPS Growth Rate
of 12%, an additional 25% will be added to the fund resulting in 200% funding at
16% ROE.
ADJUSTMENTS TO AVERAGE COMMON STOCKHOLDERS EQUITY
Average Common Stockholders Equity shall be adjusted by:
1. Any gains or losses recorded to "Other Comprehensive Income Within
Equity".
14
<PAGE> 18
ATTACHMENT VI
MCN ENERGY GROUP INC.
EXECUTIVE ANNUAL PERFORMANCE PLAN
BENEFICIARY DESIGNATION FORM
<TABLE>
<CAPTION>
============================================================================================================================
<S> <C> <C> <C>
Employee Name (Print) Social Security No. I. D. Number
- ----------------------------------------------------------------------------------------------------------------------------
Address (Number/Street) City State Zip Code
============================================================================================================================
</TABLE>
I hereby designate, pursuant to Article 6 of the above-referenced plan, the
below-designated person(s) as my beneficiary in the event of my death:
<TABLE>
============================================================================================================================
<S> <C>
Beneficiary's Name Address
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
I UNDERSTAND THAT THE DESIGNATION OF A BENEFICIARY OTHER THAN MY SPOUSE MUST BE
CONSENTED TO IN WRITING BY MY SPOUSE.
In the event any of the above-named beneficiaries should predecease me, or shall
survive me but die before receiving all amounts to be paid, I hereby name the
following as a contingent beneficiary to receive any such unpaid amounts:
<TABLE>
<CAPTION>
============================================================================================================================
<S> <C>
Beneficiary's Name Address
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the event none of the above-named beneficiaries survive me, any unpaid
amounts shall be paid to my lawful successor in interest. I reserve the right to
change this beneficiary designation at any time by filing with the Committee or
its designee a new beneficiary designation form.
I understand that my most recent election as to the beneficiary designation will
apply to all Deferrals by me under the plan.
<TABLE>
<CAPTION>
============================================================================================================================
<S> <C> <C>
Employee Signature Date
- ----------------------------------------------------------------------------------------------------------------------------
Receipt Acknowledged By Title Date
============================================================================================================================
</TABLE>
Spousal Consent: I hereby consent to the designation of beneficiary set forth
herein.
<TABLE>
<CAPTION>
============================================================================================================================
<S> <C>
Spouse's Signature Date
- ----------------------------------------------------------------------------------------------------------------------------
Witness Date
============================================================================================================================
</TABLE>
15
<PAGE> 1
EXHIBIT 10-10
MCN ENERGY GROUP INC.
LONG-TERM INCENTIVE
PERFORMANCE SHARE PLAN
(AS AMENDED AND RESTATED OCTOBER 1, 1997)
February 22, 1999
<PAGE> 2
MCN ENERGY GROUP INC.
LONG-TERM INCENTIVE
PERFORMANCE SHARE PLAN
Table of Contents
Page
----
Article 1 - Title, Purpose and Effective Date............................... 1
1.1 Title ........................................................ 1
1.2 Purpose ...................................................... 1
1.3 Effective Date................................................ 1
Article 2 - Definitions..................................................... 1
2.1 Affiliated Company............................................ 1
2.2 Award......................................................... 1
2.3 Board of Directors............................................ 1
2.4 Cause ........................................................ 2
2.5 Code ......................................................... 2
2.6 Committee..................................................... 2
2.7 Common Stock.................................................. 2
2.8 Corporation .................................................. 2
2.9 Deferred Account.............................................. 2
2.10 Disability ................................................... 2
2.11 Key Employee.................................................. 2
2.12 Nonemployee Director.......................................... 2
2.13 Participant .................................................. 2
2.14 Participating Corporation..................................... 2
2.15 Peer Group.................................................... 2
i
<PAGE> 3
Page
----
2.16 Plan Interest Rate............................................ 2
2.17 Performance Share............................................. 2
2.18 TSR or Total Shareholder Return............................... 2
Article 3 - Administration.................................................. 3
3.1 Committee and Board to Administer............................. 3
3.2 Authority of the Committee and Board.......................... 3
3.3 Decisions Binding............................................. 3
Article 4 - Awards.......................................................... 3
4.1 Eligibility for Awards........................................ 3
Article 5 - Performance Cycle and Performance Comparison.................... 4
5.1 Performance Cycle............................................. 4
5.2 Performance Comparison........................................ 4
Article 6 - Grant of Awards................................................. 4
6.1 Grant of Performance Shares................................... 4
6.2 Initial Individual Award...................................... 4
6.3 Initial Grant................................................. 4
6.4 Adjustment to Initial Grant................................... 5
Article 7 - Dividend Equivalents............................................ 6
7.1 Dividend Equivalents.......................................... 6
Article 8 - Vesting of Performance Shares................................... 6
8.1 Vesting Date of Performance Shares - General.................. 6
8.2 Death, Disability & Retirement - Prior to Vesting Date........ 6
ii
<PAGE> 4
Page
----
8.3 Common Stock Holding Requirement.............................. 6
Article 9 - Valuation and Payment of Final Awards........................... 7
9.1 Amount of Final Award - General............................... 7
9.2 Amount of Final Award - Death................................. 7
9.3 Payment of Final Award - General.............................. 7
9.4 Payment of Final Award - Death................................ 7
Article 10 - Deferral of Payments........................................... 7
10.1 Election to Defer............................................. 7
10.2 Deferral Election Agreement................................... 8
10.3 Establishment of Deferred Account............................. 8
10.4 Dividend Equivalents.......................................... 8
10.5 Timing of Retirement Distributions............................ 8
10.6 Form of Distributions......................................... 9
10.7 Termination Benefit........................................... 9
10.8 Change in Payment Option...................................... 9
10.9 Hardship Withdrawal Benefits.................................. 9
10.10 Interaction with the MCN Energy Group Mandatory Deferred
Compensation Plan............................................. 9
Article 11 - Funding of Benefits............................................ 9
11.1 Unfunded Plan................................................. 9
11.2 Non-ERISA Plan................................................ 10
Article 12 - Tax Withholdings............................................... 10
12.1 Tax Withholding............................................... 10
iii
<PAGE> 5
Page
----
Article 13 - Selection of and Payments to a Beneficiary..................... 11
13.1 Beneficiary Designation....................................... 11
13.2 Change in Beneficiary Designation............................. 11
13.3 Pre-Retirement Survivor Benefit ............................. 11
13.4 Post-Retirement Survivor Benefit.............................. 11
Article 14 - Amendment and Termination...................................... 11
14.1 Amendment, Modification, and Termination...................... 11
14.2 Awards Previously Granted..................................... 12
14.3 Right to Suspend.............................................. 12
14.4 Right to Accelerate........................................... 12
Article 15 - Miscellaneous.................................................. 12
15.1 No Right of Continued Employment.............................. 12
15.2 Delivery of Shares............................................ 12
15.3 Transfer and Leave of Absence................................. 12
15.4 Michigan Law to Govern........................................ 12
15.5 Forfeitures................................................... 12
15.6 Gender, Number and Heading ................................... 13
Article 16 - Change in Control.............................................. 13
16.1 Change in Control............................................. 13
16.2 Transfer to Rabbi Trust....................................... 14
16.3 Joint and Several Liability................................... 14
Attachments
Historical Background
v
<PAGE> 6
MCN ENERGY GROUP INC.
LONG-TERM INCENTIVE
PERFORMANCE SHARE PLAN
(AS AMENDED AND RESTATED OCTOBER 1, 1997)
ARTICLE 1
TITLE, PURPOSE AND EFFECTIVE DATE
1.1 TITLE. The title of the Plan, formerly the "MCN Energy Group
Long-Term Incentive Performance Unit Plan," shall be the "MCN Energy Group
Long-Term Incentive Performance Share Plan" and is referred to in this document
as the "Plan." This Plan is governed by the broader provisions set forth in the
MCN Corporation Stock Incentive Plan approved by shareholders on May 10, 1989.
Any conflicting provisions between such plan and this Plan shall be governed by
the MCN Corporation Stock Incentive Plan.
1.2 PURPOSE. The purpose of the Plan is to promote the success of MCN
Energy Group Inc. (the "Corporation" or "MCN") by providing financial incentives
to Key Employees of the Corporation and its affiliated companies, thereby
promoting the long-term growth and financial success of the Corporation by (i)
attracting and retaining outstanding ability, (ii) strengthening the
Corporation's capability to develop, maintain, and direct a competent management
team, (iii) providing an effective means for Key Employees to acquire and
maintain ownership of MCN stock, (iv) motivating Key Employees to achieve
long-range performance goals and objectives, and (v) providing incentive
compensation opportunities competitive with those of other major corporations.
1.3 EFFECTIVE DATE. The Plan is effective October 1, 1997.
ARTICLE 2
DEFINITIONS
The following terms have the meaning described below when used in the
Plan:
2.1 "AFFILIATED COMPANY" means any corporation while such corporation
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Corporation or any other employing entity
while such entity is under common control (within the meaning of Section 414(c)
of the Code) of the Corporation.
2.2 "AWARD" shall mean a grant of Performance Shares under this Plan.
2.3 "BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors
of the Corporation.
<PAGE> 7
2.4 "CAUSE" shall mean repeated material breaches of a Key Employee's
duties of employment which are not cured after receipt by the Key Employee of
written notice specifying such breaches or the Key Employee's conviction of a
felony involving moral turpitude.
2.5 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
2.6 "COMMITTEE" shall mean not less than three Nonemployee Directors
of the Board, who, at the time of service on the Compensation Committee
hereunder, are, and at all times during the twelve month period prior to his or
her becoming a member shall have been, not eligible to receive an Award granted
by such Committee under the Plan.
2.7 "COMMON STOCK" shall mean common stock, par value $.01 of the
Corporation.
2.8 "CORPORATION" shall mean MCN Energy Group Inc. or any successor to
it in ownership of all or substantially all of its assets.
2.9 "DEFERRED ACCOUNT" shall mean an account established for a
Participant under Section 10.3.
2.10 "DISABILITY" shall have the meaning set forth in Section 22(e)(3)
of the Code.
2.11 "KEY EMPLOYEE" shall mean an employee of the Corporation who
occupies a responsible executive, professional, or administrative position and
who has the capacity to contribute to the success of the Corporation, as
determined by the Committee or Board.
2.12 "NONEMPLOYEE DIRECTOR" shall have the meaning ascribed to such
term in Rule 16b-3 of the Securities Exchange Act of 1934.
2.13 "PARTICIPANT" shall mean a Key Employee who has been granted an
Award.
2.14 "PARTICIPATING CORPORATION" shall mean the Corporation, Affiliated
Company, or other affiliated entity (whether or not incorporated) designated by
the Board of Directors.
2.15 "PEER GROUP" shall mean a peer group of 16 comparison companies as
reflected in Attachment I. The list may be revised as and when the Board deems
appropriate.
2.16 "PLAN INTEREST RATE" shall mean the average interest rate of
10-year U.S. Treasury Notes for the November of the prior calendar year, or such
other rate as set by the Committee or Board.
2.17 "PERFORMANCE SHARE" shall mean an award granted under Section 6.1.
2.18 "TSR" OR "TOTAL SHAREHOLDER RETURN" shall mean the percentage
increase in value at the end of a three year period of $100 invested in Common
Stock at the beginning of the
2
<PAGE> 8
period with all dividends being reinvested at the price of Common Stock at the
end of the month in which the dividend is paid. To determine the value at the
beginning and end of any period, a calculation is made of the average Common
Stock price for the trading days from December 17 through January 15.
ARTICLE 3
ADMINISTRATION
3.1 COMMITTEE AND BOARD TO ADMINISTER. The Committee and Board shall
administer the Plan. A majority of the members of the Committee or Board shall
constitute a quorum for the conduct of business at any meeting. They shall act
by majority vote of the members present at a duly convened meeting, which may
include a meeting by conference telephone call held in accordance with
applicable law. Action may be taken without a meeting if written consent thereto
is given in accordance with applicable law. The Committee or Board may delegate
its authority to administer the Plan.
3.2 AUTHORITY OF THE COMMITTEE AND BOARD. Except as limited by law or
by the Certificate of Incorporation or Bylaws of the Corporation, and subject to
the provisions herein, the Committee or Board shall have full power to select
employees who shall participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent with
the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan as they apply to employees; establish, amend, or
waive rules and regulations for the Plan's administration as they apply to
employees; and (subject to the provisions of Article 14 herein) amend the terms
and conditions of any outstanding Award to the extent such terms and conditions
are within the discretion of the Committee or Board as provided in the Plan.
Further, they shall make all other determinations, which may be necessary or
advisable for the administration of the Plan, as the Plan applies to employees.
The Committee or Board may delegate its authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee or Board pursuant to the provisions of the Plan and all related orders
and resolutions of the Board shall be final, conclusive, and binding on all
persons, including the Corporation, its stockholders, Directors, employees,
Participants and their estates and beneficiaries.
ARTICLE 4
AWARDS
4.1 ELIGIBILITY FOR AWARDS. An Award may be made to a Key Employee
selected by the Committee or Board. In making this selection, and in determining
the amount of the Award, consideration may be given to the functions and
responsibilities of the Key Employee, his present and potential contributions to
the success of the Corporation, the value of his services to the Corporation,
and such other factors deemed relevant.
3
<PAGE> 9
ARTICLE 5
PERFORMANCE CYCLE AND PERFORMANCE COMPARISON
5.1 PERFORMANCE CYCLE. The performance cycle is six years. Each
performance cycle is divided into two parts of three years each. Performance
cycles overlap.
5.2 PERFORMANCE COMPARISON. The performance results for the Peer Group
and MCN shall be arranged on the basis of TSR from highest to lowest. The Peer
Group shall be divided into equal fourths or quartiles, with I being the highest
quartile and IV the lowest.
ARTICLE 6
GRANT OF AWARDS
6.1 GRANT OF PERFORMANCE SHARES. Subject to the limitations of the MCN
Energy Group Inc. Stock Incentive Plan, the Committee or Board shall, after such
consultation with and consideration of the recommendations of management as the
Committee or Board considers desirable, select those Key Employees to whom
Performance Shares will be granted. The value of Performance Shares shall be
based in whole or in part, on the value of Common Stock. Subject to the
provisions of the Plan, Performance Shares shall be subject to such terms,
restrictions, conditions, vesting requirements, and payment rules (all of which
are sometimes hereinafter collectively referred to as "rules") as the Committee
or Board may determine in its sole discretion. All such rules applicable to a
particular award of Performance Shares shall be reflected in writing and
furnished to the Key Employee at the time of grant. The rules need not be
identical for each award of Performance Shares.
6.2 INITIAL INDIVIDUAL AWARD. Initial individual Awards will be
established for each Key Employee during the first quarter of the fourth year of
the performance cycle, in accordance with Table I of Attachment II. The major
factors considered in determining the level of an individual award include: (a)
prior contribution and accomplishments; (b) projected contribution and impact on
driving business performance and shareholder value over the next three years;
(c) career potential; and (d) retention.
6.3 INITIAL GRANT. Subject to the Committee's or the Board's
discretion, the initial grant shall be made in the first quarter of the fourth
year of the performance cycle, based on TSR in the first three years of the
performance cycle as compared to TSR of the Peer Group. Initial grants are
determined by adjusting the initial individual Award either upward or downward
based on MCN's TSR performance compared to the Peer Group, as reflected in Table
II on Attachment II. Other performance criteria may be used at the sole
discretion of the Board or Committee.
6.4 ADJUSTMENT TO INITIAL GRANT. An adjustment of initial grants may
be made at the sole discretion of (i) the Board or Committee for a Participant
in Tiers I and II; and (ii) the Chairman of
4
<PAGE> 10
MCN for any other Participant. In general, however, an initial grant shall be
adjusted as described below for the circumstances listed in 6.4(a) through (e).
(a) NORMAL RETIREMENT OR DISABILITY. In the event of the
retirement of a Participant at age 62 or older, or retirement due to Disability,
the initial grant will be unchanged unless prorated at the discretion of the
Board or the Chairman of the Board, as appropriate, according to the number of
whole months in the last half of the performance cycle that the Participant was
an active employee. Any proration of initial grants shall be effective as of the
date of retirement. Final awards, if any, will be given at the end of the
performance cycle and adjusted pursuant to Section 9.1.
(b) EARLY RETIREMENT. In the event of the retirement of a
Participant prior to age 62, the initial grant shall be prorated according to
the number of whole months in the last half of the performance cycle that the
Participant was an active employee. Any proration of initial grants shall be
effective as of the date of early retirement. Final awards, if any, will be
given at the end of the performance cycle and adjusted pursuant to Section 9.1.
(c) DEATH. In the event of the death of the Participant, the
initial grant for each performance cycle shall be prorated according to the
number of whole months in the last half of the performance cycle that the
Participant was an active employee. The proration of initial grants shall be
effective as of the date of death and such Award shall vest in accordance with
Section 8.2. The final Award for each performance cycle shall be valued and paid
in accordance with Sections 9.2 and 9.4.
(d) OTHER TERMINATIONS. In the event of termination for any
reason not described in Sections 6.4(a), (b) or (c), a Participant's initial
grants may be adjusted by all, none, or any portion of the initial grants that
have been given to the Participant, in accordance with subsection (e) of this
section 6.4. The reduction in initial grants is effective as of the date of
termination. Final awards, if any, will be given at the end of the performance
cycle and adjusted pursuant to Section 9.1.
(e) FOR PURPOSES OF INITIAL GRANTS ISSUED IN 1994 AND 1995
ONLY. If a Participant voluntarily terminates employment with MCN or a
Participating Corporation:
(i) In the first year of the second part of the
performance cycle (year four), the Participant's initial grant may be reduced to
zero;
(ii) In the second year of the second part of the
performance cycle (year five), the Participant's initial grant may be reduced to
an amount not less than 10 percent of the initial grant; and
(iii) In the third year of the second part of the
performance cycle (year six) up through the payment of the final award (in year
seven), the Participant's initial grant may be reduced to an amount not less
than 20 percent of the initial grant.
Final awards, if any, will be given at the end of the
performance cycle and adjusted pursuant to Section 9.1.
5
<PAGE> 11
ARTICLE 7
DIVIDEND EQUIVALENTS
7.1 DIVIDEND EQUIVALENTS. During the second part of the performance
cycle (years four through six) Participants will receive dividend equivalent
amounts based on the number of Performance Shares in the initial grant, as
adjusted pursuant to Section 6.4. Dividend equivalents for dividends with a
record date that is subsequent to a Participant's retirement or termination
date, will be paid to the Participant based on the reduced number of Performance
Shares, as determined under Section 6.4.
ARTICLE 8
VESTING OF PERFORMANCE SHARES
8.1 VESTING DATE OF PERFORMANCE SHARES - GENERAL. Subject to the
Committee's or the Board's discretion and the rules of Sections 6.4 and 16.1,
Performance Shares shall fully vest and be one hundred percent (100%)
nonforfeitable on the date the Board approves the final Award (the "Vesting
Date").
8.2 DEATH - PRIOR TO VESTING DATE. Subject to the Committee's or the
Board's discretion and the rules of Sections 6.4 and 16.1, upon termination of
employment prior to the Vesting Date by reason of the Participant's death, all
Performance Shares granted to such Participant shall become fully vested and
nonforfeitable as of the date of death.
8.3 COMMON STOCK HOLDING REQUIREMENT. Participants receiving Common
Stock as a final award under the Plan are required to hold such Common Stock
until they separate employment from the Company, to the extent the Participant
does not meet the Common Stock Ownership Guidelines described in Attachment III.
Participants must consult with MCN's Legal Department prior to
executing any sale of Common Stock. Compliance with the Common Stock Ownership
Guidelines will be determined at that time. A Participant's failure to comply
with this section 8.3 shall result in disciplinary action up to and including
termination of employment, at the discretion of the Board or Committee.
ARTICLE 9
VALUATION AND PAYMENT OF FINAL AWARDS
9.1 AMOUNT OF FINAL AWARD - GENERAL. Final Awards will be determined
by adjusting the initial grant units either upward or downward based on the
Corporation's performance in years four through six of the performance cycle as
compared to the TSR of the Peer Group. Calculation of TSR performance for the
final Award will follow that described in Section 5.2. Other performance
criteria may be used at the sole discretion of the Board or Committee. The Board
will authorize the size of the final Award based on Table III in Attachment II.
The
6
<PAGE> 12
value of the final Award shall be determined using the simple average of the
sales price of the shares of Common Stock, sold under the provisions of this
Plan, over the five trading-day period beginning with the trading day after the
day the MCN Board of Directors approves the final Award.
9.2 AMOUNT OF FINAL AWARD - DEATH. Final Awards will be determined by
adjusting the initial grant units either upward or downward based on the
midpoint percentage of the Corporation's TSR quartile compared to the TSR of the
Peer Group for the quarter immediately preceding the Participant's date of
death. The value of the final Award shall be determined using the simple average
of the reported high and low prices of Common Stock on the New York Stock
Exchange composite tape on the date of death. If the date of death is not a
trading day, the value of the final Award shall be determined using the simple
average of the reported high and low prices of Common Stock on the New York
Stock Exchange composite tape on the first trading day prior to the date of
death.
9.3 PAYMENT OF FINAL AWARD - GENERAL. Final Awards, in the form of
Common Stock, will be made in the first quarter following the end of the
six-year performance cycle.
9.4 PAYMENT OF FINAL AWARD - DEATH. The final Award, in the form of
Common Stock, shall be paid to the Beneficiary no later than 120 days after the
Participant's date of death.
ARTICLE 10
DEFERRAL OF PAYMENTS
10.1 ELECTION TO DEFER. A Participant in Tiers I through V may elect,
no later than October 31 of the calendar year preceding the calendar year in
which an Award would otherwise be payable to the Participant, to defer his
Award in an amount (i) not less than 50 percent, nor (ii) in excess of 100
percent of the Award less the Federal Insurance Contributions Act tax on such
Award, in 10 percent increments. The Award shall be deferred until termination
of employment with the Corporation (the "Deferral Period"). The Deferral
Period may not extend past the date the Participant terminates employment with
the Corporation for any reason.
10.2 DEFERRAL ELECTION AGREEMENT. The Committee or Board shall provide
to each Key Employee a form of Deferral Election Agreement (See Attachment IV),
which shall set forth the Key Employee's acceptance of the terms provided
hereunder, his agreement to be bound by the terms of the Plan, and such other
matters as are set forth in this Plan or deemed advisable by the Committee or
Board. The most recent Deferral Election Agreement shall be effective for all
payments made to a Participant under the Plan with regards to the Deferral
Period, payment of dividend equivalents and distribution elections.
10.3 ESTABLISHMENT OF DEFERRED ACCOUNT. The Committee or Board shall
establish a Deferred Account for each Participant in regards to the Awards the
Participant has elected to defer, as set forth on his Deferral Election
Agreement.
7
<PAGE> 13
(a) DENOMINATION OF DEFERRALS - GENERAL. During the Deferral
Period, a Participant's Deferred Account shall be denominated in common stock
equivalents equal to the number of shares of Common Stock the Participant would
have otherwise received ("Share Equivalents"), had he not made an election to
defer under Section 10.1 A Participant's Deferred Account shall earn dividend
equivalents during the Deferral Period in accordance with Section 10.4.
(b) DENOMINATION OF DEFERRALS -AFTER COMPLETION OF DEFERRAL
PERIOD OR AGE 65. On the earlier of the date (i) the Deferral Period ends or
(ii) the Participant turns age 65 ("Valuation Date"), the Participant's account
shall be valued on a cash basis, using the average of the high and low Common
Stock price on the New York Stock Exchange Composite Tape on the Valuation Date.
Such cash valuation shall be used for purposes of determining the amount of
interest to be credited to the Participant's account during the period annual
distributions are made to the Participant ("Payout Period") and for purposes of
determining the number of shares of Common Stock that will be distributed to a
Participant during the Payout Period, in accordance with Section 10.6. Interest
shall be credited annually on the Anniversary Date on the declining cash balance
at the Plan Interest Rate. The Human Resources Department shall notify each
Participant of his account balance within a reasonable time after the end of the
Participant's Deferral Period.
10.4 DIVIDEND EQUIVALENTS. Dividend equivalents equal to 50% of the
dividends payable on MCN Common Stock shall be credited to a Participant's
Account during the Deferral Period based on the Share Equivalents held in such
Participant's Account. Dividend equivalents shall be reinvested in Share
Equivalents based upon the average of the high and low Common Stock price on the
dividend payment date. Alternatively, a Participant may elect on his Deferral
Election Agreement to have all of such credited dividend equivalents paid
directly to him in cash during the Plan Year. A Participant's election regarding
dividend equivalents shall be effective for all Share Equivalents held in the
Participant's Account on the January 1 immediately following execution of his
Deferral Election Form and shall remain in effect until revoked by the
Participant. Revocation of a dividend equivalent election shall be effective on
the January 1 immediately following revocation.
10.5 TIMING OF RETIREMENT DISTRIBUTIONS. Upon completion of a
Participant's Deferral Period, the distribution of the Participant's Deferred
Account shall be made in accordance with the Participant's selection on his
Deferral Form; either (i) in annual payments over a period not less than one
year and not more than 15 years, in one year increments, or (ii) as a lump sum
distribution. If no Deferral Form is on file or no distribution option is
indicated on the Deferral Form, the Participant's Deferred Account shall be
distributed in one lump sum. All distributions shall be paid out at the end of
the quarter in which the Participant's retirement date occurs. If a Participant
has elected annual payments, the initial payment shall be made at the end of the
quarter in which the Participant's Deferral Period ends. All subsequent annual
payments shall be made at the end of the quarter in which the anniversary of the
Participant's Deferral Period ("Anniversary Date") occurs. Interest shall accrue
on the value of the Participant's account from the Valuation date to the end of
the quarter in which the initial payment is distributed.
8
<PAGE> 14
10.6 FORM OF DISTRIBUTIONS. Notwithstanding the fact that a
Participant's Deferred Account shall be valued on a cash basis as of the
Valuation Date, the distribution to a Participant shall be paid in MCN common
stock. The number of shares of Common Stock to be distributed shall equal the
number of shares (rounded up to the next whole number of shares) such
cash-valued Deferred Account, divided by the number of payments remaining in the
Payout Period, could have purchased based on the average of the high and low
Common Stock price on the New York Stock Exchange Composite Tape on the fifth
trading-day prior to the end of the quarter in which Valuation Date (or
Anniversary Date for all subsequent payments) occurs. The number of shares
distributed annually shall be determined by amortizing the cash value of the
Participant's Deferred Account over the Payout Period. Interest shall be
credited annually on the declining balance at the Plan Interest Rate. The number
of shares distributed annually to the Participant shall be recalculated on the
Participant's Anniversary Date to reflect changes in the Plan Interest Rate, the
decrease in the number of annual payments left to be made, and other changes to
the Participant's Deferred Account balance. The amortization schedule shall be
updated annually to reflect the average 10-year Treasury Note interest rate for
the fifth trading-day prior to the end of the quarter in which Valuation Date
(or Anniversary Date for all subsequent payments) in which the distribution is
to be made.
10.7 TERMINATION BENEFIT. A Participant who terminates employment prior
to completion of his Deferral Period shall receive payment of his Account
balance in accordance with the Participant's election on his Deferral Election
Agreement; either in annual payments over three years or as a lump sum
distribution. If no election is indicated on the Participant's Deferral Election
Agreement, the Participant's termination benefit shall be paid to him in annual
payments over three years beginning no later than 120 days after termination of
employment. If the Participant's account is to be paid in annual installments,
the account shall be valued in accordance with Section 10.3(b), using the
termination date as the Valuation Date, and the timing and form of payments
shall be determined in accordance with Sections 10.5 and 10.6.
10.8 CHANGE IN PAYMENT OPTION. A Participant's election regarding the
distribution of his account on his Deferral Election Agreement shall be
effective for all distributions from the Participant's account on the January 1
immediately following execution of his Deferral Election Form and shall remain
in effect until a different election is indicated by the Participant on a
subsequent Deferral Election Form. The payment options selected by the
Participant on his Deferral Election Agreement may be changed at any time by the
Participant submitting a new payment selection to the Committee or Board, but a
change shall be effective only if it is received by the Committee or Board at
least 12 months before payments under the Plan commence.
10.9 HARDSHIP WITHDRAWAL BENEFITS. At any time prior to a distribution
in accordance with Section 10.6, a Participant may request that the Committee or
Board make a distribution to him of all or part of his Deferred Account within
120 days. Such distribution shall be made only if the Committee or Board
determines that the Participant is suffering from a financial hardship that
cannot be satisfied from his normal sources of income, and the distribution
shall be limited to the amount required to meet the financial hardship. In
making these determinations, the Committee or Board shall utilize the
regulations proposed or adopted by the U.S. Department of Treasury pursuant to
Section 401(k) of the Code and the rules under the Savings Plan. A financial
hardship shall first be satisfied
9
<PAGE> 15
from (i) a loan under the provisions of the Savings Plan, (ii) the MCN Executive
Deferred Compensation Plan, and (iii) the Supplemental Savings Plan, before a
hardship distribution may be made from the Plan.
10.10 INTERACTION WITH THE MCN ENERGY GROUP MANDATORY DEFERRED
COMPENSATION PLAN. The portion of any Award required to be deferred under The
MCN Energy Group Mandatory Deferred Compensation Plan will be deemed to be
deferred in accordance with Section 10.1 of the Plan.
ARTICLE 11
FUNDING OF BENEFITS
11.1 UNFUNDED PLAN. The Plan shall be unfunded. All benefits payable
under the Plan shall be paid from the Corporation's general assets. The
Corporation shall not be required to set aside or hold in trust any funds for
the benefit of a Participant or Beneficiary, who shall have the status of a
general unsecured creditor with respect to the Corporation's obligation to make
benefit payments pursuant to the Plan. Any assets of the Corporation available
to pay Plan benefits shall be subject to the claims of the Corporation's general
creditors and may be used by the Corporation in its sole discretion for any
purpose. No employee shall have voting or other rights with respect to such
shares of Common Stock prior to the delivery of such shares. The Corporation
shall not, by any provisions of the Plan, be deemed to be a trustee of any
Common Stock or any other property under the Plan, and any liabilities of the
Corporation to any employee pursuant to the Plan shall be those of a debtor
pursuant to such contract obligations as are created by or pursuant to the Plan,
and the rights of any employee, former employee, or beneficiary under the Plan
shall be limited to those of a general creditor of the Corporation. In its sole
discretion, the Board may authorize the creation of trusts or other arrangements
to meet the obligations of the Corporation and each other Participating
Corporation under the Plan provided, however, that the existence of such trusts
or other arrangements is consistent with the unfunded status of the Plan.
11.2 NON-ERISA PLAN. The Plan is intended to provide benefits for "a
select group of management or highly compensated employees" within the meaning
of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and therefore to be exempt from Sections 2, 3 and 4
of Title 1 of ERISA. Accordingly, the Plan shall terminate and, existing account
balances and other benefits in pay status shall be paid in a single, actuarially
equivalent lump-sum and no further benefits, vested or non-vested, shall be paid
hereunder in the event it is determined by a court of competent jurisdiction or
by an opinion of counsel that the Plan constitutes an employee pension benefit
plan within the meaning of Section 3(2) of ERISA which is not so exempt.
ARTICLE 12
TAX WITHHOLDINGS
10
<PAGE> 16
12.1 TAX WITHHOLDING. The Corporation shall not make the delivery of
any shares of Common Stock until the Participant has made satisfactory
arrangements for the payment of any applicable withholding taxes. The
tax-withholding obligation may be satisfied by any of the following means, a
combination of such means, or any other means established by the Committee or
Board:
(a) tendering cash payment;
(b) authorizing the Corporation to (i) withhold 50% of the Common
Stock to be issued and (ii) facilitate the sale of such stock; or
(c) delivery to the Corporation by the Participant of owned and
unencumbered shares of Common Stock having an aggregate fair market value on the
date the withholding tax arises less than or equal to the amount of the
withholding tax obligation.
The Participant must satisfy the tax-withholding obligation no later than 30
days from the date the Award vests. The Committee or Board may establish
procedures it deems appropriate to assist a Participant in making such payment.
ARTICLE 13
SELECTION OF AND PAYMENTS TO A BENEFICIARY
13.1 BENEFICIARY DESIGNATION. A Participant shall designate a
beneficiary on his Beneficiary Designation Form, as provided in Attachment V.
The designation of a beneficiary other than the Participant's spouse must be
consented to in writing by the spouse. If a Participant has not designated a
beneficiary, or if a designated beneficiary is not living or in existence at the
time of a Participant's death, any death benefits payable under the Plan shall
be paid to the Participant's spouse, if then living, and if the Participant's
spouse is not then living, to the Participant's estate.
13.2 CHANGE IN BENEFICIARY DESIGNATION. A Participant may change
the designated beneficiary, subject to the restriction in Section 13.1, from
time to time by filing a new written designation with the Committee or Board.
Such designation shall be effective upon receipt by the Committee or Board.
13.3 PRE-RETIREMENT SURVIVOR BENEFIT. If a Participant dies prior to
completion of the Deferral Period, his Beneficiary shall be entitled to receive
a distribution of the Participant's Deferred Account. The distribution to a
beneficiary shall be paid in Common Stock equal to the number of shares of
Common Stock deemed to be held in the Participant's Deferred Account and valued
at the closing price of MCN Common Stock on the New York Stock Exchange
composite tape on the day of the Participant's death. The distribution shall be
paid in accordance with the Participant's selection on his Deferral Form; either
in annual installments over a three-year period, or as a lump sum distribution.
If the Participant's account is to be paid in annual installments, the account
shall be valued in accordance with Section 10.3(b), using the Participant's date
of death as the Valuation Date, and the timing and form of payments shall be
determined in accordance with Sections 10.5 and 10.6. Payments
11
<PAGE> 17
to the beneficiary shall begin as soon as practicable, but in no event later
than one year following the Participant's death.
13.4 POST-RETIREMENT SURVIVOR BENEFIT. If a Participant dies subsequent
to the start of his distribution payments under Section 10.5, his beneficiary
shall be entitled to continue to receive the distribution of the Participant's
Deferred Account for the remainder of the period over which benefits were being
paid to the deceased Participant.
ARTICLE 14
AMENDMENT AND TERMINATION
14.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Committee or Board
may at any time and from time to time, alter, amend, suspend, or terminate the
Plan in whole or in part; provided, however, that no amendment which requires
shareholder approval in order for the Plan to continue to comply with Rule 16b-3
under the Securities Exchange Act of 1934, including any successor to such Rule,
shall be effective unless such amendment shall be approved by the requisite vote
of shareholders of the Corporation entitled to vote thereon.
14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
14.3 RIGHT TO SUSPEND. If the Board determines that payments under
Sections 7.1, 9.3, 9.4 or 10.5 of the Plan would have a materially adverse
affect on the Company's ability to carry on its business, the Board may suspend
any or all such payments temporarily for such time as in it sole discretion it
deems advisable, but in no event for a period in excess of one year. The Company
shall pay such suspended payments in a lump sum distribution of (i) Common Stock
for payments under Sections 9.3, 9.4 and 10.6, and (ii) cash for payments under
Section 7.1, immediately upon the expiration of the period of suspension.
14.4 RIGHT TO ACCELERATE. The Board in its sole discretion may
accelerate all vested benefits upon termination of the Plan, and pay such
benefits in a single, actuarially equivalent lump-sum distribution of Common
Stock.
ARTICLE 15
MISCELLANEOUS
15.1 NO RIGHT OF CONTINUED EMPLOYMENT. Neither the establishment of the
Plan, the granting of an Award, or the payment of any benefits hereunder or any
action of the Corporation or of the Board or of the Committee shall be held or
construed to confer upon any person any legal right to be continued in the
employ of the Corporation or its direct or indirect subsidiaries,
12
<PAGE> 18
each of which expressly reserves the right to discharge any employee whenever
the interest of any such Corporation in its sole discretion may so require
without liability to such Corporation, the Board or the Committee except as to
any rights which may be expressly conferred upon such employee under the Plan.
15.2 DELIVERY OF SHARES. No shares shall be delivered pursuant to the
payment of any Award unless the requirements of such laws and regulations, as
may be deemed by the Committee or Board to be applicable thereto, are satisfied.
15.3 TRANSFER AND LEAVE OF ABSENCE. A transfer of a Key Employee from a
Participating Corporation to an Affiliated Company and a leave of absence duly
authorized in writing by the Participating Corporation, for military service or
sickness, or for any other purpose approved by the Participating Corporation,
shall not be deemed a termination of employment.
15.4 MICHIGAN LAW TO GOVERN. All questions pertaining to the
construction, regulation, validity, and effect of the provisions of the Plan
shall be determined in accordance with the laws of the State of Michigan.
15.5 FORFEITURES. Notwithstanding any other provisions of this Plan, if
the Committee or Board finds by a majority vote, after full consideration of the
facts, that a Participant, before or after termination of his employment with
the Corporation or an Affiliated Company for any reason:
(a) committed or engaged in fraud, embezzlement, theft,
commission of a felony, or proven dishonesty in the course of his employment by
the Corporation or its subsidiaries, which conduct damaged the Corporation or
its subsidiaries, or disclosed trade secrets of the Corporation or its
subsidiaries;
(b) participated, engaged in, or had a financial or other
interest, whether as an employee, officer, director, consultant, contractor,
shareholder, owner, or otherwise, in any commercial endeavor in the United
States which has a significant competitive impact on the business of the
Corporation or its subsidiaries without the written consent of the Corporation
or its subsidiaries; or
(c) has taken any other action that has a significant adverse
impact in the Corporation or its subsidiaries,
the Participant shall forfeit all outstanding Awards, which are not vested. This
forfeiture requirement shall not apply to Awards that have been deferred under
Article 10. Clause (b) shall not be deemed to have been violated solely by
reason of the Participant's ownership of stock or securities of any publicly
owned corporation, if that ownership does not result in effective control of the
Corporation.
The decision of the Committee or Board as to the cause of the
Participant's discharge, the damage done to the Corporation or its subsidiaries,
and the extent of the
13
<PAGE> 19
Participant's competitive activity shall be final. No decision of the Committee
or Board, however, shall affect the finality of the discharge of the Participant
by the Corporation or its subsidiaries in any manner.
15.6 GENDER, NUMBER AND HEADING. Whenever any words are used herein in
the masculine gender, they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply. Whenever any words
used herein are in the singular form, they shall be construed as though they
were also used in the plural form in all cases where they would so apply.
Headings of sections and subsections as used herein are inserted solely for
convenience and reference and constitute no part of the Plan.
ARTICLE 16
CHANGE IN CONTROL
16.1 CHANGE IN CONTROL. In the case of a Change in Control (as defined
in the MCN Energy Group Inc. Stock Incentive Plan), each Performance Share shall
immediately be fully vested and any restrictions on the transfer of previously
issued stock shall lapse. For this purpose, the number of Performance Shares
which shall vest shall in no event be less than one hundred percent (100%) of
the initial grant; provided, however, that for each outstanding award year, if
the Corporation is ranked in the first or second quartile of the peer group
during the second half of the performance cycle at the time of the Change in
Control, the number of Performance Shares which shall vest shall be two hundred
percent (200%) or one hundred fifty percent (150%), respectively, of the initial
grant. Such Award and all performance shares previously deferred shall be paid
within thirty (30) days of such Change in Control, either in shares of Common
Stock or if the Corporation no longer has common stock outstanding, the same
consideration received by the Corporation's shareholders upon the consummation
of the Change in Control transaction.
16.2 TRANSFER TO RABBI TRUST. The Corporation has established a trust
pursuant to a Trust Agreement dated January 3, 1991 (the "Rabbi Trust"). The
terms of the Rabbi Trust provide that, in the event of a Change of Control and
thereafter, assets are to be transferred to such Rabbi Trust to provide benefits
under the Plan. The Corporation shall make all transfers of funds required by
the Rabbi Trust in a timely manner and shall otherwise abide by the terms of the
Rabbi Trust. The transfer of funds required by this section shall be made in
shares of Common Stock.
16.3 JOINT AND SEVERAL LIABILITY. Upon and at all times after a Change
in Control, the liability under the Plan of the Corporation and each Affiliated
Company that has adopted the Plan shall be joint and several so that the
Corporation and each such Affiliated Company shall each be liable for all
obligations under the Plan to each employee covered by the Plan, regardless of
the corporation by which such employee is employed.
14
<PAGE> 20
IN WITNESS WHEREOF, the undersigned officer of the Corporation has
executed this Plan as of this 1st day of October, 1997, pursuant to the
resolution adopted by the Board of Directors of the Corporation.
MCN ENERGY GROUP INC.
BY:
--------------------------
Alfred R. Glancy III
Chairman and Chief Executive Officer
Dated as of , 1998
----------------
Effective October 1, 1997
15
<PAGE> 21
ATTACHMENT I
MCN ENERGY GROUP, INC.
COMPARISON COMPANIES
Due to MCN's continued transition from a utility holding company to a
diversified energy holding company, a change in the companies making up the peer
group for measuring Performance Share values and payouts was made beginning with
the 1996 plan year.
<TABLE>
<CAPTION>
PEER GROUP A PEER GROUP B
------------ ------------
<S> <C>
1. Atlanta Gas Light Company 1. CMS Energy Corporation
2. CMS Energy Corporation 2. Coastal Corporation
3. Columbia Gas System, Inc. 3. Columbia Gas System, Inc.
4. Consolidated Natural Gas Company 4. Consolidated Natural Gas Company
5. DTE Energy Company (Detroit Edison) 5. Enron Corporation
6. Equitable Resources, Inc. 6. Equitable Resources, Inc.
7. Laclede Gas Company 7. K N Energy, Inc.
8. Marketspan Corporation (Brooklyn Union) 8. Marketspan Corporation (Brooklyn Union)
9. MCN Energy Group Inc. 9. MCN Energy Group Inc.
10. National Fuel Gas Company 10. National Fuel Gas Company
11. NICOR Inc. 11. ONEOK Inc.
12. ONEOK Inc. 12. Questar Corporation
13. Peoples Energy Corporation 13. Sonat Inc.
14. Southwest Gas Corporation 14. Southwest Energy Company
15. Washington Gas Light Company 15. The Williams Companies
16. WICOR, Inc. 16. WICOR, Inc.
</TABLE>
<TABLE>
<CAPTION>
APPLICATION OF PEER GROUP TO PERFORMANCE CYCLES
INITIAL GRANTS FINAL AWARDS
-------------- ------------
Period Year Peer Group Period Year Peer Group
- ------ ---- ---------- ------ ---- ----------
<S> <C> <C> <C> <C> <C>
1992 - 1994 1995 A 1995 - 1997 1998 A
1993 - 1995 1996 A/B 1996 - 1998 1999 B
1994 - 1996 1997 B 1997 - 1999 2000 B
</TABLE>
<PAGE> 22
ATTACHMENT II
<TABLE>
<CAPTION>
TABLE I - INITIAL INDIVIDUAL AWARD - 1997
=======================================================================================================
MCN MICHCON MCNIC* CITIZEN'S
TIER DESCRIPTION TARGET % TARGET % TARGET % TARGET %
BASE SALARY BASE SALARY BASE SALARY BASE SALARY
=======================================================================================================
<S> <C> <C> <C> <C> <C>
I Chairman & CEO 85% N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
II Vice Chairman/Pres 50 - 70% 45 - 60% 50 - 70% N/A
- -------------------------------------------------------------------------------------------------------
III VP/Officer/Exec. 25 - 35% 25 - 35% 25 - 40% 25 - 35%
Dir.
