<PAGE> 1
Filed Pursuant to Rule 424B5
Registration No. 333-21175
PROSPECTUS SUPPLEMENT
- ----------------------------------
(TO PROSPECTUS DATED MARCH 10, 1997)
2,300,000 FELINE PRIDES(SM)
MCN ENERGY GROUP INC. MCN
LOGO FINANCING III
The securities offered hereby are 2,300,000 FELINE PRIDES(SM) (the
"Securities") of MCN Corporation, doing business as MCN Energy Group Inc. ("MCN"
or the "Company"). Each FELINE PRIDES offered hereby initially will consist of a
unit (referred to as an Income PRIDES(SM)) with a Stated Amount of $50 (the
"Stated Amount") comprised of (a) a stock purchase contract (the "Purchase
Contract") under which (i) the holder will purchase from the Company on May 16,
2000 (the "Purchase Contract Settlement Date"), for an amount equal to the
Stated Amount, a number of shares of common stock, par value $.01 per share, of
the Company (the "Common Stock") equal to the Settlement Rate described herein,
and (ii) the Company will pay the holder unsecured, subordinated contract
adjustment payments ("Contract Adjustment Payments"), and (b) beneficial
ownership of a 7 1/4% Trust Originated Preferred Security (a "Trust Preferred
Security"), having a liquidation amount per Trust Preferred Security equal to
the Stated Amount, representing a preferred, undivided beneficial interest in
the assets of MCN Financing III, a statutory business trust formed under the
laws of the State of Delaware ("MCN Financing" or "the Trust"). MCN will,
directly or indirectly, own all of the common securities (the "Common
Securities") representing undivided beneficial interests in the assets of the
Trust. The Trust exists for the sole purpose of issuing the Trust Preferred
Securities and Common Securities and investing the proceeds thereof in an
equivalent amount of 7 1/4% Junior Subordinated Debentures of the Company, due
May 16, 2002 (the "Junior Subordinated Debentures"). As long as the FELINE
PRIDES are in the form of Income PRIDES, the Trust Preferred Securities will be
pledged to the Collateral Agent, to secure the holder's obligation to purchase
Common Stock under the Purchase Contract.
(Continued on next page.)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-15 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES, INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE
SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF SUCH DEFERRAL.
------------------------
Prior to the offering made hereby there has been no public market for the
Securities. The Income PRIDES have been approved for listing on the New York
Stock Exchange ("NYSE") under the symbol "MCN prI, subject to official notice of
issuance." The Growth PRIDES (as defined herein) and the Trust Preferred
Securities will not be listed or traded on any securities exchange. On March 19,
1997, the last reported sale price of the Common Stock on the NYSE was $29 per
share.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) COMPANY(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Income PRIDES...................... $50.00 $1.50 $48.50
- ------------------------------------------------------------------------------------------------------------------
Total(4)............................... $115,000,000 $3,450,000 $111,550,000
==================================================================================================================
</TABLE>
(1) Plus accrued distributions on the Trust Preferred Securities and Contract
Adjustment Payments, if any, from March 25, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting".
(3) Before deducting estimated expenses payable by the Company estimated at
$640,000.
(4) The Company and the Trust have granted the Underwriters a 30-day option to
purchase up to an additional 345,000 Income PRIDES to cover over-allotments,
if any. If such an option is exercised in full, the total Price to Public
will be $132,250,000, Underwriting Commission will be $3,967,500 and
Proceeds to Company will be $128,282,500. See "Underwriting."
------------------------
The Securities are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Securities offered hereby will be made in New York, New York on
or about March 25, 1997.
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
SMITH BARNEY INC.
LADENBURG THALMANN & CO. INC.
------------------------
The date of this Prospectus Supplement is March 19, 1997.
- ---------------
(SM) Service Mark of Merrill Lynch & Co. Inc.
<PAGE> 2
(Continued from previous page)
Payments of 8% of the Stated Amount per annum will be made or accrue on each
Income PRIDES quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing June 30, 1997, until the Purchase Contract
Settlement Date. These payments will consist of cumulative cash distributions on
the Trust Preferred Securities payable by the Trust at the rate of 7 1/4% of the
Stated Amount per annum, and Contract Adjustment Payments, payable by the
Company, at the rate of 3/4% of the Stated Amount per annum. The ability of the
Trust to make the quarterly distributions on the Trust Preferred Securities is
solely dependent upon the receipt of corresponding interest payments from the
Company on the Junior Subordinated Debentures. The Company has the right at any
time, and from time to time, limited to a period not extending beyond the
maturity date of the Junior Subordinated Debentures, to defer the interest
payments due on the Junior Subordinated Debentures and to defer Contract
Adjustment Payments until the Purchase Contract Settlement Date. As a
consequence of such deferral, quarterly distributions on the Income PRIDES would
be deferred, but would continue to accrue with interest compounded quarterly.
The payment of distributions out of moneys held by the Trust and payments on
liquidation of the Trust are guaranteed by MCN (the "Guarantee") to the extent
described herein and under "Description of the Guarantee." The Guarantee covers
payments of distributions and other payments on the Trust Preferred Securities
only if and to the extent the Trust has funds available therefor, which will not
be the case unless MCN has made a payment of principal or interest on the Junior
Subordinated Debentures held by the Trust as its sole asset. The Guarantee, when
taken together with MCN's obligations under the Junior Subordinated Debentures,
the Indenture (as defined below) and MCN's obligations under the Declaration (as
defined below), provides a full and unconditional guarantee on a subordinated
basis by MCN of amounts due on the Trust Preferred Securities.
Each holder will have the right, at any time after issuance of the Income
PRIDES, to substitute for any Trust Preferred Securities held by the Collateral
Agent zero-coupon U.S. Treasury Securities (CUSIP No. 912820 AW7) maturing on
May 15, 2000 (the "Treasury Securities"), which are the principal strips of the
8.875% U.S. treasury securities which mature on May 15, 2000, in a principal
amount per Purchase Contract equal to the Stated Amount per Trust Preferred
Security. Holders may make such substitution only in integral multiples of 20
Income PRIDES. Securities with respect to which Treasury Securities have been
substituted for Trust Preferred Securities as collateral to secure a holder's
obligation under the Purchase Contracts, will be referred to as Growth
PRIDES(SM). Each Growth PRIDES will consist of a unit with a face amount of
$1000 comprised of (a) 20 Purchase Contracts under which for each Purchase
Contract (i) the holder will purchase from the Company on the Purchase Contract
Settlement Date for an amount equal to the Stated Amount, a number of shares of
Common Stock of the Company equal to the Settlement Rate described herein, and
(ii) the Company will pay the holder Contract Adjustment Payments, and (b)
beneficial ownership of a Treasury Security having a principal amount at
maturity equal to $1,000. Upon the substitution of Treasury Securities for Trust
Preferred Securities as collateral, such Trust Preferred Securities will be
released to the holder as described herein and thereafter will trade separately
from the resulting Growth PRIDES. Contract Adjustment Payments will be payable
by the Company on the Growth PRIDES on March 31, June 30, September 30 and
December 31 of each year from the time each Growth PRIDES was created. In
addition, interest would accrete on the underlying Treasury Securities.
Distributions on any Trust Preferred Securities still outstanding after the
Purchase Contract Settlement Date or after a substitution of collateral
resulting in the creation of Growth PRIDES will continue to be payable by the
Trust at the rate of 7 1/4% of the Stated Amount per annum, subject to the
deferral right described above. A holder of Growth PRIDES will have the right to
subsequently recreate Income PRIDES by delivering a Growth PRIDES to the
Purchase Contract Agent plus 20 Trust Preferred Securities per Growth PRIDES to
the Collateral Agent in exchange for 20 Income PRIDES and the release of the
underlying Treasury Securities to such holder.
On the Purchase Contract Settlement Date, unless a holder of the Income
PRIDES (i) has settled the underlying Purchase Contract either through the early
delivery of cash to the Purchase Contract Agent in the manner described herein
or otherwise, or (ii) has notified the Purchase Contract Agent of its intention
to settle the related Purchase Contract with separate cash on the Purchase
Contract Settlement Date and has so settled the related Purchase Contract, such
holder will be deemed to have requested the Trust to put the related Junior
Subordinated Debenture to the Company, and the principal amount of such Junior
Subordinated Debenture equal to the Stated Amount per Purchase Contract will
automatically be applied to satisfy in full such holder's obligation to purchase
Common Stock under the Purchase Contract. See "Description of the Junior
Subordinated Debentures -- Put Option."
With respect to each Growth PRIDES outstanding on the Purchase Contract
Settlement Date, the principal amount of the Treasury Securities underlying each
Growth PRIDES, when paid at maturity, will be automatically applied to satisfy
in full the holder's obligation to purchase Common Stock under the 20 Purchase
Contracts per Growth PRIDES.
In the event that a holder of either an Income PRIDES or Growth PRIDES
effects the early settlement of a related Purchase Contract through the delivery
of cash or settles a Purchase Contract with cash on the Purchase Contract
Settlement Date, the underlying Trust Preferred Securities or Treasury
Securities, as the case may be, will be released to the holder as described
herein.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF SECURITIES TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE> 3
MCN ENERGY GROUP INC.
SELECTED HISTORICAL FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS(1)
Operating Revenues........................... $1,997,268 $1,495,232 $1,473,633 $1,420,754 $1,395,341
Operating Income............................. $ 211,293 $ 188,229 $ 147,914 $ 138,694 $ 120,744
Net income from:
Continuing Operations...................... $ 112,569 $ 93,169 $ 74,598 $ 70,173 $ 54,537
Discontinued Operations.................... 37,771 3,587 3,170 2,617 2,581
---------- ---------- ---------- ---------- ----------
Total................................. $ 150,340 $ 96,756 $ 77,768 $ 72,790 $ 57,118
========== ========== ========== ========== ==========
Earnings Per Share from:
Continuing Operations...................... $ 1.68 $ 1.44 $ 1.26 $ 1.20 $ 1.00
Discontinued Operations.................... .57 0.05 0.05 0.04 0.05
---------- ---------- ---------- ---------- ----------
Total................................. $ 2.25 $ 1.49 $ 1.31 $ 1.24 $ 1.05
========== ========== ========== ========== ==========
Average Number of Common Shares Outstanding
(000's).................................... 66,944 64,743 59,394 58,642 54,216
GAS DISTRIBUTION (MMCF)(2)
Gas sales.................................. 220,958 209,816 204,384 205,372 203,110
End user transportation.................... 146,895 145,761 140,020 128,643 129,722
Intermediate transportation................ 527,510 374,428 322,969 302,662 209,360
---------- ---------- ---------- ---------- ----------
Total................................. 895,363 730,005 667,373 636,677 542,192
========== ========== ========== ========== ==========
Customers.................................. 1,183,443 1,172,613 1,154,545 1,141,986 1,130,165
DIVERSIFIED ENERGY(2)
Exploration & Production
Gas Production (MMcf).................... 57,202 31,420 16,513 2,307 --
Oil Production (Mbbl).................... 1,086 388 85 -- --
Gas and Oil Production (MMcf
Equivalent)........................... 63,718 33,748 17,023 2,307 --
Pipelines & Processing (MMcf)(3)
Gas Processed............................ 44,223 14,588 1,942 -- --
Transportation........................... 86,391 4,994 1,194 294 --
Energy Marketing and Power Generation
(MMcf)
Gas Sales................................ 218,952 170,668 142,352 122,782 112,263
Exchange Gas Deliveries.................. 22,586 16,462 13,301 10,016 2,443
---------- ---------- ---------- ---------- ----------
241,538 187,130 155,653 132,798 114,706
========== ========== ========== ========== ==========
CAPITAL INVESTMENTS(4)
Gas Distribution............................. $ 215,318 $ 241,494 $ 153,059 $ 143,120 $ 130,776
Diversified Energy........................... 552,866 385,114 196,030 60,925 34,608
MCN's Share of Joint Ventures................ 16,056 52,850 40,422 36,502 31,203
Discontinued Operations(1)................... 6,508 9,380 12,458 5,064 5,484
---------- ---------- ---------- ---------- ----------
Total................................. $ 790,748 $ 688,838 $ 401,969 $ 245,611 $ 202,071
========== ========== ========== ========== ==========
TOTAL ASSETS................................... $3,633,404 $2,898,640 $2,240,973 $1,881,900 $1,648,989
========== ========== ========== ========== ==========
</TABLE>
(continued on next page)
S-3
<PAGE> 4
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS(5)............................... $1,252,040 $ 993,407 $ 685,519 $ 494,821 $ 379,811
========== ========== ========== ========== ==========
REDEEMABLE CUMULATIVE PREFERRED STOCK OF
SUBSIDIARY(5)................................ $ -- $ -- $ 2,618 $ 5,618 $ 9,000
========== ========== ========== ========== ==========
MCN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES HOLDING SOLELY
SUBORDINATED DEBENTURES OF MCN............... $ 173,809 $ 96,449 $ 96,349 $ -- $ --
========== ========== ========== ========== ==========
COMMON STOCK
Market Price Per Share (end of period)....... $ 28.875 $ 23.25 $ 18.00 $ 17.38 $ 15.44
Dividends Paid Per Share..................... $ .9400 $ .9000 $ .8675 $ .8450 $ .8250
</TABLE>
- ---------------
MMcf -- One million cubic feet.
Mbbl -- Thousands of barrels
(1) In June 1996, MCN sold its computer operations subsidiary, The Genix Group,
Inc. ("Genix"). Accordingly, Genix has been accounted for as a discontinued
operation.
(2) Includes intercompany volumes.
(3) Includes MCN's share of joint ventures.
(4) Capital investments represent consolidated capital expenditures,
acquisitions, and MCN's share of capital expenditures made by joint
ventures, less the minority partners' share of consolidated capital
expenditures.
(5) Excludes current requirements. Long-term debt includes a $100 million term
loan, due 2000, of MCNIC Oil & Gas Company, a wholly-owned subsidiary of
MCNIC, with recourse to MCN limited to certain events, including the
realization of tax credits and performance under swap contracts.
S-4
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement.
THE OFFERING
Securities Offered......... 2,300,000 Income PRIDES.
Issuer..................... MCN Energy Group Inc. ("MCN" or the "Company")
Stated Amount.............. $50 per Income PRIDES.
Components of FELINE
PRIDES..................... Each FELINE PRIDES offered hereby initially will
consist of a unit (referred to as an Income PRIDES)
comprised of (a) a stock purchase contract (the
"Purchase Contract") under which (i) the holder
will purchase from the Company on May 16, 2000 (the
"Purchase Contract Settlement Date"), for an amount
equal to the Stated Amount, a number of new shares
of common stock, par value $.01 per share (the
"Common Stock"), of the Company equal to the
Settlement Rate (as defined herein), and (ii) the
Company will pay Contract Adjustment Payments to
the holder, and (b) beneficial ownership of a
7 1/4% Trust Preferred Security, having a stated
liquidation amount equal to the Stated Amount,
representing a preferred, undivided beneficial
interest in the assets of the Trust.
MCN will, directly or indirectly, own all of the
Common Securities. The Trust exists for the sole
purpose of issuing the Trust Preferred Securities
and Common Securities and investing the proceeds
thereof in an equivalent amount of 7 1/4% Junior
Subordinated Debentures of the Company, due May 16,
2002 (the "Junior Subordinated Debentures"). Upon
the occurrence of an Investment Company Event, or,
in certain circumstances, a Tax Event or
liquidation of the Trust, as described below, the
Junior Subordinated Debentures would be substituted
for the Trust Preferred Securities. References
herein to Trust Preferred Securities, unless the
context otherwise requires, mean the (i) Trust
Preferred Securities or (ii) the Junior
Subordinated Debentures which have been delivered
to holders in the case of an Investment Company
Event or, in certain circumstances, a Tax Event or
liquidation of the Trust. The distribution rate and
the payment dates for the Trust Preferred
Securities will correspond to the interest rate and
the payment dates for the Junior Subordinated
Debentures, which will be the sole assets of the
Trust. As long as the FELINE PRIDES are in the form
of Income PRIDES, the Trust Preferred Securities
will be pledged with The Chase Manhattan Bank as
collateral agent for the Company (together with any
successor thereto in such capacity, the "Collateral
Agent"), to secure the holders' obligations to
purchase Common Stock under the Purchase Contracts.
See "Risk Factors."
Purchase Contract
Agreement.................. The FELINE PRIDES will be issued under a Purchase
Contract Agreement, dated as of March 25, 1997 (the
"Purchase Contract Agreement"), between the Company
and The First National Bank of Chicago, as agent
for the holders of the FELINE PRIDES (together with
any successor thereto in such capacity, the
"Purchase Contract Agent").
Substitution of Pledged
Securities................. Each holder will have the right, at any time after
issuance of the Income PRIDES, to substitute for
any Trust Preferred Securities held by the
Collateral Agent zero coupon U.S. Treasury
Securities (CUSIP
S-5
<PAGE> 6
No. 912820 AW7) maturing on May 15, 2000 (the
"Treasury Securities"), which are the principal
strips of the 8.875% U.S. treasury securities which
mature on May 15, 2000, in a principal amount per
Purchase Contract equal to the Stated Amount per
Trust Preferred Security. Holders may make such
substitution only in integral multiples of 20
Income PRIDES. Securities with respect to which
Treasury Securities have been substituted for Trust
Preferred Securities as collateral to secure a
holder's obligation under the Purchase Contracts,
will be referred to as Growth PRIDES(SM). Each
Growth PRIDES will consist of a unit with a face
amount of $1000 comprised of (a) 20 Purchase
Contracts under which for each Purchase Contract
(i) the holder will purchase from the Company on
the Purchase Contract Settlement Date for an amount
equal to the Stated Amount, a number of shares of
Common Stock of the Company equal to the Settlement
Rate described herein, and (ii) the Company will
pay the holder Contract Adjustment Payments, and
(b) beneficial ownership of a Treasury Security
having a principal amount at maturity equal to
$1,000. Upon the substitution of Treasury
Securities for Trust Preferred Securities as
collateral, such Trust Preferred Securities will be
released to the holder as described herein and
thereafter will trade separately from the resulting
Growth PRIDES. See "Description of FELINE PRIDES --
Substitution of Pledged Securities."
Holders who elect to substitute Pledged Securities
(as defined herein), thereby creating Growth PRIDES
or recreating Income PRIDES (as discussed below),
shall be responsible for any fees or expenses
payable in connection therewith. See "Certain
Provisions of the Purchase Contract Agreement and
the Pledge Agreement -- Miscellaneous."
Recreating Income PRIDES... A holder of Growth PRIDES will have the right to
subsequently recreate an Income PRIDES by
delivering a Growth PRIDES to the Purchase Contract
Agent plus 20 Trust Preferred Securities to the
Collateral Agent in exchange for 20 Income PRIDES
and the release of the underlying Treasury Security
to such holder. See "Description of FELINE PRIDES
-- Recreating Income PRIDES."
Current Payments........... Holders of Income PRIDES are entitled to receive
cash distributions at a rate of 8% of the Stated
Amount per annum, payable quarterly in arrears. The
quarterly payments will consist of cumulative cash
distributions on the Trust Preferred Securities
payable by the Trust at the rate of 7 1/4% of the
Stated Amount per annum, and Contract Adjustment
Payments, payable by the Company, until the
Purchase Contract Settlement Date, at the rate of
3/4% of the Stated Amount per annum.
The ability of the Trust to make the quarterly
distributions on the Trust Preferred Securities is
solely dependent upon the receipt of corresponding
interest payments from the Company on the Junior
Subordinated Debentures. The Company's obligations
with respect to the Contract Adjustment Payments
are subordinate and junior in right of payment to
all liabilities of the Company (other than the
Yield Enhancement Payments payable by the Company
in respect of its 8 3/4% PRIDES and MCN's guarantee
of subordinated debentures with which they rank
pari passu). See "Risk Factors -- Ranking of
Contract Adjustment Payments and Subordinate
Obligations Under the Guarantee and Junior
Subordinated Debentures."
S-6
<PAGE> 7
Subject to the Company's rights of deferral
described herein, in the event holders of Income
PRIDES elect to substitute Treasury Securities for
the Trust Preferred Securities, holders of Growth
PRIDES would receive the quarterly distributions of
Contract Adjustment Payments and, to the extent
that they continue to hold any Trust Preferred
Securities, the quarterly distributions on the
Trust Preferred Securities. In addition, interest
would continue to accrete on the Treasury
Securities. See "Risk Factors -- Right to Defer
Current Payments."
Option to Extend
Distribution Payment
Periods.................... The Company has the right at any time, and from
time to time, limited to a period not extending
beyond the maturity date of the Junior Subordinated
Debentures, to defer the interest payments due on
the Junior Subordinated Debentures. As a
consequence of such deferral, quarterly
distributions to holders of Income PRIDES (or any
Trust Preferred Securities outstanding after the
Purchase Contract Settlement Date or after a
substitution of collateral resulting in the
creation of Growth PRIDES) would be deferred (but
despite such deferral, would continue to accumulate
quarterly and would accrue interest thereon
compounded quarterly at the same rate as interest
on the Junior Subordinated Debentures). The Company
also has the right to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until
no later than the Purchase Contract Settlement
Date; however, deferred Contract Adjustment
Payments will bear additional Contract Adjustment
Payments at the rate of 8% per annum (such deferred
installments of Contract Adjustment Payments
together with the additional Contract Adjustment
Payments shall be referred to as the "Deferred
Contract Adjustment Payments"). See "Description of
the Purchase Contracts -- Contract Adjustment
Payments Adjustments." If interest payments on the
Junior Subordinated Debentures or the Contract
Adjustment Payments are deferred, the Company has
agreed, among other things, not to declare or pay
any dividend on or repurchase its capital stock
during the period of such deferral.
In the event that the Company elects to defer the
payment of Contract Adjustment Payments on the
Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Income PRIDES or
Growth PRIDES will receive on the Purchase Contract
Settlement Date, in lieu of a cash payment, a
number of shares of Common Stock (in addition to a
number of shares of Common Stock equal to the
Settlement Rate) equal to (x) the aggregate amount
of Deferred Contract Adjustment Payments payable to
a holder of either Income PRIDES or Growth PRIDES
divided by (y) the Applicable Market Value. See
"Description of the Purchase Contracts -- Option to
Defer Contract Adjustment Payments."
Payment Dates.............. Subject to the distribution deferral provisions
described herein, the current payments described
above will be payable quarterly in arrears on March
31, June 30, September 30 and December 31 each
year, commencing June 30, 1997, through and
including (i) in the case of the Contract
Adjustment Payments, the Purchase Contract
Settlement Date or the most recent such quarterly
date on or prior to the early settlement of the
Purchase Contracts and (ii) in the case of Trust
Preferred Securities, through and including the
most recent such quarterly date on or prior to the
date a Junior Subordinated Debenture represented by
a Trust Preferred Security is put to the Company,
as described under
S-7
<PAGE> 8
"-- Trust Preferred Securities -- Put Option", or
the date the stated amount of a Trust Preferred
Security, together with all accrued and unpaid
distributions thereon, is paid in full (each, a
"Payment Date").
Purchase Contract
Settlement Date............ On the Purchase Contract Settlement Date, unless a
holder of the Income PRIDES (i) has settled the
underlying Purchase Contract either through the
early delivery of cash to the Purchase Contract
Agent in the manner described herein or otherwise,
or (ii) has notified the Purchase Contract Agent of
its intention to settle the related Purchase
Contract with separate cash on the Purchase
Contract Settlement Date and has so settled the
related Purchase Contract, or an event described
under "Description of the Purchase Contracts --
Termination" occurs, such holder will be deemed to
have requested the Trust to put the related Junior
Subordinated Debenture to the Company, and the
principal amount of such Junior Subordinated
Debenture equal to the Stated Amount per Purchase
Contract will automatically be applied to satisfy
in full such holder's obligation to purchase Common
Stock under the Purchase Contract. See "Description
of the Junior Subordinated Debentures -- Put
Option."
With respect to each Growth PRIDES outstanding on
the Purchase Contract Settlement Date, the
principal amount of the Treasury Securities
underlying each Growth PRIDES, when paid at
maturity, will be automatically applied to satisfy
in full the holder's obligation to purchase Common
Stock under the 20 Purchase Contracts per Growth
PRIDES.
In the event that a holder of either an Income
PRIDES or Growth PRIDES effects the early
settlement of a related Purchase Contract through
the delivery of cash or settles a Purchase Contract
with cash on the Purchase Contract Settlement Date,
the underlying Trust Preferred Securities or
Treasury Securities, as the case may be, will be
released to the holder as described herein.
Settlement Rate............ The number of new shares of Common Stock issuable
upon settlement of each Purchase Contract (the
"Settlement Rate") will be calculated as follows
(subject to adjustment under certain
circumstances): (a) if the Applicable Market Value
(as defined below) is equal to or greater than
$35.38 (the "Threshold Appreciation Price"), the
Settlement Rate will be 1.4132, (b) if the
Applicable Market Value is less than the Threshold
Appreciation Price, but greater than $29, the
Settlement Rate will equal the Stated Amount
divided by the Applicable Market Value, and (c) if
the Applicable Market Value is less than or equal
to $29, the Settlement Rate will be 1.7241.
"Applicable Market Value" means the average of the
Closing Price (as defined) per share of Common
Stock on each of the twenty consecutive Trading
Days (as defined) ending on the second Trading Day
immediately preceding the Purchase Contract
Settlement Date.
Early Settlement........... A holder of Income PRIDES or Growth PRIDES may
settle (an "Early Settlement") the underlying
Purchase Contracts prior to the Purchase Contract
Settlement Date in the manner described herein, but
only in integral multiples of 20 Income PRIDES or
one Growth PRIDES. Upon such Early Settlement, (a)
the holder will pay to the Company through the
Purchase Contract Agent in immediately available
funds an amount equal to the Stated Amount per
Purchase Contract and deliver the
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Income PRIDES or Growth PRIDES, as the case may be,
to the Purchase Contract Agent, (b) the Trust
Preferred Securities underlying such Income PRIDES
or, if substituted, the Treasury Securities
underlying such Growth PRIDES will, within three
Business Days of the Early Settlement Date (defined
herein), be transferred to the holder free and
clear of the Company's security interest therein,
and (c) the Company will, within three Business
Days of the Early Settlement Date, deliver newly
issued shares of Common Stock to the holder under
the Purchase Contract Agreement. Upon Early
Settlement, (i) the holder's rights to receive
Deferred Contract Adjustment Payments, if any, on
the Purchase Contracts being settled will be
forfeited, and (ii) the holder's right to receive
additional Contract Adjustment Payments will
terminate and, except as contemplated by clause (c)
above, no adjustment will be made to or for the
holder on account of current or deferred amounts
accrued in respect thereof.
Termination................ The Purchase Contracts (including the right to
receive accrued or Deferred Contract Adjustment
Payments and the obligation to purchase Common
Stock) will automatically terminate upon the
occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to the
Company. Upon such termination, the Collateral
Agent will release the Trust Preferred Securities,
or if substituted, the Treasury Securities, held by
it to the Purchase Contract Agent for distribution
to the holders, although there may be a limited
delay before such release and distribution.
Voting Rights.............. Holders of Trust Preferred Securities will not be
entitled to vote to appoint, remove or replace, or
to increase or decrease the number of Regular
Trustees and will generally have no voting rights
except in the limited circumstances described under
"Description of Trust Preferred Securities --
Voting Rights." Holders of Purchase Contracts
forming part of the Income PRIDES or Growth PRIDES
will have no voting rights.
Listing of the Income
PRIDES..................... The Income PRIDES have been approved for listing on
the New York Stock Exchange (the "NYSE") under the
symbol "MCN prI, subject to official notice of
issuance." The Growth PRIDES and the Trust
Preferred Securities will not be listed or traded
on any securities exchange.
NYSE Symbol of Common
Stock...................... "MCN"
TRUST PREFERRED SECURITIES
The Trust.................. MCN Financing III, a Delaware business trust ("MCN
Financing" or the "Trust"). The sole assets of the
Trust will consist of the Junior Subordinated
Debentures of the Company. The Company will
directly or indirectly own all of the Common
Securities (the Common Securities and, together
with the Trust Preferred Securities, the "Trust
Securities") representing undivided beneficial
interests in the assets of the Trust.
Trust Preferred
Securities................. 2,300,000 of 7 1/4% Trust Preferred Securities
(liquidation amount $50 per Trust Preferred
Security), representing preferred, undivided
beneficial interests in the assets of the Trust.
Distributions.............. Distributions on the Trust Preferred Securities,
which constitute a portion of the distributions on
the Income PRIDES, will be cumulative, will accrue
from the first date of issuance of the Trust
Preferred Securities and will be
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payable at the annual rate of 7 1/4% of the
liquidation amount of $50 per Trust Preferred
Security when, as and if funds are available for
payment. Subject to the distribution deferral
provisions, distributions will be payable quarterly
in arrears on each March 31, June 30, September 30
and December 31, commencing June 30, 1997.
Distribution Deferral
Provisions................. The ability of the Trust to pay distributions on
the Trust Preferred Securities is solely dependent
on the receipt of interest payments from the
Company on the Junior Subordinated Debentures. The
Company has the right at any time, and from time to
time, to defer the interest payments due on the
Junior Subordinated Debentures for successive
extension periods (the "Extension Periods"),
limited, in the aggregate, to a period not
extending beyond the maturity date of the Junior
Subordinated Debentures. Quarterly distributions on
the Trust Preferred Securities would be deferred by
the Trust (but would continue to accumulate
quarterly and would accrue interest, compounded
quarterly, at the same rates as interest on the
Junior Subordinated Debentures) until the end of
any such Extension Period. If a deferral of an
interest payment occurs, the holders of the Trust
Preferred Securities will accrue interest income
for United States federal income tax purposes in
advance of the receipt of any corresponding cash
distribution with respect to such deferred interest
payments. See "Risk Factors -- Right to Defer
Current Payments," "Description of the Trust
Preferred Securities -- Distributions" and "Certain
Federal Income Tax Consequences -- Distributions on
Trust Preferred Securities."
Rights Upon Deferral of
Distribution............... During any period in which interest payments on the
Junior Subordinated Debentures are deferred,
interest will accrue on the Junior Subordinated
Debentures (compounded quarterly) and quarterly
distributions on the Trust Preferred Securities
will continue to accumulate with interest thereon
at the distribution rate, compounded quarterly.
Liquidation Preference..... In the event of any liquidation of the Trust,
holders will be entitled to receive Junior
Subordinated Debentures in an aggregate stated
principal amount equal to the aggregate stated
liquidation amount of the Trust Preferred
Securities except as described under "--
Termination."
