<PAGE> 1
Rule 424(b)5
Registration Statement No. 333-47139
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 18, 1998)
4,000,000 SECURITIES
MCN FINANCING II
8 5/8% TRUST PREFERRED SECURITIES (TRUPS(R))
$25 LIQUIDATION AMOUNT
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MCN LOGO
------------------
A brief description of the 8 5/8% Trust Preferred Securities (TRUPS(R)) can
be found under "Summary Information -- Q&A" in this Prospectus Supplement.
The 8 5/8% Trust Preferred Securities (TRUPS(R)) have been approved for
listing on the New York Stock Exchange under the symbol MCNPrS, subject to
official notice of issuance. We expect the 8 5/8% Trust Preferred Securities
(TRUPS(R)) will begin trading on the New York Stock Exchange within 30 days
after they are first issued.
WE URGE YOU TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE
S-9, WHERE WE DESCRIBE SPECIFIC RISKS ASSOCIATED WITH THESE 8 5/8% TRUST
PREFERRED SECURITIES (TRUPS(R)), ALONG WITH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS, BEFORE YOU MAKE YOUR INVESTMENT DECISION.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus Supplement or the Prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
------------------
<TABLE>
<CAPTION>
PER TRUST PREFERRED SECURITY TOTAL
---------------------------- -----
<S> <C> <C>
Public offering price.................................. $25.00 $100,000,000
Underwriting commissions to be paid by MCN Energy
Group Inc. .......................................... (1) (1)
Proceeds to MCN Financing II........................... $25.00 $100,000,000
</TABLE>
- ------------------
(1) Underwriting commissions of $0.7875 per Trust Preferred Security (or
$3,150,000 for all 8 5/8% Trust Preferred Securities (TRUPS(R))) will be
paid by MCN Energy Group Inc.
We expect that the 8 5/8% Trust Preferred Securities (TRUPS(R)) will be
ready for delivery in book-entry form only through The Depository Trust Company
on or about November 18, 1998.
"TRUPS" is a registered service mark of Salomon Smith Barney Inc.
------------------
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
ROBERT W. BAIRD & CO. INCORPORATED
LADENBURG THALMANN & CO. INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO CAPITAL MARKETS, INC.
November 13, 1998
<PAGE> 2
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. WE HAVE NOT, AND THE
UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT
INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION,
YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN
OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AS WELL AS INFORMATION WE PREVIOUSLY
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND INCORPORATED BY REFERENCE,
IS ACCURATE AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS SUPPLEMENT
ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY
HAVE CHANGED SINCE THAT DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Selected Historical Financial Information................... S-3
Recent Developments......................................... S-5
Summary Information -- Q&A.................................. S-5
Risk Factors................................................ S-9
MCN Energy Group Inc........................................ S-12
The Trust................................................... S-12
Capitalization.............................................. S-14
Accounting Treatment........................................ S-14
Use of Proceeds............................................. S-14
Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends...... S-15
Interest Coverage Ratio..................................... S-15
Description of the Preferred Securities..................... S-16
Description of the Junior Subordinated Debt Securities...... S-27
Description of Guarantee.................................... S-32
Relationship Among the Preferred Securities, the Junior
Subordinated Debt Securities and the Guarantee............ S-35
Certain Federal Income Tax Considerations................... S-36
ERISA Considerations........................................ S-39
Underwriting................................................ S-41
Legal Matters............................................... S-42
PROSPECTUS
Available Information....................................... 3
Incorporation of Certain Documents by Reference............. 4
Forward-Looking Statements.................................. 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
Interest Coverage Ratio..................................... 6
Description of MCN Debt Securities.......................... 8
Particular Terms of the Senior Debt Securities.............. 11
Particular Terms of the Subordinated Debt Securities........ 14
Description of MCN Capital Stock............................ 20
Description of the MCN Trust Preferred Securities........... 22
Description of the Preferred Securities Guarantees.......... 23
Effect of Obligations Under the Subordinated Debt Securities
and the Preferred Securities Guarantee.................... 26
Description of Common Stock Warrants........................ 27
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 30
Plan of Distribution........................................ 30
Validity of Securities...................................... 31
Experts..................................................... 32
</TABLE>
S-2
<PAGE> 3
MCN ENERGY GROUP INC.
SELECTED HISTORICAL FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating Results
Operating Revenues................ $2,162,183 $2,207,867 $1,997,268 $1,495,232 $1,473,633 $1,420,754
Operating Income (Loss)(1)-(5).... (366,036) 236,353 211,293 188,229 147,914 138,694
Operating and Joint Venture
Income (Loss)
Diversified Energy
Exploration &
Production(1)............ (382,430) 58,055 33,235 18,460 10,755 1,221
Pipelines &
Processing(2)............ (110,574) 29,136 10,724 1,004 1,991 2,138
Energy Marketing, Gas
Storage & Electric
Power(3)................. 35,847 29,761 13,962 9,097 5,286 7,028
Corporate & Other(4)....... (16,015) (4,294) (499) (2,747) (2,389) (3,662)
---------- ---------- ---------- ---------- ---------- ----------
(473,172) 112,658 57,422 25,814 15,643 6,725
Gas Distribution(5)............. 167,176 179,354 171,738 167,660 138,560 139,679
---------- ---------- ---------- ---------- ---------- ----------
$ (305,996) $ 292,012 $ 229,160 $ 193,474 $ 154,203 $ 146,404
========== ========== ========== ========== ========== ==========
Net Income (Loss) From Continuing
Operations(1)-(7)............... $ (256,499) $ 142,306 $ 112,569 $ 93,169 $ 74,598 $ 70,173
Basic Earnings (Loss) Per Share
From Continuing Operations
Diversified Energy(1)-(4)(6).... $ (4.20) $ .84 $ .47 $ .27 $ .20 $ .09
Gas Distribution(5)(7).......... .93 1.11 1.21 1.17 1.06 1.11
---------- ---------- ---------- ---------- ---------- ----------
$ (3.27) $ 1.95 $ 1.68 $ 1.44 $ 1.26 $ 1.20
========== ========== ========== ========== ========== ==========
Diluted Earnings (Loss) Per Share
From Continuing
Operations(1)-(7)............... $ (3.27) $ 1.91 $ 1.67 $ 1.43 $ 1.25 $ 1.20
Average Number of Common Shares
Outstanding (000's)
Basic........................... 78,531 72,887 66,944 64,743 59,394 58,642
Diluted......................... 78,531 75,435 67,521 65,144 59,481 58,642
Operating Statistics
Diversified Energy(8)
Exploration & Production
Gas Production (MMcf)......... 83,034 78,218 57,202 31,420 16,513 2,307
Oil Production (Mbbl)......... 3,137 3,346 1,086 388 85 --
Gas and Oil Production
(MMcf Equivalent).......... 101,856 98,294 63,718 33,748 17,023 2,307
Pipelines & Processing(MMcf)(9)
Gas Processed................. 44,219 42,761 44,223 14,588 1,942 --
Methanol Produced (thousand
gallons)................... 60,556 60,810 10,545 -- -- --
Transportation................ 164,476 115,975 86,391 4,994 1,194 294
Energy Marketing, Gas Storage
and Electric Power