- -------------------------------------------------------------------------------------------------------
IV Director 15 - 25% 15 - 25% 15 - 30% 15 - 30%
- -------------------------------------------------------------------------------------------------------
V Sr. Staff/Mgmt. 5 - 15% 5 - 15% 5 - 15% 5 - 15%
- -------------------------------------------------------------------------------------------------------
VI Discretionary Up to 20% Up to 20% Up to 20% Up to 20%
& Population Population Population Population
VII
Max. 5% of Max. 5% of Max. 5% of Max. 5% of
Salary Salary Salary Salary
=======================================================================================================
</TABLE>
* Includes Mobile Bay Gathering Company and Reed Holdings.
<TABLE>
<CAPTION>
TABLE II - INITIAL GRANT - 1997
===================================================================================================
INITIAL GRANT
===================================================================================================
% OF INITIAL
PEER RANKING INDIVIDUAL AWARDS
===================================================================================================
<S> <C>
1st Quartile 125 - 200%
2nd Quartile 75 - 150%
3rd Quartile 25 - 100%
4th Quartile 0 - 50%
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE III - FINAL AWARD - 1997
===================================================================================================
FINAL AWARD
===================================================================================================
% OF
PEER RANKING INITIAL GRANT
===================================================================================================
<S> <C>
1st Quartile 125 - 200%
2nd Quartile 75 - 150%
3rd Quartile 25 - 100%
4th Quartile 0 - 50%
===================================================================================================
</TABLE>
2
<PAGE> 23
ATTACHMENT II
<TABLE>
<CAPTION>
TABLE I - INITIAL INDIVIDUAL AWARD - 1998
=======================================================================================================
MCN MICHCON MCNIC* CITIZEN'S
TIER DESCRIPTION TARGET % TARGET % TARGET % TARGET %
BASE SALARY BASE SALARY BASE SALARY BASE SALARY
=======================================================================================================
<S> <C> <C> <C> <C> <C>
I Chairman & CEO 160% N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
II Vice Chairman/Pres 100 - 120% 70 - 95% 110 - 130% N/A
- -------------------------------------------------------------------------------------------------------
III VP/Officer/Exec. 45 - 55% 35 - 45% 55 - 65% 30 - 40%
Dir.
- -------------------------------------------------------------------------------------------------------
IV Director 25 - 35% 25 - 35% 30 - 40% 20 - 30%
- -------------------------------------------------------------------------------------------------------
V Sr. Staff/Mgmt. 15 - 25% 15 - 25% 15 - 25% 10 - 20%
- -------------------------------------------------------------------------------------------------------
VI Discretionary Up to 20% Up to 20% Up to 20% Up to 20%
& Population Population Population Population
VII
Max. 5% of Max. 5% of Max. 5% of Max. 5% of
Salary Salary Salary Salary
=======================================================================================================
</TABLE>
* Includes Mobile Bay Gathering Company and Reed Holdings.
<TABLE>
<CAPTION>
TABLE II - INITIAL GRANT - 1998
===================================================================================================
INITIAL GRANT
===================================================================================================
% OF INITIAL
PEER RANKING INDIVIDUAL AWARDS
===================================================================================================
<S> <C>
1st Quartile 125 - 200%
2nd Quartile 75 - 150%
3rd Quartile 25 - 100%
4th Quartile 0 - 50%
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE III - FINAL AWARD - 1998
===================================================================================================
FINAL AWARD
===================================================================================================
% OF
PEER RANKING INITIAL GRANT
===================================================================================================
<S> <C>
1st Quartile 125 - 200%
2nd Quartile 75 - 150%
3rd Quartile 25 - 100%
4th Quartile 0 - 50%
===================================================================================================
</TABLE>
<PAGE> 24
ATTACHMENT III
MCN ENERGY GROUP INC.
LONG-TERM INCENTIVE
PERFORMANCE SHARE PLAN
COMMON STOCK OWNERSHIP GUIDELINES
-------------------------------------------------------
TIER GUIDELINE
-------------------------------------------------------
I 8 times salary
-------------------------------------------------------
II 5 times salary
-------------------------------------------------------
III 3 times salary
-------------------------------------------------------
IV and V 1 times salary
-------------------------------------------------------
VI and VII None
-------------------------------------------------------
For purposes of meeting these guidelines, the following shares of Common Stock
are included:
- - Actual shares owned outright
- - Shares held in the MCN Energy Group Savings and Stock Ownership Plan
- - Share equivalents in deferral plans
- - Unvested Performance Shares
For purposes of determining when shares received from the Plan may be sold,
unvested Performance Shares are excluded.
<PAGE> 25
ATTACHMENT IV
MCN ENERGY GROUP INC. LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE PROGRAM
DEFERRAL ELECTION FORM
================================================================================
This Benefit Agreement is entered into between (the
"Company") and , (the "Employee"), pursuant to the MCN Energy
Group Inc. Long-Term Incentive Plan (the "Plan"), with an Effective Date
of .
================================================================================
ELECTION TO PARTICIPATE
By the execution of this Benefit Agreement, the Employee hereby elects to
participate in the Plan, and understands and agrees to the following:
I. Deferrals must be stated as a percentage of the Final Award to be received,
with a minimum deferral of 50% of the Final Award.
II. Up to 100% of the Final Award is eligible for deferral, less applicable
FICA tax on the Final Award.
III. The Deferral Period remains in effect until termination of employment.
IV. The most recent Deferral Period and Distribution election shall be
effective for all amounts payable to the Employee under the Plan.
V. All Deferral elections are irrevocable and can be modified only in
accordance with the Plan.
I ELECT TO DEFER % OF THE MCN ENERGY GROUP INC. COMMON STOCK I WILL
RECEIVE AS A FINAL AWARD OF THE PERFORMANCE SHARES INITIALLY GRANTED TO ME
ON . I UNDERSTAND THAT MY DEFERRAL PERIOD FOR ALL
SHARE EQUIVALENTS HELD FOR ME UNDER THE PLAN SHALL REMAIN IN EFFECT UNTIL
MY TERMINATION OF EMPLOYMENT WITH THE COMPANY.
================================================================================
DIVIDEND EQUIVALENT PAYMENT ELECTION
I elect to have the dividend equivalents (equal to 50% of the MCN Energy Group
Inc. common stock dividend rate) from my deferral account shares:
[ ] Paid to me in cash; or
[ ] Reinvested in my deferral account.
================================================================================
DISTRIBUTION ELECTIONS (PLEASE MAKE ONE (1) ELECTION PER BENEFIT CATEGORY)
A. Pre-Retirement Survivor Benefits:
[ ] Single Lump Sum Payment; OR
[ ] Annual Installments Over a Three (3) Year Period
B. Normal Retirement Benefits:
[ ] Single Lump Sum Payment; OR
[ ] Annual Installments Over a Year Period (not to exceed 15 years)
C. Termination Prior To Retirement:
[ ] Single Lump Sum Payment; OR
[ ] Annual Installments Over a Three (3) Year Period
NOTE: A Post-Retirement Survivor Benefit will continue payments which have
commenced under any of the Installment Payout Options until the full payment
period is satisfied.
================================================================================
ACCEPTANCE OF PLAN TERMS AND BENEFITS
The Employee hereby agrees to all of the terms and conditions of the Plan as set
forth in the Plan document. Participation in the Plan indicates the Employee's
acceptance on his/her own behalf and on the behalf of his/her designated
Beneficiary of the terms of entitlement to all Plan benefits whether payable to
the Employee or his/her survivor. The Employee further understands that no
assets of the Company are to be segregated to pay benefits under the Plan. No
officer, employee, or representative of the Company is authorized to vary such
terms and conditions verbally or in writing. The Plan may be modified only by an
amendment to the Plan adopted by the Committee or the Board of Directors. The
employee understands that a distribution election other than a lump sum will
result in a distribution of a set dollar amount, plus interest, and not a set
number of shares of Common Stock.
- ---------- --------------------- --------------------------
Date Print Employee's Name Employee's Signature
<PAGE> 26
ATTACHMENT V
================================================================================
MCN ENERGY GROUP INC.
LONG-TERM INCENTIVE PERFORMANCE SHARE PLAN
BENEFICIARY DESIGNATION FORM
================================================================================
- --------------------------- ----------------------- -----------------
Employee Name (Please Print) Social Security Number Employee I.D.#
DESIGNATION OF BENEFICIARY
The Plan provides certain death benefits to the Employee's designated
Beneficiary. You may change your beneficiary designation at any time by
executing a new Beneficiary Designation Form. Beneficiary Designation Forms
are available through the Plan Committee.
I hereby designate the following Beneficiary, in the event of my death, for
any and all survivor benefits payable under the MCN Energy Group Inc.
Long-Term Incentive Performance Share Plan:
Primary Beneficiary:
-------------------------------------------------------
Relationship to Employee: Address:
-------------------- ----------------------
----------------------
Contingent Beneficiary:
----------------------------------------------------
Relationship to Employee: Address:
-------------------- ----------------------
----------------------
In the event none of the above-named beneficiaries survive me, any unpaid
amounts shall be paid to my lawful successor in interest. I reserve the right to
change this beneficiary designation at any time by filing with the Committee or
its designee a new Beneficiary Designation Form. I understand that my most
recent election as to the beneficiary designation will apply to all award
amounts payable to me at any time.
- ---------- --------------------------
Date Employee's Signature
================================================================================
SPOUSAL CONSENT (REQUIRED FOR ALL NON-SPOUSAL PRIMARY BENEFICIARY
DESIGNATIONS)
I hereby consent to the above election of Beneficiary by my spouse for
survivor benefits payable under the MCN Energy Group Inc. Long-Term
Incentive Performance Share Plan. Further, I hereby acknowledge that I
understand (1) that the effect of my consent may be to forfeit benefits I
would be entitled to receive upon my spouse's death; (2) that my spouse's
designation is not valid unless I consent to it; and (3) that my consent is
irrevocable unless my spouse revokes the designation above.
---------- ------------------------ --------------------------
Date Print Spouse's Name Spouse's Signature
================================================================================
<PAGE> 27
MCN ENERGY GROUP INC.
LONG-TERM INCENTIVE
PERFORMANCE SHARE PLAN
Historical Background
2/25/93 Plan adopted.
5/23/96 Plan amended and restated.
10/1/97 Plan amended and restated
<PAGE> 1
EXHIBIT 10-11
MCN ENERGY GROUP
SAVINGS AND STOCK OWNERSHIP PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1998)
<PAGE> 2
MCN ENERGY GROUP
SAVINGS AND STOCK OWNERSHIP PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1998)
TABLE OF CONTENTS
<TABLE>
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ARTICLE I THE PLAN.................................................................................................1
1.1 Establishment and Amendment of the Plan.......................................................................1
1.2 Applicability of the Plan.....................................................................................1
1.3 Purpose and Type of Plan......................................................................................1
ARTICLE II DEFINITIONS..............................................................................................1
2.1 Actual Deferral Percentage....................................................................................2
2.2 Affiliated Company............................................................................................2
2.3 Anniversary Date..............................................................................................2
2.4 Annual Addition...............................................................................................2
2.5 Average Actual Deferral Percentage............................................................................2
2.6 Average Contribution Percentage...............................................................................2
2.7 Break in Service Year.........................................................................................2
2.8 Code..........................................................................................................2
2.9 Committee.....................................................................................................2
2.10 Company.......................................................................................................2
2.11 Compensation..................................................................................................2
2.12 Contribution Percentage.......................................................................................3
2.13 Disability Retirement Date....................................................................................4
2.14 Elective Deferrals............................................................................................4
2.15 Eligible Employee.............................................................................................4
2.16 Employee......................................................................................................4
2.17 Employee Post-1986 Voluntary Deduction Account................................................................4
2.18 Employee Pre-1987 Voluntary Deduction Account.................................................................4
2.19 Employee Salary Reduction Account.............................................................................4
2.20 Employer......................................................................................................4
2.21 Employer Salary Reduction Account.............................................................................5
2.22 Employer Voluntary Deduction Account..........................................................................5
2.23 ERISA.........................................................................................................5
2.24 ESOP..........................................................................................................5
2.25 ESOP Account..................................................................................................5
2.26 Excess Aggregate Contributions................................................................................5
2.27 Excess Contributions..........................................................................................5
</TABLE>
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<TABLE>
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2.28 Excess Deferrals..............................................................................................5
2.29 Highly Compensated Employee...................................................................................5
2.30 Hour of Employment............................................................................................5
2.31 MCN Stock.....................................................................................................5
2.32 Military Service..............................................................................................6
2.33 Nonhighly Compensated Employee................................................................................6
2.34 Normal Retirement Date........................................................................................6
2.35 Participant...................................................................................................6
2.36 Plan..........................................................................................................6
2.37 Plan Account..................................................................................................6
2.38 Plan Year.....................................................................................................6
2.39 Regulations...................................................................................................6
2.40 Salary Reduction..............................................................................................6
2.41 Salary Reduction Account......................................................................................6
2.42 Savings Plan Account..........................................................................................6
2.43 Suspense Account..............................................................................................6
2.44 Trust.........................................................................................................6
2.45 Trust Agreement...............................................................................................6
2.46 Trustee.......................................................................................................7
2.47 Valuation Date................................................................................................7
2.48 Vesting Requirement...........................................................................................7
2.49 Voluntary Deduction...........................................................................................7
2.50 Voluntary Deduction Account...................................................................................7
2.51 Years of Service..............................................................................................7
ARTICLE III PARTICIPATION AND SERVICE...............................................................................7
3.1 Eligibility Requirements......................................................................................7
3.2 Eligibility Upon Merger or Reemployment.......................................................................8
3.3 Collective Bargaining Agency..................................................................................8
3.4 Applications..................................................................................................9
3.5 Years of Service..............................................................................................9
3.6 Break in Service Year........................................................................................10
3.7 Hours of Employment..........................................................................................10
3.8 Employment by Related Entities...............................................................................11
3.9 Leased Employees.............................................................................................12
ARTICLE IV CONTRIBUTIONS..........................................................................................12
4.1 Employee Contributions.......................................................................................12
4.2 Employer Savings Plan Contributions..........................................................................13
4.3 Employer ESOP Contributions..................................................................................14
4.4 Additional Employer Contributions............................................................................15
4.5 Rollover Contributions.......................................................................................15
4.6 Transfers from the MichCon Investment and Stock Ownership Plan...............................................16
</TABLE>
ii
<PAGE> 4
<TABLE>
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4.7 Limitations on Salary Reduction Contributions................................................................17
4.8 Distribution of Excess Deferrals.............................................................................18
4.9 Distribution or Recharacterization of Excess Contributions...................................................19
4.10 Limitations on Voluntary Deduction Contributions and Employer Contributions..................................20
4.11 Disposition of Excess Aggregate Contributions................................................................21
4.12 Statutory (Code Section 415) Limitations on Allocations to Accounts..........................................23
ARTICLE V VESTING IN ACCOUNTS......................................................................................25
5.1 Employee Salary Reduction Accounts,
Employee Post-1986 Voluntary Deduction Account,
and Employee Pre-1987 Voluntary Deduction Account..........................................................25
5.2 Employer Salary Reduction Account,
Employer Voluntary Deduction Account,
and ESOP Account...........................................................................................25
ARTICLE VI INVESTMENT PROVISIONS...................................................................................26
6.1 Investment of Contributions..................................................................................26
6.2 Change of Investment Direction...............................................................................26
6.3 Transfers Between Investment Funds...........................................................................27
ARTICLE VII INVESTMENT FUNDS.......................................................................................27
7.1 Investment Funds.............................................................................................27
7.2 Management of Investment Funds...............................................................................27
7.3 Voting of MCN Stock..........................................................................................27
7.4 Tender Offers................................................................................................28
7.5 Named Fiduciary Status.......................................................................................29
7.6 Expenses of Funds............................................................................................29
ARTICLE VIII ACCOUNTS AND RECORDS OF THE PLAN......................................................................29
8.1 Committee to Maintain........................................................................................29
8.2 Plan Accounting..............................................................................................30
8.3 Valuation of Funds...........................................................................................30
8.4 Valuation of Savings Plan Account............................................................................30
8.5 Valuation of ESOP Account....................................................................................30
8.6 Valuation of Plan Account....................................................................................30
8.7 Committee to Furnish Annual Statements of Value of Plan Accounts.............................................30
8.8 Trust Agreement..............................................................................................30
</TABLE>
iii
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ARTICLE IX DISTRIBUTIONS, WITHDRAWALS AND LOANS....................................................................31
9.1 Distribution Upon Termination of Employment
Entitling Participant to Value of Plan Account.............................................................31
9.2 Distribution Upon Termination of Employment Under
Circumstances Resulting in Forfeiture of Employer Contributions............................................31
9.3 Certain Distributions from Participant Accounts..............................................................32
9.4 In-Service Withdrawals--General..............................................................................32
9.5 Withdrawal of Voluntary Deduction Contributions..............................................................32
9.6 Hardship Withdrawal of Salary Reduction Contributions........................................................33
9.7 Time of Distributions........................................................................................34
9.8 Distributions of Stock.......................................................................................36
9.9 Distributions from Fixed Income Fund.........................................................................36
9.10 Loans........................................................................................................38
9.11 Definition of Employee Contributions and Employer Contributions..............................................40
9.12 Spousal Consent to Payment...................................................................................40
9.13 Distributions Pursuant to a Qualified Domestic Relations Order...............................................40
9.14 Direct Rollovers of Eligible Distributions...................................................................41
9.15 Special Distribution Events..................................................................................42
ARTICLE X ADMINISTRATION...........................................................................................42
10.1 The MCN Energy Group Master Trust, Retirement and Savings Plan Committee.....................................42
10.2 Notice to Employees..........................................................................................44
10.3 Notices to Employers or Committee............................................................................44
10.4 Participants' Acceptance of the Provisions of the Plan.......................................................44
10.5 Audit of Plan Records........................................................................................44
10.6 Claims Procedure.............................................................................................45
10.7 Effect of a Mistake..........................................................................................45
ARTICLE XI AMENDMENT AND TERMINATION...............................................................................45
11.1 Amendment....................................................................................................45
11.2 Withdrawal...................................................................................................46
11.3 Termination..................................................................................................46
11.4 Allocation of Funds Between Employers........................................................................46
11.5 Trust to be Applied Exclusively for Participants and Their Beneficiaries.....................................46
ARTICLE XII PARTICIPATION BY AFFILIATED COMPANIES..................................................................46
12.1 Adoption of the Plan.........................................................................................47
12.2 Withdrawal from the Plan.....................................................................................47
12.3 Company as Agent for Employers...............................................................................47
</TABLE>
iv
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ARTICLE XIII TOP-HEAVY PLAN RULES...................................................................................47
13.1 Application of Top-Heavy Plan Rules..........................................................................47
13.2 Special Definitions..........................................................................................47
13.3 Determination of Top-Heavy Status............................................................................49
13.4 Superseding Rules............................................................................................51
13.5 Participants in More Than One Top-Heavy Plan of the Employer.................................................52
13.6 Changes in Applicable Vesting Schedule.......................................................................52
ARTICLE XIV SPECIAL PROVISIONS RELATING TO THE ESOP................................................................53
14.1 Establishment of ESOP........................................................................................53
14.2 ESOP Account.................................................................................................53
14.3 Discrimination Testing.......................................................................................53
14.4 Loans........................................................................................................53
14.5 Diversification..............................................................................................55
14.6 Put Option...................................................................................................55
14.7 Purchase of MCN Stock........................................................................................56
ARTICLE XV MISCELLANEOUS...........................................................................................56
15.1 Beneficiary Designation......................................................................................56
15.2 Incompetency.................................................................................................57
15.3 Expenses.....................................................................................................57
15.4 Nonassignability.............................................................................................57
15.5 Employment Noncontractual....................................................................................58
15.6 Merger or Consolidation with Another Plan....................................................................58
15.7 Continuance by a Successor...................................................................................58
15.8 USERRA Rights................................................................................................58
15.9 Construction.................................................................................................58
ARTICLE XVI REDESIGNATION OF ESOP AND DISTRIBUTION OF DIVIDENDS....................................................59
16.1 Redesignation of ESOP Portion of Plan........................................................................59
16.2 Allocation of Savings Plan Account Balances to ESOP Portion of Plan..........................................59
16.3 Distribution of Dividends on MCN Stock.......................................................................59
</TABLE>
v
<PAGE> 7
MCN ENERGY GROUP
SAVINGS AND STOCK OWNERSHIP PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1998)
ARTICLE I THE PLAN
1.1 Establishment and Amendment of the Plan. MCN ENERGY GROUP INC.
(hereinafter referred to as the "Company") presently maintains a savings and
stock ownership plan for the benefit of its Eligible Employees and the Eligible
Employees of its participating Affiliated Companies. The plan was previously
sponsored by Michigan Consolidated Gas Company, a subsidiary of the Company. The
plan was last restated effective as of January 1, 1989 and was then known as the
MichCon Savings and Stock Ownership Plan, and was amended from time to time
thereafter.
The plan is hereby further amended and completely restated as set forth
herein effective as of January 1, 1998, except as otherwise provided herein or
required by law (for instance, certain provisions herein are legally required to
be effective as of January 1, 1997, and are therefore effective as of such
date), and shall be known as the "MCN Energy Group Savings and Stock Ownership
Plan" (the "Plan"). The ESOP provisions of the Plan became effective as of April
1, 1989.
1.2 Applicability of the Plan. Except as otherwise specified herein or
required by law, the provisions of the Plan as amended and restated herein
effective as of January 1, 1998, shall be applicable only with respect to
Eligible Employees of an Employer in current employment on or after January 1,
1998, and their beneficiaries.
Any person who was covered under the Plan as in effect prior to January 1,
1998, and whose employment terminated under the Plan prior to January 1, 1998,
shall continue to have his rights to receive benefits determined under the
provisions of the Plan in effect when his employment relationship so terminated,
subject to legally required changes prior to January 1, 1998 as described
herein.
1.3 Purpose and Type of Plan. The purpose of the Plan is to provide a
convenient way for Participants to save on a regular and long-term basis for
their retirement income needs; to recognize the contribution made to the
Employer's successful operation by its employees and to reward such contribution
for those employees who qualify as participants under the terms of the Plan; and
to facilitate ownership of MCN Stock by participating Eligible Employees.
The non-ESOP portion of the Plan is intended to qualify as a profit-sharing
plan and the ESOP portion of the Plan is intended to qualify as a stock bonus
and an employee stock ownership plan for purposes of Code sections 401(a), 402,
412, 417, 4975, and related provisions.
ARTICLE II DEFINITIONS
Whenever used in the Plan, the following words and phrases shall have the
respective meanings stated below unless a different meaning is plainly required
by the context:
1
<PAGE> 8
2.1 "Actual Deferral Percentage" means the ratio (expressed as a
percentage) of (a) the Elective Deferrals of an Employee who is eligible to
participate in the Plan for a Plan Year, to (b) the Compensation of that
Employee for such Plan Year.
2.2 "Affiliated Company" means--
(a) any corporation other than the Company, i.e., either a subsidiary
corporation or an affiliated or associated corporation of the Company, which
together with the Company is a member of a "controlled group" of corporations
(as defined in Code section 414(b));
(b) any organization which together with the Company is under "common
control" (as defined in Code section 414(c));
(c) any organization which together with the Company is an "affiliated
service group" (as defined in Code section 414(m)); or
(d) any other entity required to be aggregated with the Company
pursuant to Regulations under Code section 414(o).
2.3 "Anniversary Date" means with respect to each Employee, the
anniversary each year of the Employee's first Hour of Employment. If an Employee
whose employment was terminated is reemployed but prior to his reemployment he
incurs a Break in Service Year or following his reemployment he incurs a Break
in Service Year before completing a Year of Service, his Anniversary Date shall
be based upon his first Hour of Employment coincident with or next following his
date of reemployment; otherwise, his Anniversary Date shall not be changed.
2.4 "Annual Addition" means the amount allocated to a Participant's
account, as such term is defined in section 4.12(a).
2.5 "Average Actual Deferral Percentage" means the average (expressed as
a percentage) of the Actual Deferral Percentages of the Employees in a group who
are eligible to participate in the Plan for a Plan Year.
2.6 "Average Contribution Percentage" means the average (expressed as a
percentage) of the Contribution Percentages of the Employees in a group who are
eligible to participate in the Plan for a Plan Year.
2.7 "Break in Service Year" means a 12-month period described in section
3.6.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
2.9 "Committee" means the committee appointed pursuant to section 10.1 to
administer the Plan.
2.10 "Company" means MCN Energy Group Inc.
2.11 "Compensation" means a Participant's pay, determined as follows:
2
<PAGE> 9
(a) For all purposes of the Plan, except as otherwise specified in (b)
or (c) below or required by the context, Compensation includes and excludes the
following items paid to the Employee:
(i) Includible:
(A) regular basic salary or wage paid to an Employee by the
Employer before any payroll deduction for taxes, Salary
Reductions, cafeteria plan elections or any other purpose,
(B) shift differential (effective July 1, 1998);
(C) sales commissions (effective January 1, 1999); and
(D) For Employees who are participating in the cash balance
portion of the MCN Energy Group Retirement Plan (or any
successor plan), overtime and bonus payments (effective
January 1, 1999).
(i) Excludable: except to the extent specifically included in (i)(D)
above, merit, incentive and other similar payments made in the
form of a lump sum, bonuses, awards, shift differentials (prior to
July 1, 1998), commissions (prior to January 1, 1999), deferred
compensation, severance payments, differential payments made by
reason of the Employee's entry into Military Service, all amounts
paid for work in excess of 40 hours in any one week, all overtime
or other premium paid for work in excess of a maximum number of
hours in any one day, for work on holidays or for any other
reason, payments for so-called fringe benefits such as Employer
contributions to this Plan or any pension or retirement plan,
increased wages or salary resulting from temporary promotion,
upgrading or transfer, of whatever duration, to a higher paid job
or classification, and any other premium, auxiliary, or special
pay of any sort whatsoever.
(b) For purposes of satisfying the limits on contributions described in
sections 4.7 and 4.10 (ADP and ACP tests) and applying the limits of section 415
of the Code as described in section 4.12, Compensation shall mean "compensation"
as defined in Treas. Regulation ss. 1.415-2(d) or any successor regulation.
(c) For purposes of determining whether an individual is a Highly
Compensated Employee, Compensation means an Employee's Compensation as defined
in subsection (b) above but without regard to Code sections 125, 402(a)(8), and
402(h)(1)(B) (i.e., with the addition of elective deferrals pursuant to a
cafeteria plan, a cash-or-deferred arrangement, or a simplified employee pension
during periods in which such items are excluded under subsection (b)).
(d) In accordance with Code Section 401(a)(17), the Compensation of
each Employee that may be taken into account under the Plan, except for purposes
of section 4.10, shall not exceed the first $150,000 of an Employee's
Compensation (as adjusted pursuant to Code section 401(a)(17)).
2.12 "Contribution Percentage" means
3
<PAGE> 10
(a) with respect to the non-ESOP portion of the Plan, the ratio
(expressed as a percentage) of the sum of Voluntary Deduction contributions and
the Employer contributions under section 4.2 made on behalf of an Employee who
is eligible to participate for a Plan Year to the Compensation of the Employee
for such Plan Year; provided, however, that in accordance with Code section
401(m), the Company may elect to take into account Elective Deferrals in
computing such Contribution Percentage; and
(b) with respect to the ESOP portion of the Plan, the ratio (expressed
as a percentage) of the sum of the Employer contributions under section 4.3(a)
made on behalf of an Employee who is eligible to participate and the value of
the shares allocated under section 14.4(d) to the ESOP Account of the Employee
for a Plan Year to the Compensation of the Employee for such Plan Year.
2.13 "Disability Retirement Date" means the date a Participant (i)
becomes eligible to receive benefits under a long-term disability plan
maintained by the Employer, or (ii) is determined by the Committee to be totally
and permanently disabled. In determining whether a Participant is totally and
permanently disabled, the Committee may, in its discretion, rely on the opinion
of a physician selected by the Committee to assist it in making such a
determination.
2.14 "Elective Deferrals" means Salary Reduction contributions under
section 4.1(a) and contributions under other plans maintained by the Company or
an Affiliated Company that constitute elective deferrals within the meaning of
Code section 402(g)(3).
2.15 "Eligible Employee" means an Employee of an Employer, other than a
"leased employee" (whether or not described in section 3.9) or an Employee
covered by a collective bargaining agreement between Employee representatives
and the Employer.
2.16 "Employee" means an individual who is an employee of the Company or
an Affiliated Company (including, for certain purposes described in Section 3.9,
a "leased employee" as described in Section 3.9), but shall not include an
individual who enters into a formal or informal independent contractor agreement
with the Company or is otherwise treated as an independent contractor under the
payroll practices of the Company.
2.17 "Employee Post-1986 Voluntary Deduction Account" means an Employee's
Voluntary Deduction contributions after December 31, 1986, and investment gains
and losses therefrom.
2.18 "Employee Pre-1987 Voluntary Deduction Account" means an Employee's
Voluntary Deduction contributions before January 1, 1987, and investment gains
and losses therefrom.
2.19 "Employee Salary Reduction Account" means an Employee's Salary
Reduction contributions, and investment gains and losses therefrom.
2.20 "Employer" means the Company and any Affiliated Company which has
adopted the Plan with the consent of the Company and in the manner prescribed in
section 12.1 and any successor corporation which shall adopt the Plan pursuant
to section 15.7. If any such corporation shall withdraw from participation in
the Plan in accordance with section 12.2, the term Employer shall not thereafter
include such corporation.
4
<PAGE> 11
2.21 "Employer Salary Reduction Account" means the Employer contributions
to the Salary Reduction Account of an Employee pursuant to section 4.2, and
investment gains and losses therefrom.
2.22 "Employer Voluntary Deduction Account" means the Employer
contributions to the Voluntary Deduction Account of an Employee pursuant to
section 4.2, and investment gains and losses therefrom.
2.23 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.24 "ESOP" means the employee stock ownership plan established pursuant
to section 14.1, as modified by Article XVI.
2.25 "ESOP Account" means the account established and maintained on
behalf of each Participant in accordance with sections 8.1(c) and (d) and 14.2.
2.26 "Excess Aggregate Contributions" means the amount described in
section 4.11(a).
2.27 "Excess Contributions" means the amount described in section 4.9(a).
2.28 "Excess Deferrals" means the portion of Elective Deferrals for a
calendar year, if any, described in section 4.8.
2.29 "Highly Compensated Employee" with respect to any Plan Year
beginning on or after January 1, 1997, shall include highly compensated active
employees and highly compensated former employees. A highly compensated active
employee includes any Employee who performs service for an Employer during the
determination year and who, during the look-back year received Compensation from
the Employer in excess of $80,000 (as adjusted pursuant to Code Section 415(d)),
or who was a 5-percent owner at any time during the determination year or the
look-back year. For this purpose, the determination year shall be the Plan Year.
The look-back year shall be the twelve-month period immediately preceding the
determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
determination year, performed no service for the Employer during the
determination year, and was a highly compensated active employee for either the
separation year or any determination year ending on or after the employee's 55th
birthday.
The determination of who is a Highly Compensated Employee will be made
in accordance with Section 414(q) of the Code and the regulations thereunder.
2.30 "Hour of Employment" means an hour for which an individual receives
credit pursuant to section 3.7.
2.31 "MCN Stock" means common stock of MCN Energy Group Inc..
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2.32 "Military Service" means service (a) on active duty, in time of
national or local emergency, in the armed forces of the United States or of any
State thereof, (b) in the armed forces of the United States or of any State
thereof under any compulsory service law, or (c) in the armed forces of the
United States or any of its allies in time of war in which the United States is
engaged.
2.33 "Nonhighly Compensated Employee" means an Employee of the Employer
who is not a Highly Compensated Employee.
2.34 "Normal Retirement Date" means the Participant's sixty-fifth
birthday, if such birthday falls on the first day of the month; otherwise, the
first day of the month next following the month in which such birthday occurs.
2.35 "Participant" means an Employee who is participating in the Plan in
accordance with its provisions.
2.36 "Plan" means the MCN Energy Group Savings and Stock Ownership Plan
and any amendments thereto or restatements thereof from time to time adopted.
2.37 "Plan Account" means the total value of an Employee's Savings Plan
Account and ESOP Account.
2.38 "Plan Year" means the calendar year.
2.39 "Regulations" means regulations issued by the Department of Labor
construing Title I of ERISA or by the Internal Revenue Service construing the
Code.
2.40 "Salary Reduction" means an election by a Participant to have the
Compensation that would otherwise be payable reduced and contributed by the
Employer to the Plan as a regular contribution on behalf of the Participant.
2.41 "Salary Reduction Account" means an Employee's Salary Reduction
contributions, related Employer matching contributions, and investment gains and
losses therefrom.
2.42 "Savings Plan Account" means the total value of an Employee's Salary
Reduction Account and Voluntary Deduction Account.
2.43 "Suspense Account" means the account used to reflect MCN Stock
acquired with loan proceeds pursuant to section 14.4.
2.44 "Trust" means the Trust created by agreement between the Employers
and the Trustee, as from time to time amended.
2.45 "Trust Agreement" means the agreement between the Employers and the
Trustee referred to in section 8.8.
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2.46 "Trustee" means the Trustee hereinafter provided for in section 8.8
TRUSTEE UNDER THE TRUST AGREEMENT or any successor Trustee TRUSTEE.
2.47 "Valuation Date" means each business day on which the New York Stock
Exchange shall be open for business.
2.48 "Vesting Requirement" means the requirement for vesting described in
section 5.2.
2.49 "Voluntary Deduction" means an Employee's payroll deduction
contributions other than Salary Reduction contributions.
2.50 "Voluntary Deduction Account" means an Employee's Voluntary
Deduction contributions, related Employer matching contributions, and investment
gains and losses therefrom.
2.51 "Years of Service" means year(s) of employment of an Employee by an
Employer or nonparticipating Affiliated Company as such term is defined in
section 3.5.
ARTICLE III PARTICIPATION AND SERVICE
3.1 Eligibility Requirements.
(a) Each individual who was eligible to participate in the Plan on
December 31, 1997, in accordance with the terms of the Plan in effect on said
date shall continue to be eligible to participate, subject to the provisions of
this Plan. Each other Employee shall become eligible to participate on the
latest to occur of--
(i) Prior to February 1, 1999:
(A) the date he is employed as an Eligible Employee,
(B) the date on which he completes at least one year of
eligibility service (as defined in section 3.1(b)), or
(C) the date on which he attains age 21;
(ii) On and after February 1, 1999:
(A) the date he is employed as an Eligible Employee, or
(B) the date on which he completes at least three (3)
months of eligibility service (as defined in section
3.1(b));
provided he is employed as an Eligible Employee on such date.
(b) For purposes of this Article III, a year of eligibility service
shall mean the 12-month period beginning on the date of an Employee's first Hour
of Employment, or the 12-
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month period beginning on an Employee's Anniversary Date during which he
completes at least 1,000 Hours of Employment, and three months of eligibility
service shall mean the 3-month period beginning on the date of an Employee's
first Hour of Employment.
3.2 Eligibility Upon Merger or Reemployment.
(a) Merger. Any Employee who is a Participant in any plan which is
merged into this Plan shall become a Participant in this Plan immediately upon
the effective date of the merger. Such an Employee shall be eligible to actively
participate in this Plan in accordance with Section 3.4.
(b) Reemployment. In the event an Employee's employment is terminated
and such individual is later reemployed as an Eligible Employee:
(i) If the re-employed REEMPLOYED Eligible Employee had not met
the age and service requirements for participation in the Plan during his prior
period of employment but was re-employed REEMPLOYED before incurring a Break in
Service Year, his prior period of employment shall be included for purposes of
determining his eligibility for participation in the Plan.
(ii) If the re-employed REEMPLOYED Eligible Employee had not met
the age and service requirements for participation in the Plan during his prior
period of employment and incurred a Break in Service Year, he must meet the
participation requirements of Section 3.1 as if he were a new employee.
(iii) If the re-employed REEMPLOYED Eligible Employee met the age
and service requirements for participation in the Plan during his prior period
of employment and incurred a Break in Service Year, and, pursuant to the Break
in Service Year rules his years of eligibility service are disregarded, he must
meet the participation requirements of Section 3.1 as if he were a new employee.
(iv) If the re-employed REEMPLOYED Eligible Employee met the age
and service requirements for participation in the Plan during his prior period
of employment and incurred a Break in Service Year, but pursuant to the Break in
Service Year rules his years of eligibility service are not disregarded, he
shall again participate in the Plan on the date of his reemployment;
(v) If the re-employed REEMPLOYED Eligible Employee met the age
and service requirements for participation in the Plan during his prior period
of employment and did not incur a Break in Service Year, he shall again
participate as of the date of his reemployment or, if later, the date upon which
he would have begun participation if not for the termination and reemployment.
3.3 Collective Bargaining Agency. If any Employee shall become a Participant
in the Plan and shall thereafter be represented by a collective bargaining
agency pursuant to a collective bargaining agreement between his Employer and
the collective bargaining agency
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<PAGE> 15
representing such Employee, shall be eligible thereafter only if such agreement
shall expressly so provide.
If such an Employee becomes eligible to participate in the MichCon
Investment and Stock Ownership Plan or any successor plan, his entire Plan
Account shall be transferred to such plan and the Employee shall no longer be
eligible to participate in this Plan. The Participant's Plan Account shall be
fully vested upon such transfer.
3.4 Applications. An Employee who is eligible to participate on the date the
Plan becomes effective with respect to his Employer may become a Participant
commencing with such effective date by filing a written application with his
Employer in the form prescribed by the Committee. Thereafter, an Eligible
Employee may become a Participant by filing a written application with his
Employer in the form prescribed by the Committee, and his participation in the
Plan will commence within a reasonable time thereafter following processing of
his application. The Employee's application shall authorize the Employer to
deduct contributions from the Employee's Compensation in amounts specified by
the Employee pursuant to Article IV, and to have contributions made as a Salary
Reduction pursuant to Article IV. The application shall evidence the Employee's
acceptance of and agreement to all of the provisions of the Plan.
3.5 Years of Service. An Employee shall be credited for Years of Service for
his period of employment with the Employer and each nonparticipating Affiliated
Company, determined as follows:
(a) An Employee shall receive credit, for purposes of vesting, for all
Years of Service. An Employee shall have one "Year of Service" for each 12-month
period beginning on the date of the Employee's first Hour of Employment and on
each subsequent Anniversary Date, during which the Employee completes 1,000 or
more Hours of Employment.
(b) Years of Service shall not be interrupted (i) by any transfer of
employment of an Employee between Affiliated Companies regardless of whether the
Affiliated Company is an Employer hereunder; or (ii) during such period as an
Employee is receiving credit for Hours of Employment under section 3.7.
(c) If an Employee is reemployed following a Break in Service Year, he
shall be considered a new Employee for purposes of the Plan, except--
(i) If prior to such Break in Service Year he had a vested
interest in his ESOP Account, Employer Salary Reduction Account, or Employer
Voluntary Deduction Account, Years of Service he had prior to the Break in
Service Year shall be reinstated after such Employee completes a Year of Service
after such Break in Service Year.
(ii) If paragraph (i) is not applicable, and if the Employee's
number of consecutive Break in Service Years does not equal or exceed the
greater of five or the number of Years of Service he had before incurring a
Break in Service Year, the Years of Service he had prior to such Break in
Service Years shall be reinstated after such Employee completes a Year of
Service after such Break in Service Years.
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(d) Notwithstanding the foregoing provisions, an Employee's Years of
Service shall exclude any Years of Service completed before an Employee attains
age 18.
3.6 Break in Service Year. "Break in Service Year" shall mean a 12-month
period beginning on an Employee's Anniversary Date during which the Employee has
not completed more than 500 Hours of Employment (as defined in section 3.7).
Notwithstanding the foregoing, the following periods shall not be deemed to be
Break in Service Years:
(a) If a Participant retires on his Disability Retirement Date,
thereafter ceases to be totally and permanently disabled, and returns to the
employ of an Employer, the period between his Disability Retirement Date and the
date as of which he ceases to be totally and permanently disabled.
(b) If a Participant commences receiving benefits under a long-term
disability benefit program maintained by an Employer and thereafter ceases to
receive benefits under such program and returns to the employ of the Employer,
the period during which he was receiving benefits under such program.
If an Employee incurs a Break in Service Year and prior to such Break in
Service Year has not completed five Years of Service, his Years of Service
completed prior to such a Break in Service Year shall be disregarded unless he
completes a Year of Service after such Break in Service Year and before the
total of such Break in Service Year and any ensuing consecutive Break in Service
Years equals the greater of five or the number of his Years of Service (as
defined in section 3.5 but without excluding Years of Service completed prior to
attaining age 18) prior to such Break in Service Year.
3.7 Hours of Employment. "Hours of Employment" shall mean, for any
individual performing or who has performed services for one or more Employers or
nonparticipating Affiliated Companies, the sum of the following:
(a) All hours for which the individual is directly or indirectly paid
or entitled to payment by an Employer or nonparticipating Affiliated Company for
the performance of duties. These hours shall be credited to the individual for
the computation period or periods in which the duties are performed.
(b) Except as provided in section 3.7(e) below, all hours for which
the individual is directly or indirectly paid or entitled to payment by an
Employer or nonparticipating Affiliated Company for reasons (such as vacation,
holiday, sickness, incapacity, layoff, jury duty, leave of absence, Military
Service, or disability) other than for the performance of duties. These hours
shall be credited to the individual for the computation period or periods in
which the period during which no duties are performed occurs, beginning with the
first unit of time to which the payment relates.
(c) All hours for which back pay, irrespective of mitigation of
damages, has been awarded, agreed to, or paid by an Employer or nonparticipating
Affiliated Company, with no duplication of credit for hours. These hours shall
be credited to the individual for the computation period or periods to which the
award or agreement pertains rather than the computation period in which the
award, agreement, or payment is made.
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(d) Except as provided in section 3.7(e) below, eight Hours of
Employment per day for each working day that an individual is absent from work
without pay for an approved leave of absence, voluntary time, sick time,
disciplinary leave, or Military Service if the individual returns to the employ
of an Employer or nonparticipating Affiliated Company within 90 days after the
end of such period. These hours shall be credited to the individual for the
computation period or periods in which the period during which no duties are
performed occurs, beginning with the first such period.
(e) Eight Hours of Employment per day for each working day that an
individual is absent from work with or without pay because of pregnancy of the
individual, birth of a child to the individual, placement of a child with the
individual in connection with the adoption of such child by such individual, or
caring for such child for a period beginning immediately following such birth or
placement. The Committee may, in its discretion, request such information from
the individual as the Committee shall deem relevant in order to verify that an
absence is for the reasons described in this subsection (e).
Notwithstanding the foregoing, no more than 501 Hours of Employment
shall be credited under this subsection (e) on account of any such pregnancy or
placement if the individual does not return to the employ of an Employer or
participating Affiliated Company within 90 days after the end of the period
approved for such absence. Hours credited under this subsection (e) shall be
credited to the individual only in the year in which the absence begins if the
crediting is necessary to prevent a Break in Service Year for such year; or, in
any other case, in the immediately following year; provided, however, that if
more than 501 hours are credited under this subsection (e) on account of any
such pregnancy or placement, the excess over 501 hours shall be credited to the
period or periods to which it relates.
(f) Notwithstanding the foregoing, any individual whose compensation
is not computed on the basis of hours worked and who normally performs services
for any Employer or nonparticipating Affiliated Company during its entire work
day shall be credited with ten Hours of Employment for each working day in any
period during which he is entitled to receive compensation from the Employer or
nonparticipating Affiliated Company for the performance of services pursuant to
section 3.7(a) and eight Hours of Employment for each working day in any period
during which such individual performed no duties but is entitled to Hours of
Employment under section 3.7(b) or (c).