Put Option................. On the Purchase Contract Settlement Date, each
holder of an Income PRIDES that has neither
previously exercised its option of Early Settlement
nor settled its Purchase Contract with cash will be
deemed to have requested the Trust to put its
Junior Subordinated Debenture to the Company in
return for an amount per Junior Subordinated
Debenture equal to $50, plus accumulated and unpaid
distributions, if any (a "Put Option"). Upon the
repurchase of the Junior Subordinated Debenture by
the Company pursuant to a Put Option, (i) the
proceeds from such repurchase shall simultaneously
be applied to redeem the Trust Preferred Security
of such holder having a Stated Amount equal to the
principal amount of the Junior Subordinated
Debenture so repurchased and will be applied to
satisfy in full such holder's obligation to
purchase Common Stock under the Purchase Contract
as described herein and (ii) any accumulated and
unpaid distributions with respect to the Junior
Subordinated Debenture so repurchased will be paid
to such holder in cash.
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Tax Event or Investment
Company Event
Distribution............... In certain circumstances involving a Tax Event
(which event will generally be triggered upon the
occurrence of certain adverse tax consequences or
the denial of an interest deduction to the Company
on the Junior Subordinated Debentures held by the
Trust) or an Investment Company Event (which event
will generally be triggered if the Trust is
considered an "investment company" under the
Investment Company Act of 1940, as amended), the
Trust will be dissolved, with the result that the
Junior Subordinated Debentures with an aggregate
principal amount equal to the aggregate stated
liquidation amount of the Trust Preferred
Securities, would be distributed to the holders of
the Trust Preferred Securities on a pro rata basis.
In such event, an Income PRIDES will thereafter
consist of a Junior Subordinated Debenture with a
principal amount equal to the Stated Amount and the
related Purchase Contract and a holder may, on the
Purchase Contract Settlement Date, cause the Junior
Subordinated Debenture to be repaid and the
proceeds thereof applied to satisfy in full such
holder's obligation to purchase Common Stock under
the Purchase Contract as described herein.
Redemption................. The Company will not have the ability to redeem the
Junior Subordinated Debentures prior to the stated
maturity date.
Guarantee.................. The Company will irrevocably and unconditionally
guarantee (the "Guarantee"), on a subordinated
basis and to the extent described herein, the
payment in full of (i) distributions on the Trust
Preferred Securities to the extent the Trust has
funds available therefor, and (ii) generally, the
liquidation amount of the Trust Preferred
Securities to the extent the Trust has assets
available for distribution to holders of Trust
Preferred Securities in the event of a dissolution,
winding up or termination of the Trust. The
Guarantee will be unsecured and will be subordinate
and junior in right of payment to all other
liabilities of the Company and will rank pari passu
in right of payment with the most senior preferred
stock issued, from time to time, if any, by the
Company and with any guarantee entered into by MCN
in respect of any preferred or preference stock of
any affiliate of the Company. See "Risk Factors --
Ranking of Contact Adjustment Payments and
Subordinate Obligations Under the Guarantee and
Junior Subordinated Debentures."
Junior Subordinated
Debentures................. The Junior Subordinated Debentures will mature on
May 16, 2002, and will bear interest at the rate of
7 1/4% per annum, payable quarterly in arrears on
each March 31, June 30, September 30 and December
31, commencing June 30, 1997. Interest payments may
be deferred from time to time by the Company for
successive Extension Periods not extending, in the
aggregate, beyond the stated maturity date of the
Junior Subordinated Debentures. During any
Extension Period, interest would continue to accrue
and compound quarterly. Upon the termination of any
Extension Period and the payment of all amounts
then due, the Company may commence a new Extension
Period, provided such extended Extension Period
does not extend beyond the stated maturity date of
the Junior Subordinated Debentures. No interest
shall be due during an Extension Period until the
end of such period. During an Extension Period, the
Company will be prohibited from paying dividends on
or purchasing any of its capital stock and making
certain other restricted payments until quarterly
interest payments are resumed and all amounts
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due on the Junior Subordinated Debentures are made
current. The Junior Subordinated Debentures will be
subordinate in right of payment of principal and
interest to all Senior Indebtedness (as defined
herein) of the Company and will rank pari passu in
right of payment with other subordinated debentures
issued by MCN and with all unsecured trade
creditors of the Company. See "Description of the
Junior Subordinated Debentures."
Federal Income Tax
Consequences............... Provided the Company does not exercise its right to
defer interest on the Junior Subordinated
Debentures, holders of Income PRIDES and Trust
Preferred Securities will include in income their
allocable share of interest with respect to the
Junior Subordinated Debentures when paid or
accrued, in accordance with their regular method of
accounting. The Company intends to report the
Contract Adjustment Payments as income to holders
of Income PRIDES and Growth PRIDES, but holders
should consult their tax advisors concerning the
possibility that the Contract Adjustment Payments
may be treated as loans, purchase price
adjustments, rebates or option premiums rather than
being includible in income on a current basis.
Holders of Growth PRIDES will continue to include
in income any original issue discount ("OID") or
market discount or amortize any bond premium
otherwise includible or deductible, respectively,
with respect to the Treasury Securities posted with
the Collateral Agent. See "Certain Federal Income
Tax Consequences."
Use of Proceeds............ All of the proceeds from the sale of the Income
PRIDES, of which the Trust Preferred Securities are
a component, will be invested by the Trust in
Junior Subordinated Debentures of MCN and
ultimately will be used by MCN for general
corporate purposes, including capital expenditures,
investment in subsidiaries, working capital and
repayment of debt. Any additional amounts received
by the Company upon settlement of the Purchase
Contracts, whether on the Purchase Contract
Settlement Date or an Early Settlement Date, are
also expected to be used for such general corporate
purposes. See "Use of Proceeds."
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MCN ENERGY GROUP INC.
In January 1997, MCN Corporation began doing business under the name MCN
Energy Group Inc. (MCN). The formal corporate name change is subject to
shareholder approval to be sought at the Company's 1997 Annual Shareholders'
Meeting. The name change reflects the Company's evolution during the past five
years from a natural gas distribution company into a new, diversified energy
company. MCN Energy Group Inc. will retain its current New York Stock Exchange
symbol of "MCN".
As of December 31, 1996, MCN was a $3.6 billion (assets) diversified energy
holding company with natural gas markets and investments in various regions in
North America and internationally. MCN's strategy is to aggressively invest in a
diverse portfolio of domestic and international energy-related projects. MCN's
intent is:
- to invest in a portfolio of projects including investments in
exploration and production, power generation, gas gathering and
processing systems, and gas storage;
- to continue to market natural gas to large-volume users and utilities;
and
- to continue the growth of its Gas Distribution business through
investments and acquisition of assets leading to business and market
expansion.
Accordingly, MCN's capital investments could exceed $3.0 billion by the
year 2000. This expected level of investment will increase capital requirements
materially in excess of internally generated funds and require the issuance of
additional debt and equity securities. MCN's capital requirements and general
market conditions will affect the timing and amount of future issuances. As it
expands its business, MCN's capitalization objective is to maintain its solid
investment-grade credit ratings through a strong balance sheet.
MCN operates through two major business groups, Diversified Energy and Gas
Distribution.
DIVERSIFIED ENERGY, operating through MCN Investment Corporation (MCNIC),
is an integrated energy group with investments in exploration and production,
gas gathering and processing, gas storage fields and electric power generation.
It also markets natural gas to large-volume users and utilities. For the twelve
months ended December 31, 1996, operating revenues for this segment exceeded
$700 million and, at December 31, 1996, total assets exceeded $1.5 billion,
including investments in joint ventures. For the twelve month period ended
December 31, 1996, MCNIC invested approximately $575 million in various
projects, of which approximately $400 million was for exploration and production
projects. Expanding domestic and international opportunities should enable MCNIC
to continue to grow its markets and increase its asset-based investments.
At December 31, 1996, MCNIC owned 1,138 billion cubic feet (Bcf) of proved
gas reserves, and proved oil reserves totaled 17.2 million barrels, or the
equivalent of another 103 Bcf of natural gas. The number of producing oil and
gas wells totaled 2,890 at December 31, 1996.
GAS DISTRIBUTION, operating principally through Michigan Consolidated Gas
Company, operates the largest natural gas distribution and intrastate
transmission system in Michigan and one of the largest in the United States. For
the twelve months ended December 31, 1996, operating revenues for this segment
were approximately $1.3 billion. In addition, at December 31, 1996, the segment
had total assets of approximately $2.1 billion. Gas Distribution serves
approximately 1.2 million customers in more than 500 communities throughout
Michigan with gas sales and transportation markets of about 900 Bcf. Gas
Distribution continues to increase its markets by reaching customers in new
communities, offering new services to current customers and expanding its
intrastate gas transportation network.
The mailing address of MCN's principal executive office is 500 Griswold
Street, Detroit, Michigan 48226, and its telephone number is (313) 256-5500.
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MCN FINANCING III
MCN Financing is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust, dated as of February 3, 1997, executed
by MCN, as sponsor (the "Sponsor"), and the trustees of MCN Financing (the "MCN
Trustees") and (ii) the filing of a certificate of trust with the Secretary of
State of the State of Delaware on February 3, 1997. Such declaration will be
amended and restated in its entirety (as so amended and restated, the
"Declaration") substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the accompanying Prospectus
form a part. The Declaration will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Although upon
issuance of the Trust Preferred Securities, the holders of Income PRIDES will be
beneficial owners of the underlying Trust Preferred Securities, these Trust
Preferred Securities will be pledged with the Collateral Agent to secure the
obligations of the holders under the Purchase Contracts. See "Description of the
Purchase Contracts -- Pledged Securities and Pledge Agreement" and "Description
of the Trust Preferred Securities -- Book-Entry Only Issuance -- The Depository
Trust Company." MCN will directly or indirectly acquire Common Securities in an
aggregate liquidation amount equal to 3% of the total capital of MCN Financing.
MCN Financing exists for the exclusive purposes of (i) issuing the Trust
Securities representing undivided beneficial interests in the assets of the
Trust, (ii) investing the gross proceeds of the Trust Securities in the Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto. The Trust has a term of approximately seven
years, but may terminate earlier as provided in the Declaration.
Pursuant to the Declaration, the number of MCN Trustees will initially be
three. Two of the MCN Trustees (the "Regular Trustees") will be persons who are
employees or officers of or who are affiliated with MCN. The third trustee will
be a financial institution that is unaffiliated with MCN, which trustee will
serve as institutional trustee under the Declaration and as indenture trustee
for the purposes of compliance with the provisions of the Trust Indenture Act
(the "Institutional Trustee"). Initially, Wilmington Trust Company, a Delaware
banking corporation, will be the Institutional Trustee until removed or replaced
by the holder of the Common Securities. For the purpose of compliance with the
provisions of the Trust Indenture Act, Wilmington Trust Company will also act as
trustee (the "Guarantee Trustee") under the Guarantee and as Delaware Trustee
for the purposes of the Trust Act (as defined herein), until removed or replaced
by the holder of the Common Securities. See "Description of the Preferred
Securities Guarantees" in the accompanying Prospectus. See "Description of the
Trust Preferred Securities -- Voting Rights."
The Institutional Trustee will hold title to the Junior Subordinated
Debentures for the benefit of the holders of the Trust Securities and the
Institutional Trustee will have the power to exercise all rights, powers and
privileges under the Indenture (as defined herein) as the holder of the Junior
Subordinated Debentures. In addition, the Institutional Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of the Junior
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Institutional Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Trust Preferred Securities. MCN,
as the direct or indirect holder of all the Common Securities, will have the
right to appoint, remove or replace any MCN Trustee and to increase or decrease
the number of MCN Trustees; provided, that the number of MCN Trustees shall be
at least three, a majority of which shall be Regular Trustees. MCN will pay all
fees and expenses related to MCN Financing and the offering of the Trust
Securities. See "Description of the Junior Subordinated
Debentures -- Miscellaneous."
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Trust Preferred Securities."
The trustee in the State of Delaware is Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890. The
principal place of business of the Trust shall be c/o MCN Energy Group Inc., 500
Griswold Street, Detroit, Michigan 48226, and its telephone number is (313)
256-5500.
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RISK FACTORS
Prospective purchasers of Securities should consider, in addition to the
other information contained or incorporated by reference in this Prospectus
Supplement or the accompanying Prospectus, the following characteristics of the
Securities.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION; RISK OF DECLINE IN EQUITY
VALUE
The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock, because the value of Common Stock to be
received by a holder of Purchase Contracts on the Purchase Contract Settlement
Date will only exceed the Stated Amount if the Applicable Market Value of the
Common Stock exceeds the Threshold Appreciation Price (which represents an
appreciation of 22% over the closing price of the Common Stock on the date
hereof). If the Applicable Market Value of the Common Stock is less than the
closing price of the Common Stock on the date hereof, such value to be received
by the holder on the Purchase Contract Settlement Date will be less than the
Stated Amount paid for the Income PRIDES, in which case an investment in the
Income PRIDES will result in a loss. Accordingly, a holder of the Purchase
Contracts assumes the risk that the market value of the Common Stock may
decline, and that such decline could be substantial.
FACTORS AFFECTING TRADING PRICES
The trading prices of the Income PRIDES and the Growth PRIDES in the
secondary market will be directly affected by the trading prices of the Common
Stock in the secondary market, the general level of interest rates and the
credit quality of the Company. It is impossible to predict whether the price of
Common Stock or interest rates generally will rise or fall. Trading prices of
Common Stock will be influenced by MCN's operating results and prospects and by
economic, financial and other factors and market conditions that can affect the
capital markets generally, including the level of, and fluctuations in, the
trading prices of stocks generally and sales of substantial amounts of Common
Stock in the market subsequent to the offering of the Securities or the
perception that such sales could occur. Fluctuations in interest rates may give
rise to opportunities for arbitrage based upon changes in the relative value of
the Common Stock underlying the Purchase Contracts and of the other components
of the FELINE PRIDES. Any such arbitrage could, in turn, affect the trading
prices of the Income PRIDES, Growth PRIDES, Trust Preferred Securities and
Common Stock.
VOTING RIGHTS
Holders of Trust Preferred Securities will not be entitled to vote to
appoint, remove or replace, or to increase or decrease the number of Regular
Trustees and will generally have no voting rights except in the limited
circumstances described under "Description of Trust Preferred Securities --
Voting Rights." Holders of Purchase Contracts underlying the Income PRIDES or
Growth PRIDES will have no voting rights.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date is subject to
adjustment for certain events arising from stock splits and combinations, stock
dividends and certain other actions of MCN that modify its capital structure.
See "Description of the Purchase Contracts -- Anti-Dilution Adjustments." Such
number of shares of Common Stock to be received by such holders on the Purchase
Contract Settlement Date will not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions. MCN is
not restricted from issuing additional Common Stock during the term of either
the Purchase Contracts or the Trust Preferred Securities. Additional issuances
may materially and adversely affect the price of the Common Stock and, because
of the relationship of the number of shares to be received on the Purchase
Contract Settlement Date to the price of the Common Stock, such other events may
adversely affect the trading price of the Income PRIDES or Growth PRIDES.
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POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how the Income PRIDES, the Growth PRIDES or
the Trust Preferred Securities will trade in the secondary market or whether the
market for any such securities will be liquid or illiquid. The Income PRIDES and
the Growth PRIDES are novel securities and there is currently no secondary
market for either the Income PRIDES or Growth PRIDES. The Income PRIDES have
been approved for listing on the NYSE, subject to official notice of issuance.
The Growth PRIDES and the Trust Preferred Securities will not be listed or
traded on any securities exchange. The Company and the Trust have been advised
by the Representatives that they presently intend to make a market for the
Growth PRIDES and the Trust Preferred Securities; however, they are not
obligated to do so and any market making may be discontinued at any time. There
can be no assurance as to the liquidity of any such market that may develop for
the Income PRIDES, the Growth PRIDES or the Trust Preferred Securities, the
ability of holders to sell such securities, the price at which holders would be
able to sell such securities or whether a trading market, if it develops, will
continue. In addition, in the event that holders of Income PRIDES were to
substitute Treasury Securities for the Trust Preferred Securities, thereby
converting their Income PRIDES to Growth PRIDES, the liquidity of Income PRIDES
could be adversely affected. There can be no assurance that the Income PRIDES
will not be delisted from the NYSE or that trading in the Income PRIDES will not
be suspended as a result of the election by holders to create Growth PRIDES
through the substitution of collateral, which could cause the number of Income
PRIDES to fall below the minimum requirements for listing the securities on the
NYSE.
PLEDGED SECURITIES ENCUMBERED
Although holders of FELINE PRIDES will be beneficial owners of the
underlying Trust Preferred Securities or the Treasury Securities (together, the
"Pledged Securities"), as the case may be, those Pledged Securities will be
pledged with the Collateral Agent to secure the obligations of the holders under
the Purchase Contracts. Thus, rights of the holders to their Pledged Securities
will be subject to the Company's security interest. Additionally,
notwithstanding the automatic termination of the Purchase Contracts, in the
event that the Company becomes the subject of a case under the United States
Bankruptcy Code (the "Bankruptcy Code"), the delivery of the Pledged Securities
to holders of the Securities may be delayed by the imposition of the automatic
stay of Section 362 of the Bankruptcy Code.
TAX EVENT OR INVESTMENT COMPANY EVENT DISTRIBUTION
Upon the occurrence of a Tax Event or an Investment Company Event, the
Trust will be dissolved (except in the limited circumstances described in the
following sentence) with the result that the Junior Subordinated Debentures with
an aggregate principal amount equal to the aggregate stated liquidation amount
of the Trust Preferred Securities would be distributed to the holders of the
Trust Preferred Securities on a pro rata basis. In the case of the occurrence of
a Tax Event, such dissolution and distribution shall be conditioned on the
Company being unable to avoid such Tax Event within a 90 day period by taking
some ministerial action or pursuing some other reasonable measure that will have
no adverse effect on the Trust, the Company or the holders of the Trust
Preferred Securities and will involve no material cost. See "Description of the
Trust Preferred Securities -- Special Event Distribution."
Under current United States Federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust would not be a
taxable event to holders of the Trust Preferred Securities, including the
Collateral Agent. See "Certain Federal Income Tax Consequences -- Receipt of
Junior Subordinated Debentures upon Liquidation of the Trust."
There can be no assurance as to the impact on the market prices for the
Income PRIDES of a distribution of the Junior Subordinated Debentures in
exchange for Trust Preferred Securities upon a dissolution or liquidation of the
Trust. Because the Income PRIDES will consist of Junior Subordinated Debentures
and related Purchase Contracts upon the occurrence of an Investment Company
Event, or, in certain circumstances, a Tax Event or liquidation of the Trust,
prospective purchasers of Income PRIDES are also making an investment decision
with regard to the Junior Subordinated Debentures and should carefully
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review all the information regarding the Junior Subordinated Debentures
contained herein. See "Description of the Trust Preferred Securities -- Special
Event Distribution" and "Description of the Junior Subordinated Debentures --
General."
RIGHT TO DEFER CURRENT PAYMENTS
The Company may, at its option, defer the payment of Contract Adjustment
Payments on the Purchase Contracts until the Purchase Contract Settlement Date.
However, deferred installments of Contract Adjustment Payments will bear
additional Contract Adjustment Payments at the rate of 8% per annum (compounding
on each succeeding Payment Date) until paid (such deferred installments of
Contract Adjustment Payments together with the additional Contract Adjustment
Payments shall be referred to herein as the "Deferred Contract Adjustment
Payments"). If the Purchase Contracts are settled early or terminated (upon the
occurrence of certain events of bankruptcy, insolvency or reorganization with
respect to the Company), the right to receive Contract Adjustment Payments, and
Deferred Contract Adjustment Payments, will terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Purchase Contracts will receive on the Purchase
Contract Settlement Date, in lieu of a cash payment, a number of shares of
Common Stock (in addition to a number of shares of Common Stock equal to the
Settlement Rate) equal to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to a holder of Securities divided by (y) the
Applicable Market Value. See "Description of the Purchase Contracts -- Contract
Adjustment Payments."
The Company also has the right under the Indenture (as such term is defined
in "Description of Junior Subordinated Debentures" herein) to defer payments of
interest on the Junior Subordinated Debentures by extending the interest payment
period at any time, and from time to time, on the Junior Subordinated
Debentures. As a consequence of such an extension, quarterly distributions on
the Trust Preferred Securities, held either as a component of the Income PRIDES
or held separately, would be deferred (but despite such deferral, would accrue
interest compounded on a quarterly basis) by MCN Financing during any such
extended interest payment period. Such right to extend the interest payment
period for the Junior Subordinated Debentures is limited to a period, in the
aggregate, not extending beyond the maturity date of the Junior Subordinated
Debentures. See "Description of the Trust Preferred Securities -- Distributions"
and "Description of the Junior Subordinated Debentures -- Option to Extend
Interest Payment Period."
The Company believes that the likelihood that it will exercise its right to
defer payments of interest on the Junior Subordinated Debentures is remote and
that, therefore, the Junior Subordinated Debentures should not be considered to
be issued with OID unless it actually exercises such deferral right. There is no
assurance that the Internal Revenue Service (the "IRS") will agree with such
position. See "Certain Federal Income Tax Consequences -- Distributions on Trust
Preferred Securities."
Should MCN exercise its right to defer payments of interest by extending
the interest payment period, each holder of Trust Preferred Securities held
either as a component of the Income PRIDES or held separately will accrue income
(as OID) in respect of the deferred interest allocable to its Trust Preferred
Securities for United States federal income tax purposes, which will be
allocated but not distributed to holders of record of Trust Preferred
Securities. As a result, each such holder of Trust Preferred Securities will
recognize income for United States federal income tax purposes in advance of the
receipt of cash and will not receive the cash from MCN Financing related to such
income if such holder disposes of its Trust Preferred Securities prior to the
record date for the date on which distributions of such amounts are made. MCN
has no current intention of exercising its right to defer payments of interest
by extending the interest payment period on the Junior Subordinated Debentures.
However, should MCN determine to exercise such right in the future, the market
price of the Trust Preferred Securities is likely to be affected. A holder that
disposes of its Trust Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Trust Preferred Securities. In addition, as a result of
the existence of MCN's right to defer interest payments, the market price of the
Trust Preferred Securities
S-17
<PAGE> 18
(which represent an undivided beneficial interest in the assets of MCN
Financing) may be more volatile than the market price of other securities that
are not subject to such deferral. See "United States Federal Income
Taxation -- Distributions on Trust Preferred Securities."
RANKING OF CONTRACT ADJUSTMENT PAYMENTS AND SUBORDINATE OBLIGATIONS UNDER THE
GUARANTEE AND JUNIOR SUBORDINATED DEBENTURES
MCN's obligations with respect to the Contract Adjustment Payments and the
Guarantee are subordinate and junior in right of payment to all liabilities of
MCN (other than the unsecured, subordinated yield enhancement payments payable
by the Company at a rate of 2 1/4% per annum on its 5,865,000 8 3/4% PRIDES
having a final settlement date of April 30, 1999 (the "Yield Enhancement
Payments") and MCN's guarantee of its other subordinated debentures, with which
they rank pari passu). The obligations of MCN under the Junior Subordinated
Debentures are subordinate and junior in right of payment to all present and
future Senior Indebtedness of MCN and pari passu with other subordinated
debentures issued by MCN and obligations to or rights of MCN's other general
unsecured creditors and other junior subordinated debentures issued hereafter.
No payment of principal of (including redemption payments, if any), premium, if
any, or interest on the Junior Subordinated Debentures may be made if (i) any
Senior Indebtedness of MCN is not paid when due and any applicable grace period
with respect to such default has ended with such default not having been cured
or waived or ceasing to exist, or (ii) the maturity of any Senior Indebtedness
has been accelerated because of a default. As of December 31, 1996, Senior
Indebtedness aggregated approximately $1,673 million. There are no terms in the
Trust Preferred Securities, the Junior Subordinated Debentures or the Guarantee
that limit MCN's ability to incur additional indebtedness, including
indebtedness that ranks senior to the Contract Adjustment Payments, the Junior
Subordinated Debentures and the Guarantee. See "Description of the Preferred
Securities Guarantees -- Status of the Trust Preferred Securities Guarantees",
"Description of the Purchase Contracts -- Contract Adjustment Payments" and
"Description of the Junior Subordinated Debentures" in the accompanying
Prospectus, and "Description of the Junior Subordinated
Debentures -- Subordination" herein.
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT; LIMITED
OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Trust Preferred Securities constituting a part of the Income
PRIDES will be issued pursuant to a Declaration (as defined herein) qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
the Purchase Contract Agreement will not be qualified as an indenture under the
Trust Indenture Act, and the Purchase Contract Agent will not be required to
qualify as a trustee thereunder. Accordingly, holders will not have the benefit
of the protection of the Trust Indenture Act. The protections generally afforded
the holder of a security issued under an indenture that has been qualified under
the Trust Indenture Act include disqualification of the indenture trustee for
"conflicting interests" as defined under the Trust Indenture Act, provisions
preventing a trustee that is also a creditor of the issuer from improving its
own credit position at the expense of the security holders immediately prior to
or after a default under the Indenture and the requirement that the indenture
trustee deliver reports at least annually with respect to certain matters
concerning the indenture trustee and the securities. Under the terms of the
Purchase Contract Agreement, the Purchase Contract Agent will not be required to
resign as agent in the event of a "conflicting interest," will not be obligated
to establish a separate account for the benefit of holders in the case of a
credit relationship with the Company at the time of a default under the Purchase
Contract Agreement and will not be required to furnish any annual reports. With
respect to the Trust Preferred Security, a holder of Income PRIDES as the holder
of an underlying Trust Preferred Security, will have the protections of the
Declaration, which will be qualified under the Trust Indenture Act.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed a number of changes to federal income tax
laws. One proposal would treat as equity, for U.S. federal income tax purposes,
debt instruments with a maximum term of more than 15 years that are not shown as
S-18
<PAGE> 19
indebtedness on the issuer's consolidated balance sheet. Another proposal would
preclude the issuer from deducting interest on debt instruments payable in stock
of the issuer. A debt instrument would be treated as payable in stock of the
issuer if it were part of an arrangement designed to result in payment of debt
with such stock, such as certain issuances of a forward contract in connection
with the issuance of debt. Neither proposal, if enacted into law in its current
form, would be effective for debt instruments issued prior to the date of first
Congressional committee action. There can be no assurance, however, that
legislation enacted after the date hereof will not adversely affect the tax
treatment of the Junior Subordinated Debentures or cause a Tax Event, resulting
in the distribution of the Junior Subordinated Debentures to holders of Trust
Preferred Securities. See "Description of the Trust Preferred Securities --
Special Event Distribution."
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MCN Common Stock began trading on the NYSE on January 4, 1989, following
the effective date of the restructuring of MichCon and subsequent formation of
MCN as its holding company. The high and low sales prices of the Common Stock of
MCN, as reported on the NYSE Composite Tape, and the dividends declared on the
Common Stock during the fiscal years ended December 31, 1995 and 1996, and for
the first quarter of fiscal 1997 through March 19, 1997, are set out below:
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH LOW PAID PER SHARE
---- ---- --------------
<S> <C> <C> <C>
1995
First Quarter.......................... 18 5/8 16 3/8 .2225
Second Quarter......................... 19 7/8 18 .2225
Third Quarter.......................... 20 17 7/8 .2225
Fourth Quarter......................... 23 1/2 19 3/8 .2325
1996
First Quarter.......................... 25 1/2 21 5/8 .2325
Second Quarter......................... 25 5/8 22 3/4 .2325
Third Quarter.......................... 27 5/8 22 3/4 .2325
Fourth Quarter......................... 30 1/2 26 5/8 .2425
1997
First Quarter (through March 19,
1997)............................... 32 5/8 28 1/2 .2425
</TABLE>
For a recent closing sales price for the Common Stock, as reported on the
NYSE, see the cover page of this Prospectus Supplement. As of February 28, 1997,
the approximate number of holders of record of Common Stock was 23,298.
The timing and amount of future cash dividends will depend on the financial
condition of MCN, the income from its subsidiaries, internal cash requirements
and other factors deemed relevant by the MCN's Board of Directors.
MCN sponsors a dividend reinvestment and stock purchase plan under which
holders of record of MCN Common Stock may purchase a limited amount of MCN
Common Stock without paying brokerage fees and other expenses. Under this plan,
the MCN Common Stock may be purchased in the open market at prevailing prices or
purchased from MCN at the average of the high and low sales prices on the NYSE
for the trading day immediately preceding the purchase.
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<PAGE> 20
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for MCN on a historical basis for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MCN(1)(2)(3)................................................ 2.28 2.55 2.70 3.15 2.82
</TABLE>
- ---------------
(1) MCN has authority to issue up to 25,000,000 shares of preferred stock, no
par value; however, there are currently no shares outstanding and MCN
currently does not have a preferred stock dividend obligation. Therefore,
the Ratio of Combined Earnings to Fixed Charges and Preferred Stock
Dividends is equal to the Ratio of Earnings to Fixed Charges and is not
disclosed separately.
(2) The Ratio of Earnings to Fixed Charges is based on earnings from operations.
"Earnings" consist of the pre-tax income of majority-owned and 50%-owned
companies adjusted to include any income actually received from less than
50%-owned companies, plus fixed charges, less interest capitalized during
the period for nonutility companies and less the preferred stock dividend
requirements of MichCon included in fixed charges but not deducted in the
determination of pre-tax income. "Fixed Charges" represent (a) interest
(whether expensed or capitalized), (b) amortization of debt discount,
premium and expense, (c) an estimate of interest implicit in rentals, and
(d) in the case of MCN, the preferred securities dividend requirements of
subsidiaries (MichCon, MCN Michigan Limited Partnership and MCN Financing
I), increased to reflect the pre-tax earnings requirement for MichCon.
(3) In June 1996, MCN sold its computer operations subsidiary, Genix. For
purposes of calculating the Ratio of Earnings to Fixed Charges, Genix has
been classified as a discontinued operation and is therefore excluded from
the ratio for all periods presented.
USE OF PROCEEDS
All of the proceeds from the sale of the Income PRIDES, of which the Trust
Preferred Securities are a component, will be invested by the Trust in Junior
Subordinated Debentures of MCN pursuant to the Indenture described herein and
ultimately will be used by MCN for general corporate purposes, including capital
expenditures, investment in subsidiaries, working capital and repayment of debt.
Any additional amounts received by the Company upon settlement of the Purchase
Contracts, whether on the Purchase Contract Settlement Date or Early Settlement
Date, are also expected to be used for such general corporate purposes.