Gas Sales (MMcf)(9)........ 435,773 343,719 218,952 170,668 142,352 122,782
Exchange Gas
Deliveries(MMcf)......... 11,876 15,109 22,586 16,462 13,301 10,016
Electricity Sales (MWh).... 3,372,425 1,843,302 708,867 271,774 194,103 191,231
Gas Distribution (MMcf)(8)
Gas Sales....................... 182,557 209,092 220,958 209,816 204,384 205,372
End User Transportation......... 141,534 145,101 146,895 145,761 140,020 128,643
Intermediate Transportation..... 570,218 586,496 527,510 374,428 322,969 302,662
---------- ---------- ---------- ---------- ---------- ----------
Total......................... 894,309 940,689 895,363 730,005 667,373 636,677
========== ========== ========== ========== ========== ==========
Customers....................... 1,181,693 1,193,122 1,183,443 1,172,613 1,154,545 1,141,986
</TABLE>
S-3
<PAGE> 4
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Capital Investments(10)
Diversified Energy
Exploration & Production...... $ 291,579 $ 374,997 $ 382,211 $ 299,145 $ 186,219 $ 56,709
Pipelines & Processing........ 369,061 171,735 157,663 77,683 8,112 5,003
Energy Marketing, Gas Storage
& Electric Power........... 147,195 247,124 21,005 42,540 36,095 31,814
Corporate & Other............. 8,550 5,425 3,271 8,321 6,026 3,901
---------- ---------- ---------- ---------- ---------- ----------
816,385 799,281 564,150 427,689 236,452 97,427
Discontinued Operations(11)..... -- -- 6,508 9,380 12,458 5,064
Gas Distribution................ 166,267 160,329 220,090 251,769 153,059 143,120
---------- ---------- ---------- ---------- ---------- ----------
$ 982,652 $ 959,610 $ 790,748 $ 688,838 $ 401,969 $ 245,611
========== ========== ========== ========== ========== ==========
Total Assets...................... $4,126,658 $4,329,461 $3,633,404 $2,898,640 $2,240,973 $1,881,900
========== ========== ========== ========== ========== ==========
Capitalization
Long-Term Debt, including
Capital Lease
Obligations(12)............... $1,402,526 $1,212,564 $1,252,040 $ 993,407 $ 685,519 $ 494,821
Redeemable Cumulative Preferred
Stock of Subsidiary(12)....... -- -- -- -- 2,618 5,618
MCN-Obligated Mandatorily
Redeemable Preferred
Securities of Subsidiaries
Holding Solely Subordinated
Debentures of MCN............. 405,481 505,104 173,809 96,449 96,349 --
Common Shareholders' Equity..... 783,699 1,153,028 784,568 664,776 511,495 470,168
---------- ---------- ---------- ---------- ---------- ----------
$2,591,706 $2,870,696 $2,210,417 $1,754,632 $1,295,981 $ 970,607
========== ========== ========== ========== ========== ==========
</TABLE>
- -------------------------
MMcf -- One million cubic feet
Mbbl -- Thousands of barrels
MWh -- Megawatt hours
(1) Includes write-downs of MCN's Exploration & Production (E&P) oil and gas
properties of $83,955,000 pre-tax ($54,570,000 net of taxes) in the 1998
third quarter and $333,022,000 pre-tax ($216,465,000 net of taxes) in the
1998 second quarter.
(2) Includes a write-down of MCN's coal fines assets of $133,782,000 pre-tax
($86,959,000 net of taxes), and a write-down of certain pipeline assets of
$3,899,000 pre-tax ($2,534,000 net of taxes) in the 1998 third quarter.
(3) Includes restructuring charges related to exiting certain international
power projects of $2,470,000 pre-tax ($1,605,000 net of taxes) in the 1998
third quarter.
(4) Includes MCN restructuring charges of $10,390,000 pre-tax ($6,753,000 net
of taxes) related to a corporate-wide reorganization in the 1998 third
quarter.
(5) Includes a write-down of certain gas gathering pipelines of $24,800,000
pre-tax ($11,200,000 net of taxes and minority interest) in the 1998 third
quarter.
(6) Includes a charge to record a loss on certain E&P investments of $6,135,000
pre-tax ($3,987,000 net of taxes) in the 1998 second quarter.
(7) Includes a charge to record an impairment of an investment in a gas
distribution company in Missouri of $8,500,000 pre-tax ($5,525,000 net of
taxes) in the 1998 third quarter.
(8) Includes intercompany volumes.
(9) Includes MCN's share of joint ventures.
(10) 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.
(11) In June 1996, MCN sold its computer operations subsidiary, The Genix Group,
Inc. ("Genix"). Accordingly, Genix has been accounted for as a discontinued
operation.
(12) Excludes current requirements.
S-4
<PAGE> 5
RECENT DEVELOPMENTS
In September 1998, MCN announced plans to realign its management and
corporate structure, targeting approximately $15 million annually in reduced
operating expenses. The plan includes the reassignment of several key personnel
and the consolidation of some functions among MCN, MCNIC and MichCon. Not
included in the Company's estimated cost savings are organizational changes that
are likely to come as a result of the sale of the E&P properties.
On October 28, 1998, MCN reported a net loss for the third quarter of 1998
of $177.2 million, or $2.24 per diluted share, which included $169.2 million, or
$2.14 per diluted share, of unusual items. These unusual items consist of the
following items, in each case, net of taxes: (1) an $87.0 million, or $1.10 per
diluted share, special charge for MCN's coal fines project; (2) a $54.6 million
write-down, or $0.69 per diluted share, incurred by MCN's E&P unit due to full
cost accounting rules, which require a "ceiling test" that imputes the value of
oil and gas reserves based on current or contract prices at the end of the
quarter rather than on their anticipated long-term value; (3) $8.4 million of
restructuring charges, or $0.11 per diluted share, from a corporate realignment
designed to lower operating costs by approximately $15 million annually as well
as its decision not to pursue certain international power projects; (4) an $11.2
million write-down of certain gas gathering pipelines, or $0.14 per diluted
share; (5) a $5.5 million charge to record an impairment of an investment in a
gas distribution company in Missouri, or $.07 per diluted share; and (6) a $2.5
million write-down of certain pipeline assets, or $.03 per diluted share.
Excluding unusual items, MCN's third quarter net loss was $8.0 million, or
$0.10 per diluted share, compared with earnings of $1.2 million, or $0.02 per
diluted share, in the third quarter of 1997. Excluding unusual items, the
Diversified Energy group reported a net loss of $0.2 million in the third
quarter of 1998, a decline of $18.0 million from the comparable quarter in 1997.
These results primarily reflect the effect of lower gas and oil prices, and
higher production related expenses on the E&P business as well as reduced
contributions from the Pipelines & Processing business as a result of lower
methanol prices. This loss was partially offset by increased contributions from
the Energy Marketing, Gas Storage and Electric Power businesses, primarily from
increased sales of electricity. Excluding unusual items, the Gas Distribution
group reported a net loss of $7.8 million in the third quarter of 1998, an
improvement of $8.8 million over the net loss reported in the third quarter of
1997. These results reflect lower operating expenses as well as growth in
revenues from intermediate transportation services, which together helped offset
the seasonally lower demand for natural gas in this quarter.
For the nine months ended September 30, 1998, net income, excluding unusual
charges, was $82.9 million, or $1.05 per diluted share, compared with $92.1
million, or $1.27 per diluted share, for the nine months ended September 30,
1997.
Concurrent with the reporting of third-quarter 1998 earnings, the Company
announced a refocused strategic direction that reduces the planned capital
expenditure level, de-emphasizes E&P and international investments, and
refocuses growth instead primarily within the Pipelines & Processing and
Electric Power units in North America. These changes are intended to restore
earnings growth and shareholder value.