Hours of Employment credited under this section 3.7 shall comply with the
rules set forth in 29 C.F.R. section 2530.200b-2(b) and (c), which rules are
hereby incorporated by reference.
Notwithstanding anything herein to the contrary, Hours of Employment shall
be credited hereunder at all times in compliance with the requirements of the
Family and Medical Leave Act.
3.8 Employment by Related Entities. If an Employee's employer is a
nonparticipating Affiliated Company, any period in which the Employee is
employed by the nonparticipating Affiliated Company while an Affiliated Company,
shall be taken into account for purposes of satisfying the eligibility service
requirement set forth in section 3.1 and measuring such Employee's Years of
Service to the same extent it would have been had such period of employment been
employment by an Employer.
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3.9 Leased Employees. A person who is not an employee on the employee
payroll of an Employer or nonparticipating Affiliated Company and who performs
services for an Employer or a nonparticipating Affiliated Company pursuant to an
agreement between the Employer or nonparticipating Affiliated Company and a
leasing organization shall be considered a "leased employee" if such person
performed the services on a substantially full-time basis for a year and the
services are under the primary direction and control of the recipient. A person
who is considered a "leased employee" of an Employer or nonparticipating
Affiliated Company shall not be considered an Employee for purposes of
participating in this Plan or receiving any contribution or benefit under this
Plan. A leased employee shall be excluded from this Plan regardless of whether
the leased employee participates in any plan maintained by the leasing
organization. However, if a leased employee participates in the Plan as a result
of subsequent employment with an Employer, his previous service as a leased
employee shall be counted in calculating his Years of Service. Notwithstanding
the preceding provisions of this section 3.9, a leased employee will be included
as an Employee for purposes of applying the requirements described in Code
section 414(n)(3) and for purposes of determining the number and identity of
Highly Compensated Employees.
ARTICLE IV CONTRIBUTIONS
4.1 Employee Contributions.
(a) Amount of Contributions. Each Participant may make a regular
contribution to the Plan. Such contribution shall not be less than 1 percent nor
more than--
(i) for a Participant who is was a Highly Compensated Employee
during the immediately preceding Plan Year, 15 percent of his Compensation for a
pay period, in incremental percentages of 1 percent, or
(ii) for a Participant who was a Nonhighly Compensated Employee
during the immediately preceding Plan Year, 20 percent (or, effective April 1,
1998, 17%) of his Compensation for a pay period, in incremental percentages of 1
percent.
Contributions will be effected by Voluntary Deductions, Salary
Reductions, or any combination thereof, as elected by the Participant. The
amount of such Voluntary Deductions or Salary Reductions shall be transferred to
the Trustee after each pay period; provided, however, that a Participant's
Salary Reduction contributions shall not exceed 8 percent (12 percent effective
February 1, 1999) of the Participant's Compensation for a pay period (if the
Participant was a Highly Compensated Employee during the immediately preceding
Plan Year), or 9 percent (17 percent effective February 1, 1999) of the
Participant's Compensation for a pay period (if the Participant was not a Highly
Compensated Employee during the immediately preceding Plan Year); and further
provided, however, that Voluntary Deductions and Salary Reductions shall be
limited as provided in sections 4.7 and, 4.10 AND 4.12.
Notwithstanding the foregoing, the Committee may, in its sole
discretion, (1) reduce the Salary Reduction contributions permitted by a group
of Participants if, in the opinion of the Committee, it is advisable to do so in
order to satisfy the requirements of section 4.7 or 4.12; or (2) reduce the
Voluntary Deduction contributions permitted by a group of Participants if, in
the opinion of the Committee, it is advisable to do so in order to satisfy the
requirements of section 4.10 or 4.12.
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(b) Changes in Contributions. The contribution of Voluntary Deductions
and/or Salary Reductions designated by a Participant shall continue in effect,
notwithstanding any change in his Compensation rate, until the Participant shall
change such contribution; provided, however, that such contribution shall in no
event be less than 1 percent, nor more than (i) fifteen percent (15%) in the
case of a Participant who was a Highly Compensated Employee during the
immediately preceding Plan Year or (ii) twenty percent (20%) (17% effective
April 1, 1998) in the case of a Participant who was a Nonhighly Compensated
Employee during the immediately preceding Plan Year, each in incremental
percentages of 1 percent of the Participant's prevailing Compensation rate. A
Participant may change his contribution from time to time by giving directions
to his Employer in the form prescribed by the Committee, with such directions to
take effect within a reasonable period following processing.
(c) Voluntary Suspension of Contributions. Any Participant may, by
giving written notice to his Employer in the form and timing prescribed by the
Committee, suspend his contribution of Voluntary Deductions and/or Salary
Reductions either indefinitely or for any specified period, provided that in the
event of suspension of both such contributions the suspension shall be for at
least 12 full months. In case of any such suspension of any contributions, the
Employer's contributions on behalf of the Participant shall be automatically
suspended for a like period.
(d) Automatic Suspension of Contributions. A Participant's
contributions of Voluntary Deductions and Salary Reductions and the Employer's
contributions on behalf of the Participant shall be suspended automatically for
any period during which the Participant is absent without pay under any of the
circumstances described in section 3.7(c), (d), or (e), and such an absence
shall not constitute termination of service for purposes of any of the
provisions of Article IX. A Participant may, by giving notice to his Employer in
the form and timing prescribed by the Committee, suspend his contribution of
Voluntary Deductions and/or Salary Reductions for any period during which he is
absent from work under any of the circumstances described in section 3.7(b) or
(c) and receiving Compensation at a reduced Compensation rate, in which case the
Employer contributions on behalf of such Participant shall be automatically
suspended for a like period.
4.2 Employer Savings Plan Contributions. Each Employer shall contribute to
the Salary Reduction Account of each of its participating Eligible Employees who
would be eligible to participate under the requirements of Section 3.1(a)(i)
(without regard to Section 3.1(a)(ii)) HAS COMPLETED ONE YEAR OF ELIGIBILITY
SERVICE (AS DEFINED IN SECTION 3.1(B)) an amount equal to 25 percent of the
Salary Reduction contribution of such Participant; provided, however, that
Salary Reduction contributions in excess of four percent (4%) of the
Participant's Compensation per pay period shall be disregarded. In cases where
the Participant's Salary Reduction contribution is less than four percent (4%)
of his Compensation per pay period, the Employer shall contribute to the
Voluntary Deduction Account of such participating Employee an amount equal to 25
percent of the smaller of (a) his Voluntary Deduction contribution, or (b) 4
percent of his Compensation per pay period reduced by his Salary Reduction
contribution.
Effective as of the first pay period following the date on which a
Participant has completed ten (10) Years of Service (or nine (9) Years of
Service, beginning January 1, 1999), five percent (5%) shall be substituted for
four percent (4%) in each place that it appears in the preceding paragraph.
Effective as of the first pay period following the date on which a Participant
has completed twenty-three (23) Years of Service, six percent (6%) shall be
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substituted for four percent (4%) in each place that it appears in the first
paragraph of this section 4.2.
4.3 Employer ESOP Contributions.
(a) Basic ESOP Contribution. Each Employer shall each pay period
contribute to the ESOP Account of each of its participating Eligible Employees
who would be eligible to participate under the requirements of Section 3.1(a)(i)
(without regard to Section 3.1(a)(ii)) HAS COMPLETED ONE YEAR OF ELIGIBILITY
SERVICE (AS DEFINED IN SECTION 3.1(B)) an amount equal to the difference, if
any, between (i) and (ii) below:
(i) seventy-five percent (75%) of the sum of the Salary
Reduction and Voluntary Deduction contributions of such Participant for such
pay period; provided, however, that Salary Reduction and Voluntary
Deduction contributions shall be disregarded to the extent that they exceed, in
the aggregate, four percent (4%) of such Participant Compensation per pay
period. The 4 percent shall be increased to five percent (5%) for Participants
who have completed ten (10) Years of Service (or, effective January 1, 1999,
nine (9) Years of Service), and shall be increased to six percent (6%) for
Participants who have completed twenty-three (23) Years of Service.
(ii) The value of the shares of MCN Stock allocated to the ESOP
Account of such Participant pursuant to section 14.4(d) for such pay period. The
value of shares allocated under section 14.4(d) shall be the market value
thereof as of the last day of the pay period for which the shares are allocated,
with the market value to be determined by the Committee in a nondiscriminatory
manner.
(b) Contribution of Principal, Interest, or Other Payments. Each
Employer also shall contribute to the ESOP its proportionate share of any
additional amount necessary to make principal, interest, or other payments
required by the terms of any loan made to the ESOP in accordance with section
14.4. Each Employer's proportionate share shall be equal to the proportion that
its contributions under section 4.3(a) bear BEARS to the total contributions
under section 4.3(a). Each Employer also may make additional contributions to
make principal, interest, or other payments in accordance with the terms of any
loan made to the ESOP in accordance with section 14.4.
(c) Dividend-Related Contributions. Each Employer also shall
contribute to the ESOP Account of each of its participating Employees such
amounts as may be necessary to acquire for the ESOP Account of such Participant
shares of MCN Stock having a fair market value equal to the amount of any
dividends on shares of MCN Stock allocated to the ESOP Account of such
Participant that were used to repay an ESOP loan in accordance with section
14.4(c). Such contributions shall be made on, or as soon as practicable after,
each date on which dividends on allocated shares of MCN Stock are used to repay
a loan. In no event shall the shares of MCN Stock acquired with contributions
under this subsection (c) be allocated to the ESOP Account of such Participant
later than the last day of the Plan Year during which (but for the use of the
dividend to repay the loan) the dividend giving rise to such contribution would
have been allocated to the ESOP Account of such Participant.
(d) Longevity Contributions. Within a reasonable time after March 1 of
each Plan Year (or April 1, prior to 1999 with regard to Employers other than
Michigan Consolidated Gas Company) (each a "Measurement Date") each Employer
shall contribute to the ESOP
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<PAGE> 21
Account of each of its participating Eligible Employees on active payroll as of
such Measurement Date who has at least 30 Years of Service as of such
Measurement Date:
(i) for periods prior to March 1, 1999 for Eligible Employees of
Employers other than Michigan Consolidated Gas Company, twenty-five (25) shares
of MCN Stock.
(ii) effective March 1, 1999 for Eligible Employees described in
paragraph (i) and effective March 1, 1998 for Eligible Employees of Michigan
Consolidated Gas Company, six hundred dollars ($600) in shares of MCN Stock, as
determined by the Committee in a nondiscriminatory manner.
4.4 Additional Employer Contributions. If a Participant receiving payments
(based upon 40 or more hours per week) under the terms of any Workers'
Compensation law does not have sufficient compensation to make Salary Reduction
or Voluntary Deduction contributions in an amount equal to the amount of the
Participant's contributions as in effect during the Participant's last period of
active service, then the Participant's Employer shall contribute on behalf of
the Participant such additional amount as would have been contributed by the
Employer under sections 4.2 and 4.3 on behalf of such Participant had the
Participant's contributions been continued at the rate in effect during the
Participant's last period of active service. Additional contributions under this
section 4.4 shall be treated for accounting purposes as if made under section
4.2 or 4.3, as applicable, except such contributions shall not be considered
when computing the Contribution Percentage. Contributions under this Section 4.4
shall be deemed contributions made under Code Section 415(c)(3)(C), and for
purposes of calculations under Section 415, "compensation" shall include the
compensation the Participant would have received if the Participant were paid at
the rate of compensation paid immediately before becoming disabled.
4.5 Rollover Contributions.
(a) From Qualified Plan. If an Employee receives, either before or
after becoming an Employee, an eligible rollover distribution (within the
meaning of Code section 402(c)(4)) from an employees' trust described in Code
section 401(a) which is exempt from tax under Code section 501(a) or from a
qualified annuity plan described in Code section 403(a) (other than an
employees' trust or an annuity plan under which the Employee was an Employee
within the meaning of Code section 401(c)(1) at the time contributions were made
on his behalf under such trust or annuity plan), then such Employee may transfer
and deliver to the Committee, to be credited to his Employee Salary Reduction
Account as if it were a Salary Reduction contribution, an amount which does not
exceed the amount of such qualified total distribution or eligible rollover
distribution (including any proceeds from the sale of any property received as a
part of such qualified total distribution or eligible rollover distribution)
less, in the case of a qualified total distribution, the amount considered
contributed to such trust or annuity plan by the Employee. Former Employees who
are Participants and who receive an eligible rollover distribution from another
plan sponsored by an Employer may make rollover contributions in accordance with
this section.
(b) From Individual Retirement Account or Annuity. If--
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<PAGE> 22
(i) an Employee receives, either before or after becoming an
Employee, a distribution or distributions from an individual retirement account
or individual retirement annuity (within the meaning of Code section 408) or
from a retirement bond (within the meaning of Code section 409); and
(ii) no amount in such account, no part of the value of such
annuity, or no part of the value of the proceeds of such bond is attributable to
any source other than an eligible rollover distribution (within the meaning of
Code section 402(c)(4)) from an employees' trust described in Code section
401(a) which is exempt from tax under Code section 501(a) or annuity plan
described in Code section 403(a) (other than an employees' trust or an annuity
plan under which the Employee was an Employee within the meaning of Code section
401(c) at the time contributions were made on his behalf under such trust or
annuity plan) and any earnings on such a qualified total distribution or
eligible rollover distribution;
then such Employee may transfer and deliver to the Committee, to be
credited to his Salary Reduction Account as if it were a Salary Reduction
contribution, such distribution or distributions.
(c) Timing and Substantiation. Any transfer and delivery pursuant to
this section 4.5 shall be delivered by the Employee to the Committee and by the
Committee to the Trustee on or before the sixtieth day after the day on which
the Employee receives the distribution or on or before such later date as may be
prescribed by law. Any such transfer and delivery must be accompanied by (i) a
statement of the Employee that to the best of his knowledge the amount so
transferred meets the conditions specified in this section 4.5, and (ii) a copy
of such documents as may have been received by the Employee advising him of the
amount and the character of such distribution. Notwithstanding the foregoing,
the Committee shall not accept a rollover contribution if, in its judgment, such
acceptance would cause the Plan to violate any provision of the Code or
Regulations.
(d) Deemed Contribution for Certain Purposes. A rollover contribution
pursuant to this section 4.5 shall be deemed to be a contribution of a
Participant for purposes of the value of a Participant's fund account as
provided in section 8.2 and in determining the amount distributable to a
Participant, the provisions of Article IX that are applicable to Salary
Reduction contributions will be used, pursuant to section 9.1, but not for
purposes of determining the amount of the contribution to be made on behalf of a
Participant by his Employer pursuant to section 4.2, 4.3, or 4.4 or calculating
the Annual Addition of such Participant.
(e) Deemed Participation for Certain Purposes. If the amount of
rollover contribution is made by an Employee prior to his becoming a
Participant, such Employee shall, until such time as he becomes a Participant,
be deemed to be a Participant for all purposes of the Plan except for purposes
of any determination of when he becomes a Participant pursuant to section 3.1
and the making of contributions pursuant to section 4.1(a).
4.6 Transfers from the MichCon Investment and Stock Ownership Plan. If
an Employee who previously had participated in the MichCon Investment and Stock
Ownership Plan (the "Investment Plan") becomes a Participant in the Plan and the
Participant's plan account in the Investment Plan (including any outstanding
Participant loans) is transferred to the Plan in accordance with section 3.3 of
the Investment Plan, the Plan shall accept such
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<PAGE> 23
transfer. Amounts transferred shall be 100 percent vested at all times and shall
be treated for all purposes in the same manner as they were treated under the
Investment Plan; that is:
(a) Amounts attributable to Employer salary reduction contributions
under the Investment Plan shall be allocated to the Participant's Employee
Salary Reduction Account;
(b) Amounts attributable to voluntary deduction contributions under
the Investment Plan shall be allocated to the Participant's Employee Voluntary
Deduction Account;
(c) Amounts attributable to Employer Investment Plan contributions
shall be allocated to the Participant's Employer Salary Reduction Account or
Employer Voluntary Deduction Account, as the case may be; and
(d) Amounts transferred from the ESOP Account of the Participant in
the Investment Plan shall be allocated to the Participant's ESOP Account.
Notwithstanding the foregoing, amounts transferred shall not be used for
purposes of determining the amount of the contribution to be made on behalf of a
Participant by the Employer pursuant to section 4.2, 4.3, or 4.4, or calculating
the Actual Deferral Percentage, Contribution Percentage, or Annual Addition of
the Participant.
4.7 Limitations on Salary Reduction Contributions.
(a) Dollar Limitation. In no event shall any Employer make Salary
Reduction contributions for any calendar year, with respect to any Participant
in excess of $10,000 (for 1998) (as adjusted by the Secretary of the Treasury to
reflect increases in the cost of living). This limit shall be applied by
aggregating all plans and arrangements maintained by the Company and all
Affiliated Companies that provide for elective deferrals (as defined in Code
section 402(g)).
(b) ADP Test. In addition to the limitations set forth elsewhere in
this Plan, effective January 1, 1997, one of the following tests must be
satisfied for the Plan Year:
(i) The Average Actual Deferral Percentage for Highly
Compensated Employees who are eligible to participate for the Plan Year shall
not exceed the Average Actual Deferral Percentage for the immediately preceding
Plan Year for Nonhighly Compensated Employees who were then eligible to
participate multiplied by 1.25; or
(ii) The Average Actual Deferral Percentage for Highly
Compensated Employees who are eligible to participate for the Plan Year shall
not exceed the Average Actual Deferral Percentage for the immediately preceding
Plan Year for Nonhighly Compensated Employees who were then eligible to
participate multiplied by two, provided that the Average Actual Deferral
Percentage for such Highly Compensated Employees does not exceed the Average
Actual Deferral Percentage for such Nonhighly Compensated Employees by more than
two percentage points or such lesser amount as the Secretary of Treasury shall
prescribe in accordance with Code section 401(m)(9) to prevent the multiple use
of this alternative limitation with respect to any Highly Compensated Employee.
Any such restriction on the multiple use of the alternative limit shall be
implemented pursuant to uniform rules adopted by the Committee.
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<PAGE> 24
(c) Determination of Actual Deferral Percentages. For purposes of the
Actual Deferral Percentage test described in this section 4.7--
(i) An Elective Deferral will be taken into account for a Plan
Year only if it relates to Compensation that either would have been received by
the Eligible Employee in the appropriate Plan Year (but for the deferral
election) or is attributable to services performed by the Eligible Employee in
the Plan Year and would have been received by the Eligible Employee within 2 1/2
months after the close of the Plan Year (but for the deferral election);
(ii) An Elective Deferral will be taken into account for a Plan
Year only if it is allocated to the Eligible Employee as of a date within that
Plan Year. For this purpose, an Elective Deferral is considered allocated as of
a date within a Plan Year if the allocation is not contingent on participation
or performance of services after such date and the Elective Deferral is actually
paid to the Trust no later than 12 months after the Plan Year to which the
contribution relates;
(iii) The Actual Deferral Percentage for an Employee who is
eligible to participate shall be computed by treating any Excess Deferral (as
defined in section 4.8) as an Elective Deferral, except to the extent provided
by Regulations;
(iv) The Actual Deferral Percentage for any Employee who is a
participant under two or more section 401(k) plans or arrangements that are
maintained by the Company or an Affiliated Company shall be determined as if all
such Elective Deferrals were made under a single arrangement; provided, however,
that no Elective Deferrals under an employee stock ownership plan (as defined in
Code section 4975(e)(7)) shall be taken into account for purposes of this
section 4.7;
(v) In the event that two or more plans which include
cash-or-deferred arrangements are considered as one plan for purposes of Code
section 401(a)(4) or 410(b), the cash-or-deferred arrangements included in such
plans shall be treated as one arrangement for purposes of this section 4.7;
(vi) The determination and treatment of the Elective Deferrals
and Actual Deferral Percentage of any Employee shall satisfy such other
requirements as may be prescribed by the Secretary of Treasury.
4.8 Distribution of Excess Deferrals. "Excess Deferrals" means excess
deferrals as defined under Code section 402(g). Notwithstanding any other
provision of the Plan, the Excess Deferral, if any, of each Employee with
respect to a calendar year plus any income and minus any loss allocable thereto
shall be distributed no later than April 15 of the following calendar year to
each Employee who claims an Excess Deferral for the preceding calendar year.
Excess Deferrals shall be treated as Annual Additions under the Plan.
The Employee's claim shall be in writing; shall be submitted to the
Committee no later than March 1; shall specify the Employee's Excess Deferral
for the preceding calendar year; and shall be accompanied by the Employee's
written statement that if such amount is not distributed, such Excess Deferral,
when added to amounts deferred under other plans or
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<PAGE> 25
arrangements described in Code section 401(k), 408(k), or 403(b), exceeds the
limit imposed on the Employee by Code section 402(g) for the year in which the
deferral occurred.
Notwithstanding the preceding paragraph, the Employer may notify the Plan on
behalf of the individual of Excess Deferrals to the extent that the individual
has Excess Deferrals for the calendar year calculated by taking into account
only elective deferrals under this Plan and other plans of the Company and any
Affiliated Company.
The Excess Deferral distributed to an Employee with respect to a calendar
year shall be adjusted for any income or loss thereon for such calendar year and
for the period between the end of such calendar year and the date of
distribution. The income or loss allocable to such calendar year shall be
determined by multiplying the income or loss for such calendar year allocable to
the Employee's Salary Reduction Account by a fraction, the numerator of which is
the Excess Deferral of the Employee for such calendar year and the denominator
of which is the Employee's Salary Reduction Account balance on the last day of
such calendar year. The income or loss allocable to the period between the end
of such calendar year and the date of distribution shall be equal to 10 percent
of the income or loss allocable to the Excess Deferral for the preceding
calendar year multiplied by the number of calendar months that have elapsed from
the end of the preceding calendar year to the date of distribution. A
distribution occurring on or before the fifteenth day of the month shall be
treated as having been made on the last day of the preceding month and a
distribution occurring after such fifteenth day shall be treated as having been
made on the first day of the following month.
In the event that an Employee's Salary Reduction contributions are
distributed to such Employee under this section 4.8, any Employer contributions
attributable thereto plus any income and minus any loss allocable thereto shall
be forfeited.
4.9 Distribution or Recharacterization of Excess Contributions.
(a) Determination of Excess Contributions. "Excess Contributions"
means, with respect to any Plan Year, the excess of (i) the aggregate amount of
Elective Deferrals actually paid over to the Trust on behalf of Highly
Compensated Employees for such Plan Year, over (ii) the maximum amount of such
Elective Deferrals permitted under the limitations of section 4.7(b), in
accordance with the provisions of Code Section 401(k)(8).
Excess Contributions shall be returned to the Highly Compensated
Employees, beginning with that Highly Compensated Employee who has the highest
dollar amount of Elective Deferrals. The Highly Compensated Employee shall
receive the portion of his Employee Deferrals (and income allocable thereto)
which will either enable the Plan to distribute the total Excess Contribution
(and thereby satisfy the ADP limit stated above) or cause such Highly
Compensated Employee's Elective Deferrals to equal the Elective Deferrals of the
Highly Compensated Employee with the next highest amount of Elective Deferrals.
This prior process must then be repeated until the plan has distributed the
total Excess Contributions described above.
Excess Contributions shall be treated as Annual Additions under the
Plan.
For purposes of this section 4.9, to the extent permitted by the Code,
the Excess Contributions shall be reduced by the amount of any Excess Deferrals
included in such Excess Contributions and distributed to the Employee pursuant
to section 4.8.
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<PAGE> 26
(b) Distribution or Recharacterization. Notwithstanding any other
provision of the Plan, either--
(i) Excess Contributions with respect to a calendar year plus
any income and minus any loss allocable thereto shall be distributed no later
than the last day of the following calendar year to Employees on whose behalf
such Excess Contributions were made for the preceding calendar year; or
(ii) at the election of the Employee and to the extent permitted
by the Code, the Excess Contributions shall be treated as distributed to the
Employee and then contributed by the Employee to the Plan as a Voluntary
Deduction contribution.
(c) Adjustment for Income and Loss. The Excess Contributions to be
distributed to an Employee with respect to a calendar year shall be adjusted for
any income or loss thereon for such calendar year and for the period between the
end of such calendar year and the date of distribution. The income or loss
allocable to such calendar year shall be determined by multiplying the income or
loss for such calendar year allocable to the Employee's Salary Reduction Account
by a fraction, the numerator of which is the Excess Contributions for such
calendar year and the denominator of which is the Employee's Salary Reduction
Account balance on the last day of such calendar year. The income or loss
allocable to the period between the end of such calendar year and the date of
distribution shall be equal to 10 percent of the income or loss allocable to the
Excess Contributions for the preceding calendar year multiplied by the number of
calendar months that have elapsed from the end of the preceding calendar year to
the date of distribution. A distribution occurring on or before the fifteenth
day of the month shall be treated as having been made on the last day of the
preceding month and a distribution occurring after such fifteenth day shall be
treated as having been made on the first day of the following month.
In the event that an Employee's Salary Reduction contributions are
distributed to such Employee under this section 4.9, any Employer contributions
attributable thereto plus any income and minus any loss allocable thereto shall
be forfeited.
4.10 Limitations on Voluntary Deduction Contributions and Employer
Contributions.
(a) ACP Test. In addition to the limitations set forth elsewhere in
this Plan, effective January 1, 1997, both the ESOP and the non-ESOP portions of
the Plan, tested separately, must satisfy one of the following tests for each
Plan Year:
(i) The Average Contribution Percentage for Highly Compensated
Employees who are eligible to participate for the Plan Year shall not exceed the
Average Contribution Percentage during the immediately preceding Plan Year for
Nonhighly Compensated Employees who are eligible to participate for the Plan
Year multiplied by 1.25; or
(ii) The Average Contribution Percentage for Highly Compensated
Employees who are eligible to participate for the Plan Year shall not exceed the
immediately preceding Plan Year's Average Contribution Percentage for Nonhighly
Compensated Employees who were then eligible to participate for the Plan Year
multiplied by two (2), and the Average Contribution Percentage for such Highly
Compensated Employees shall not exceed the previous Plan Year's Average
Contribution Percentage for such Nonhighly Compensated
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<PAGE> 27
Employees by more than two percentage points or such lesser amount as the
Secretary of Treasury shall prescribe by regulations in accordance with Code
Section 401(m)(9) to prevent the multiple use of this alternative limitation
with respect to any Highly Compensated Employees, which regulations are
incorporated herein by reference. Any such restriction on the multiple use of
the alternative limit shall apply to all affected Highly Compensated Employees
and shall be implemented pursuant to uniform rules adopted by the Committee.
(b) Determination of Contribution Percentages. For purposes of the
Average Contribution Percentage test described in this section 4.10--
(i) the Contribution Percentage for any Employee who is a Highly
Compensated Employee for the Plan Year and who is eligible to make Employee
contributions or to receive Employer contributions or Elective Deferrals
allocated to his account under two or more plans described in Code section
401(a) or arrangements described in Code section 401(k) that are maintained by
the Company or an Affiliated Company shall be determined as if all such
contributions and Elective Deferrals were made under a single plan; provided,
however, that contributions and Elective Deferrals under an employee stock
ownership plan (as defined in Code section 4975(e)(7)) shall not be combined
with contributions and Elective Deferrals under a plan that is not an employee
stock ownership plan.
(ii) In the event that this Plan satisfies the requirements of
Code section 410(b) only if aggregated with one or more other plans, or if one
or more other plans satisfy the requirements of Code section 410(b) only if
aggregated with either the ESOP or the non-ESOP portion of this Plan, then this
section 4.10 shall be applied by determining the Contribution Percentages of
Employees as if all such plans were a single plan. The ESOP portion of the Plan
will not be used in conjunction with any other plan to satisfy the requirements
of Code section 401(a)(4) or 410(b).
(iii) The determination and treatment of the Contribution
Percentage of any Employee shall satisfy such other requirements as may be
prescribed by the Secretary of Treasury.
4.11 Disposition of Excess Aggregate Contributions.
(a) Determination of Excess Aggregate Contributions. "Excess Aggregate
Contributions" means, with respect to any Plan Year, the excess of (i) the
aggregate amount of Employer contributions under section 4.2 or sections 4.3(a)
and 14.4(d) (as applicable) and Voluntary Deduction contributions (and any
Elective Deferrals taken in account in computing Contribution Percentages under
section 4.10(b)) (collectively "ACP Contributions") actually made on behalf of
Highly Compensated Employees for such Plan Year, over the maximum amount of such
contributions permitted under the limitations of section 4.10(a), in accordance
with the provisions of Code Section 401(m).
(i) First, the Contribution Percentage (as defined in section
4.10(b)) of the Highly Compensated Employee with the highest ACP Contributions
is reduced as described in the subsections (b), (c) and (d) of this section to
the extent necessary to remove all Excess Aggregate Contributions or to cause
such Highly Compensated Employee's ACP Contributions to equal the amount of ACP
Contribution of the Highly Compensated Employee with the next highest ACP
Contributions.
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<PAGE> 28
(ii) Second, this process is repeated until the test described
above is satisfied.
Excess Aggregate Contributions shall be treated as Annual Additions
under the Plan.
For purposes of this section 4.11, the determination of an Employee's
Excess Aggregate Contributions shall be made after first determining the Excess
Deferral (as defined in section 4.8) and the Excess Contribution (as defined in
section 4.9(a)) of such Employee.
(b) Distribution of Excess Voluntary Deduction Contributions. To the
extent necessary to satisfy the ACP Test specified in section 4.10, Voluntary
Deduction contributions with respect to a calendar year plus any income and
minus any loss allocable thereto for such calendar year and for the period
between the end of such calendar year and the date of distribution shall be
distributed no later than the last day of the following calendar year to the
Highly Compensated Employees who made such Voluntary Deduction contributions for
the preceding calendar year.
The income or loss allocable to the Voluntary Deduction contributions
for such calendar year returned to the Employee pursuant to this subsection
shall be determined by multiplying the income or loss for such calendar year
allocable to the Employee's Post-1986 Voluntary Deduction Account by a fraction,
the numerator of which is such Voluntary Deduction contributions returned to the
Employee and the denominator of which is the Employee's Post-1986 Voluntary
Deduction Account balance on the last day of such calendar year.
The income or loss allocable to the period between the end of such
calendar year and the date of distribution shall be equal to 10 percent of the
income or loss allocable to the Voluntary Deduction contributions for the
preceding calendar year returned to the Employee multiplied by the number of
calendar months that have elapsed from the end of the preceding calendar year to
the date of distribution.
A distribution occurring on or before the fifteenth day of the month
shall be treated as having been made on the last day of the preceding month and
a distribution occurring after such fifteenth day shall be treated as having
been made on the first day of the following month.
(c) Distribution of Excess Elective Deferrals Taken into Account. If,
after returning all Voluntary Deduction contributions made by Highly Compensated
Employees for the preceding calendar year, the contribution percentage test is
still not satisfied, then to the extent necessary to satisfy such test, any
Elective Deferrals taken into account for such test plus any income and minus
any loss allocable thereto for such calendar year and for the period between the
end of such calendar year and the date of distribution shall be distributed no
later than the last day of the following calendar year to the Highly Compensated
Employees on whose behalf such Elective Deferrals were made for the preceding
calendar year.
The income or loss allocable to the Elective Deferrals for such
calendar year returned to the Employee pursuant to this subsection shall be
determined by multiplying the income or loss for such calendar year allocable to
the Employee's Salary Reduction Account by a fraction, the numerator of which is
such Elective Deferrals returned to the Employee and the
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<PAGE> 29
denominator of which is the Employee's Salary Reduction Account balance on the
last day of such calendar year.
The income or loss allocable to the period between the end of such
calendar year and the date of distribution shall be equal to 10 percent of the
income or loss allocable to the Elective Deferrals for the preceding calendar
year returned to the Employee multiplied by the number of calendar months that
have elapsed from the end of the preceding calendar year to the date of
distribution.
A distribution occurring on or before the fifteenth day of the month
shall be treated as having been made on the last day of the preceding month and
a distribution occurring after such fifteenth day shall be treated as having
been made on the first day of the following month.
(d) Distribution of Other Excess Employer Contributions. If, after
returning all Voluntary Deduction contributions and Elective Deferrals included
in the Excess Aggregate Contributions, the contribution percentage test is still
not satisfied, to the extent necessary to satisfy such test, the Employer
contributions with respect to the calendar year made on behalf of Highly
Compensated Employees and shares of MCN Stock allocated to Highly Compensated
Employees under section 14.4(d) plus any income and minus any loss allocable
thereto for such calendar year and for the period between the end of such
calendar year and the date of distribution shall be forfeited and used to reduce
Employer contributions to the Plan.
The income or loss allocable to the Employer contributions under
section 4.2 forfeited for such calendar year pursuant to this subsection shall
be determined by multiplying the income or loss for such calendar year allocable
to the Employer's Voluntary Deduction Account and the Employer's Salary
Reduction Account by a fraction, the numerator of which is such Employer
contributions forfeited and the denominator of which is the sum of the
Employer's Voluntary Deduction Account balance and the Employer's Salary
Reduction Account balance, both determined on the last day of such calendar
year.
The income or loss allocable to the period between the end of such
calendar year and the date of distribution shall be equal to 10 percent of the
income or loss allocable to the Employer contributions under section 4.2 for the
preceding calendar year that were forfeited multiplied by the number of calendar
months that have elapsed from the end of the preceding calendar year to the date
of distribution.
The income or loss allocable to any Employer contribution under section
4.3(a) or any shares of MCN Stock allocated to a Highly Compensated Employee
under section 14.4(d) shall be calculated in a similar manner based upon the
ESOP Account of the Participant.
A distribution occurring on or before the fifteenth day of the month
shall be treated as having been made on the last day of the preceding month and
a distribution occurring after such fifteenth day shall be treated as having
been made on the first day of the following month.
4.12 Statutory (Code Section 415) Limitations on Allocations to Accounts.
Notwithstanding any other provision of the Plan, contributions under the Plan
shall be subject to the limitations set forth in Code section 415, which are
incorporated herein by reference. For
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<PAGE> 30
purposes of applying such limitations to contributions under the Plan, the rules
set forth in this section 4.12 shall be applicable.
(a) Annual Addition. The term "Annual Addition" means the amount
allocated to a Participant's account during any calendar year that constitutes--
(i) Employer contributions;
(ii) Employee contributions;
(iii) forfeitures; and
(iv) amounts described in Code Sections 415(l)(2) and
419(A)(d)(3).
The compensation limitation referred to in Code section 415(c)(1)(B)
shall not apply to--
(1) any contribution for medical benefits (within the meaning of
Code section 419A(f)(2)) after separation from service which
is otherwise treated as an Annual Addition, or
(2) any amount otherwise treated as an Annual Addition under
Code Section 415(l)(2).
The Annual Addition for any calendar year before 1987 shall not be
recomputed to treat all Employee contributions as an Annual Addition.
(b) Combined-Plan Limits. Prior to January 1, 2000, in the case of an
individual who was a Participant in the Plan on December 31, 1986, an amount
shall be subtracted from the numerator of the defined contribution fraction (not
exceeding such numerator) as prescribed by the Secretary of Treasury so that the
sum of the defined benefit plan fraction and defined contribution plan fraction
does not exceed 1.0 as of such date.
Code section 415 shall be applied in such manner as to maximize the
permissible contributions and benefits thereunder and, in determining the
permissible amount of contributions under the Plan, any grandfathering
provisions heretofore or hereafter adopted pursuant to Code section 415 shall be
applicable. For purposes of applying the limitations set forth in Code section
415(e) prior to January 1, 2000, this Plan shall be the primary plan and any
required reductions shall be made from the MichCon MCN ENERGY GROUP Retirement
Plan (or other applicable defined benefit plan of the Employer).
(c) Reduction of Annual Additions.
(i) If the limitations of Code section 415 would be exceeded as
a result of a reasonable error in estimating a Participant's Compensation or on
account of such other limited facts and circumstances as the Commissioner of
Internal Revenue finds justify the application of the rules hereinafter set
forth, the Annual Additions to the Participant's account which exceed the
applicable limitation shall be returned to the Participant to the extent of all
or any portion of any Voluntary Deduction contributions which were made by him
pursuant to Article IV. Any net earnings and gains allocable to such
contributions for the period between
24
<PAGE> 31
the date of such contribution and the date returned shall also be repaid to the
Participant but such return of net earnings and gains will not be deemed a
further reduction of any excess Annual Additions.
(ii) If the Participant made no Voluntary Deduction contributions
or if, after returning all or part of such contributions in accordance with the
previous paragraph, his Annual Additions still exceed the limitations of Code
section 415, then such excess shall be returned to the Participant to the extent
of all or any portion of any Salary Reduction contributions made on behalf of
such Participant, together with any net earnings and gains on such contributions
as hereinabove described.
(iii) If, after returning all or any portion of Voluntary
Deduction and Salary Reduction contributions of a Participant in accordance with
the preceding paragraphs, his Annual Additions still exceed the limitations of
Code section 415, such portion of the Employer contributions under section 4.2
made on behalf of the Participant as must be removed to meet the limitations
shall be allocated and reallocated to other Participants' Savings Plan Accounts
as contributions by the Employer.
(iv) If, after reallocating all or any portion of Employer
contributions under section 4.2, a Participant's Annual Additions still exceed
the limitation of Code section 415, such portion of the Employer contributions
under section 4.3(a) made on behalf of the Participant and shares of MCN Stock
allocated to his ESOP Account under section 14.4(d) as must be removed to meet
the limitations shall be allocated and reallocated to other Participant's ESOP
Accounts as contributions by the Employer.
(v) If, as a result of the allocation of forfeitures, a
reasonable error in estimating a Participant's Compensation, or under other
limited facts and circumstances which the Commissioner of the Internal Revenue
Service finds justify the availability of the following rules, any amount cannot
be allocated during the Plan Year in accordance with the foregoing procedure
without exceeding the applicable limitations for one or more Participants, any
remaining amount shall be held unallocated in a special suspense account to be
allocated to Participants in the succeeding Plan Year or Plan Years; provided,
however, that (A) no Employer contributions and no Voluntary Deduction
contributions shall be made in such succeeding Plan Year or Plan Years until
such special suspense account is exhausted by allocations and reallocations; (B)
no investment gains (or losses) or other income shall be allocated to the
special suspense account; and (C) the amounts in the special suspense account
shall be allocated as soon as possible without violating the limitations of this
section 4.12.
ARTICLE V VESTING IN ACCOUNTS
5.1 Employee Salary Reduction Accounts, Employee Post-1986 Voluntary
Deduction Account, and Employee Pre-1987 Voluntary Deduction Account. The
Employee Salary Reduction Account, the Employee Post-1986 Voluntary Deduction
Account, and the Employee Pre-1987 Voluntary Deduction Account of each
Participant shall be fully vested and nonforfeitable at all times.
5.2 Employer Salary Reduction Account, Employer Voluntary Deduction
Account, and ESOP Account.
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(a) In General. A Participant shall have a vested and nonforfeitable
interest in his Employer Salary Reduction Account, Employer Voluntary Reduction
Account, and ESOP Account after he has completed at least five Years of Service.
Prior to that time he shall have no vested interest in such accounts.
(b) Accelerated Vesting. Notwithstanding section 5.2(a) above but
subject to Section 4.4, a Participant shall be fully vested and have a
nonforfeitable interest in his entire Employer Salary Reduction Account,
Employer Voluntary Deduction Account, and ESOP Account if--
(i) while still an Employee, he attains age 65;
(ii) the Participant terminates employment with his Employer for
reasons described in Section 9.1(a), (b) or (c); or
(iii) while he is an Employee, contributions to the Plan are
completely discontinued or the Plan is terminated, or the
Plan is partially terminated and such Participant is
affected by such partial termination; OR.
(iv) while he is an Employee, his account balance is transferred
to the MichCon Investment and Stock Ownership Plan in
accordance with Section 3.3 (in which case such account
balance shall be vested under the recipient plan).
ARTICLE VI INVESTMENT PROVISIONS
6.1 Investment of Contributions. Employer contributions under sections 4.2,
4.3, and 4.4 and Employee contributions shall be invested in accordance with the
following provisions:
(a) The Employer contributions made pursuant to section 4.3(a), (c),
and (d) shall be invested in the MCN Stock Fund (through each Participant's ESOP
Account), which fund is described in Article VII.
(b) Each Participant shall, by direction to the Committee in the form
prescribed by the Committee, direct that the Employer contributions made
pursuant to section 4.2 and Employee contributions, including those made as a
Salary Reduction, be invested in such funds offered by the Trustee as are
selected by the Committee.
Employee contributions, including those made as a Salary Reduction, and
the portion of Employer contributions referenced in section 6.1(b) above, need
not be invested in the same fund. A Participant shall direct the manner in which
the total of such Employee contributions and such Employer contributions
referenced in section 6.1(b) above shall be divided, equally or otherwise, among
the funds.
6.2 Change of Investment Direction. Any investment direction given by a
Participant under section 6.1 shall be deemed to be a continuing direction until
changed by the Participant.
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<PAGE> 33
A Participant may change any such direction in accordance with such procedures
as the Committee may from time to time provide and apply in a nondiscriminatory
manner.
6.3 Transfers Between Investment Funds. A Participant may direct that all
or any part of the value of his interest in any investment fund be transferred
to one or more of the other funds except that a Participant may not transfer any
amount from the MCN Stock fund to the extent that the balance remaining in such
fund immediately after the transfer would be less than the value of his ESOP
Account.
A transfer of all or any part of the value of a Participant's interest in
the Fixed Income fund may from time to time be restricted by the terms of
agreements which govern the investment of assets in such fund, in which event
the Committee shall give notice of such restrictions to the Participants.
ARTICLE VII INVESTMENT FUNDS
7.1 Investment Funds. The Trustee shall establish, operate, and maintain
the following funds exclusively for the collective investment and reinvestment
of monies directed by the Committee to be invested in such funds on behalf of
Participants:
(a) MCN Stock Fund. An MCN Stock fund which shall be invested solely
in MCN Stock.
(b) Fixed Income Fund. A Fixed Income fund which shall be invested,
except as hereinafter provided, in marketable fixed income securities or
accounts maintained by financial institutions which provide for fixed or
variable rates of interest for specified periods of time. The terms of such
agreements and the selection of such institutions shall be determined by the
Company. Investment advisors for marketable fixed income securities may use
fixed income futures and options to reduce the effect of market volatility.
(c) Other Funds. Such other funds offered by the Trustee as the
Committee may select.
Notwithstanding the foregoing, the Trustee or the investment manager, as the
case may be, shall invest such portion of the assets of the funds as the
Committee may deem necessary or appropriate to facilitate the administration of
such funds in any short-term fixed income fund as may be established under any
common, commingled, or collective trust for employee benefit plans established
and maintained by the Trustee.
7.2 Management of Investment Funds. Except as otherwise provided in this
Article VII, the ownership of the assets and investments of the funds shall be
in the Trustee as such; and the Trustee shall have in respect of any and all
assets of the funds the same powers as if it were absolute owner thereof.
7.3 Voting of MCN Stock.
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(a) Instructions from Participants. The Trustee shall vote, in person
or by proxy, shares of MCN Stock held by the Trustee in the MCN Stock fund in
accordance with instructions obtained from Participants.
Each Participant shall be entitled to give voting instructions with
respect to the number of shares of such respective stock which bears the same
ratio to the total number of shares held by the Trustee on the record date as
the number of shares allocated to the respective stock fund account of such
Participant as of the Valuation Date preceding such record date bears to the
total number of shares allocated to the respective stock fund accounts of all
Participants as of such Valuation Date, excluding shares allocated to the
accounts of persons whose accounts have been distributed prior to such record
date.