S-20
<PAGE> 21
CAPITALIZATION
The following table sets forth the unaudited summary capitalization at
December 31, 1996 of the Company and its consolidated subsidiaries on a
historical basis and on a pro forma basis after giving effect to the sale by the
Company of the FELINE PRIDES offered hereby and the application of the net
proceeds therefrom. See "Use of Proceeds". The table should be read in
conjunction with MCN's consolidated financial statements and notes thereto and
other financial data incorporated by reference herein. See "Incorporation of
Certain Documents by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-Term Debt (includes notes payable and current portion
of long-term debt and capital leases)..................... $ 420,873 $ 420,873
========== ==========
Long-Term Debt (including capital leases)(2)................ $1,252,040 $1,252,040
MCN-obligated mandatorily redeemable preferred securities of
subsidiaries holding solely subordinated debentures of
MCN(3).................................................... 173,809 288,809
Common Stockholders' Equity................................. 784,568 784,568
---------- ----------
Total Capitalization........................................ $2,210,417 $2,325,417
========== ==========
</TABLE>
- ---------------
(1) Adjusted for the sale of Trust Preferred Securities, the application of the
estimated net proceeds to the purchase of Junior Subordinated Debentures of
MCN and the application by MCN of the estimated net proceeds of Junior
Subordinated Debentures for the purposes set out under "Use of Proceeds".
(2) Includes a $100 million term loan, due 2000, of MCNIC Oil & Gas Company, a
wholly-owned subsidiary of MCN Investment, with recourse to MCN limited to
certain events, including the realization of tax credits and performance
under swap contracts.
(3) The sole assets of the subsidiaries are as follows: MCN Financing I --
8 5/8% junior subordinated debentures of MCN due 2036 with a principal
amount of $82,474,250; MCN Michigan Limited Partnership -- 9 3/8%
subordinated deferrable interest debt securities of MCN due 2024 with a
principal amount of $101,100,000; and MCN Financing III -- 7 1/4%
subordinated debentures of MCN due 2002 with a principal amount of
approximately $118,556,750. Upon redemption of such debt, the preferred
securities of such subsidiaries will be mandatorily redeemable.
ACCOUNTING TREATMENT
The financial statements of MCN Financing will be reflected in MCN's
consolidated financial statements with the $115,000,000 Trust Preferred
Securities shown as MCN-obligated mandatorily redeemable preferred securities of
subsidiaries holding solely subordinated debentures of MCN. The financial
statement footnotes of MCN will reflect that the sole asset of MCN Financing
will be approximately $118,556,750 principal amount of 7 1/4 % Junior
Subordinated Debentures due May 16, 2002 of MCN. See "Capitalization". Under
current generally accepted accounting principles, the Purchase Contracts will
not be recorded on the Company's consolidated balance sheet but will be
disclosed in the footnotes to the financial statements.
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<PAGE> 22
DESCRIPTION OF THE FELINE PRIDES
The following description of certain terms of the Securities offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Securities offered hereby set forth
in the accompanying Prospectus, to which reference is hereby made. The summaries
of certain provisions of documents described below do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of such documents (including the definitions therein of certain
terms), forms of which are on file with the Commission. Wherever particular
Sections of, or terms defined in, such documents are referred to herein, such
Sections or defined terms are incorporated by reference herein. Capitalized
terms not defined herein have the meanings assigned to such terms in the
accompanying Prospectus.
Each FELINE PRIDES will be issued under a Purchase Contract Agreement
between the Company and the Purchase Contract Agent. Each FELINE PRIDES offered
hereby initially will consist of a unit (referred to as an Income PRIDE) with a
Stated Amount of $50 comprised of (a) a Purchase Contract under which (i) the
holder will purchase from the Company on the Purchase Contract Settlement Date
of May 16, 2000, for an amount equal to the Stated Amount, a number of new
shares of Common Stock equal to the Settlement Rate described below under
"Description of the Purchase Contracts -- General," and (ii) the Company will
pay Contract Adjustment Payments to the holder, and (b) (i) beneficial ownership
of a 7 1/4% Trust Preferred Security, having a liquidation amount per Trust
Preferred Security equal to the Stated Amount, representing a preferred,
undivided beneficial interest in the assets of the Trust, which will consist
solely of the Junior Subordinated Debentures, or (ii) upon the occurrence of an
Investment Company Event, or, in certain circumstances, a Tax Event or
liquidation of the Trust as described below, Junior Subordinated Debentures of
the Company having a principal amount equal to the Stated Amount. As long as the
FELINE PRIDES are in the form of Income PRIDES, the Trust Preferred Securities
will be pledged to the Collateral Agent, to secure the holder's obligation to
purchase Common Stock under the Purchase Contract.
SUBSTITUTION OF PLEDGED SECURITIES
Each holder will have the right, at any time after issuance of the Income
PRIDES, to substitute for any Trust Preferred Securities held by the Collateral
Agent Treasury Securities, in a principal amount per Purchase Contract equal to
the Stated Amount per Trust Preferred Security. Holders may make such
substitution only in integral multiples of 20 Income PRIDES. Securities with
respect to which Treasury Securities have been substituted for Trust Preferred
Securities as collateral to secure a holder's obligation under the Purchase
Contracts, will be referred to as Growth PRIDES(SM). To create each Growth
PRIDES, the Income PRIDES holder will (a) deposit with the Collateral Agent a
Treasury Security and (b) transfer 20 Income PRIDES to the Purchase Contract
Agent accompanied by a notice stating that the Income PRIDES holder has
deposited a Treasury Security with the Collateral Agent and requesting that the
Purchase Contract Agent instruct the Collateral Agent to release to such holder
the 20 Trust Preferred Securities underlying such Income PRIDES. Upon such
deposit and receipt of an instruction from the Purchase Contract Agent, the
Collateral Agent will effect the release of the 20 Trust Preferred Securities
from the pledge under the Pledge Agreement free and clear of the Company's
security interest therein to the Purchase Contract Agent, which will (i) cancel
the 20 Income PRIDES, (ii) transfer the 20 Trust Preferred Securities to such
holder and (iii) deliver one Growth PRIDES to the holder. Each Growth PRIDES
will therefore consist of a unit with a face amount of $1,000 comprised of (a)
20 Purchase Contracts, each with respect to which (i) the holder will purchase
from the Company on the Purchase Contract Settlement Date for an amount equal to
the Stated Amount, a number of shares of Common Stock of the Company equal to
the Settlement Rate described herein, and (ii) the Company will pay the holder
Contract Adjustment Payments, and (b) beneficial ownership of a Treasury
Security having a principal amount at maturity equal to $1,000. The Trust
Preferred Securities released to the holder thereafter will trade separately
from the resulting Growth PRIDES. Contract Adjustment Payments will be payable
by the Company on the Growth PRIDES on March 31, June 30, September 30 and
December 31 of each year from the time each Growth PRIDES was created. In
addition, interest would accrete on the underlying Treasury Securities.
Distributions on any Trust Preferred Securities still outstanding after the
Purchase Contract Settlement Date or after a substitution of
S-22
<PAGE> 23
collateral resulting in the creation of Growth PRIDES will continue to be
payable by the Trust at the rate of 7 1/4% of the Stated Amount per annum,
subject to the deferral right described above.
Holders who elect to substitute Pledged Securities, thereby creating Growth
PRIDES or recreating Income PRIDES (as discussed below), shall be responsible
for any fees or expenses payable in connection therewith. See "Certain
Provisions of the Purchase Contract Agreement and the Pledge Agreement --
Miscellaneous."
RECREATING INCOME PRIDES
A holder of each Growth PRIDES may recreate 20 Income PRIDES by (a)
depositing with the Collateral Agent 20 Trust Preferred Securities and (b)
transferring a Growth PRIDES to the Purchase Contract Agent accompanied by a
notice stating that the Growth PRIDES holder has deposited 20 Trust Preferred
Securities with the Collateral Agent and requesting that the Purchase Contract
Agent instruct the Collateral Agent to release to such holder the Treasury
Security related to such Growth PRIDES. Upon such deposit and receipt of
instruction from the Purchase Contract Agent, the Collateral Agent will effect
the release of the Treasury Security from the pledge of the Pledge Agreement
free and clear of the Company's security interest therein to the Purchase
Contract Agent, which will (i) cancel the Growth PRIDES, (ii) transfer the
Treasury Security to such holder and (iii) deliver 20 Income PRIDES to the
holder.
CURRENT PAYMENTS
Holders of Income PRIDES are entitled to receive cash distributions at a
rate of 8% of the Stated Amount per annum, payable quarterly in arrears. The
quarterly payments on the Income PRIDES set forth on the cover page of this
Prospectus Supplement will consist of (i) cumulative cash distributions on the
Trust Preferred Securities payable by the Trust at the rate of 7 1/4% of the
Stated Amount per annum, and (ii) Contract Adjustment Payments, payable by the
Company, until the Purchase Contract Settlement Date, at the rate of 3/4% of
the Stated Amount per annum.
The ability of the Trust to make the quarterly distributions on the Trust
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from the Company on the Junior Subordinated Debentures. The
Company has the right at any time, and from time to time, limited to a period
not extending beyond the maturity of the Junior Subordinated Debentures, to
defer the interest payments on the Junior Subordinated Debentures. As a
consequence of such deferral, quarterly distributions to holders of Income
PRIDES (or any Trust Preferred Securities outstanding after the Purchase
Contract Settlement Date or after a substitution of collateral resulting in the
creation of Growth PRIDES) would be deferred (but despite such deferral, would
continue to accumulate quarterly and would accrue interest thereon compounded
quarterly at the same rate as interest on the Junior Subordinated Debentures).
The Company also has the right to defer the payment of Contract Adjustment
Payments on the Purchase Contracts until the Purchase Contract Settlement Date;
however, deferred Contract Adjustment Payments will bear additional Contract
Adjustment Payments at the rate of 8% per annum (such deferred installments of
Contract Adjustment Payments together with the additional Contract Adjustment
Payments shall be referred to as the "Deferred Contract Adjustment Payments").
See "Description of the Purchase Contracts -- Contract Adjustment Payments" and
"Description of the Trust Preferred Securities -- Distributions."
Subject to the Company's rights of deferral, in the event a holder of
Income PRIDES substituted Treasury Securities for the Trust Preferred
Securities, such holder would still receive quarterly Contract Adjustment
Payments. In addition, interest would accrete on the underlying Treasury
Securities.
VOTING RIGHTS
Holders of Trust Preferred Securities will not be entitled to vote to
appoint, remove or replace, or to increase or decrease the number of Regular
Trustees and will generally have no voting rights except in the limited
circumstances described under "Description of Trust Preferred Securities --
Voting Rights." Holders of Purchase Contracts underlying the Income PRIDES or
Growth PRIDES will have no voting rights.
S-23
<PAGE> 24
LISTING OF THE SECURITIES
The Income PRIDES have been approved for listing on the NYSE under the
symbol "MCN prI, subject to official notice of issuance." The Growth PRIDES and
the Trust Preferred Securities will not be listed or traded on any securities
exchange.
NYSE SYMBOL OF COMMON STOCK
The Common Stock of the Company is listed on the NYSE under the symbol
"MCN."
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each Purchase Contract underlying a FELINE PRIDES (unless earlier
terminated or settled at the holder's option) will obligate the holder of such
Purchase Contract to purchase, and the Company to sell, on the Purchase Contract
Settlement Date, for an amount in cash equal to the Stated Amount, a number of
new shares of Common Stock equal to the Settlement Rate. The Settlement Rate
will be calculated as follows (subject to adjustment under certain
circumstances): (a) if the Applicable Market Value is equal to or greater than
the Threshold Appreciation Price, the Settlement Rate will be 1.4132, (b) if the
Applicable Market Value is less than the Threshold Appreciation Price but
greater than $29, the Settlement Rate will equal the Stated Amount divided by
the Applicable Market Value, and (c) if the Applicable Market Value is less than
or equal to $29, the Settlement Rate will be 1.7241. "Applicable Market Value"
means the average of the Closing Prices (as defined) per share of Common Stock
on each of the twenty consecutive Trading Days (as defined) ending on the second
Trading Day immediately preceding the Purchase Contract Settlement Date.
No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of fractional shares otherwise issuable in
respect of Purchase Contracts being settled by a holder of Income PRIDES or
Growth PRIDES the holder will be entitled to receive an amount of cash equal to
such fraction of a share times the Applicable Market Value.
On the Purchase Contract Settlement Date, unless a holder of an Income
PRIDES (i) has settled the underlying Purchase Contract prior to the Purchase
Contract Settlement Date through the early delivery of cash to the Purchase
Contract Agent or (ii) has notified the Purchase Contract Agent of its intention
to settle the related Purchase Contract with separate cash on the Purchase
Contract Settlement Date in the manner described under "-- Early Settlement" and
under "-- Notice to Settle with Cash", respectively, and has so settled the
Purchase Contract or an event described under "-- Termination" below occurs,
such holder will be deemed to have requested the Trust to put its Junior
Subordinated Debenture to the Company, in return for an amount per Junior
Subordinated Debenture equal to $50, plus accumulated and unpaid distributions,
if any. Upon the repurchase of the Junior Subordinated Debenture by the Company
pursuant to a Put Option (as defined herein), the proceeds from such repurchase
shall simultaneously be applied to redeem the Trust Preferred Security of such
holder having a Stated Amount equal to the principal amount of the Junior
Subordinated Debenture so repurchased and will be automatically applied to
satisfy in full such holder's obligation to purchase Common Stock under the
Purchase Contract and (ii) any accumulated and unpaid distributions with respect
to the Junior Subordinated Debenture so repurchased will be paid to such holder
in cash. See "Description of the Junior Subordinated Debenture -- Put Option".
With respect to each Growth PRIDES outstanding on the Purchase Contract
Settlement Date, the principal amount of the Treasury Securities underlying each
Growth PRIDES, when paid at maturity, will be automatically transferred to the
Company to satisfy in full the holder's obligation to purchase Common Stock
under the 20 Purchase Contracts per Growth PRIDES. Such Common Stock will then
be issued and delivered to such holder or such holder's designee, upon
presentation and surrender of the certificate evidencing such FELINE PRIDES (a
"FELINE PRIDES Certificate") and payment by the holder of any transfer or
similar taxes payable in connection with the issuance of the Common Stock to any
person other than such holder. In the event that a holder of either an Income
PRIDES or Growth PRIDES effects the early settlement of a Purchase Contract
through the delivery of cash or a holder of Income PRIDES settles a Purchase
Contract with cash on the Purchase Contract Settlement Date, the underlying
Trust Preferred Securities or Treasury Securities, as the case may be, will be
released to the holder as described herein.
S-24
<PAGE> 25
Prior to the date on which shares of Common Stock are issued in settlement
of Purchase Contracts, the Common Stock underlying the related Purchase
Contracts will not be deemed to be outstanding for any purpose and the holder
thereof will generally not have any voting rights, rights to dividends or other
distributions or other rights or privileges of a stockholder by virtue of
holding such Purchase Contracts. See "Description of Trust Preferred Securities
- -- Voting Rights."
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Purchase Contracts be
deemed to have (a) irrevocably agreed to be bound by the terms of the Purchase
Contracts and the Pledge Agreement for so long as such holder remains a holder
of such FELINE PRIDES and (b) duly appointed the Purchase Contract Agent as such
holder's attorney-in-fact to enter into and perform the related Purchase
Contracts on behalf of and in the name of such holder.
EARLY SETTLEMENT
A holder of Income PRIDES or Growth PRIDES may settle the underlying
Purchase Contracts prior to the Purchase Contract Settlement Date by presenting
and surrendering the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES at the offices of the Purchase Contract Agent with the form of
"Election to Settle Early" on the reverse side of the certificate completed and
executed as indicated, accompanied by payment (in the form of a certified or
cashier's check payable to the order of the Company) of an amount equal to the
Stated Amount times the number of Purchase Contracts being settled. So long as
the FELINE PRIDES are evidenced by one or more global security certificates
deposited with the Depositary (as defined below), procedures for early
settlement will also be governed by standing arrangements between the Depositary
and the Purchase Contract Agent. HOLDERS MAY SETTLE SECURITIES EARLY ONLY IN
INTEGRAL MULTIPLES OF 20 Income PRIDES or one Growth PRIDES.
Upon Early Settlement of Purchase Contracts underlying any Income PRIDES or
Growth PRIDES, (a) the holder will receive 1.4132 shares of Common Stock per
Income PRIDES having a Stated Amount of $50 or 28.2646 shares of Common Stock
per Growth PRIDES having a face amount of $1,000 (regardless of the market price
of the Common Stock on the date of purchase), subject to adjustment under
certain circumstances, (b) the Trust Preferred Securities underlying such Income
PRIDES or, if substituted, the Treasury Securities underlying such Growth
PRIDES, will thereupon be transferred to the holder free and clear of the
Company's security interest therein, (c) the holder's right to receive Deferred
Contract Adjustment Payments (as defined below), if any, on the Purchase
Contracts being settled will be forfeited and (d) the holder's right to receive
future Contract Adjustment Payments will terminate and, except as contemplated
by clause (a) above, no adjustment will be made to or for the holder on account
of current or deferred amounts accrued in respect thereof.
If the Purchase Contract Agent receives the FELINE PRIDES Certificate,
accompanied by the completed "Election to Settle Early" and requisite check,
from a holder of Securities by 5:00 p.m., New York City time, on a Business Day,
that day will be considered the settlement date. If the Purchase Contract Agent
receives the foregoing after 5:00 p.m., New York City time, on a Business Day or
at any time on a day that is not a Business Day, the next Business Day will be
considered the settlement date.
Upon Early Settlement of Purchase Contracts in the manner described above,
presentation and surrender of the FELINE PRIDES Certificate evidencing the
related Income PRIDES or Growth PRIDES and payment of any transfer or similar
taxes payable by the holder in connection with the issuance of the Common Stock
to any person other than the holder of such Income PRIDES or Growth PRIDES, the
Company will cause the shares of Common Stock being purchased to be issued, and
the Trust Preferred Securities or, if substituted, the Treasury Securities
securing such Purchase Contracts, to be released from the pledge under the
Pledge Agreement described below and transferred, within three Business Days
following the settlement date, to the purchasing holder or such holder's
designee.
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NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES wishing to settle the related Purchase
Contract with separate cash on the Purchase Contract Settlement Date must notify
the Purchase Contract Agent by presenting and surrendering the FELINE PRIDES
Certificate evidencing such Income PRIDES at the offices of the Purchase
Contract Agent with the form of "Notice to Settle by Separate Cash" on the
reverse side of the certificate completed and executed as indicated on or prior
to 5:00 p.m., New York City time, on the second Business Day immediately
preceding the Purchase Contract Settlement Date. Such form must be accompanied
by payment (in the form of a certified or cashier's check payable to the order
of the Company) of an amount equal to the Stated Amount times the number of
Purchase Contracts being settled.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments will be fixed at a rate per annum of 3/4% of
the Stated Amount per Purchase Contract. Contract Adjustment Payments in arrears
for more than one quarter will bear interest thereon at the rate per annum of 8%
thereof compounded quarterly. Contract Adjustment Payments payable for any
period will be computed on the basis of a 360-day year of twelve 30 day-months.
Contract Adjustment Payments will accrue from March 25, 1997 and will be payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing June 30, 1997.
Contract Adjustment Payments will be payable to the holders thereof as they
appear on the books and records of the Purchase Contract Agent on the relevant
record dates, which, as long as the Income PRIDES or Growth PRIDES remain in
book-entry only form, will be one Business Day prior to the relevant payment
dates. Such distributions will be paid through the Purchase Contract Agent who
will hold amounts received in respect of the Contract Adjustment Payments for
the benefit of the holders of the Purchase Contracts underlying the Income
PRIDES or Growth PRIDES. Subject to any applicable laws and regulations, each
such payment will be made as described under "Book-Entry System" below. In the
event that the Income PRIDES or Growth PRIDES do not continue to remain in
book-entry only form, the Company shall have the right to select relevant record
dates, which shall be more than one Business Day but less than 60 Business Days
prior to the relevant payment dates. In the event that any date on which
Contract Adjustment Payments are to be made on the Purchase Contracts underlying
the Income PRIDES or Growth PRIDES is not a Business Day, then payment of the
Contract Adjustment Payments payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such payment date. A "Business Day" shall mean any day other than Saturday,
Sunday or any other day on which banking institutions in New York City (in the
State of New York) are permitted or required by any applicable law to close.
The Company's obligations with respect to Contract Adjustment Payments are
subordinate and junior in right of payment to all liabilities of the Company
(other than the Yield Enhancement Payments payable by the Company in respect of
its 8 3/4% PRIDES and MCN's guarantee of subordinated debentures issued by the
Company, with which they rank pari passu). See "Risk Factors -- Ranking of
Contract Adjustment Payments and Subordinated Obligations Under the Guarantee
and Junior Subordinated Debentures."
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option and upon prior written notice to the holders
of the Income PRIDES or Growth PRIDES and the Purchase Contract Agent, defer the
payment of Contract Adjustment Payments on the Purchase Contracts until no later
than the Purchase Contract Settlement Date. However, Deferred Contract
Adjustment Payments will bear additional Contract Adjustment Payments at the
rate of 8% per annum (compounding on each succeeding Payment Date) until paid.
If the Purchase Contracts are terminated (upon the occurrence of certain events
of bankruptcy, insolvency or reorganization with respect to the Company), the
right to receive Contract Adjustment Payments and Deferred Contract Adjustment
Payments will terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Income PRIDES or Growth
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PRIDES will receive on the Purchase Contract Settlement Date, in lieu of a cash
payment, a number of shares of Common Stock (in addition to a number of shares
of Common Stock equal to the Settlement Rate) equal to (x) the aggregate amount
of Deferred Contract Adjustment Payments payable to a holder of either Income
PRIDES or Growth PRIDES divided by (y) the Applicable Market Value.
No fractional shares of Common Stock will be issued by the Company with
respect to the payment of Deferred Contract Adjustment Payments on the Purchase
Contract Settlement Date. In lieu of fractional shares otherwise issuable with
respect to such payment of Deferred Contract Adjustment Payments, the holder
will be entitled to receive an amount in cash equal to such fraction of a share
times the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security outstanding on the date of such event requiring the Company to
purchase shares of Common Stock, (ii) as a result of a reclassification of the
Company's capital stock or the exchange or conversion of one class or series of
the Company's capital stock for another class or series of the Company's capital
stock or (iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged) or make any guarantee
payments with respect to the foregoing.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment upon the occurrence of certain events, including: (a) the payment of
dividends (and other distributions) of Common Stock on Common Stock; (b) the
issuance to all holders of Common Stock of rights, warrants or options entitling
them, for a period of up to 45 days, to subscribe for or purchase Common Stock
at less than the Current Market Price (as defined) thereof; (c) subdivisions,
splits and combinations of Common Stock; (d) distributions to all holders of
Common Stock of evidences of indebtedness of the Company, shares of capital
stock, securities, cash or property (excluding any dividend or distribution
covered by clause (a) or (b) above and any dividend or distribution paid
exclusively in cash); (e) distributions consisting exclusively of cash to all
holders of Common Stock in an aggregate amount that, together with (i) other
all-cash distributions made within the preceding 12 months and (ii) any cash and
the fair market value, as of the expiration of the tender or exchange offer
referred to below, of consideration payable in respect of any tender or exchange
offer by the Company or a subsidiary for the Common Stock concluded within the
preceding 12 months, exceeds 15% of the Company's aggregate market
capitalization (such aggregate market capitalization being the product of the
Current Market Price (as defined) of the Common Stock multiplied by the number
of shares of Common Stock then outstanding) on the date of such distribution;
and (f) the successful completion of a tender or exchange offer made by the
Company or any subsidiary for the Common Stock which involves an aggregate
consideration that, together with (i) any cash and the fair market value of
other consideration payable in respect of any tender or exchange offer by the
Company or a subsidiary for the Common Stock concluded within the preceding 12
months and (ii) the aggregate amount of any all-cash distributions to all
holders of the Company's Common Stock made within the preceding 12 months,
exceeds 15% of the Company's aggregate market capitalization on the expiration
of such tender or exchange offer.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is
converted into the right to receive other securities, cash or property, each
Purchase Contract then outstanding would, without the consent of the holders of
Income PRIDES or Growth PRIDES, as the case may be, become a contract to
purchase only the kind and amount of securities, cash and other property
receivable upon consummation of the transaction by a holder of the number of
shares of Common Stock which would have been received by the holder of the
related Income PRIDES or Growth PRIDES immediately prior to the date of
consummation of such transaction if such holder had then settled such Purchase
Contract.
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If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (i.e., distributions of evidences of indebtedness or
assets of the Company, but generally not stock dividends or rights to subscribe
to capital stock) and, pursuant to the Settlement Rate adjustment provisions of
the Purchase Contract Agreement, the Settlement Rate is increased, such increase
may be deemed to be the receipt of taxable income to holders of Securities. See
"Certain Federal Income Tax Consequences -- Adjustment of Settlement Rate."
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of shares of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
occurrence of an event that requires or permits an adjustment in the Settlement
Rate, to provide written notice to the Purchase Contract Agent of the occurrence
of such event and a statement in reasonable detail setting forth the method by
which the adjustment to the Settlement Rate was determined and setting forth the
revised Settlement Rate.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of shares of Common Stock issuable upon early
settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the FELINE PRIDES thereunder (including the right to receive
accrued Contract Adjustment Payments or Deferred Contract Adjustment Payments
and the right and obligation to purchase Common Stock), will automatically
terminate upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company. Upon such termination, the
Collateral Agent will release the Trust Preferred Securities or, if substituted,
the Treasury Securities held by it to the Purchase Contract Agent for
distribution to the holders. Upon such termination, however, such release and
termination may be subject to a limited delay. In the event that the Company
becomes the subject of a case under the Bankruptcy Code, such delay may occur as
a result of the automatic stay under the Bankruptcy Code and continue until such
automatic stay has been lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The Trust Preferred Securities underlying the Income PRIDES or, if
substituted, the Treasury Securities underlying the Growth PRIDES (together, the
Pledged Securities) will be pledged to the Collateral Agent, for the benefit of
the Company, pursuant to a pledge agreement, to be dated as of March 25, 1997
(the "Pledge Agreement"), to secure the obligations of the holders to purchase
Common Stock under the Purchase Contracts. The rights of holders of Income
PRIDES or Growth PRIDES to the underlying Pledged Securities will be subject to
the Company's security interest therein created by the Pledge Agreement. No
holder of Income PRIDES or Growth PRIDES will be permitted to withdraw the
Pledged Securities underlying such Income PRIDES or Growth PRIDES from the
pledge arrangement except (i) to substitute Treasury Securities for Trust
Preferred Securities, (ii) to substitute Trust Preferred Securities for Treasury
Securities (for both (i) and (ii), as provided for under "Description of the
FELINE PRIDES -- Substitution of Pledged Securities") or (iii) upon the
termination or Early Settlement of the related Purchase Contracts. Subject to
such security interest and the terms of the Purchase Contract Agreement and the
Pledge Agreement, each holder of an Income PRIDES will be entitled through the
Purchase Contract Agent and the Collateral Agent to all of the proportional
rights and preferences of a Trust Preferred Security (including distribution,
voting, redemption, repayment and liquidation rights) and each holder of a
Growth PRIDES will retain beneficial ownership of the Treasury Securities
pledged in respect of such Purchase Contracts. The Company will have no interest
in the Pledged Securities other than its security interest.
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The Collateral Agent will, upon receipt of distributions on the Pledged
Securities, distribute such payments to the Purchase Contract Agent, which will
in turn distribute those payments, together with Contract Adjustment Payments
received from the Company, to the persons in whose names the related Income
PRIDES or Growth PRIDES are registered at the close of business on the Record
Date immediately preceding the date of such distribution. See "Description of
the Securities -- Current Payments."
BOOK-ENTRY SYSTEM
The Depository Trust Company (the "Depositary") will act as securities
depositary for the FELINE PRIDES. The FELINE PRIDES will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global security certificates
("Global Security Certificates"), representing the total aggregate number of
FELINE PRIDES, will be issued and will be deposited with the Depositary and will
bear a legend regarding the restrictions on exchanges and registration of
transfer thereof referred to below.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the FELINE PRIDES so
long as such FELINE PRIDES are represented by Global Security Certificates.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Depositary holds
securities that its participants ("Participants") deposit with the Depositary.
The Depositary also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
The Depositary is owned by a number of its Direct Participants and by the NYSE,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary system is also available to others, such
as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its Participants are
on file with the Commission.
No FELINE PRIDES represented by Global Security Certificates may be
exchanged in whole or in part for FELINE PRIDES registered, and no transfer of
Global Security Certificates in whole or in part may be registered, in the name
of any person other than the Depositary or any nominee of the Depositary unless
the Depositary has notified the Company that it is unwilling or unable to
continue as depositary for such Global Security Certificates or has ceased to be
qualified to act as such as required by the Purchase Contract Agreement or there
shall have occurred and be continuing a default by the Company in respect of its
obligations under one or more Purchase Contracts. All FELINE PRIDES represented
by one or more Global Security Certificates or any portion thereof will be
registered in such names as the Depositary may direct.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all FELINE PRIDES represented thereby for all purposes under
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the FELINE PRIDES represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of FELINE PRIDES
Certificates in exchange therefore and will not be considered to be owners or
holders of such Global Security Certificates or any FELINE PRIDES represented
thereby for any purpose under the FELINE PRIDES or the Purchase Contract
Agreement. All payments on the FELINE PRIDES represented by the Global Security
Certificates and all transfers and deliveries of Trust
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Preferred Securities, Treasury Securities and Common Stock with respect thereto
will be made to the Depositary or its nominee, as the case may be, as the holder
thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or per-sons that may hold beneficial interests
through institutions that have accounts with the Depositary or its nominee.
Ownership of beneficial interests in Global Security Certificates will be shown
only on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depositary or its nominee (with respect to
Participants' interests) or any such Participant (with respect to interests of
persons held by such Participants on their behalf). Procedures for settlement of
Purchase Contracts on the Purchase Contract Settlement Date or upon Early
Settlement will be governed by arrangements among the Depositary, Participants
and persons that may hold beneficial interests through Participants designed to
permit such settlement without the physical movement of certificates. Payments,
transfers, deliveries, exchanges and other matters relating to beneficial
interests in Global Security Certificates may be subject to various policies and
procedures adopted by the Depositary from time to time. None of the Company, the
Purchase Contract Agent or any agent of the Company or the Purchase Contract
Agent will have any responsibility or liability for any aspect of the
Depositary's or any Participant's records relating to, or for payments made on
account of, beneficial interests in Global Security Certificates, or for
maintaining, supervising or reviewing any of the Depositary's records or any
participant's records relating to such beneficial ownership interests.
