<PAGE> 1
Rule 424(b)5
Registration Statement No. 333-21175
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 10, 1997)
8,500,000 SHARES
MCN ENERGY GROUP INC. LOGO
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
Of the 8,500,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of MCN Energy Group Inc., formerly known as MCN Corporation
("MCN" or the "Company"), offered hereby, 7,000,000 shares are being offered
initially in the United States and Canada by the U.S. Underwriters (the "U.S.
Offering") and the remaining 1,500,000 shares of Common Stock are being offered
initially in a concurrent offering outside the United States and Canada by the
International Managers (the "International Offering" and, together with the U.S.
Offering, the "Offerings"). The outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby will be, listed on the New York Stock
Exchange (the "NYSE") under the symbol "MCN". On June 24, 1997, the last
reported sale price of the Common Stock on the NYSE was $29 1/8 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>
<S> <C> <C> <C>
====================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) MCN(2)
- --------------------------------------------------------------------------------------------------------------------
Per Share............................ $29.125 $.83 $28.295
- --------------------------------------------------------------------------------------------------------------------
Total(3)............................. $247,562,500 $7,055,000 $240,507,500
====================================================================================================================
</TABLE>
(1) MCN has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by MCN estimated at $250,000.
(3) The Company has granted to the U.S. Underwriters and International Managers
options, exercisable for a period of 30 days after the date of this
Prospectus Supplement, to purchase up to an aggregate of 1,050,000 and
225,000 additional shares of Common Stock, respectively, solely to cover
over-allotments. If all such shares of Common Stock are purchased, the total
Price to Public, Underwriting Discount and Proceeds to MCN will be
$284,696,875, $8,113,250 and $276,583,625, respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
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 shares of Common Stock offered hereby will be made in New York,
New York on or about June 30, 1997.
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC
SMITH BARNEY INC.
------------------------
The date of this Prospectus Supplement is June 24, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THESE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK
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 - AT A GLANCE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED ENERGY GROUP KEY STRATEGIES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
OPERATING THROUGH MCN INVESTMENT CORPORATION (MCNIC), THE * MCNIC sees opportunities to invest about
DIVERSIFIED ENERGY GROUP MANAGES A DIVERSE PORTFOLIO OF ENERGY-RELATED $3.5 billion from 1997 through 1999 in
ASSETS IN NORTH AMERICA AND INDIA. DURING THE PAST FIVE YEARS, DIVERSIFIED energy-related projects
ENERGY HAS GROWN RAPIDLY, REACHING AN ASSET BASE OF $ 1.5 BILLION AND * join with partners to complement expertise
CONTRIBUTING $31 MILLION, OR 28%, OF MCN'S 1996 EARNINGS. and minimize operating costs
* Expand gas marketing operations and
pursue opportunities developing from the
electric industry restructuring
===============================================================================================================================
EXPLORATION & PRODUCTION
* MCNIC Oil & Gas Company focuses on the Midwest/Appalachia, * Invest in and manage a diverse portfolio
Midcontinent/Gulf and Rockies/Western regions and is a of properties, focusing on low- and
rapidly growing, top 20 U.S. independent oil and gas producer moderate-risk E&P projects
* 1996 production nearly doubled to 64 Bcfe as proved reserves rose * Manage price risk through hedging
40% to 1.2 Tcfe of future production
===============================================================================================================================
PIPELINES & PROCESSING
* MCNIC Pipeline & Processing Company owns gathering systems in Appalachia, * Acquire and expand pipeline, gathering
on- and offshore Gulf Coast and Coast Wyoming, as well as processing and processing facilities in major supply
facilities in Michigan and Texas and market regions
* Recent acquisitions increased earnings 10-fold * Create synergies with E&P and other
* 1996 transportation volumes totaled 86 Bcf and processing affiliated operations
volumes were 44 Bcf
===============================================================================================================================
ENERGY MARKETING, GAS STORAGE & POWER GENERATION * Increase marketing presence in niche,
* CoEnergy Trading Company markets premium, reliable, primarily bundled Midwest and Northeast U.S. and
energy services to large-volume customers and owns market-area storage that Canadian markets
adds value to its energy-marketing activities * Expand storage capacity to complement
* Natural gas volumes marketed exceeded 241 Bcf in 1996, up 29% marketing activity
* MCNIC Power Company and affiliates own electric power generation facilities * Invest in and supply gas for domestic and
in the United States and India international electric power projects
- -------------------------------------------------------------------------------------------------------------------------------
[UNITED STATES MAP] DIVERSIFIED ENERGY
------------------
[ ]
Major Market Areas
[ ]
Processing Plants
[ ]
Gas and Oil Properties
[ ]
Gathering Pipelines
[ ]
Power Generation
Facilities
[ ]
Storage Facilities
-------------------
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
GAS DISTRIBUTION GROUP KEY STRATEGIES
<S> <C>
OPERATING THE LARGEST NATURAL GAS DISTRIBUTION AND TRANSMISSION * Grow traditional retail sales to
SYSTEM IN MICHIGAN, PRIMARILY THROUGH MICHIGAN CONSOLIDATED GAS residential and commercial markets
COMPANY (MICHCON), THIS GROUP DISTRIBUTES GAS TO 1.2 MILLION * Develop new opportunities for
CUSTOMERS IN MORE THAN 500 COMMUNITIES AND TRANSPORTS GAS TO end-user and intermediate transportation
OTHER SYSTEMS FOR ULTIMATE DELIVERY IN THE MIDWESTERN AND in conjunction with 130 Bcf of
NORTHEASTERN UNITED STATES, AS WELL AS SOUTHEASTERN CANADA. DURING underground storage capacity
1996, THE COMPANY CONTINUED GROWING ITS UTILITY CUSTOMER BASE * Achieve continued cost reductions
THROUGH MARKET ADDITIONS AND CONVERSIONS, WHILE EXPANDING * Promote regulatory reform
END-USER AND INTERMEDIATE TRANSPORTATION SERVICES.