Written notice of any meeting of stockholders of MCN Energy Group Inc.
and a request for voting instructions shall be given by the Committee or the
Trustee, at such time and in such manner as the Committee shall determine, to
each Participant entitled to give instructions for the voting of stock at such
meeting.
Shares with respect to which no voting instructions are received from
Participants and unallocated shares of the ESOP shall be voted by the Trustee in
the same proportion as shares for which voting instructions are received from
Participants. The Trustee shall combine and vote fractional shares to the extent
possible to reflect the voting instructions of Participants.
(b) Confidentiality. The instructions received by the Trustee from
Participants shall be held by the Trustee in strict confidence and shall not be
divulged or released to any person, including officers or employees of the
Company or any Affiliated Company.
7.4 Tender Offers.
(a) Rights of Participants. Notwithstanding any other provisions of
this instrument, in the event an offer is made generally to the shareholders of
MCN Energy Group Inc. to transfer all or a portion of the common stock of MCN
Energy Group Inc. in return for valuable consideration including, but not
limited to, offers regulated by section 14(D) of the Securities Exchange Act of
1934, as amended, each Participant owning a beneficial interest in the MCN Stock
fund shall have the sole and exclusive right to decide if the common stock
representing his interest in such fund shall be tendered. Each Participant shall
have the right, to the extent the terms of the tender offer so permit, to direct
the withdrawal of such shares from tender. A Participant shall not be limited as
to the number of instructions to tender or withdraw from tender which he can
give; provided, however, the Participant shall not have the right to give
instructions to tender or withdraw from tender after a reasonable time
established by the Trustee pursuant to section 7.4(c) below.
(b) Duties of the Committee. Within a reasonable time after the
commencement of a tender offer, the Committee shall provide to each Participant
having an ownership interest in the MCN Stock fund--
(i) the offer to purchase as distributed by the offeror to the
shareholders of MCN Energy Group Inc.,
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(ii) a statement of the shares representing his interest in the
MCN Stock fund as of the most recent information available from the Committee,
and
(iii) directions as to the means by which a Participant can give
confidential instructions to the Trustee with respect to the tender. The
Committee shall establish and pay for a means by which a Participant can
expeditiously deliver to the Trustee instructions with respect to the tender.
(c) Duties of the Trustee. The Trustee shall follow the instructions
of the Participants with respect to the tender offer. The Trustee shall not
tender shares for which no instructions are received. Unallocated shares of
MCN Stock of the ESOP shall be tendered or exchanged by the Trustee in the same
proportion as the allocated shares for which the Trustee has received direction
are tendered or exchanged, subject to the terms of any loan or pledge agreement
covering such shares. On the basis of its ability to comply with the terms of
the offer, the Trustee shall establish a reasonable time after which it shall
not accept the instructions of Participants.
(d) Confidentiality. The instructions received by the Trustee from
Participants shall be held by the Trustee in strict confidence and shall not be
divulged or released to any person, including officers or employees of the
Company or any Affiliated Company.
7.5 Named Fiduciary Status. For purposes of sections 7.3 and 7.4, each
Participant is hereby designated a "named fiduciary" within the meaning of ERISA
section 403(a)(1) with respect to shares of MCN Stock as to which he is entitled
to make voting or tender offer decisions.
7.6 Expenses of Funds. Brokerage commissions, transfer taxes, and other
charges and expenses in connection with the purchase and sale of securities for
a fund shall be charged to the fund. Any income and other taxes payable with
respect to a fund shall likewise be charged to the fund.
ARTICLE VIII ACCOUNTS AND RECORDS OF THE PLAN
8.1 Committee to Maintain. The Committee shall maintain, or cause to be
maintained, for each Participant (i) a Savings Plan Account attributable to
Voluntary Deduction contributions and related Employer contributions under
section 4.2, and (ii) a separate account attributable to Salary Reduction
contributions and related Employer contributions under section 4.2, each of
which shall be composed, to the extent required by the investment directions of
the particular Participant, of a MCN Stock fund account, a Fixed Income fund
account, and an account for each other applicable fund in which his
contributions and related Employer contributions are invested.
The Committee also shall maintain, or cause to be maintained, for each
Participant (A) an ESOP Account attributable to Employer contributions under
section 4.3(a), (c) and (d), and (B) shares of MCN Stock allocated to the
Participant pursuant to section 14.4(d), each of which shall be composed of a
MCN Stock fund account and, to the extent diversification elections are
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made by the Participant under section 14.5, such other accounts as the Committee
or its delegate deems necessary or appropriate in giving effect to the
diversification requirements of section 14.5.
The Committee shall maintain, or cause to be maintained, all necessary
records.
8.2 Plan Accounting. The interests of each Participant in the funds shall
be his proportionate share of the value of such funds as of any Valuation Date.
The Participant's proportionate share may be determined under any accounting
method selected by the Committee that allocates fairly, in the opinion of the
Committee, the investment gains and losses by or on behalf of each Participant
to the fund and that complies with the requirements of the Code and the
Regulations thereunder. The value of Participants' fund accounts shall be
redetermined as of each Valuation Date.
8.3 Valuation of Funds. The value of a fund as of any Valuation Date shall
be the market value of all assets (including any uninvested cash) held by the
fund as determined by the Trustee reduced by the amount of any accrued
liabilities of the fund on such Valuation Date. The Trustee's determination of
market value shall be binding and conclusive upon all parties.
To the extent any Employer securities held by the Plan are not readily
tradable on an established securities market, valuation of such securities shall
be made by an independent appraiser who meets requirements similar to the
requirements of the regulations prescribed under Code Section 170(a)(1).
8.4 Valuation of Savings Plan Account. The value of a Participant's Savings
Plan Account as of any Valuation Date shall be the sum of the values of his MCN
Stock fund account, Fixed Income fund account, and any other of his fund
accounts attributable to Salary Reductions, Voluntary Deductions, and Employer
Contributions under section 4.2.
8.5 Valuation of ESOP Account. The value of a Participant's ESOP Account as
of any Valuation Date shall be the sum of (i) the value of his ESOP Account
attributable to Employer contributions on his behalf under section 4.3(a),(c)
and (d) and shares of MCN Stock allocated to his ESOP Account under section
14.4(d); and (ii) the sum of the values of his Fixed Income fund account and any
other of his fund accounts attributable to diversification elections under
section 14.5.
8.6 Valuation of Plan Account. The value of a Participant's Plan Account as
of any Valuation Date shall be the sum of the values of his MCN Stock fund
account, Fixed Income fund account, and any other investment fund accounts
maintained on his behalf under the Plan.
8.7 Committee to Furnish Annual Statements of Value of Plan Accounts. The
Committee shall, not less frequently than annually, distribute to each
Participant in the Plan a statement setting forth the Plan Account of such
Participant. Such statement shall be deemed to have been accepted as correct
unless written notice of objections thereto is received by the Committee or the
Employer within 30 days after the distribution of such statement to the
Participant.
8.8 Trust Agreement. A Trust has been established to fund benefits under
the Plan. The Employers may, without further reference to or action by any
Employee or Participant, from time to time enter into further agreements with
the Trustee and make such amendments to
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such Trust Agreement or such further agreements as they may deem necessary or
desirable to carry out the Plan, and may take such other steps and execute such
other instruments as the Employers may deem necessary or desirable to put the
Plan into effect or to carry it out.
ARTICLE IX DISTRIBUTIONS, WITHDRAWALS AND LOANS
9.1 Distribution Upon Termination of Employment Entitling Participant to
Value of Plan Account. Upon--
(a) termination of a Participant's employment with his Employer due to
retirement on his Normal Retirement Date or his Disability Retirement Date,
(b) the death of the Participant,
(c) termination of a Participant's employment with his Employer or
placement on inactive payroll because of total and permanent disability or
legally established mental incompetency of the Participant not qualifying the
Participant for retirement hereunder, or
(d) termination of a Participant's employment with his Employer under
any circumstances after the Participant has satisfied the Vesting Requirement,
the Committee shall, subject to the provisions of section SECTIONS 9.7 AND 9.9,
direct the Trustee to distribute to the Participant, or, in a proper case his
designated beneficiary or legal representative, the value of the Participant's
Plan Account In a Lump Sum.
9.2 Distribution Upon Termination of Employment Under Circumstances
Resulting in Forfeiture of Employer Contributions. Upon termination of a
Participant's employment under circumstances other than those described in
sections 9.1 and 9.7(c)(ii), the Committee shall, subject to the provisions of
section 9.7, direct the Trustee to distribute to the Participant an amount equal
to the value of the Participant's Employee Pre-1987 Voluntary Deduction Account,
Employee Post-1986 Voluntary Deduction Account, and Employee Salary Reduction
Account each of which shall be fully vested and nonforfeitable at all times.
Subject to Section 4.4, the Participant's Employer Voluntary Deduction Account,
Employer Salary Reduction Account, and ESOP Account shall be forfeited and
applied in reduction of the next succeeding contribution which the Participant's
Employer would otherwise contribute to the Trust; provided, however--
(a) If all or any portion of such account is vested as a result of the
application of the accelerated vesting schedule set forth in section 13.4(c),
the Committee shall direct the Trustee to distribute such portion to the
Participant; and
(b) If such Participant is reemployed prior to his incurring five
consecutive Break in Service Years, then following his date of reemployment, the
Participant's Employer shall contribute on behalf of such Participant an amount
equal to the amount that was forfeited upon his termination of employment, and
such contribution shall be credited to the same accounts from which it was
forfeited, in the same amounts.
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Contributions made pursuant to (b) shall not be taken into account in
determining under section 4.12 the Annual Additions to such Participant's
Savings Plan Account.
9.3 Certain Distributions from Participant Accounts.
(a) In General. Any Participant may, upon notice to the Committee in
the form and timing prescribed by the Committee, terminate his participation in
the Plan. Within a reasonable period of time following processing of such
termination, the Committee shall direct the Trustee to distribute to the
Participant an amount equal to the value of the Participant's Employee Pre-1987
Voluntary Deduction Account and Employee Post-1986 Voluntary Deduction Account.
[24 month requirement?], But only to the extent attributable to voluntary
deduction contributions that have been in the plan for at least 2 years.
(b) Withdrawals After Age 59 1/2. Upon notice to the Committee in the
form and timing prescribed by the Committee, any Participant who has attained
age 59 1/2 may make an election, not more frequently than once every calendar
year, to withdraw all or any portion of the vested amount of his Plan Account.
Within a reasonable period following the processing of such election, the
Committee shall direct the Trustee to distribute to the Participant the amount
the Participant has elected to withdraw.
(c) Limited Withdrawal in the Event of Hardship. If a Participant
incurs a financial hardship as defined in section 9.6, he may limit the amount
of a distribution from his Voluntary Deduction Account under section 9.3(a) to
the amount necessary to satisfy the hardship and to pay any taxes resulting from
such distribution.
9.4 In-Service Withdrawals--General. At its discretion, the Committee may
adopt rules limiting the number of withdrawals that may be made in any Plan Year
and prescribe a minimum amount that may be withdrawn. All requests for a
withdrawal shall be submitted in a form prescribed by the Committee. A
Participant may not rescind a request for withdrawal which has been submitted to
the Committee unless the Committee consents. A withdrawal shall be distributed
as soon as reasonably practicable after the withdrawal request is received.
9.5 Withdrawal of Voluntary Deduction Contributions. Any Participant who
shall have actively participated in the Plan for 24 or more calendar months (for
purposes of this section 9.5 active participation means the Participant shall
have made contributions to the Plan in each month in which compensation was
available) may, upon notice to the Committee in the form and timing prescribed
by the Committee, withdraw an amount not in excess of 100 percent of his
Voluntary Deduction contributions under the Plan (but only to the extent
attributable to Voluntary Deduction contributions that have been in the Plan for
at least 2 years), with such election to be given effect within a reasonable
time following processing.
Withdrawals under this section 9.5 shall be from the MCN Stock fund, the
Fixed Income fund, or such other investment funds offered by the Trustee as the
Committee shall make available for purposes of this section. If the Participant
has an account in more than one fund, he shall specify in his direction to the
Committee the amount to be withdrawn from each fund. The contributions in all
funds in the Employee Pre-1987 Voluntary Deduction Account must be withdrawn
before a withdrawal is permitted from a fund in the Employee Post-1986 Voluntary
Deduction Account. The amount of an in-service withdrawal from a specific fund
in a Voluntary Deduction Account shall not exceed the Employee's contributions
in such fund prior to the withdrawal.
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9.6 Hardship Withdrawal of Salary Reduction Contributions. A Participant
may request, upon written notice to the Committee in the form and timing
prescribed by the Committee, a withdrawal from his Salary Reduction
Account if the withdrawal is necessary to satisfy an immediate and heavy
financial need of a Participant as defined below, with such election to be
given effect within a reasonable time following processing. The amount of such
withdrawal shall be limited to the Participant's Salary Reduction contributions
or the total value of the Participant's Employee Salary Reduction Account as of
the latest Valuation Date for which information is available, whichever is
smaller. Withdrawals under this section 9.6 shall be from the MCN Stock fund,
the Fixed Income fund, or such other investment funds under the Plan as the
Participant specifies in his written request for a hardship withdrawal.
The determination of whether or not a distribution is necessary to satisfy
an immediate and heavy financial need and the amount required to be distributed
to meet the need shall be made by the Committee. All determinations regarding
financial need shall be made in accordance with written procedures established
by the Committee and applied in a uniform and nondiscriminatory manner based on
all of the applicable facts and circumstances. Such written procedures shall
specify the requirements for requesting and receiving distributions on account
of financial need, including the forms that must be submitted and to whom the
forms are to be submitted. All determinations regarding financial need must
comply with applicable Regulations under the Code.
For purposes of this section 9.6, a financial hardship withdrawal shall be
limited to the amount required to meet the need created by one of the following
situations:
(a) Expenses for medical care described in Code section 213(d)
previously incurred by the Participant, his spouse, or any dependents of the
Participant or necessary for these persons to obtain medical care described in
Code section 213(d).
(b) Costs directly related to the purchase (excluding mortgage
payments) of the principal residence for the Participant.
(c) Payment of tuition and related educational fees (including room
and board expenses) for the next 12 months of post-secondary education for the
Participant, his spouse, children, or dependents (as defined in Code section
152).
(d) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage on the Participant's
principal residence.
A distribution will be deemed necessary to satisfy an immediate and heavy
financial need of a Participant only if both of the following conditions are
met: (I) The distribution is not in excess of the amount of the immediate and
heavy financial need of the Participant. Prior to January 1, 1999, this amount
may be increased by the lesser of the amount withheld from the distribution
under Code section 3405(c) or the remaining Salary Reduction contributions or
total value of the Salary Reduction Account, if less, after subtracting the
amount of the immediate and heavy financial need; AND (II). The Participant has
obtained all distributions, other than hardship distributions, and all loans
available under this Plan and all other plans maintained by the Employer.
If a Participant receives a hardship distribution, (1) the Participant shall
not be entitled to make Salary Reduction contributions or Voluntary Deduction
contributions (or other employee contributions to qualified or nonqualified
plans of deferred compensation, as described in
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applicable regulations) for a period of one year after the hardship
distribution, and (2) the Participant may not make Salary Reduction
contributions for the Participant's taxable year immediately following the
taxable year of the hardship distribution in excess of the amount specified in
Code section 402(g) for such taxable year less the amount of the Participant's
Salary Reduction contributions for the taxable year of the hardship
distribution.
9.7 Time of Distributions.
(a) In General. Except as hereinafter provided and subject to the
provisions of section 9.9, distributions made pursuant to section 9.1 or
9.7(c)(ii) shall be made by the Trustee at the direction of the Committee on
such date as the Committee shall determine after consultation with the
Participant or his beneficiary, but in no event later than March 1 of the
calendar year following termination of the Participant's employment.
Except as hereinafter provided, all other distributions or withdrawals
under this Article IX shall be paid as soon as reasonably practicable by the
Trustee at the direction of the Committee. Notwithstanding any other provision
of the Plan--
(i) If the vested portion of a Participant's Plan Account has
ever exceeded $5,000 (or such greater amount as permitted under the Code), no
distribution shall be made to such Participant pursuant to Section 9.1, 9.2,
9.7(c)(ii), or 9.9 prior to the date the Participant attains the age of
sixty-five (65) without written consent of the Participant; and
(ii) if a distribution to a Participant is deferred pursuant to
(i), the amount that would otherwise have been distributed to such Participant
shall be invested in the Fixed Income fund or any other investment fund under
the Plan, as the Participant shall direct, except that the ESOP Account of such
Participant shall continue to be invested in the MCN Stock fund, subject to the
diversification rules set forth in section 14.5.
A former Participant whose distribution has been deferred pursuant to
(i) above will not thereafter be eligible for withdrawals under section 9.3 or
9.5 or loans under section 9.10 but shall continue to have the voting and tender
offer rights described sections 7.3 and 7.4 and to be treated as a Participant
for purposes of Article VIII.
A former Participant whose distribution has been deferred may initiate
a distribution upon reasonable prior written notice to the Committee and shall
receive an amount equal to the vested portion of his Plan Account within a
reasonable period following processing of such election, with such amount to be
distributed in a lump sum cash payment except that--
(A) amounts invested in the MCN Stock fund shall be distributed
in accordance with section 9.8,
(B) such former Participant may upon reasonable prior notice to
the Committee receive a partial distribution rather than a
total distribution, of the vested portion of his Account,
but not more frequently than four times per year, and
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(C) to the extent that such distribution comes from the Fixed
Income fund account, such distribution shall be subject to
the provisions of section 9.9.
Notwithstanding any other provision of this Plan, if a Participant
attains age 70 1/2 and still has a balance allocated to his or her Plan Account,
a distribution shall be made under section 9.1 as if the Participant had
terminated employment in the month in which the Participant attains age 70 1/2.
Such distribution shall in no event be later than April 1 of the calendar year
following the year in which the Participant attains age 70 1/2. Distributions to
such Participant shall be made annually thereafter no later than December 31 of
each year and shall be equal to at least the minimum amount required to be
distributed by Code section 401(a)(9). For purposes of this paragraph, the life
expectancy of a Participant and the Participant's spouse shall be redetermined
annually.
(b) Suspension of Participation. Prior to termination of his
employment, if a Participant shall cease to meet the eligibility requirements of
the Plan, his contributions and Employer contributions on his behalf shall be
suspended during the period of his ineligibility. Subject to section 3.1,
distribution of such Participant's Plan Account shall be deferred until
termination of his employment with the Company and any Affiliated Company. If
the provisions of section 3.3 relating to the transfer of a Participant's Plan
Account to the MichCon Investment and Stock Ownership Plan or its successor are
not applicable--
(i) with respect to Participants who cease to meet the
eligibility requirements of the Plan prior to January 1, 1987, the Committee
shall direct the Trustee to distribute the value of the Participant's Plan
Account in accordance with section 9.1 whether or not such termination of
employment shall be under the circumstances set forth in said section 9.1; and
(ii) with respect to Participants who cease to meet the
eligibility requirements of the Plan subsequent to December 31, 1986, such
distribution shall be in accordance with section 9.1 or 9.3, whichever is
applicable.
(c) Transfer of Employment.
(i) A transfer of employment from an Employer to an Affiliated
Company shall not be considered a termination of employment.
(ii) If a Participant shall be transferred to the employ of an
Affiliated Company which has not elected to participate in the Plan,
distribution of such Participant's Plan Account shall be deferred until the date
on which he is no longer in the employ of the Company or any Affiliated Company,
whereupon the Committee shall direct the Trustee to distribute the value of the
Participant's Plan Account in the manner prescribed in section 9.1, subject to
the provisions of section 9.7, whether or not termination of employment shall be
under circumstances set forth in said section 9.1.
(d) Special Rules Relating to Distributions in the Event of Death. In
the event that a Participant dies before a distribution of his Plan Account, the
Committee shall direct the Trustee to distribute the entire value of his Plan
Account to his beneficiary no later than March 1 of the calendar year following
the Participant's death, as provided in section 9.1. In the
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event of the death of the Participant after the distribution of his Plan Account
has begun, any remaining balance in his Plan Account at the time of death will
be distributed at least as rapidly as under the method of distribution in effect
at the date of the Participant's death.
(e) Distribution must begin not later than the sixtieth (60th) day
after the close of the Plan Year in which occurs the latest of (a) the
Participant's termination of employment, (b) the Participant's attainment of age
sixty-five (65), or (c) the tenth (10th) anniversary of the date the Participant
first became a Participant, unless (1) the Participant elects a later date by
submitting to the Committee a written statement signed by the Participant which
describes the benefit and the date on which payment of such benefit shall
commence, so long as such election does not violate the incidental benefit rule
prescribed by the Code; or (2) if the amount of the payment required to commence
on the date determined hereinabove cannot be ascertained by such date, or if it
is not possible to make such payment on such date because the Committee has been
unable to locate the Participant after making reasonable efforts to do so, a
payment retroactive to such date may be made no later than sixty (60) days after
the earliest date on which the amount of such payment can be ascertained under
the Plan or the date on which the Participant is located, whichever is
applicable. For purposes of this subsection, the failure of a Participant to
consent to a distribution shall be deemed an election to defer commencement of
payment of any benefit sufficient to satisfy this section.
9.8 Distributions of Stock. In the case of distributions under section 9.1,
9.2, 9.3(b), 9.7(a), or 9.7(c)(ii), the value of the Participant's MCN Stock
fund account, if any, shall be paid in full shares of stock except that cash
shall be distributed in lieu of fractional shares; provided, however, that a
Participant entitled to such a distribution may elect to receive cash in lieu of
MCN Stock. Except in the case of an election to receive cash in lieu of MCN
Stock, the total number of shares allocated to such account shall be distributed
from such account.
Any remaining value of such account and, subject to the provisions of section
9.9, the value of the Participant's accounts in other funds shall be distributed
in cash. Any transfer taxes payable with respect to the distribution of shares
of stock shall be charged to the respective MCN Stock fund. Distributions
pursuant to section 9.3(a) and withdrawals under sections 9.5 and 9.6 shall be
paid entirely in cash. The distribution requirements of Code Section 409(o)
shall be met by the Plan, to the extent applicable.
9.9 Distributions to Certain Participants from Fixed Income Fund. This
Section 9.9 shall apply only to Participants with at least one Hour of
Employment prior to May 31, 1988.
(a) Normal Form. Notwithstanding any provision of the Plan, other than
the final paragraph of section 9.7(a), if a distribution is to be made under
section 9.1(a) or (c) and the Participant has a Fixed Income fund account and at
least one Hour of Employment prior to May 31, 1988 and the Participant's first
Hour of Employment is prior to January 1, 1999, then unless the Participant or
legal representative shall make an election in the manner prescribed in section
9.9(b), the value of such account (exclusive of the portion thereof attributable
to diversification elections under section 14.5) shall be distributed by the
purchase of an immediately payable single premium annuity contract providing for
monthly payments during the Participant's lifetime and, if the Participant is
married on the date payment of his benefit commences and his spouse shall
survive him, for monthly payments during the remainder of such spouse's
lifetime, each such payment to such spouse being equal to one-half of the
monthly payment received by the Participant, commencing no later than March 1 of
the calendar year following the calendar year of the Participant's termination
of employment, and
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delivery of such contract to the Participant within a reasonable time after the
Participant's termination of employment.
If a distribution is to be made under section 9.1(b) because of a
Participant's death and the Participant had a Fixed Income fund account at the
time of his death and at least one Hour of Employment prior to May 31, 1988 and
the Participant's first Hour of Employment was prior to January 1, 1999, then
unless the Participant had made or the Participant's spouse or beneficiary, as
the case may be, makes an election at the time and in the manner prescribed in
section 9.9(b), the value of the Participant's Fixed Income fund account
(exclusive of the portion thereof attributable to diversification elections
under section 14.5) shall be distributed by purchase of an immediately payable
single premium annuity contract providing for monthly payments to the
Participant's spouse, or, if the Participant was not married on the day of his
death, to his beneficiary during such person's lifetime, commencing no later
than March 1 of the calendar year following the calendar year of the
Participant's death and delivery of such contract to such person within a
reasonable time after the date of Participant's death.
(b) Election to Reject Normal Form. Subject to the provisions of this
section 9.9(b), each Participant entitled to a distribution under section 9.9(a)
(or legal representative on behalf of such a Participant) may, at any time
during the 90-day period ending on the annuity starting date, elect to have the
value of the Participant's Fixed Income fund account (exclusive of the portion
thereof attributable to diversification elections under section 14.5)
distributed by one or more of the methods set forth in section 9.9(c).
Within 30 days after a Participant provides written notice to the
Committee of his intention to retire on his Normal Retirement Date or Disability
Retirement Date, or within 30 days after the Committee receives notice of a
Participant's death, or within five business days after determining, in
accordance herewith, that a Participant is totally and permanently disabled, or
within five business days after receiving notice of the legally established
mental incompetency of the Participant, if the Participant has a Fixed Income
fund account at such time, the Committee shall deliver to such Participant or
his legal representative, by mail or by personal delivery, written notice in
nontechnical language explaining the terms and conditions of the annuity
provided in section 9.9(a).
The notice shall explain the Participant's or legal representative's
right to elect an optional form of distribution and that such election may be
revoked by the Participant or legal representative at any time prior to the
annuity starting date or, if a lump sum payment is elected, prior to the first
day on which all events have occurred which entitle the Participant or legal
representative to the lump sum payment.
The notice shall explain that a married Participant may elect a
distribution pursuant to section 9.9(c) only if the spouse consents in writing
to such election. Such written consent shall acknowledge consent to the
designated beneficiary and the optional form of distribution, neither of which
may be changed thereafter without again obtaining written spousal consent (or
the consent of the spouse expressly permits changes by the Participant without
further consent by the spouse). Such written consent shall acknowledge the
effect of such election and shall be witnessed by a notary public or by a
representative of the Committee who is designated to act in such capacity by the
Committee.
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If the Participant establishes to the satisfaction of the Committee
that such written consent cannot be obtained because his spouse cannot be
located, the requirement of such written consent shall be waived. Any election,
change, or revocation under this section 9.9(b) shall be effective when written
notice is delivered to the Committee in a form approved by the Committee for
this purpose, provided such election, change, or revocation is delivered prior
to the annuity starting date or, if a lump sum payment is elected, prior to the
first day on which all events have occurred which entitle the Participant or
legal representative to the lump sum payment. The notice shall explain that an
effective revocation shall result in the benefit being provided as an annuity
described in section 9.9(a).
Subject to Section 9.14(C), such notice shall be provided no less than
thirty (30) days and no more than ninety (90) days prior to the annuity starting
date.
(c) Optional Forms. In addition to the form described in section
9.9(a), distribution of the value of a Participant's Fixed Income fund account
(exclusive of the portion thereof attributable to diversification elections
under section 14.5) may be made either--
(i) in a lump sum payment; or
(ii) by purchase of any form of single premium annuity contract
that satisfies Code section 401(a)(9) as may from time to time be offered by the
legal reserve life insurance companies with which the Trustee has agreements
governing the investment of assets in the Fixed Income fund and delivery of such
contract to the Participant or distributee within a reasonable time after the
Participant's termination of employment or death. Within five business days
after the Committee receives an election pursuant to this provision, the
Committee shall provide the same written notice provided under section 9.9(b).
An election pursuant to this provision shall be subject to the provisions of
section 9.9(b).
9.10 Loans. The Trustee is hereby authorized to establish a loan program in
accordance with this section 9.10. Upon application of a party in interest (as
defined in ERISA section 3(14)) who is a Participant or beneficiary under the
Plan, the Committee shall direct the Trustee to make a cash loan to such
Participant or beneficiary, secured by 50 percent of the nonforfeitable value of
the Participant's Employee and Employer Salary Reduction and ESOP Accounts
determined as of the date the loan is made. The loan program shall be
administered by the Committee subject to the following conditions and such other
conditions that are consistent with Labor Regulation section 2550.408b-1 and are
from time to time set forth in written administrative procedures which shall
constitute a part of the Plan and are hereby incorporated by reference:
(a) The term of a loan shall not extend beyond the earlier of four
years or the date upon which the Participant or beneficiary ceases to be a party
in interest; provided, however, that the four years shall be changed to eight
years where the proceeds of the loan are used by the Participant or beneficiary
to acquire the Participant's principal residence.
(b) A loan shall bear interest at a reasonable rate which shall be
based upon the prevailing interest rate charged by persons in the business of
lending money on similar commercial loans under comparable circumstances at the
time that such loan is granted, as determined by the Committee and uniformly
applied.
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(c) The amount of a loan (when added to the balance of other
outstanding loans) shall not exceed the lesser of--
(i) $50,000 reduced by the excess (if any) of--
(A) the highest outstanding balance of loans from the Plan
during the one-year period ending on the day before the
date on which such loan was made, over
(B) the outstanding balance of loans outstanding on the date
such loan was made, or
(ii) 50 percent of the nonforfeitable value of the Participant's
Employee and Employer Salary Reduction and ESOP Accounts under the Plan which
the Participant would have been entitled to receive if the Participant's
employment had terminated on the date such loan was made.
In no case shall a Participant be entitled to a loan under this Plan if
the amount of the proposed loan is less than $500.
(d) A loan shall be evidenced by a promissory note.
(e) Payments of principal and interest shall be made by approximately
equal payments not less frequently than monthly on a basis that would permit the
loan to be fully amortized over its term. Loan payments shall be made by payroll
deductions for Participants in active pay status.
(f) Appropriate disclosure shall be made pursuant to the Truth in
Lending Act to the extent applicable.
(g) Amounts of principal and interest received on a loan shall be
credited to the Participant's account and the outstanding loan balance shall be
considered an investment of the assets of the account. Payment of principal and
interest related to loans made from a Participant's ESOP Account shall be
credited to such Participant's ESOP Account. Payment of principal and interest
related to loans made from a Participant's Savings Plan Account shall be
credited to the Participant's Investment Plan Account and shall be invested in
the investment funds in the same proportions as the investment election then in
effect by the Participant under Article VI.
(h) The frequency of loans and the minimum amount for a loan shall be
determined through uniform rules prescribed by the Committee and at the sole
discretion of the Committee.
(i) All applications for a loan shall be submitted to the Committee on
a form prescribed by the Committee. Distribution shall be made as soon as
reasonably practicable after the application of the loan is received.
(j) If a Participant borrows from an account which is invested in more
than one fund, he shall instruct the Committee as to the funds from which the
loan is to be applied;
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provided, however, that no borrowing shall be applied from the MCN Stock fund
unless and until the Participant's ability to borrow from each of the other
funds has been exhausted.
(k) A married Participant may not borrow any amount from the Plan
unless his spouse executes a written consent as hereinafter provided. Such
consent must be executed during the 90-day period ending on the date on which
the loan is made and shall specifically provide that the spouse consents both to
the loan and to the use of the Participant's Salary Reduction and ESOP Accounts
as security for the loan. The consent shall acknowledge the effect of the use of
the Participant's accounts as security for the loan and shall be witnessed by a
notary public or a representative of the Committee who is designated to act in
such capacity by the Committee.
(l) In the event a Participant defaults on a loan, the entire
outstanding balance of and accrued interest on the loan shall be due and payable
in accordance with the Plan's loan procedures and applicable Regulations. The
Trustee and/or Committee may pursue collection on such defaulted loan by any
means generally available to a creditor where a promissory note is in default,
or if the entire amount due is not paid by such Participant following the
default, the amount of such loan default shall be charged against the "secured
portion" of the Participant's Plan Account and treated as a distribution with
respect to such Participant; provided, however, that such a charge against a
Participant's Plan Account shall not occur with respect to funds in his Employee
Salary Reduction Account at a time so as to cause a violation of Code section
401(k)(2)(B)(i).
9.11 Definition of Employee Contributions and Employer Contributions. For
the purposes of this Article IX, a Participant's Employee contributions shall
include only those contributions made either as a Voluntary Deduction or a
Salary Reduction which have not been previously withdrawn or distributed.
If a Participant has previously had a portion of his Plan Account forfeited
under section 9.2, the Employer contributions, exclusive of those made as a
Salary Reduction to the Plan on his behalf, shall include only such Employer
contributions made subsequent to such forfeiture.
9.12 Spousal Consent to Payment. Subject to section 9.7(a), the spouse of a
married Participant or former Participant shall be required to consent in
writing to any in-service withdrawal, loan, or distribution under the Plan to
the Participant or former Participant. The spouse's consent shall be in such
form as the Committee may prescribe.
9.13 Distributions Pursuant to a Qualified Domestic Relations Order. Upon
receipt of a domestic relations order, the Committee will notify the involved
Participant and any alternate payee that the order has been received and explain
the Plan's procedures for determining whether the order is a qualified domestic
relations order as defined in Code section 414(p). After determining that the
order is a qualified domestic relations order, the Committee shall direct the
Trustee to distribute or segregate the Participant's Account as provided in the
qualified domestic relations order. If required by the qualified domestic
relations order, the Trustee shall make distribution prior to the time that the
Participant, whose account is subject to distribution, could have received a
distribution.
In a case of a dispute regarding the validity of a domestic relations order
or the amounts or identities of parties to be paid thereunder, the Committee may
segregate the portion of the
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Participant's account in question, and may bring an action in a court of
competent jurisdiction to determine the proper amount and/or recipient of
benefits, or may submit such segregated amount to a court of competent
jurisdiction (through an interpleader action or otherwise) until resolution of
the matter.
Further, if the Committee receives notice that a domestic relations order is
forthcoming, the Committee may suspend payments from the Participant's Account
or may follow the procedures described in the preceding sentence, until
resolution of the matter.
9.14 Direct Rollovers of Eligible Distributions.
(a) General. Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a distributee's election under this section, a
distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
(b) Definitions.
(i) Eligible rollover distribution. An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code section 401(a)(9); any hardship distribution
after January 1, 1999; and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(ii) Eligible retirement plan. An eligible retirement plan is an
individual retirement account described in Code section 408(a), an individual
retirement annuity described in Code section 408(b), an annuity plan described
in Code section 403(a), or a qualified trust described in Code section 401(a),
that accepts the distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(iii) Distributee. A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code section
414(p), are distributees with regard to the interest of the spouse or former
spouse.
(iv) Direct rollover. A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the distributee.
(c) Waiver of 30-Day Notice Period. If a distribution is one to which
Code sections 401(a)(11) and 417 do not apply, such distribution may commence
less than 30 days after the notice required under section 1.411(a)-11(c) of the
Income Tax Regulations is given,
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provided that (i) the Committee clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (ii) the Participant,
after receiving the notice, affirmatively elects a distribution.
9.15 Special Distribution Events. Notwithstanding anything herein to the
contrary, a Participant's Salary Reduction contributions shall not be
distributed prior to the Employee's retirement, death, disability, termination
of employment, or hardship, except that a distribution of such amounts may be
made, in accordance with Code Section 401(k)(10), upon
(a) termination of the Plan without establishment of another defined
contribution plan other than an employee stock ownership plan (as defined in
Code Section 4975(e) or 409) or a simplified employee pension plan (as defined
in Code Section 408(k));
(b) the disposition by the Company to an unrelated corporation of
substantially all of the assets (as defined in Code Section 409(e)(2)) used in
the trade or business if the Company continues to maintain the Plan after the
disposition, but only with respect to Employees who continue employment with the
corporation acquiring such assets; or
(c) the disposition by the Company to an unrelated entity of its
interest in a subsidiary (within the meaning of Code Section 409(d)(3)) if the
Company continues to maintain the Plan, but only with respect to Employees who
continue employment with such subsidiary.
ARTICLE X ADMINISTRATION
10.1 The MCN Energy Group Master Trust, Retirement and Savings Plan
Committee.
(a) The Company shall appoint a Committee consisting of at least three
members which shall be known as the MCN Energy Group Master Trust, Retirement
and Savings Plan Committee (the "Committee") and which shall be responsible
(except for duties specifically vested in the Trustee) for the administration of
the provisions of the Plan.
(b) At the Company's discretion, each Employer may be permitted one or
more representatives on the Committee who shall be appointed by and remain in
the office at the will of such Employer. Each Employer shall have the right at
any time, with or without cause, to remove its representative on the Committee.
A member of the Committee may resign and his resignation shall be effective upon
delivery of his written resignation to each Employer. Upon resignation, removal,
or failure or inability for any reason of any member of the Committee to act
hereunder, the Board of Directors of the Employer by whom such member was
appointed may be empowered to appoint a successor member. All successor members
of the Committee shall have all of the rights and privileges and all of the
duties of their predecessors but shall not be held accountable for the acts of
their predecessors. Two or more Employers may appoint the same individual as
their representative on the Committee, provided that the Committee shall consist
of at least three members.
(c) Any member of the Committee may, but need not, be a Participant or
a director, officer, or shareholder of any of the Employers, and such status
shall not disqualify him from taking any action hereunder or render him
accountable for any distribution or material
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advantage received by him under the Plan, provided that no member of the
Committee who is a Participant shall take part in any action of the Committee on
any matter involving solely his rights under the Plan.
(d) The Committee shall be responsible for the administration of the
Plan. The Committee shall have all such powers as may be necessary to carry out
the provisions of the Plan and may from time to time establish rules and
procedures for the administration of the Plan and the transaction of the Plan's
business.
The Committee shall have the exclusive right to make any finding of
fact necessary or appropriate for any purpose under the Plan. The Committee
shall have the maximum discretion permitted by law to interpret and construe the
terms of the Plan and to resolve all issues arising under the Plan including,
but not limited to the authority to--
(i) construe disputed or doubtful terms of the Plan;
(ii) determine the eligibility of an individual to participate in
the Plan;
(iii) determine the amount, if any, of benefits to which any
Participant, former Participant, beneficiary, or other person may be entitled
under the Plan;
(iv) determine the timing and manner of payment of benefits; and
(v) resolve all other issues arising under the Plan.
To the extent permitted by law, all findings of fact, determinations,
interpretations, and decisions of the Committee shall be conclusive and binding
upon all persons having or claiming to have any interest or right under the
Plan.
The Employers shall, from time to time, on request of the Committee,
furnish to the Committee such data and information as the Committee shall
require in the performance of its duties.
(e) The Committee shall each month collect Employee contributions and
Employer contributions from each Employer and shall deliver the amounts
collected to the Trustee, together with instructions concerning the portions of
such total amount to be invested in each fund.
(f) The Committee shall direct the Trustee to make payments of amounts
to be distributed or withdrawn from the Trust under Article IX and to make any
transfers from one fund to another directed by Participants under section 6.3.
(g) The Committee may act at a meeting, or by writing without a
meeting, by the vote or assent of a majority of its members. The Committee shall
elect a Secretary and such Secretary shall keep records of all meetings of the
Committee and shall forward all necessary communications to the Trustee. The
Committee may adopt such by-laws and regulations as it deems desirable for the
conduct of its affairs and the administration of the Plan, provided that any
such regulations shall be consistent with the provisions of the Plan.
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(h) The members of the Committee, and each of them, shall be free from
all liability, joint or several, for their acts, omissions, and conduct in
administration of the Plan herein embodied, and the Employers shall jointly and
severally indemnify them, and each of them, from the effects and consequences of
their acts, omissions, and conduct in their official capacity except to the
extent that such effects and consequences shall result from their own willful
misconduct.
(i) No member of the Committee shall receive any compensation or fee
for his services, unless otherwise agreed between such member of the Committee
and the Employers, but the Employers shall reimburse the Committee members for
any necessary expenditures incurred in the discharge of their duties as
Committee members.
(j) The Committee may employ such counsel (who may be of counsel for
any Employer) and agents, and may arrange for such clerical and other services
as it may require in carrying out the provisions of the Plan, and all fees,
charges, and costs so incurred shall be payable by the Plan except to the extent
the Employers elect to pay such fees, charges, and costs.
(k) The Committee shall maintain a record of all of its proceedings,
shall maintain or cause to be maintained the Plan Accounts prescribed by Article
VIII, and shall make the reports to Participants prescribed by section 8.7.
10.2 Notice to Employees. All notices, reports, and statements given, made,
delivered, or transmitted to a Participant shall be deemed to have been duly
given, made, or transmitted when mailed with postage prepaid and addressed to
the Participant at the address last appearing on the books of the Employer. A
Participant may record any change of his address from time to time by written
notice filed with the Employer.
10.3 Notices to Employers or Committee. Written directions, notices, and
other communications from Participants to the Employers or the Committee shall
be mailed by first class mail with postage prepaid or delivered to such location
as shall be specified upon the forms prescribed by the Committee for the giving
of such directions, notices, and other communications, and shall be deemed to
have been received by the addressee when received at such location. Any other
notice to the Employers or the Committee shall be addressed.
(a) If intended for the Committee:
Savings Plan Committee
c/o MCN Energy Group Inc.
500 Griswold Street
Detroit, Michigan 48226
(b) If intended for an Employer, at its principal place of business.
10.4 Participants' Acceptance of the Provisions of the Plan. Each
Participant at the time of becoming a Participant in the Plan and as a condition
of participation shall sign an instrument evidencing the fact that he accepts
and agrees to all provisions of the Plan.
10.5 Audit of Plan Records. The records of the Committee and the records of
the Employers in respect of the Plan shall be examined annually by a firm of
independent public
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accountants appointed by the Committee. Such accountants shall, on the basis of
such examination, make such reports to the Committee and to the Employers as
they may request. The audited records of the Committee and the Employers shall
be conclusive in respect of all matters involved in the administration of the
Plan.
10.6 Claims Procedure. If any Participant or distributee believes he is
entitled to benefits in an amount greater than those which he is receiving or
has received, he may file a claim with the Secretary of the Committee. Such a
claim shall be in writing and state the nature of the claim, the facts
supporting the claim, the amount claimed, and the address of the claimant.
The Secretary of the Committee shall review the claim and give written
notice by registered or certified mail to the claimant of his decision with
respect to the claim. Such notice shall be provided within 90 days after receipt
of the claim, unless special circumstances require an extension, in which event
the notice shall be provided within 180 days after receipt of the claim. Such
notice shall be written in a manner calculated to be understood by the claimant
and, if the claim is wholly or partially denied, set forth the specific reasons
for the denial, specific references to the pertinent Plan provisions on which
the denial is based, a description of any additional material or information
necessary for the claimant to perfect the claim, and an explanation of why such
material or information is necessary, and an explanation of the claim review
procedure under the Plan. The Secretary shall also advise the claimant that he
or his duly authorized representative may request a review by the full Committee
of the denial by filing with the Committee, within 60 days after notice of the
denial has been received by the claimant, a written request for such review. The
claimant shall be informed that he may have reasonable access to pertinent
documents and submit comments in writing to the Committee within the same 60-day
period. If a request is so filed, review of the denial shall be made by the full
Committee and the claimant shall be given written notice of the Committee's
final decision. Such notice shall be provided within 60 days after receipt of
such request, unless special circumstances require an extension, in which event
the notice shall be provided within 120 days after receipt of the request. Such
notice shall include specific reasons for the decision and specific references
to the pertinent Plan provisions on which the decision is based and shall be
written in a manner calculated to be understood by the claimant.
10.7 Effect of a Mistake. In the event of a mistake or misstatement as to
the eligibility, participation, or service of any Participant, or the amount of
payments made or to be made to a Participant or beneficiary, the Committee
shall, if possible, adjust the Plan's records and cause to be withheld or
accelerated or otherwise make adjustment of such amounts of payments as will in
its sole judgment result in the Participant or beneficiary receiving the proper
amount of payments under the Plan.