CERTAIN PROVISIONS OF THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the FELINE PRIDES
will be registrable at the office of the Purchase Contract Agent in the Borough
of Manhattan, The City of New York. In addition, in the event that the FELINE
PRIDES do not remain in book-entry form, payment of distributions on the FELINE
PRIDES may be made, at the option of the Company, by check mailed to the address
of the person entitled thereto as shown on the Security Register.
On the Purchase Contract Settlement Date, shares of Common Stock will be
delivered, or, if the Purchase Contracts have terminated, Pledged Securities
will be delivered potentially after a limited delay (see "Description of the
Purchase Contracts -- Termination"), in each case upon presentation and
surrender of the FELINE PRIDES Certificate at the office of the Purchase
Contract Agent.
If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract Settlement
Date, the shares of Common Stock issuable in settlement of the applicable
Purchase Contract and in payment of any Deferred Contract Adjustment Payments
will be registered in the name of the Purchase Contract Agent and, together with
any distributions thereon, shall be held by the Purchase Contract Agent as agent
for the benefit of such holder, until such FELINE PRIDES Certificate is
presented and surrendered or the holder provides satisfactory evidence that such
certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Purchase Contract Agent and the Company.
If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the Pledged Securities have been transferred to the Purchase
Contract Agent for distribution to the holders entitled thereto and a holder
fails to present and surrender the FELINE PRIDES Certificate evidencing such
holder's Income PRIDES or Growth PRIDES to the Purchase Contract Agent, the
Pledged Securities delivered to the Purchase Contract Agent and payments thereon
shall be held by the Purchase Contract Agent as agent for the benefit of such
holder, until such FELINE PRIDES Certificate is presented or the holder provides
the evidence and indemnity described above.
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The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the FELINE PRIDES, except for any tax or other governmental charge that may
be imposed in connection therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting the Company and the Purchase Contract Agent or Collateral
Agent, as the case may be, with the consent of the holders of not less than
66 2/3% of the Purchase Contracts at the time outstanding, to modify the terms
of the Purchase Contracts, the Purchase Contract Agreement and the Pledge
Agreement, except that no such modification may, without the consent of the
holder of each outstanding Purchase Contract affected thereby, (a) change any
Payment Date, (b) change the amount or type of Pledged Securities underlying the
Purchase Contract, impair the right of the holder of any Pledged Securities to
receive distributions on the underlying Pledged Securities (except for the
rights of holders of Income PRIDES to substitute the Treasury Securities for the
Trust Preferred Securities or the rights of holders of Growth PRIDES to
substitute Trust Preferred Securities for the Treasury Securities) or otherwise
adversely affect the holder's rights in or to such Pledged Securities, (c)
change the place or currency of payment or reduce any Contract Adjustment
Payments or any Deferred Contract Adjustment Payments, (d) impair the right to
institute suit for the enforcement of any Purchase Contract, (e) reduce the
amount of Common Stock purchasable under any Purchase Contract, increase the
price to purchase Common Stock on settlement of any Purchase Contract, change
the Purchase Contract Settlement Date or otherwise adversely affect the holder's
rights under any Purchase Contract or (f) reduce the above-stated percentage of
outstanding Purchase Contracts the consent of whose holders is required for the
modification or amendment of the provisions of the Purchase Contracts, the
Purchase Contract Agreement or the Pledge Agreement; provided, that if any
amendment or proposal referred to above would adversely affect only the Income
PRIDES or the Growth PRIDES, then only the affected class of holder will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the consent of the holders of not less than
66 2/3% of such class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or
Growth PRIDES, be deemed expressly to have withheld any consent to the
assumption (i.e., affirmance) of the Purchase Contracts by the Company or its
trustee in the event that the Company becomes the subject of a case under the
Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with any other entity or sell, assign, transfer, lease
or convey all or substantially all of its properties and assets to any person,
firm or corporation unless the Company is the continuing corporation or the
successor corporation is a corporation organized under the laws of the United
States of America or a state thereof and such corporation expressly assumes the
obligations of the Company under the Purchase Contracts, the Junior Subordinated
Debentures, the Purchase Contract Agreement and the Pledge Agreement, and the
Company or such successor corporation is not, immediately after such merger,
consolidation, sale, assignment, transfer, lease or conveyance, in default in
the performance of any of its obligations thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral Agent may treat
the registered owner of any FELINE PRIDES as the absolute owner thereof for the
purpose of making payment and settling the Purchase Contracts and for all other
purposes.
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REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by the Company at the expense of the
holder upon surrender of such certificate to the Purchase Contract Agent. FELINE
PRIDES Certificates that become destroyed, lost or stolen will be replaced by
the Company at the expense of the holder upon delivery to the Company and the
Purchase Contract Agent of evidence of the destruction, loss or theft thereof
satisfactory to the Company and the Purchase Contract Agent. In the case of a
destroyed, lost or stolen FELINE PRIDES Certificate, an indemnity satisfactory
to the Purchase Contract Agent and the Company may be required at the expense of
the holder of the FELINE PRIDES evidenced by such certificate before a
replacement will be issued.
Notwithstanding the foregoing, the Company will not be obligated to issue
any Income PRIDES or Growth PRIDES on or after the Purchase Contract Settlement
Date or after the Purchase Contracts have terminated. The Purchase Contract
Agreement will provide that, in lieu of the delivery of a replacement FELINE
PRIDES Certificate following the Purchase Contract Settlement Date, the Purchase
Contract Agent, upon delivery of the evidence and indemnity described above,
will deliver the Common Stock issuable pursuant to the Purchase Contracts
included in the Income PRIDES or Growth PRIDES evidenced by such certificate,
or, if the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, transfer the principal amount of the Pledged Securities
included in the Income PRIDES or Growth PRIDES evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the Purchase Contract Agent. The
Purchase Contract Agent will act as the agent for the holders of Income PRIDES
and Growth PRIDES from time to time. The Purchase Contract Agreement will not
obligate the Purchase Contract Agent to exercise any discretionary actions in
connection with a default under the terms of the Income PRIDES and Growth PRIDES
or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such
resignation or replacement would be effective upon the appointment of a
successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the Collateral Agent. The Collateral Agent
will act solely as the agent of the Company and will not assume any obligation
or relationship of agency or trust for or with any of the holders of the Income
PRIDES and Growth PRIDES except for the obligations owed by a pledgee of
property to the owner thereof under the Pledge Agreement and applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
MISCELLANEOUS
The Purchase Contract Agreement will provide that the Company will pay all
fees and expenses related to (i) the offering of the FELINE PRIDES, (ii) the
retention of the Collateral Agent and (iii) the enforcement by the Purchase
Contract Agent of the rights of the holders; provided, however, that holders who
elect to substitute Pledged Securities, thereby creating Growth PRIDES or
recreating Income PRIDES, shall be responsible for any fees or expenses payable
to the Collateral Agent in connection therewith, as well as any commissions,
fees or other expenses incurred in acquiring the Pledged Securities to be
substituted, and the Company shall not be responsible for any such fees or
expenses.
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DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities, which form a component of the Income
PRIDES, and which, under certain circumstances, will trade separately, will be
issued pursuant to the terms of the Declaration. See "Description of the FELINE
PRIDES -- Substitution of Pledged Securities." The Declaration will be qualified
as an indenture under the Trust Indenture Act. The Institutional Trustee,
Wilmington Trust Company, an independent trustee, will act as indenture trustee
for the Trust Preferred Securities under the Declaration for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Trust Preferred Securities will include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of the material terms and provisions of the Trust Preferred Securities
does not purport to be complete and is subject to, and qualified in its entirety
by reference to the Declaration, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part, the Trust
Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities will be owned, directly or
indirectly, by the Company. The Common Securities rank pari passu, and payments
will be made thereon on a pro rata basis, with the Trust Preferred Securities,
except that upon the occurrence and during the continuance of a Declaration
Event of Default, the rights of the holders of the Common Securities to receive
payment of periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Trust
Preferred Securities. The Declaration does not permit the issuance by the Trust
of any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Institutional
Trustee will own the Junior Subordinated Debentures purchased by the Trust for
the benefit of the holders of the Trust Securities. The payment of distributions
out of money held by the Trust, and payments upon redemption of the Trust
Preferred Securities or liquidation of the Trust, are guaranteed by the Company
to the extent described under "Description of the Preferred Securities
Guarantees" in the accompanying Prospectus. The Guarantee, when taken together
with MCN's obligations under the Junior Subordinated Debentures and the
Indenture and its obligations under the Declaration, including the obligations
to pay costs, expenses, debts and liabilities of the Trust (other than with
respect to the Trust Preferred Securities), provides a full and unconditional
guarantee of amounts due on the Trust Preferred Securities. The Guarantee will
be held by Wilmington Trust Company, the Guarantee Trustee, for the benefit of
the holders of the Trust Preferred Securities. The Guarantee does not cover
payment of distributions when the Trust does not have sufficient available funds
to pay such distributions. In such event, the remedy of a holder of Trust
Preferred Securities is to vote to direct the Institutional Trustee to enforce
the Institutional Trustee's rights under the Junior Subordinated Debentures
(except in the limited circumstances in which the holder may take Direct
Action). See "-- Declaration Events of Default" and "-- Voting Rights."
DISTRIBUTIONS
Distributions on the Trust Preferred Securities will be fixed at a rate per
annum of 7 1/4% of the stated liquidation amount of $50 per Trust Preferred
Security. Distributions in arrears for more than one quarter will bear interest
thereon at the rate per annum of 7 1/4% thereof compounded quarterly. The term
"distribution" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Trust Preferred Securities will be cumulative and will
accrue from March 25, 1997 and will be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing June 30, 1997,
when, as and if funds are available for payment. Distributions will be made by
the Institutional Trustee, except as otherwise described below.
The Company has the right under the Indenture to defer payments of interest
on the Junior Subordinated Debentures by extending the interest payment period
from time to time on the Junior Subordinated
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Debentures, which right, if exercised, would defer quarterly distributions on
the Trust Preferred Securities (though such distributions would continue to
accrue with interest since interest would continue to accrue on the Junior
Subordinated Debentures) during any such extended interest payment period. Such
right to extend the interest payment period for the Junior Subordinated
Debentures is limited to a period, in the aggregate, not extending beyond the
maturity date of the Junior Subordinated Debentures. In the event that the
Company exercises this right, then (a) the Company shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of shares of the Company's Common
Stock in connection with the satisfaction by the Company of its obligations
under any employee benefit plans or the satisfaction by the Company of its
obligations pursuant to any contract or security outstanding on the date of such
event requiring the Company to purchase shares of the Company's Common Stock,
(ii) as a result of a reclassification of the Company's capital stock or the
exchange or conversion of one class or series of the Company's capital stock for
another class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such Company capital stock or the security
being converted or exchanged) or make any guarantee payments with respect to the
foregoing, (b) the Company shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company that rank pari passu with or junior
to such Junior Subordinated Debentures, and (c) the Company shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Trust Preferred Securities Guarantee). Prior to the termination of any such
Extension Period, the Company may further extend the interest payment period;
provided, that such Extension Period, together with all such previous and
further extensions thereof, may not extend beyond the maturity date of the
Junior Subordinated Debentures. Upon the termination of any Extension Period and
the payment of all amounts then due, the Company may select a new Extension
Period, subject to the above requirements. See "Description of the Junior
Subordinated Debentures -- Interest" and "-- Option to Extend Interest Payment
Period." If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to holders of record of the Trust Preferred
Securities as they appear on the books and records of the Trust on the record
date next following the termination of such deferral period.
Distributions on the Trust Preferred Securities must be paid on the dates
payable to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Trust Preferred Securities will be limited to
payments received from the Company on the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures." The payment of
distributions out of moneys held by the Trust is guaranteed by the Company to
the extent set forth under "Description of the Preferred Securities Guarantees"
in the accompanying Prospectus.
Distributions on the Trust Preferred Securities will be payable to the
holders thereof, including the Collateral Agent, as they appear on the books and
records of the Trust on the relevant record dates, which, as long as the Trust
Preferred Securities remain in book-entry only form, will be one Business Day
prior to the relevant payment dates. Such distributions will be paid through the
Institutional Trustee which will hold amounts received in respect of the Junior
Subordinated Debentures in the Property Account for the benefit of the holders
of the Trust Preferred Securities. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment will be
made as described under "Book-Entry Only Issuance -- The Depository Trust
Company" below. In the event that the Trust Preferred Securities do not continue
to remain in book-entry form, the Regular Trustees shall have the right to
select relevant record dates, which shall be at least one Business Day prior to
the relevant payment dates. In the event that any date on which distributions
are to be made on the Trust Preferred Securities is not a Business Day, then
payment of the distributions payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such record date.
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MATURITY
Subject to the holder's right to require the Trust to put the Junior
Subordinated Debentures to the Company on the Purchase Contract Settlement Date,
the Junior Subordinated Debentures will mature on May 16, 2002. Upon the
repayment of the Junior Subordinated Debentures at maturity, the proceeds from
such repayment or payment shall simultaneously be applied to redeem Trust
Preferred Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Junior Subordinated Debentures so repaid. See
"Description of the Junior Subordinated Debentures."
SPECIAL EVENT DISTRIBUTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
(a "Dissolution Tax Opinion") to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to or
change in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority (including
the enactment of any legislation and the publication of any judicial decision or
regulatory determination on or after such date), which change or amendment, in
the case of (a) or (b), becomes effective on or after the date of this
Prospectus Supplement, there is more than an insubstantial risk that (i) the
Trust would be subject to federal income tax with respect to income accrued or
received on the Junior Subordinated Debentures, (ii) interest payable to the
Trust on the Junior Subordinated Debentures would not be deductible by the
Company for federal income tax purposes or (iii) the Trust would be subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel experienced in practice under the
1940 Act (as defined below) to the effect that, as a result of the occurrence of
a change in law or regulation or a written change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), which Change in
1940 Act Law becomes effective on or after the date of this Prospectus
Supplement, there is more than an insubstantial risk that the Trust is or will
be considered an "investment company" which is required to be registered under
the Investment Company Act of 1940, as amended (the "1940 Act").
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Trust
shall, except in the limited circumstances described below, be dissolved, with
the result that the Junior Subordinated Debentures with an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Trust Securities, would be
distributed to the holders of the Trust Securities in liquidation of such
holders' interests in the Trust on a pro rata basis within 90 days following the
occurrence, of such Special Event; provided, however, that in the case of the
occurrence of a Tax Event, such dissolution and distribution shall be
conditioned on the Company being unable to avoid such Tax Event within such 90
day period by taking some ministerial action or pursuing some other reasonable
measure that will have no adverse effect on the Trust, the Company or the
holders of the Trust Securities and will involve no material cost. If a Special
Event occurs, Junior Subordinated Debentures distributed to the Collateral Agent
in liquidation of such holder's interest in the Trust would continue to be
pledged to secure Income PRIDES holders' obligations to purchase Common Stock
under the Purchase Contracts.
After the date for any distribution of Junior Subordinated Debentures upon
dissolution of the Trust, (i) the Trust Preferred Securities will no longer be
deemed to be outstanding, (ii) the Depositary or its nominee, as the record
holder of the Trust Preferred Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debentures to
be delivered upon such distribution, and (iii) any certificates representing
Trust Preferred Securities not held by the Depositary or its nominee will be
deemed to represent Junior Subordinated Debentures having an aggregate principal
amount equal to the
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aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, such Trust Preferred Securities until such certificates
are presented to the Company or its agent for transfer or reissuance.
There can be no assurance as to the market prices for either the Trust
Preferred Securities or the Junior Subordinated Debentures that may be
distributed in exchange for the Trust Preferred Securities if a dissolution and
liquidation of the Trust were to occur. Accordingly, the Trust Preferred
Securities or the Junior Subordinated Debentures that an investor may receive if
a dissolution and liquidation of the Trust were to occur may trade at a discount
to the price that the investor paid to purchase the Trust Preferred Securities
forming a part of the Income PRIDES offered hereby.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its subsidiaries may at any time, and
from time to time, purchase outstanding Trust Preferred Securities by tender, in
the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Trust Preferred Securities will be entitled to receive out of the assets
of the Trust, after satisfaction of liabilities to creditors, Junior
Subordinated Debentures in an aggregate stated principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Trust Preferred Securities on a pro rata basis to
the holders of the Trust Preferred Securities in exchange for such Trust
Preferred Securities.
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the Trust
Preferred Securities, except that if a Declaration Event of Default has occurred
and is continuing, the Trust Preferred Securities shall have a preference over
the Trust Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on February 3,
2004, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company or the holder of the Common Securities, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to the Company, the
filing of a certificate of cancellation with respect to the Trust after
obtaining the consent of the holders of at least a majority in liquidation
amount of the Trust Securities effected thereby voting together as a single
class to file such certificate of cancellation, or the revocation of the charter
of the Company and the expiration of 90 days after the date of revocation
without a reinstatement thereof, (iv) upon the distribution of Junior
Subordinated Debentures upon the occurrence of an Investment Company Event or a
Tax Event or (v) upon the entry of a decree of a judicial dissolution of the
holder of the Trust Common Securities, the Company or the Trust.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Trust Preferred Securities
have been cured, waived or otherwise eliminated. Until such Declaration Events
of Default with respect to the Trust Preferred Securities have been so cured,
waived, or otherwise eliminated, the Institutional Trustee will be deemed to be
acting solely on behalf of the holders of the Trust Preferred Securities and
only the holders of the Trust Preferred Securities will have the right to direct
the Institutional Trustee with respect to certain matters under the Declaration
and, therefore, the Indenture. If a Declaration Event of Default with respect to
the Trust Preferred Securities is waived by holders of Trust Preferred
Securities, such waiver will also constitute the waiver of such Declaration
Event of Default with respect to the Common Securities without any further act,
vote or consent of the holders of the
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Common Securities. If the Institutional Trustee fails to enforce its rights
under the Junior Subordinated Debentures, any holder of Trust Preferred
Securities may institute a legal proceeding against the Company to enforce the
Institutional Trustee's rights under the Junior Subordinated Debentures without
first proceeding against the Institutional Trustee or any other person or
entity. Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of MCN
to pay interest or principal on the Junior Subordinated Debentures, on the date
such interest or principal is otherwise payable, then a holder of Trust
Preferred Securities may directly institute a proceeding for enforcement of
payment (a "Direct Action") to such holder directly of the principal of or
interest on the Junior Subordinated Debentures having a principal amount equal
to the aggregate liquidation amount of the Trust Preferred Securities of such
holder on or after the respective due date specified in the Junior Subordinated
Debentures. In connection with such Direct Action, MCN will be subrogated to the
rights of such holder of Trust Preferred Securities under the Declaration to the
extent of any payment made by MCN to such holder of Trust Preferred Securities
in such Direct Action. The holders of Trust Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Junior Subordinated Debentures. See "Effect of Obligations under the Junior
Subordinated Debentures and the Guarantee."
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Junior Subordinated Debentures will have the
right under the Indenture to declare the principal of and interest on the Junior
Subordinated Debentures to be immediately due and payable. MCN and the Trust are
each required to file annually with the Institutional Trustee an officer's
certificate as to its compliance with all conditions and covenants under the
Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and the Trust Indenture Act
and under "Description of the Preferred Securities Guarantees -- Modification of
the Preferred Securities Guarantees; Assignment" in the accompanying Prospectus,
and as otherwise required by law and the Declaration, the holders of the Trust
Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Trust Preferred Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Institutional
Trustee, or direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration including the right to direct the
Institutional Trustee, as holder of the Junior Subordinated Debentures, to (i)
exercise the remedies available under the Indenture with respect to the Junior
Subordinated Debentures, (ii) waive any past Indenture Event of Default that is
waivable under Section 513 of the Indenture (as defined herein), (iii) exercise
any right to rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures where such consent shall be required; provided, however,
that, where a consent or action under the Indenture would require the consent or
act of holders of more than a majority in principal amount of the Junior
Subordinated Debentures (a "Super-Majority") affected thereby, only the holders
of at least such Super-Majority in aggregate liquidation amount of the Trust
Preferred Securities may direct the Institutional Trustee to give such consent
or take such action. If the Institutional Trustee fails to enforce its rights
under the Junior Subordinated Debentures or the Declaration, a record holder of
Trust Preferred Securities may, after such holder's written request to the
Institutional Trustee to enforce such rights, institute a legal proceeding
directly against the Company to enforce the Institutional Trustee's rights under
the Junior Subordinated Debentures or the Declaration without first instituting
any legal proceeding against the Institutional Trustee or any other person or
entity. The Institutional Trustee shall notify all holders of the Trust
Preferred Securities of any notice of default received from the Debt Trustee (as
defined below) with respect to the Junior Subordinated Debentures. Such notice
shall state that such Indenture Event of Default also constitutes a Declaration
Event of Default. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Institutional Trustee shall not take
any of the actions described in clauses (i), (ii) or (iii) above unless the
Institutional Trustee has obtained an opinion of tax counsel to the
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effect that, as a result of such action, the Trust will not fail to be
classified as a grantor trust for federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Junior Subordinated Debentures, is required under the Indenture with respect to
any amendment, modification or termination of the Indenture, the Institutional
Trustee shall request the direction of the holders of the Trust Preferred
Securities and the Common Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in liquidation amount of
the Trust Preferred Securities and the Common Securities voting together as a
single class; provided, however, that where a consent under the Indenture would
require the consent of a Super-Majority, the Institutional Trustee may only give
such consent at the direction of the holders of at least the proportion in
liquidation amount of the Trust Preferred Securities and the Trust Common
Securities which the relevant Super-Majority represents of the aggregate
principal amount of the Junior Subordinated Debentures outstanding. The
Institutional Trustee shall be under no obligation to take any such action in
accordance with the directions of the holders of the Trust Preferred Securities
and the Trust Common Securities unless the Institutional Trustee has obtained an
opinion of tax counsel to the effect that for the purposes of federal income
tax, the Trust will not be classified as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Trust Preferred Securities
may be given at a separate meeting of holders of Trust Preferred Securities
convened for such purpose, at a meeting of all of the holders of Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which holders of Trust Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of Trust Preferred
Securities. Each such notice will include a statement setting forth the
following information: (i) the date of such meeting or the date by which such
action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Trust
Preferred Securities will be required for the Trust to redeem and cancel Trust
Preferred Securities or distribute Junior Subordinated Debentures in accordance
with the Declaration.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the Trust
Preferred Securities that are owned at such time by the Company or any entity
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, the Company, shall not be entitled to vote or consent and
shall, for purposes of such vote or consent, be treated as if such Trust
Preferred Securities were not outstanding.
The procedures by which holders of Trust Preferred Securities may exercise
their voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company" below.
Holders of the Trust Preferred Securities will have no rights to appoint or
remove the Company Trustees, who may be appointed, removed or replaced solely by
MCN as the indirect or direct holder of all of the Trust Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the Delaware
Trustee), provided, that if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise or (ii) the dissolution,
winding-up or termination of the Trust other than pursuant to the terms of the
Declaration, then the holders of the Trust Securities voting together as a
single class will be entitled to vote
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on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of at least a majority in liquidation amount
of the Trust Securities affected thereby; provided, that if any amendment or
proposal referred to in clause (i) above would adversely affect only the Trust
Preferred Securities or the Trust Common Securities, then only the affected
class will be entitled to vote on such amendment or proposal and such amendment
or proposal shall not be effective except with the approval of a majority in
liquidation amount of such class of securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State; provided, that (i) such successor entity either (x)
expressly assumes all of the obligations of the Trust under the Trust Preferred
Securities or (y) substitutes for the Trust Preferred Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities"), so long as the Successor Securities rank the same as
the Trust Securities with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Institutional Trustee as the holder of the Junior Subordinated Debentures, (iii)
if the Trust Preferred Securities are listed any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
with another organization on which the Trust Preferred Securities are then
listed or quoted, (iv) such merger, consolidation, amalgamation or replacement
does not cause the Trust Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the holders of
the Trust Securities (including any Successor Securities) in any material
respect (other than with respect to any dilution of the holders' interest in the
new entity), (vi) such successor entity has a purpose identical to that of the
Trust, (vii) prior to such merger, consolidation, amalgamation or replacement,
the Company has received an opinion of a nationally recognized independent
counsel to the Trust experienced in such matters to the effect that, (A) such
merger, consolidation, amalgamation or replacement does not adversely affect the
rights, preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), (B)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act and (C) following such merger, consolidation,
amalgamation or replacement, the Trust (or the successor entity) will continue
to be classified as a grantor trust for federal income tax purposes, and (viii)
the Company guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee and the
Common Securities Guarantee (as described in the accompanying Prospectus).
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in liquidation amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it, if
such consolidation, amalgamation, merger or replacement would cause the Trust or
the successor entity to be classified as other than a grantor trust for federal
income tax purposes.
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BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depositary will act as securities depositary for the Trust Preferred
Securities. The Trust Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global Trust Preferred
Securities certificates, representing the total aggregate number of Trust
Preferred Securities, will be issued and will be deposited with the Depositary.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Trust
Preferred Securities as represented by a global certificate.
Purchases of Trust Preferred Securities within the Depositary's system must
be made by or through Direct Participants, which will receive a credit for the
Trust Preferred Securities on the Depositary's records. The ownership interest
of each actual purchaser of each Trust Preferred Security (a "Beneficial Owner")
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Trust Preferred Securities. Transfers of
ownership interests in the Trust Preferred Securities are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial owners will not receive certificates representing their ownership
interests in the Trust Preferred Securities, except in the event that use of the
book-entry system for the Trust Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Trust Preferred Securities
deposited by Participants with the Depositary are registered in the name of the
Depositary's nominee, Cede & Co. The deposit of Trust Preferred Securities with
the Depositary and their registration in the name of Cede & Co. effect no change
in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Trust Preferred Securities. The Depositary's records
reflect only the identity of the Direct Participants to whose accounts such
Trust Preferred Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
So long as the Depositary or its nominee is the registered owner or holder
of a Global Certificate, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Trust Preferred Securities
represented thereby for all purposes under the Declaration and the Trust
Preferred Securities. No beneficial owner of an interest in a Global Certificate
will be able to transfer that interest except in accordance with the Depositary
applicable procedures, in addition to those provided for under the Declaration.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Trust Preferred Securities (including the
presentation of Trust Preferred Securities for exchange as described below) only
at the direction of one or more Participants to whose account the Depositary's
interests in the Global Certificates are credited and only in respect of such
portion of the aggregate liquidation amount of Trust Preferred Securities as to
which such Participant or Participants has or have given such directions.
However, if there is an Event of Default under the Trust Preferred Securities,
the Depositary will exchange the Global Certificates for Certificated
Securities, which it will distribute to its Participants.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants or Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Although voting with respect to the Trust Preferred Securities is limited,
in those cases where a vote is required, neither the Depositary nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities. Under
its usual procedures, the Depositary would mail an Omnibus Proxy to the Trust as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Trust Preferred Securities are credited on the record date
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(identified in a listing attached to the Omnibus Proxy). The Company and the
Trust believe that the arrangements among the Depositary, Direct and Indirect
Participants, and Beneficial Owners will enable the Beneficial Owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a recordholder of a beneficial interest in the Trust.
Distribution payments on the Trust Preferred Securities will be made to the
Depositary in immediately available funds. The Depositary's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on the Depositary's records unless the
Depositary has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Participant and not of the
Depositary, the Trust or the Company, subject to any statutory or regulatory
requirements to the contrary that may be in effect from time to time. Payment of
distributions to the Depositary is the responsibility of the Trust, disbursement
of such payments to Direct Participants is the responsibility of the Depositary,
and disbursement of such payments to the Beneficial Owners is the responsibility
of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Trust Preferred
Security certificate will not be entitled to receive physical delivery of Trust
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary to exercise any rights under the Trust Preferred
Securities.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interest in the Global Certificates among Participants of
the Depositary, the Depositary is under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
None of the Company, the Trust or any Trustee will have any responsibility for
the performance by the Depositary or its Participants or Indirect Participants
under the rules and procedures governing the Depositary. The Depositary may
discontinue providing its services as securities depositary with respect to the
Trust Preferred Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depositary is
not obtained, Trust Preferred Securities certificates are required to be printed
and delivered to holders. Additionally, the Regular Trustees (with the consent
of the Company) may decide to discontinue use of the system of book-entry
transfers through the Depositary (or any successor depositary) with respect to
the Trust Preferred Securities. In that event, certificates for the Trust
Preferred Securities will be printed and delivered to holders. In each of the
above circumstances, the Company will, appoint a paying agent with respect to
the Preferred Securities.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that MCN and the
Trust believe to be reliable, but neither MCN nor the Trust takes responsibility
for the accuracy hereof.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
Payments in respect of the Trust Preferred Securities represented by the
Global Certificates shall be made to the Depositary, which shall credit the
relevant accounts at the Depositary on the applicable distribution dates or, in
the case of Certificated Securities, such payments shall be made by check mailed
to the address of the holder entitled thereto as such address shall appear on
the Register. The Paying Agent shall be permitted to resign as Paying Agent upon
30 days' written notice to the Issuer Trustees. In the event that The First
National Bank of Chicago shall no longer be the Paying Agent, the Trustee shall
appoint a successor to act as Paying Agent (which shall be a bank or trust
company).
The First National Bank of Chicago will act as registrar, transfer agent
and paying agent for the Trust Preferred Securities.
Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (the giving of
such indemnity as the Trust or the Company may require) in respect of any tax or
other government charge which may be imposed in relation to it.
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The Trust will not be required to register or cause to be registered the
transfer of Trust Preferred Securities after such Trust Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities and after the curing of any defaults that may
have occurred, undertakes to perform only such duties as are specifically set
forth in the Declaration and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Institutional Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at the
request of any holder of Trust Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The holders of Trust Preferred Securities will not be
required to offer such indemnity in the event such holders, by exercising their
voting rights, direct the Institutional Trustee to take any action it is
empowered to take under the Declaration following a Declaration Event of
Default. The Institutional Trustee also serves as trustee under the Guarantee.
GOVERNING LAW
The Declaration and the Trust Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or characterized as other than a grantor trust for
federal income tax purposes. The Company is authorized and directed to conduct
its affairs so that the Junior Subordinated Debentures will be treated as
indebtedness of the Company for federal income tax purposes. In this connection,
the Company and the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust or the
certificate of incorporation of the Company, that each of the Company and the
Regular Trustees determines in its discretion to be necessary or desirable to
achieve such end, as long as such action does not adversely affect the interests
of the holders of the Trust Preferred Securities or vary the terms thereof.