SUMMARY INFORMATION -- Q&A
The following information supplements, and should be read together with,
the information contained in other parts of this Prospectus Supplement and in
the accompanying Prospectus. This summary highlights selected information from
this Prospectus Supplement and the accompanying Prospectus to help you
understand the 8 5/8% Trust Preferred Securities (TRUPS(R)) (the "Preferred
Securities"). You should carefully read this Prospectus Supplement and the
accompanying Prospectus to understand fully the terms of the Preferred
Securities, as well as the tax and other considerations that are important to
you in making a decision about whether to invest in the Preferred Securities.
You should pay special attention to the "Risk Factors" section beginning on page
S-9 of this Prospectus Supplement to determine whether an investment in the
Preferred Securities is appropriate for you.
WHAT ARE THE PREFERRED SECURITIES?
Each Preferred Security represents an undivided beneficial interest in the
assets of MCN Financing II ("MCN Financing"). Each Preferred Security will
entitle the holder to receive quarterly cash distributions as described in this
Prospectus Supplement. MCN Financing is offering 4,000,000 Preferred Securities
at a price of $25 for each Preferred Security.
S-5
<PAGE> 6
WHO IS MCN FINANCING?
MCN Financing is a Delaware business trust. Its principal place of business
is c/o MCN Energy Group Inc., 500 Griswold Street, Detroit, Michigan 48226, and
its telephone number is (313) 256-5500.
MCN Financing will sell its Preferred Securities to the public and its
common securities (the "Common Securities") to MCN Energy Group Inc. ("MCN" or
the "Company"). MCN Financing will use the proceeds from these sales to buy a
series of 8 5/8% junior subordinated deferrable interest debentures due November
15, 2038 (the "Junior Subordinated Debt Securities") from MCN with the same
financial terms as the Preferred Securities. MCN will, on a subordinated basis,
irrevocably guarantee, under the Preferred Securities Guarantee (the
"Guarantee"), that payments made on the Junior Subordinated Debt Securities will
be made to holders of the Preferred Securities.
There are three trustees of MCN Financing (the "MCN Financing Trustees").
Two of the trustees are employees or officers of MCN (the "Regular Trustees").
Wilmington Trust Company will act as the Institutional Trustee of MCN Financing,
the Delaware Trustee and the Guarantee Trustee, as defined herein. See "The
Trust."
WHO IS MCN ENERGY GROUP INC.?
MCN is a diversified energy company that operates through two major
business groups, Diversified Energy and Gas Distribution. The mailing address of
MCN's principal executive office is 500 Griswold Street, Detroit, Michigan
48226, and its telephone number is (313) 256-5500.
WHEN WILL YOU RECEIVE QUARTERLY DISTRIBUTIONS?
If you purchase the Preferred Securities, you are entitled to receive
cumulative cash distributions at an annual rate of 8 5/8% of the liquidation
amount of $25 per Preferred Security. Distributions will accumulate from the
date MCN Financing issues the Preferred Securities and will be paid quarterly in
arrears on February 15, May 15, August 15 and November 15 of each year,
beginning February 15, 1999.
WHEN CAN PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
So long as no event of default under the Junior Subordinated Debt
Securities has occurred and is continuing, MCN can, on one or more occasions,
defer interest payments on the Junior Subordinated Debt Securities for up to 20
consecutive quarterly periods. A deferral of interest payments cannot extend,
however, beyond the maturity date of the Junior Subordinated Debt Securities
(which is November 15, 2038).
If MCN defers interest payments on the Junior Subordinated Debt Securities,
MCN Financing will also defer distributions on the Preferred Securities. During
this deferral period, distributions will continue to accrue on the Preferred
Securities at an annual rate of 8 5/8% of the liquidation amount of $25 per
Preferred Security. Also, the deferred distributions will themselves accrue
interest at an annual rate of 8 5/8% (to the extent permitted by law). Once MCN
makes all interest payments on the Junior Subordinated Debt Securities, with
accrued interest, it can again postpone interest payments on the Junior
Subordinated Debt Securities if no event of default under the Junior
Subordinated Debt Securities has occurred and is continuing.
During any period in which MCN defers interest payments on the Junior
Subordinated Debt Securities, MCN will not be permitted to (with limited
exceptions):
- pay a dividend or make any other payment or distribution on its
capital stock;
- redeem, purchase, acquire or make a liquidation payment on any of
its capital stock;
- make an interest, principal or premium payment on, or repurchase or
redeem, any of its debt securities that rank equal with or junior to the
Junior Subordinated Debt Securities; or
- make any guarantee payments with respect to the foregoing (other
than pursuant to the Guarantee).
S-6
<PAGE> 7
If MCN defers payments of interest on the Junior Subordinated Debt
Securities, the Preferred Securities will be treated as being issued with
original issue discount for United States federal income tax purposes. This
means you will be required to recognize interest income with respect to
distributions and include such amounts in your gross income for United States
federal income tax purposes even though you will not have received any cash
distributions relating to such interest income. See "Certain Federal Income Tax
Considerations -- Interest Income and Original Issue Discount."
WHEN CAN MCN FINANCING REDEEM THE PREFERRED SECURITIES?
MCN Financing must redeem all of the outstanding Preferred Securities and
Common Securities (together, the "Trust Securities") when the Junior
Subordinated Debt Securities are paid at maturity on November 15, 2038. In
addition, if MCN redeems any Junior Subordinated Debt Securities before their
maturity, MCN Financing will use the cash it receives from the redemption to
redeem, on a pro rata basis, Preferred Securities and Common Securities having a
combined liquidation amount equal to the principal amount of the Junior
Subordinated Debt Securities redeemed.
MCN can redeem some or all of the Junior Subordinated Debt Securities
before their maturity at 100% of their principal amount on one or more occasions
any time on or after November 15, 2003. MCN has the option to redeem all (but
not less than all) of the Junior Subordinated Debt Securities at any time if
certain changes in tax or investment company law occur (each of which is a
"Special Event" and each of which is more fully described under "Description of
the Preferred Securities -- Special Event Redemption" and "Description of the
Junior Subordinated Debt Securities -- Optional Redemption"). In either case,
MCN will pay accrued interest to the date of redemption.
WHAT IS MCN'S GUARANTEE OF THE PREFERRED SECURITIES?
MCN will guarantee the Preferred Securities based on:
- its obligations to make payments on the Junior Subordinated Debt
Securities;
- its obligations under the Guarantee, and
- its obligations under the Amended and Restated Declaration of Trust
of MCN Financing (the "Declaration"), which sets forth the terms of the
Trust.
MCN has irrevocably guaranteed that if a payment on the Junior Subordinated
Debt Securities is made to MCN Financing but, for any reason, MCN Financing does
not make the corresponding distribution or redemption payment to the holders of
the Preferred Securities, then MCN will make the payment directly to the holders
of the Preferred Securities. To avoid a double payment to a holder of the
Preferred Securities, if MCN makes a payment under the Guarantee, the holder's
right to receive the corresponding payment from MCN Financing will automatically
be surrendered to MCN.
MCN's obligations under the Guarantee are:
- subordinate and junior in right of payment to its other liabilities,
- equal in rank to its most senior current or future preferred stock
and to any current or future guarantee of preferred or preference stock of
any of its subsidiaries, and
- senior to its common stock.