ARTICLE XI AMENDMENT AND TERMINATION
11.1 Amendment. The Company may at any time and from time to time amend or
modify the Plan by written instrument duly adopted by the Board of Directors of
the Company or by the Committee. Any such amendment or modification shall become
effective on such date as the Company shall determine, may apply to Participants
in the Plan at the time thereof as well as future Participants, but may not
reduce the Plan Account of any Participant as of the date of adoption of such
amendment or modification.
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11.2 Withdrawal. If an Employer shall withdraw from the Plan under section
12.2, or if an Employer shall adopt an amendment to the Plan which shall render
impracticable the continued administration of the Plan as a joint plan of the
several Employers, the Committee shall determine the portions of the various
funds held by the Trustee which are applicable to the Participants of such
Employer and shall direct the Trustee to segregate such portions in a separate
trust. Such separate trust shall thereafter be held and administered as a part
of the separate plan of such Employer. After such portions of the funds have
been segregated in a separate trust, no such Participant or any distributee with
respect to such Participant shall have any right to any benefit under the Plan
or any claim against the Trust.
11.3 Termination. Any Employer may at any time terminate its participation
in the Plan by resolution of its Board of Directors. In the event of any such
termination, the Committee shall determine the portions of the various funds
held by the Trustee which are applicable to the Participants of such Employer
and shall direct the Trustee to distribute such portions to such Participants
ratably in proportion to the values of their respective fund accounts; provided,
however, amounts attributable to a Participant's Elective Deferrals shall not be
distributed on account of such termination if the Employer, after such
termination, maintains a defined contribution plan (other than an employee stock
ownership plan or a simplified employee pension). The portions of the MCN Stock
fund so distributed shall be distributed in kind except that cash shall be
distributed in lieu of fractional shares. The portions of the Fixed Income fund
and other investment funds so distributed shall be distributed in cash or in
kind, or partly in cash and partly in kind, as determined by the Committee.
Upon termination or partial termination of the Plan by any Employer or upon
the complete discontinuance of contributions by any Employer, the benefits under
the Plan of all affected Participants employed or formerly employed by such
Employer shall become nonforfeitable.
11.4 Allocation of Funds Between Employers. The portion of a fund applicable
to Participants of a particular Employer shall be an amount which bears the same
ratio to the value of the fund which the aggregate value of the fund accounts of
Participants employed by such Employer bears to the total value of the fund
accounts of all Participants.
11.5 Trust to be Applied Exclusively for Participants and Their
Beneficiaries. Subject to section 15.3, any provision of the Plan to the
contrary notwithstanding, it shall be impossible for any part of the Trust to be
used for or diverted to any purpose not for the exclusive benefit of
Participants and their beneficiaries either by operation or termination of the
Plan, by power of amendment, or by other means.
Notwithstanding the preceding paragraph, if a contribution is made to the
Trust by an Employer by a mistake of fact, then such contribution shall be
returned to such Employer within one year after the payment of the contribution;
and if any part or all of a contribution is disallowed as a deduction under Code
section 404, then to the extent such contribution is disallowed as a deduction
it shall be returned to such Employer within one year after the disallowance.
All Employer contributions are conditioned upon their deductibility under Code
section 404.
ARTICLE XII PARTICIPATION BY AFFILIATED COMPANIES
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12.1 Adoption of the Plan. Any Affiliated Company may become a participating
Employer under the Plan by (a) taking such corporate action as shall be
necessary to adopt the Plan, and (b) executing and delivering such instruments
and taking such other action as may be necessary or desirable to put the Plan
into effect with respect to such Affiliated Company.
The Plan shall become effective with respect to each particular Affiliated
Company as of a date to be determined by the Board of Directors of such Employer
after complying with all legal requirements pertaining to the participation of
such Employer in the Plan.
12.2 Withdrawal from the Plan. Any Employer may withdraw from participation
in the Plan at any time by filing with the Committee a duly certified copy of a
resolution of its Board of Directors to that effect and giving notice of its
intended withdrawal to the Committee, the other Employers, and the Trustee at
least 30 days prior to the effective date of withdrawal.
12.3 Company as Agent for Employers. Each Employer other than the Company,
hereby appoints, and each other corporation which shall become an Employer
pursuant to section 12.1 or 15.7 by so doing shall be deemed to have appointed
the Company its agent to exercise on its behalf all of the powers and
authorities hereby conferred upon the Employers by the terms of the Plan,
including, but not by way of limitation, the power to amend, restate, and
terminate the Plan. The authority of the Company to act as agent shall continue
unless and until the portion of the Trust fund held for the benefit of Employees
of the particular Employer and their beneficiaries is set aside in a separate
trust as provided in section 11.2.
ARTICLE XIII TOP-HEAVY PLAN RULES
13.1 Application of Top-Heavy Plan Rules. If the Plan is top-heavy as
determined under section 13.3, then the requirements in section 13.4 shall apply
to the Plan to the extent indicated by that section 13.4.
13.2 Special Definitions. Any reference in this Article XIII to a "plan"
means a stock bonus, pension, or profit-sharing plan of the Company and any
Affiliated Company for the exclusive benefit of its employees or their
beneficiaries, including this Plan. For purposes of this Article XIII only, the
following terms shall have the meanings indicated:
(a) "Compensation" means a Participant's Compensation from the
Employer for any calendar year as defined in Article II.
(b) "Determination Date" means, with respect to any Plan Year, the
last day of the preceding Plan Year, except that in the case of the Plan's first
Plan Year, the Determination Date shall be the last day of that Plan Year. Where
one or more other plans are required or permitted to be aggregated with this
Plan under section 13.3 and where all plan years of all such plans do not
coincide, the "Key Employee Sum" and the "All Employee Sum" in section 13.3 each
shall be determined separately for each plan as of its appropriate Determination
Date and the results shall then be combined for the Determination Dates falling
within the same calendar year.
(c) "Employee" means a common law employee of the Employer who is or
once was a Participant, including his beneficiary, but excluding any employee
who is a member of a unit of employees covered by a collective bargaining
agreement under which retirement
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<PAGE> 54
benefits were the subject of good faith bargaining with the Employer unless a
member of such unit is a Key Employee. For purposes of making computations
involving the MichCon Employee Stock Ownership Plan, employee shall include any
common law employee of the Employer, including his beneficiary.
(d) "Employer" means the Company and any other employing unit which
would be included in the same controlled group as the Company (as defined in
Code section 414(b)) or which is under common control with the Company (as
defined in Code section 414(c)) or which is included in the same affiliated
service group (as defined in Code section 414(m)) or which is required to be
aggregated with the Company pursuant to Regulations under Code section 414(o).
(e) "Key Employee" means each Employee or former Employee (including
the beneficiary of either) who at any time during the Plan Year containing the
Determination Date or any of the four preceding Plan Years received Compensation
from the Employer and who--
(1) Is one of the fifty (50) (or if fewer, the greater of three
(3) or ten percent (10%) of all Employees) officers of the
Employer who had the largest Compensation in the five-year
period ending on the last day of the current Plan Year, but
only if such officer's Compensation exceeds one-half of the
dollar limitation of Code Section 415(b)(1)(A) for the
calendar year in which the Determination Date falls.
(2) is one of the ten Employees owning the largest interest in
the Employer and who has Compensation from the Employer in
the amount greater than the dollar limitation of Code
section 415(c)(1)(A) in effect for the calendar year in
which the Determination Date falls;
(3) owns 5 percent or more of the outstanding stock or voting
power of the Employer; or
(4) owns 1 percent or more of the outstanding stock or voting
power of all stock of the Employer and has annual
compensation from the Employer of more than $150,000.
For purposes of (2), (3), and (4), the constructive ownership rules of
Code section 318 shall apply with the modification that 5 percent shall be
substituted for 50 percent appearing in Code section 318(a)(2)(C). For purposes
of (2), an Employee shall be considered a Key Employee even if he is not among
the ten largest owners, if his ownership interest in the Employer is not less
than at least one of the top ten owners, and provided he has the requisite level
of Compensation described in (2); and in the event two Employees have the same
interest in the Employer, the Employee with the greater Compensation shall be
regarded as having the larger interest. For purposes of (2), (3), and (4), each
Employer that otherwise would be aggregated under this Article XIII's definition
of Employer shall be treated as a separate Employer to determine ownership
percentages.
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<PAGE> 55
(f) "Non-Key Employee" means any Employee or former Employee
(including the beneficiary of either) who is not a Key Employee.
(g) "Plan Year" means the calendar year.
(h) "Valuation Date" means the date used for computing plan costs for
minimum funding in the case of any defined benefit plan and the last day of the
plan year in the case of any defined contribution plan, including this Plan.
(i) "Years of Service" means an Employee's Years of Service determined
under section 3.5.
13.3 Determination of Top-Heavy Status. Determination of whether the Plan is
top-heavy for any Plan Year shall be made as follows:
(a) Required Plan Aggregation. First, there shall be aggregated with
the Plan (1) each plan of the Employer in which a Key Employee participates in
the plan year containing the Determination Date, or any of the four preceding
plan years, (2) each other plan of the Employer which, during this period,
enables any plan in which a Key Employee participates to meet the requirements
of Code section 401(a)(4) or 410, and (3) any terminated plan that was
maintained by the Employer during the five year period ending on the
Determination Date for the plan year in question if a Key Employee participated
in such plan.
(b) Key Employee Sum. Second, there shall be computed, as of the
Determination Date, the sum of the present values of the accrued benefits of all
Key Employees as determined by the Plan actuary under all defined benefit plans
required to be aggregated under section 13.3(a) and the account balances of all
Key Employees under all defined contribution plans, including this Plan,
required to be aggregated under section 13.3(a). For purposes of this
computation, the present value of an accrued benefit shall be determined as of
the most recent Valuation Date occurring within a 12-month period ending on the
Determination Date with the accrued benefit for a current Participant determined
as if the individual had terminated employment as of such Valuation Date.
For purposes of this computation, the accrued benefit of an Employee
other than a Key Employee shall be determined under (1) the method, if any, that
uniformly applies for accrual purposes under all plans maintained by the Company
and Affiliated Companies, or (2) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under the
fractional accrual rate of Code section 411(b)(1)(C).
For purposes of this computation, account balance means the account
balance as of the most recent Valuation Date occurring within a 12-month period
ending on the Determination Date, plus an adjustment for contributions due as of
the Determination Date. In the case of a profit-sharing plan or other plan not
subject to the minimum funding requirements of Code section 412, the adjustment
is the amount of any contributions actually made after the Valuation Date but on
or before the Determination Date, except that in the first plan year after a
plan is adopted, the adjustment shall include any contributions made after the
Determination Date that are allocated as of a date within the first plan year.
In the case of a money purchase pension plan or other plan subject to the
minimum funding requirements of Code section 412, the adjustment is the amount
of any contributions that would be allocated as of a date not later than the
Determination Date, even though such amount is not yet required to be
contributed,
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<PAGE> 56
plus the amount of any contribution actually made (or due to be made) after the
Valuation Date but prior to the expiration of the extended payment period under
Code section 412(c)(10).
For purposes of this computation--
(A) there shall be included in the Key Employee Sum any
distribution (other than rollover amounts or plan-to-plan
transfers not initiated by the Employee or made to another
plan maintained by the Employer) made to an Employee from
the Plan, or from another plan required to be aggregated
under section 13.3(a), within the five-year period ending on
the Determination Date;
(B) there shall be excluded from the Sum any rollover
contribution and any plan-to-plan transfer initiated by the
Employee and accepted after December 31, 1983, by any plan
required to be aggregated under section 13.3(a) from a plan
other than one maintained by the Employer;
(C) there shall be excluded from the Sum the account balance and
present value of the accrued benefit of any Employee who
formerly was a Key Employee but who is not a Key Employee
for the year ending on the Determination Date; and
(D) there shall be excluded from the Sum any amounts
attributable to tax deductible employee contributions.
(E) The account balances and accrued benefits of a Participant
(1) who is not a Key Employee but who was a Key Employee in
a prior year or (2) who has not been credited with at least
one Hour of Service with any Employer at any time during the
five-year period ending on the Determination Date will be
disregarded.
(c) All Employee Sum. Third, under the same procedures as set forth in
section 13.3(b) above, including the special rules in (A), (B), and (C), there
shall be computed the sum of present values of accrued benefits and account
balances for all Employees of the Employer.
(d) Top-Heavy Test Fraction. Fourth, the Key Employee Sum computed in
section 13.3(b) shall be divided by the All Employee Sum computed in section
13.3(c), and if the resulting fraction is 0.60 or less, neither this Plan nor
any plan required to be aggregated under section 13.3(a) is top-heavy for the
Plan Year. If the fraction is greater than 0.60, both this Plan and any plan
required to be aggregated under section 13.3(a) are top-heavy for the Plan Year,
unless after the permissive plan aggregation described in section 13.3(e) below,
the recomputed fraction is 0.60 or less.
(e) Permissive Plan Aggregation. Fifth, at the election of the
Employer, plans of the Employer, other than those required to be aggregated
under section 13.3(a), but which provide benefits or contributions comparable to
this Plan, may be aggregated with this Plan and the plans required to be
aggregated under section 13.3(a), provided that such
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<PAGE> 57
aggregated group would meet the requirements of Code section 401(a)(4) and 410.
The computations under section 13.3 (b) to (d) above may then be repeated, based
on this permissively aggregated group, and if the fraction computed in section
13.3(d) is 0.60 or less for this group, then neither this Plan nor any plan
required to be aggregated under section 13.3(a) is top-heavy for the Plan Year.
If the fraction computed in section 13.3(d) is still greater than 0.60, both
this Plan and any plan required to be aggregated under section 13.3(a) are
top-heavy for the Plan Year but no plan which is permissively aggregated under
this section 13.3(e) will be deemed to be top-heavy for such reason.
13.4 Superseding Rules.
(a) Provisions Mandatory. For each Plan Year that the Plan is
top-heavy, the provisions of paragraphs (b), (c), (d), and (e) of this section
13.4 are mandatory and shall apply to the Plan for that Plan Year,
notwithstanding any other provision or provisions of the Plan that may conflict
with or vary from said mandatory provisions.
(b) Minimum Contributions for Non-Key Employee Participants.
Contributions by the Employer to the Plan Account of each Non-Key Employee
Participant who is employed by the Employer on the last day of the Plan Year and
who is eligible to have an Employer contribution made to his Plan Account under
section 4.2, 4.3, or 4.4 (without regard to any requirement of a minimum number
of Hours of Employment (as defined in section 3.7) during the Plan Year) shall
be equal to the lesser of (1) 3 percent of the Participant's Compensation for
that Plan Year or (2) the maximum percentage of the Employer's contributions (as
a percentage of Compensation not in excess of $150,000, as adjusted) allocated
to the account of any Participant who is a Key Employee for the Plan Year
multiplied by the Non-Key Employee Participant's Compensation for that Plan
Year. For purposes of this section 13.4(b), Employer contributions made under
any other defined contribution plan of the Employer in which any Key Employee
participates or which enables another defined contribution plan of the Employer
to meet the requirements of either Code section 401(a)(4) or 410 shall be
considered contributions made under this Plan. Salary Reduction contributions
will not be treated as Employer contributions for purposes of satisfying the
minimum allocation, but will be included for purposes of determining whether a
Key Employee has received an Employer contribution of at least three percent
(3%).
Notwithstanding the foregoing, in the event that the contribution to be
made to the Plan Account on behalf of the Non-Key Employee under the provisions
of sections 4.2, 4.3, and 4.4 is greater than the contribution which would be
made under this section 13.4(b), the provisions of Article IV shall prevail.
(c) Accelerated Vesting. A Participant's vested percentage in the
portion of his account balance derived from Employer contributions described
sections 4.2, 4.3, and 4.4 shall be determined in accordance with the following
schedule but only with respect to those who are Participants during part or all
of the Plan Year after the Plan becomes top-heavy and only if the following
schedule results in a higher vested percentage than the application of the
Plan's normal Vesting Requirement:
<TABLE>
<CAPTION>
Years of Vested Service Percentage
----------------------- ----------
<S> <C>
0 0%
</TABLE>
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<PAGE> 58
<TABLE>
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
(d) Reduction in Multiple Plan Limitations. In order to reduce the
overall limitations on combined plan contributions and benefits under Code
section 415, the number 1.0 shall be substituted for 1.25 in determinations of
the maximum dollar amount which can be added to a Participant's account and of
the dollar amount of the maximum benefit allowable in section 4.3 of the Plan;
provided, however, that the foregoing sentence shall not apply if the top-heavy
test fraction or recomputed fraction of section 13.3(e) is .90 or less, in which
event each Non-Key Employee Participant shall receive an additional minimum
contribution to his account equal to 1 percent of the Participant's Compensation
for that Plan Year.
13.5 Participants in More Than One Top-Heavy Plan of the Employer. For each
Plan Year that the Plan is top-heavy--
(a) Subject to the provisions of section 13.4(b), in the event that a
Non-Key Employee is a Participant in both this Plan and another defined
contribution plan of the Employer in the same Plan Year, such Employee shall in
all events be entitled to have the portion of the contribution by the Employer
specified in section 4.2, 4.3, or 4.4 or the contribution by the Employer
specified in section 13.4(b), whichever is appropriate, allocated to his
account. This provision shall in no way limit the Employee's right to have a
contribution made on his behalf to such other defined contribution plan as shall
be maintained by the Employer and in which he is a participant.
(b) In the event that a Non-Key Employee is a Participant in both this
Plan and a defined benefit plan of the Employer in the same Plan Year, such
Employee shall not be entitled to have the contribution specified in section
13.4(b) made by the Employer to this Plan on his behalf. This provision shall in
no way limit the Employee's right to have the portion of the contribution by the
Employer specified in section 4.2, 4.3, or 4.4 allocated to his account. Such
Employee shall, however, receive the defined benefit minimum as specified in
Treasury Regulation section 1.416-1, M-12, and such minimum shall be increased,
if the Company uses a factor of 1.25 in computing the denominators of the
defined benefit and defined contribution factors under Code section 415(e), by
one percentage point (up to a maximum of ten percentage points) for each Year of
Service described in Treasury Regulation 1.416-1, M-2 (disregarding, as
permitted therein, any Year of Service if the Plan was not top-heavy for any
Plan Year ending during such Year of Service, or if the Year of Service was
completed in a Plan Year beginning before January 1, 1984) of the Participant's
average Compensation for the Plan Years described in Treasury Regulation section
1.416-1, M-2 (disregarding, as permitted therein, Compensation received for
years ending in Plan Years beginning before January 1, 1984 and Compensation
received for years beginning after the close of the last Plan Year in which the
Plan is top-heavy). Treasury Regulation sections 1.416-1, M-2, M-12 and M-14
shall govern how the multiple plan requirements are satisfied.
13.6 Changes in Applicable Vesting Schedule. In the case of any change in
the vesting provisions of the Plan, whether or not due to a change in the Plan's
status as a top-heavy plan determined pursuant to section 13.3, each Participant
whose nonforfeitable benefits
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<PAGE> 59
are adversely affected by the change may elect during the election period to
have his nonforfeitable benefits determined without regard to such change. The
election period shall begin on the date the change is adopted or becomes
effective, whichever is earlier, and end on the latest of (a) the date which is
60 days after the change is adopted, (b) the date which is 60 days after the
date such change becomes effective, or (c) the date which is 60 days after the
day the Participant is given written notice of such change.
ARTICLE XIV SPECIAL PROVISIONS RELATING TO THE ESOP
14.1 Establishment of ESOP. The MichCon Employee Stock Ownership Plan for
Non-Union Employees was originally established effective as of April 1, 1989.
Each Employer shall make contributions to the ESOP in accordance with section
4.3 hereof and the assets of the ESOP shall be invested at all times primarily
in MCN Stock. The Company from time to time may direct the Trustee to incur debt
in accordance with section 14.4 hereof to finance the acquisition of MCN Stock.
14.2 ESOP Account. The Committee shall establish an ESOP Account in the name
of each Participant to which there shall be credited or charged--
(a) the Employer contributions under section 4.3(a), (c) and (d)
hereof made on behalf of such Participant;
(b) the shares allocated to the Participant pursuant to section
14.4(d) hereof; and
(c) the investment gains and losses on such amounts.
A Participant's ESOP Account shall be invested only in the MCN Stock fund,
except to the extent that monies diversified under section 14.5 may, at the
Participant's election, be directed to the Equities fund, the Senior Securities
fund, or the Fixed Income fund.
14.3 Discrimination Testing. For purposes of the limitations on Salary
Reduction contributions set forth in section 4.7 and the limitations on
Voluntary Deduction contributions and Employer contributions set forth in
section 4.12 4.10, the ESOP and non-ESOP portions of the Plan shall be tested
separately. For purposes of such testing--
(a) the ESOP portion of the Plan shall mean Employer contributions
under section 4.3(a) made on behalf of the Participant and the shares allocated
to a Participant's ESOP Account pursuant to section 14.4(d); and
(b) the non-ESOP portion of the Plan shall mean all Elective
Deferrals, Voluntary Deductions and Employer contributions under section 4.2.
14.4 Loans.
(a) Stock Acquired with Exempt Loan. The Company may direct the
Trustee to incur a loan on behalf of the ESOP in a manner and under conditions
which will cause the loan to qualify as an "exempt loan" within the meaning of
Code section 4975(d)(3). A loan shall be used primarily for the benefit of
Participants and their beneficiaries. The proceeds of each
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<PAGE> 60
such loan shall be used, within a reasonable time after the loan is obtained,
only to purchase MCN Stock, to repay the loan, or to repay any prior loan.
Any such loan shall provide for a reasonable rate of interest and an
ascertainable period of maturity, and shall be without recourse against the
Plan. Any such loan shall be secured solely by shares of MCN Stock acquired with
the proceeds of the loan and shares of MCN Stock that were used as collateral on
a prior loan which was repaid with the proceeds of the current loan.
MCN Stock acquired with the proceeds of a loan, including shares
pledged as collateral, shall be placed in a Suspense Account and released in
accordance with subsection (b) below as the loan is repaid as if all shares in
the Suspense Account were pledged. MCN Stock released from the Suspense Account
shall be allocated in the manner described in subsection (d) below.
No person entitled to payment under a loan made pursuant to this
section 14.4 shall have recourse against any assets of the Plan other than the
MCN Stock used as collateral for the loan, Employer contributions under section
4.3 that are available to meet obligations under the loan, and earnings
attributable to such collateral and the investment of such contributions.
Employer contributions under section 4.3(b) made with respect to any Plan Year
during which the loan remains unpaid, and earnings on such contributions, shall
be deemed available to meet obligations under the loan, unless otherwise
provided by the Employer at the time such contributions are made.
(b) Release of Pledged Shares. Any pledge of MCN Stock as collateral
under this section 14.4 shall provide for the release of shares so pledged upon
the payment of any portion of the principal of the loan. Shares so pledged shall
be released in the proportion that the principal paid on the loan bears to the
total principal amount of the loan, as provided in Treasury Regulation
54.4975-7(b)(8)(ii). The number of shares of MCN Stock that shall be released
with each principal payment on the loan shall be equal to the number of shares
of MCN Stock held as collateral on the loan immediately prior to the release
multiplied by a fraction the numerator of which is the amount of principal of
the loan repaid on such date and the denominator of which is the sum of the
numerator plus the remaining outstanding principal amount of the loan after
giving effect to the repayment of principal of the loan on such date. Each loan
under this section 14.4 shall comply with the requirements of Treasury
Regulation 54.4975-7(b)(8)(ii). If such a loan provides for monthly principal
payments, shares of MCN Stock shall be released monthly.
(c) Repayment of Loan. Payments of principal and interest on any loan
under this section 14.4 shall be made by the Trustee at the direction of the
Company solely from--
(i) the proceeds of such loan, if any portion of such proceeds
are used for such purpose within a reasonable period of time after the loan is
obtained as provided in section 14.4(a) above;
(ii) Employer contributions under section 4.3(b) available to
meet obligations under the loan;
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<PAGE> 61
(iii) earnings from the investment of such contributions;
(iv) earnings attributable to MCN Stock acquired with the
proceeds of such loan, whether allocated or unallocated;
(v) the earnings on other allocated shares of MCN Stock held by
the ESOP if the Internal Revenue Service, by private letter ruling, advises the
Company that the use of such earnings to repay the loan will be deductible under
Code section 404(k)(2)(C) and will not violate the requirements of Code section
4975; and
(vi) the proceeds of a subsequent loan made to repay the loan.
The contributions and earnings available to pay a loan must be
accounted for separately by the Committee until all loans under this section
14.4 have been paid. If dividends on MCN Stock allocated to the ESOP Account of
any Participant are used to repay any loan, shares of MCN Stock with a fair
market value not less than the amount of such dividends shall be allocated in
accordance with section 4.3(c) to the ESOP Account of such Participant prior to
the end of the Plan Year during which (but for the use of the dividends to repay
the loan) such dividend would have been allocated to the ESOP Account of such
Participant.
(d) Allocation of Released Shares. Subject to the limitations in
section 4.12 on Annual Additions to a Participant's accounts, shares of MCN
Stock released from a Suspense Account described in section 14.4(a) shall be
allocated immediately to the ESOP Accounts of each Participant in the proportion
that the contribution that would be required to be made on behalf of such
Participant under section 4.3(a)(i) for the applicable period if no shares were
allocated under section 4.3(a)(ii) during such period bears to the total of all
Employer contributions that would be required under section 4.3(a)(i) hereof for
the applicable period if no shares were allocated under section 4.3(a)(ii)
during such period.
14.5 Diversification. Any Participant or any former Participant whose
distribution has been deferred pursuant to section 9.7(a), who, in either case,
has completed at least ten years of participation in the Plan, and who has
attained the age of 55 is a "Qualified Participant". Any Qualified Participant
shall have the right to make an election to direct the investment of a portion
of his ESOP Account. Such a Participant may elect within 90 days after the close
of each Plan Year in the six plan-year period beginning with the first Plan Year
in which the individual becomes a Qualified Participant to diversify 25 percent
of his ESOP Account, less any amount to which a prior election applies. In the
case of the last year to which an election applies, 50 percent shall be
substituted for 25 percent.
The portion of a Qualified Participant's ESOP Account which is eligible for
diversification may be invested in the Fixed Income fund and/or any other
investment funds under the Plan, in any combination thereof.
14.6 Put Option. If MCN Stock becomes not readily tradable on an established
market, then any Participant who is otherwise entitled to a distribution of his
ESOP Account, shall have the right (hereinafter referred to as "Put Option") to
require that his Employer repurchase any MCN Stock allocated to his ESOP Account
under a fair valuation formula. The Put Option shall be exercisable only by
written notice to the Participant's Employer during the 60-day period
immediately following the date of distribution and if the Put Option is not
55
<PAGE> 62
exercised within such 60-day period, then it can be exercised for an additional
period of 60 days in the following Plan Year. The period during which the Put
Option is exercisable shall not include any time when a Participant is unable to
exercise it because his Employer is prohibited from honoring it by applicable
federal or state law. This Put Option shall be nonterminable within the meaning
of Treasury Regulation 54.4975-(11)(a)(ii).
The amount paid for MCN Stock under the Put Option shall be paid in
substantially equal periodic payments (not less frequently than annually) over a
period beginning not later than 30 days after the exercise of the Put Option and
not exceeding five years. There shall be adequate security provided and
reasonable interest paid on the unpaid balance due under this section 14.6.
14.7 Purchase of MCN Stock. The ESOP may acquire shares of MCN Stock on a
national securities exchange, from the Company or any Affiliated Company or
otherwise; provided, however, that if any shares of MCN Stock are purchased from
the Company or any Affiliated Company, the price shall not exceed an amount
which constitutes adequate consideration (as defined in ERISA section 3(18) and
any Regulations thereunder) and such purchase shall satisfy all other
requirements of ERISA and the Code applicable to such purchases. Except as
provided in section 14.6 or as otherwise required by applicable law, no shares
of MCN Stock acquired by the ESOP shall be subject to a put, call, or other
option, or buy-sell or similar arrangement while held by and when distributed
from the Plan, whether or not any part of the Plan is then an ESOP. The
protection afforded to Participants in the preceding sentence is nonterminable
within the meaning of Treasury Regulation section 54.4975-(1)(a)(ii).
ARTICLE XV MISCELLANEOUS
15.1 Beneficiary Designation. Subject to the provisions of section 9.9 and
this section 15.1, each Participant shall have the right to designate a
beneficiary or beneficiaries to receive any distribution to be made under
section 9.1 upon the death of such Participant, or, in the case of a Participant
who dies subsequent to termination of his employment but prior to the
distribution of the entire amount to which he is entitled under the Plan, any
undistributed balance to which such Participant would have been entitled.
In the event of the death of a Participant whose spouse survives him, the
beneficiary of the Participant shall be his surviving spouse unless such spouse
has consented in writing to the designation of another beneficiary or
beneficiaries. Any such written consent shall acknowledge the effect of such
election and shall be witnessed by a notary public or by a representative of the
Committee who is designated to act in such capacity by the Committee. In the
event a Participant dies without a surviving spouse, or, in the event the
surviving spouse of a Participant has executed the written consent hereinabove
described, any distributions to be made under section 9.1 upon the death of the
Participant shall be made to his designated beneficiary or beneficiaries. If the
Participant establishes to the satisfaction of the Committee or its designated
representative that such written consent cannot be obtained because his spouse
cannot be located, the requirement of such written consent shall be waived.
If no beneficiary has been named by a Participant who dies without a
surviving spouse or if the beneficiary designated by such a Participant or by a
Participant whose surviving spouse has executed the written consent hereinabove
described has predeceased the
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<PAGE> 63
Participant or such designated beneficiary has died prior to complete
disbursement of the Participant's Plan Account, the value of his account, or the
undistributed portion thereof, shall be paid by the Trustee at the direction of
the Committee--
(a) to the surviving spouse of such deceased Participant, if any;
(b) if there shall be no surviving spouse, to the surviving children
of such deceased Participant, if any, in equal shares;
(c) if there shall be no surviving spouse or surviving children, to
the executors or administrators of the estate of such deceased Participant; or
(d) if no executor or administrator shall have been appointed for the
estate of such deceased Participant, to the person or persons who would be
entitled to the personal estate of such deceased Participant under the laws of
his state of domicile if he had died leaving no will.
In the event that a Participant and his spouse die under circumstances such that
it is not clear whether the spouse survived the Participant, the Participant
shall be presumed to have survived the spouse.
15.2 Incompetency. Any distribution under this Plan which is payable to a
beneficiary who is a minor or to a Participant or beneficiary who, in the
opinion of the Committee, is unable to manage his affairs by reason of illness
or mental incompetency, may be made to or for the benefit of any such
Participant or beneficiary in such of the following ways as the Committee shall
direct:
(a) Directly to any such minor beneficiary, if, in the opinion of the
Committee, he is able to manage his affairs;
(b) To the legal representative of any such Participant or
beneficiary; or
(c) To some near relative of any such Participant or beneficiary to be
used for the latter's benefit.
15.3 Expenses. Except as otherwise provided in the Plan, all costs and
expenses incurred in administering the Plan, including the expenses of the
Committee, the fees and expenses of the Trustee, the fees of its counsel, and
other administrative expenses, shall be borne by the Plan except to the extent
the several Employers elect to bear such costs, fees, and expenses in such
proportions as the Committee shall determine to be equitable and proper having
regard to the nature of the particular expense.
15.4 Nonassignability. Except as may be required to comply with a qualified
domestic relations order (as defined in Code section 414(p)), it is a condition
of the Plan, and all rights of each Participant shall be subject thereto, that
no right or interest of any Participant in the Plan or in a Plan Account shall
be assignable or transferable in whole or in part, either directly or by
operation of law or otherwise, including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, or bankruptcy but excluding
devolution by death or mental
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<PAGE> 64
incompetency, and no right or interest of any Participant in the Plan or in his
Plan Account shall be liable for, or subject to, any obligation or liability of
such Participant.
15.5 Employment Noncontractual. The Plan confers no right upon any Employee
to continue in employment.
15.6 Merger or Consolidation with Another Plan. A merger or consolidation
with, or transfer of assets or liabilities to, any other plan shall not be
effected unless the terms of such merger, consolidation, or transfer are such
that each Participant, distributee, beneficiary, or other person entitled to
receive benefits from the Plan would, if the Plan then terminated, receive a
benefit immediately after the merger, consolidation, or transfer which is equal
to or greater than the benefit such person would have been entitled to receive
immediately before the merger, consolidation, or transfer if the Plan had then
terminated. If any other plan shall be merged into and become a part of this
Plan, each Participant or the person entitled to receive a benefit under such
other plan shall be entitled to receive a benefit under this Plan which is equal
to the benefit such person would have been entitled to receive had such other
plan terminated immediately before the merger.
15.7 Continuance by a Successor. In the event that any Employer corporation
shall be reorganized by way of merger, consolidation, transfer of assets, or
otherwise, so that another Affiliated Company shall succeed to all or a portion
of such Employer's business, such successor corporation, with the consent of
each other participating Employer, may be substituted for such Employer under
the Plan by adopting the Plan and becoming a party to the Trust Agreement.
Employee contributions and Employer contributions shall be automatically
suspended from the effective date of any such reorganization until the date upon
which the substitution of such successor corporation for the Employer under the
Plan becomes effective. If, within 90 days from the effective date of any such
reorganization, such successor corporation shall not have become a party to the
Plan, or, if the Employer shall adopt a plan of complete liquidation other than
in connection with a reorganization, the Plan shall be automatically terminated
with respect to Employees of such Employer as of the close of business on the
ninetieth day following the effective date of such reorganization or as of the
close of business on the date of adoption of such plan of complete liquidation,
as the case may be, and the Trustee shall distribute the portion of the Trust
applicable to Participants of such Employer in the manner provided in section
11.3.
15.8 USERRA Rights. Notwithstanding any provision of the Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Code Section 414(u), to the
extent applicable. Loan repayments will be suspended under this Plan as
permitted under Code Section 414(u).
15.9 Construction. Unless the context clearly requires otherwise--
(a) the masculine pronoun whenever used shall include the feminine,
the singular shall include the plural, and vice versa, and
(b) headings of Articles and sections herein are included solely for
convenience, and if there is any conflict between such headings and the text of
the Plan, the text shall control.
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ARTICLE XVI REDESIGNATION OF ESOP AND DISTRIBUTION OF DIVIDENDS
This Article XVI designates that part of the non-ESOP portion of the Plan
which is invested in the MCN Stock Fund becomes part of the ESOP portion of the
Plan. This Article XVI also sets forth certain provisions regarding the
operation of the ESOP portion of the Plan, such provisions to supersede any
contrary provisions of the Plan. This Article XVI (including provisions
regarding distribution of dividends) shall become effective as of January 1,
1998 with regard to dividends distributed on or after that date.
Except as specifically provided in this Article XVI, the provisions of this
Article XVI, including the redesignation of the ESOP portion of the Plan
described herein, shall not affect any beneficiary designations or any other
applicable agreements, elections, or consents that Participants, spouses, or
beneficiaries validly executed under the terms of the Plan before the execution
date of the Plan amendment which first adopts this Article XVI, and such
designations, agreements, elections and consents shall continue to apply in the
same manner as they did prior to such amendment.
The ESOP, as set forth in this Article XVI, is intended to meet with
requirements of an employee stock ownership plan, as defined in Section
4975(e)(7) of the Code and the accompanying regulations, and Section 407(d)(6)
of ERISA. As provided below, the ESOP is designed to invest primarily in
qualifying employer securities of MCN Energy Group Inc..
16.1 Redesignation of ESOP Portion of Plan. Effective as of the effective
date described in the preamble to this Article XVI JANUARY 1, 1998, the ESOP
portion of the Plan shall consist of the ESOP Account of each Participant plus
the remaining part of each Participant's Plan Account that is invested in the
MCN Stock Fund. The put option provisions of Section 14.6 shall apply to the
entire ESOP portion of the Plan. However, only a Participant's ESOP Account
shall be subject to the restrictions described in the first sentence of Section
6.3.
16.2 Allocation of Savings Plan Account Balances to ESOP Portion of Plan.
All amounts contributed, transferred or designated as allocable to the Savings
Plan Account of any Participant shall be treated as part of the ESOP portion of
the Plan to the extent the Participant has directed the investment of such
amounts in the MCN Stock Fund in accordance with Article VI of the Plan.
16.3 Distribution of Dividends on MCN Stock. At the direction of the
Committee exercised in its sole discretion, the Trustee will, after dividends
are paid on MCN Stock held in the Trust, but in no event later than 90 days
following the end of the Plan Year in which such dividends are paid (to the
extent such dividends are not used to make payment on an exempt loan as provided
for in section 14.4(c) of the Plan), either (i) distribute to Participants such
portion of the dividends attributable to the interests in MCN Stock held in
their Plan Accounts (or, if so determined by the Committee, their ESOP Accounts)
as described below or, (ii) arrange to have such dividends distributed directly
to Participants by the Employer, or (iii) arrange to have such dividends
distributed to Participants by a dividend disbursement agent selected by the
Committee. In its sole discretion, the Committee may direct the Trustee to have
such dividends distributed only to Participants who elect (or fail not to elect)
to receive such dividend distributions in accordance with forms and procedures
established by the Committee (which such procedures may apply to all
Participants, or solely to a group or groups determined by the Committee).
Further, in its sole discretion, the Committee may establish procedures that
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would permit Participants to elect to have dividends distributed to them in a
single sum rather than over periods that might otherwise be determined by the
Committee to correspond with Employer payroll practices.
The distribution of dividends on MCN Stock held in a Participant's Plan
Account (or, if so determined by the Committee, a Participant's ESOP Account)
shall be in an amount equal to all of the dividends paid on the MCN Stock held
in such Participant's Plan Account (or, if so determined by the Committee, a
Participant's ESOP Account).
* * * * * * * * * *
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IN WITNESS WHEREOF, the Company has caused its corporate name to be
hereunto affixed by its duly authorized officers as of the 29th day of December,
1998.
MCN ENERGY GROUP INC.
By /s/ D. Nowakowski
-----------------------
61
<PAGE> 1
EXHIBIT 10.12
MICHCON
INVESTMENT AND STOCK OWNERSHIP PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1998)
<PAGE> 2
MICHCON
INVESTMENT AND STOCK OWNERSHIP PLAN
(As Amended and Restated Effective as of January 1, 1998)
TABLE OF CONTENTS
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ARTICLE I The Plan......................................................................................... 1
1.1 Establishment and Amendment of the Plan............................................................ 1
1.2 Applicability of the Plan.......................................................................... 1
1.3 Purpose and Type of Plan........................................................................... 1
ARTICLE II Definitions..................................................................................... 1
2.1 Actual Deferral Percentage......................................................................... 2
2.2 Affiliated Company................................................................................. 2
2.3 Anniversary Date................................................................................... 2
2.4 Annual Addition.................................................................................... 2
2.5 Average Actual Deferral Percentage................................................................. 2
2.6 Break in Service Year.............................................................................. 2
2.7 Code............................................................................................... 2
2.8 Company............................................................................................ 2
2.9 Compensation....................................................................................... 2
2.10 Detroit Local Participants......................................................................... 3
2.11 Disability Retirement Date......................................................................... 3
2.12 Elective Deferrals................................................................................. 3
2.13 Eligible Employee.................................................................................. 3
2.14 Employee........................................................................................... 3
2.15 Employee Post-1986 Voluntary Deduction Account..................................................... 4
2.16 Employee Pre-1987 Voluntary Deduction Account...................................................... 4
2.17 Employee Salary Reduction Account.................................................................. 4
2.18 Employer........................................................................................... 4
2.19 Employer Salary Reduction Account.................................................................. 4
2.20 Employer Voluntary Deduction Account............................................................... 4
2.21 ERISA.............................................................................................. 4
2.22 ESOP............................................................................................... 4
2.23 ESOP Account....................................................................................... 4
2.24 Excess Contributions............................................................................... 4
2.25 Excess Deferrals................................................................................... 4
2.26 Greater Michigan Local Participants................................................................ 4
2.27 Highly Compensated Employee.........................................................................5
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2.28 Hour of Employment................................................................................. 5
2.29 Investment Plan Account............................................................................ 5
2.30 MCN Stock.......................................................................................... 5
2.31 Military Service................................................................................... 5
2.32 Nonhighly Compensated Employee..................................................................... 5
2.33 Normal Retirement Date............................................................................. 5
2.34 Participant........................................................................................ 5
2.35 Plan............................................................................................... 5
2.36 Plan Account....................................................................................... 5
2.37 Plan Year.......................................................................................... 6
2.38 Regulations........................................................................................ 6
2.39 Salary Reduction................................................................................... 6
2.40 Salary Reduction Account........................................................................... 6
2.41 Savings Plan....................................................................................... 6
2.42 Suspense Account................................................................................... 6
2.43 Trust.............................................................................................. 6
2.44 Trust Agreement.................................................................................... 6
2.45 Trustee............................................................................................ 6
2.46 Valuation Date..................................................................................... 6
2.47 Vesting Requirement................................................................................ 6
2.48 Voluntary Deduction................................................................................ 6
2.49 Voluntary Deduction Account........................................................................ 6
2.50 Years of Service................................................................................... 6
ARTICLE III Participation and Service..................................................................... 6
3.1 Eligibility Requirements........................................................................... 6
3.2 Eligibility Upon Merger or Reemployment............................................................ 7
3.3 Collective Bargaining Agency....................................................................... 8
3.4 Applications....................................................................................... 8
3.5 Years of Service................................................................................... 8
3.6 Break in Service Year.............................................................................. 9
3.7 Hours of Employment................................................................................ 9
3.8 Employment by Related Entities..................................................................... 10
3.9 Leased Employees................................................................................... 11
ARTICLE IV Contributions.................................................................................. 11
4.1 Employee Contributions............................................................................. 11
4.2 Employer Investment Plan Contributions............................................................. 12
4.3 Employer ESOP Contributions........................................................................ 14
4.4 Additional Employer Contributions.................................................................. 15
4.5 Rollover Contributions............................................................................. 15
4.6 Transfers from the Savings Plan.................................................................... 16
4.7 Limitations on Salary Reduction Contributions...................................................... 17
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4.8 Distribution of Excess Deferrals...................................................................18
4.9 Distribution or Recharacterization of Excess Contributions.........................................19
4.10 Statutory (Code Section 415) Limitations on Allocations to Accounts................................20
ARTICLE V Vesting in Accounts...............................................................................22
5.1 Employee Salary Reduction Accounts,
Employee Post-1986 Voluntary Deduction Account,
and Employee Pre-1987 Voluntary Deduction Account.................................................22
5.2 Employer Salary Reduction Account, Employer Voluntary
Deduction Account, and ESOP Account...............................................................22
ARTICLE VI Investment Provisions...........................................................................23
6.1 Investment of Contributions........................................................................23
6.2 Change of Investment Direction.....................................................................23
6.3 Transfers Between Investment Funds.................................................................23
ARTICLE VII Investment Funds................................................................................24
7.1 Investment Funds...................................................................................24
7.2 Management of Investment Funds.....................................................................24
7.3 Voting of MCN Stock................................................................................24
7.4 Tender Offers......................................................................................25
7.5 Named Fiduciary Status.............................................................................26
7.6 Expenses of Funds..................................................................................26
ARTICLE VIII Accounts and Records of the Plan..............................................................26
8.1 Company to Maintain Accounts.......................................................................26
8.2 Plan Accounting....................................................................................27
8.3 Valuation of Funds.................................................................................27
8.4 Valuation of Investment Plan Account...............................................................27
8.5 Valuation of ESOP Account..........................................................................27
8.6 Valuation of Plan Account..........................................................................27
8.7 Company to Furnish Annual Statements of Value of Plan..............................................27
8.8 Trust Agreement....................................................................................27
ARTICLE IX Distributions, Withdrawals and Loans............................................................28
9.1 Distribution Upon Termination of Employment
Entitling Participant to Value of Plan Account....................................................28
9.2 Distribution Upon Termination of Employment Under
Circumstances Resulting in Forfeiture of Employer Contributions...................................28
9.3 Certain Distributions from Participant Accounts....................................................28
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9.4 In-Service Withdrawals -- General..................................................................29
9.5 Withdrawal of Voluntary Deduction Contributions....................................................29
9.6 Hardship Withdrawal of Salary Reduction Contributions..............................................29
9.7 Time of Distributions..............................................................................31
9.8 Distributions of Stock.............................................................................33
9.9 Distributions from Fixed Income Fund...............................................................33
9.10 Loans..............................................................................................35
9.11 Definition of Employee Contributions and Employer Contributions....................................37
9.12 Spousal Consent to Payment.........................................................................37
9.13 Distributions Pursuant to a Qualified Domestic Relations Order.....................................37
9.14 Direct Rollovers of Eligible Distributions.........................................................37
9.15 Special Distribution Events........................................................................38
ARTICLE X Administration...................................................................................39
10.1 Plan Administration and Interpretation.............................................................39
10.2 Notice to Employees................................................................................40
10.3 Notices to Employers...............................................................................40
10.4 Participants' Acceptance of the Provisions of the Plan.............................................40
10.5 Audit of Plan Records..............................................................................40
10.6 Claims Procedure...................................................................................40
10.7 Effect of a Mistake................................................................................41
ARTICLE XI Amendment and Termination.......................................................................41
11.1 Amendment..........................................................................................41
11.2 Withdrawal.........................................................................................41
11.3 Termination........................................................................................41
11.4 Allocation of Funds Between Employers..............................................................42
11.5 Trust to be Applied Exclusively for Participants and Their Beneficiaries...........................42
ARTICLE XII Participation by Affiliated Companies..........................................................42
12.1 Adoption of the Plan...............................................................................42
12.2 Withdrawal from the Plan...........................................................................42
12.3 Company as Agent for Employers.....................................................................42
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ARTICLE XIII Special Provisions Relating to the ESOP........................................................43
13.1 Establishment of ESOP..............................................................................43
13.2 ESOP Account.......................................................................................43
13.3 Discrimination Testing.............................................................................43
13.4 Loans..............................................................................................43
13.5 Diversification....................................................................................45
13.6 Put Option.........................................................................................45
13.7 Purchase of MCN Stock..............................................................................46
ARTICLE XIV Miscellaneous..................................................................................46
14.1 Beneficiary Designation............................................................................46
14.2 Incompetency.......................................................................................47
14.3 Expenses...........................................................................................47
14.4 Nonassignability...................................................................................47
14.5 Employment Noncontractual..........................................................................48
14.6 Merger or Consolidation with Another Plan..........................................................48
14.7 Continuance by a Successor.........................................................................48
14.8 USERRA Rights......................................................................................48
14.9 Construction.......................................................................................48
ARTICLE XV Redesignation of ESOP and Distribution of Dividends..............................................48
15.1 Redesignation of ESOP Portion of Plan..............................................................49
15.2 Allocation of Investment Plan Account Balances to ESOP Portion of Plan.............................49
15.3 Distribution of Dividends on MCN Stock.............................................................49
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<PAGE> 7
MICHCON
INVESTMENT AND STOCK OWNERSHIP PLAN
(As Amended and Restated Effective as of January 1, 1998)
ARTICLE I THE PLAN
1.1 Establishment and Amendment of the Plan. Michigan Consolidated Gas
Company, which is also known as MichCon (hereinafter referred to as the
"Company"), presently maintains an investment and stock ownership plan for the
benefit of its Eligible Employees and the Eligible Employees of its
participating Affiliated Companies. The plan was last restated effective as of
April 1, 1989, and was amended from time to time thereafter.