Holders of the Trust Preferred Securities have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full, to the holders of the
Trust Preferred Securities issued by the Trust, the Guarantee Payments (as
defined in the accompanying Prospectus) (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Trust Preferred Securities or by
causing the Trust to pay such amounts to such holders. The Guarantee will be
qualified as an indenture under the Trust Indenture Act. Wilmington Trust
Company will act as indenture trustee under the Guarantee. The terms of the
Guarantee will be those set forth in such Guarantee and those made part of such
Guarantee by the Trust Indenture Act. The Guarantee will be held by the
Guarantee Trustee for the benefit of the holders of the Trust Preferred
Securities. Notwithstanding the foregoing, if the Company has failed to make a
payment under the Guarantee, any holder of Trust Preferred Securities may
institute a legal proceeding directly against the Company to enforce its rights
under the Guarantee without first instituting a legal proceeding directly
against the Trust, the Guarantee Trustee or any other person or entity. A
summary description of the Guarantee appears in the accompanying Prospectus
under the caption "Description of the Preferred Securities Guarantees."
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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Junior
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Trust Securities. This description supplements the
description of the general terms and provisions of the Junior Subordinated
Debentures set forth in the accompanying Prospectus under the caption
"Particular Terms of the Subordinated Debt Securities." The following
description does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the description in the accompanying Prospectus
and the Subordinated Debt Securities Indenture, dated as of September 1, 1994
(as supplemented by the First Supplemental Indenture, dated April 17, 1996, and
the Second Supplemental Indenture, dated July 24, 1996, as so supplemented, the
"Base Indenture") between the Company and NBD Bank, N.A. (now known as NBD Bank,
a Michigan banking corporation), as Trustee (the "Debt Trustee"), as
supplemented by a Third Supplemental Indenture, dated as of March 19, 1997 (the
Base Indenture, as so supplemented, is hereinafter referred to as the
"Indenture"). Certain capitalized terms used herein are defined in the
Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Junior Subordinated Debentures may
be distributed to the holders of the Trust Securities in liquidation of the
Trust. See "Description of the Trust Preferred Securities -- Special Event
Distribution."
GENERAL
The Junior Subordinated Debentures will be issued as unsecured debt under
the Indenture. The Junior Subordinated Debentures will be limited in aggregate
principal amount to $118,556,750, such amount being the sum of the aggregate
stated liquidation amount of the Trust Preferred Securities and the capital
contributed by the Company in exchange for the Common Securities (the "Company
Payment").
The Junior Subordinated Debentures are not subject to a sinking fund
provision. The entire principal amount of the Junior Subordinated Debentures
will mature and become due and payable, together with any accrued and unpaid
interest thereon including Compound Interest (as defined herein) and Additional
Interest (as defined herein), if any, on May 16, 2002.
If Junior Subordinated Debentures are distributed to holders of Trust
Preferred Securities in liquidation of such holders' interests in the Trust,
such Junior Subordinated Debentures will initially be issued as a Global
Security (as defined herein). As described herein, under certain limited
circumstances, Junior Subordinated Debentures may be issued in certificated form
in exchange for a Global Security. See "-- Book-Entry and Settlement" below. In
the event that Junior Subordinated Debentures are issued in certificated form,
such Junior Subordinated Debentures will be in denominations of $50 and integral
multiples thereof and may be transferred or exchanged at the offices described
below. Payments on Junior Subordinated Debentures issued as a Global Security
will be made to the Depositary, a successor depositary or, in the event that no
depositary is used, to a Paying Agent for the Junior Subordinated Debentures. In
the event Junior Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Junior Subordinated
Debentures will be registrable and Junior Subordinated Debentures will be
exchangeable for Junior Subordinated Debentures of other denominations of a like
aggregate principal amount at the corporate trust office of the Institutional
Trustee in Wilmington, Delaware; provided, that at the option of the Company,
payment of interest may be made by check mailed to the address of the holder
entitled thereto or by wire transfer to an account appropriately designated by
the holder entitled thereto. Notwithstanding the foregoing, so long as the
holder of any Junior Subordinated Debentures is the Institutional Trustee, the
payment of principal and interest on the Junior Subordinated Debentures held by
the Institutional Trustee will be made at such place and to such account as may
be designated by the Institutional Trustee.
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction involving the Company.
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SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinated and junior in right of payment to all Senior Indebtedness of the
Company and pari passu with Company trade creditors and other junior
subordinated debentures issued by the Company. No payment of principal, premium,
if any, or interest on the Junior Subordinated Debentures may be made if (i) any
Senior Indebtedness of the Company is not paid when due, (ii) any applicable
grace period with respect to such default has ended and such default has not
been cured or waived or ceased to exist, or (iii) the maturity of any Senior
Indebtedness of the Company has been accelerated because of a default. Upon any
distribution of assets of the Company to creditors upon any dissolution,
winding-up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other proceedings, all principal,
premium, if any, and interest due or to become due on all Senior Indebtedness of
the Company must be paid in full before the holders of Junior Subordinated
Debentures are entitled to receive or retain any payment. Upon satisfaction of
all claims of all Senior Indebtedness then outstanding, the rights of the
holders of the Junior Subordinated Debentures will be subrogated to the rights
of the holders of Indebtedness of the Company to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Junior Subordinated Debentures are paid in full.
The term "Senior Indebtedness" means the principal of and premium, if any,
and interest on the following, whether outstanding on the date of execution of
the Subordinated Debt Securities Indenture or thereafter incurred or created:
(i) indebtedness of the Company for money borrowed by the Company (including
purchase money obligations with an original maturity in excess of one year) or
evidenced by debentures (other than the Subordinated Debt Securities), notes,
bankers' acceptances or other corporate debt securities or similar instruments
issued by the Company; (ii) obligations with respect to letters of credit; (iii)
indebtedness of the Company constituting a guarantee of indebtedness of others
of the type referred to in the preceding clauses (i) and (ii); or (iv) renewals,
extensions or refundings of any of the indebtedness referred to in the preceding
clauses (i), (ii) and (iii) unless, in the case of any particular indebtedness,
renewal, extension or refunding, under the express provisions of the instrument
creating or evidencing the same, or pursuant to which the same is outstanding,
such indebtedness or such renewal extension or refunding thereof is not superior
in right of payment to the Subordinated Debt Securities. In November 1994, MCN
issued approximately $101 million Series A Subordinated Deferrable Interest Debt
Securities to MCN Michigan Limited Partnership that rank pari passu with the
Junior Subordinated Debentures and in July 1996, MCN issued approximately $82
million of junior subordinated debentures due July 30, 2036 (the "8 5/8%
Debentures") to MCN Financing I that also rank pari passu with the Junior
Subordinated Debentures.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company. As of December 31, 1996, Senior Indebtedness
of the Company aggregated approximately $1,673 million.
INTEREST
Each Junior Subordinated Debenture shall bear interest at the rate of
7 1/4% per annum from the original date of issuance, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (each an
"Interest Payment Date"), commencing June 30, 1997, to the person in whose name
such Junior Subordinated Debenture is registered, subject to certain exceptions,
at the close of business on the Business Day next preceding such Interest
Payment Date. In the event the Junior Subordinated Debentures shall not continue
to remain in book-entry only form, the Company shall have the right to select
record dates, which shall be at least one Business Day prior to the Interest
Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed,
will be computed on the basis of the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a
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Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, then such payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such date.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed a number of changes to federal income tax
laws. One proposal would treat as equity, for U.S. federal income tax purposes,
debt instruments with a maximum term of more than 15 years that are not shown as
indebtedness on the issuer's consolidated balance sheet. Another proposal would
preclude the issuer from deducting interest on debt instruments payable in stock
of the issuer. A debt instrument would be treated as payable in stock of the
issuer if it were part of an arrangement designed to result in payment of debt
with such stock, such as certain issuances of a forward contract in connection
with the issuance of debt. Neither proposal, if enacted into law in its current
form, would be effective for debt instruments issued prior to the date of first
Congressional committee action. There can be no assurance, however, that
legislation enacted after the date hereof will not adversely affect the tax
treatment of the Junior Subordinated Debentures or cause a Tax Event, resulting
in the distribution of the Junior Subordinated Debentures to holders of Trust
Preferred Securities. See "Description of the Trust Preferred Securities --
Special Event Distribution."
REDEMPTION
The Company will not have the ability to redeem the Junior Subordinated
Debentures prior to the stated maturity date.
PUT OPTION
In accordance with the terms of the Junior Subordinated Debentures, holders
have the right to require the Company to repurchase, on the Purchase Contract
Settlement Date, either in whole or in part, the Junior Subordinated Debentures
in an amount per Junior Subordinated Debenture equal to $50, plus accumulated
and unpaid distributions, if any. Upon the repurchase of the Junior Subordinated
Debentures by the Company pursuant to a Put Option, (i) the proceeds from such
repurchase shall simultaneously be applied to redeem Trust Preferred Securities
of such holder having an aggregate Stated Amount equal to the aggregate
principal amount of the Junior Subordinated Debentures so repurchased and will
be applied to satisfy in full such holder's obligation to purchase Common Stock
under the Purchase Contract and (ii) any accumulated and unpaid distributions
with respect to the Junior Subordinated Debentures so repurchased will be paid
to such holder in cash. See "Description of Purchase Contracts -- General."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time, during
the term of the Junior Subordinated Debentures, to defer payments of interest by
extending the interest payment period for a period not extending, in the
aggregate, beyond the maturity date of the Junior Subordinated Debentures. At
the end of any Extension Period, the Company shall pay all interest then accrued
and unpaid (including any Additional Interest, as herein defined) together with
interest thereon compounded quarterly at the rate specified for the Junior
Subordinated Debentures to the extent permitted by applicable law ("Compound
Interest"); provided, that during any such Extension Period, (a) the Company
shall not declare or pay dividends on, make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to any of
its capital stock (other than (i) purchases or acquisitions of shares of the
Company Common Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by MCN of its
obligations pursuant to any contract or security outstanding on the date of such
event requiring MCN to purchase shares of MCN Common Stock, (ii) as a result of
a reclassification of the Company capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company capital stock or (iii) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such the Company capital stock or the security being converted or
exchanged) or make any guarantee payments with respect to the foregoing), (b)
the Company shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by the Company that rank pari passu with or junior to the
Junior Subordinated Debentures, and (c) the Company
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shall not make any guarantee payments with respect to the foregoing (other than
pursuant to the Trust Preferred Securities Guarantee). Prior to the termination
of any such Extension Period, the Company may further defer payments of interest
by extending the interest payment period; provided, however, that such Extension
Period, including all such previous and further extensions, may not extend
beyond the maturity date of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may commence a new Extension Period, subject to the terms set forth in
this section. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company has no present intention of exercising
its right to defer payments of interest by extending the interest payment period
on the Junior Subordinated Debentures. If the Institutional Trustee shall be the
sole holder of the Junior Subordinated Debentures, the Company shall give the
Regular Trustees and the Institutional Trustee notice of its selection of such
Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Trust Preferred Securities are payable or (ii) the date the
Regular Trustees are required to give notice, if applicable, to the New York
Stock Exchange (or other applicable self-regulatory organization) or to holders
of the Trust Preferred Securities of the record date or the date such
distribution is payable. The Regular Trustees shall give notice of the Company's
selection of such Extension Period to the holders of the Trust Preferred
Securities. If the Institutional Trustee shall not be the sole holder of the
Junior Subordinated Debentures, the Company shall give the holders of the Junior
Subordinated Debentures notice of its selection of such Extension Period ten
Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the
date upon which the Company is required to give notice, if applicable, to the
New York Stock Exchange (or other applicable self-regulatory organization) or to
holders of the Junior Subordinated Debentures of the record or payment date of
such related interest payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company will pay as additional interest ("Additional Interest")
on the Junior Subordinated Debentures such additional amounts as shall be
required so that the net amounts received and retained by the Trust after paying
any such taxes, duties, assessments or other governmental charges will be not
less than the amounts the Trust would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Junior Subordinated Debentures, will
have the right to declare the principal of and the interest on the Junior
Subordinated Debentures (including any Compound Interest and Additional
Interest, if any) and any other amounts payable under the Indenture to be
forthwith due and payable and to enforce its other rights as a creditor with
respect to the Junior Subordinated Debentures. See "Particular Terms of the
Subordinated Debt Securities -- Events of Default and Notice Thereof" in the
accompanying Prospectus for a description of the Events of Default. An Indenture
Event of Default also constitutes a Declaration Event of Default. The holders of
Trust Preferred Securities in certain circumstances have the right to direct the
Institutional Trustee to exercise its rights as the holder of the Junior
Subordinated Debentures. See "Description of the Trust Preferred
Securities -- Declaration Events of Default" and "-- Voting Rights."
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Junior Subordinated Debentures on the date such
interest or principal is otherwise payable, MCN acknowledges that a holder of
Trust Preferred Securities may directly institute a proceeding for enforcement
of payment to such holder directly of the principal of and interest on the
Junior Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Trust Preferred Securities of such holder on or after
the respective due date specified in the Junior Subordinated Debentures.
Notwithstanding any payments made to such holder of Trust Preferred Securities
by the Company in connection with a Direct Action, the Company shall remain
obligated to pay the principal of or interest on the Junior Subordinated Debt
Securities held by the Trust or the Institutional Trustee of the Trust, and the
Company shall be subrogated to the rights of the holder of such Trust Preferred
Securities with respect to payments on the Trust Preferred Securities to the
extent of any payments made by the Company to
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such holder in any Direct Action. The holders of Trust Preferred Securities will
not be able to exercise directly any other remedy available to the holders of
the Junior Subordinated Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Trust Preferred Securities in connection with
the involuntary or voluntary dissolution, winding-up or liquidation of the Trust
as a result of the occurrence of a Special Event, the Junior Subordinated
Debentures will be issued in the form of one or more global certificates (each a
"Global Security") registered in the name of the Depositary or its nominee.
Except under the limited circumstances described below, Junior Subordinated
Debentures represented by the Global Security will not be exchangeable for, and
will not otherwise be issuable as, Junior Subordinated Debentures in definitive
form. The Global Securities described above may not be transferred except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or to a successor depositary
or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Debentures in definitive form and will not be considered the
holders (as defined in the Indenture) thereof for any purpose under the
Indenture, and no Global Security representing Junior Subordinated Debentures
shall be exchangeable, except for another Global Security of like denomination
and tenor to be registered in the name of the Depositary or its nominee or to a
successor Depositary or its nominee. Accordingly, each Beneficial Owner must
rely on the procedures of the Depositary or if such person is not a Participant,
on the procedures of the Participant through which such person owns its interest
to exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Junior Subordinated Debentures are distributed to holders of Trust
Preferred Securities in liquidation of such holders' interests in the Trust, the
Depositary will act as securities depositary for the Junior Subordinated
Debentures. For a description of the Depositary and the specific terms of the
depositary arrangements, see "Description of the Trust Preferred
Securities -- Book-Entry Only Issuance -- The Depository Trust Company." As of
the date of this Prospectus Supplement, the description therein of the
Depositary's book-entry system and the Depositary's practices as they relate to
purchases, transfers, notices and payments with respect to the Trust Preferred
Securities apply in all material respects to any debt obligations represented by
one or more Global Securities held by the Depositary. The Company may appoint a
successor to the Depositary or any successor depositary in the event the
Depositary or such successor depositary is unable or unwilling to continue as a
depositary for the Global Securities.
None of the Company, the Trust, the Institutional Trustee, any paying agent
and any other agent of the Company or the Debt Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Junior Subordinated Debentures or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) the Company, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred an Event of Default with respect to such Junior Subordinated
Debentures. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Junior Subordinated Debentures registered in
such names as the Depositary shall direct. It is expected that such instructions
will be based upon directions received by the Depositary from its Participants
with respect to ownership of beneficial interests in such Global Security.
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GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Junior Subordinated Debentures, (ii) the
organization, maintenance and dissolution of the Trust, (iii) the retention of
the Company Trustees and (iv) the enforcement by the Institutional Trustee of
the rights of the holders of the Trust Preferred Securities. The payment of such
fees and expenses will be fully and unconditionally guaranteed by the Company.
EFFECT OF OBLIGATIONS UNDER THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the Junior
Subordinated Debentures and engage in only those other activities necessary or
incidental thereto.
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Junior Subordinated Debentures
will be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Junior Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the Trust Preferred Securities; (iii)
MCN shall pay all, and the Trust shall not be obligated to pay, directly or
indirectly, all costs, expenses, debt, and obligations of the Trust (other than
with respect to the Trust Securities); and (iv) the Declaration further provides
that the MCN Trustees shall not take or cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Trust Preferred Securities (to the extent funds
therefor are available) are guaranteed by MCN as and to the extent set forth
under "Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. If MCN does not make interest payments on the Junior Subordinated
Debentures purchased by the Trust, it is expected that the Trust will not have
sufficient funds to pay distributions on the Trust Preferred Securities. The
Guarantee does not apply to any payment of distributions unless and until the
Trust has sufficient funds for the payment of such distributions. The Guarantee
covers the payment of distributions and other payments on the Trust Preferred
Securities only if and to the extent that MCN has made a payment of interest or
principal on the Junior Subordinated Debentures held by the Trust as its sole
asset.
If MCN fails to make interest or other payments on the Junior Subordinated
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Trust Preferred Securities --
Book-Entry Only Issuance -- The Depository Trust Company" and "-- Voting
Rights," may direct the Institutional Trustee to enforce its rights under the
Junior Subordinated Debentures. If the Institutional Trustee fails to enforce
its rights under the Junior Subordinated Debentures, a holder of Trust Preferred
Securities may institute a legal proceeding against MCN to enforce the
Institutional Trustee's rights under the Junior Subordinated Debentures without
first instituting any legal proceeding against the Institutional Trustee or any
other person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of MCN to pay interest or principal on the Junior Subordinated
Debentures on the date such interest or principal is otherwise payable, then a
holder of Trust Preferred Securities may directly institute a proceeding against
the Company for payment. MCN, under the Guarantee, acknowledges that the
Guarantee Trustee shall enforce the Guarantee on behalf of the holders of
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<PAGE> 49
the Trust Preferred Securities. If MCN fails to make payments under the
Guarantee, the Guarantee provides a mechanism whereby the holders of the Trust
Preferred Securities may direct the Guarantee Trustee to enforce its rights
thereunder. Notwithstanding the foregoing, if the Company has failed to make a
payment under the Guarantee, any holder of Trust Preferred Securities may
institute a legal proceeding directly against MCN to enforce its rights under
the Guarantee without first instituting a legal proceeding against the Trust,
the Guarantee Trustee, or any other person or entity.
The Guarantee, when taken together with MCN's obligations under the Junior
Subordinated Debentures and the Indenture and its obligations under the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
provide a full and unconditional guarantee of amounts due on the Trust Preferred
Securities. See "Description of the Preferred Securities Guarantees -- General"
in the accompanying Prospectus.
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<PAGE> 50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States
("U.S.") federal income tax consequences of the purchase, ownership and
disposition of Income PRIDES, Trust Preferred Securities and Growth PRIDES. The
summary represents the opinion of Skadden, Arps, Slate, Meagher & Flom LLP
("Special Tax Counsel"), special tax counsel to the Company, insofar as it
relates to matters of law and legal conclusions. Unless otherwise stated, the
summary deals only with holders who purchase Income PRIDES upon their original
issuance for an amount equal to the Stated Amount of the Trust Preferred
Securities and who hold the Income PRIDES, or upon the substitution of Treasury
Securities, the Growth PRIDES and Trust Preferred Securities, as capital assets.
The summary does not address the federal income tax consequences of the
purchase, ownership or disposition of Treasury Securities. The summary deals
only with holders who are citizens or residents of the U.S., corporations,
partnerships or other entities organized in or under the laws of the U.S. or any
political subdivision thereof, or estates or trusts defined in Section
7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"). The
summary does not address the tax considerations applicable to investors that may
be subject to special U.S. federal income tax treatment, such as dealers in
securities, persons holding the Income PRIDES, Growth PRIDES or Trust Preferred
Securities as part of a "straddle" or a "conversion transaction" for U.S.
federal income tax purposes or as part of a synthetic security or other
integrated investment, or persons who have a functional currency other than the
U.S. dollar, and does not address the tax consequences under state, local or
foreign law. The summary is based upon the Code, Treasury regulations thereunder
and administrative and judicial interpretations thereof as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
No statutory, judicial or administrative authority directly addresses the
characterization of the FELINE PRIDES or instruments similar to the FELINE
PRIDES for U.S. federal income tax purposes. As a result, no assurance can be
given that the IRS will agree with the tax consequences described herein.
ACCORDINGLY, A PROSPECTIVE INVESTOR (INCLUDING A TAX-EXEMPT INVESTOR) IN THE
FELINE PRIDES SHOULD CONSULT ITS TAX ADVISOR IN DETERMINING THE TAX CONSEQUENCES
OF AN INVESTMENT IN THE FELINE PRIDES, INCLUDING THE APPLICATION OF STATE,
LOCAL, FOREIGN OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Trust Preferred Securities, Special
Tax Counsel will render an opinion generally to the effect that, under current
law and assuming full compliance with the terms of the Declaration, the
Indenture, and certain other documents, and based upon certain facts and
assumptions contained in such opinion, the Trust will be classified, for U.S.
federal income tax purposes, as a grantor trust and not as an association
taxable as a corporation. Accordingly, for U.S. federal income tax purposes,
each holder of Trust Preferred Securities generally will be treated as the owner
of an undivided beneficial interest in the Junior Subordinated Debentures and,
as further discussed below, will be required to include in ordinary income such
holder's allocable share of interest or OID paid or accrued on the Junior
Subordinated Debentures.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Junior Subordinated Debentures,
Special Tax Counsel will render an opinion generally to the effect that, under
current law and assuming full compliance with the terms of the Indenture and
certain other documents, and based upon certain facts and assumptions contained
in such opinion, the Junior Subordinated Debentures to be held by the Trust will
be classified, for U.S. federal income tax purposes, as indebtedness of the
Company.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed a number of changes to federal income tax
laws. One proposal would treat as equity, for U.S. federal income tax purposes,
debt instruments with a maximum term of more than 15 years that are not shown as
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<PAGE> 51
indebtedness on the issuer's consolidated balance sheet. Another proposal would
preclude the issuer from deducting interest on debt instruments payable in stock
of the issuer. A debt instrument would be treated as payable in stock of the
issuer if it were part of an arrangement designed to result in payment of debt
with such stock, such as certain issuances of a forward contract in connection
with the issuance of debt. Neither proposal, if enacted into law in its current
form, would be effective for debt instruments issued prior to the date of first
Congressional committee action. There can be no assurance, however, that
legislation enacted after the date hereof will not adversely affect the tax
treatment of the Junior Subordinated Debentures or cause a Tax Event, resulting
in the distribution of the Junior Subordinated Debentures to holders of Trust
Preferred Securities. See "Description of the Trust Preferred Securities --
Special Event Distribution."
INITIAL TAX BASIS IN TRUST PREFERRED SECURITY AND PURCHASE CONTRACT
The purchase price of each Income PRIDES will be allocated between the
Trust Preferred Security and the Purchase Contract included in a Income PRIDES
in proportion to their respective fair market values at the time of purchase.
Such allocation will establish the Holder's initial tax basis in the Trust
Preferred Security and Purchase Contract.
The Company intends to take the position that, at the time of issuance of
the Income PRIDES, the fair market value of each Trust Preferred Security equals
its Stated Amount and the fair market value of each Purchase Contract equals
zero. As a result, a holder should allocate the entire purchase price for a
Income PRIDES (i.e., the Stated Amount of a Trust Preferred Security) to the
Trust Preferred Security and should not allocate any portion of the purchase
price to the Purchase Contract. The Company's position will be binding upon each
holder unless the holder explicitly discloses a contrary position on a statement
attached to the holder's timely filed U.S. federal income tax return for the
taxable year in which the Income PRIDES is acquired.
DISTRIBUTIONS ON TRUST PREFERRED SECURITIES
Under applicable Treasury regulations, a debt instrument will be issued
with OID if there is more than a remote contingency that periodic stated
interest payments due on the instrument will not be timely paid. Because the
exercise by the Company of its option to defer the payment of stated interest on
the Junior Subordinated Debentures would, among other things, prevent the
Company from declaring dividends on any of its capital stock, the Company
believes that the likelihood of its exercising the option is remote within the
meaning of such regulations. As a result, the Company intends to take the
position, based upon the advice of Special Tax Counsel, that the Junior
Subordinated Debentures will not be issued with OID. Accordingly, based upon
this position, a holder of Trust Preferred Securities will include stated
interest payments on the Junior Subordinated Debentures in ordinary income at
the time that such payments are paid or accrued, in accordance with such
holder's regular method of accounting. Because such regulations have not yet
been addressed in any published rulings or other published interpretations
issued by the IRS, it is possible that the IRS could take a position contrary to
the position taken by the Company.
If the Company were to exercise its option to defer the payment of stated
interest on the Junior Subordinated Debentures, the Junior Subordinated
Debentures would be treated, solely for purposes of the OID rules, as being
re-issued at such time with OID. Under these rules, a holder of Trust Preferred
Securities would be required to include OID in ordinary income, on a current
basis, over the period that the Trust Preferred Securities are held even though
the Company would not make actual cash payments during the extended interest
payment period. The amount of OID includible in the taxable income of a holder
of Trust Preferred Securities would be determined on the basis of a constant
yield method over the remaining term of the instrument, and the actual payment
of stated interest on the Junior Subordinated Debentures would not be separately
reported as taxable income. The amount of OID that would accrue, in the
aggregate, during an extended interest payment period would approximately equal
the amount of the cash payment due at the end of such period. Any OID included
in income would increase such holder's tax basis in the Trust Preferred Security
and actual payments of stated interest would reduce such tax basis.
Because income on the Trust Preferred Securities will constitute interest
for U.S. federal income tax purposes, corporate holders of Trust Preferred
Securities will not be entitled to a dividends-received deduction in respect of
such income.
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CONTRACT ADJUSTMENT PAYMENTS
There is no authority for the treatment of the Contract Adjustment Payments
under current law. For U.S. federal income tax information reporting purposes,
the Company intends to report the Contract Adjustment Payments and the Deferred
Contract Adjustment Payments (if any) in the taxable year in which they are paid
to holders. The Company intends to take the position that the Contract
Adjustment Payments constitute taxable income to holders when received or
accrued, in accordance with the holder's regular method of accounting. Holders
should consult their respective tax advisors concerning the treatment of the
Contract Adjustment Payments and Deferred Contract Adjustment Payments,
including the possibility that the receipt of a Contract Adjustment Payments may
be treated as a loan, purchase price adjustment, rebate or option premium rather
than being includible in income on a current basis. The Company does not intend
to deduct the Contract Adjustment Payments or Deferred Contract Adjustment
Payments because it views them as a cost of issuing the Common Stock. Contract
Adjustment Payments and Deferred Contract Adjustment Payments received by a
regulated investment company should be treated as income derived with respect to
such company's business of investing in stocks and securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES UPON LIQUIDATION OF THE TRUST
If the Company exercises its right to liquidate the Trust and cause the
Junior Subordinated Debentures to be distributed, on a pro rata basis, to
holders of Trust Preferred Securities (or to the Collateral Agent on behalf of
such holders), such distribution would not be taxable to such holders. In such
event, each holder of Trust Preferred Securities would have a tax basis in the
Junior Subordinated Debentures received in the liquidation equal to the tax
basis in the holder's Trust Preferred Securities surrendered therefor, and the
holding period of such Junior Subordinated Debentures would include the period
during which the holder had held the Trust Preferred Securities. If, however,
the Trust is classified, for U.S. federal income tax purposes, as an association
taxable as a corporation at the time of such liquidation, the distribution of
Junior Subordinated Debentures would constitute a taxable event to holders of
Trust Preferred Securities.
POSTING OF TREASURY SECURITIES TO CREATE GROWTH PRIDES
A holder of an Income PRIDES that chooses to substitute a Treasury Security
for Trust Preferred Securities held by the Collateral Agent generally will not
recognize taxable gain or loss upon release of the Trust Preferred Securities to
the holder, and the holder's tax basis in the Trust Preferred Securities and
Purchase Contract will remain unchanged. In general, the substitution of the
Treasury Security should not constitute a taxable event (except with respect to
a holder who, because of the holder's particular tax status or the circumstances
under which the holder holds the Treasury Security, may be subject to tax, such
as a person who holds the Treasury Security as part of a "straddle" or a
"conversion transaction" for U.S. federal income tax purposes). Such holder will
continue to include in income any OID or market discount or amortize any bond
premium otherwise includible or deductible, respectively, by such holder with
respect to such Treasury Security. Holders should consult their respective tax
advisors concerning the tax consequences of purchasing, owning and disposing of
Treasury Securities.
POSTING OF TRUST PREFERRED SECURITIES TO RECREATE INCOME PRIDES
A holder of a Growth PRIDES that delivers Trust Preferred Securities to the
Collateral Agent generally will not recognize taxable gain or loss upon release
of the Treasury Security to the holder.
SALE OR DISPOSITION
A holder generally will recognize gain or loss upon the sale or other
disposition of an Income PRIDES, a Growth PRIDES or a Trust Preferred Security
(including a redemption of a Trust Preferred Security by the Trust). In the case
of an Income PRIDES or a Growth PRIDES, such gain or loss will be separately
calculated with respect to the Trust Preferred Security or Treasury Security, as
the case may be, and the related Purchase Contract by allocating the sum of any
cash and the fair market value of any property received upon the sale or other
disposition between the two components in proportion to their respective fair
market
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<PAGE> 53
values. The amount of gain or loss with respect to each component generally
should equal the difference between the consideration so allocated to each
component (reduced by any amount attributable to accrued interest or Contract
Adjustment Payments, which will be taxable as described above) and the holder's
tax basis in the respective components. In the case of a Trust Preferred
Security, the amount of gain or loss will equal the difference between the sum
of any cash and the fair market value of any property received upon the sale or
other disposition of such Trust Preferred Security (reduced by any amount
attributable to accrued interest or Contract Adjustment Payments, which will be
taxable as described above) and the holder's tax basis in the Trust Preferred
Security. Any such gain or loss generally will be capital gain or loss and will
be long-term capital gain or loss (determined separately for each component of
an Income PRIDES or a Growth PRIDES and for a Trust Preferred Security) if the
holder held the respective component of the Income PRIDES or Growth PRIDES or
the Trust Preferred Security, as the case may be, for more than one year at the
time of such sale or disposition.