===================================================================================================================================
RETAIL GAS SALES
* Primarily provived to residential and small-volume commercial customers * Capture market share from other
* Represents 25% of deliveries, 78% of gross profit margins fuels and suppliers
* 23,000 new customers added in communities throughout Michigan * Extend service to new communities
* Continued resurgence of Michigan economy spurs housing and by promoting the many benefits of
commercial development natural gas
===================================================================================================================================
END-USER GAS TRANSPORTATION
* Transportation-only service to large-volume commercial and industrial * Offer flexible transportation rates
customers, increasing due to cost competitiveness of natural gas and under long-term contracts while
flexibility of services promoting natural gas as the fuel
* Represents 16% of deliveries, 14% of gross profit margins of choice
===================================================================================================================================
INTERMEDIATE GAS TRANSPORTATION
* Intrastate transportation service for marketers, interstate pipelines * Seek continued volume growth
and gas producers, growing significantly by positioning the pipeline and storage
* Represents 59% of deliveries, 8% of gross profit margins systems as a regional hub...the "Gateway
to the East"
- -----------------------------------------------------------------------------------------------------------------------------------
GAS DISTRIBUTION
[MAP OF MICHIGAN] ---------------------------------------------------------
[ ] [ ] [ ]
MichCon MichCon Citizens Gas
Service Areas Pipeline Systems Fuel Company
---------------------------------------------------------
</TABLE>
<PAGE> 5
- ---------------------------------------------------------------------------
1992-1996 Average Total Return to Shareholders
(in Percent)
- ----------------------------------------------------------------------------
[LINE CHART]
24.8 MCN Energy Group
22.5 PEER Group
15.2 S&P 500
Divided reinvested
[ ] MCN Energy Group
[ ] Peer Group
[ ] S&P 500
MCN Energy Group's average annual total return to shareholders continues
to surpass peer group and major market indices.
- ------------------------------------------------------------------------------
Return on Average Common Equity
(in Percent)
- ------------------------------------------------------------------------------
[LINE CHART]
96 15.8 MCN Energy Group
95 16.5 MCN Energy Group
94 15.8 MCN Energy Group
93 16.1 MCN Energy Group
92 14.6 MCN Energy Group
8.8 5-Year Industry Average
[ ] MCN Energy Group
[ ] 5-Year Industry Average
Earnings from profitable investments have generated returns on equity far
above the average of our energy industry peers.
- -------------------------------------------------------------------------------
1996 Net Income By Business Group
(in Percent)
- -------------------------------------------------------------------------------
[PIE CHART]
28 Gas Distribution Diversified 72
[ ] Gas Distribution
Diversified Energy
The earnings contribution from the Diversified Energy group continued to
climb, rising to 28% in 1996 from 19% in 1995.
- -------------------------------------------------------------------------------
Earning Per Share
(in Dollars)
- -------------------------------------------------------------------------------
[LINE CHART]
96 1.68
95 1.44
94 1.26
93 1.20
92 1.00
Record earnings for 1996 produced a 5-year compound average annual growth rate
of 19.5%.
- -------------------------------------------------------------------------------
Capital Investments
(in Millions of Dollars)
- -------------------------------------------------------------------------------
[LINE CHART]
96 791
95 689
94 402
93 246
92 202
Capital investments have more than doubled MCN Energy Group's asset base since
1992.
- -------------------------------------------------------------------------------
Proved Gas and Oil Reserves
(in Billion Cubic Feet Equivalent)
- -------------------------------------------------------------------------------
96 1,241
95 886
94 429
Drilling success and property acquisitions helped boost proved gas and oil
reserves 40%, even as production nearly doubled in 1996.
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement, the accompanying
Prospectus and in documents incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock Offered.................................... 8,500,000 shares*
U.S. Offering......................................... 7,000,000 shares
International Offering................................ 1,500,000 shares
Use of Proceeds......................................... General corporate purposes, including
acquisitions, capital expenditures,
investments in subsidiaries, working capital
and repayment of debt.
Common Shares Outstanding on June 20, 1997.............. 68,147,441
NYSE Listing Symbol..................................... MCN
Price Range from June 1, 1996 to June 24, 1997.......... $27 3/8 to $32 5/8
Closing Sale Price on June 24, 1997..................... $29 1/8
Indicated Annual Dividend Per Share..................... $ .97
</TABLE>
- -------------------------
* Does not include 1,275,000 shares of Common Stock that may be issued upon the
exercise of the U.S. Underwriters' and International Managers' over-allotment
options.
S-3
<PAGE> 7
MCN ENERGY GROUP INC.