The Company previously established the MichCon Employee Stock Ownership
Plan for Union Employees ("ESOP") and incorporated the ESOP into the Michigan
Consolidated Gas Company Union Employee's Investment Plan to form the MichCon
Investment and Stock Ownership Plan.
The plan is hereby further amended and completely restated as set forth herein
effective as of January 1, 1998, except as otherwise provided herein or required
by law (for instance, certain provisions herein are legally required to be
effective as of January 1, 1997, and are therefore effective as of such date),
and shall continue to be known as the "MichCon Investment and Stock Ownership
Plan" (the "Plan"). The ESOP provisions of the Plan became effective as of April
1, 1989.
1.2 Applicability of the Plan. Except as otherwise specified herein or
required by law, the provisions of the Plan as amended and restated herein
effective as of January 1, 1998, shall be applicable only with respect to
Eligible Employees of an Employer in current employment on or after January 1,
1998, and their beneficiaries.
Any person who was covered under the Plan as in effect prior to January 1, 1998,
and whose employment terminated under the Plan prior to January 1, 1998, shall
continue to have his rights to receive benefits determined under the provisions
of the Plan in effect when his employment relationship so terminated, subject to
legally required changes prior to January 1, 1998, as described herein.
1.3 Purpose and Type of Plan. The purpose of the Plan is to provide a
convenient way for Participants to save on a regular and long-term basis for
their retirement income needs; to recognize the contribution made to the
Employer's successful operation by its employees and to reward such contribution
for those employees who qualify as participants under the terms of the Plan; and
to facilitate ownership of MCN Stock by participating Eligible Employees.
The non-ESOP portion of the Plan is intended to qualify as a profit-sharing plan
and the ESOP portion of the Plan is intended to qualify as a stock bonus and an
employee stock ownership plan for purposes of Code sections 401(a), 402, 412,
417, 4975, and related provisions.
ARTICLE II DEFINITIONS
1
<PAGE> 8
Whenever used in the Plan, the following words and phrases shall have
the respective meanings stated below unless a different meaning is plainly
required by the context.
2.1 "Actual Deferral Percentage" means the ratio (expressed as a
percentage) of (A) the (a) Elective Deferrals of an Employee who is eligible to
participate in the Plan for a Plan Year, to (b) the Compensation of that
Employee for such Plan Year.
2.2 "Affiliated Company" means--
(a) any corporation other than the Company, i.e., either a
subsidiary corporation or an affiliated or associated corporation of the
Company, which together with the Company is a member of a "controlled group" of
corporations (as defined in Code section 414(b));
(b) any organization which together with the Company is under
"common control" (as defined in Code section 414(c));
(c) any organization which together with the Company is an
"affiliated service group" (as defined in Code section 414(m)); or
(d) any other entity required to be aggregated with the Company
pursuant to Regulations under Code section 414(o).
2.3 "Anniversary Date" means with respect to each Employee, the
anniversary each year of the Employee's first Hour of Employment. If an Employee
whose employment was terminated is reemployed but prior to his reemployment he
incurs a Break in Service Year or following his reemployment he incurs a Break
in Service Year before completing a Year of Service, his Anniversary Date shall
be based upon his first Hour of Employment coincident with or next following his
date of reemployment; otherwise, his Anniversary Date shall not be changed..
2.4 "Annual Addition" means the amount allocated to a Participant's
account as such term is defined in section 4.10(a).
2.5 "Average Actual Deferral Percentage" means the average (expressed
as a percentage) of the Actual Deferral Percentages of the Employees in a group
who are eligible to participate in the Plan for a Plan Year.
2.6 "Break in Service Year" means a 12-month period described in
section 3.6.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
2.8 "Company" means Michigan Consolidated Gas Company.
2.9 "Compensation" means a Participant's pay, determined as follows:
(a) For all purposes of the Plan, except as otherwise specified
in (b) or (c) below or required by the context, Compensation means the regular
basic salary or wage paid (plus, effective July 1, 1998, shift differential) to
an Employee by the Employer before any
2
<PAGE> 9
payroll deduction for taxes or any other purpose, and before any Salary
Reduction contribution or cafeteria plan election, but excluding merit,
incentive and other similar payments made in the form of a lump sum, bonuses,
awards, shift differentials (prior to July 1, 1998), severance payments,
differential payments made by reason of the Employee's entry into Military
Service, all amounts paid for work in excess of 40 hours in any one week, all
overtime or other premium paid for work in excess of a maximum number of hours
in any one day, for work on holidays or for any other reason, payments for
so-called fringe benefits such as Employer contributions to this Plan or any
pension or retirement plan, increased wages or salary resulting from temporary
promotion, upgrading or transfer, of whatever duration, to a higher paid job or
classification, and any other premium, auxiliary, or special pay of any sort
whatsoever.
(b) For purposes of satisfying the limits on contributions
described in section 4.7 (ADP test) and applying the limits of section 415 of
the Code as described in section 4.10, Compensation shall mean "compensation" as
defined in Treas. Regulation Section 1.415-2(d) or any successor regulation.
(c) For purposes of determining whether an individual is a Highly
Compensated Employee, Compensation means an Employee's Compensation as defined
in subsection (b) above but without regard to Code sections 125, 402(a)(8), and
402(h)(1)(B) (i.e., with the addition of elective deferrals pursuant to a
cafeteria plan, a cash-or-deferred arrangement, or a simplified employee pension
during years in which such items are excluded under subsection (b)).
(d) In accordance with Code Section 401(a)(17), the Compensation
of each Employee that may be taken into account under the Plan shall not exceed
the first $150,000 of an Employee's Compensation (as adjusted pursuant to Code
section 401(a)(17)).
2.10 "Detroit Local Participants" means Participants represented by (i)
Local #80 and Local #80 (P. T. & S.), Service Employees International Union and
(ii) Local #799C (P.T.& S.), International Chemical Workers Union Council,
United Food and Commercial Workers.
2.11 "Disability Retirement Date" means the date a Participant (i)
becomes eligible to receive benefits under a long-term disability plan
maintained by the Employer, or (ii) is determined by the Company to be totally
and permanently disabled. In determining whether a Participant is totally and
permanently disabled, the Company may, in its discretion, rely on the opinion of
a physician selected by the Company to assist it in making such a determination.
2.12 "Elective Deferrals" means Salary Reduction contributions under
section 4.1(a) and contributions under other plans maintained by the Company or
an Affiliated Company that constitute elective deferrals within the meaning of
Code section 402(g)(3).
2.13 "Eligible Employee" means an Employee of an Employer whose terms
and conditions of employment are covered by an agreement with a collective
bargaining agent which agreement permits participation in this Plan.
2.14 "Employee" means an individual who is an employee of the Company
or an Affiliated Company (including, for certain purposes described in Section
3.9, a "leased employee" as described in Section 3.9), but shall not include an
individual who enters into a
3
<PAGE> 10
formal or informal independent contractor agreement with the Company or is
otherwise treated as an independent contractor under the payroll practices of
the Company.
2.15 "Employee Post-1986 Voluntary Deduction Account" means an
Employee's Voluntary Deduction contributions after December 31, 1986, and
investment gains and losses therefrom.
2.16 "Employee Pre-1987 Voluntary Deduction Account" means an
Employee's Voluntary Deduction contributions before January 1, 1987, and
investment gains and losses therefrom.
2.17 "Employee Salary Reduction Account" means an Employee's Salary
Reduction contributions, and investment gains and losses therefrom.
2.18 "Employer" means the Company and any Affiliated Company which has
adopted the Plan with the consent of the Company and in the manner prescribed in
section 12.1 and any successor corporation which shall adopt the Plan pursuant
to section 14.7. If any such corporation shall withdraw from participation in
the Plan in accordance with section 12.2, the term Employer shall not thereafter
include such corporation.
2.19 "Employer Salary Reduction Account" means the Employer
contributions to the Salary Reduction Account of an Employee pursuant to section
4.2, and investment gains and losses therefrom.
2.20 "Employer Voluntary Deduction Account" means the Employer
contributions to the Voluntary Deduction Account of an Employee pursuant to
section 4.2, and investment gains and losses therefrom.
2.21 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.22 "ESOP" means the employee stock ownership plan established
pursuant to section 13.1, as modified by Article XV.
2.23 "ESOP Account" means the account established and maintained on
behalf of each Participant in accordance with sections 8.1(c) and (d) and 13.2.
2.24 "Excess Contributions" means the amount described in section
4.9(a).
2.25 "Excess Deferrals" means the portion of Elective Deferrals for a
calendar year, if any, described in section 4.8.
2.26 "Greater Michigan Local Participants" means Participants who are
represented by (i) Local #799C Northern, International Chemical Workers Union
Council, United Food and Commercial Workers (ii) Local #70C, International
Chemical Workers Union Council, United Food and Commercial Workers and (iii)
Local #132C, International Chemical Workers Union Council, United Food and
Commercial Workers.
4
<PAGE> 11
2.27 "Highly Compensated Employee" with respect to any Plan Year
beginning on or after January 1, 1997, shall include highly compensated active
employees and highly compensated former employees. A highly compensated active
employee includes any Employee who performs service for an Employer during the
determination year and who, during the look-back year received Compensation from
the Employer in excess of $80,000 (as adjusted pursuant to Code Section 415(d)),
or who was a 5-percent owner at any time during the determination year or the
look-back year. For this purpose, the determination year shall be the Plan Year.
The look-back year shall be the twelve-month period immediately preceding the
determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
determination year, performed no service for the Employer during the
determination year, and was a highly compensated active employee for either the
separation year or any determination year ending on or after the employee's 55th
birthday.
The determination of who is a Highly Compensated Employee will be made
in accordance with Section 414(q) of the Code and the regulations thereunder.
2.28 "Hour of Employment" means an hour for which an individual
receives credit pursuant to section 3.7.
2.29 "Investment Plan Account" means the total value of an Employee's
Salary Reduction Account and Voluntary Reduction Account.
2.30 "MCN Stock" means common stock of MCN Energy Group Inc..
2.31 "Military Service" means service (a) on active duty, in time of
national or local emergency, in the armed forces of the United States or of any
State thereof, (b) in the armed forces of the United States or of any State
thereof under any compulsory service law, or (c)in the armed forces of the
United States or any of its allies in time of war in which the United States is
engaged.
2.32 "Nonhighly Compensated Employee" means an Employee of the Employer
who is not a Highly Compensated Employee.
2.33 "Normal Retirement Date" means the Participant's sixty-fifth
(65th) birthday, if such birthday falls on the first day of the month;
otherwise, the first day of the month next following the month in which such
birthday occurs.
2.34 "Participant" means an Employee who is participating in the Plan
in accordance with its provisions.
2.35 "Plan" means MichCon Investment and Stock Ownership Plan and any
amendments thereto or restatements thereof from time to time adopted.
2.36 "Plan Account" means the total value of an Employee's Investment
Plan Account and ESOP Account.
5
<PAGE> 12
2.37 "Plan Year" means the calendar year.
2.38 "Regulations" means regulations issued by the Department of Labor
construing Title I of ERISA or by the Internal Revenue Service construing the
Code.
2.39 "Salary Reduction" means an election by a Participant to have the
Compensation that would otherwise be payable reduced and contributed by the
Employer to the Plan as a regular contribution on behalf of the Participant.
2.40 "Salary Reduction Account" means an Employee's Salary Reduction
contributions, related Employer matching contributions, and investment gains and
losses therefrom.
2.41 "Savings Plan" means the MCN ENERGY GROUP Savings and Stock
Ownership Plan (formerly the MichCon Savings and Stock Ownership Plan.
2.42 "Suspense Account" means the account used to reflect MCN Stock
acquired with loan proceeds pursuant to section 13.4.
2.43 "Trust" means the Trust created by agreement between the Employers
and the Trustee, as from time to time amended.
2.44 "Trust Agreement" means the agreement between the Employers and
the Trustee referred to in section 8.8.
2.45 "Trustee" means the Trustee hereinafter provided for in section
8.8 TRUSTEE UNDER THE TRUST AGREEMENT or any successor Trustee TRUSTEE.
2.46 "Valuation Date" means each business day on which the New York
Stock Exchange shall be open for business.
2.47 "Vesting Requirement" means the requirement for vesting described
in section 5.2.
2.48 "Voluntary Deduction" means an Employee's payroll deduction
contributions other than Salary Reduction contributions.
2.49 "Voluntary Deduction Account" means an Employee's Voluntary
Deduction contributions, related Employer matching contributions, and investment
gains and losses therefrom.
2.50 "Years of Service" means year(s) of employment of an Employee by
an Employer or nonparticipating Affiliated Company as such term is defined in
section 3.5.
ARTICLE III PARTICIPATION AND SERVICE
3.1 Eligibility Requirements.
6
<PAGE> 13
(a) Each individual who was eligible to participate in the Plan
on December 31, 1997, in accordance with the terms of the Plan in effect on said
date shall continue to be eligible to participate, subject to the provisions of
this Plan. Each other Employee shall become eligible to participate on the
latest to occur of--
(i) the date he is employed as an Eligible Employee,
(ii) the date on which he completes at least one year of
eligibility service (as defined in section 3.1(b)), or
(iii) the date on which he attains age 21;
provided he is employed as an Eligible Employee on such date.
(b) For purposes of this Article III, a year of eligibility
service shall mean the 12-month period beginning on the date of an Employee's
first Hour of Employment, or the 12-month period beginning on an Employee's
Anniversary Date during which he completes at least 1,000 Hours of Employment.
3.2 Eligibility Upon Merger or Reemployment.
(a) Merger. Any Employee who is a Participant in any plan which
is merged into this Plan shall become a Participant in this Plan immediately
upon the effective date of the merger. Such an Employee shall be eligible to
actively participate in this Plan in accordance with Section 3.4.
(b) Reemployment. In the event an Employee's employment is
terminated and such individual is later reemployed as an Eligible Employee:
(i) If the re-employed reemployed Eligible Employee had not
met the age and service requirements for participation in the Plan during his
prior period of employment but was re-employed reemployed before incurring a
Break in Service Year, his prior period of employment shall be included for
purposes of determining his eligibility for participation in the Plan.
(ii) If the re-employed reemployed Eligible Employee had not
met the age and service requirements for participation in the Plan during his
prior period of employment and incurred a Break in Service Year, he must meet
the participation requirements of Section 3.1 as if he were a new employee.
(iii) If the re-employed reemployed Eligible Employee met the
age and service requirements for participation in the Plan during his prior
period of employment, incurred a Break in Service Year, and, pursuant to the
Break in Service Year rules, his years of eligibility service are disregarded,
he must meet the participation requirements of Section 3.1 as if he were a new
employee.
(iv) If the re-employed reemployed Eligible Employee met the
age and service requirements for participation in the Plan during his prior
period of employment and incurred a Break in Service Year, but pursuant to the
Break in Service Year rules his years of eligibility
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<PAGE> 14
service are not disregarded, he shall again participate in the Plan on the date
of his reemployment;
(v) If the re-employed reemployed Eligible Employee met the
age and service requirements for participation in the Plan during his prior
period of employment and did not incur a Break in Service Year, he shall again
participate as of the date of his reemployment or, if later, the date upon which
he would have begun participation if not for the termination and reemployment.
3.3 Collective Bargaining Agency. If any Employee shall become a
Participant in the Plan and shall thereafter cease to be represented by a
collective bargaining agency pursuant to a collective bargaining agreement
between his Employer and a collective bargaining agency covered under this Plan,
he shall nevertheless continue to be eligible to actively participate in the
Plan until such time as the terms and conditions of his employment are no longer
governed by such a collective bargaining agreement. If such an Employee becomes
eligible to participate in the Savings Plan or any successor plan, his entire
Plan Account shall be transferred to such plan and the Employee shall no longer
be eligible to participate in this Plan. The Participant's Plan Account shall be
fully vested upon such transfer.
3.4 Applications. An Employee who is eligible to participate on the
date the Plan becomes effective with respect to his Employer may become a
Participant by filing a written application with his Employer in the form
prescribed by the Company. Thereafter, an Eligible Employee may become a
Participant by filing a written application with his Employer in the form
prescribed by the Company. Participation in the Plan will commence within a
reasonable time following processing of a Participant's application.
The Employee's application shall authorize the Employer to deduct
contributions from the Employee's Eligible Compensation in amounts specified by
the Employee pursuant to Article IV, and to have contributions made as a Salary
Reduction pursuant to Article IV. The application shall evidence the Employee's
acceptance of and agreement to all of the provisions of the Plan.
3.5 Years of Service. An Employee shall be credited for Years of
Service for his period of employment with the Employer and each nonparticipating
Affiliated Company, determined as follows:
(a) An Employee shall receive credit, for purposes of vesting,
for all Years of Service. An Employee shall have one "Year of Service" for each
12-month period beginning on the date of the Employee's first Hour of Employment
and on each subsequent Anniversary Date, during which the Employee completes
1,000 or more Hours of Employment.
(b) Years of Service shall not be interrupted (i) by any transfer
of employment of an Employee between Affiliated Companies regardless of whether
the Affiliated Company is an Employer hereunder; or (ii) during such period as
an Employee is receiving credit for Hours of Employment under section 3.7.
(c) If an Employee is reemployed following a Break in Service
Year, he shall be considered a new Employee for purposes of the Plan, except--
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<PAGE> 15
(i) If prior to such Break in Service Year he had a vested
interest in his ESOP Account, Employer Salary Reduction Account, or Employer
Voluntary Deduction Account, Years of Service he had prior to the Break in
Service Year shall be reinstated after such Employee completes a Year of Service
after such Break in Service Year.
(ii) If paragraph (i) is not applicable, and if the
Employee's number of consecutive Break in Service Years does not equal or exceed
the greater of five or the number of Years of Service he had before incurring a
Break in Service Year, the Years of Service he had prior to such Break in
Service Years shall be reinstated after such Employee completes a Year of
Service after such Break in Service Years.
(d) Notwithstanding the foregoing provisions, an Employee's Years
of Service shall exclude any Years of Service completed before an Employee
attains age 18.
3.6 Break in Service Year. "Break in Service Year" shall mean a
12-month period beginning on an Employee's Anniversary Date during which the
Employee has not completed more than 500 Hours of Employment (as defined in
section 3.7). Notwithstanding the foregoing, the following periods shall not be
deemed to be Break in Service Years:
(a) If a Participant retires on his Disability Retirement Date,
thereafter ceases to be totally and permanently disabled, and returns to the
employ of an Employer, the period between his Disability Retirement Date and the
date as of which he ceases to be totally and permanently disabled.
(b) If a Participant commences receiving benefits under a
long-term disability benefit program maintained by an Employer and thereafter
ceases to receive benefits under such program and returns to the employ of the
Employer, the period during which he was receiving benefits under such program.
If an Employee incurs a Break in Service Year and prior to such Break
in Service Year has not completed five Years of Service, his Years of Service
completed prior to such a Break in Service Year shall be disregarded unless he
completes a Year of Service after such Break in Service Year and before the
total of such Break in Service Year and any ensuing consecutive Break in Service
Years equals the greater of five or the number of his Years of Service (as
defined in section 3.5 but without excluding Years of Service completed prior to
attaining age 18) prior to such Break in Service Year.
3.7 Hours of Employment. "Hours of Employment" shall mean, for any
individual performing or who has performed services for one or more Employers or
nonparticipating Affiliated Companies, the sum of the following:
(a) All hours for which the individual is directly or indirectly
paid or entitled to payment by an Employer or nonparticipating Affiliated
Company for the performance of duties. These hours shall be credited to the
individual for the computation period or periods in which the duties are
performed.
(b) Except as provided in section 3.7(e) below, all hours for
which the individual is directly or indirectly paid or entitled to payment by an
Employer or nonparticipating Affiliated Company for reasons (such as vacation,
holiday, sickness, incapacity, layoff, jury duty, leave of absence, Military
Service, or disability) other than for the performance of duties.
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<PAGE> 16
These hours shall be credited to the individual for the computation period or
periods in which the period during which no duties are performed occurs,
beginning with the first unit of time to which the payment relates.
(c) All hours for which back pay, irrespective of mitigation of
damages, has been awarded, agreed to, or paid by an Employer or nonparticipating
Affiliated Company, with no duplication of credit for hours. These hours shall
be credited to the individual for the computation period or periods to which the
award or agreement pertains rather than the computation period in which the
award, agreement, or payment is made.
(d) Except as provided in section 3.7(e) below, eight Hours of
Employment per day for each working day that an individual is absent from work
without pay for an approved leave of absence, voluntary time, sick time,
disciplinary layoff, or Military Service if the individual returns to the employ
of an Employer or nonparticipating Affiliated Company within 90 days after the
end of such period. These hours shall be credited to the individual for the
computation period or periods in which the period during which no duties are
performed occurs, beginning with the first such period.
(e) Eight Hours of Employment per day for each working day that
an individual is absent from work with or without pay because of pregnancy of
the individual, birth of a child to the individual, placement of a child with
the individual in connection with the adoption of such child by such individual,
or caring for such child for a period beginning immediately following such birth
or placement. The Company may, in its discretion, request such information from
the individual as the Company shall deem relevant in order to verify that an
absence is for the reasons described in this subsection (e). Notwithstanding the
foregoing, no more than 501 Hours of Employment shall be credited under this
subsection (e) on account of any such pregnancy or placement if the individual
does not return to the employ of an Employer or participating Affiliated Company
within 90 days after the end of the period approved for such absence. Hours
credited under this subsection (e) shall be credited to the individual only in
the year in which the absence begins if the crediting is necessary to prevent a
Break in Service Year for such year; or, in any other case, in the immediately
following year; provided, however, that if more than 501 hours are credited
under this subsection (e) on account of any such pregnancy or placement, the
excess over 501 hours shall be credited to the period or periods to which it
relates.
Hours of Employment credited under this section 3.7 shall comply with
the rules set forth in 29 C.F.R. section 2530.200b-2(b) and (c), which rules are
hereby incorporated by reference.
Notwithstanding anything herein to the contrary, Hours of Employment
shall be credited hereunder at all times in compliance with the requirements of
the Family and Medical Leave Act.
3.8 Employment by Related Entities. If an Employee's employer is a
nonparticipating Affiliated Company, any period in which the Employee is
employed by the nonparticipating Affiliated Company (while an Affiliated
Company) shall be taken into account for purposes of satisfying the eligibility
service requirement set forth in section 3.1 and measuring such Employee's Years
of Service to the same extent it would have been had such period of employment
been employment by an Employer.
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<PAGE> 17
3.9 Leased Employees. A person who is not an Employee of an Employer
or nonparticipating Affiliated Company and who performs services for an Employer
or a nonparticipating Affiliated Company pursuant to an agreement between the
Employer or nonparticipating Affiliated Company and a leasing organization shall
be considered a "leased employee" if such person performed the services on a
substantially full-time basis for a year and the services are under the primary
direction and control of the recipient. A person who is considered a "leased
employee" of an Employer or nonparticipating Affiliated Company shall not be
considered an Employee for purposes of participating in this Plan or receiving
any contribution or benefit under this Plan. A leased employee shall be excluded
from this Plan regardless of whether the leased employee participates in any
plan maintained by the leasing organization. However, if a leased employee
participates in the Plan as a result of subsequent employment with an Employer,
his previous service as a leased employee shall be counted in calculating his
Years of Service. Notwithstanding the preceding provisions of this section 3.9,
a leased employee will be included as an Employee for purposes of applying the
requirements described in Code section 414(n)(3) and for purposes of determining
the number and identity of Highly Compensated Employees.
ARTICLE IV CONTRIBUTIONS
4.1 Employee Contributions.
(a) Amount of Contributions. Each Participant may make a regular
contribution to the Plan (not less than 1 percent) up to a percentage of his
Compensation for a pay period in incremental percentages of 1 percent,
determined as follows:
Group Percentage
----- ----------
For Highly Compensated Employees 15%
For Nonhighly Compensated Employees
who are Detroit Local Participants:
Prior to April 1, 1998 20%
April 1, 1998 and later 17%
For Nonhighly Compensated Employees
who are Greater Michigan Local
Participants:
Prior to July 1, 1998 20%
July 1, 1998 and later 17%
Contributions will be effected by Voluntary Deductions, Salary
Reductions, or any combination thereof, as elected by the Participant. The
amount of such Voluntary Deductions or Salary Reductions shall be transferred to
the Trustee after each pay period; provided, however, that a Participant's
Salary Reduction contributions shall not exceed 8 percent of the Participant's
Compensation for a pay period (if the Participant was a Highly Compensated
Employee during the immediately preceding Plan Year), or 9 percent of the
Participant's Compensation for a pay period (if the Participant was not a Highly
Compensated Employee
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<PAGE> 18
during the immediately preceding Plan Year); and further provided, however, that
Voluntary Deductions and Salary Reductions shall be limited as provided in
sections 4.7 and 4.10.
Notwithstanding the foregoing, the Company may, in its sole discretion,
(1) reduce the Salary Reduction contributions permitted by a group of
Participants if, in the opinion of the Company, it is advisable to do so in
order to satisfy the requirements of section 4.7 or 4.10; or (2) reduce the
Voluntary Deduction contributions permitted by a group of Participants if, in
the opinion of the Company, it is advisable to do so in order to satisfy the
requirements of section 4.10.
(b) Changes in Contributions. The contribution of Voluntary
Deductions and/or Salary Reductions designated by a Participant shall continue
in effect, notwithstanding any change in his Compensation rate, until the
Participant shall change such contribution; provided, however, that such
contribution shall in no event be less than 1 percent, nor more than the limits
of section 4.1(a), in incremental percentages of 1 percent of the Participant's
Compensation for a pay period. A Participant may change his contribution from
time to time by giving directions to his Employer in the form prescribed by the
Company, with such directions to take effect within a reasonable period
following processing.
(c) Voluntary Suspension of Contributions. Any Participant may,
by giving notice to his Employer in the form and timing prescribed by the
Company, suspend his contribution of Voluntary Deductions and/or Salary
Reductions, either indefinitely or for any specified period provided that in the
event of suspension of both such contributions the suspension shall be for at
least 12 full months. In case of any such suspension of any contributions, the
Employer's contributions on behalf of the Participant shall be automatically
suspended for a like period.
(d) Automatic Suspension of Contributions. A Participant's
contributions of Voluntary Deductions and Salary Reductions and the Employer's
contributions on behalf of the Participant shall be suspended automatically for
any period during which the Participant is absent without pay under any of the
circumstances described in section 3.7(c), (d), or (e), and such an absence
shall not constitute termination of service for purposes of any of the
provisions of Article IX. A Participant may, by giving notice to his Employer in
the form and timing prescribed by the Company, suspend his contribution of
Voluntary Deductions and/or Salary Reductions for any period during which he is
absent from work under any of the circumstances described in section 3.7(b) or
(c) and receiving Compensation at a reduced Compensation rate, in which case the
Employer contributions on behalf of such Participant shall be automatically
suspended for a like period.
4.2 Employer Investment Plan Contributions. Each Employer shall
contribute, to the Salary Reduction Account of each of its participating
Employees, an amount equal to 25 percent of the Salary Reduction contribution of
such Participant; provided, however, that Salary Reduction contributions shall
be disregarded to the extent that they exceed an amount determined by
multiplying the applicable contribution percentage shown in the following
schedules by the Participant's Compensation for a pay period:
(a) Prior to January 1, 1999, for all Participants except
Participants described in subsection (b) below:
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<PAGE> 19
Contribution
Years of Service Percentage
---------------- ------------
1 through 3 2%
More than 3 through 6 3%
More than 6 through 10 4%
More than 10 through 23 5%
More than 23 6%
(b) Prior to January 1, 1999, for (i) all Participants who became
Eligible Employees on or after July 1, 1995, who are Utility I employees
represented by I.C.W.U.C. U.F.C.W. Local 799C (Northern) or (ii) Participants
who became Eligible Employees on or after April 1, 1997 who are service
consumption technicians represented by Local 80 Detroit:
Contribution
Years of Service Percentage
---------------- ----------
0 through 3 0%
More than 3 through 6 3%
More than 6 through 10 4%
More than 10 through 23 5%
More than 23 6%
(c) On and after January 1, 1999, for all Participants except
Participants described in subsection (d) below:
Contribution
Years of Service Percentage
---------------- ----------
1 through 3 2%
More than 3 through 6 3%
More than 6 through 9 4%
More than 9 through 23 5%
More than 23 6%
(d) On and after January 1, 1999, for (i) all Participants who
became Eligible Employees on or after July 1, 1995, who are Utility I
employees represented by I.C.W.U.C. U.F.C.W. Local 799C (Northern) or (ii)
Participants who became Eligible Employees on or after April 1, 1997 who are
service consumption technicians represented by Local 80:
Contribution
Years of Service Percentage
---------------- ----------
0 through 3 0%
More than 3 through 6 3%
More than 6 through 9 4%
More than 9 through 23 5%
More than 23 6%
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<PAGE> 20
In addition, in cases where the Participant's Salary Reduction
contribution is less than the percentage of his Compensation rate allowed in the
above schedule for his Years of Service, the Employer shall contribute to the
Voluntary Deduction Account of such participating Employee an amount equal to 25
percent of the smaller of (1) the Participant's Voluntary Deduction
contribution, or (2) an amount equal to (A) the applicable contribution
percentage, per the above schedule, times the Participant's Compensation for a
pay period, minus (B) the Participant's Salary Reduction contribution. The
maximum Employer matching contributions on behalf of any Participant shall not
be increased until such Participant has provided notice to the Company in the
manner and timing prescribed by the Company.
4.3 Employer ESOP Contributions.
(a) Basic ESOP Contribution. Each Employer shall contribute to
the ESOP Account of each of its participating Employees each pay period an
amount equal to the difference, if any, between (i) and (ii) below:
(i) 75 percent of the sum of the Salary Reduction and
Voluntary Deduction contributions of such Participant for such pay period;
provided, however, that Salary Reduction and Voluntary Deduction contributions
shall be disregarded to the extent that they exceed, in the aggregate, an amount
determined by multiplying the applicable contribution percentage in the
schedules set forth in section 4.2 by such Participant Compensation for the pay
period.
(ii) The value of the shares of MCN Stock allocated to the
ESOP Account of such Participant pursuant to section 13.4(d) for such pay
period. The value of shares allocated under section 13.4(d) shall be the market
value thereof as of the last day of the pay period for which the shares are
allocated, with the market value to be determined by the Company in a
nondiscriminatory manner.
(b) Contribution of Principal, Interest, or Other Payments. Each
Employer also shall contribute to the ESOP its proportionate share of any
additional amount necessary to make principal, interest, or other payments
required by the terms of any loan made to the ESOP in accordance with section
13.4. Each Employer's proportionate share shall be equal to the proportion that
its contributions under section 4.3(a) bears to the total contributions under
section 4.3(a). Each Employer also may make additional contributions to make
principal, interest, or other payments in accordance with the terms of any loan
made to the ESOP in accordance with section 13.4.
(c) Dividend-Related Contributions. Each Employer also shall
contribute to the ESOP Account of each of its participating Employees such
amounts as may be necessary to acquire for the ESOP Account of such Participant
shares of MCN Stock having a fair market value equal to the amount of any
dividends on shares of MCN Stock allocated to the ESOP Account of such
Participant that were used to repay an ESOP loan in accordance with section
13.4(c). Such contributions shall be made on, or as soon as practicable after,
each date on which dividends on allocated shares of MCN Stock are used to repay
a loan. In no event shall the shares of MCN Stock acquired with contributions
under this subsection (c) be allocated to the ESOP Account of such Participant
later than the last day of the Plan Year during which (but for the use of the
dividend to repay the loan) the dividend giving rise to such contribution would
have been allocated to the ESOP Account of such Participant.
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<PAGE> 21
(d) Longevity Contributions. Within a reasonable time after each
March 1 (April 1 in the case of Greater Michigan Local Participants prior to
1999) of each Plan Year (in each case, the "Measurement Date"), each Employer
shall contribute to the ESOP Account of each of its participating Eligible
Employees on active payroll as of the Measurement Date who has at least 30 Years
of Service as of such Measurement Date:
(i) effective prior to March 1, 1999 for Greater Michigan
Local Participants, twenty-five (25) shares of MCN Stock
(ii) effective March 1, 1999 for Greater Michigan Local
Participants and effective March 1, 1998 for Detroit Local Participants, six
hundred dollars ($600) in shares of MCN Stock, as determined by the Company in a
nondiscriminatory manner.
4.4 Additional Employer Contributions. If a Participant receiving
payments (based upon 40 or more hours per week) under the terms of any Workers'
Compensation law does not have sufficient compensation to make Salary Reduction
or Voluntary Deduction contributions in an amount equal to the amount of the
Participant's contributions as in effect during the Participant's last period of
active service, then the Participant's Employer shall contribute on behalf of
the Participant such additional amount as would have been contributed by the
Employer under sections 4.2 and 4.3 on behalf of such Participant had the
Participant's contributions been continued at the rate in effect during the
Participant's last period of active service. Additional contributions under this
section 4.4 shall be treated for accounting purposes as if made under section
4.2 or 4.3, as applicable, except such contributions shall not be considered
when computing the Contribution Percentage. Contributions under this Section 4.4
shall be deemed contributions made under Code Section 415(c)(3)(C), and for
purposes of calculations under Section 415, "compensation" shall include the
compensation the Participant would have received if the Participant were paid at
the rate of compensation paid immediately before becoming disabled.
4.5 Rollover Contributions.
(a) From Qualified Plan. If an Employee receives, either before
or after becoming an Employee an eligible rollover distribution (within the
meaning of Code section 402(c)(4))from an employees' trust described in Code
section 401(a) which is exempt from tax under Code section 501(a) or from a
qualified annuity plan described in Code section 403(a) (other than an
employees' trust or an annuity plan under which the Employee was an Employee
within the meaning of Code section 401(c)(1) at the time contributions were made
on his behalf under such trust or annuity plan), then such Employee may transfer
and deliver to the Company, to be credited to his Employee Salary Reduction
Account as if it were a Salary Reduction contribution, an amount which does not
exceed the amount of such qualified total distribution or eligible rollover
distribution (including any proceeds from the sale of any property received as a
part of such qualified total distribution or eligible rollover distribution)
less, in the case of a qualified total distribution, the amount considered
contributed to such trust or annuity plan by the Employee. Former Employees who
are Participants and who receive an eligible rollover distribution from another
plan sponsored by an Employer may make rollover contributions in accordance with
this section.
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<PAGE> 22
(b) From Individual Retirement Account or Annuity. If--
(i) an Employee receives, either before or after becoming
an Employee, a distribution or distributions from an individual retirement
account or individual retirement annuity (within the meaning of Code section
408) or from a retirement bond (within the meaning of Code section 409); and
(ii) no amount in such account, no part of the value of such
annuity, or no part of the value of the proceeds of such bond is attributable to
any source other than an eligible rollover distribution (within the meaning of
Code section 402(c)(4)) from an employees' trust described in Code section
401(a) which is exempt from tax under Code section 501(a) or annuity plan
described in Code section 403(a) (other than an employees' trust or an annuity
plan under which the Employee was an Employee within the meaning of Code section
401(c) at the time contributions were made on his behalf under such trust or
annuity plan) and any earnings on such a qualified total distribution or
eligible rollover distribution;
then such Employee may transfer and deliver to the Company, to be
credited to his Salary Reduction Account as if it were a Salary Reduction
contribution, such distribution or distributions.
(c) Timing and Substantiation. Any transfer and delivery pursuant
to this section 4.5 shall be delivered by the Employee to the Company and by the
Company to the Trustee on or before the sixtieth day after the day on which the
Employee receives the distribution or on or before such later date as may be
prescribed by law. Any such transfer and delivery must be accompanied by (i) a
statement of the Employee that to the best of his knowledge the amount so
transferred meets the conditions specified in this section 4.5, and (ii) a copy
of such documents as may have been received by the Employee advising him of the
amount and the character of such distribution. Notwithstanding the foregoing,
the Company shall not accept a rollover contribution if, in its judgment, such
acceptance would cause the Plan to violate any provision of the Code or
Regulations.
(d) Deemed Contribution for Certain Purposes. A rollover
contribution pursuant to this section 4.5 shall be deemed to be a contribution
of a Participant for purposes of the value of a Participant's fund account as
provided in section 8.2 and in determining the amount distributable to a
Participant, the provisions of Article IX that are applicable to Salary
Reduction contributions will be used, pursuant to section 9.1, but not for
purposes of determining the amount of the contribution to be made on behalf of a
Participant by his Employer pursuant to section 4.2, 4.3, or 4.4 or calculating
the Annual Addition of such Participant.
(e) Deemed Participation for Certain Purposes. If the amount of
rollover contribution is made by an Employee prior to his becoming a
Participant, such Employee shall, until such time as he becomes a Participant,
be deemed to be a Participant for all purposes of the Plan except for purposes
of any determination of when he becomes a Participant pursuant to section 3.1
and the making of contributions pursuant to section 4.1(a).
4.6 Transfers from the Savings Plan. If an Employee who previously had
participated in the Savings Plan becomes a Participant in the Plan and the
Participant's plan account in the Savings Plan (including any outstanding loans)
is transferred to the Plan in
16
<PAGE> 23
accordance with section 3.3 of the Savings Plan, the Plan shall accept such
transfer. Amounts transferred shall be 100 percent vested at all times and shall
be treated for all purposes in the same manner as they were treated under the
Savings Plan; that is:
(a) Amounts attributable to Employer salary reduction
contributions under the Savings Plan shall be allocated to the Participant's
Employee Salary Reduction Account;
(b) Amounts attributable to voluntary deduction contributions
under the Savings Plan shall be allocated to the Participant's Employee
Voluntary Deduction Account;
(c) Amounts attributable to Employer Savings Plan contributions
shall be allocated to the Participant's Employer Salary Reduction Account or
Employer Voluntary Deduction Account, as the case may be; and
(d) Amounts transferred from the ESOP Account of the Participant
in the Savings Plan shall be allocated to the Participant's ESOP Account.
Notwithstanding the foregoing, amounts transferred shall not be used
for purposes of determining the amount of the contribution to be made on behalf
of a Participant by the Employer pursuant to section 4.2, 4.3, or 4.4, or
calculating the Actual Deferral Percentage or Annual Addition of the
Participant.
4.7 Limitations on Salary Reduction Contributions.
(a) Dollar Limitation. In no event shall any Employer make Salary
Reduction contributions for any calendar year, with respect to any Participant
in excess of $10,000 (for 1998) (as adjusted by the Secretary of the Treasury to
reflect increases in the cost of living). This limit shall be applied by
aggregating all plans and arrangements maintained by the Company and all
Affiliated Companies that provide for elective deferrals (as defined in Code
section 402(g)).
(b) ADP Test. Effective for Plan Years beginning on or after
January 1, 1997, in addition to the limitations set forth elsewhere in this
Plan, one of the following tests must be satisfied for the Plan Year:
(i) The Average Actual Deferral Percentage for Highly
Compensated Employees who are eligible to participate for the Plan Year shall
not exceed the Average Actual Deferral Percentage for the immediately preceding
Plan Year for Nonhighly Compensated Employees who were then eligible to
participate multiplied by 1.25; or
(ii) The Average Actual Deferral Percentage for Highly
Compensated Employees who are eligible to participate for the Plan Year shall
not exceed the Average Actual Deferral Percentage for the immediately preceding
Plan Year for Nonhighly Compensated Employees who were then eligible to
participate multiplied by two, provided that the Average Actual Deferral
Percentage for such Highly Compensated Employees does not exceed the Average
Actual Deferral Percentage for such Nonhighly Compensated Employees by more than
two percentage points or such lesser amount as the Secretary of Treasury shall
prescribe in accordance with Code section 401(m)(9) to prevent the multiple use
of this alternative limitation with respect to any Highly Compensated Employee.
Any such restriction on the multiple use of the alternative limit shall be
implemented pursuant to uniform rules adopted by the Company.