PURCHASE OF COMMON STOCK UNDER PURCHASE CONTRACT
A holder of an Income PRIDES that directs the Trust to put its Junior
Subordinated Debenture to the Company on the Purchase Contract Settlement Date
will not recognize taxable gain or loss upon the exercise of such Put Option
because the holder's tax basis in its Trust Preferred Security should equal the
amount received (the Stated Amount) and be automatically applied to the holder's
purchase of the Common Stock. A holder of an Income PRIDES will not recognize
taxable gain or loss upon the tender of cash to settle the Purchase Contract and
the release of the Trust Preferred Security to such holder. A holder of a Growth
PRIDES will not recognize taxable gain or loss upon the tender of cash to settle
the Purchase Contract early and the release of the Treasury Securities to such
holder. A holder of a Growth PRIDES will recognize taxable gain or loss upon the
automatic application of the Treasury Security to settle the Purchase Contract
on the Purchase Contract Settlement Date equal to the difference, if any,
between the fair market value of the Treasury Security automatically applied to
purchase the Common Stock and the holder's tax basis in such Treasury Security.
A holder's tax basis in the Common Stock will equal the purchase price for
such Common Stock plus the holder's tax basis, if any, in the Purchase Contract.
The holding period for the Common Stock will begin on the day after the purchase
of such Common Stock.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER PURCHASE CONTRACT
Assuming that the Company has current or accumulated earnings and profits,
for U.S. federal income tax purposes, at least equal to the amount of any
dividend, a holder of Common Stock will include such a dividend in income when
paid, and the dividend will be eligible for the dividends-received deduction if
received by an otherwise qualifying corporate holder that meets the holding
period and other requirements for such deduction.
Upon the sale or other disposition of the Common Stock, a holder will
recognize gain or loss equal to the difference between the amount of cash and
fair market value of any property received and the holder's tax basis in such
Common Stock. Any such gain or loss generally will be capital gain or loss and
will be long-term capital gain or loss if the holder held the Common Stock for
more than one year at the time of such sale or disposition.
ADJUSTMENT OF SETTLEMENT RATE
Holders of Income PRIDES or Growth PRIDES might be treated as receiving a
constructive distribution from the Company if (i) the Settlement Rate is
adjusted and, as a result of such adjustment, the proportionate interest of such
holders in the assets or earnings and profits of the Company is increased, and
(ii) the adjustment is not made pursuant to a bona fide, reasonable antidilution
formula. An adjustment in the Settlement Rate would not be considered made
pursuant to such a formula if the adjustment were made to compensate for certain
taxable distributions with respect to the Common Stock. Thus, although not
currently anticipated, under certain circumstances, an increase in the
Settlement Rate may be taxable to holders of Income PRIDES and Growth PRIDES as
a dividend to the extent of the current accumulated earnings and profits of the
Company. Each Holder would be required to include its allocable share of such
constructive dividend in gross income but would not receive any cash related
thereto.
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<PAGE> 54
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Trust and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc, Smith Barney Inc. and Ladenburg Thalmann &
Co. Inc., who are acting as representatives (the "Representatives") for the
underwriters named below (the "Underwriters"), the Company and the Trust have
agreed to sell to the Underwriters, and each of the Underwriters severally has
agreed to purchase from the Company and the Trust, the number of Income PRIDES
set forth opposite each Underwriter's name. In the Underwriting Agreement, the
several Underwriters severally have agreed, subject to the terms and conditions
set forth therein, to purchase all of the Income PRIDES offered hereby if any of
the Income PRIDES are purchased. In the event of default by an Underwriter, the
Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS INCOME PRIDES
------------ -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 325,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 325,000
Salomon Brothers Inc ....................................... 325,000
Smith Barney Inc. .......................................... 325,000
Ladenburg Thalmann & Co. Inc. .............................. 325,000
Dean Witter Reynolds Inc. .................................. 150,000
A.G. Edwards & Sons, Inc. .................................. 150,000
PaineWebber Incorporated.................................... 150,000
Robert W. Baird & Co. Incorporated.......................... 75,000
First of Michigan Corporation............................... 75,000
Roney & Co., LLC............................................ 75,000
---------
Total.......................................... 2,300,000
=========
</TABLE>
The Representatives have advised the Company and the Trust that they
propose initially to offer the Income PRIDES to the public at the public
offering price set forth on the cover page of this Prospectus Supplement and to
certain dealers at such price less a concession not in excess of $.88 per Income
PRIDES. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $.10 per Income PRIDES on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
Until the distribution of the Securities is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
any selling group members to bid for and purchase the Securities or shares of
Common Stock. As an exception to these rules, the Representatives are permitted
to engage in certain transactions that stabilize the price of the Securities or
the Common Stock. Such transactions consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the Securities or the Common
Stock.
If the Underwriters create a short position in the Securities in connection
with the Offering, i.e., if they sell more Securities than are set forth on the
cover page of this Prospectus, the Representatives may reduce that short
position by purchasing Securities in the open market. The Representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described below.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
Securities in the open market to reduce the Underwriters' short position or to
stabilize the price of the Securities, they may reclaim the amount of the
selling concession from the Underwriters and any selling group members who sold
those Securities as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition
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<PAGE> 55
of a penalty bid might also have an effect on the price of a security to the
extent that it were to discourage resales of the security.
Neither the Company, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities or the
Common Stock. In addition, neither the Company, the Trust nor any of the
Underwriters makes any representation that the Representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The Company and the Trust have granted to the Underwriters an option,
exercisable for 30 days following the date of this Prospectus Supplement, to
purchase up to an aggregate of additional 345,000 Income PRIDES from the Company
and the Trust, at the price to the public set forth on the cover page of this
Prospectus Supplement, less the underwriting discount. The Underwriters may
exercise this option only to cover over-allotments, if any, made on the sale of
the Income PRIDES offered hereby. If the Underwriters exercise their
over-allotment option, each of the Underwriters has severally agreed, subject to
certain conditions, to effect the foregoing transactions with respect to
approximately the same percentage of such Income PRIDES that the respective
number of Income PRIDES set forth opposite its name in the foregoing table bears
to the Income PRIDES offered hereby.
The Company and the Trust have agreed, for a period of 90 days after the
date of this Prospectus Supplement, to not, without the prior written consent of
Merrill Lynch, Pierce, Fenner and Smith Incorporated, directly or indirectly,
sell, offer to sell, grant any option for the sale of, or otherwise dispose of,
or enter into any agreement to sell, any Income PRIDES, Purchase Contracts,
Trust Originated Preferred Securities or Common Stock, as the case may be, or
any securities of the Company similar to the Income PRIDES, Purchase Contracts,
Trust Originated Preferred Securities or Common Stock or any security
convertible into or exchangeable or exercisable for Income PRIDES, Purchase
Contracts, Trust Originated Preferred Securities or Common Stock other than to
the Underwriters pursuant to the Underwriting Agreement, other than shares of
Common Stock or options for shares of Common Stock issued pursuant to or sold in
connection with any employee benefit, dividend reinvestment and stock option and
stock purchase plans of the Company and its subsidiaries and other than the
Growth PRIDES or shares of Common Stock issuable upon early settlement of the
Income PRIDES or exercise of stock options.
Prior to this offering, there has been no public market for the Income
PRIDES. The public offering price for the Income PRIDES was determined in
negotiations between the Company, the Trust and the Representatives. In
determining the terms of the Income PRIDES, including the public offering price,
the Company, the Trust and the Representatives considered the market price of
the Company's Common Stock and also considered the Company's recent results of
operations, the future prospects of the Company and the industry in general,
market prices and terms of, and yields on, securities of other companies
considered to be comparable to the Company and prevailing conditions in the
securities markets. Application has been made to list the Income PRIDES on the
NYSE under the symbol "MCN prI." The Growth PRIDES and the Trust Preferred
Securities will not be listed or traded on any securities exchange. The Company
and the Trust have been advised by the Representatives that they presently
intend to make a market for the Growth PRIDES and the Trust Preferred
Securities; however, they are not obligated to do so and any market making may
be discontinued at any time. There can be no assurance that an active trading
market will develop for the Income PRIDES, the Growth PRIDES or the Trust
Preferred Securities or that the Income PRIDES will trade in the public market
subsequent to the offering at or above the initial public offering price.
The Company has agreed to indemnify the Underwriters against, or to
contribute to payments that the Underwriters may be required to make in respect
of, certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, MCN and its subsidiaries in the ordinary
course of business.
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LEGAL MATTERS
The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof, the Indenture, the Guarantee, the Junior Subordinated
Debentures and certain matters relating thereto will be passed upon for MCN by
Daniel L. Schiffer, Esq., Senior Vice President, General Counsel and Secretary
of MCN. Certain matters will be passed upon for the Company and the Trust by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, which has also
acted as special tax counsel for the Company in connection with the Securities.
Certain matters of Delaware law relating to the validity of the Trust Preferred
Securities will be passed upon on behalf of the Trust by Skadden, Arps, Slate,
Meagher & Flom (Delaware), special Delaware counsel to the Trust. Certain legal
matters will be passed upon for the Underwriters by LeBoeuf, Lamb, Greene &
MacRae, L.L.P., New York, New York. Mr. Schiffer is a full-time employee and
officer of MCN and owned 23,941 shares of MCN Common Stock as of February 26,
1997. LeBoeuf, Lamb, Greene & MacRae, L.L.P., from time to time renders legal
services to the Company.
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<PAGE> 57
PROSPECTUS
$685,105,000
MCN ENERGY GROUP INC. LOGO
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
COMMON STOCK
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
------------------------
MCN FINANCING II
MCN FINANCING III
MCN FINANCING IV
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MCN ENERGY GROUP INC.
------------------------
MCN Corporation, a Michigan Corporation, doing business as MCN Energy Group
Inc., ("MCN" or the "Company") may offer, from time to time, (i) unsecured
senior debt securities (the "Senior Debt Securities") consisting of debentures,
notes or other unsecured evidences of indebtedness, (ii) unsecured subordinated
debt securities (the "Subordinated Debt Securities") consisting of debentures,
notes and other unsecured evidence of indebtedness (item (i) or (ii) above being
referred to herein as the "Debt Securities"), (iii) Common Stock, $.01 par value
("MCN Common Stock"), (iv) Stock Purchase Contracts ("Stock Purchase Contracts")
to purchase Common Stock or (v) Stock Purchase Units ("Stock Purchase Units,"
"FELINE PRIDES(SM)," "Income PRIDES(SM)" or "Growth PRIDES(SM)"), each
representing ownership of a Stock Purchase Contract and Debt Securities or
Preferred Securities (as defined below) or debt obligations of third parties,
including U.S. Treasury Securities, securing the holder's obligation to purchase
the Common Stock under the Stock Purchase Contract, in each case in one or more
series and in amounts, at prices and on terms to be determined at or prior to
the time of sale.
MCN Financing II, MCN Financing III and MCN Financing IV (each, an "MCN
Trust"), each a statutory business trust formed under the laws of the State of
Delaware, may offer, from time to time, preferred securities, which may be
designated as preferred securities or capital securities, representing undivided
beneficial interests in the assets of the respective MCN Trust ("Preferred
Securities"). The payment of periodic cash distributions ("distributions") with
respect to Preferred Securities of each of the MCN Trusts out of moneys held by
each of the MCN Trusts, and payment on liquidation, redemption or otherwise with
respect to such Preferred Securities, will be guaranteed by MCN to the extent
described herein (each a "Guarantee"). See "Description of the Preferred
Securities Guarantees" below. MCN's obligations under the Preferred Securities
Guarantees are subordinate and junior in right of payment to all other
liabilities of MCN and rank pari passu with the most senior preferred stock, if
any, issued from time to time by MCN. Subordinated Debt Securities may be issued
and sold from time to time in one or more series to an MCN Trust, or a trustee
of such MCN Trust, in connection with the investment of the proceeds from the
offering of Preferred Securities and Common Securities (as defined herein) of
such MCN Trust. The Subordinated Debt Securities purchased by an MCN Trust may
be subsequently distributed pro rata to holders of Preferred Securities and
Common Securities in connection with the dissolution of such MCN Trust upon the
occurrence of certain events as may be described in an accompanying Prospectus
Supplement.
Specific terms of the particular Subordinated Debt Securities, the
Preferred Securities and the related Preferred Securities Guarantees, together
with the Stock Purchase Contracts, the Stock Purchase Units, the MCN Common
Stock and the Senior Debt Securities, in respect of which this Prospectus is
being delivered (the "Offered Securities") will be
(Continued on next page)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March 10, 1997.
<PAGE> 58
(Continued from cover)
set forth in an accompanying Prospectus Supplement or Supplements, together with
the terms of the offering of the Offered Securities, the initial price thereof
and the net proceeds from the sale thereof. The Prospectus Supplement will set
forth with regard to the particular Offered Securities, without limitation, the
following: (i) in the case of Debt Securities, the designation, aggregate
principal amount, denomination, maturity, premium, if any, any exchange,
conversion, redemption or sinking fund provisions, interest rate (which may be
fixed or variable), the time and method of calculating interest payments, the
right of the Company, if any, to defer payment or interest on the Subordinated
Debt Securities and the maximum length of such deferral period, put options, if
any, public offering price, ranking as senior or subordinated debt, any listing
on a securities exchange and other specific terms of the offering, (ii) in the
case of MCN Common Stock, the designation, number of shares, public offering
price and other specific terms of the offering, (iii) in the case of Preferred
Securities, the designation, number of securities, liquidation preference per
security, initial public offering price, any listing on a securities exchange,
dividend rate (or method of calculation thereof), dates on which dividends shall
be payable and dates from which dividends shall accrue, any voting rights, any
redemption, exchange or sinking fund provisions, any other rights, preferences,
privileges, limitations or restrictions relating to the Preferred Securities of
a specific series and the terms upon which the proceeds of the sale of the
Preferred Securities will be used to purchase a specific series of Subordinated
Debt Securities of MCN, (iv) in the case of Stock Purchase Contracts, the
designation and number of shares of Common Stock issuable thereunder, the
purchase price of Common Stock, the date or dates on which the Common Stock is
required to be purchased by the holders of the Stock Purchase Contracts, any
periodic payments required to be made by the Company to the holders of the Stock
Purchase Contract or visa versa, and the terms of the offering and sale thereof,
and (v) in the case of Stock Purchase Units, the specific terms of the Stock
Purchase Contracts and any Debt Securities or Preferred Securities or debt
obligations of third parties securing the holder's obligation to purchase the
Common Stock under the Stock Purchase Contracts, and the terms of the offering
and sale thereof. The Offered Securities may be offered in amounts, at prices
and on terms to be determined at the time of the offering, provided, however,
that the aggregate offering price to the public of the Offered Securities will
be limited to $685,105,000.
The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol "MCN". See "Description of MCN Capital Stock -- Price
Range of MCN Common Stock and Common Stock Dividends".
MCN and/or each of the MCN Trusts may sell the Offered Securities directly,
through agents designated from time to time or through underwriters or dealers.
See "Plan of Distribution." If any agents of MCN and/or any MCN Trust or any
underwriters or dealers are involved in the sale of the Offered Securities, the
names of such agents, underwriters or dealers and any applicable commissions and
discounts will be set forth in the related Prospectus Supplement.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
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<PAGE> 59
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR DEEMED INCORPORATED BY
REFERENCE HEREIN, AND ANY INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN OR
THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MCN OR THE MCN
TRUSTS OR BY ANY AGENT, DEALER OR UNDERWRITER. THIS PROSPECTUS AND ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
AVAILABLE INFORMATION
MCN is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "1934 Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Reports, proxy statements and other information
concerning MCN can be inspected and copied at the SEC's Public Reference Room,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as the
following Regional Offices of the SEC: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, at prescribed rates. The SEC also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of such site is http://www.sec.gov. Such reports, proxy statements
and other information may also be inspected at the offices of the NYSE, on which
MCN Common Stock is traded, at 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by MCN and the MCN Trusts with the SEC under the Securities
Act of 1933, as amended (the "Securities Act") with respect to the Offered
Securities. This Prospectus does not contain all of the information set forth in
such Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to MCN, the MCN Trusts, and the Offered Securities. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the SEC or
incorporated by reference herein are not necessarily complete, and in each
instance reference is made to the copy of such document so filed for a more
complete description of the matter involved. Each such statement is qualified in
its entirety by such reference.
No separate financial statements of any of the MCN Trusts have been
included herein. MCN does not consider that such financial statements would be
material to holders of the Preferred Securities because (i) all of the voting
securities of each of the MCN Trusts will be owned, directly or indirectly, by
MCN, a reporting company under the Exchange Act, (ii) each of the MCN Trusts has
no independent operations but exists for the sole purpose of issuing securities
representing undivided beneficial interests in the assets of such MCN Trust and
investing the proceeds thereof in Subordinated Debt Securities issued by MCN,
and (iii) MCN's obligations described herein and in any accompanying prospectus
supplement under the Declarations of each Trust, the Guarantee issued with
respect to Preferred Securities issued by that Trust, the Subordinated Debt
Securities purchased by that Trust and the related Indenture, taken together,
constitute a full and unconditional guarantee of payments due on the Trust
Securities. See "Particular Terms of the Subordinated Debt Securities" and
"Description of the Preferred Securities Guarantees."
The MCN Trusts are not currently subject to the information reporting
requirements of the 1934 Act. The MCN Trusts will become subject to such
requirements upon the effectiveness of the Registration Statement, although they
intend to seek and expect to receive exemptions therefrom.
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<PAGE> 60
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by MCN (File No. 1-10070) with the SEC
pursuant to the 1934 Act are incorporated by reference herein and made a part
hereof:
1. Annual Report on Form 10-K for the year ended December 31, 1996.
2. The description of MCN's Common Stock as contained in its Form 8-B
dated September 29, 1988.
3. The description of MCN's Preferred Share Purchase Rights contained
in its Form 8-A dated December 28, 1989.
4. MCN's Current Report on Form 8-K dated January 14, 1997.
All documents filed by MCN pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the 1934 Act subsequent to the date hereof and prior to the termination of
the offering of the Offered Securities pursuant hereto shall be deemed to be
incorporated by reference in this Prospectus or in any Prospectus Supplement and
to be a part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference in this Prospectus or in any Prospectus Supplement
shall be deemed to be modified or superseded for purposes of this Prospectus or
any Prospectus Supplement to the extent that a statement contained in this
Prospectus or in any Prospectus Supplement or in any other subsequently filed
document which also is or is deemed to be incorporated by reference in this
Prospectus or in any Prospectus Supplement modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus or any
Prospectus Supplement.
MCN undertakes to provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of any such
person, a copy of any or all of the foregoing documents incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to: Investor Relations, MCN Energy Group Inc., 500 Griswold
Street, Detroit, Michigan 48226; telephone 1-800-548-4655.
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<PAGE> 61
MCN ENERGY GROUP INC.
In January 1997, MCN Corporation began doing business under the name MCN
Energy Group Inc., subject to shareholder approval to be sought at the Company's
1997 Annual Shareholders' Meeting. The name change reflects the company's growth
during the past five years into a diversified energy company. MCN Energy Group
Inc. will retain its current New York Stock Exchange symbol of MCN.
MCN is a diversified energy holding company with natural gas markets and
investments throughout North America. MCN operates through two major business
groups, Diversified Energy and Gas Distribution. MCN, organized in 1988, is
exempt from most provisions of the Public Utility Holding Company Act of 1935.
DIVERSIFIED ENERGY, operating through MCN Investment Corporation (MCNIC),
is involved in the following businesses: Exploration & Production (E&P) with
proved gas and oil reserves in the Midwest/ Appalachia, Midcontinent/Gulf Coast
and Western regions; Pipelines & Processing with gathering, processing and
transmission facilities near areas of rapid reserve development and growing
consuming markets; Energy Marketing; Power Generation with investments in
electric generation facilities; and Gas Storage with investments in storage
facilities.
GAS DISTRIBUTION consists principally of Michigan Consolidated Gas Company
(MichCon), a Michigan corporation organized in 1898 that, with its predecessors
has been in business for nearly 150 years. MichCon is a natural gas distribution
and intrastate transmission company serving 1.2 million customers in more than
500 communities throughout Michigan. MichCon is subject to the accounting
requirements and rate regulation of the Michigan Public Service Commission
(MPSC) with respect to the distribution and intrastate transportation of natural
gas.
The mailing address of MCN's principal executive office is 500 Griswold
Street, Detroit, Michigan 48226 and its telephone number is (313) 256-5500.
THE MCN TRUSTS
Each of MCN Financing II, MCN Financing III and MCN Financing IV is a
statutory business trust formed under Delaware law pursuant to (i) a separate
declaration of trust (each a "Declaration") executed by the Company, as sponsor
for such trust (the "Sponsor") and the MCN Trustees (as defined herein) for such
trust and (ii) the filing of a certificate of trust with the Delaware Secretary
of State on March 6, 1996 (as amended by the Amendment to the Declaration of
Trust, dated May 29, 1996), in the case of MCN Financing II, and February 3,
1997, in the case of MCN Financing III and MCN Financing IV. Each MCN Trust
exists for the exclusive purposes of (i) issuing the Preferred Securities and
common securities representing undivided beneficial interests in the assets of
such Trust (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities"), (ii) investing the gross proceeds of the Trust
Securities in the Subordinated Debt Securities and (iii) engaging in only those
other activities necessary or incidental thereto. All of the Common Securities
will be directly or indirectly owned by the Company. The Common Securities will
rank pari passu, and payments will be made thereon pro rata, with the Preferred
Securities except that upon an event of default under the Declaration, the
rights of the holders of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Preferred Securities. The
Company will, directly or indirectly, acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of each MCN Trust. Other
than MCN Financing III, which has a term of seven years, each MCN Trust has a
term of approximately 45 years, but may earlier terminate as provided in the
Declaration. Each MCN Trust's business and affairs will be conducted by the
trustees (the "MCN Trustees") appointed by the Company, as the direct or
indirect holder of all the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase or
reduce the number of, the MCN Trustees of an MCN Trust. The duties and
obligations of the MCN Trustees shall be governed by the Declaration of such MCN
Trust. A majority of the MCN Trustees (the "Regular Trustees") of each MCN Trust
will be persons who are employees or officers of or affiliated with the Company.
In certain limited circumstances set forth in a Prospectus Supplement, the
holders of a majority of the Preferred Securities will be entitled to appoint
one
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<PAGE> 62
additional Regular Trustee, who need not be an employee or officer of or
otherwise affiliated with the Company. One MCN Trustee of each MCN Trust will be
a financial institution which will be unaffiliated with the Company and which
shall act as property trustee and as indenture trustee for purposes of the Trust
Indenture Act of 1939 (the "Trust Indenture Act"), pursuant to the terms set
forth in a Prospectus Supplement (the "Property Trustee" or the "Institutional
Trustee"). In addition, unless the Property Trustee maintains a principal place
of business in the State of Delaware, and otherwise meets the requirements of
applicable law, one MCN Trustee of each MCN Trust will have its principal place
of business or reside in the State of Delaware (the "Delaware Trustee"). The
Company will pay all fees and expenses related to the MCN Trusts and the
offering of Trust Securities, the payment of which will be guaranteed by the
Company. The office of the Delaware Trustee for each MCN Trust in the State of
Delaware is Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890. The principal place of business of each MCN
Trust shall be c/o MCN Energy Group Inc., 500 Griswold Street, Detroit, Michigan
48226; telephone 1-313-256-5500.
USE OF PROCEEDS
Each MCN Trust will use the proceeds received from the sale of its
Preferred Securities to purchase Subordinated Debt Securities from MCN. Unless
otherwise indicated in a Prospectus Supplement with respect to the proceeds from
the sale of the particular Offered Securities to which such Prospectus
Supplement relates, MCN intends to add the net proceeds from the sale of Offered
Securities to its general funds, to be used for general corporate purposes,
including capital expenditures, investment in subsidiaries, working capital and
repayment of debt.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for MCN on a historical basis for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994 1993 1992
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MCN(1)(2)(3)............................ 2.28 2.55 2.70 3.15 2.82
</TABLE>
- ---------------
(1) MCN has authority to issue up to 25,000,000 shares of preferred stock, no
par value, however, there are currently no shares outstanding and MCN
currently does not have a preferred stock dividend obligation. Therefore,
the Ratio of Combined Earnings to Fixed Charges and Preferred Stock
Dividends is equal to the Ratio of Earnings to Fixed Charges and is not
disclosed separately.
(2) The Ratio of Earnings to Fixed Charges is based on earnings from operations.
"Earnings" consist of the pre-tax income of majority-owned and 50%-owned
companies adjusted to include any income actually received from less than
50%-owned companies, plus fixed charges, less interest capitalized during
the period for nonutility companies and less the preferred stock dividend
requirements of MichCon included in fixed charges but not deducted in the
determination of pre-tax income. "Fixed Charges" represent (a) interest
(whether expensed or capitalized), (b) amortization of debt discount,
premium and expense, (c) an estimate of interest implicit in rentals, and
(d) in the case of MCN, the preferred securities dividend requirements of
subsidiaries (MichCon, MCN Michigan Limited Partnership and MCN Financing
I), increased to reflect the pre-tax earnings requirement for MichCon.
(3) In June 1996, MCN sold its computer operations subsidiary, Genix. For
purposes of calculating the Ratio of Earnings to Fixed Charges, Genix has
been classified as a discontinued operation and is therefore excluded from
the ratio for all periods presented.
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<PAGE> 63
DESCRIPTION OF MCN DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement and
the extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Debt Securities.
The Debt Securities may be issued, from time to time, in one or more series
and will constitute either Senior Debt Securities or Subordinated Debt
Securities. Senior Debt Securities will be issued under an Indenture (the
"Senior Debt Securities Indenture"), between the Company and NBD Bank, N.A., now
known as NBD Bank, a Michigan banking corporation ("NBD"), as trustee (the
"Senior Debt Securities Trustee"). NBD is a wholly-owned subsidiary of First
Chicago NBD Corporation. The Subordinated Debt Securities will be issued under
an Indenture, dated as of September 1, 1994, as supplemented by the First
Supplemental Indenture dated April 17, 1996, and the Second Supplemental
Indenture dated July 24, 1996, (the "Subordinated Debt Securities Indenture")
between the Company and NBD as trustee (the "Subordinated Debt Securities
Trustee").
The Senior Debt Securities Indenture and the Subordinated Debt Securities
Indenture are referred to herein individually as an "Indenture" and,
collectively, as the "Indentures," and the Senior Debt Securities Trustee and
the Subordinated Debt Securities Trustee are referred to herein as the
"Trustee."
The following summaries of certain provisions of the Debt Securities and
the Indentures do not purport to be complete and are subject to, and are
qualified in their entirety by express reference to, all the provisions of the
Indentures, including the definitions therein of certain terms. Certain
capitalized terms herein are defined in the Indentures.
GENERAL
The Debt Securities will be unsecured obligations of the Company.
The Indentures do not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provide that Debt Securities may
be issued thereunder, from time to time, in one or more series.
Reference is made to the Prospectus Supplement relating to the Debt
Securities being offered (the "Offered Debt Securities") for, among other
things, the following terms thereof: (1) the title of the Offered Debt
Securities; (2) any limit on the aggregate principal amount of the Offered Debt
Securities; (3) the date or dates on which the Offered Debt Securities will
mature; (4) the rate or rates (which may be fixed or variable) per annum at
which the Offered Debt Securities will bear interest or the method by which such
rate or rates shall be determined and the date from which such interest will
accrue or the method by which such date or dates shall be determined; (5) the
dates on which such interest will be payable and the Regular Record Dates for
such Interest Payment Dates; (6) the dates, if any, on which, and the price or
prices at which, the Offered Debt Securities may, pursuant to any mandatory or
optional sinking fund provisions, be redeemed by the Company and other detailed
terms and provisions of such sinking funds; (7) the date, if any, after which,
and the price or prices at which, the Offered Debt Securities may, pursuant to
any optional redemption provisions, be redeemed at the option of the Company or
of the Holder thereof and other detailed terms and provisions of such optional
redemption; (8) the right of the Company, if any, to defer payment of interest
on the Subordinated Debt Securities and the maximum length of any such deferral
period; (9) the right of Holders, if any, to put the Subordinated Debt
Securities to the Company; and (10) any other terms of the Offered Debt
Securities (which terms shall not be inconsistent with the appropriate
Indenture). For a description of the terms of the Offered Debt Securities,
reference must be made to both the Prospectus Supplement relating thereto and to
the description of Debt Securities set forth herein.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal of, and any premium or interest on, the Offered Debt Securities
will be payable, and the Offered Debt Securities will be exchangeable and
transfers thereof will be registrable, at the Place of Payment, provided that,
at the option of the Company, payment of interest may be made by check mailed to
the address of the person entitled thereto as it appears in the Security
Register.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Debt Securities will be issued in United States dollars in fully
registered form, without coupons, in denominations of $1,000 or
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<PAGE> 64
any integral multiple thereof. No service charge will be made for any transfer
or exchange of the Offered Debt Securities, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
For purposes of the descriptions of both the Senior Debt Securities and the
Subordinated Debt Securities, certain defined terms have the following meanings:
"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all
obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all obligations under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit); (v) all obligations of the type referred to in clauses
(i) through (iv) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable as
obligor, guarantor or otherwise; and (vi) all obligations of the type referred
to in clauses (i) through (v) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation is assumed by
such Person), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured.
"Significant Subsidiary" means a Subsidiary or Subsidiaries of the Company
possessing assets (including the assets of its own Subsidiaries but without
regard to the Company or any other Subsidiary) having a book value, in the
aggregate, equal to not less than 10% of the book value of the aggregate assets
of the Company and its Subsidiaries calculated on a consolidated basis.
"Capitalized Lease Obligations" means an obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with such
principles.
The Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be offered and sold at a substantial discount below their
principal amount. Special federal income tax, accounting and other
considerations applicable to any such Original Issue Discount Securities will be
described in any Prospectus Supplement relating thereto. "Original Issue
Discount Security" means any security which provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof as a result of the occurrence of an Event
of Default and the continuation thereof.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities (as such term is defined below) that will
be deposited with, or on behalf of, a Depositary ("Depositary") or its nominee
identified in the applicable Prospectus Supplement. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denomination
equal to the portion of the aggregate principal amount of outstanding Debt
Securities of the series to be represented by such Global Security or Global
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in registered form, a Global Security may not be registered for
transfer or exchange except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any nominee to a successor Depositary or a nominee of such successor Depositary
and except in the circumstances described in the applicable Prospectus
Supplement. The term "Global Security", when used with respect to any series of
Debt Securities, means a Debt Security that is executed by the Company and
authenticated and delivered by the Trustee to the Depositary or pursuant to the
Depositary's instruction, which shall be registered in the name of
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<PAGE> 65
the Depositary or its nominee and which shall represent, and shall be
denominated in an amount equal to the aggregate principal amount of, all of the
Outstanding Debt Securities of such series or any portion thereof, in either
case having the same terms, including, without limitation, the same original
issue date, date or dates on which principal is due, and interest rate or method
of determining interest.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Company expects
that the following provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of such Global
Security, and the deposit of such Global Security with or on behalf of the
Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or, if such Debt Securities are
offered and sold directly by the Company, by the Company. Ownership of
beneficial interests in such Global Security will be limited to participants or
Persons that may hold interests through participants. Ownership of beneficial
interests by participants in such Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee for such Global Security. Ownership
of beneficial interests in such Global Security by Persons that hold through
participants will be shown on, and the transfer of that ownership interest
within such participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in certificated form.