SELECTED HISTORICAL FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating Revenues............... $1,995,391 $1,997,268 $1,495,232 $1,473,633 $1,420,754 $1,395,341
Operating Income................. $ 201,452 $ 211,293 $ 188,229 $ 147,914 $ 138,694 $ 120,744
Operating and Joint Venture
Income (Loss)
Diversified Energy
Exploration & Production..... $ 44,800 $ 33,235 $ 18,460 $ 10,755 $ 1,221 $ 14
Pipelines & Processing....... 15,450 10,724 1,004 1,991 2,138 411
Energy Marketing, Gas Storage
& Power Generation........ 13,451 13,962 9,097 5,286 7,028 3,711
Corporate & Other............ (1,577) (499) (2,747) (2,389) (3,662) (1,046)
---------- ---------- ---------- ---------- ---------- ----------
72,124 57,422 25,814 15,643 6,725 3,090
Gas Distribution............... 157,513 171,738 167,660 138,560 139,679 116,901
---------- ---------- ---------- ---------- ---------- ----------
$ 229,637 $ 229,160 $ 193,474 $ 154,203 $ 146,404 $ 119,991
========== ========== ========== ========== ========== ==========
Net Income From Continuing
Operations..................... $ 115,284 $ 112,569 $ 93,169 $ 74,598 $ 70,173 $ 54,537
Earnings Per Share From
Continuing Operations
Diversified Energy............. $ .61 $ .47 $ .27 $ .20 $ .09 $ .02
Gas Distribution............... 1.10 1.21 1.17 1.06 1.11 .98
---------- ---------- ---------- ---------- ---------- ----------
$ 1.71 $ 1.68 $ 1.44 $ 1.26 $ 1.20 $ 1.00
========== ========== ========== ========== ========== ==========
Average Number of Common Shares
Outstanding (000's)............ 67,187 66,944 64,743 59,394 58,642 54,216
OPERATING STATISTICS
Diversified Energy(1)
Exploration & Production
Gas Production (MMcf)........ 63,397 57,202 31,420 16,513 2,307 --
Oil Production (Mbbl)........ 1,477 1,086 388 85 -- --
Gas and Oil Production (MMcf
Equivalent)............... 72,259 63,718 33,748 17,023 2,307 --
Pipelines & Processing
(MMcf)(2)
Gas Processed................ 44,891 44,223 14,588 1,942 -- --
Methanol Produced (thousand
gallons).................. 25,808 10,545 -- -- -- --
Transportation............... 84,241 86,391 4,994 1,194 294 --
Energy Marketing and Power
Generation (MMcf)
Gas Sales(2)................. 236,329 218,952 170,668 142,352 122,782 112,263
Exchange Gas Deliveries...... 21,893 22,586 16,462 13,301 10,016 2,443
---------- ---------- ---------- ---------- ---------- ----------
258,222 241,538 187,130 155,653 132,798 114,706
========== ========== ========== ========== ========== ==========
Gas Distribution (MMcf)(1)
Gas sales...................... 212,035 220,958 209,816 204,384 205,372 203,110
End user transportation........ 143,826 146,895 145,761 140,020 128,643 129,722
Intermediate transportation.... 520,059 527,510 374,428 322,969 302,662 209,360
---------- ---------- ---------- ---------- ---------- ----------
Total..................... 875,920 895,363 730,005 667,373 636,677 542,192
========== ========== ========== ========== ========== ==========
Customers...................... 1,188,515 1,183,443 1,172,613 1,154,545 1,141,986 1,130,165
</TABLE>
(continued on next page)
S-4
<PAGE> 8
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
CAPITAL INVESTMENTS(3)
Diversified Energy
Exploration & Production....... $ 395,543 $ 382,211 $ 299,145 $ 186,219 $ 56,709 $ 34,108
Pipelines & Processing......... 89,205 157,663 77,683 8,112 5,003 1,077
Energy Marketing, Gas Storage &
Power Generation............. 45,047 21,005 42,540 36,095 31,814 27,542
Corporate & Other.............. 3,320 3,271 8,321 6,026 3,901 3,084
---------- ---------- ---------- ---------- ---------- ----------
533,115 564,150 427,689 236,452 97,427 65,811
Discontinued Operations(4)....... 333 6,508 9,380 12,458 5,064 5,484
Gas Distribution................. 213,498 220,090 251,769 153,059 143,120 130,776
---------- ---------- ---------- ---------- ---------- ----------
$ 746,946 $ 790,748 $ 688,838 $ 401,969 $ 245,611 $ 202,071
========== ========== ========== ========== ========== ==========
TOTAL ASSETS....................... $3,657,739 $3,633,404 $2,898,640 $2,240,973 $1,881,900 $1,648,989
========== ========== ========== ========== ========== ==========
CAPITALIZATION
Long-Term Debt, including Capital
Lease Obligations(5)........... $1,223,509 $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............................ 305,840 173,809 96,449 96,349 -- --
Common shareholders' equity...... 851,813 784,568 664,776 511,495 470,168 433,808
---------- ---------- ---------- ---------- ---------- ----------
$2,381,162 $2,210,417 $1,754,632 1,295,981 $ 970,607 $ 822,619
========== ========== ========== ========== ========== ==========
COMMON STOCK
Market Price Per Share (end of
period)........................ $ 28.13 $ 28.88 $ 23.25 $ 18.00 $ 17.38 $ 15.44
Market Capitalization............ $1,912,699 $1,943,740 $1,543,103 $1,076,184 $1,025,298 $ 900,028
Dividends Paid Per Share......... $ .9500 $ .9400 $ .9000 $ .8675 $ .8450 $ .8250
TOTAL RETURN TO SHAREHOLDERS(6).... 25.93% 28.75% 35.30% 8.38% 18.42% 35.39%
</TABLE>
- ---------------
MMcf -- One million cubic feet.
Mbbl -- Thousands of barrels
(1) Includes intercompany volumes.
(2) Includes MCN's share of joint ventures.
(3) 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.
(4) In June 1996, MCN sold its computer operations subsidiary, The Genix Group,
Inc. ("Genix"). Accordingly, Genix has been accounted for as a discontinued
operation.
(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 MCN
Investment Corporation, with recourse to MCN limited to certain events,
including the realization of tax credits and performance under swap
contracts.
(6) Based on stock price appreciation with dividends reinvested.
S-5
<PAGE> 9
MCN ENERGY GROUP INC.
GENERAL
The Company is a diversified energy holding company headquartered in
Detroit, Michigan with approximately $3.7 billion in assets and annual revenues
of approximately $2 billion. In 1996, MCN earned net income from continuing
operations of $112 million and a return on equity of 15.8%. At December 31,
1996, MCN and its subsidiaries had 3,360 employees.
With gas markets and investments throughout North America and in India, the
Company operates through two major business groups, Diversified Energy and Gas
Distribution. The Diversified Energy group, operating through MCN Investment
Corporation ("MCNIC"), is involved in oil and gas exploration and production,
gas gathering, processing, transmission and storage, energy marketing, electric
power generation and other energy related businesses. The Gas Distribution group
consists principally of Michigan Consolidated Gas Company ("MichCon"), a natural
gas distribution and transmission company serving approximately 1.2 million
customers in more than 500 communities throughout Michigan.
DIVERSIFIED ENERGY
The Diversified Energy group is involved in the following businesses:
Exploration & Production ("E&P"), with 1.2 trillion cubic feet equivalent of
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
consumer markets; Energy Marketing, with total gas sales and exchange delivery
markets during 1996 of 241.5 billion cubic feet ("Bcf"); Power Generation, with
investments in electric generation facilities with a combined 470 net megawatts
of capacity; and Gas Storage, with investments in storage facilities that have
56 Bcf of storage capacity.
The Diversified Energy group's operating revenues for 1996 totaled $734.4
million, while operating and joint venture income was $57.4 million in 1996,
more than double 1995 operating and joint venture income. The significant
improvement primarily reflects higher results from E&P operations, as well as
improved results from Pipelines & Processing and Energy Marketing & Power
Generation operations.