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<PAGE> 24
(c) Determination of Actual Deferral Percentages. For purposes of
the Actual Deferral Percentage test described in this section 4.7--
(i) An Elective Deferral will be taken into account for a
Plan Year only if it relates to Compensation that either would have been
received by the Eligible Employee in the appropriate Plan Year (but for the
deferral election) or is attributable to services performed by the Eligible
Employee in the Plan Year and would have been received by the Eligible Employee
within 2 1/2 months after the close of the Plan Year (but for the deferral
election);
(ii) An Elective Deferral will be taken into account for a
Plan Year only if it is allocated to the Eligible Employee as of a date within
that Plan Year. For this purpose, an Elective Deferral is considered allocated
as of a date within a Plan Year if the allocation is not contingent on
participation or performance of services after such date and the Elective
Deferral is actually paid to the Trust no later than 12 months after the Plan
Year to which the contribution relates;
(iii) The Actual Deferral Percentage for an Employee who is
eligible to participate shall be computed by treating any Excess Deferral (as
defined in section 4.8) as an Elective Deferral, except to the extent provided
by Regulations;
(iv) The Actual Deferral Percentage for any Employee who is
a participant under two or more section 401(k) plans or arrangements that are
maintained by the Company or an Affiliated Company shall be determined as if all
such Elective Deferrals were made under a single arrangement; provided, however,
that no Elective Deferrals under an employee stock ownership plan (as defined in
Code section 4975(e)(7)) shall be taken into account for purposes of this
section 4.7;
(v) In the event that two or more plans which include
cash-or-deferred arrangements are considered as one plan for purposes of Code
section 401(a)(4) or 410(b), the cash-or-deferred arrangements included in such
plans shall be treated as one arrangement for purposes of this section 4.7;
(vi) The determination and treatment of the Elective
Deferrals and Actual Deferral Percentage of any Employee shall satisfy such
other requirements as may be prescribed by the Secretary of Treasury.
4.8 Distribution of Excess Deferrals. "Excess Deferrals" means excess
deferrals as defined under Code section 402(g). Notwithstanding any other
provision of the Plan, the Excess Deferral, if any, of each Employee with
respect to a calendar year plus any income and minus any loss allocable thereto
shall be distributed no later than April 15 of the following calendar year to
each Employee who claims an Excess Deferral for the preceding calendar year.
Excess Deferrals shall be treated as Annual Additions under the Plan.
The Employee's claim shall be in writing; shall be submitted to the
Company no later than March 1; shall specify the Employee's Excess Deferral for
the preceding calendar year; and shall be accompanied by the Employee's written
statement that if such amount is not distributed, such Excess Deferral, when
added to amounts deferred under other plans or
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arrangements described in Code section 401(k), 408(k), or 403(b), exceeds the
limit imposed on the Employee by Code section 402(g) for the year in which the
deferral occurred.
Notwithstanding the preceding paragraph, the Employer may notify the
Plan on behalf of the individual of Excess Deferrals to the extent that the
individual has Excess Deferrals for the calendar year calculated by taking into
account only elective deferrals under this Plan and other plans of the Company
and any Affiliated Company.
The Excess Deferral distributed to an Employee with respect to a
calendar year shall be adjusted for any income or loss thereon for such calendar
year and for the period between the end of such calendar year and the date of
distribution. The income or loss allocable to such calendar year shall be
determined by multiplying the income or loss for such calendar year allocable to
the Employee's Salary Reduction Account by a fraction, the numerator of which is
the Excess Deferral of the Employee for such calendar year and the denominator
of which is the Employee's Salary Reduction Account balance on the last day of
such calendar year. The income or loss allocable to the period between the end
of such calendar year and the date of distribution shall be equal to 10 percent
of the income or loss allocable to the Excess Deferral for the preceding
calendar year multiplied by the number of calendar months that have elapsed from
the end of the preceding calendar year to the date of distribution. A
distribution occurring on or before the fifteenth day of the month shall be
treated as having been made on the last day of the preceding month and a
distribution occurring after such fifteenth day shall be treated as having been
made on the first day of the following month.
In the event that an Employee's Salary Reduction contributions are
distributed to such Employee under this section 4.8, any Employer contributions
attributable thereto plus any income and minus any loss allocable thereto shall
be forfeited.
4.9 Distribution or Recharacterization of Excess Contributions.
(a) Determination of Excess Contributions. "Excess Contributions"
means, with respect to any Plan Year, the excess of (i) the aggregate amount of
Elective Deferrals actually paid over to the Trust on behalf of Highly
Compensated Employees for such Plan Year, over (ii) the maximum amount of such
Elective Deferrals permitted under the limitations of section 4.7(b), in
accordance with the provisions of Code Section 401(k)(8).
Excess Contributions shall be returned to the Highly Compensated
Employees, beginning with that Highly Compensated Employee who has the highest
dollar amount of Elective Deferrals. The Highly Compensated Employee shall
receive the portion of his Employee Deferrals (and income allocable thereto)
which will either enable the Plan to distribute the total Excess Contribution
(and thereby satisfy the ADP limit stated above) or cause such Highly
Compensated Employee's Elective Deferrals to equal the Elective Deferrals of the
Highly Compensated Employee with the next highest amount of Elective Deferrals.
This prior process must then be repeated until the plan has distributed the
total Excess Contributions described above.
Excess Contributions shall be treated as Annual Additions under
the Plan.
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For purposes of this section 4.9, to the extent permitted by the
Code, the Excess Contributions shall be reduced by the amount of any Excess
Deferrals included in such Excess Contributions and distributed to the Employee
pursuant to section 4.8.
(b) Distribution or Recharacterization. Notwithstanding any other
provision of the Plan, either--
(i) Excess Contributions with respect to a calendar year
plus any income and minus any loss allocable thereto shall be distributed no
later than the last day of the following calendar year to Employees on whose
behalf such Excess Contributions were made for the preceding calendar year; or
(ii) at the election of the Employee and to the extent
permitted by the Code, the Excess Contributions shall be treated as distributed
to the Employee and then contributed by the Employee to the Plan as a Voluntary
Deduction contribution.
(c) Adjustment for Income and Loss. The Excess Contributions to
be distributed to an Employee with respect to a calendar year shall be adjusted
for any income or loss thereon for such calendar year and for the period between
the end of such calendar year and the date of distribution. The income or loss
allocable to such calendar year shall be determined by multiplying the income or
loss for such calendar year allocable to the Employee's Salary Reduction Account
by a fraction, the numerator of which is the Excess Contributions for such
calendar year and the denominator of which is the Employee's Salary Reduction
Account balance on the last day of such calendar year. The income or loss
allocable to the period between the end of such calendar year and the date of
distribution shall be equal to 10 percent of the income or loss allocable to the
Excess Contributions for the preceding calendar year multiplied by the number of
calendar months that have elapsed from the end of the preceding calendar year to
the date of distribution. A distribution occurring on or before the fifteenth
day of the month shall be treated as having been made on the last day of the
preceding month and a distribution occurring after such fifteenth day shall be
treated as having been made on the first day of the following month.
In the event that an Employee's Salary Reduction contributions are
distributed to such Employee under this section 4.9, any Employer contributions
attributable thereto plus any income and minus any loss allocable thereto shall
be forfeited.
4.10 Statutory (Code Section 415) Limitations on Allocations to
Accounts. Notwithstanding any other provision of the Plan, contributions under
the Plan shall be subject to the limitations set forth in Code section 415,
which are incorporated herein by reference. For purposes of applying such
limitations to contributions under the Plan, the rules set forth in this section
4.10 shall be applicable.
(a) Annual Addition. The term "Annual Addition" means the amount
allocated to a Participant's account during any calendar year that constitutes--
(i) Employer contributions;
(ii) Employee contributions;
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(iii) forfeitures; and
(iv) amounts described in Code Sections 415(l)(2) and
419(A)(d)(3).
The compensation limitation referred to in Code section
415(c)(1)(B) shall not apply to--
(1) any contribution for medical benefits (within the
meaning of Code section 419A(f)(2)) after
separation from service which is otherwise
treated as an Annual Addition, or
(2) any amount otherwise treated as an Annual Addition
under Code Section 415(l)(2).
The Annual Addition for any calendar year before 1987 shall not be
recomputed to treat all Employee contributions as an Annual Addition.
(b) Combined-Plan Limits. Prior to January 1, 2000, in the case
of an individual who was a Participant in the Plan on December 31, 1986, an
amount shall be subtracted from the numerator of the defined contribution
fraction (not exceeding such numerator) as prescribed by the Secretary of
Treasury so that the sum of the defined benefit plan fraction and defined
contribution plan fraction does not exceed 1.0 as of such date.
Code section 415 shall be applied in such manner as to maximize the
permissible contributions and benefits thereunder and, in determining the
permissible amount of contributions under the Plan, any grandfathering
provisions heretofore or hereafter adopted pursuant to Code section 415 shall be
applicable. For purposes of applying the limitations set forth in Code section
415(e) prior to January 1, 2000, this Plan shall be the primary plan and any
required reductions shall be made from the Michigan Consolidated Gas Company
Retirement Plan for Employees Covered by Collective Bargaining Agreements (or
other applicable defined benefit plan of the Employer).
(c) Reduction of Annual Additions.
(i) If the limitations of Code section 415 would be exceeded
as a result of a reasonable error in estimating a Participant's Compensation or
on account of such other limited facts and circumstances as the Commissioner of
Internal Revenue finds justify the application of the rules hereinafter set
forth, the Annual Additions to the Participant's account which exceed the
applicable limitation shall be returned to the Participant to the extent of all
or any portion of any Voluntary Deduction contributions which were made by him
pursuant to Article IV. Any net earnings and gains allocable to such
contributions for the period between the date of such contribution and the date
returned shall also be repaid to the Participant but such return of net earnings
and gains will not be deemed a further reduction of any excess Annual Additions.
(ii) If the Participant made no Voluntary Deduction
contributions or if, after returning all or part of such contributions in
accordance with the previous paragraph, his Annual Additions still exceed the
limitations of Code section 415, then such excess shall be returned to the
Participant to the extent of all or any portion of any Salary Reduction
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contributions made on behalf of such Participant, together with any net earnings
and gains on such contributions as hereinabove described.
(iii) If, after returning all or any portion of Voluntary
Deduction and Salary Reduction contributions of a Participant in accordance with
the preceding paragraphs, his Annual Additions still exceed the limitations of
Code section 415, such portion of the Employer contributions under section 4.2
made on behalf of the Participant as must be removed to meet the limitations
shall be allocated and reallocated to other Participants' Investment Plan
Accounts as contributions by the Employer.
(iv) If, after reallocating all or any portion of Employer
contributions under section 4.2, a Participant's Annual Additions still exceed
the limitation of Code section 415, such portion of the Employer contributions
under section 4.3(a) made on behalf of the Participant and shares of MCN Stock
allocated to his ESOP Account under section 13.4(d) as must be removed to meet
the limitations shall be allocated and reallocated to other Participant's ESOP
Accounts as contributions by the Employer.
(v) If, as a result of the allocation of forfeitures, a
reasonable error in estimating a Participant's Compensation, or under other
limited facts and circumstances which the Commissioner of the Internal Revenue
Service finds justify the availability of the following rules, any amount cannot
be allocated during the Plan Year in accordance with the foregoing procedure
without exceeding the applicable limitations for one or more Participants, any
remaining amount shall be held unallocated in a special suspense account to be
allocated to Participants in the succeeding Plan Year or Plan Years; provided,
however, that (A) no Employer contributions and no Voluntary Deduction
contributions shall be made in such succeeding Plan Year or Plan Years until
such special suspense account is exhausted by allocations and reallocations; (B)
no investment gains (or losses) or other income shall be allocated to the
special suspense account; and (C) the amounts in the special suspense account
shall be allocated as soon as possible without violating the limitations of this
section 4.10.
ARTICLE V VESTING IN ACCOUNTS
5.1 Employee Salary Reduction Accounts, Employee Post-1986 Voluntary
Deduction Account, and Employee Pre-1987 Voluntary Deduction Account. The
Employee Salary Reduction Account, the Employee Post-1986 Voluntary Deduction
Account, and the Employee Pre-1987 Voluntary Deduction Account of each
Participant shall be fully vested and nonforfeitable at all times.
5.2 Employer Salary Reduction Account, Employer Voluntary Deduction
Account, and ESOP Account.
(a) In General. A Participant shall have a vested and
nonforfeitable interest in his Employer Salary Reduction Account, Employer
Voluntary Reduction Account, and ESOP Account after he has completed at least
five Years of Service. Prior to that time he shall have no vested interest in
such accounts.
(b) Accelerated Vesting. Notwithstanding section 5.2(a) above but
subject to Section 4.4, a Participant shall be fully vested and have a
nonforfeitable interest in his entire Employer Salary Reduction Account,
Employer Voluntary Deduction Account, and ESOP Account if--
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(i) while still an Employee, he attains age 65;
(ii) the Participant terminates employment with his Employer
for reasons described in Section 9.1(a), (b) or (c); or
(iii) while he is an Employee, contributions to the Plan are
completely discontinued or the Plan is terminated, or the Plan is partially
terminated and such Participant is affected by such partial termination; OR.
(iv) while he is an Employee, his account balance is
transferred to the Savings Plan in accordance with Section 3.3 (in which case
such account balance shall be vested under the recipient plan).
ARTICLE VI INVESTMENT PROVISIONS
6.1 Investment of Contributions. Employer contributions under sections
4.2, 4.3, and 4.4 and Employee contributions shall be invested in accordance
with the following provisions:
(a) The Employer contributions made pursuant to section 4.3(a),
(c), and (d) shall be invested in the MCN Stock Fund (through each Participant's
ESOP Account), which fund is described in Article VII.
(b) Each Participant shall, by direction to the Company in the
form prescribed by the Company, direct that the Employer contributions made
pursuant to section 4.2 and Employee contributions, including those made as a
Salary Reduction, be invested in such funds offered by the Trustee as are
selected by the Company.
Employee contributions, including those made as a Salary Reduction, and
the portion of Employer contributions referenced in section 6.1(b) above, need
not be invested in the same fund. A Participant shall direct the manner in which
the total of such contributions and such Employer contributions referenced in
section 6.1(b) above shall be divided, equally or otherwise, among the funds.
6.2 Change of Investment Direction. Any investment direction given by
a Participant under section 6.1 shall be deemed to be a continuing direction
until changed by the Participant. A Participant may change any such direction in
accordance with such procedures as the Company may from time to time provide and
apply in a nondiscriminatory manner.
6.3 Transfers Between Investment Funds. A Participant may direct that
all or any part of the value of his interest in any investment fund be
transferred to one or more of the other funds except that a Participant may not
transfer any amount from the MCN Stock fund to the extent that the balance
remaining in such fund immediately after the transfer would be less than the
value of his ESOP Account.
A transfer of all or any part of the value of a Participant's interest
in the Fixed Income fund may from time to time be restricted by the terms of
agreements which govern the
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investment of assets in such fund, in which event the Company shall give notice
of such restrictions to the Participants.
ARTICLE VII INVESTMENT FUNDS
7.1 Investment Funds. The Trustee shall establish, operate, and
maintain the following funds exclusively for the collective investment and
reinvestment of monies directed by the Company to be invested in such funds on
behalf of Participants:
(a) MCN Stock Fund. An MCN Stock fund which shall be invested
solely in MCN Stock.
(b) Fixed Income Fund. A Fixed Income fund which shall be
invested, except as hereinafter provided, in marketable fixed income securities
or accounts maintained by financial institutions which provide for fixed or
variable rates of interest for specified periods of time. The terms of such
agreements and the selection of such institutions shall be determined by the
Company. Investment advisors for marketable fixed income securities may use
fixed income futures and options to reduce the effect of market volatility.
(c) Other Funds. Such other funds offered by the Trustee as the
Company may select.
Notwithstanding the foregoing, the Trustee or the investment manager,
as the case may be, shall invest such portion of the assets of the funds as the
Company may deem necessary or appropriate to facilitate the administration of
such funds in any short-term fixed income fund as may be established under any
common, commingled, or collective trust for employee benefit plans established
and maintained by the Trustee.
7.2 Management of Investment Funds. Except as otherwise provided in
this Article VII, the ownership of the assets and investments of the funds shall
be in the Trustee as such; and the Trustee shall have in respect of any and all
assets of the funds the same powers as if it were absolute owner thereof.
7.3 Voting of MCN Stock.
(a) Instructions from Participants. The Trustee shall vote, in
person or by proxy, shares of MCN Stock held by the Trustee in the MCN Stock
fund in accordance with instructions obtained from Participants.
Each Participant shall be entitled to give voting instructions
with respect to the number of shares of such respective stock which bears the
same ratio to the total number of shares held by the Trustee on the record date
as the number of shares allocated to the respective stock fund account of such
Participant as of the Valuation Date preceding such record date bears to the
total number of shares allocated to the respective stock fund accounts of all
Participants as of such Valuation Date, excluding shares allocated to the
accounts of persons whose accounts have been distributed prior to such record
date. Written notice of any meeting of stockholders of MCN Energy Group Inc. and
a request for voting instructions shall be given by the Company or the Trustee,
at such time and in such manner as the Company shall determine, to each
Participant entitled to give instructions for the voting of stock at such
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<PAGE> 31
meeting. Shares with respect to which no voting instructions are received
from Participants and unallocated shares of the ESOP shall be voted by the
Trustee in the same proportion as shares for which voting instructions are
received from Participants. The Trustee shall combine and vote fractional shares
to the extent possible to reflect the voting instructions of Participants.
(b) Confidentiality. The instructions received by the Trustee
from Participants shall be held by the Trustee in strict confidence and shall
not be divulged or released to any person, including officers or employees of
the Company or any Affiliated Company
7.4 Tender Offers.
(a) Rights of Participants. Notwithstanding any other provisions of
this instrument, in the event an offer is made generally to the shareholders of
MCN Energy Group Inc. to transfer all or a portion of the common stock of MCN
Energy Group Inc. in return for valuable consideration including, but not
limited to, offers regulated by section 14(D) of the Securities Exchange Act of
1934, as amended, each Participant owning a beneficial interest in the MCN Stock
fund shall have the sole and exclusive right to decide if the common stock
representing his interest in such fund shall be tendered. Each Participant shall
have the right, to the extent the terms of the tender offer so permit, to direct
the withdrawal of such shares from tender. A Participant shall not be limited as
to the number of instructions to tender or withdraw from tender which he can
give; provided, however, the Participant shall not have the right to give
instructions to tender or withdraw from tender after a reasonable time
established by the Trustee pursuant to section 7.4(c) below.
(b) Duties of the Company. Within a reasonable time after the
commencement of a tender offer, the Company shall provide to each Participant
having an ownership interest in the MCN Stock fund--
(i) the offer to purchase as distributed by the offeror to
the shareholders of MCN Energy Group Inc.,
(ii) a statement of the shares representing his interest in
the MCN Stock fund as of the most recent information
available from the Company, and
(iii) directions as to the means by which a Participant can
give confidential instructions to the Trustee with
respect to the tender. The Company shall establish and
pay for a means by which a Participant can
expeditiously deliver to the Trustee instructions with
respect to the tender.
(c) Duties of the Trustee. The Trustee shall follow the
instructions of the Participants with respect to the tender offer. The Trustee
shall not tender shares for which no instructions are received. Unallocated
shares of MCN Stock of the ESOP shall be tendered or exchanged by the Trustee in
the same proportion as the allocated shares for which the Trustee has received
direction are tendered or exchanged, subject to the terms of any loan or pledge
agreement covering such shares. On the basis of its ability to comply with the
terms of the
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<PAGE> 32
offer, the Trustee shall establish a reasonable time after which it shall not
accept the instructions of Participants.
(d) Confidentiality. The instructions received by the Trustee from
Participants shall be held by the Trustee in strict confidence and shall not be
divulged or released to any person, including officers or employees of the
Company or any Affiliated Company.
7.5 Named Fiduciary Status. For purposes of sections 7.3 and 7.4, each
Participant is hereby designated a "named fiduciary" within the meaning of ERISA
section 403(a)(1) with respect to shares of MCN Stock as to which he is entitled
to make voting or tender offer decisions.
7.6 Expenses of Funds. Brokerage commissions, transfer taxes, and
other charges and expenses in connection with the purchase and sale of
securities for a fund shall be charged to the fund. Any income and other taxes
payable with respect to a fund shall likewise be charged to the fund.
ARTICLE VIII ACCOUNTS AND RECORDS OF THE PLAN
8.1 Company to Maintain Accounts.
(a) The Company shall maintain, or cause to be maintained, for
each Participant--
(i) an Investment Plan Account attributable to Voluntary
Deduction contributions and related Employer contributions under section 4.2,
and
(ii) a separate account attributable to Salary Reduction
contributions and related Employer contributions under section 4.2, each of
which shall be composed, to the extent required by the investment directions of
the particular Participant, of a MCN Stock fund account, a Fixed Income fund
account, and an account for each other applicable fund in which his
contributions and related Employer contributions are invested.
(b) The Company also shall maintain, or cause to be maintained,
for each Participant--
(i) an ESOP Account attributable to Employer contributions
under section 4.3(a), (c) and (d), and
(ii) shares of MCN Stock allocated to the Participant
pursuant to section 13.4(d), each of which shall be composed of a MCN Stock fund
account and, to the extent diversification elections are made by the Participant
under section 13.5, such other accounts as the Company or its delegate deems
necessary or appropriate in giving effect to the diversification requirements of
section 13.5.
The Company shall maintain, or cause to be maintained, all necessary
records.
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8.2 Plan Accounting. The interests of each Participant in the funds
shall be his proportionate share of the value of such funds as of any Valuation
Date. The Participant's proportionate share may be determined under any
accounting method selected by the Company that allocates fairly, in the opinion
of the Company, the investment gains and losses by or on behalf of each
Participant to the fund and that complies with the requirements of the Code and
the Regulations thereunder. The value of Participants' fund accounts shall be
redetermined as of each Valuation Date.
8.3 Valuation of Funds. The value of a fund as of any Valuation Date
shall be the market value of all assets (including any uninvested cash) held by
the fund as determined by the Trustee reduced by the amount of any accrued
liabilities of the fund on such Valuation Date. The Trustee's determination of
market value shall be binding and conclusive upon all parties.
To the extent any Employer securities held by the Plan are not readily
tradable on an established securities market, valuation of such securities shall
be made by an independent appraiser who meets requirements similar to the
requirements of the regulations prescribed under Code Section 170(a)(1).
8.4 Valuation of Investment Plan Account. The value of a Participant's
Investment Plan Account as of any Valuation Date shall be the sum of the values
of his MCN Stock fund account, Fixed Income fund account, and any other of his
fund accounts attributable to Salary Reductions, Voluntary Deductions, and
Employer Contributions under section 4.2.
8.5 Valuation of ESOP Account. The value of a Participant's ESOP
Account as of any Valuation Date shall be the sum of--
(a) the value of his MCN Stock Fund account attributable to
Employer contributions on his behalf under section 4.3(a), (c) and (d) and
shares of MCN Stock allocated to his ESOP Account under section 13.4(d); and
(b) the sum of the values of his Fixed Income fund account and
any other of his fund accounts attributable to diversification elections under
section 13.5.
8.6 Valuation of Plan Account. The value of a Participant's Plan
Account as of any Valuation Date shall be the sum of the values of his MCN Stock
fund account, Fixed Income fund account, and any other investment fund accounts
maintained on his behalf under the Plan.
8.7 Company to Furnish Annual Statements of Value of Plan. The Company
shall, not less frequently than annually, distribute to each Participant in the
Plan a statement setting forth the Plan Account of such Participant. Such
statement shall be deemed to have been accepted as correct unless written notice
of objections thereto is received by the Company or the Employer within 30 days
after the distribution of such statement to the Participant.
8.8 Trust Agreement. A Trust has been established to fund benefits
under the Plan. The Employers may, without further reference to or action by any
Employee or Participant, from time to time enter into further agreements with
the Trustee and make such amendments to such Trust Agreement or such further
agreements as they may deem necessary or desirable to carry out the Plan, and
may take such other steps and execute such other instruments as the Employers
may deem necessary or desirable to put the Plan into effect or to carry it out.
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ARTICLE IX DISTRIBUTIONS, WITHDRAWALS AND LOANS
9.1 Distribution Upon Termination of Employment Entitling Participant
to Value of Plan Account. Upon--
(a) termination of a Participant's employment with his Employer
due to retirement on his Normal Retirement Date or his Disability Retirement
Date,
(b) the death of the Participant,
(c) termination of a Participant's employment with his Employer
or placement on inactive payroll because of total and permanent disability or
legally established mental incompetency of the Participant not qualifying the
Participant for retirement hereunder, or
(d) termination of a Participant's employment with his Employer
under any circumstances after the Participant has satisfied the Vesting
Requirement,
the Company shall, subject to the provisions of sections 9.7 and 9.9,
direct the Trustee to distribute to the Participant, or, in a proper case his
designated beneficiary or legal representative, the value of the Participant's
Plan Account in a lump sum.
9.2 Distribution Upon Termination of Employment Under Circumstances
Resulting in Forfeiture of Employer Contributions. Upon termination of a
Participant's employment under circumstances other than those described in
sections 9.1 and 9.7(c)(ii), the Company shall, subject to the provisions of
section 9.7, direct the Trustee to distribute to the Participant an amount equal
to the value of the Participant's Employee Pre-1987 Voluntary Deduction Account,
Employee Post-1986 Voluntary Deduction Account, and Employee Salary Reduction
Account each of which shall be fully vested and nonforfeitable at all times.
Subject to Section 4.4,The Participant's Employer Voluntary Deduction Account,
Employer Salary Reduction Account, and ESOP Account shall be forfeited and
applied in reduction of the next succeeding contribution which the Participant's
Employer would otherwise contribute to the Trust; provided, however, if such
Participant is reemployed prior to his incurring five consecutive Break in
Service Years, then following his date of reemployment the Participant's
Employer shall contribute on behalf of such Participant an amount equal to the
amount that was forfeited upon his termination of employment, and such
contribution shall be credited to the same accounts from which it was forfeited,
in the same amounts. Such contributions shall not be taken into account in
determining under section 4.10 the Annual Additions to such Participant's
Savings INVESTMENT Plan Account.
9.3 Certain Distributions from Participant Accounts.
(a) In General. Any Participant may, upon notice to the Company
in the form and timing prescribed by the Company, terminate his participation in
the Plan. Within a reasonable period of time following processing of such
termination, the Company shall direct the Trustee to distribute to the
Participant an amount equal to the value of the Participant's Employee Pre-1987
Voluntary Deduction Account and Employee Post-1986 Voluntary Deduction Account;
but only to the extent attributable to Voluntary Deduction contributions that
have been in the Plan for at least 2 years.. Prior to July 1, 1998, such a
Participant, if a Greater
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Michigan Local Participants, shall be ineligible to again elect to make
contributions under the Plan for a period of 12 full months from the date of
termination of participation.
(b) Withdrawals After Age 59 1/2. Upon notice to the Company in
the form and timing prescribed by the Company, any Participant who has attained
age 59 1/2 may make an election, not more frequently than once every calendar
year, to withdraw all or any portion of the vested amount of his Plan Account.
Within a reasonable period of time following the processing of such election,
the Company shall direct the Trustee to distribute to the Participant as of such
Valuation Date the amount the Participant has elected to withdraw.
(c) Limited Withdrawal in the Event of Hardship. If a Participant
incurs a financial hardship as defined in section 9.6, he may limit the amount
of a distribution from his Voluntary Deduction Account under section 9.3(a) to
the amount necessary to satisfy the hardship and to pay any taxes resulting from
such distribution.
9.4 In-Service Withdrawals -- General. At its discretion, the Company
may adopt rules limiting the number of withdrawals that may be made in any Plan
Year and prescribe a minimum amount that may be withdrawn. All requests for a
withdrawal shall be submitted in a form prescribed by the Company. A Participant
may not rescind a request for withdrawal which has been submitted to the Company
unless the Company consents. A withdrawal shall be distributed as soon as
reasonably practicable after the withdrawal request is received.
9.5 Withdrawal of Voluntary Deduction Contributions. Any Participant
who shall have actively participated in the Plan for 24 or more calendar months
(for purposes of this section 9.5 active participation means the Participant
shall have made contributions to the Plan in each month in which compensation
was available), may, upon notice to the Company (in manner and timing prescribed
by the Company), withdraw an amount not in excess of 100 percent of his
Voluntary Deduction contributions under the Plan (but only to the extent
attributable to voluntary deduction contributions that have been in the plan for
at least 2 years), with such election to be given effect within a reasonable
period of time following processing.
Withdrawals under this section 9.5 shall be from the MCN Stock fund,
the Fixed Income fund, or such other investment funds offered by the Trustee as
the Company shall make available for purposes of this section. If the
Participant has an account in more than one fund, he shall specify in his
direction to the Company the amount to be withdrawn from each fund. The
contributions in all funds in the Employee Pre-1987 Voluntary Deduction Account
must be withdrawn before a withdrawal is permitted from a fund in the Employee
Post-1986 Voluntary Deduction Account. The amount of an in-service withdrawal
from a specific fund in a Voluntary Deduction Account shall not exceed the
Employee's contributions in such fund prior to the withdrawal.
9.6 Hardship Withdrawal of Salary Reduction Contributions. A
Participant may request, upon 20 days' written notice to the Company, a
withdrawal from his Salary Reduction Account if the withdrawal is necessary to
satisfy an immediate and heavy financial need of a Participant as defined below,
with such election to be given effect within a reasonable period following
processing. The amount of such withdrawal shall be limited to the Participant's
Salary Reduction contributions or the total value of the Participant's Employee
Salary Reduction Account as of the latest Valuation Date for which information
is available, whichever is smaller. Withdrawals under this section 9.6 shall be
from the MCN Stock fund, the Fixed Income fund,
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or such other investment funds under the Plan as the Participant specifies in
his written request for a hardship withdrawal.
The determination of whether or not a distribution is necessary to
satisfy an immediate and heavy financial need and the amount required to be
distributed to meet the need shall be made by the Company. All determinations
regarding financial need shall be made in accordance with written procedures
established by the Company and applied in a uniform and nondiscriminatory
manner, based on all applicable facts and circumstances. Such written procedures
shall specify the requirements for requesting and receiving distributions on
account of financial need, including the forms that must be submitted and to
whom the forms are to be submitted. All determinations regarding financial need
must comply with applicable Regulations under the Code.
For purposes of this section 9.6, a financial hardship withdrawal shall
be limited to the amount required to meet the need created by one of the
following situations:
(a) Expenses for medical care described in Code section 213(d)
previously incurred by the Participant, his spouse, or any dependents of the
Participant or necessary for these persons to obtain medical care described in
Code section 213(d).
(b) Costs directly related to the purchase (excluding mortgage
payments) of the principal residence for the Participant.
(c) Payment of tuition, related educational fees and room and
board expenses for the next 12 months of post-secondary education for the
Participant, his spouse, children, or dependents (as defined in Code section
152).
(d) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage on the Participant's
principal residence.
A distribution will be deemed necessary to satisfy an immediate and
heavy financial need of a Participant only if both of the following conditions
are met: (I)(1) The distribution is not in excess of the amount of the immediate
and heavy financial need of the Participant. Prior to January 1, 1999, this
amount may be increased by the lesser of the amount withheld from the
distribution under Code section 3405(c) or the remaining Salary Reduction
contributions or total value of the Salary Reduction Account, if less, after
subtracting the amount of the immediate and heavy financial need; and (II).(2)
The Participant has obtained all distributions, other than hardship
distributions, and all loans available under this Plan and all other plans
maintained by the Employer.
If a Participant receives a hardship distribution, (A) the Participant
shall not be entitled to make Salary Reduction contributions or Voluntary
Deduction contributions (or other employee contributions to qualified or
nonqualified plans of deferred compensation, as described in applicable
regulations) for a period of one year after the hardship distribution, and (B)
the Participant may not make Salary Reduction contributions for the
Participant's taxable year immediately following the taxable year of the
hardship distribution in excess of the amount specified in Code section 402(g)
for such taxable year less the amount of the Participant's Salary Reduction
contributions for the taxable year of the hardship distribution.
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9.7 Time of Distributions.
(a) In General. Except as hereinafter provided and subject to the
provisions of section 9.9, distributions made pursuant to section 9.1 or
9.7(c)(ii) shall be made by the Trustee at the direction of the Company on such
date as the Company shall determine after consultation with the Participant or
his beneficiary, but in no event later than March 1 of the calendar year
following termination of the Participant's employment.
Except as hereinafter provided, all other distributions or withdrawals
under this Article IX shall be paid as soon as reasonably practicable by the
Trustee at the direction of the Company. Notwithstanding any other provision of
the Plan--
(i) if the vested portion of a Participant's Plan Account
has ever exceeded $5,000 (or such greater amount as permitted under the Code),
no distribution shall be made to such Participant pursuant to Section 9.1, 9.2,
9.7(c)(ii), or 9.9 prior to the date the Participant attains the age of
sixty-five (65) without written consent of the Participant; and
(ii) if a distribution to a Participant is deferred pursuant
to (i), the amount that would otherwise have been distributed to such
Participant shall be invested in the Fixed Income fund or any other investment
fund under the Plan, as the Participant shall direct, except that the ESOP
Account of such Participant shall continue to be invested in the MCN Stock fund,
subject to the diversification rules set forth in section 13.5.
A former Participant whose distribution has been deferred pursuant to
(i) above will not thereafter be eligible for withdrawals under section 9.3 or
9.5 or loans under section 9.10 but shall continue to have the voting and tender
offer rights described sections 7.3 and 7.4 and to be treated as a Participant
for purposes of Article VIII.
A former Participant whose distribution has been deferred may initiate
a distribution upon reasonable prior written notice to the Company and shall
receive an amount equal to the vested portion of his Plan Account within a
reasonable period following the processing of such election, with such amount to
be distributed in a lump sum cash payment except that--
(A) amounts invested in the MCN Stock fund shall be
distributed in accordance with section 9.8,
(B) such former Participant may upon reasonable prior
notice (as determined pursuant to procedures
established by the Company) to the Company receive a
partial distribution rather than a total distribution,
of the vested portion of his Account, but not more
frequently than four times per year, and
(C) to the extent that such distribution comes from the
Fixed Income fund account, such distribution shall be
subject to the provisions of section 9.9.
Notwithstanding any other provision of this Plan, if a Participant
attains age 70 1/2 and still has a balance allocated to his or her Plan Account,
a distribution shall be made under section 9.1 as if the Participant had
terminated employment in the month in which the
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Participant attains age 70 1/2. Such distribution shall in no event be later
than April 1 of the calendar year following the year in which the Participant
attains age 70 1/2. Distributions to such Participant shall be made annually
thereafter no later than December 31 of each year and shall be equal to at least
the minimum amount required to be distributed by Code section 401(a)(9). For
purposes of this paragraph, the life expectancy of the Participant and the
Participant's spouse shall be redetermined annually.
(b) Suspension of Participation. Prior to termination of his
employment, if a Participant shall cease to meet the eligibility requirements of
the Plan, his contributions and Employer contributions on his behalf shall be
suspended during the period of his ineligibility. Subject to section 3.1,
distribution of such Participant's Plan Account shall be deferred until
termination of his employment with the Company and any Affiliated Company. If
the provisions of section 3.3 relating to the transfer of a Participant's Plan
Account to the Savings Plan or its successor are not applicable--
(i) with respect to Participants who cease to meet the
eligibility requirements of the Plan prior to January 1, 1987, the Company shall
direct the Trustee to distribute the value of the Participant's Plan Account in
accordance with section 9.1 whether or not such termination of employment shall
be under the circumstances set forth in said section 9.1; and
(ii) with respect to Participants who cease to meet the
eligibility requirements of the Plan subsequent to December 31, 1986, such
distribution shall be in accordance with section 9.1 or 9.3, whichever is
applicable.
(c) Transfer of Employment.
(i) A transfer of employment from an Employer to an
Affiliated Company shall not be considered a termination of employment.
(ii) If a Participant shall be transferred to the employ of
an Affiliated Company which has not elected to participate in the Plan,
distribution of such Participant's Plan Account shall be deferred until the date
on which he is no longer in the employ of the Company or any Affiliated Company,
whereupon the Company shall direct the Trustee to distribute the value of the
Participant's Plan Account in the manner prescribed in section 9.1, subject to
the provisions of section 9.7, whether or not termination of employment shall be
under circumstances set forth in said section 9.1.
(d) Special Rules Relating to Distributions in the Event of
Death. In the event that a Participant dies before a distribution of his Plan
Account, the Company shall direct the Trustee to distribute the entire value of
his Plan Account to his beneficiary no later than March 1 of the calendar year
following the Participant's death, as provided in section 9.1. In the event of
the death of the Participant after the distribution of his Plan Account has
begun, any remaining balance in his Plan Account at the time of death will be
distributed at least as rapidly as under the method of distribution in effect at
the date of the Participant's death.
(e) Distribution must begin not later than the sixtieth (60th)
day after the close of the Plan Year in which occurs the latest of (a) the
Participant's termination of employment, (b) the Participant's attainment of age
sixty-five (65), or (c) the tenth (10th) anniversary of the date the Participant
first became a Participant, unless (1) the Participant
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elects a later date by submitting to the Company a written statement signed by
the Participant which describes the benefit and the date on which payment of
such benefit shall commence, so long as such election does not violate the
incidental benefit rule prescribed by the Code; or (2) if the amount of the
payment required to commence on the date determined hereinabove cannot be
ascertained by such date, or if it is not possible to make such payment on such
date because the Company has been unable to locate the Participant after making
reasonable efforts to do so, a payment retroactive to such date may be made no
later than sixty (60) days after the earliest date on which the amount of such
payment can be ascertained under the Plan or the date on which the Participant
is located, whichever is applicable. For purposes of this subsection, the
failure of a Participant to consent to a distribution shall be deemed an
election to defer commencement of payment of any benefit sufficient to satisfy
this section.
9.8 Distributions of Stock. In the case of distributions under section
9.1, 9.2, 9.3(b), 9.7(a), or 9.7(c)(ii), the value of the Participant's MCN
Stock fund account, if any, shall be paid in full shares of stock except that
cash shall be distributed in lieu of fractional shares; provided, however, that
a Participant entitled to such a distribution may elect to receive cash in lieu
of MCN Stock. Except in the case of an election to receive cash in lieu of MCN
Stock the total number of shares allocated to such account shall be distributed
from such account. Any remaining value of such account and, subject to the
provisions of section 9.9, the value of the Participant's accounts in other
funds shall be distributed in cash. Any transfer taxes payable with respect to
the distribution of shares of stock shall be charged to the respective MCN Stock
fund. Distributions pursuant to section 9.3(a) and withdrawals under sections
9.5 and 9.6 shall be paid entirely in cash. The distribution requirements of
Code Section 409(o) shall be met by the Plan, to the extent applicable.
9.9 Distributions to certain participants from Fixed Income Fund. This
Section 9.9 shall apply only to Participants with at least one Hour of
Employment prior to May 31, 1988.
(a) Normal Form. Notwithstanding any provision of the Plan, other
than the final paragraph of section 9.7(a), if a distribution is to be made
under section 9.1(a) or (c) and the Participant has a Fixed Income fund account
and at least one Hour of Employment prior to May 31, 1988 and the Participant's
first Hour of Employment is prior to January 1, 1999, then unless the
Participant or legal representative shall make an election in the manner
prescribed in section 9.9(b), the value of such account (exclusive of the
portion thereof attributable to diversification elections under section 13.5)
shall be distributed by the purchase of an immediately payable single premium
annuity contract providing for monthly payments during the Participant's
lifetime and, if the Participant is married on the date payment of his benefit
commences and his spouse shall survive him, for monthly payments during the
remainder of such spouse's lifetime, each such payment to such spouse being
equal to one-half of the monthly payment received by the Participant, commencing
no later than March 1 of the calendar year following the calendar year of the
Participant's termination of employment, and delivery of such contract to the
Participant within a reasonable time after the Participant's termination of
employment.
If a distribution is to be made under section 9.1(b) because of a
Participant's death and the Participant had a Fixed Income fund account at the
time of his death and at least one Hour of Employment prior to May 31, 1988 and
the Participant's first Hour of Employment was prior to January 1, 1999, then
unless the Participant had made or the Participant's spouse or beneficiary, as
the case may be, makes an election at the time and in the manner prescribed in
section 9.9(b), the value of the Participant's Fixed Income fund account
(exclusive of the portion thereof attributable to diversification elections
under section 13.5) shall be distributed by purchase of an immediately payable
single premium annuity contract providing
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<PAGE> 40
for monthly payments to the Participant's spouse, or, if the Participant was not
married on the day of his death, to his beneficiary during such person's
lifetime, commencing no later than March 1 of the calendar year following the
calendar year of the Participant's death and delivery of such contract to such
person within a reasonable time after the date of Participant's death.
(b) Election to Reject Normal Form. Subject to the provisions of
this section 9.9(b), each Participant entitled to a distribution under section
9.9(a) (or legal representative on behalf of such a Participant) may, at any
time during the 90-day period ending on the annuity starting date, elect to have
the value of the Participant's Fixed Income fund account (exclusive of the
portion thereof attributable to diversification elections under section 13.5)
distributed by one or more of the methods set forth in section 9.9(c).
Within 30 days after a Participant provides notice to the Company (in
the manner and timing prescribed by the Company) of his intention to retire on
his Normal Retirement Date or Disability Retirement Date, or within 30 days
after the Company receives notice of a Participant's death, or within five
business days after determining, in accordance herewith, that a Participant is
totally and permanently disabled, or within five business days after receiving
notice of the legally established mental incompetency of the Participant, if the
Participant has a Fixed Income fund account at such time, the Company shall
deliver to such Participant or his legal representative, by mail or by personal
delivery, written notice in nontechnical language explaining the terms and
conditions of the annuity provided in section 9.9(a).
The notice shall explain the Participant's or legal representative's
right to elect an optional form of distribution and that such election may be
revoked by the Participant or legal representative at any time prior to the
annuity starting date or, if a lump sum payment is elected, prior to the first
day on which all events have occurred which entitle the Participant or legal
representative to the lump sum payment.
The notice shall explain that a married Participant may elect a
distribution pursuant to section 9.9(c) only if the spouse consents in writing
to such election. Such written consent shall acknowledge consent to the
designated beneficiary and the optional form of distribution, neither of which
may be changed thereafter without again obtaining written spousal consent (or
the consent of the spouse expressly permits changes by the Participant without
further consent by the spouse). Such written consent shall acknowledge the
effect of such election and shall be witnessed by a notary public or by a
representative of the Company who is designated to act in such capacity by the
Company.
If the Participant establishes to the satisfaction of the Company that
such written consent cannot be obtained because his spouse cannot be located,
the requirement of such written consent shall be waived. Any election, change,
or revocation under this section 9.9(b) shall be effective when notice is
delivered to the Company in a form approved by the Company for this purpose,
provided such election, change, or revocation is delivered prior to the annuity
starting date or, if a lump sum payment is elected, prior to the first day on
which all events have occurred which entitle the Participant or legal
representative to the lump sum payment. The notice shall explain that an
effective revocation shall result in the benefit being provided as an annuity
described in section 9.9(a).
Subject to Section 9.14(c), such notice shall be provided no less
than thirty (30) days and no more than ninety (90) days prior to the annuity
starting date.