WHEN COULD THE JUNIOR SUBORDINATED DEBT SECURITIES BE DISTRIBUTED TO YOU?
MCN has the right to dissolve MCN Financing at any time. If MCN decides to
exercise its right to terminate MCN Financing, MCN Financing will redeem the
Preferred Securities by distributing the Junior Subordinated Debt Securities to
holders of the Preferred Securities and the Common Securities on a pro rata
basis. If the Junior Subordinated Debt Securities are distributed, MCN will use
its best efforts to list the Junior Subordinated Debt Securities on the New York
Stock Exchange ("NYSE") in place of the Preferred Securities.
S-7
<PAGE> 8
WILL THE PREFERRED SECURITIES BE LISTED ON A STOCK EXCHANGE?
The Preferred Securities have been approved for listing on the NYSE under
the symbol "MCNPrS." We expect that the Preferred Securities will begin trading
on the NYSE within 30 days after they are first issued.
WILL HOLDERS OF THE PREFERRED SECURITIES HAVE ANY VOTING RIGHTS?
Generally, the holders of Preferred Securities will not have any voting
rights. See "Description of the Preferred Securities -- Voting Rights."
IN WHAT FORM WILL THE PREFERRED SECURITIES BE ISSUED?
The Preferred Securities will be represented by one or more global
securities that will be deposited with and registered in the name of The
Depository Trust Company, New York, New York ("DTC") or its nominee. This means
that you will not receive a certificate for your Preferred Securities and that
your broker will maintain your position in the Preferred Securities. MCN
Financing expects that the Preferred Securities will be ready for delivery
through DTC on or about November 18, 1998.
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 dividends for MCN
on an historical basis for the periods indicated.
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------
SEPTEMBER 30, 1998 1997 1996 1995 1994 1993
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MCN.................................. (1) 2.18 2.28 2.55 2.70 3.15
</TABLE>
- -------------------------
(1) Earnings for the twelve months ended September 30, 1998 were not adequate to
cover Fixed Charges. The amount of the coverage deficiency was $464,646,000.
The Ratio of Earnings to Fixed Charges for the twelve months ended September
30, 1998, excluding the unusual charges, would have been 1.81.
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.
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 Michigan Consolidated Gas Company ("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, MCN
Financing I, MCN Financing III, MCN Financing V and MCN Financing VI), increased
to reflect the pre-tax earnings requirements for MichCon.
In June 1996, MCN completed the sale of 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.
S-8
<PAGE> 9
RISK FACTORS
Your investment in the Preferred Securities will involve certain risks. You
should carefully consider the following discussion of risks, and the other
information in this Prospectus Supplement and the accompanying Prospectus,
before deciding whether an investment in the Preferred Securities is suitable
for you.
MCN'S OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR SUBORDINATED DEBT
SECURITIES ARE SUBORDINATED.
MCN's obligations under the Guarantee will rank in priority of payment as
follows:
- subordinate and junior in right of payment to its other liabilities,
- equal in rank to its most senior current or future preferred stock
and to any current or future guarantee of preferred or preference stock of
any of its subsidiaries, and
- senior to its common stock.
This means that MCN cannot make any payments on the Guarantee if it
defaults on a payment on any of its other liabilities. In addition, in the event
of the bankruptcy, liquidation or dissolution of MCN, its assets would be
available to pay obligations under the Guarantee only after MCN made all
payments on its senior indebtedness. At September 30, 1998, the total amount of
MCN's senior indebtedness was approximately $2.087 billion.
MCN's obligations under the Junior Subordinated Debt Securities will rank
junior in priority of payment to all of MCN's senior indebtedness and all
existing and future liabilities of MCN's subsidiaries. This means that MCN
cannot make any payments on the Junior Subordinated Debt Securities if it
defaults on a payment of senior indebtedness and does not cure such default
within the applicable grace period or if the senior indebtedness becomes
immediately due because of a default and has not yet been paid in full.
Neither the Preferred Securities, the Junior Subordinated Debt Securities
nor the Guarantee limit the ability of MCN and its subsidiaries to incur
additional indebtedness, including indebtedness that ranks senior in priority of
payment to the Junior Subordinated Debt Securities and the Guarantee. See
"Description of Guarantee -- Status of the Guarantee" and "Description of the
Junior Subordinated Debt Securities -- Subordination."
THE GUARANTEE ONLY COVERS PAYMENTS IF MCN FINANCING HAS CASH AVAILABLE.
The ability of MCN Financing to pay scheduled distributions on the
Preferred Securities, the redemption price of the Preferred Securities and the
liquidation amount of each Preferred Security is solely dependent upon MCN
making the related payments on the Junior Subordinated Debt Securities when due.
If MCN defaults on its obligation to pay principal or interest on the
Junior Subordinated Debt Securities, MCN Financing will not have sufficient
funds to pay distributions, the redemption price or the liquidation amount of
each Preferred Security. In those circumstances, you will not be able to rely
upon the Guarantee for payment of these amounts.
Instead, you:
- may directly sue MCN or seek other remedies to collect your pro rata
share of payments owed; or
- may rely on the Guarantee Trustee to enforce MCN Financing's rights
under the Junior Subordinated Debt Securities and the Guarantee.
DEFERRAL OF DISTRIBUTIONS WOULD HAVE TAX CONSEQUENCES FOR YOU AND MAY AFFECT THE
TRADING PRICE OF THE PREFERRED SECURITIES.
So long as no event of default under the Junior Subordinated Debt
Securities has occurred and is continuing, MCN can, on one or more occasions,
defer interest payments on the Junior Subordinated Debt Securities for up to 20
consecutive quarterly periods. If MCN defers interest payments on the Junior
Subordinated Debt Securities, MCN Financing will defer distributions on the
Preferred Securities during any
S-9
<PAGE> 10
deferral period. However, distributions would still accumulate and such deferred
distributions would themselves accrue interest at the annual rate of 8 5/8% per
annum (to the extent permitted by law).
If MCN defers payments of interest on the Junior Subordinated Debt
Securities, you will be required to recognize interest income for United States
federal income tax purposes (based on your pro rata share of the interest on the
Junior Subordinated Debt Securities held by MCN Financing) before you receive
any cash relating to such interest. In addition, you will not receive such cash
if you sold the Preferred Securities before the end of any deferral period or
before the record date relating to distributions which are paid.
MCN has no current intention of deferring interest payments on the Junior
Subordinated Debt Securities and believes that such deferral is a remote
possibility. However, if MCN exercises its right in the future, the Preferred
Securities may trade at a price that does not fully reflect the value of accrued
but unpaid interest on the Junior Subordinated Debt Securities. If you sell the
Preferred Securities during an interest deferral period, you may not receive the
same return on investment as someone else who continues to hold the Preferred
Securities. In addition, the existence of MCN's right to defer payments of
interest on the Junior Subordinated Debt Securities may mean that the market
price for the Preferred Securities (which represent an undivided beneficial
interest in the Junior Subordinated Debt Securities) may be more volatile than
other securities that do not have these rights.
See "Certain Federal Income Tax Considerations" for more information
regarding the tax consequences of purchasing, holding and selling the Preferred
Securities.
PREFERRED SECURITIES MAY BE REDEEMED AT ANY TIME IF A SPECIAL EVENT OCCURS.