The foregoing limitations and such laws may impair the ability to transfer
beneficial interests in such Global Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Securities
represented by such Global Security for all purposes under the Indenture. Unless
otherwise specified in the applicable Prospectus Supplement, owners of
beneficial interests in such Global Security will not be entitled to have Debt
Securities of the series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities of such series in certificated form and will not be considered the
Holders thereof for any purposes under the Indenture. Accordingly, each Person
owning a beneficial interest in such Global Security must rely on the procedures
of the Depositary and, if such Person is not a participant, on the procedures of
the participant through which such Person owns its interest, to exercise any
rights of a Holder under the Indenture. The Company understands that under
existing industry practices, if the Company requests any action of Holders or an
owner of a beneficial interest in such Global Security desires to give any
notice or take any action a Holder is entitled to give or take under the
Indenture, the Depositary would authorize the participants to give such notice
or take such action, and participants would authorize beneficial owners owning
through such participants to give such notice or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
THE TRUSTEE
NBD is the Trustee under the Senior Debt Securities Indenture and the
Subordinated Debt Securities Indenture. An affiliate of NBD has extended lines
of credit to various subsidiaries of MCN. MCN and various of its subsidiaries
maintain bank accounts and have other customary banking relationships with NBD
in the ordinary course of business. Mr. Thomas H. Jeffs II, President and Chief
Operating Officer of NBD, serves as a Director of MCN. Mr. Alfred R. Glancy III,
Chairman, President and Chief Executive Officer of MCN, serves as a Director of
NBD.
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PARTICULAR TERMS OF THE SENIOR DEBT SECURITIES
The following description of the Senior Debt Securities sets forth certain
general terms and provisions of the Senior Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Senior Debt
Securities offered by any Prospectus Supplement and the extent, if any, to which
such general provisions may apply to the Senior Debt Securities so offered will
be described in the Prospectus Supplement relating to such Senior Debt
Securities.
RESTRICTIONS
The Senior Debt Securities Indenture provides that the Company shall not
consolidate with, merge with or into any other corporation (whether or not the
Company shall be the surviving corporation), or sell, assign, transfer or lease
all or substantially all of its properties and assets as an entirety or
substantially as an entirety to any Person or group of affiliated Persons, in
one transaction or a series of related transactions, unless: (1) either the
Company shall be the continuing Person or the Person (if other than the Company)
formed by such consolidation or with which or into which the Company is merged
or the Person (or group of affiliated Persons) to which all or substantially all
the properties and assets of the Company are sold, assigned, transferred or
leased is a corporation (or constitute corporations) organized under the laws of
the United States or any State thereof or the District of Columbia and expressly
assumes, by an indenture supplemental to the Senior Debt Securities Indenture,
all the obligations of the Company under the Senior Debt Securities and the
Senior Debt Securities Indenture, executed and delivered to the Trustee in form
satisfactory to the Trustee; (2) immediately before and after giving effect to
such transaction or series of transactions, no Event of Default, and no Default,
with respect to the Senior Debt Securities shall have occurred and be
continuing; and (3) the Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indentures comply with the Senior Debt
Securities Indenture.
The Senior Debt Securities Indenture also provides that the Company will
not, nor will it permit any Significant Subsidiary to, create, incur, or suffer
to exist any Lien in, of or on the property of the Company or any of its
Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges
or levies on its property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith and
by appropriate proceedings and for which adequate reserves in accordance with
generally accepted principles of accounting shall have been set aside on its
books; (ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books; (iii) Liens arising
out of pledges or deposits under worker's compensation laws, unemployment
insurance, old age pensions, or other social security or retirement benefits, or
similar legislation; (iv) utility easements, building restrictions and such
other encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Company or its Subsidiaries; (v) Liens on the
capital stock, partnership interest, or other evidence of ownership of any
Subsidiary or such Subsidiary's assets that secure project financing for such
Subsidiary; (vi) Liens arising in connection with first mortgage bonds issued by
any Significant Subsidiary pursuant to any first mortgage indenture in effect as
of the date of the Senior Debt Securities Indenture, as such indenture may be
supplemented from time to time; (vii) purchase money liens upon or in property
now owned or hereafter acquired in the ordinary course of business (consistent
with the Company's business practices) to secure (A) the purchase price of such
property or (B) Indebtedness incurred solely for the purpose of financing the
acquisition, construction, or improvement of any such property to be subject to
such liens, or Liens existing on any such property at the time of acquisition,
or extensions, renewals, or replacements of any of the foregoing for the same or
a lesser amount; provided that no such lien shall extend to or cover any
property other than the property being acquired, constructed, or improved and
replacements, modifications, and proceeds of such property, and no such
extension, renewal, or replacement shall extend to or cover any property not
theretofore subject to the Lien being extended, renewed, or replaced; (viii)
Liens existing on the date Senior Debt Securities are first issued; and (ix)
Liens for no more than 90 days arising from a transaction involving accounts
receivable of the Company (including the sale of such accounts receivable),
where such accounts receivable arose in the ordinary course of the Company's
business.
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The Senior Debt Securities Indenture provides that the Company will not,
nor will it permit any Subsidiary to, enter into any arrangement with any lender
or investor (other than the Company or a Subsidiary), or to which such lender or
investor (other than the Company or a Subsidiary) is a party, providing for the
leasing by the Company or such Subsidiary for a period, including renewals, in
excess of three years of any real property located within the United States
which has been owned by the Company or such Subsidiary for more than six months
and which has been or is to be sold or transferred by the Company or such
Subsidiary to such lender or investor or to any person to whom funds have been
or are to be advanced by such lender or investor on the security of such real
property unless either (a) the Company or such Subsidiary could create
Indebtedness secured by a lien consistent with the restrictions set forth in the
foregoing paragraph on the real property to be leased in an amount equal to the
Value of such transaction without equally and ratably securing the Senior Debt
Securities or (b) the Company, within six months after the sale or transfer
shall have been made, applies an amount equal to the greater of (i) the net
proceeds of the sale of the real property leased pursuant to such arrangement or
(ii) the fair market value of the real property so leased to the retirement of
Senior Debt Securities and other obligations of the Company ranking on a parity
with the Senior Debt Securities.
RANKING OF SENIOR DEBT SECURITIES
The Senior Debt Securities will rank pari passu in right of payment with
all other unsecured indebtedness of the Company, except that the Senior Debt
Securities will be senior in right of payment to any subordinated indebtedness
which, by its terms, is subordinate to the Senior Debt Securities.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following are Events of Default under the Senior Debt Securities
Indenture with respect to Senior Debt Securities of any series: (1) failure to
pay interest on any Senior Debt Security of that series when due, continued for
30 days; (2) failure to pay the principal of (or premium, if any, on) any Senior
Debt Security of that series when due and payable at Maturity, upon redemption
or otherwise; (3) failure to observe or perform any other covenant, warranty or
agreement contained in the Senior Debt Securities of that series or in the
Senior Debt Securities Indenture (other than a covenant, agreement or warranty
included in the Senior Debt Securities Indenture solely for the benefit of
Senior Debt Securities other than that series), continued for a period of 60
days after notice has been given to the Company by the Trustee or Holders of at
least 25% in aggregate principal amount of the Outstanding Senior Debt
Securities of that series; (4) failure to pay at final maturity, or acceleration
of, Indebtedness of the Company having an aggregate principal amount of more
than 1% of the Company's consolidated total assets (determined as of its most
recent fiscal year-end), unless cured within 10 days after notice has been given
to the Company by the Trustee or Holders of at least 10% in aggregate principal
amount of the Outstanding Senior Debt Securities of that series; (5) certain
events of bankruptcy, insolvency or reorganization relating to the Company; and
(6) any other Event of Default with respect to Senior Debt Securities of that
series specified in the Prospectus Supplement relating thereto or Supplemental
Indenture under which such series of Senior Debt Securities is issued.
The Senior Debt Securities Indenture provides that the Trustee shall,
within 30 days after the occurrence of any Default or Event of Default with
respect to Senior Debt Securities of any series, give the Holders of Senior Debt
Securities of that series notice of all uncured Defaults or Events of Default
known to it (the term "Default" includes any event which after notice or passage
of time or both would be an Event of Default); provided, however, that, except
in the case of an Event of Default or a Default in payment on any Senior Debt
Securities of any series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or
directors or responsible officers of the Trustee in good faith determine that
the withholding of such notice is in the interest of the Holders of Senior Debt
Securities of that series.
If an Event of Default with respect to Senior Debt Securities of any series
(other than due to events of bankruptcy, insolvency or reorganization) occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Outstanding Senior Debt Securities of that series, by
notice in writing to the Company (and to the Trustee if given by the Holders of
at least 25% in aggregate principal amount of the Senior Debt Securities of that
series), may declare the unpaid principal of and accrued interest to the date of
acceleration on all the Outstanding Senior Debt Securities of that series to be
due and payable immediately and, upon any such declaration, the Senior Debt
Securities of that series shall become immediately due and payable.
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If an Event of Default occurs due to bankruptcy, insolvency or
reorganization, all unpaid principal of and accrued interest on the Outstanding
Senior Debt Securities of any series will become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder of
any Senior Debt Security of that series.
Any such declaration with respect to Senior Debt Securities of any series
may be annulled and past Events of Default and Defaults (except, unless
theretofore cured, an Event of Default or a Default in payment of principal of
or interest on the Senior Debt Securities of that series) may be waived by the
Holders of a majority of the principal amount of the Outstanding Senior Debt
Securities, upon the conditions provided in the Senior Debt Securities
Indenture.
The Senior Debt Securities Indenture provides that the Company shall
periodically file statements with the Trustee regarding compliance by the
Company with certain of the respective covenants thereof and shall specify any
Event of Default or Defaults with respect to Senior Debt Securities of any
series, in performing such covenants, of which the signers may have knowledge.
MODIFICATION OF SENIOR DEBT SECURITIES INDENTURE; WAIVER
The Senior Debt Securities Indenture may be modified by the Company and the
Trustee without the consent of any Holders with respect to certain matters,
including (i) to cure any ambiguity, defect or inconsistency or to correct or
supplement any provision which may be inconsistent with any other provision of
the Senior Debt Securities Indenture and (ii) to make any change that does not
materially adversely affect the interests of any Holder of Senior Debt
Securities of any series. In addition, under the Senior Debt Securities
Indenture, certain rights and obligations of the Company and the rights of
Holders of the Senior Debt Securities may be modified by the Company and the
Trustee with the written consent of the Holders of at least a majority in
aggregate principal amount of the Outstanding Senior Debt Securities of each
series affected thereby; but no extension of the maturity of any Senior Debt
Securities of any series, reduction in the interest rate or extension of the
time for payment of interest, change in the optional redemption or repurchase
provisions in a manner adverse to any Holder of Senior Debt Securities of any
series, other modification in the terms of payment of the principal of, or
interest on, any Senior Debt Securities of any series, or reduction of the
percentage required for modification, will be effective against any Holder of
any Outstanding Senior Debt Security of any series affected thereby without the
Holder's consent. The Senior Debt Securities Indenture does not limit the
aggregate amount of Senior Debt Securities of the Company which may be issued
thereunder.
The Holders of a majority in aggregate principal amount of the Outstanding
Senior Debt Securities of any series may on behalf of the Holders of all Senior
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain restrictive covenants of the Senior Debt
Securities Indenture. The Holders of not less than a majority in aggregate
principal amount of the Outstanding Senior Debt Securities of any series may on
behalf of the Holders of all Senior Debt Securities of that series waive any
past Event of Default or Default under the Senior Debt Securities Indenture with
respect to that series, except an Event of Default or a Default in the payment
of the principal of, or premium, if any, or any interest on any Senior Debt
Security of that series or in respect of a provision which under the Senior Debt
Securities Indenture cannot be modified or amended without the consent of the
Holder of each Outstanding Senior Debt Security of that series affected.
DEFEASANCE
The Company may terminate its substantive obligations in respect of Senior
Debt Securities of any series (except for its obligations to pay the principal
of (and premium, if any, on) and the interest on the Senior Debt Securities of
that series) by (i) depositing with the Trustee, under the terms of an
irrevocable trust agreement, money or U.S. Government Obligations sufficient to
pay all remaining indebtedness on the Senior Debt Securities of that series,
(ii) delivering to the Trustee either an Opinion of Counsel or a ruling directed
to the Trustee from the Internal Revenue Service to the effect that the Holders
of the Senior Debt Securities of that series will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and termination
of obligations, and (iii) complying with certain other requirements set forth in
the Senior Debt Securities Indenture.
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PARTICULAR TERMS OF THE SUBORDINATED DEBT SECURITIES
The following description of the Subordinated Debt Securities sets forth
the general terms and provisions of the Subordinated Debt Securities to which
any Prospectus Supplement may relate. The particular terms of the Subordinated
Debt Securities offered by any Prospectus Supplement and the extent, if any, to
which such general provisions may apply will be described in the Prospectus
Supplement relating to such Subordinated Debt Securities.
For purposes of the description of the Subordinated Debt Securities,
certain defined terms have the following meanings:
"Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date of execution of the
Subordinated Debt Securities Indenture or thereafter incurred or created: (i)
indebtedness of the Company for money borrowed by the Company (including
purchase money obligations with an original maturity in excess of one year) or
evidenced by debentures (other than the Subordinated Debt Securities), notes,
bankers' acceptances or other corporate debt securities or similar instruments
issued by the Company; (ii) obligations with respect to letters of credit; (iii)
indebtedness of the Company constituting a guarantee of indebtedness of others
of the type referred to in the preceding clauses (i) and (ii); or (iv) renewals,
extensions or refundings of any of the indebtedness referred to in the preceding
clauses (i), (ii) and (iii) unless, in the case of any particular indebtedness,
renewal, extension or refunding, under the express provisions of the instrument
creating or evidencing the same, or pursuant to which the same is outstanding,
such indebtedness or such renewal, extension or refunding thereof is not
superior in right of payment to the Subordinated Debt Securities.
"Project Finance Indebtedness" means Indebtedness of a Subsidiary (other
than a Utility and other than the Company) secured by a Lien on any property,
acquired, constructed or improved by such Subsidiary after the date of execution
of the Subordinated Debt Securities Indenture which Lien is created or assumed
contemporaneously with, or within 120 days after, such acquisition or completion
of such construction or improvement, or within six months thereafter pursuant to
a firm commitment for financing arranged with a lender or investor within such
120-day period, to secure or provide for the payment of all or any part of the
purchase price of such property or the cost of such construction or improvement
or on any property existing at the time of acquisition thereof; provided that
such a Lien shall not apply to any property theretofore owned by any such
Subsidiary other than, in the case of any such construction or improvement, any
theretofore unimproved real property on which the property so constructed or the
improvement is located; and provided further that such Indebtedness, by its
terms, shall limit the recourse of any holder of such Indebtedness (or trustee
on such holder's behalf) in the event of any default in such Indebtedness to the
assets subject to such Liens and the capital stock of, or the dividends received
from, the Subsidiary issuing such Indebtedness. Notwithstanding the foregoing,
Project Finance Indebtedness shall include all Indebtedness that would
constitute Project Finance Indebtedness but for the fact that such Indebtedness
was issued prior to the execution of the Subordinated Debt Securities Indenture
and taking into account the fact that the property subject to the Lien may have
been acquired prior to the execution of the Subordinated Debt Securities
Indenture.
RESTRICTIONS
The Subordinated Debt Securities Indenture provides that the Company shall
not consolidate with, merge with or into any other corporation (whether or not
the Company shall be the surviving corporation), or sell, assign, transfer or
lease all or substantially all of its properties and assets as an entirety or
substantially as an entirety to any Person or group of affiliated Persons, in
one transaction or a series of related transactions, unless: (1) either the
Company shall be the continuing Person or the Person (if other than the Company)
formed by such consolidation or with which or into which the Company is merged
or the Person (or group of affiliated Persons) to which all or substantially all
the properties and assets of the Company are sold, assigned, transferred or
leased is a corporation (or constitute corporations) organized under the laws of
the United States or any State thereof or the District of Columbia and expressly
assumes, by indentures supplemental to the Subordinated Debt Securities
Indenture executed and delivered to the Trustee in form satisfactory to the
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<PAGE> 70
Trustee, all the obligations of the Company under the Subordinated Debt
Securities and the Subordinated Debt Securities Indenture; (2) immediately
before and after giving effect to such transaction or series of related
transactions or series of transactions, no Event of Default, and no Default,
with respect to the Subordinated Debt Securities shall have occurred and be
continuing; and (3) the Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or sale, assignment, transfer or lease and such supplemental indentures
comply with the Subordinated Debt Securities Indenture.
The Subordinated Debt Securities Indenture also provides that the Company
will not, nor will it permit any Significant Subsidiary to, create, incur, or
suffer to exist any Lien in, of or on the property of the Company or any of its
Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges
or levies on its property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith and
by appropriate proceedings and for which adequate reserves in accordance with
generally accepted principles of accounting shall have been set aside on its
books; (ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books; (iii) Liens arising
out of pledges or deposits under worker's compensation laws, unemployment
insurance, old age pensions, or other social security or retirement benefits, or
similar legislation; (iv) utility easements, building restrictions and such
other encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Company or its Subsidiaries; (v) Liens on the
capital stock, partnership interest, or other evidence of ownership of any
Subsidiary or such Subsidiary's assets that secure Project Financing for such
Subsidiary; (vi) Liens arising in connection with first mortgage bonds issued by
any Significant Subsidiary pursuant to any first mortgage indenture in effect as
of the date of the Subordinated Debt Securities Indenture, as such indenture may
be supplemented from time to time; (vii) purchase money liens upon or in
property now owned or hereafter acquired in the ordinary course of business
(consistent with the Company's business practices) to secure (A) the purchase
price of such property or (B) Indebtedness incurred solely for the purpose of
financing the acquisition, construction, or improvement of any such property to
be subject to such liens, or Liens existing on any such property at the time of
acquisition, or extensions, renewals, or replacements of any of the foregoing
for the same or a lesser amount; provided that no such lien shall extend to or
cover any property other than the property being acquired, constructed, or
improved and replacements, modifications, and proceeds of such property, and no
such extension, renewal, or replacement shall extend to or cover any property
not theretofore subject to the Lien being extended, renewed, or replaced; (viii)
Liens existing on the date Subordinated Debt Securities are first issued; and
(ix) Liens for no more than 90 days arising from a transaction involving
accounts receivable of the Company (including the sale of such accounts
receivable), where such accounts receivable arose in the ordinary course of the
Company's business.
The Subordinated Debt Securities Indenture provides that the Company will
not, nor will it permit any Subsidiary to, enter into any arrangement with any
lender or investor (other than the Company or a Subsidiary), or to which such
lender or investor (other than the Company or a Subsidiary) is a party,
providing for the leasing by the Company or such Subsidiary for a period,
including renewals, in excess of three years of any real property located within
the United States which has been owned by the Company or such Subsidiary for
more than six months and which has been or is to be sold or transferred by the
Company or such Subsidiary to such lender or investor or to any person to whom
funds have been or are to be advanced by such lender or investor on the security
of such real property unless either (a) the Company or such Subsidiary could
create Indebtedness secured by a lien consistent with the restrictions set forth
in the foregoing paragraph on the real property to be leased in an amount equal
to the Value of such transaction without equally and ratably securing the
Subordinated Debt Securities or (b) the Company, within six months after the
sale or transfer shall have been made, applies an amount equal to the greater of
(i) the net proceeds of the sale of the real property leased pursuant to such
arrangement or (ii) the fair market value of the real property so leased to the
retirement of Subordinated Debt Securities and other obligations of the Company
ranking senior to or on a parity with the Subordinated Debt Securities.
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EVENTS OF DEFAULT AND NOTICE THEREOF
The following are Events of Default under the Subordinated Debt Securities
Indenture with respect to the Subordinated Debt Securities of any series: (1)
failure to pay interest on any Subordinated Debt Securities of that series when
due, continued for 30 days; however, if the Company is permitted by the terms of
the Subordinated Debt Securities of the applicable series to defer the payment
in question, the date on which such payment is due and payable shall be the date
on which the Company is required to make payment following such deferral, if
such deferral has been elected pursuant to the terms of the Subordinated Debt
Securities; (2) failure to pay the principal of (or premium, if any, on) any
Subordinated Debt Securities of that series when due and payable at Maturity,
upon redemption or otherwise; however, if the Company is permitted by the terms
of the Subordinated Debt Securities, of the applicable series to defer the
payment in question, the date on which such payment is due and payable shall be
the date on which the Company is required to make payment following such
deferral, if such deferral has been elected pursuant to the terms of the
Subordinated Debt Securities; (3) failure to observe or perform any other
covenant, warranty or agreement contained in the Subordinated Debt Securities of
that series or in the Subordinated Debt Securities Indenture (other than a
covenant, agreement or warranty included in the Subordinated Debt Securities
Indenture solely for the benefit of Subordinated Debt Securities of a series
other than that series), continued for a period of 60 days after notice has been
given to the Company by the applicable Trustee or Holders of at least 25% in
aggregate principal amount of the Outstanding Subordinated Debt Securities of
that series; (4) failure to pay at final maturity, or acceleration of,
Indebtedness of the Company, (but excluding Project Finance Indebtedness and
certain other gas and oil reserve-based financing with limited recourse to MCN
as described below), having an aggregate principal amount of more than 1% of the
Company's consolidated total assets (determined as of its most recent fiscal
year-end), unless cured within 10 days after notice has been given to the
Company by the Trustee or Holders of at least 10% in aggregate principal amount
of the Outstanding Subordinated Debt Securities of that series; (5) certain
events of bankruptcy, insolvency or reorganization relating to the Company; and
(6) any other Event of Default with respect to Subordinated Debt Securities of
that series specified in the Prospectus Supplement relating thereto; as noted in
(4) above, it will not be an Event of Default under the Subordinated Debt
Securities Indenture if a default occurs in certain gas and oil reserve-based
financing of MCNIC Oil & Gas Company (formerly known as Supply Development
Group, Inc. and a Subsidiary of the Company) or its Subsidiaries if the
obligations of MCN and its Subsidiaries with respect to such Indebtedness (other
than MCNIC Oil & Gas Company and its Subsidiaries) are limited to (i) payments
with respect to Section 29 tax credits, (ii) payments with respect to certain
material contracts of the borrower (generally limited to gas and oil supply
contracts and gas and oil hedging contracts) and (iii) certain environmental
obligations of the borrowers. As of December 31, 1996, $100,000,000 of such gas
and oil reserve-based Indebtedness was outstanding. From time to time, MCN or
its Subsidiaries may establish additional similar reserve-based credit
facilities with respect to which a default would not result in an Event of
Default under the Subordinated Debt Securities Indenture.
The Subordinated Debt Securities Indenture provides that the Trustee shall,
within 30 days after the occurrence of any Default or Event of Default with
respect to Subordinated Debt Securities of any series, give the Holders of
Subordinated Debt Securities of that series notice of all uncured Defaults or
Events of Default known to it (the term "Default" includes any event which after
notice or passage of time or both would be an Event of Default); provided,
however, that, except in the case of an Event of Default or a Default in payment
on any Subordinated Debt Securities of any series, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or directors or responsible officers of the Trustee in
good faith determine that the withholding of such notice is in the interest of
the Holders of Subordinated Debt Securities of that series.
If an Event of Default with respect to Subordinated Debt Securities of any
series (other than due to events of bankruptcy, insolvency or reorganization)
occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Outstanding Subordinated Debt Securities of
that series, by notice in writing to the Company (and to the Trustee if given by
the Holders of at least 25% in aggregate principal amount of the Subordinated
Debt Securities of that series), may declare the unpaid principal of and accrued
interest to the date of acceleration on all the Outstanding Subordinated Debt
Securities of that series
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<PAGE> 72
to be due and payable immediately and, upon any such declaration, the
Subordinated Debt Securities of that series shall become immediately due and
payable.
In addition, in the case of a Junior Subordinated Debenture issued to an
MCN Trust, if an Event of Default has occurred and is continuing and such event
is attributable to the failure of the Company to pay interest or principal, then
a holder of Preferred Securities of such MCN Trust may directly institute a
proceeding against the Company for payment.
If an Event of Default occurs due to bankruptcy, insolvency or
reorganization, all unpaid principal of and accrued interest on the Outstanding
Subordinated Debt Securities of any series will become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder of any Subordinated Debt Security of that series.
Any such declaration with respect to Subordinated Debt Securities of any
series may be annulled and past Events of Default and Defaults (except, unless
theretofore cured, an Event of Default or a Default in payment of principal of
or interest on the Subordinated Debt Securities of that series) may be waived by
the Holders of a majority of the principal amount of the Outstanding
Subordinated Debt Securities of that series, upon the conditions provided in the
Subordinated Debt Securities Indenture.
The Subordinated Debt Securities Indenture provides that the Company shall
periodically file statements with the Trustees regarding compliance by the
Company with certain of the respective covenants thereof and shall specify any
Event of Default or Defaults with respect to Subordinated Debt Securities of any
series, in performing such covenants, of which the signers may have knowledge.
MODIFICATION OF SUBORDINATED DEBT SECURITIES INDENTURE; WAIVER
The Subordinated Debt Securities Indenture may be modified by the Company
and the Trustee without the consent of any Holders with respect to certain
matters, including (i) to cure any ambiguity, defect or inconsistency or to
correct or supplement any provision which may be inconsistent with any other
provision of the Subordinated Debt Securities Indenture and (ii) to make any
change that does not materially adversely affect the interests of any Holder of
Subordinated Debt Securities of any series. In addition, under the Subordinated
Debt Securities Indenture, certain rights and obligations of the Company and the
rights of Holders of the Subordinated Debt Securities may be modified by the
Company and the Trustee with the written consent of the Holders of at least a
majority in aggregate principal amount of the Outstanding Subordinated Debt
Securities of each series affected thereby; but no extension of the maturity of
any Subordinated Debt Securities of any series, reduction in the interest rate
or extension of the time for payment of interest, change in the optional
redemption or repurchase provisions in a manner adverse to any Holder of
Subordinated Debt Securities of any series, other modification in the terms of
payment of the principal of, or interest on, any Subordinated Debt Securities of
any series, or reduction of the percentage required for modification, will be
effective against any Holder of any Outstanding Subordinated Debt Security of
any series affected thereby without the Holder's consent. The Subordinated Debt
Securities Indenture does not limit the aggregate amount of Subordinated Debt
Securities of the Company which may be issued thereunder.
The Holders of a majority in aggregate principal amount of the Outstanding
Subordinated Debt Securities of any series may on behalf of the Holders of all
Subordinated Debt Securities of that series waive, insofar as that series is
concerned, compliance by the Company with certain restrictive covenants of the
Subordinated Debt Securities Indenture. The Holders of not less than a majority
in aggregate principal amount of the Outstanding Subordinated Debt Securities of
any series may on behalf of the Holders of all Subordinated Debt Securities of
that series waive any past Event of Default or Default under the Subordinated
Debt Securities Indenture with respect to that series, except an Event of
Default or a Default in the payment of the principal of, or premium, if any, or
any interest on any Subordinated Debt Security of that series or in respect of a
provision which under the Subordinated Debt Securities Indenture cannot be
modified or amended without the consent of the Holder of each Outstanding
Subordinated Debt Security of that series affected.
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DEFEASANCE
The Company may terminate its substantive obligations in respect of
Subordinated Debt Securities of any series (except for its obligations to pay
the principal of (and premium, if any, on) and the interest on the Subordinated
Debt Securities of that series) by (i) depositing with the Trustee, under the
terms of an irrevocable trust agreement, money or U.S. Government Obligations
sufficient to pay all remaining indebtedness on the Subordinated Debt Securities
of that series, (ii) delivering to the Trustee either an Opinion of Counsel or a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Subordinated Debt Securities of that series will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination of obligations, and (iii) complying with certain
other requirements set forth in the Subordinated Debt Securities Indenture.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
Subordinated Debt Securities will be subordinated in right of payment to the
prior payment in full of all Senior Indebtedness of the Company and pari passu
with MCN trade creditors. No payment on account of principal of, premium, if
any, or interest on the Subordinated Debt Securities and no acquisition of, or
payment on account of any sinking fund for, the Subordinated Debt Securities may
be made unless full payment of amounts then due for principal, premium, if any,
and interest then due on all Senior Indebtedness by reason of the maturity
thereof (by lapse of time, acceleration or otherwise) has been made or duly
provided for in cash or in a manner satisfactory to the Holders of such Senior
Indebtedness. In addition, the Subordinated Debt Securities Indenture provides
that if a default has occurred giving the holders of such Senior Indebtedness
the right to accelerate the maturity thereof, or an event has occurred which,
with the giving of notice, or lapse of time, or both, would constitute such an
event of default, then unless and until such event shall have been cured or
waived or shall have ceased to exist, no payment on account of principal,
premium, if any, or interest on the Subordinated Debt Securities and no
acquisition of, or payment on account of a sinking fund for, the Subordinated
Debt Securities may be made. The Company shall give prompt written notice to the
Trustee of any default under any Senior Indebtedness or under any agreement
pursuant to which Senior Indebtedness may have been issued. The Subordinated
Debt Securities Indenture provisions described in this paragraph, however, do
not prevent the Company from making a sinking fund payment with Subordinated
Debt Securities acquired prior to the maturity of Senior Indebtedness or, in the
case of default, prior to such default and notice thereof. Upon any distribution
of its assets in connection with any dissolution, liquidation or reorganization
of the Company, all Senior Indebtedness must be paid in full before the Holders
of the Subordinated Debt Securities are entitled to any payments whatsoever. As
a result of these subordinated provisions, in the event of the Company's
insolvency, holders of the Subordinated Debt Securities may recover ratably less
than senior creditors of the Company.
DESCRIPTION OF MCN CAPITAL STOCK
The following is a brief description of certain provisions relating to MCN
capital stock:
MCN has authority to issue up to 125,000,000 shares of capital stock, which
are divided into two classes as follows: 25,000,000 shares of MCN Preferred
Stock, no par value ("MCN Preferred Stock") and 100,000,000 shares of MCN Common
Stock, par value $.01 per share. On February 28, 1997, there were no shares of
MCN Preferred Stock outstanding and 67,453,128 shares of MCN Common Stock
outstanding.