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(c) Optional Forms. In addition to the form described in section
9.9(a), distribution of the value of a Participant's Fixed Income fund account
(exclusive of the portion thereof attributable to diversification elections
under section 13.5) may be made either--
(i) in a lump sum payment; or
(ii) by purchase of any form of single premium annuity
contract that satisfies Code section 401(a)(9) as may from time to time be
offered by the legal reserve life insurance companies with which the Trustee has
agreements governing the investment of assets in the Fixed Income fund and
delivery of such contract to the Participant or distributee within a reasonable
time after the Participant's termination of employment or death. Within five
business days after the Company receives an election pursuant to this provision,
the Company shall provide the same notice provided under section 9.9(b). An
election pursuant to this provision shall be subject to the provisions of
section 9.9(b).
9.10 Loans. The Trustee is hereby authorized to establish a loan
program in accordance with this section 9.10. Upon application of a party in
interest (as defined in ERISA section 3(14)) who is a Participant or beneficiary
under the Plan, the Company shall direct the Trustee to make a cash loan to such
Participant or beneficiary, secured by 50 percent of the nonforfeitable value of
the Participant's Employee and Employer Salary Reduction and ESOP Accounts
determined as of the date the loan is made. The loan program shall be
administered by the Company subject to the following conditions and such other
conditions that are consistent with Labor Regulation section 2550.408b-1 and are
from time to time set forth in written administrative procedures which shall
constitute a part of the Plan and are hereby incorporated by reference:
(a) The term of a loan shall not extend beyond the earlier of
four years or the date upon which the Participant or beneficiary ceases to be a
party in interest; provided, however, that the four years shall be changed to
eight years where the proceeds of the loan are used by the Participant or
beneficiary to acquire the Participant's principal residence.
(b) A loan shall bear interest at a reasonable rate which shall
be based upon the prevailing interest rate charged by persons in the business of
lending money on similar commercial loans under comparable circumstances at the
time that such loan is granted, as determined by the Company and uniformly
applied.
(c) The amount of a loan (when added to the balance of other
outstanding loans) shall not exceed the lesser of--
(i) $50,000 reduced by the excess (if any) of--
(A) the highest outstanding balance of loans from the
Plan during the one-year period ending on the day
before the date on which such loan was made, over
(B) the outstanding balance of loans outstanding on
the date such loan was made, or
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(ii) 50 percent of the nonforfeitable value of the
Participant's Employee and Employer Salary Reduction and ESOP Accounts under the
Plan which the Participant would have been entitled to receive if the
Participant's employment had terminated on the date such loan was made.
In no case shall a Participant be entitled to a loan under
this Plan if the amount of the proposed loan is less than $500.
(d) A loan shall be evidenced by a promissory note.
(e) Payments of principal and interest shall be made by
approximately equal payments not less frequently than monthly on a basis that
would permit the loan to be fully amortized over its term. Loan payments shall
be made by payroll deductions for Participants in active pay status.
(f) Appropriate disclosure shall be made pursuant to the Truth in
Lending Act to the extent applicable.
(g) Amounts of principal and interest received on a loan shall be
credited to the Participant's account and the outstanding loan balance shall be
considered an investment of the assets of the account. Payment of principal and
interest related to loans made from a Participant's ESOP Account shall be
credited to such Participant's ESOP Account. Payment of principal and interest
related to loans made from a Participant's Investment Plan Account shall be
credited to the Participant's Investment Plan Account and shall be invested in
the investment funds in the same proportions as the investment election then in
effect by the Participant under Article VI.
(h) The frequency of loans and the minimum amount for a loan
shall be determined through uniform rules prescribed by the Company and at the
sole discretion of the Company.
(i) All applications for a loan shall be submitted to the Company
on a form prescribed by the Company. Distribution shall be made as soon as
reasonably practicable after the application of the loan is received.
(j) If a Participant borrows from an account which is invested in
more than one fund, he shall instruct the Company as to the funds from which the
loan is to be applied; provided, however, that no borrowing shall be applied
from the MCN Stock fund unless and until the Participant's ability to borrow
from each of the other funds has been exhausted.
(k) A married Participant may not borrow any amount from the Plan
unless his spouse executes a written consent as hereinafter provided. Such
consent must be executed during the 90-day period ending on the date on which
the loan is made and shall specifically provide that the spouse consents both to
the loan and to the use of the Participant's Salary Reduction and ESOP Accounts
as security for the loan. The consent shall acknowledge the effect of the use of
the Participant's accounts as security for the loan and shall be witnessed by a
notary public or a representative of the Company who is designated to act in
such capacity by the Company.
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(l) In the event a Participant defaults on a loan, the entire
outstanding balance of and accrued interest on the loan shall be due and payable
in accordance with the Plan's loan procedures and applicable Regulations. The
Trustee and/or Company may pursue collection on such defaulted loan by any means
generally available to a creditor where a promissory note is in default, or if
the entire amount due is not paid by such Participant following the default, the
amount of such loan default shall be charged against the "secured portion" of
the Participant's Plan Account and treated as a distribution with respect to
such Participant; provided, however, that such a charge against a Participant's
Plan Account shall not occur with respect to funds in his Employee Salary
Reduction Account at a time so as to cause a violation of Code section
401(k)(2)(B)(i).
9.11 Definition of Employee Contributions and Employer Contributions.
For the purposes of this Article IX, a Participant's Employee contributions
shall include only those contributions made either as a Voluntary Deduction or a
Salary Reduction which have not been previously withdrawn or distributed. If a
Participant has previously had a portion of his Plan Account forfeited under
section 9.2, the Employer contributions, exclusive of those made as a Salary
Reduction to the Plan on his behalf, shall include only such Employer
contributions made subsequent to such forfeiture.
9.12 Spousal Consent to Payment. Subject to section 9.7(a), the spouse
of a married Participant or former Participant shall be required to consent in
writing to any in-service withdrawal, loan, or distribution under the Plan to
the Participant or former Participant. The spouse's consent shall be in such
form as the Company may prescribe.
9.13 Distributions Pursuant to a Qualified Domestic Relations Order.
Upon receipt of a domestic relations order, the Company will notify the involved
Participant and any alternate payee that the order has been received and explain
the Plan's procedures for determining whether the order is a qualified domestic
relations order as defined in Code section 414(p). After determining that the
order is a qualified domestic relations order, the Company shall direct the
Trustee to distribute or segregate the Participant's Account as provided in the
qualified domestic relations order. If required by the qualified domestic
relations order, the Trustee shall make distribution prior to the time that the
Participant, whose account is subject to distribution, could have received a
distribution.
In a case of a dispute regarding the validity of a domestic relations
order or the amounts or identities of parties to be paid thereunder, the Company
may segregate the portion of the Participant's account in question, and may
bring an action in a court of competent jurisdiction to determine the proper
amount and/or recipient of benefits, or may submit such segregated amount to a
court of competent jurisdiction (through an interpleader action or otherwise)
until resolution of the matter. Further, if the Company receives notice that a
domestic relations order is forthcoming, the Company may suspend payments from
the Participant's Account or may follow the procedures described in the
preceding sentence, until resolution of the matter.
9.14 Direct Rollovers of Eligible Distributions.
(a) General. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this section,
a distributee may elect, at the time and in the manner prescribed by the
Company, to have any portion of an eligible rollover
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distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) Definitions.
(i) Eligible rollover distribution. An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary,; or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code section 401(a)(9), or, effective any
hardship distribution after January 1, 1999, a hardship distribution; and the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
employer securities).
(ii) Eligible retirement plan. An eligible retirement plan
is an individual retirement account described in Code section 408(a), an
individual retirement annuity described in Code section 408(b), an annuity plan
described in Code section 403(a), or a qualified trust described in Code section
401(a), that accepts the distributee's eligible rollover distribution. However,
in the case of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or individual
retirement annuity.
(iii) Distributee. A distributee includes an Employee or
former Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as defined in
Code section 414(p), are distributees with regard to the interest of the spouse
or former spouse.
(iv) Direct rollover. A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the distributee.
(c) Waiver of 30-Day Notice Period. If a distribution is one to
which Code sections 401(a)(11) and 417 do not apply, such distribution may
commence less than 30 days after the notice required under section
1.411(a)-11(c) of the Income Tax Regulations is given, provided that (i) the
Company clearly informs the Participant that the Participant has a right to a
period of at least 30 days after receiving the notice to consider the decision
of whether or not to elect a distribution (and, if applicable, a particular
distribution option), and (ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
9.15 Special Distribution Events. Notwithstanding anything herein to
the contrary, a Participant's Salary Reduction contributions shall not be
distributed prior to the Employee's retirement, death, disability, termination
of employment, or hardship, except that a distribution of such amounts may be
made, in accordance with Code Section 401(k)(10), upon
(a) termination of the Plan without establishment of another
defined contribution plan other than an employee stock ownership plan (as
defined in Code Section 4975(e) or 409) or a simplified employee pension plan
(as defined in Code Section 408(k));
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(b) the disposition by MCN Energy Group Inc. or the Company to an
unrelated corporation of substantially all of the assets (as defined in Code
Section 409(e)(2)) used in the trade or business if the Company continues to
maintain the Plan after the disposition, but only with respect to Employees who
continue employment with the corporation acquiring such assets; or
(c) the disposition by MCN Energy Group Inc. or the Company to an
unrelated entity of its interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) if the Company continues to maintain the Plan, but only with
respect to Employees who continue employment with such subsidiary.
ARTICLE X ADMINISTRATION
10.1 Plan Administration and Interpretation.
(a) The Company shall be responsible for the administration of
the Plan, or may designate all or a portion of such responsibility to a
committee for such purposes. The Company shall have all such powers as may be
necessary to carry out the provisions of the Plan and may from time to time
establish rules and procedures for the administration of the Plan and the
transaction of the Plan's business.
(b) The Company shall have the exclusive right to make any
finding of fact necessary or appropriate for any purpose under the Plan. The
Company shall have the maximum discretion permitted by law to interpret and
construe the terms of the Plan and to resolve all issues arising under the Plan
including, but not limited to the authority to--
(i) construe disputed or doubtful terms of the Plan;
(ii) determine the eligibility of an individual to
participate in the Plan;
(iii) determine the amount, if any, of benefits to which any
Participant, former Participant, beneficiary, or other person may be entitled
under the Plan;
(iv) determine the timing and manner of payment of benefits;
and
(v) resolve all other issues arising under the Plan.
To the extent permitted by law, all findings of fact,
determinations, interpretations, and decisions of the Company shall be
conclusive and binding upon all persons having or claiming to have any interest
or right under the Plan.
The Employers shall, from time to time, on request of the Company,
furnish to the Company such data and information as the Company shall require in
the performance of its duties.
(c) The Company shall each month collect Employee contributions
and Employer contributions from each Employer and shall deliver the amounts
collected to the Trustee, together with instructions concerning the portions of
such total amount to be invested in each fund.
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(d) The Company shall direct the Trustee to make payments of
amounts to be distributed or withdrawn from the Trust under Article IX and to
make any transfers from one fund to another directed by Participants under
section 6.3.
10.2 Notice to Employees. All notices, reports, and statements given,
made, delivered, or transmitted to a Participant shall be deemed to have been
duly given, made, or transmitted when mailed with postage prepaid and addressed
to the Participant at the address last appearing on the books of the Employer. A
Participant may record any change of his address from time to time by written
notice filed with the Employer.
10.3 Notices to Employers. Written directions, notices, and other
communications from Participants to the Employers shall be mailed by first class
mail with postage prepaid or delivered to such location as shall be specified
upon the forms prescribed by the Company for the giving of such directions,
notices, and other communications, and shall be deemed to have been received by
the addressee when received at such location. Any other notice to the Employers
shall be addressed--
(a) If intended for the Company:
MichCon Investment and Stock Ownership Plan
c/o Michigan Consolidated Gas Company
500 Griswold Street
Detroit, Michigan 48226
(b) If intended for any other Employer, at its principal place of
business.
10.4 Participants' Acceptance of the Provisions of the Plan. Each
Participant at the time of becoming a Participant in the Plan and as a condition
of participation shall sign an instrument evidencing the fact that he accepts
and agrees to all provisions of the Plan.
10.5 Audit of Plan Records. The records of the Company and the records
of the Employers in respect of the Plan shall be examined annually by a firm of
independent public accountants appointed by the Company. Such accountants shall,
on the basis of such examination, make such reports to the Company and to the
Employers as they may request. The audited records of the Company and the
Employers shall be conclusive in respect of all matters involved in the
administration of the Plan.
10.6 Claims Procedure. If any Participant or distributee believes he is
entitled to benefits in an amount greater than those which he is receiving or
has received, he may file a claim with the Secretary of the Company. Such a
claim shall be in writing and state the nature of the claim, the facts
supporting the claim, the amount claimed, and the address of the claimant.
The Secretary of the Company shall review the claim and, within a
reasonable period of time after receipt of the claim, give written notice by
registered or certified mail to the claimant of his decision with respect to the
claim. Such notice shall be written in a manner calculated to be understood by
the claimant and, if the claim is wholly or partially denied, set forth the
specific reasons for the denial, specific references to the pertinent Plan
provisions on which the denial is based, a description of any additional
material or information necessary for the claimant to
40
<PAGE> 47
perfect the claim, and an explanation of why such material or information is
necessary, and an explanation of the claim review procedure under the Plan.
The Secretary shall also advise the claimant that he or his duly
authorized representative may request a review by the Company of the denial by
filing with the Company, within 65 days after notice of the denial has been
received by the claimant, a written request for such review. The claimant shall
be informed that he may have reasonable access to pertinent documents and submit
comments in writing to the Company within the same 65-day period. If a request
is so filed, review of the denial shall be made by the Company and the claimant
shall be given written notice of the Company's final decision. Such notice shall
be provided within 60 days after receipt of such request. Such notice shall
include specific reasons for the decision and specific references to the
pertinent Plan provisions on which the decision is based and shall be written in
a manner calculated to be understood by the claimant.
10.7 Effect of a Mistake. In the event of a mistake or misstatement as
to the eligibility, participation, or service of any Participant, or the amount
of payments made or to be made to a Participant or beneficiary, the Company
shall, if possible, adjust the Plan's records and cause to be withheld or
accelerated or otherwise make adjustment of such amounts of payments as will in
its sole judgment result in the Participant or beneficiary receiving the proper
amount of payments under the Plan.
ARTICLE XI AMENDMENT AND TERMINATION
11.1 Amendment. The Company may at any time and from time to time amend
or modify the Plan by written instrument duly adopted by the Board of Directors
of the Company or by a designee of the Board. Any such amendment or modification
shall become effective on such date as the Company shall determine, may apply to
Participants in the Plan at the time thereof as well as future Participants, but
may not reduce the Plan Account of any Participant as of the date of adoption of
such amendment or modification.
11.2 Withdrawal. If an Employer shall withdraw from the Plan under
section 12.2, or if an Employer shall adopt an amendment to the Plan which shall
render impracticable the continued administration of the Plan as a joint plan of
the several Employers, the Company shall determine the portions of the various
funds held by the Trustee which are applicable to the Participants of such
Employer and shall direct the Trustee to segregate such portions in a separate
trust. Such separate trust shall thereafter be held and administered as a part
of the separate plan of such Employer. After such portions of the funds have
been segregated in a separate trust, no such Participant or any distributee with
respect to such Participant shall have any right to any benefit under the Plan
or any claim against the Trust.
11.3 Termination. Any Employer may at any time terminate its
participation in the Plan by resolution of its Board of Directors without
obtaining the consent of or giving notice to any Participant or collective
bargaining representative. In the event of any such termination, the Company
shall determine the portions of the various funds held by the Trustee which are
applicable to the Participants of such Employer and shall direct the Trustee to
distribute such portions to such Participants ratably in proportion to the
values of their respective fund accounts; provided, however, amounts
attributable to a Participant's Elective Deferrals shall not be distributed on
account of such termination if the Employer, after such termination, maintains a
defined contribution plan (other than an employee stock ownership plan or a
simplified
41
<PAGE> 48
employee pension). The portions of the MCN Stock fund so distributed shall be
distributed in kind except that cash shall be distributed in lieu of fractional
shares. The portions of the Fixed Income fund and other investment funds so
distributed shall be distributed in cash or in kind, or partly in cash and
partly in kind, as determined by the Company.
Upon termination or partial termination of the Plan by any Employer or
upon the complete discontinuance of contributions by any Employer, the benefits
under the Plan of all affected Participants employed or formerly employed by
such Employer shall become nonforfeitable.
11.4 Allocation of Funds Between Employers. The portion of a fund
applicable to Participants of a particular Employer shall be an amount which
bears the same ratio to the value of the fund which the aggregate value of the
fund accounts of Participants employed by such Employer bears to the total value
of the fund accounts of all Participants.
11.5 Trust to be Applied Exclusively for Participants and Their
Beneficiaries. Subject to section 13.3, any provision of the Plan to the
contrary notwithstanding, it shall be impossible for any part of the Trust to be
used for or diverted to any purpose not for the exclusive benefit of
Participants and their beneficiaries either by operation or termination of the
Plan, by power of amendment, or by other means.
Notwithstanding the preceding paragraph, if a contribution is made to
the Trust by an Employer by a mistake of fact, then such contribution shall be
returned to such Employer within one year after the payment of the contribution;
and if any part or all of a contribution is disallowed as a deduction under Code
section 404, then to the extent such contribution is disallowed as a deduction
it shall be returned to such Employer within one year after the disallowance.
All Employer contributions are conditioned upon their deductibility under Code
section 404.
ARTICLE XII PARTICIPATION BY AFFILIATED COMPANIES
12.1 Adoption of the Plan. Any Affiliated Company may become a
participating Employer under the Plan by (a) taking such corporate action as
shall be necessary to adopt the Plan, and (b) executing and delivering such
instruments and taking such other action as may be necessary or desirable to put
the Plan into effect with respect to such Affiliated Company.
The Plan shall become effective with respect to each particular
Affiliated Company as of a date to be determined by the Board of Directors of
such Employer after complying with all legal requirements pertaining to the
participation of such Employer in the Plan.
12.2 Withdrawal from the Plan. Any Employer may withdraw from
participation in the Plan at any time by filing with the Company a duly
certified copy of a resolution of its Board of Directors to that effect and
giving notice of its intended withdrawal to the Company, the other Employers,
and the Trustee at least 30 days prior to the effective date of withdrawal.
12.3 Company as Agent for Employers. Each Employer other than the
Company, hereby appoints, and each other corporation which shall become an
Employer pursuant to section 12.1 or 13.7 by so doing shall be deemed to have
appointed the Company its agent to
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<PAGE> 49
exercise on its behalf all of the powers and authorities hereby conferred upon
the Employers by the terms of the Plan, including, but not by way of limitation,
the power to amend, restate, and terminate the Plan. The authority of the
Company to act as agent shall continue unless and until the portion of the Trust
fund held for the benefit of Employees of the particular Employer and their
beneficiaries is set aside in a separate trust as provided in section 11.2.
ARTICLE XIII SPECIAL PROVISIONS RELATING TO THE ESOP
13.1 Establishment of ESOP. The MichCon Employee Stock Ownership Plan
for Union Employees was originally established effective as of April 1, 1989.
Each Employer shall make contributions to the ESOP in accordance with section
4.3 hereof and the assets of the ESOP shall be invested at all times primarily
in MCN Stock. The Company from time to time may direct the Trustee to incur debt
in accordance with section 13.4 hereof to finance the acquisition of MCN Stock.
13.2 ESOP Account. The Company shall establish an ESOP Account in the
name of each Participant to which there shall be credited or charged--
(a) the Employer contributions under section 4.3(a), (c) and (d)
hereof made on behalf of such Participant;
(b) the shares allocated to the Participant pursuant to section
13.4(d) hereof; and
(c) the investment gains and losses on such amounts.
A Participant's ESOP Account shall be invested only in the MCN Stock fund,
except to the extent that monies diversified under section 13.5 may, at the
Participant's election, be directed to the Equities fund, the Senior Securities
fund, or the Fixed Income fund.
13.3 Discrimination Testing. For purposes of the limitations on Salary
Reduction contributions set forth in section 4.7, the ESOP and non-ESOP portions
of the Plan shall be tested separately. For purposes of such testing--
(a) the ESOP portion of the Plan shall mean Employer
contributions under section 4.3(a) made on behalf of the Participant and the
shares allocated to a Participant's ESOP Account pursuant to section 13.4(d);
and
(b) the non-ESOP portion of the Plan shall mean all Elective
Deferrals, Voluntary Deductions and Employer contributions under section 4.2.
13.4 Loans.
(a) Stock Acquired with Exempt Loan. The Company may direct the
Trustee to incur a loan on behalf of the ESOP in a manner and under conditions
which will cause the loan to qualify as an "exempt loan" within the meaning of
Code section 4975(d)(3). A loan shall be used primarily for the benefit of
Participants and their beneficiaries. The proceeds of each
43
<PAGE> 50
such loan shall be used, within a reasonable time after the loan is obtained,
only to purchase MCN Stock, to repay the loan, or to repay any prior loan.
Any such loan shall provide for a reasonable rate of interest and an
ascertainable period of maturity, and shall be without recourse against the
Plan. Any such loan shall be secured solely by shares of MCN Stock acquired with
the proceeds of the loan and shares of MCN Stock that were used as collateral on
a prior loan which was repaid with the proceeds of the current loan.
MCN Stock acquired with the proceeds of a loan, including shares
pledged as collateral, shall be placed in a Suspense Account and released in
accordance with subsection (b) below as the loan is repaid as if all shares in
the Suspense Account were pledged. MCN Stock released from the Suspense Account
shall be allocated in the manner described in subsection (d) below.
No person entitled to payment under a loan made pursuant to this
section 13.4 shall have recourse against any assets of the Plan other than the
MCN Stock used as collateral for the loan, Employer contributions under section
4.3 that are available to meet obligations under the loan, and earnings
attributable to such collateral and the investment of such contributions.
Employer contributions under section 4.3(b) made with respect to any Plan Year
during which the loan remains unpaid, and earnings on such contributions, shall
be deemed available to meet obligations under the loan, unless otherwise
provided by the Employer at the time such contributions are made.
(b) Release of Pledged Shares. Any pledge of MCN Stock as
collateral under this section 13.4 shall provide for the release of shares so
pledged upon the payment of any portion of the principal of the loan. Shares so
pledged shall be released in the proportion that the principal paid on the loan
bears to the total principal amount of the loan, as provided in Treasury
Regulation 54.4975-7(b)(8)(ii). The number of shares of MCN Stock that shall be
released with each principal payment on the loan shall be equal to the number of
shares of MCN Stock held as collateral on the loan immediately prior to the
release multiplied by a fraction the numerator of which is the amount of
principal of the loan repaid on such date and the denominator of which is the
sum of the numerator plus the remaining outstanding principal amount of the loan
after giving effect to the repayment of principal of the loan on such date. Each
loan under this section 13.4 shall comply with the requirements of Treasury
Regulation 54.4975-7(b)(8)(ii). If such a loan provides for monthly principal
payments, shares of MCN Stock shall be released monthly.
(c) Repayment of Loan. Payments of principal and interest on any
loan under this section 13.4 shall be made by the Trustee at the direction of
the Company solely from--
(i) the proceeds of such loan, if any portion of such
proceeds are used for such purpose within a reasonable period of time after the
loan is obtained as provided in section 13.4(a) above;
(ii) Employer contributions under section 4.3(b) available
to meet obligations under the loan;
(iii) earnings from the investment of such contributions;
44
<PAGE> 51
(iv) earnings attributable to MCN Stock acquired with the
proceeds of such loan, whether allocated or unallocated;
(v) the earnings on other allocated shares of MCN Stock
held by the ESOP if the Internal Revenue Service, by private letter ruling,
advises the Company that the use of such earnings to repay the loan will be
deductible under Code section 404(k)(2)(C) and will not violate the requirements
of Code section 4975; and
(vi) the proceeds of a subsequent loan made to repay the
loan.
The contributions and earnings available to pay a loan must be
accounted for separately by the Company until all loans under this section 13.4
have been paid. If dividends on MCN Stock allocated to the ESOP Account of any
Participant are used to repay any loan, shares of MCN Stock with a fair market
value not less than the amount of such dividends shall be allocated in
accordance with section 4.3(c) to the ESOP Account of such Participant prior to
the end of the Plan Year during which (but for the use of the dividends to repay
the loan) such dividend would have been allocated to the ESOP Account of such
Participant.
(d) Allocation of Released Shares. Subject to the limitations in
section 4.10 on Annual Additions to a Participant's accounts, shares of MCN
Stock released from a Suspense Account described in section 13.4(a) shall be
allocated immediately to the ESOP Accounts of each Participant in the proportion
that the contribution that would be required to be made on behalf of such
Participant under section 4.3(a)(i) for the applicable period if no shares were
allocated under section 4.3(a)(ii) during such period bears to the total of all
Employer contributions that would be required under section 4.3(a)(i) hereof for
the applicable period if no shares were allocated under section 4.3(a)(ii)
during such period.
13.5 Diversification. Any Participant or any former Participant whose
distribution has been deferred pursuant to section 9.7(a), who, in either case,
has completed at least ten years of participation in the Plan, and who has
attained the age of 55 is a "Qualified Participant". Any Qualified Participant
shall have the right to make an election to direct the investment of a portion
of his ESOP Account. Such a Participant may elect within 90 days after the close
of each Plan Year in the six plan-year period beginning with the first Plan Year
in which the individual becomes a Qualified Participant to diversify 25 percent
of his ESOP Account, less any amount to which a prior election applies. In the
case of the last year to which an election applies, 50 percent shall be
substituted for 25 percent.
The portion of a Qualified Participant's ESOP Account which is
eligible for diversification may be invested in the Fixed Income fund and/or any
other investment funds under the Plan, in any combination thereof.
13.6 Put Option. If MCN Stock becomes not readily tradable on an
established market, then any Participant who is otherwise entitled to a
distribution of his ESOP Account, shall have the right (hereinafter referred to
as "Put Option") to require that his Employer repurchase any MCN Stock allocated
to his ESOP Account under a fair valuation formula. The Put Option shall be
exercisable only by written notice to the Participant's Employer during the
60-day period immediately following the date of distribution and if the Put
Option is not exercised within such 60-day period, then it can be exercised for
an additional period of 60 days
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<PAGE> 52
in the following Plan Year. The period during which the Put Option is
exercisable shall not include any time when a Participant is unable to exercise
it because his Employer is prohibited from honoring it by applicable federal or
state law. This Put Option shall be nonterminable within the meaning of Treasury
Regulation 54.4975-(11)(a)(ii).
The amount paid for MCN Stock under the Put Option shall be paid in
substantially equal periodic payments (not less frequently than annually) over a
period beginning not later than 30 days after the exercise of the Put Option and
not exceeding five years. There shall be adequate security provided and
reasonable interest paid on the unpaid balance due under this section 13.6.
13.7 Purchase of MCN Stock. The ESOP may acquire shares of MCN Stock on
a national securities exchange, from the Company or any Affiliated Company or
otherwise; provided, however, that if any shares of MCN Stock are purchased from
the Company or any Affiliated Company, the price shall not exceed an amount
which constitutes adequate consideration (as defined in ERISA section 3(18) and
any Regulations thereunder) and such purchase shall satisfy all other
requirements of ERISA and the Code applicable to such purchases. Except as
provided in section 13.6 or as otherwise required by applicable law, no shares
of MCN Stock acquired by the ESOP shall be subject to a put, call, or other
option, or buy-sell or similar arrangement while held by and when distributed
from the Plan, whether or not any part of the Plan is then an ESOP. The
protection afforded to Participants in the preceding sentence is nonterminable
within the meaning of Treasury Regulation section 54.4975-(1)(a)(ii).
ARTICLE XIV MISCELLANEOUS
14.1 Beneficiary Designation. Subject to the provisions of section 9.9
and this section 14.1, each Participant shall have the right to designate a
beneficiary or beneficiaries to receive any distribution to be made under
section 9.1 upon the death of such Participant, or, in the case of a Participant
who dies subsequent to termination of his employment but prior to the
distribution of the entire amount to which he is entitled under the Plan, any
undistributed balance to which such Participant would have been entitled.
In the event of the death of a Participant whose spouse survives him,
the beneficiary of the Participant shall be his surviving spouse unless such
spouse has consented in writing to the designation of another beneficiary or
beneficiaries. Any such written consent shall acknowledge the effect of such
election and shall be witnessed by a notary public or by a representative of the
Company who is designated to act in such capacity by the Company. In the event a
Participant dies without a surviving spouse, or, in the event the surviving
spouse of a Participant has executed the written consent hereinabove described,
any distributions to be made under section 9.1 upon the death of the Participant
shall be made to his designated beneficiary or beneficiaries. If the Participant
establishes to the satisfaction of the Company or its designated representative
that such written consent cannot be obtained because his spouse cannot be
located, the requirement of such written consent shall be waived.
If no beneficiary has been named by a Participant who dies without a
surviving spouse or if the beneficiary designated by such a Participant or by a
Participant whose surviving spouse has executed the written consent hereinabove
described has predeceased the Participant or such designated beneficiary has
died prior to complete disbursement of the
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<PAGE> 53
Participant's Plan Account, the value of his account, or the undistributed
portion thereof, shall be paid by the Trustee at the direction of the Company--
(a) to the surviving spouse of such deceased Participant, if any;
(b) if there shall be no surviving spouse, to the surviving
children of such deceased Participant, if any, in equal shares;
(c) if there shall be no surviving spouse or surviving children,
to the executors or administrators of the estate of such deceased Participant;
or
(d) if no executor or administrator shall have been appointed for
the estate of such deceased Participant, to the person or persons who would be
entitled to the personal estate of such deceased Participant under the laws of
his state of domicile if he had died leaving no will.
In the event that a Participant and his spouse die under circumstances
such that it is not clear whether the spouse survived the Participant, the
Participant shall be presumed to have survived the spouse.
14.2 Incompetency. Any distribution under this Plan which is payable to
a beneficiary who is a minor or to a Participant or beneficiary who, in the
opinion of the Company, is unable to manage his affairs by reason of illness or
mental incompetency, may be made to or for the benefit of any such Participant
or beneficiary in such of the following ways as the Company shall direct:
(a) Directly to any such minor beneficiary, if, in the opinion of
the Company, he is able to manage his affairs;
(b) To the legal representative of any such Participant or
beneficiary; or
(c) To some near relative of any such Participant or beneficiary
to be used for the latter's benefit.
14.3 Expenses. Except as otherwise provided in the Plan, all costs and
expenses incurred in administering the Plan, including the expenses of the
Company, the fees and expenses of the Trustee, the fees of its counsel, and
other administrative expenses, shall be borne by the Employers in such
proportions as the Company shall determine to be equitable and proper having
regard to the nature of the particular expense.
14.4 Nonassignability. Except as may be required to comply with a
qualified domestic relations order (as defined in Code section 414(p)), it is a
condition of the Plan, and all rights of each Participant shall be subject
thereto, that no right or interest of any Participant in the Plan or in a Plan
Account shall be assignable or transferable in whole or in part, either directly
or by operation of law or otherwise, including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, or bankruptcy but excluding
devolution by death or mental incompetency, and no right or interest of any
Participant in the Plan or in his Plan Account shall be liable for, or subject
to, any obligation or liability of such Participant.
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<PAGE> 54
14.5 Employment Noncontractual. The Plan confers no right upon any
Employee to continue in employment.
14.6 Merger or Consolidation with Another Plan. A merger or
consolidation with, or transfer of assets or liabilities to, any other plan
shall not be effected unless the terms of such merger, consolidation, or
transfer are such that each Participant, distributee, beneficiary, or other
person entitled to receive benefits from the Plan would, if the Plan then
terminated, receive a benefit immediately after the merger, consolidation, or
transfer which is equal to or greater than the benefit such person would have
been entitled to receive immediately before the merger, consolidation, or
transfer if the Plan had then terminated.
If any other plan shall be merged into and become a part of this Plan,
each Participant or the person entitled to receive a benefit under such other
plan shall be entitled to receive a benefit under this Plan which is equal to
the benefit such person would have been entitled to receive had such other plan
terminated immediately before the merger.
14.7 Continuance by a Successor. In the event that any Employer
corporation shall be reorganized by way of merger, consolidation, transfer of
assets, or otherwise, so that another Affiliated Company shall succeed to all or
a portion of such Employer's business, such successor corporation, with the
consent of each other participating Employer, may be substituted for such
Employer under the Plan by adopting the Plan and becoming a party to the Trust
Agreement. Employee contributions and Employer contributions shall be
automatically suspended from the effective date of any such reorganization until
the date upon which the substitution of such successor corporation for the
Employer under the Plan becomes effective. If, within 90 days from the effective
date of any such reorganization, such successor corporation shall not have
become a party to the Plan, or, if the Employer shall adopt a plan of complete
liquidation other than in connection with a reorganization, the Plan shall be
automatically terminated with respect to Employees of such Employer as of the
close of business on the ninetieth day following the effective date of such
reorganization or as of the close of business on the date of adoption of such
plan of complete liquidation, as the case may be, and the Trustee shall
distribute the portion of the Trust applicable to Participants of such Employer
in the manner provided in section 11.3.
14.8 USERRA Rights. Notwithstanding any provision of the Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Code Section 414(u), to the
extent applicable. Loan repayments will be suspended under this Plan as
permitted under Code Section 414(u).
14.9 Construction. Unless the context clearly requires otherwise--
(a) the masculine pronoun whenever used shall include the
feminine, the singular shall include the plural, and vice versa, and
(b) headings of Articles and sections herein are included solely
for convenience, and if there is any conflict between such headings and the text
of the Plan, the text shall control.
ARTICLE XV REDESIGNATION OF ESOP AND DISTRIBUTION OF DIVIDENDS
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This Article XV designates that part of the non-ESOP portion of the
Plan which is invested in the MCN Stock Fund becomes part of the ESOP portion of
the Plan. This Article XV also sets forth certain provisions regarding the
operation of the ESOP portion of the Plan, such provisions to supersede any
contrary provisions of the Plan. This Article XV (including provisions regarding
distribution of dividends) shall become effective as of January 1, 1998 with
regard to dividends distributed on or after that date.
Except as specifically provided in this Article XV, the provisions of
this Article XV, including the redesignation of the ESOP portion of the Plan
described herein, shall not affect any beneficiary designations or any other
applicable agreements, elections, or consents that Participants, spouses, or
beneficiaries validly executed under the terms of the Plan before the execution
date of the Plan amendment which first adopts this Article XV, and such
designations, agreements, elections and consents shall continue to apply in the
same manner as they did prior to such amendment.
The ESOP, as set forth in this Article XV, is intended to meet with
requirements of an employee stock ownership plan, as defined in Section
4975(e)(7) of the Code and the accompanying regulations, and Section 407(d)(6)
of ERISA. As provided below, the ESOP is designed to invest primarily in
qualifying employer securities of MCN Energy Group Inc..
15.1 Redesignation of ESOP Portion of Plan. Effective as of the
effective date described in the preamble to this Article XV JANUARY 1, 1998, the
ESOP portion of the Plan shall consist of the ESOP Account of each Participant
plus the remaining part of each Participant's Plan Account that is invested in
the MCN Stock Fund. The put option provisions of Section 13.6 shall apply to the
entire ESOP portion of the Plan. However, only a Participant's ESOP Account
shall be subject to the restrictions described in the first sentence of Section
6.3.
15.2 Allocation of Investment Plan Account Balances to ESOP Portion of
Plan. All amounts contributed, transferred or designated as allocable to the
Investment Plan Account of any Participant shall be treated as part of the ESOP
portion of the Plan to the extent the Participant has directed the investment of
such amounts in the MCN Stock Fund in accordance with Article VI of the Plan.
15.3 Distribution of Dividends on MCN Stock. At the direction of the
Company exercised in its sole discretion, the Trustee will, after dividends are
paid on MCN Stock held in the Trust, but in no event later than 90 days
following the end of the Plan Year in which such dividends are paid (to the
extent such dividends are not used to make payment on an exempt loan as provided
for in section 13.4(c) of the Plan), either (i) distribute to Participants such
portion of the dividends attributable to the interests in MCN Stock held in
their Plan Accounts (or, if so determined by the Company, their ESOP Accounts)
as described below or, (ii) arrange to have such dividends distributed directly
to Participants by the Employer, or (iii) arrange to have such dividends
distributed to Participants by a dividend disbursement agent selected by the
Company. In its sole discretion, the Company may direct the Trustee to have such
dividends distributed only to Participants who elect (or fail not to elect) to
receive such dividend distributions in accordance with forms and procedures
established by the Company (which such procedures may apply to all Participants,
or solely to a group or groups determined by the Company). Further, in its sole
discretion, the Company may establish procedures that would permit Participants
to elect to have dividends distributed to them in a single sum rather
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<PAGE> 56
than over periods that might otherwise be determined by the Company to
correspond with Employer payroll practices.
The distribution of dividends on MCN Stock held in a Participant's Plan
Account (or, if so determined by the Company, a Participant's ESOP Account)
shall be in an amount equal to all of the dividends paid on the MCN Stock held
in such Participant's Plan Account (or, if so determined by the Company, a
Participant's ESOP Account).
* * * * * * * * * *
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IN WITNESS WHEREOF, Michigan Consolidated Gas Company has caused its
corporate name to be hereunto affixed by its duly authorized officers as of the
29th day of December, 1998.
MICHIGAN CONSOLIDATED GAS COMPANY
By /s/ D. Nowokowski
--------------------------------
Its: VP,Human Resources
--------------------------------
51
<PAGE> 1
EXHIBIT 12-1
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
EARNINGS AS DEFINED (1)
Net Income ....................................................... $114,619 $125,630 $122,239
Fixed charges .................................................... 61,304 57,905 53,831
-------- -------- --------
Earnings as defined ............................................ $175,923 $183,535 $176,070
======== ======== ========
FIXED CHARGES AS DEFINED (1)
Interest on long-term debt ....................................... $ 47,091 $ 47,024 $ 43,163
Interest on other borrowed funds ................................. 12,113 8,664 8,012
Amortization of debt discounts, premium
and expense .................................................... 955 1,032 1,081
Interest implicit in rentals (2) ................................. 1,145 1,185 1,575
-------- -------- --------
Fixed charges as defined ....................................... $ 61,304 $ 57,905 $ 53,831
======== ======== ========
Ratio of Earnings to Fixed Charges ............................... 2.87 3.17 3.27
======== ======== ========
- ----------------
</TABLE>
Notes:
- ------
(1) Earnings and fixed charges are defined and computed in accordance with
Item 503 of Regulation S-K.
(2) This amount is estimated to be a reasonable approximation of the interest
portion of rentals.
MichCon is a guarantor of certain other debt. Fixed charges related to such debt
are deemed to be immaterial and therefore have been excluded from the above
ratios.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-56333 on Form S-3 of Michigan Consolidated Gas Company, of our report dated
February 25, 1999, appearing in this Annual Report on Form 10-K of Michigan
Consolidated Gas Company for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
Detroit, Michigan
March, 11, 1999
<PAGE> 1
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MICHIGAN CONSOLIDATED GAS
COMPANY, a Michigan corporation, does hereby constitute and appoint, Stephen E.
Ewing and Harold Gardner, and each of them, his true and lawful attorneys and
agents, each with full power and authority (acting alone and without the other)
to execute in his name and on his behalf and to file with the Securities and
Exchange Commission an Annual Report on Form 10-K for the year ended December
31, 1998, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 22nd
day of February, 1999.
/s/ Alfred R. Glancy III
------------------------
Alfred R. Glancy III
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MICHIGAN CONSOLIDATED GAS
COMPANY, a Michigan corporation, does hereby constitute and appoint, Alfred R.
Glancy III and Harold Gardner, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
other) to execute in his name and on his behalf and to file with the Securities
and Exchange Commission an Annual Report on Form 10-K for the year ended
December 31, 1998, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 22nd
day of February, 1999.
/s/ Stephen E. Ewing
---------------------
Stephen E. Ewing
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MICHIGAN CONSOLIDATED GAS
COMPANY, a Michigan corporation, does hereby constitute and appoint, Alfred R.
Glancy III, Stephen E. Ewing and Harold Gardner, and each of them, his true and
lawful attorneys and agents, each with full power and authority (acting alone
and without the others) to execute in his name and on his behalf and to file
with the Securities and Exchange Commission an Annual Report on Form 10-K for
the year ended December 31, 1998, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 22nd
day of February, 1999.
/s/ William K. McCrackin
------------------------
William K. McCrackin
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MICHIGAN CONSOLIDATED GAS
COMPANY, a Michigan corporation, does hereby constitute and appoint, Alfred R.
Glancy III and Stephen E. Ewing, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
other) to execute in his name and on his behalf and to file with the Securities
and Exchange Commission an Annual Report on Form 10-K for the year ended
December 31, 1998, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 22nd
day of February, 1999.
/s/ Harold Gardner
-------------------
Harold Gardner
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MICHIGAN CONSOLIDATED GAS
COMPANY, a Michigan corporation, does hereby constitute and appoint, Alfred R.
Glancy III, Stephen E. Ewing and Harold Gardner, and each of them, his true and
lawful attorneys and agents, each with full power and authority (acting alone
and without the others) to execute in his name and on his behalf and to file
with the Securities and Exchange Commission an Annual Report on Form 10-K for
the year ended December 31, 1998, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 22nd
day of February, 1999.
/s/ Anne R. Cooke
------------------
Anne R. Cooke
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MICHIGAN CONSOLIDATED GAS
COMPANY, a Michigan corporation, does hereby constitute and appoint, Alfred R.
Glancy III, Stephen E. Ewing and Harold Gardner, and each of them, his true and
lawful attorneys and agents, each with full power and authority (acting alone
and without the others) to execute in his name and on his behalf and to file
with the Securities and Exchange Commission an Annual Report on Form 10-K for
the year ended December 31, 1998, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 22nd
day of February, 1999.
/s/ Ronald E. Christian
------------------------
Ronald E. Christian
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MICHIGAN CONSOLIDATED GAS
COMPANY, a Michigan corporation, does hereby constitute and appoint, Alfred R.
Glancy III, Stephen E. Ewing and Harold Gardner, and each of them, his true and
lawful attorneys and agents, each with full power and authority (acting alone
and without the others) to execute in his name and on his behalf and to file
with the Securities and Exchange Commission an Annual Report on Form 10-K for
the year ended December 31, 1998, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 22nd
day of February, 1999.
/s/ Howard L. Dow III
---------------------
Howard L. Dow III
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MICHIGAN CONSOLIDATED GAS
COMPANY, a Michigan corporation, does hereby constitute and appoint, Alfred R.
Glancy III, Stephen E. Ewing and Harold Gardner, and each of them, his true and
lawful attorneys and agents, each with full power and authority (acting alone
and without the others) to execute in his name and on his behalf and to file
with the Securities and Exchange Commission an Annual Report on Form 10-K for
the year ended December 31, 1998, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 22nd
day of February, 1999.
/s/ Steven Kurmas
------------------
Steven Kurmas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Income and the Consolidated Statement of Financial
Position and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,603
<SECURITIES> 0
<RECEIVABLES> 151,746
<ALLOWANCES> 8,928
<INVENTORY> 56,969
<CURRENT-ASSETS> 394,491
<PP&E> 2,889,020
<DEPRECIATION> 1,396,940
<TOTAL-ASSETS> 2,172,525
<CURRENT-LIABILITIES> 565,715
<BONDS> 619,835
0
0
<COMMON> 10,300
<OTHER-SE> 636,543
<TOTAL-LIABILITY-AND-EQUITY> 2,172,525
<SALES> 0
<TOTAL-REVENUES> 1,033,658
<CGS> 0
<TOTAL-COSTS> 877,047
<OTHER-EXPENSES> 182
<LOSS-PROVISION> 11,973
<INTEREST-EXPENSE> 56,997
<INCOME-PRETAX> 112,793
<INCOME-TAX> 35,817
<INCOME-CONTINUING> 76,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,976
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