If a Special Event occurs and is continuing, MCN has the right to redeem
all (but not less than all) of the Junior Subordinated Debt Securities. Such
redemption will cause a mandatory redemption of the Preferred Securities within
90 days of the event at a redemption price equal to $25 per security plus any
unpaid distributions. See "Description of the Preferred Securities --
Distribution of the Junior Subordinated Debt Securities" and "-- Special Event
Redemption."
PREFERRED SECURITIES MAY BE REDEEMED AT THE OPTION OF THE COMPANY
At the option of the Company, the Junior Subordinated Debt Securities may
be redeemed, in whole, at any time, or in part, from time to time, on or after
November 15, 2003 at a redemption price equal to the principal amount to be
redeemed plus any accrued and unpaid interest to the redemption date. See
"Description of the Junior Subordinated Debt Securities -- Optional Redemption."
You should assume that the Company will exercise its redemption option if the
Company is able to refinance at a lower interest rate or it is otherwise in the
interest of the Company to redeem the Junior Subordinated Debt Securities. If
the Junior Subordinated Debt Securities are redeemed, the Trust must redeem the
Preferred Securities and the Common Securities having an aggregate liquidation
amount equal to the aggregate principal amount of Junior Subordinated Debt
Securities so redeemed. See "Description of the Preferred Securities --
Mandatory Redemption of Trust Securities."
DISTRIBUTION OF JUNIOR SUBORDINATED DEBT SECURITIES MAY HAVE A POSSIBLE ADVERSE
EFFECT ON TRADING PRICE.
MCN has the right to terminate MCN Financing at any time. If MCN decides to
exercise its right to terminate MCN Financing, MCN Financing will redeem the
Preferred Securities and Common Securities by distributing the Junior
Subordinated Debt Securities to holders of the Preferred Securities and Common
Securities on a pro rata basis.
Under current United States federal income tax laws, a distribution of
Junior Subordinated Debt Securities to you on the dissolution of MCN Financing
should not be a taxable event to you. However, if MCN Financing is characterized
for United States federal income tax purposes as an association taxable as a
corporation at the time it is dissolved or if there is a change in law, the
distribution of Junior Subordinated Debt Securities to you may be a taxable
event to you.
S-10
<PAGE> 11
MCN has no current intention of causing the termination of MCN Financing
and the distribution of the Junior Subordinated Debt Securities. However, there
are no restrictions on its ability to do so at any time. MCN anticipates that it
would consider exercising this right in the event that expenses associated with
maintaining MCN Financing were substantially greater than currently expected,
such as if a Special Event occurred. MCN cannot predict the other circumstances
under which this right would be exercised.
Although MCN will use its best efforts to list the Junior Subordinated Debt
Securities on the NYSE (or any other exchange or organization on which the
Preferred Securities are then listed) if they are distributed, we cannot assure
you that the Junior Subordinated Debt Securities will be approved for listing or
that a trading market will exist for those securities.
MCN cannot predict the market prices for the Junior Subordinated Debt
Securities that may be distributed. Accordingly, the Junior Subordinated Debt
Securities that you receive on a distribution, or the Preferred Securities you
hold pending such a distribution, may trade at a discount to the price that you
paid to purchase the Preferred Securities.
Because you may receive Junior Subordinated Debt Securities, you should
make an investment decision with regard to the Junior Subordinated Debt
Securities, in addition to the Preferred Securities. You should carefully review
all the information regarding the Junior Subordinated Debt Securities contained
in this Prospectus Supplement and the accompanying Prospectus.
YOU HAVE LIMITED VOTING RIGHTS.
You will have limited voting rights. In particular, only MCN can elect or
remove any of MCN Financing Trustees. See "Description of the Preferred
Securities -- Voting Rights."
S-11
<PAGE> 12
MCN ENERGY GROUP INC.
The Company has evolved during the past five years from a natural gas
distribution company into a diversified energy company.
As of September 30, 1998, MCN was a $4.1 billion (assets) diversified
energy holding company with natural gas markets and investments in North America
and Asia. MCN's strategy is to invest in a diverse portfolio of energy-related
projects.
MCN operates through two major business groups, Diversified Energy and Gas
Distribution.
Diversified Energy, operating through MCN Investment Corporation ("MCNIC"),
is an integrated energy group with investments in exploration and production
("E&P"), pipelines and processing, energy marketing, gas storage, electric power
and other energy-related businesses. For the twelve months ended September 30,
1998, operating revenues for this segment exceeded $1.0 billion and, at
September 30, 1998, total assets were approximately $2.2 billion. For the twelve
month period ended September 30, 1998, MCNIC invested more than $800 million in
its diverse businesses, although it is expected that the level of investment
will decline in future periods. MCN believes that expanding opportunities should
enable MCNIC to continue to grow its markets and increase its asset-based
investments, although it recently announced that divestiture of all or part of
the E&P unit is possible and that it intends to focus more on opportunities in
North America rather than internationally.
Gas Distribution, operating principally through MichCon, operates the
largest natural gas distribution and intrastate transmission system in Michigan
and one of the largest in the United States. For the twelve months ended
September 30, 1998, operating revenues for this segment were approximately $1.1
billion. In addition, at September 30, 1998, the segment had total assets of
approximately $1.9 billion. Gas Distribution serves approximately 1.2 million
customers in more than 500 communities throughout Michigan with gas sales and
transportation markets of 894 Bcf for the twelve months ended September 30,
1998. Gas Distribution continues to increase its markets by reaching customers
in new communities, offering new services to current customers and expanding its
intrastate gas transportation network.
The mailing address of MCN's principal executive office is 500 Griswold
Street, Detroit, Michigan 48226, and its telephone number is (313) 256-5500.
THE TRUST
MCN Financing is a statutory business trust created under Delaware law
pursuant to (i) a declaration of trust, dated as of March 6, 1996, as amended on
May 29, 1996, executed by the Company, as sponsor (in such capacity, the
"Sponsor"), and the MCN Financing Trustees and (ii) the filing of a certificate
of trust with the Secretary of State of the State of Delaware on March 6, 1996.
Such declaration will be amended and restated in its entirety (as so amended and
restated, the "Declaration"), substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part. The Declaration will, among other things,
increase the term of MCN Financing to approximately 45 years, but the Trust may
be dissolved earlier as provided in the Declaration. The Declaration has been
qualified as an indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). Upon issuance of the Preferred Securities, the
purchasers thereof will own all of the Preferred Securities. See "Description of
the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company." The Company will directly or indirectly acquire Common Securities in
an aggregate liquidation amount equal to 3% or more of the total capital of the
Trust. The Trust exists for the exclusive purposes of (i) issuing the Trust
Securities representing undivided beneficial interests in the assets of the
Trust, (ii) investing the gross proceeds of the Trust Securities in the Junior
Subordinated Debt Securities and (iii) engaging in only those other activities
necessary or incidental thereto. MCN Financing's business and affairs are
conducted by its trustees, each appointed by the Company as holder of the Common
Securities.
Pursuant to the Declaration, the number of MCN Financing Trustees will
initially be three. The two Regular Trustees are persons who are employees or
officers of or who are affiliated with MCN. The third trustee is a financial
institution that is unaffiliated with MCN, and which will serve as institutional
trustee under the Declaration for the purposes of compliance with the provisions
of the Trust Indenture Act (the "Institutional Trustee"). Initially, Wilmington
Trust Company, a Delaware banking corporation, will be the Institutional Trustee
until removed or replaced by the holder of the Common Securities. For the
purpose of compliance with the provisions of the Trust Indenture Act, Wilmington
Trust Company will also act as trustee
S-12
<PAGE> 13
(the "Guarantee Trustee") under the Guarantee and as Delaware trustee (the
"Delaware Trustee") for the purposes of the Trust Act (as defined herein), until
removed or replaced by the holder of the Common Securities. See "Description of
the Preferred Securities Guarantees" in the accompanying Prospectus. See
"Description of the Preferred Securities -- Voting Rights."