Exploration & Production
MCNIC is engaged in natural gas and oil exploration, development and
production through its wholly owned subsidiary, MCNIC Oil & Gas Company ("MOG").
At December 31, 1996, proved gas reserves totaled 1,137.7 Bcf and proved oil
reserves were 103.2 Bcf equivalent ("Bcfe"), up a combined 354.4 Bcfe, or 40%,
from December 1995 levels. Operating income for 1996 increased by $14.7 million
over 1995 to $33.2 million, reflecting a significant increase in gas and oil
production during 1996 to 63.7 Bcfe from 33.7 Bcfe in 1995. Approximately $15.9
million in federal tax credits were generated in 1996 related to gas production
from certain Antrim formation gas wells and coalbed methane gas wells.
MOG's approach to E&P is selective, conservative, and diversified, with a
primary focus on known areas of gas production where the Company believes the
chances of finding gas are high, although high-potential exploratory projects
are also pursued. MOG intends to make additional investments in natural gas
reserves in areas that offer proved reserves and an acceptable success rate.
MOG's investment portfolio is built on a diversification strategy intended to
manage risk: geographically, with investments in the Midwest/Appalachia,
Midcontinent/Gulf Coast and Western regions; geologically, with formation depths
ranging from less than 400 feet to more than 18,000 feet; and technologically,
with investments in both conventional and unconventional gas and oil projects.
MOG's success rate in its drilling program since its inception in 1992 has
averaged approximately 95%.
MOG's strategy is to continue the aggressive growth of its reserve base in
known producing areas, generating attractive returns and developing reliable,
long-term gas supplies. MOG intends to continue investing in and managing E&P
projects through a network of joint-venture partnerships. MOG seeks to partner
with companies who are recognized as the local experts in each oil and gas
opportunity, thereby gaining access both to drilling programs that are
well-advanced and to new exploratory opportunities without
S-6
<PAGE> 10
the fixed-cost infrastructure that a traditional E&P company would experience.
MOG anticipates that production will increase in the future through the
continued development of MOG's approximately one million net (1.7 million gross)
acres of undeveloped property.
In 1996, MOG participated in the drilling of 547 wells (320 net), bringing
the total drilled to 1,630 wells (1,080 net) since it began operations in 1992
and its 1996 drilling program achieved an overall drilling success rate of 94%
and added approximately 216 Bcfe of proved reserves.
Approximately 52% of MOG's production and almost 70% of its proved reserves
were associated with the Midwest/Appalachia region in 1996, as MOG added 305 net
wells in the region. Approximately 42% of production and 21% of reserves were
from the Midcontinent/Gulf Coast. In 1996, MOG added 94 net wells in the
Midcontinent/Gulf Coast region, including wells in the Anadarko and Permian
Basins.
MCN expects to invest approximately $450 million in exploration and
production activities each year in 1997 and 1998.
Pipelines & Processing
MCNIC Pipeline & Processing Company ("Pipeline and Processing"), a wholly
owned subsidiary of MCNIC, owns interests in gathering systems in Appalachia,
onshore and offshore Gulf Coast and Wyoming, natural gas and gas liquid
processing facilities in Michigan and Texas, a methanol production plant in
Texas and interests in several proposed transmission pipelines.
Pipeline & Processing's operating and joint venture income increased from
$1.0 million in 1995 to $10.7 million in 1996. This reflects an increase in
transportation volumes in 1996 to 86.4 Bcf from 5.0 Bcf in 1995 and an increase
in processing volumes in 1996 to 44.2 Bcf from 14.6 Bcf in 1995. The increase in
1996 primarily reflects income from the December 1995 acquisition from CONSOL
Coal Group of an interest in a 40-mile gas gathering line in Virginia and the
February 1996 acquisition of an interest in a 90-mile gas gathering system in
the Mobile Bay area of offshore Alabama. Results also reflect a higher level of
volumes treated through additional gas processing plants that extract carbon
dioxide from Michigan Antrim formation gas wells.
The investment strategy for the Pipelines & Processing unit is to own
interests in natural gas and gas liquid gathering, processing and transmission
facilities near areas of rapid reserve development or growing consumer markets.
This strategy includes working with other Diversified Energy businesses that
complement Pipelines & Processing's operations. Operating responsibilities for
these facilities are generally the responsibility of the Pipeline & Processing
unit's partners. The Company anticipates that approximately $200 million will be
invested in pipelines and processing facilities in 1997, a level of investment
that is anticipated to be sustained in 1998.
Energy Marketing & Power Generation
MCN's non-regulated energy marketing activities are directed by CoEnergy
Trading Company ("CTC"). CTC, a wholly owned subsidiary of MCNIC, is engaged in
the purchase and sale of natural gas to over 700 commercial and industrial
users, as well as gas and electric utilities and other large-volume customers
throughout the Midwest and Northeastern United States and in Canada. MCNIC Power
Company ("MCNIC Power"), a wholly owned subsidiary of MCNIC formed in 1993,
pursues domestic and international power generation-related opportunities. The
Company believes that power generation projects offer the potential for multiple
sources of income, such as long-term gas sales, transportation services and a
return on the investment in the project facilities.
Operating and joint venture income for 1996 increased to $10.0 million from
$4.9 million in 1995. This improvement reflects a 28% increase in gas sales
volumes and slightly higher margins on gas sales. The increase in gas sales
volumes was driven primarily by additional sales to the northeastern United
States, as well as sales to the Michigan Power project which began operations in
late 1995. The results also reflect a 37% increase in volumes delivered under
gas exchange contracts in 1996.
S-7
<PAGE> 11
Through its offices located in Hartford, Connecticut and Detroit and Grand
Rapids, Michigan, CTC is able to offer buyers a bundled service by making
arrangements for the acquisition of the required gas volumes and delivery to
customers' facilities, and for all the necessary services in between. This
bundled service is in greater demand during the winter months, when interstate
pipeline capacity in certain areas of the Northeast and Midwest is either
constrained or uneconomical. CTC is able to better meet this demand through the
use of gas production and access to storage fields and other physical assets
owned by affiliates.