MCN COMMON STOCK
Voting Rights: The holders of MCN Common Stock are entitled to one vote for
each share on all matters voted upon by MCN's shareholders and, subject to any
voting rights of outstanding MCN Preferred Stock, the holders of such shares
possess all voting power.
Any action required or permitted to be taken by any shareholder of MCN must
be effected at a duly called annual or special meeting of such shareholders and
may not be effected by any consent in writing by
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<PAGE> 74
such shareholders. Except as otherwise permitted by law, special shareholder
meetings of MCN may be called only pursuant to a resolution approved by the
Board.
The holders of MCN Common Stock have noncumulative voting rights, which
means that the holders of more than 50% of the shares of MCN Common Stock voting
for the election of directors can elect 100% of the directors standing for
election at any meeting if they choose to do so and, in such event, the holders
of the remaining shares voting for the election of directors would not be able
to elect any person or persons to the Board at that meeting.
Dividend Rights: The holders of MCN Common Stock are entitled to such
dividends as may be declared from time to time by the Board from funds legally
available therefore subject to: (1) preferential dividend rights, if any, of any
series of MCN Preferred Stock then outstanding; and (2) applicable requirements,
if any, with respect to the setting aside of sums for purchase, retirement or
sinking funds for MCN Preferred Stock.
Liquidation Rights: In the event of liquidation, the holders of MCN Common
Stock will be entitled to receive pro rata any assets distributable to
shareholders in respect of shares held by them, subject to the rights of any
holders of MCN Preferred Stock.
No Preemptive Rights: No holder of MCN Common Stock has any right to
subscribe to any additional securities which may be issued by MCN.
Redemption and Conversion Provisions: MCN Common Stock does not have any
redemption provisions or conversion rights.
Preferred Share Purchase Rights: MCN Common Stock currently trades with
Preferred Share Purchase Rights. The Rights, which cannot be traded separately
from MCN Common Stock, are intended to protect shareholders in the event of an
unsolicited attempt to acquire MCN and become exercisable upon the occurrence of
certain triggering events. Triggering events include acquisition by a person or
group of beneficial ownership of 20% or more of MCN's Common Stock. The Rights
could also have the effect of delaying, deferring or preventing a takeover or
change in control of MCN that has not been approved by the Board of Directors.
Transfer Agent: The transfer agent and registrar for MCN Common Stock is
First Chicago Trust Company of New York, 525 Washington Boulevard, Jersey City,
New Jersey 07310.
PRICE RANGE OF MCN COMMON STOCK AND COMMON STOCK DIVIDENDS
MCN Common Stock began trading on the NYSE on January 4, 1989, following
the effective date of the restructuring of MichCon and subsequent formation of
MCN as its holding company. The high and low sales prices of the Common Stock of
MCN, as reported on the NYSE Composite Tape, and the dividends declared on the
Common Stock, have been as follows:
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW PAID PER SHARE
---- --- --------------
<S> <C> <C> <C>
1995
First Quarter................................. 18 5/8 16 3/8 .2225
Second Quarter................................ 19 7/8 18 .2225
Third Quarter................................. 20 17 7/8 .2225
Fourth Quarter................................ 23 1/2 19 3/8 .2325
1996
First Quarter................................. 25 1/2 21 5/8 .2325
Second Quarter................................ 25 5/8 22 3/4 .2325
Third Quarter................................. 27 5/8 22 3/4 .2325
Fourth Quarter................................ 30 1/2 26 5/8 .2425
1997
First Quarter (through March 5, 1997)......... 32 5/8 28 1/2 .2425
</TABLE>
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The closing price of MCN Common Stock on March 5, 1997 was $29 7/8 per
share. The book value of the Company's Common Stock on December 31, 1996 was
$11.66 per share.
The timing and amount of future cash dividends will depend on the financial
condition of MCN, the income from its subsidiaries, internal cash requirements
and other factors deemed relevant by MCN's Board of Directors.
MCN sponsors a dividend reinvestment and stock purchase plan under which
holders of record of MCN Common Stock may purchase a limited amount of MCN
Common Stock without paying brokerage fees and other expenses. Under this plan,
the MCN Common Stock may be purchased in the open market at prevailing prices or
purchased from MCN at the average of the high and low sales prices on the NYSE
for the trading day immediately preceding the purchase.
MCN PREFERRED STOCK
The Board of Directors of MCN is authorized, without further action by the
shareholders of MCN, to issue up to 25,000,000 shares of MCN Preferred Stock,
without par value, in one or more series, from time to time, with such voting
powers, full or limited, or without voting powers, and with such designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, as may be provided in a
resolution or resolutions adopted by the Board of Directors. The authority of
the Board of Directors includes, but is not limited to, the determination or
fixing of the following with respect to shares of such class or any series
thereof: (i) the number of shares and designation; (ii) the dividend rate and
whether the dividends are to be cumulative; (iii) whether shares are to be
redeemable and, if so, the terms and provisions applying; (iv) whether the
shares are subject to a purchase, retirement or sinking fund and, if so, the
terms and provisions applying; (v) whether shares shall be convertible and, if
so, the terms and provisions applying; (vi) what voting rights are to apply, if
any, not to exceed one vote per share; (vii) the rights to which the holders of
shares are entitled upon voluntary or involuntary liquidation or dissolution;
and (viii) what restrictions are to apply, if any, on the issue or reissue of
any additional MCN Preferred Stock. If MCN Preferred Stock of a class were to be
issued, it would be preferred to the MCN Common Stock with respect to dividends
and other matters and might have the effect of making more difficult any change
in control of MCN.
Management cannot currently foresee whether or when MCN might issue any
shares of MCN Preferred Stock.
OTHER PROVISIONS
The Articles of Incorporation of MCN provide for a classified Board of
Directors; the removal of directors by a two-thirds vote of shareholders (but
only for cause) or by vote of two-thirds of the other directors (with or without
cause); procedures for nomination by shareholders of candidates for election as
a director; director consideration of other constituencies when evaluating a
business combination; the prohibition of shareholder action by written consent;
supermajority (two-thirds) shareholder vote to amend or repeal the foregoing
provisions; and limitations on the personal liability of directors. These
provisions are generally intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and ensure the careful
consideration of proposed business combinations and any appropriate alternatives
for MCN's stockholders. Such provisions may have the effect of making more
difficult or discouraging a proxy contest, or delaying, deferring or preventing
a future takeover or change in control of MCN.
DESCRIPTION OF THE MCN TRUST PREFERRED SECURITIES
Each MCN Trust may issue, from time to time, only one series of Preferred
Securities having terms described in the Prospectus Supplement relating thereto.
The Declaration of each MCN Trust authorizes the Regular Trustees of such MCN
Trust to issue on behalf of such MCN Trust one series of Preferred Securities.
The Declaration will be qualified as an indenture under the Trust Indenture Act.
The Institutional Trustee, Wilmington Trust Company, an independent trustee,
will act as indenture trustee for the Preferred Securities,
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<PAGE> 76
to be issued by each MCN Trust, for the purposes of compliance with the
provisions of the Trust Indenture Act. The Preferred Securities will have such
terms, including distributions, redemption, voting, liquidation rights and such
other preferred, deferred or other special rights or such restrictions as shall
be set forth in the Declaration or made part of the Declaration by the Trust
Indenture Act, and which will mirror the terms of the Subordinated Debt
Securities held by the MCN Trust and as described in the Prospectus Supplement
related thereto. Reference is made to the Prospectus Supplement relating to the
Preferred Securities of the Company for specific terms, including (i) the
distinctive designation of such Preferred Securities; (ii) the number of
Preferred Securities issued by such MCN Trust; (iii) the annual distribution
rate (or method of determining such rate) for Preferred Securities issued by
such MCN Trust and the date or dates upon which such distributions shall be
payable; provided, however, that distributions on such Preferred Securities
shall be payable on a periodic basis to holders of such Preferred Securities as
of a record date in each period during which such Preferred Securities are
outstanding; (iv) whether distributions on Preferred Securities issued by such
MCN Trust shall be cumulative, and, in the case of Preferred Securities having
such cumulative distribution rights, the date or dates or method of determining
the date or dates from which distributions on Preferred Securities issued by
such MCN Trust shall be cumulative; (v) the amount or amounts which shall be
paid out of the assets of such MCN Trust to the holders of Preferred Securities
of such MCN Trust upon voluntary or involuntary dissolution, winding-up or
termination of such MCN Trust; (vi) the obligation, if any, of such MCN Trust to
purchase or redeem Preferred Securities issued by such MCN Trust and the price
or prices at which, the period or periods within which, and the terms and
conditions upon which, Preferred Securities issued by such MCN Trust shall be
purchased or redeemed, in whole or in part, pursuant to such obligation (with
such redemption price to be determined through negotiations among the Company
and the Underwriters based on, among other factors, redemption prices of
securities similar to the Preferred Securities and market conditions generally);
(vii) the voting rights, if any, of Preferred Securities issued by such MCN
Trust in addition to those required by law, including the number of votes per
Preferred Security and any requirement for the approval by the holders of
Preferred Securities, or of Preferred Securities issued by one or more MCN
Trusts, or of both, as a condition to specified action or amendments to the
Declaration of such MCN Trust; (viii) the terms and conditions, if any, upon
which the Subordinated Debt Securities may be distributed to holders of
Preferred Securities; (ix) if applicable, any securities exchange upon which the
Preferred Securities shall be listed; and (x) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred Securities
issued by such MCN Trust not inconsistent with the Declaration of such MCN Trust
or with applicable law. All Preferred Securities offered hereby will be
guaranteed by the Company to the extent set forth below under "Description of
the Preferred Securities Guarantees." The Preferred Securities Guarantee of MCN,
when taken together with MCN's obligations under the Subordinated Debt
Securities and the relevant Supplemental Indenture, and its obligations under
each Declaration, including obligations to pay costs, expenses, debts and
liabilities of the MCN Trust (other than with respect to the Trust Securities),
would provide a full and unconditional guarantee of amounts due on Preferred
Securities issued by each of MCN Financing II, MCN Financing III and MCN
Financing IV. Certain United States federal income tax considerations applicable
to any offering of Preferred Securities will be described in the Prospectus
Supplement relating thereto.
In connection with the issuance of Preferred Securities, each MCN Trust
will issue one series of Common Securities. The Declaration of each MCN Trust
authorizes the Regular Trustees of such trust to issue on behalf of such MCN
Trust one series of Common Securities having such terms including distributions,
redemption, voting, liquidation rights or such restrictions as shall be set
forth therein. The terms of the Common Securities issued by an MCN Trust will be
substantially identical to the terms of the Preferred Securities issued by such
trust and the Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the Preferred Securities except that, upon an event of
default under the Declaration, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. Except in certain limited circumstances, the Common
Securities will also carry the right to vote to appoint, remove or replace any
of the MCN Trustees of an MCN Trust. All of the Common Securities of each MCN
Trust will be directly or indirectly owned by the Company.
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<PAGE> 77
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If an Event of Default under the Declaration of an MCN Trust occurs and is
continuing, then the holders of Preferred Securities of such MCN Trust would
rely on the enforcement by the Institutional Trustee of its rights as a holder
of the applicable series of Subordinated Debt Securities against the Company. In
addition, the holders of a majority in liquidation amount of the Preferred
Securities of such an MCN Trust will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Institutional Trustee or to direct the exercise of any trust or power conferred
upon the Institutional Trustee under the applicable Declaration, including the
right to direct the Institutional Trustee to exercise the remedies available to
it as a holder of the Subordinated Debt Securities. If the Institutional Trustee
fails to enforce its rights under the applicable series of Subordinated Debt
Securities, a holder of Preferred Securities of such MCN Trust may institute a
legal proceeding directly against the Company to enforce the Institutional
Trustee's rights under the applicable series of Subordinated Debt Securities
without first instituting any legal proceeding against the Institutional Trustee
or any other person or entity. Notwithstanding the foregoing, if an Event of
Default under the applicable Declaration has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or principal
on the applicable series of Subordinated Debt Securities on the date such
interest or principal is otherwise payable (or in the case of redemption, on the
redemption date), then a holder of Preferred Securities of such MCN Trust may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the applicable series of Subordinated Debt
Securities having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder (a "Direct Action") on or after the
respective due date specified in the applicable series of Subordinated Debt
Securities. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
applicable Declaration to the extent of any payment made by the Company to such
holder of Preferred Securities in such Direct Action.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed certain changes to federal income tax law
that would, among other things, deny corporate issuers a deduction for interest
in respect of certain debt obligations issued on or after the date of first
Congressional committee action. The proposed legislation, if enacted in its
current form, would not apply to the Subordinated Debt Securities if they have
been issued prior to the date of first Congressional committee action. There can
be no assurance, however, that legislation enacted after the date hereof will
not adversely affect the ability of MCN to deduct the interest payable on the
Subordinated Debt Securities. Accordingly, there can be no assurance that a Tax
Event will not occur. See "Description of the Preferred Securities -- Special
Event Redemption or Distribution" in the Prospectus Supplement relating thereto.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees which will be executed and delivered by MCN for the
benefit of the holders from time to time of Preferred Securities. Each Preferred
Securities Guarantee will be qualified as an indenture under the Trust Indenture
Act. Wilmington Trust Company, an independent trustee, will act as indenture
trustee under each Preferred Securities Guarantee (the "Preferred Guarantee
Trustee") for the purposes of compliance with the provisions of the Trust
Indenture Act. The terms of each Preferred Securities Guarantee will be those
set forth in such Preferred Securities Guarantee and those made part of such
Preferred Securities Guarantee by the Trust Indenture Act. The following summary
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the form of Preferred
Securities Guarantee, which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part, and the Trust Indenture Act. Each
Preferred Securities Guarantee will be held by the Preferred Guarantee Trustee
for the benefit of the holders of the Preferred Securities of the applicable MCN
Trust.
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GENERAL
Pursuant to each Preferred Securities Guarantee, the Company will
irrevocably and unconditionally agree, to the extent set forth therein, to pay
in full, to the holders of the Preferred Securities issued by an MCN Trust, the
Guarantee Payments (as defined herein) (except to the extent paid by such MCN
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which such MCN Trust may have or assert. The following payments or
distributions with respect to Preferred Securities issued by an MCN Trust to the
extent not paid by such MCN Trust (the "Guarantee Payments"), will be subject to
the Preferred Securities Guarantee thereon (without duplication): (i) any
accrued and unpaid distributions which are required to be paid on such Preferred
Securities, to the extent such MCN Trust shall have funds available therefore;
(ii) the redemption price (the "Redemption Price") and all accrued and unpaid
distributions to the date of redemption to the extent such MCN Trust has funds
available therefore with respect to any Preferred Securities called for
redemption by such MCN Trust and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of such MCN Trust (other than in
connection with the distribution of Subordinated Debt Securities to the holders
of Preferred Securities or the redemption of all of the Preferred Securities),
the lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on such Preferred Securities to the date of payment, to the
extent such MCN Trust has funds available therefore and (b) the amount of assets
of such MCN Trust remaining available for distribution to holders of such
Preferred Securities in liquidation of such MCN Trust. The Company's obligation
to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Preferred Securities or by causing the
applicable MCN Trust to pay such amounts to such holders.
Each Preferred Securities Guarantee will be a guarantee with respect to the
Preferred Securities issued by the applicable MCN Trust, but will not apply to
any payment of distributions except to the extent such MCN Trust shall have
funds available therefore. If the Company does not make interest payments on the
Subordinated Debt Securities purchased by an MCN Trust, such MCN Trust will not
pay distributions on the Preferred Securities issued by such MCN Trust and will
not have funds available therefore. See "Description of the MCN Debt
Securities -- Particular Terms of the Subordinated Debt Securities." The
Preferred Securities Guarantee, when taken together with MCN's obligations under
the Subordinated Debt Securities, the Subordinated Debt Securities Indenture,
and the Declaration will provide a full and unconditional guarantee on a
subordinated basis by the Company of payments due on the Preferred Securities.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the MCN Trusts with respect to the Common
Securities (the "Common Securities Guarantees") to the same extent as the
Preferred Securities Guarantee, except that upon an event of default under the
Subordinated Debt Securities Indenture, holders of Preferred Securities shall
have priority over holders of Common Securities with respect to distributions
and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In each Preferred Securities Guarantee, the Company will covenant that, so
long as any Preferred Securities issued by the applicable MCN Trust remain
outstanding, if there shall have occurred any event that would constitute an
event of default under such Preferred Securities Guarantee or the Declaration of
such MCN Trust, then (a) the Company shall not declare or pay any dividend on,
make any distributions with respect to, or redeem, purchase, acquire or make
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of MCN Common Stock in connection with the
satisfaction by MCN of its obligations under any employee benefit plans or the
satisfaction by MCN of its obligations pursuant to any contract or security
outstanding on the date of such event requiring MCN to purchase shares of MCN
Common Stock, (ii) as a result of a reclassification of MCN capital stock or the
exchange or conversion of one class or series of MCN's capital stock for another
class or series of MCN capital stock or, (iii) the purchase of fractional
interests in shares of MCN's capital stock pursuant to the conversion or
exchange provisions of such MCN capital stock or the security being converted or
exchanged), (b) the Company shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company which rank pari
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<PAGE> 79
passu with or junior to such Subordinated Debt Securities and (c) the Company
shall not make any guarantee payments with respect to the foregoing (other than
pursuant to a Preferred Securities Guarantee).
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required),
each Preferred Securities Guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities issued by the applicable MCN Trust. The manner
of obtaining any such approval of holders of such Preferred Securities will be
as set forth in an accompanying Prospectus Supplement. All guarantees and
agreements contained in a Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Preferred Securities of the
applicable MCN Trust then outstanding.
TERMINATION
Each Preferred Securities Guarantee will terminate as to the Preferred
Securities issued by the applicable MCN Trust (a) upon full payment of the
Redemption Price of all Preferred Securities of such MCN Trust, (b) upon
distribution of the Subordinated Debt Securities held by such MCN Trust to the
holders of the Preferred Securities of such MCN Trust or (c) upon full payment
of the amounts payable in accordance with the Declaration of such MCN Trust upon
liquidation of such MCN Trust. Each Preferred Securities Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of Preferred Securities issued by the applicable MCN Trust must restore
payment of any sums paid under such Preferred Securities or such Preferred
Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
to which such Preferred Securities Guarantee relates have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Preferred Guarantee Trustee in respect of the Preferred Securities
Guarantee or to direct the exercise of any trust or power conferred upon the
Preferred Guarantee Trustee under such Preferred Securities Guarantee. If the
Preferred Guarantee Trustee fails to enforce such Preferred Securities
Guarantee, any holder of Preferred Securities to which such Preferred Securities
Guarantee relates may institute a legal proceeding directly against the Company
to enforce such holder's rights under such Preferred Securities Guarantee,
without first instituting a legal proceeding against the relevant MCN Trust, the
Preferred Guarantee Trustee or any other person or entity. Notwithstanding the
foregoing, if the Company has failed to make a guarantee payment, a holder of
Preferred Securities may directly institute a proceeding against the Company for
enforcement of the Preferred Securities Guarantee for such payment. The Company
waives any right or remedy to require that any action be brought first against
such MCN Trust or any other person or entity before proceeding directly against
the Company.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
The Preferred Securities Guarantees will constitute unsecured obligations
of the Company and will rank (i) subordinate and junior in right of payment to
all other liabilities of the Company, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by the Company and with
any guarantee now or hereafter entered into by MCN in respect of any preferred
or preference stock of any affiliate of the Company; and (iii) senior to the
Company's common stock. The terms of the Preferred Securities provide that each
holder of Preferred Securities issued by the applicable MCN Trust by acceptance
thereof agrees to the subordination provisions and other terms of the Preferred
Securities Guarantee relating thereto.
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The Preferred Securities Guarantees will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by a Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby; but the foregoing shall not relieve the Preferred Guarantee Trustee,
upon the occurrence of an event of default under such Preferred Securities
Guarantee, from exercising the rights and powers vested in it by such Preferred
Securities Guarantee.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by and construed in
accordance with the internal laws of the State of New York.
EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED DEBT SECURITIES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of each of the MCN Trusts
is to issue the Trust Securities evidencing undivided beneficial interests in
the assets of each of the MCN Trusts, and to invest the proceeds from such
issuance and sale in the Subordinated Debt Securities.
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Subordinated Debt Securities will
be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Subordinated Debt Securities will match the distribution rate and
distribution and other payment dates for the Preferred Securities; (iii) MCN
shall pay all, and the applicable MCN Trust shall not be obligated to pay,
directly or indirectly, all costs, expenses, debt, and obligations of the
applicable MCN Trust (other than with respect to the Trust Securities); and (iv)
the Declaration further provides that the MCN Trustees shall not take or cause
or permit the applicable MCN Trust to, among other things, engage in any
activity that is not consistent with the purposes of the applicable MCN Trust.
Payments of distributions (to the extent funds therefore are available) and
other payments due on the Preferred Securities (to the extent funds therefore
are available) are guaranteed by MCN as and to the extent set forth under
"Description of the Preferred Securities Guarantees." If MCN does not make
interest payments on the Subordinated Debt Securities purchased by the
applicable MCN Trust, it is expected that the applicable MCN Trust will not have
sufficient funds to pay distributions on the Preferred Securities. The Guarantee
does not apply to any payment of distributions unless and until the applicable
MCN Trust has sufficient funds for the payment of such distributions. The
Guarantee covers the payment of distributions and other payments on the
Preferred Securities only if and to the extent that MCN has made a payment of
interest or principal on the Subordinated Debt Securities held by the applicable
MCN Trust as its sole asset. The Guarantee, when taken together with MCN's
obligations under the Subordinated Debt Securities and the Indenture and its
obligations under the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of the applicable MCN Trust (other than with
respect to the Trust Securities), provide a full and unconditional guarantee of
amounts on the Preferred Securities.
If MCN fails to make interest or other payments on the Subordinated Debt
Securities when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred
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Securities, using the procedures described in "Description of the Preferred
Securities -- Book-Entry Only Issuance -- The Depository Trust Company" and
"-- Voting Rights" in any accompanying Prospectus Supplement, may direct the
Institutional Trustee to enforce its rights under the Subordinated Debt
Securities. If the Institutional Trustee fails to enforce its rights under the
Subordinated Debt Securities, a holder of Preferred Securities may institute a
legal proceeding against MCN to enforce the Institutional Trustee's rights under
the subordinated Debt Securities without first instituting any legal proceeding
against the Institutional Trustee or any other person or entity. Notwithstanding
the foregoing, if a Declaration Event of Default has occurred and is continuing
and such event is attributable to the failure of MCN to pay interest or
principal on the Subordinated Debt Securities on the date such interest or
principal is otherwise payable (or in the case of redemption on the redemption
date), then a holder of Preferred Securities may institute a Direct Action for
payment on or after the respective due date specified in the Subordinated Debt
Securities. In connection with such Direct Action, MCN will be subrogated to the
rights of such holder of Preferred Securities under the Declaration to the
extent of any payment made by MCN to such holder of Preferred Securities in such
Direct Action. MCN, under the Guarantee, acknowledges that the Preferred
Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the
Preferred Securities. If MCN fails to make payments under the Guarantee, the
Guarantee provides a mechanism whereby the holders of the Preferred Securities
may direct the Preferred Guarantee Trustee to enforce its rights thereunder. Any
holder of Preferred Securities may institute a legal proceeding directly against
MCN to enforce the Guarantee Trustee's rights under the Guarantee without first
instituting a legal proceeding against the applicable MCN Trust, the Preferred
Guarantee Trustee, or any other person or entity.
MCN and each of the MCN Trusts believe that the above mechanisms and
obligations, taken together, provide a full and unconditional guarantee by MCN
of payments due on the Preferred Securities. See "Description of the Preferred
Securities Guarantees -- General."
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
MCN may issue Stock Purchase Contracts, representing contracts obligating
holders to purchase from the Company, and the Company to sell to the holders, a
specified number of shares of Common Stock at a future date or dates. The price
per share of Common Stock may be fixed at the time the Stock Purchase Contracts
are issued or may be determined by reference to a specific formula set forth in
the Stock Purchase Contracts. The Stock Purchase Contracts may be issued
separately or as a part of units ("Stock Purchase Units," "FELINE PRIDES(SM),"
"Income PRIDES(SM)" or "Growth PRIDES(SM)") consisting of a Stock Purchase
Contract and Debt Securities or Preferred Securities or debt obligations of
third parties, including U.S. Treasury securities, securing the holders'
obligations to purchase the Common Stock under the Purchase Contracts. The Stock
Purchase Contracts may require MCN to make periodic payments to the holders of
the Stock Purchase Units or visa versa, and such payments may be unsecured or
prefunded on some basis. The Stock Purchase Contracts may require holders to
secure their obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not purport to be complete and will be qualified in its entirety
by reference to the Stock Purchase Contracts, and, if applicable, collateral
arrangements and depositary arrangements, relating to such Stock Purchase
Contracts or Stock Purchase Units.
PLAN OF DISTRIBUTION
MCN and/or any MCN Trust may sell the Offered Securities (i) to or through
underwriters or dealers; (ii) directly to purchasers; or (iii) through agents.
The Prospectus Supplement with respect to the Offered Securities will set forth
the terms of the offering of the Offered Securities, including the name or names
of any underwriters, dealers or agents; the purchase price of the Offered
Securities and the proceeds to MCN and/or an MCN Trust from such sale; any
underwriting discounts and commissions or agency fees and other items
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<PAGE> 82
constituting underwriters' or agents' compensation; any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
and any securities exchange on which such Offered Securities may be listed. Any
initial public offering price, discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Offered Securities will be
named in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters will be
set forth on the cover of such Prospectus Supplement. Unless otherwise set forth
in the Prospectus Supplement relating thereto, the obligations of the
underwriters to purchase the Offered Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all the
Offered Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities, MCN and/or the
applicable MCN Trust will sell such Offered Securities to the dealers as
principals. The dealers may then resell such Offered Securities to the public at
varying prices to be determined by such dealers at the time of resale. The names
of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
The Offered Securities may be sold directly by MCN and/or an MCN Trust or
through agents designated by MCN and/or such MCN Trust from time to time. Any
agent involved in the offer or sale of the Offered Securities in respect to
which this Prospectus is delivered will be named, and any commissions payable by
MCN and/or the applicable MCN Trust to such agent will be set forth, in the
Prospectus Supplement relating thereto. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
The Offered Securities may be sold directly by MCN and/or an MCN Trust to
institutional investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act with respect to any resale thereof. The terms
of any such sales will be described in the Prospectus Supplement relating
thereto.
Agents, dealers and underwriters may be entitled under agreements with MCN
and/or an MCN Trust to indemnification by MCN and/or the applicable MCN Trust
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for MCN and/or an MCN Trust in the ordinary course of business.
Each series of Offered Securities will be a new issue of securities and
will have no established trading market. Any underwriters to whom Offered
Securities are sold for public offering and sale may make a market in such
Offered Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice.The Offered Securities
may or may not be listed on a national securities exchange. No assurance can be
given that there will be a market for the Offered Securities.
VALIDITY OF SECURITIES
The validity of the Offered Securities of MCN will be passed upon for MCN
by Daniel L. Schiffer, Esq., Senior Vice President, General Counsel and
Secretary of MCN, and for the underwriters by LeBoeuf, Lamb, Greene and MacRae,
L.L.P., a partnership including professional corporations, New York, New York.
Mr. Schiffer is a full-time employee and officer of MCN and owned 23,941 shares
of MCN Common Stock as of February 26, 1997. Certain matters of Delaware law
relating to the validity of the Preferred Securities will be passed upon on
behalf of the MCN Trusts by Skadden, Arps, Slate, Meagher & Flom (Delaware),
special Delaware counsel to the MCN Trusts. Certain United States federal income
taxation matters will be passed upon for MCN and the MCN Trusts by Skadden,
Arps, Slate, Meagher & Flom LLP, special tax counsel to
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MCN and the MCN Trusts. LeBoeuf, Lamb, Greene & MacRae, L.L.P. from time to time
renders legal services to the Company.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 have been audited by
DELOITTE & TOUCHE LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
MCN's Annual Report on Form 10-K for the year ended December 31, 1996,
includes various oil and gas reserve information summarized from reports
prepared by the independent petroleum consultants Ryder Scott Company; Miller
and Lents, Ltd.; Lee Keeling & Associates, Inc.; S.A. Holditch & Associates,
Inc.; Questa Engineering Corporation and Advanced Resources International, Inc.
This reserve information and related schedules have been incorporated herein by
reference in reliance upon such reports given upon the authority of said firms
as experts in oil and gas reserve estimation.
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======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY MCN, MCN FINANCING III OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MCN OR MCN FINANCING
III SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Historical Financial Information....... S-3
Prospectus Summary.............................. S-5
MCN Energy Group Inc. .......................... S-13
MCN Financing III............................... S-14
Risk Factors.................................... S-15
Price Range of Common Stock and Dividends....... S-19
Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and
Preferred Stock Dividends..................... S-20
Use of Proceeds................................. S-20
Capitalization.................................. S-21
Accounting Treatment............................ S-21
Description of the FELINE PRIDES................ S-22
Description of the Purchase Contracts........... S-24
Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement............ S-30
Description of the Trust Preferred Securities... S-33
Description of the Guarantee.................... S-42
Description of the Junior Subordinated
Debentures.................................... S-43
Effect of Obligations Under the Junior
Subordinated Debentures and the Guarantee..... S-48
Certain Federal Income Tax Consequences......... S-50
Underwriting.................................... S-54
Legal Matters................................... S-56
PROSPECTUS
Available Information........................... 3
Incorporation of Certain Documents by
Reference..................................... 4
MCN Energy Group Inc. .......................... 5
The MCN Trusts.................................. 5
Use of Proceeds................................. 6
Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and
Preferred Stock Dividends..................... 6
Description of MCN Debt Securities.............. 7
Particular Terms of the Senior Debt
Securities.................................... 10
Particular Terms of the Subordinated Debt
Securities.................................... 13
Description of MCN Capital Stock................ 17
Description of the MCN Trust Preferred
Securities.................................... 19
Description of the Preferred Securities
Guarantees.................................... 21
Effect of Obligations Under the Subordinated
Debt Securities and the Guarantee............. 24
Description of Stock Purchase Contracts and
Stock Purchase Units.......................... 25
Plan of Distribution............................ 25
Validity of Securities.......................... 26
Experts......................................... 27
</TABLE>
======================================================
======================================================
2,300,000 FELINE PRIDES(SM)
MCN ENERGY GROUP INC. LOGO
MCN Financing III
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
SMITH BARNEY INC.
LADENBURG THALMANN & CO. INC.
MARCH 19, 1997
(SM)Service Mark of Merrill Lynch & Co. Inc.
======================================================