The Institutional Trustee will hold title to the Junior Subordinated Debt
Securities for the benefit of the holders of the Trust Securities and the
Institutional Trustee will have the power to exercise all rights, powers and
privileges under the Indenture (as defined herein) as the holder of the Junior
Subordinated Debt Securities. In addition, the Institutional Trustee will
maintain exclusive control of a segregated non-interest bearing bank account
(the "Property Account") to hold all payments made in respect of the Junior
Subordinated Debt Securities for the benefit of the holders of the Trust
Securities. The Institutional Trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of the Trust
Securities out of funds from the Property Account. The Guarantee Trustee will
hold the Guarantee for the benefit of the holders of the Preferred Securities.
MCN, as the direct or indirect holder of all the Common Securities, will have
the right to appoint, remove or replace any MCN Financing Trustee and to
increase or decrease the number of MCN Financing Trustees; provided, that the
number of MCN Financing Trustees shall be at least three, a majority of which
shall be Regular Trustees. MCN will pay all fees and expenses related to MCN
Financing and the offering of the Trust Securities. See "Description of the
Junior Subordinated Debt Securities -- Certain Fees and Expenses."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
The principal place of business of the Delaware Trustee is c/o Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration. The principal place
of business of the Trust shall be c/o MCN Energy Group Inc., 500 Griswold
Street, Detroit, Michigan 48226, and its telephone number is (313) 256-5500.
S-13
<PAGE> 14
CAPITALIZATION
The following table sets forth the unaudited summary capitalization at
September 30, 1998 of the Company and its consolidated subsidiaries on an
historical basis and on a pro forma basis after giving effect to the sale by the
Company of the 4,000,000 Preferred Securities offered hereby and the application
of the net proceeds therefrom. See "Use of Proceeds". The table should be read
in conjunction with MCN's consolidated financial statements and notes thereto
and other financial data incorporated by reference herein. See "Incorporation of
Certain Documents by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
--------------------------
AS
ACTUAL ADJUSTED (1)
------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-Term Debt (includes notes payable and current portion
of long-term debt and capital leases)..................... $ 684,456 $ 684,456
========== ==========
Long-Term Debt (including capital leases)................... $1,402,526 $1,402,526
MCN-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiaries Holding Solely Subordinated Debentures of the
Company(2)................................................ 405,481 505,481
Common Stockholders' Equity................................. 783,699 783,699
---------- ----------
Total Capitalization................................... $2,591,706 $2,691,706
========== ==========
</TABLE>
- -------------------------
(1) Adjusted for the sale of 4,000,000 Preferred Securities, the application of
the estimated net proceeds to the purchase of the Junior Subordinated Debt
Securities of MCN and the application by MCN of the estimated net proceeds
of the Junior Subordinated Debt Securities for the purposes set out under
"Use of Proceeds."
(2) 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 II -- 8 5/8% Junior Subordinated
Deferrable Interest Debentures of MCN due November 15, 2038 with a principal
amount of $103,092,800; MCN Financing III -- 7 1/4% Junior Subordinated
Debentures of MCN due 2002 with a principal amount of $136,340,250; 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
respective subsidiaries will be mandatorily redeemable.
ACCOUNTING TREATMENT
The financial statements of MCN Financing will be reflected in MCN's
consolidated financial statements with the Preferred Securities shown as
MCN-obligated mandatorily redeemable preferred securities of subsidiaries
holding solely subordinated debentures of the Company. The financial statement
footnotes of MCN will reflect that the sole asset of MCN Financing will be
approximately $103,092,800 principal amount of 8 5/8% Junior Subordinated
Deferrable Interest Debentures due November 15, 2038 of MCN. See
"Capitalization." For financial reporting purposes, the Company will record
distributions payable on the Preferred Securities as an expense.
USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Securities offered
hereby will be used by MCN Financing to purchase the Junior Subordinated Debt
Securities issued by the Company. The Company intends to add the net proceeds
from the sale of the Junior Subordinated Debt Securities to its general funds,
to be used for general corporate purposes, which may include capital
expenditures, investments in subsidiaries, working capital, repayment of debt
and other business opportunities.
S-14
<PAGE> 15
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 dividends for MCN
on an historical basis for the periods indicated.
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------
SEPTEMBER 30, 1998 1997 1996 1995 1994 1993
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MCN(1)(2)(3)(4)...................... (4) 2.18 2.28 2.55 2.70 3.15
</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, MCN Financing I,
MCN Financing III, MCN Financing V and MCN Financing VI), increased to
reflect the pre-tax earnings requirements for MichCon.
(3) In June 1996, MCN completed the sale of 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.
(4) Earnings for the twelve months ended September 30, 1998 were not adequate to
cover Fixed Charges. The amount of the coverage deficiency was $464,646,000.
The Ratio of Earnings to Fixed Charges for the twelve months ended September
30, 1998, excluding the unusual charges, would have been 1.81.
INTEREST COVERAGE RATIO
The following table sets forth the interest coverage ratio for MCN on a
historical basis for the periods indicated. This ratio differs from the SEC
prescribed "Ratio of Earnings to Fixed Charges" in its treatment of certain
hybrid securities of MCN and its treatment of the unusual charges in 1998. The
ratio set forth below for each of the periods indicated restates and supersedes
the interest coverage ratio for such period that is set forth in the
accompanying Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------
SEPTEMBER 30, 1998 1997 1996 1995 1994 1993
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MCN(1)............................... 2.73 3.03 2.71 2.94 2.90 3.28
</TABLE>
- -------------------------
(1) The interest coverage ratio is the quotient of MCN's Income From Continuing
Operations Before Income Taxes, as adjusted and defined below, divided by
Interest Rate Charges as defined below. Income From Continuing Operations
Before Income Taxes as reported on MCN's Consolidated Statement of Income
has been adjusted to add the following: (1) Interest Rate Charges as defined
below, (2) dividends on the $100,000,000 of 9 3/8% redeemable preferred
securities of MCN Michigan Limited Partnership, (3) dividends on the
$132,250,000 of 8% FELINE PRIDES of MCN Financing III, (4) interest on the
$130,000,000 of 6.82% Series Medium-Term Notes issued in conjunction with
the $135,000,000 of 8 3/4% Preferred Redeemable Increased Dividend Equity
Securities ("PRIDES") of
S-15
<PAGE> 16
MCN, (5) dividends on the $80,000,000 of 8 5/8% Trust Originating Preferred
Securities of MCN Financing I, (6) interest related to nonrecourse debt of
MCN, and (7) the $599,381,000 of unusual charges, net of minority interest,
as detailed in the Notes to the "SELECTED HISTORICAL FINANCIAL INFORMATION"
on page S-4. In addition, capitalized interest has been subtracted from the
determination of Income From Continuing Operations Before Income Taxes.