MCN expects that the restructuring of the U.S. electric power industry will
create substantial investment opportunities, including energy marketing. The
Company plans to emphasize energy marketing primarily at the end-user level,
rather than in the high-volume wholesale market because of its retail marketing
experience and the more favorable margins. Currently, the Company is working
with several potential partners regarding the formation of electricity marketing
alliances in the Midwest and Northeastern United States.
In recent years, an increasing amount of new electric generating capacity
has been fueled by natural gas because of the lower capital costs, lower
emissions and other advantages associated with such facilities. In addition,
many states have passed regulations requiring electric utilities to consider
bids from third parties to meet new electric generation needs. The Company
believes that MCNIC Power has the capacity to provide power generation
facilities with long-term gas supplies at known prices.
MCNIC Power's strategy is to capture synergies among MCN's businesses and
to profitably apply the expertise they have gained in managing energy-related
projects.
Investment opportunities within India's rapidly expanding electric power
generation, transmission and distribution industry are gaining significant
prominence in the Company's overall investment portfolio. MCNIC Power currently
has investments in five operating facilities both domestically and in India with
a combined generating capacity of 470 net megawatts. It is anticipated that
MCNIC Power will invest between $200-$300 million each year through the year
2000, with most of this amount invested in India.
Gas Storage
MCNIC, through its subsidiary MCNIC Gas Storage Company ("Storage
Company"), currently holds interests in two existing storage fields and one
storage field currently under development. Storage Company has signed an
agreement to sell its share of one field effective December 1997. Storage
Company primarily supports MCNIC's energy marketing operations. Storage
Company's storage capacity in Michigan allows it to move gas into storage at
relatively steady rates during off-peak periods and to draw upon this storage
for delivery during peak-demand periods.
Storage Company's joint venture income decreased slightly in 1996 to $4.0
million from $4.2 million in 1995.
Storage Company has adopted a strategy of using joint ventures and
strategic partnerships to provide gas storage services, either as a separate
service or bundled with full gas service, to other gas utilities, pipeline
companies and large-volume gas users. Management believes that having its
storage facilities near major consuming markets provides supply flexibility,
improves reliability of deliveries and helps reduce gas costs.
The gas industry's changing operating environment has resulted in more
efficient use of existing storage facilities. However, management believes that
growing markets will require expanded storage capabilities in selected areas in
the long-term, and that this future need, together with Michigan's pivotal
geographic location and favorable geology, presents a significant opportunity
for MCN's storage business.
Risk Management
MCN recognizes that diversified operations may expose the Company to
greater risk and as a result it has adopted a risk management strategy to
mitigate this increased risk. MCN primarily manages commodity price risk by
utilizing futures, options and swap contracts to more fully balance its
portfolio of supply and sales agreements. MCN has hedged most of its gas and oil
production not covered by long-term, fixed-price sales obligations. MCN's energy
marketing group coordinates all of MCN's hedging activities to ensure compliance
S-8
<PAGE> 12
with risk management policies established by MCN's board of directors. Certain
hedging gains or losses related to gas and oil production are recorded by MCN's
E&P operations. Gains and losses on gas and oil production-related hedging
transactions that are not recorded by MCN's E&P group are absorbed by the energy
marketing group.
GAS DISTRIBUTION
Gas Distribution consists principally of MichCon, a natural gas
distribution and intrastate transmission company serving approximately 1.2
million customers in more than 500 communities throughout Michigan including the
Detroit, Grand Rapids, Ann Arbor, Traverse City and Muskegon metropolitan areas.
The following services are provided by Gas Distribution:
Gas Sales: Includes the marketing and delivery of natural gas to
residential and small-volume commercial customers.
End User Transportation: Through this service, large-volume commercial
and industrial customers that purchase natural gas directly from producers
or brokerage companies utilize the company's gas distribution network to
transport the gas to their facilities.
Intermediate Transportation: Provides transportation service to
producers, brokers and other local distribution companies that own the
natural gas, but are not the ultimate consumer.
The Gas Distribution group's operating revenues for 1996 totaled $1.276
billion, with Gas Sales accounting for over 86% of this total while End User and
Intermediate Transportation revenues accounted for the remaining 14% of the Gas
Distribution group's total revenues. Sales and transportation deliveries totaled
895.4 Bcf in 1996. Gas Sales were 221.0 Bcf, End User Transportation was 146.9
Bcf and Intermediate Transportation was 527.5 Bcf.
The Gas Distribution group continues to focus on challenges and
opportunities resulting from increased competition with other natural gas
distribution companies and other energy providers. The Michigan Public Service
Commission is reviewing various plans to reform Michigan's gas utility
regulatory process to give all customers added choices and to increase
competition. MichCon and other Michigan gas utilities implemented pilot
transportation service programs in early 1997 for small-volume commercial and
residential customers. Under MichCon's two-year program, customers in the pilot
territory had the opportunity to select alternative natural gas suppliers. This
option has been available to MichCon's larger commercial and industrial
customers for several years. MichCon currently generates no earnings on the gas
supply portion of operations. Therefore, a customer's selection of an
alternative supplier is generally expected to be income-neutral. The overall
package of regulatory changes connected with the gas industry restructuring is
expected to result in lighter-handed regulation and the potential to improve
earnings. The Gas Distribution group is positioning itself to respond to changes
in regulation and increased competition by reducing its cost of operations while
maintaining a high level of customer satisfaction. The Gas Distribution group
remains focused on these goals in 1997 and beyond.
Gas Sales revenues increased $171.0 million to $1.103 billion in 1996
primarily due to higher gas costs, colder weather and market expansion. Gas
Sales produced 78% of the Gas Distribution group's gross profit margin from
sales and transportation services ("Gross Profit Margin"). The average margin
per Mcf from gas sales was $2.07 in 1996 and $2.10 in 1995.
End User Transportation revenues totaled $82.5 million in 1996, up $1.7
million from 1995. Deliveries increased in 1996 due to a higher level of usage
by large-volume commercial and industrial customers. Additional deliveries to
gas cogeneration facilities and colder weather also contributed to the increased
deliveries. In 1996, End User Transportation produced 14% of Gross Profit Margin
for the Gas Distribution group.