The computation of Interest Rate Charges includes total interest expense as
reported on MCN's Consolidated Statement of Income adjusted to add: (1)
capitalized interest expense, (2) dividends on the $100,000,000 of Private
Institutional Trust Securities of MCN Financing V, (3) dividends on the
$100,000,000 of Single Point Remarketed Reset Capital Securities of MCN
Financing VI and (4) interest expense implicit in rentals. In addition,
interest expense reported on MCN's Consolidated Statement of Income has been
adjusted to exclude: (1) interest on the $130,000,000 of 6.82% Series
Medium-Term Notes issued in conjunction with the $135,000,000 of 8 3/4%
PRIDES of MCN and (2) interest expense related to nonrecourse debt to MCN.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration has been qualified as an indenture under the Trust
Indenture Act. The Institutional Trustee, Wilmington Trust Company, will act as
indenture trustee under the Declaration for purposes of compliance with the
provisions of the Trust Indenture Act. The terms of the Preferred Securities
will include those stated in the Declaration and those made part of the
Declaration by the Trust Indenture Act. This description supplements the
description of the general terms and provisions of the Preferred Securities set
forth in the accompanying Prospectus under the caption "Description of the MCN
Trust Preferred Securities." The following summary of the material terms and
provisions of the Preferred Securities does not purport to be complete and is
subject to, and qualified in its entirety by reference to the description in the
accompanying Prospectus, the Declaration (a copy of which is filed as an exhibit
to the Registration Statement of which this Prospectus Supplement is a part),
the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes MCN Financing to issue the Trust Securities,
which represent undivided beneficial interests in the assets of MCN Financing.
All of the Common Securities will be owned, directly or indirectly, by the
Company. The Common Securities rank pari passu, and payments will be made
thereon on a pro rata basis, with the Preferred Securities, except that upon the
occurrence and during the continuance of a Declaration Event of Default, the
rights of the holders of the Common Securities to receive payment of periodic
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Preferred Securities. The
Declaration does not permit the issuance by MCN Financing of any Securities
other than the Trust Securities or the incurrence of any indebtedness by MCN
Financing. Pursuant to the Declaration, the Institutional Trustee will hold
title to the Junior Subordinated Debt Securities purchased by MCN Financing for
the benefit of the holders of the Trust Securities. The payment of distributions
out of money held by MCN Financing, and payments upon redemption of the
Preferred Securities or liquidation of MCN Financing out of money held by MCN
Financing, are guaranteed by the Company to the extent described under
"Description of Guarantee." The Guarantee, when taken together with MCN's
obligations under the Junior Subordinated Debt Securities and the Subordinated
Indenture and its obligations under the Declaration, including its obligations
to pay costs, expenses, debts and liabilities of the Trust (other than with
respect to the Trust Securities), provides a full and unconditional guarantee of
amounts due on the Preferred Securities. The Guarantee will be held by
Wilmington Trust Company, the Guarantee Trustee, for the benefit of the holders
of the Preferred Securities. The Guarantee does not cover payment of
distributions when MCN Financing does not have sufficient available funds to pay
such distributions. In such event, the remedy of a holder of Preferred
Securities is (i) to vote to direct the Institutional Trustee to enforce the
Institutional Trustee's rights under the Junior Subordinated Debt Securities or
(ii) if the failure of MCN Financing to pay distributions is attributable to the
failure of the Company to pay interest or principal on the Junior Subordinated
Debt Securities, to institute a proceeding
S-16
<PAGE> 17
directly against the Company for enforcement of payment to such holder of the
principal or interest on the Junior Subordinated Debt Securities having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Junior Subordinated Debt Securities. See "-- Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of 8 5/8% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears beyond the first date such distributions are payable
(or would be payable, if not for any Extension Period or default by the Company
on the Junior Subordinated Debt Securities) will bear interest thereon at the
rate per annum of 8 5/8% thereof compounded quarterly. The term "distribution"
as used herein includes any such interest payable unless otherwise stated. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from and including November 18, 1998, and will be payable quarterly in arrears
on February 15, May 15, August 15 and November 15 of each year (each a
"Distribution Payment Date"), commencing February 15, 1999. Distributions will
be made by the Institutional Trustee.
The distribution rate and the Distribution Payment Dates and other payment
dates for the Preferred Securities will correspond to the interest rate and
Interest Payment Dates (as defined herein) and other payment dates on the Junior
Subordinated Debt Securities.
The Company has the right under the Subordinated Indenture to defer
payments of interest on the Junior Subordinated Debt Securities by extending the
interest payment period from time to time on the Junior Subordinated Debt
Securities for an Extension Period not exceeding 20 consecutive quarterly
interest periods during which no interest shall be due and payable; provided,
that no Extension Period may extend beyond the maturity of the Junior
Subordinated Debt Securities. If the Company extends the interest payment
period, quarterly distributions on the Preferred Securities would be deferred
(though such distributions would continue to accrue with interest thereon
compounded quarterly, since interest would continue to accrue on the Junior
Subordinated Debt Securities) during any such extended interest payment period.
If the Company exercises its right to extend the interest payment period,
then (a) the Company shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of employees, officers, directors or
consultants, (ii) as a result of an exchange or conversion of any class or
series of the Company's capital stock for any other class or series of the
Company's capital stock, (iii) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged or (iv)
distributions of rights under any shareholders rights plan adopted by the
Company), (b) the Company shall not make any payment of interest on or principal
of (or premium, if any, on), or repay, repurchase or redeem, any debt securities
issued by the Company or its subsidiaries which rank pari passu with or junior
to the Junior Subordinated Debt Securities and (c) the Company shall not make
any guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). The foregoing, however, will not apply to any stock dividends paid
by the Company where the dividend stock is the same stock as that on which the
dividend is being paid. Prior to the termination of any Extension Period, the
Company may further extend such Extension Period; provided, that such Extension
Period, together with all such previous and further extensions thereof, may not
exceed 20 consecutive quarterly interest periods; provided further, that no
Extension Period may extend beyond the maturity of the Junior Subordinated Debt
Securities. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension Period, subject to
the above requirements. Consequently, there could be numerous Extension Periods
of varying lengths throughout the term of the Junior Subordinated Debt
Securities. See "Description of the Junior Subordinated Debt Securities --
Interest" and "-- Option to
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Extend Interest Payment Period." See "Description of the Junior Subordinated
Debt Securities -- Option To Extend Interest Payment Period." If distributions
are deferred, the deferred distributions and accrued interest thereon shall be
paid to holders of record of the Preferred Securities as they appear on the
books and records of MCN Financing on the record date next following the
termination of such deferral period. Distributions on the Preferred Securities
will be made on the dates payable to the extent that MCN Financing has funds
available for the payment of such distributions in the Property Account. MCN
Financing's funds available for distribution to the holders of the Preferred
Securities will be limited to payments received from the Company on the Junior
Subordinated Debt Securities. See "Description of the Junior Subordinated Debt
Securities." The payment of distributions out of monies held by MCN Financing is
guaranteed by the Company to the extent set forth under "Description of
Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of MCN Financing at the close of
business on the relevant record dates, which, as long as the Preferred
Securities remain in book-entry only form, will be one Business Day prior to the
relevant payment dates. Such distributions will be paid through the
Institutional Trustee who will hold amounts received in respect of the Junior
Subordinated Debt Securities in the Property Account for the benefit of the
holders of the Trust Securities. Subject to any applicable laws and regulations
and the provisions of the Declaration, each such payment will be made as
described under "-- Book-Entry Only Issuance -- The Depository Trust Company"
below. In the event that the Preferred Securities do not continue to remain in
book-entry only form, the relevant record dates shall conform to the rules of
any securities exchange on which the Preferred Securities are listed and, if
none, the Regular Trustees shall have the right to select relevant record dates,
which shall be more than one Business Day but less than 60 Business Days prior
to the relevant Distribution Payment Dates. In the event that any date on which
distributions are to be made on the Preferred Securities is not a Business Day,
then payment of the distributions payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the relevant Distribution Payment Date. A "Business Day" shall mean any day
other than Saturday, Sunday or any other day on which banking institutions in
New York City (in the State of New York) are permitted or required by any
applicable law to close.