Intermediate Transportation represents 8% of Gross Profit Margin for the
Gas Distribution group. Revenues totaled $48.6 million in 1996, up $6.6 million
from 1995. The increases in intermediate transportation
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<PAGE> 13
deliveries in 1996 and 1995 are due primarily to additional volumes transported
for two major fixed-fee customers and increased transportation of Antrim gas for
Michigan gas producers and brokers.
The Gas Distribution group continues to take steps to become the preferred
provider of natural gas and high-value energy services within Michigan and to
maintain strong returns. To accomplish this, MichCon intends to: increase
penetration of existing markets by focusing on meeting the needs of customers
and the marketplace; increase efforts to reduce the cost of gas and operating
costs; and take advantage of growth opportunities to expand into new geographic
areas.
FORWARD-LOOKING STATEMENTS
Statements contained in or incorporated by reference into this Prospectus
Supplement or the accompanying Prospectus which are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve certain risks
and uncertainties that may cause actual future results to differ materially from
those contemplated, projected, estimated or budgeted in such forward-looking
statements including, among others, the following: (i) the effects of weather
and other natural phenomenon; (ii) increased competition from other energy
suppliers as well as alternative forms of energy; (iii) the capital intensive
nature of the Company's business; (iv) economic climate and growth in the
geographic areas in which the Company does business; (v) the uncertainty of
reserve estimates; (vi) the timing and extent of changes in commodity prices for
natural gas, electricity and crude oil; (vii) the nature, availability and
projected profitability of potential projects and other investments available to
the Company; (viii) conditions of capital markets and equity markets and (ix)
changes in the economic and political climate in foreign countries where the
Company has invested or may invest in the future. See "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus.
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<PAGE> 14
CAPITALIZATION
The following table sets forth the unaudited summary capitalization at
March 31, 1997 of MCN and its consolidated subsidiaries on a historical basis
and on a pro forma basis after giving effect to (i) the net increase of $30
million in outstanding principal amount of first mortgage bonds of MichCon
resulting from the maturity or redemption of $55 million aggregate principal
amount of first mortgage bonds of MichCon and the issuance of $85 million
aggregate principal amount of first mortgage bonds by MichCon in May 1997
(together, the "MichCon Bond Transactions"), (ii) the issuance of $100 million
of Private Institutional Trust Securities by MCN Financing V and $100 million of
Single Point Remarketed Reset Capital Securities by MCN Financing VI in June
1997 (together, the "MCN Trust Issuances") and (iii) the sale by the Company of
8,500,000 shares of Common Stock and the application of the estimated net
proceeds therefrom as set forth under "Use of Proceeds." The information set
forth in 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 MARCH 31, 1997
------------------------------------------------
ACTUAL AS ADJUSTED(1)
------------------ -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-Term Debt (includes notes payable and current
portion of long-term debt and capital leases)..... $ 296,198 $ 296,198
========== ==========
Long-Term Debt (including capital leases)(2)........ $1,223,509 51.4% $1,253,509 44.0%
MCN-obligated mandatorily redeemable preferred
securities of subsidiaries holding solely
subordinated debentures of MCN(3)................. 305,840 12.8% 505,840 17.7%
Common Stockholders' Equity......................... 851,813 35.8% 1,092,321 38.3%
---------- ---- ---------- -----
Total Capitalization................................ $2,381,162 100% $2,851,670 100.0%
========== ==== ========== =====
</TABLE>
- ---------------
(1) Adjusted for (i) the MichCon Bond Transactions and the application of the
net proceeds therefrom, (ii) the MCN Trust Issuances and the application of
the net proceeds therefrom and (iii) the sale of 8,500,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Underwriting" with respect to the 1,275,000 share
over-allotment option granted to the Underwriters.
(2) 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.
(3) The sole assets of the subsidiaries are as follows: MCN Michigan Limited
Partnership -- 9 3/8% subordinated deferrable interest debt securities of
MCN due 2024 with a principal amount of $101,100,000; MCN Financing I --
8 5/8% junior subordinated debentures of MCN due 2036 with a principal
amount of $82,474,250; MCN Financing III -- 7 1/4% junior subordinated
debentures of MCN due 2002 with a principal amount of $136,340,250; MCN
Financing V -- 6.305% debentures of MCN due 2037 with a principal amount of
$103,093,000; and MCN Financing VI -- 6.85% debentures of MCN due 2037 with
a principal amount of $103,093,000. Upon redemption of such debt, the
preferred securities of such subsidiaries will be mandatorily redeemable.
MCN's 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 actual 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.
S-11
<PAGE> 15
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered hereby
will be used by MCN for general corporate purposes, including acquisitions,
capital expenditures, investment in subsidiaries, working capital and repayment
of debt.
PRICE RANGE OF COMMON STOCK AND COMMON STOCK DIVIDENDS
The Common Stock of the Company began trading on the NYSE on January 4,
1989, following the effective date of the restructuring of MichCon and the
subsequent formation of MCN as its holding company. The high and low sales
prices of the Common Stock, as reported on the NYSE Composite Tape, and the
dividends declared on the Common Stock have been as follows:
<TABLE>
<CAPTION>
CASH
DIVIDENDS
PAID PER
HIGH LOW 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..................................... 32 5/8 28 1/8 .2425
Second Quarter (through June 24, 1997)............ 30 1/2 27 3/8 .2425
</TABLE>
The closing price of the Common Stock on June 24, 1997 was $29 1/8 per
share. The book value of the Common Stock on March 31, 1997 was $12.53 per
share. The dividend for the second quarter of 1997 was paid on May 23, 1997 to
shareholders of record as of May 9, 1997.
The timing and amount of future cash dividends will depend upon 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 Common Stock may purchase a limited amount of Common Stock
without paying brokerage fees and other expenses. Under this plan, the Common
Stock may be purchased in the open market at prevailing prices or purchased from
the Company at the average of the high and low sales prices on the NYSE for the
trading day immediately preceeding the purchase.
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person who is not a "U.S. person" (a "Non-U.S. Holder"). For this
purpose, a "U.S. person" is any person who is, for United States federal income
tax purposes, (i) a citizen or resident of the United States, (ii) a corporation
or partnership created or organized in or under the laws of the United States or
of any State, (iii) an estate the income of which is subject to U.S. federal
income tax, regardless of its source, or (iv) a trust if (a) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (b) one or more United States fiduciaries
S-12
<PAGE> 16
have the authority to control all substantial decisions of the trust. This
discussion does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state and local consequences that
may be relevant to such Non-U.S. Holders in light of their personal
circumstances. Furthermore, this discussion is based on provisions of the United
States Internal Revenue Code of 1986, as amended, existing and proposed
regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change (possibly with retroactive effect).
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States on at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to U.S. federal tax as if they were U.S. citizens and, thus, are not
Non-U.S. Holders for purposes of this discussion.
THIS DISCUSSION IS FOR GENERAL INFORMATION PURPOSES ONLY. EACH PROSPECTIVE
PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO
CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF
ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Common Stock generally will be
subject to withholding of United States federal income tax either at a rate of
30% of the gross amount of the dividends or at such lower rate as may be
specified by an applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business by the Non-U.S.
Holder within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the Non-U.S. Holder,
are not subject to the withholding tax (provided the Non-U.S. Holder files
appropriate documentation, including, under current law, Form 4224, with the
payor of the dividend), but instead are subject to United States federal income
tax on a net income basis at applicable graduated individual or corporate rates.
Any such effectively connected dividends received by a Non-U.S. Holder that is a
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
In order to claim the benefit of an applicable tax treaty, a Non-U.S.
Holder of Common Stock may have to file with the Company or its dividend paying
agent an exemption or reduced treaty rate certificate or letter in accordance
with the terms of the treaty. Under current law, dividends paid to an address
outside the United States are presumed to be paid to a resident of such country
(unless the payor has knowledge to the contrary) for purposes of the withholding
discussed above and for purposes of determining the applicability of a tax
treaty rate. However, under proposed Treasury regulations not currently in
effect, in the case of dividends paid after December 31, 1997 (December 31, 1999
in the case of dividends paid to accounts in existence on or before the date
that is 60 days after the proposed regulations are published as final
regulations), a Non-U.S. Holder of Common Stock who wishes to claim the benefit
of an applicable treaty rate would be required to satisfy applicable
certification and other requirements either directly or through an intermediary.
In addition, backup withholding, as discussed below, may apply in certain
circumstances if applicable certification and other requirements are not met.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
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<PAGE> 17
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, and, where a tax treaty
applies, is attributable to a United States permanent establishment of the
Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale or other disposition
and certain other conditions are met, or (iii) the Company is or has been a
"U.S. real property holding corporation" for United States federal income tax
purposes. The Company believes it is not and does not anticipate becoming a
"U.S. real property holding corporation" for United Sates federal income tax
purposes.
If an individual Non-U.S. Holder falls under clause (i) in the preceding
paragraph, he will, unless an applicable treaty provides otherwise, be taxed on
his net gain derived from the sale under regular graduated United States federal
income tax rates. If an individual Non-U.S. Holder falls under clause (ii) in
the preceding paragraph, he will be subject to a flat 30% tax on the gain
derived from the sale, which may be offset by certain United States-source
capital losses. Certain individual Non-U.S. Holders who were once United States
citizens may be subject to special rules applicable to United States
expatriates.
If a Non-U.S. Holder that is a corporation falls under clause (i) in the
next preceding paragraph, it will be taxed on its gain under regular graduated
United States federal income tax rates and may be subject to an additional
branch profits tax at a 30% rate, unless it qualifies for a lower rate under an
applicable income tax treaty.
FEDERAL ESTATE TAX
Common Stock held by an individual who is not a citizen or resident (as
specifically defined for United States federal estate tax purposes) of the
United States at the time of death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
United States backup withholding tax is imposed at the rate of 31% on
certain payments to persons not otherwise exempt that fail to furnish certain
identifying information to the payor. Under current law, backup withholding
generally will not apply to dividends paid to a Non-U.S. Holder at an address
outside the United States (unless the payer has knowledge that the payee is a
U.S. person), but generally will apply to dividends paid on Common Stock at
addresses inside the United States to Non-U.S. Holders that fail to provide
certain identifying information in the manner required. However, under proposed
Treasury regulations not currently in effect, in the case of dividends paid
after December 31, 1997 (December 31, 1999 in the case of dividends paid to
accounts in existence on or before the date that is 60 days after the proposed
regulations are published as final regulations), a Non-U.S. Holder generally
would be subject to backup withholding at a 31% rate, unless certain
certification procedures (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary or a Non-U.S.
Holder otherwise establishes an exemption from backup withholding.
Payment of the proceeds of a sale of Common Stock by or through a United
States office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payor with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a
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<PAGE> 18
payment of the proceeds of a sale of Common Stock by or through a non-United
States office of a non-United States broker. If, however, such broker is, for
United States federal income tax purposes a U.S. person, a controlled foreign
corporation, or a non-United States person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States, such payments will be subject to information reporting, but not backup
withholding, unless (i) such broker has documentary evidence in its records that
the beneficial owner is a Non-U.S. Holder and certain other conditions are met,
or (ii) the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
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<PAGE> 19
UNDERWRITING
The underwriters named below (the "U.S. Underwriters"), acting through
their respective representatives, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities
Corporation, A.G. Edwards & Sons, Inc., PaineWebber Incorporated, Salomon
Brothers Inc and Smith Barney Inc. (collectively, the "U.S. Representatives"
and, together with the International Representatives, the "Representatives"),
have severally agreed, subject to the terms and conditions contained in a
purchase agreement relating to the Common Stock (the "U.S. Purchase Agreement")
and concurrently with the sale of 1,500,000 shares of Common Stock to certain
underwriters outside the United States and Canada (the "International Managers"
and, together with the U.S. Underwriters, the "Underwriters"), to purchase from
the Company the number of shares of Common Stock set forth opposite their
respective names below. Under certain circumstances, the commitments of certain
non-defaulting U.S. Underwriters or International Managers may be increased.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 750,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 750,000
A.G. Edwards & Sons, Inc. .................................. 750,000
PaineWebber Incorporated.................................... 750,000
Salomon Brothers Inc........................................ 750,000
Smith Barney Inc. .......................................... 750,000
Credit Suisse First Boston Corporation...................... 320,000
Goldman, Sachs & Co. ....................................... 320,000
Morgan Stanley & Co. Incorporated........................... 320,000
Robert W. Baird & Co. Incorporated.......................... 164,000
First of Michigan Corporation............................... 164,000
Edward D. Jones & Co., L.P. ................................ 164,000
Ladenburg Thalmann & Co. Inc. .............................. 164,000
Roney & Co., LLC............................................ 164,000
Advest, Inc. ............................................... 80,000
Cowen & Company............................................. 80,000
Dain Bosworth Incorporated.................................. 80,000
Dominick & Dominick, Incorporated........................... 80,000
Interstate/Johnson Lane Corporation......................... 80,000
Janney Montgomery Scott Inc. ............................... 80,000
Legg Mason Wood Walker, Incorporated........................ 80,000
McDonald & Company Securities, Inc. ........................ 80,000
The Ohio Company............................................ 80,000
---------
Total.......................................... 7,000,000
=========
</TABLE>
The Company has also entered into a purchase agreement (the "International
Purchase Agreement") with the International Managers. Subject to the terms and
conditions set forth in the International Purchase Agreement, and concurrently
with the sale of 7,000,000 shares of Common Stock to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, the Company has agreed to sell to the
International Managers, and the International Managers have severally agreed to
purchase from the Company, an aggregate of 1,500,000 shares of Common Stock. The
initial public offering price per share of the Common Stock and the total
underwriting discount per share of the Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the U.S. Underwriters and the International Managers, respectively, have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock being sold pursuant to each such Purchase Agreement if
any of
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<PAGE> 20
such shares of Common Stock being sold pursuant to each such Purchase Agreement
are purchased. The closings with respect to the sale of the shares to be
purchased by the U.S. Underwriters and the International Managers are
conditioned upon one another.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted to
sell shares of Common Stock to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any
dealer to whom they sell shares of Common Stock will not offer to sell or sell
shares of Common Stock to persons who are non-United States or non-Canadian
persons or to persons they believe intend to resell to persons who are
non-United States or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to United States or Canadian persons or to persons
they believe intend to resell to persons who are United States or Canadian
persons, except in each case for transactions pursuant to the Intersyndicate
Agreement.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Common Stock to the public
at the 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 $.50 per
share. The U.S. Underwriters may allow, and such dealers may reallow, a discount
not in excess of $.10 per share on sales to certain other dealers. After the
public offering, the initial offering price, the concession and discount may be
changed.
The Company has granted to the U.S. Underwriters an option exercisable for
a period of 30 days from the date of this Prospectus Supplement to purchase up
to an additional 1,050,000 shares of Common Stock to cover over-allotments, if
any, at the initial offering price less the underwriting discount. If the U.S.
Underwriters exercise this option, each U.S. Underwriter will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased by
it shown in the foregoing table bears to the 7,000,000 shares of Common Stock
initially offered hereby.
In the Purchase Agreements, the Company has agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
The Company has agreed that for a period of 90 days after the date of this
Prospectus Supplement it will not, without the prior written consent of Merrill
Lynch, directly or indirectly issue, pledge, sell, offer to sell, grant any
option for the sale of, or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, except for (i) the Common Stock to be sold in the Offerings, (ii)
any shares of Common Stock issued or options to purchase Common Stock granted
pursuant to existing employee benefit plans of the Company and its subsidiaries
or (iii) any shares of Common Stock issued pursuant to dividend reinvestment and
stock purchase plans of the Company.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement, the
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representatives may also elect to reduce any short position by
exercising all or part of the over-allotment options described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the
S-17
<PAGE> 21
Underwriters' short position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.
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 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 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 Common Stock. In addition, neither
the Company 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.
In the ordinary course of their business, certain of the Underwriters have
engaged in transactions with and performed services for the Company and its
subsidiaries.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Daniel L. Schiffer, Esq., Senior Vice
President, General Counsel and Secretary of the Company. 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
the Company and owned 34,001 shares of Common Stock as of April 30, 1997.
LeBoeuf, Lamb, Greene & MacRae, L.L.P. from time to time renders legal services
to the Company.
S-18
<PAGE> 22
EXPLANATORY NOTE
The following Prospectus relates to various securities which may be issued
from time to time by MCN and certain related trusts. Such Prospectus is being
delivered at this time only in connection with the offering of Common Stock by
MCN described in this Prospectus Supplement. Therefore, certain information
contained in such Prospectus describing other securities and other issuers is
not directly relevant to the present offering of Common Stock by MCN.
S-19
<PAGE> 23
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> 24
(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.
2
<PAGE> 25
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.
3
<PAGE> 26
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.
4
<PAGE> 27
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
5
<PAGE> 28
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.
6
<PAGE> 29
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
7
<PAGE> 30
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> 31
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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<PAGE> 32
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> 36
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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<PAGE> 37
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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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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<PAGE> 39
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> 40
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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<PAGE> 41
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> 42
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> 43
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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<PAGE> 44
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> 45
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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<PAGE> 46
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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<PAGE> 47
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
25
<PAGE> 48
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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<PAGE> 49
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.
27
<PAGE> 50
======================================================
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 ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION 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 ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary.................................... S-3
Selected Historical Financial
Information.............................. S-4
MCN Energy Group Inc. ..................... S-6
Forward-Looking Statements................. S-10
Capitalization............................. S-11
Use of Proceeds............................ S-12
Price Range of Common Stock and Common
Stock Dividends.......................... S-12
Certain United States Tax Consequences to
Non-United States Holders................ S-12
Underwriting............................... S-16
Legal Matters.............................. S-18
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>
======================================================
======================================================
8,500,000 SHARES
MCN ENERGY GROUP INC. LOGO
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC
SMITH BARNEY INC.
JUNE 24, 1997
======================================================