MANDATORY REDEMPTION OF TRUST SECURITIES
The Preferred Securities have no stated maturity date but must be redeemed
upon the maturity of the Junior Subordinated Debt Securities or to the extent
the Junior Subordinated Debt Securities are redeemed. The Junior Subordinated
Debt Securities will mature on November 15, 2038, and may be redeemed, (i) in
whole, at any time, or in part, from time to time, on or after November 15,
2003, or (ii) at any time, in whole but not in part, upon the occurrence of a
Special Event, in either case, at a redemption price equal to accrued and unpaid
interest on the Junior Subordinated Debt Securities so redeemed to the date
fixed for redemption plus the principal amount thereof. See "Description of the
Junior Subordinated Debt Securities -- Optional Redemption." Upon the maturity
of the Junior Subordinated Debt Securities, the proceeds of the repayment
thereof shall simultaneously be applied to redeem all outstanding Trust
Securities at the Redemption Price. Upon the redemption of the Junior
Subordinated Debt Securities, whether in whole or in part (either at the option
of the Company or pursuant to a Special Event), the proceeds from such
redemption shall simultaneously be applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Junior Subordinated Debt Securities so redeemed at the Redemption Price;
provided, that holders of Trust Securities shall be given not less than 30 nor
more than 60 days' notice of such redemption. In the event that fewer than all
of the outstanding Junior Subordinated Debt Securities are to be redeemed, the
Trust Securities will be redeemed pro rata as described under "-- Book-Entry
Only Issuance -- The Depository Trust Company" below.
SPECIAL EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters to
the effect that, as a result of (a) any amendment to, or
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change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein or (b) any interpretation or application of,
or pronouncement with respect to, such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial decision or
regulatory determination), which amendment or change is effective or which
interpretation, application or pronouncement is announced on or after the date
of this Prospectus Supplement, there is more than an insubstantial risk that (i)
MCN Financing would be subject to United States federal income tax with respect
to income accrued or received on the Junior Subordinated Debt Securities, (ii)
interest payable to MCN Financing on the Junior Subordinated Debt Securities
would not be deductible, in whole or in part, by the Company for United States
federal income tax purposes or (iii) MCN Financing would be subject to more than
a de minimis amount of other taxes, duties or other governmental charges.
Recently, the Internal Revenue Service asserted that the interest payable
on a security with terms that are somewhat similar in certain respects to the
terms of the Junior Subordinated Debt Securities (but with a substantially
longer maturity than the Junior Subordinated Debt Securities) was not deductible
for United States federal income tax purposes. The taxpayer in that case has
filed a petition in the United States Tax Court challenging the Internal Revenue
Service's position on this matter. If this matter were to be litigated and the
Tax Court were to sustain the Internal Revenue Service's position on this
matter, depending upon the language and reasoning of such decision, it is
possible that such judicial decision could constitute a Tax Event which could
result in an early redemption of the Junior Subordinated Debt Securities.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel experienced
in practicing under the 1940 Act (as defined herein) to the effect that, as a
result of the occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that MCN Financing is or will be
considered an "investment company" which is required to be registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), which Change in
1940 Act Law becomes effective on or after the date of this Prospectus
Supplement.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Company
shall have the right, upon not less than 30 nor more than 60 days notice, to
redeem the Junior Subordinated Debt Securities, in whole but not in part, for
cash within 90 days following the occurrence of such Special Event, and,
following such redemption, Trust Securities with an aggregate liquidation amount
equal to the aggregate principal amount of the Junior Subordinated Debt
Securities so redeemed shall be redeemed by MCN Financing at the Redemption
Price on a pro rata basis.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBT SECURITIES
The Company will have the right at any time to dissolve MCN Financing and
after satisfaction of the liabilities of creditors of MCN Financing as provided
by applicable law, cause the Junior Subordinated Debt Securities to be
distributed to the holders of the Trust Securities.
If the Junior Subordinated Debt Securities are distributed to the holders
of the Preferred Securities, the Company will use its best efforts to cause the
Junior Subordinated Debt Securities to be listed on the New York Stock Exchange
or on such other exchange as the Preferred Securities are then listed.
After the date for any distribution of Junior Subordinated Debt Securities
upon dissolution of MCN Financing, (i) the Preferred Securities will no longer
be deemed to be outstanding, (ii) the securities depositary or its nominee, as
the record holder of the Preferred Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debt Securities
to be delivered upon such distribution, and (iii) any certificates representing
Preferred Securities not held by the depositary or its nominee will be deemed to
represent Junior Subordinated Debt Securities having an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and with accrued and unpaid interest
equal to accrued and unpaid distributions on, such Preferred Securities until
such certificates are presented to the Company or its agent for transfer or
reissuance.
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If a dissolution and liquidation of MCN Financing were to occur, there can
be no assurance as to the market prices for either the Preferred Securities or
the Junior Subordinated Debt Securities that may be distributed in exchange for
the Preferred Securities. Accordingly, the Preferred Securities that an investor
may purchase, whether pursuant to the offer made hereby or in the secondary
market, or the Junior Subordinated Debt Securities that an investor may receive
if a dissolution and liquidation of MCN Financing were to occur, may trade at a
discount to the price that the investor paid to purchase the Preferred
Securities offered hereby.
REDEMPTION PROCEDURES
MCN Financing may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If MCN Financing gives a notice of redemption in respect of the Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, and if the Company has paid to the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Junior Subordinated Debt Securities, the
Institutional Trustee will irrevocably deposit with the securities depositary
for the Preferred Securities funds sufficient to pay the applicable Redemption
Price and will give the securities depositary for the Preferred Securities
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Preferred Securities. See "-- Book-Entry Only Issuance -- The
Depository Trust Company." If notice of redemption shall have been given and
funds deposited as required, then, immediately prior to the close of business on
the date of such deposit, distributions will cease to accrue and all rights of
holders of Preferred Securities so called for redemption will cease, except the
right of the holders of such Preferred Securities to receive the Redemption
Price without interest on such Redemption Price.
In the event that any date fixed for redemption of Preferred Securities is
not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day that is a Business Day (without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price in respect of Preferred Securities is improperly withheld or refused and
not paid either by MCN Financing, or by the Company pursuant to the Guarantee,
distributions on such Preferred Securities will continue to accrue at the then
applicable rate from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed in accordance with
the depositary's standard procedures. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries, may at
any time, and from time to time, purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of MCN Financing (each a "Liquidation"), the holders of the Preferred
Securities will be entitled to receive out of the assets of MCN Financing, after
satisfaction of liabilities to creditors, distributions in an amount equal to
the aggregate of the stated liquidation amount of $25 per Preferred Security
plus accrued and unpaid distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such Liquidation, Junior
Subordinated Debt Securities in an aggregate stated principal amount equal to
the aggregate stated liquidation amount of, with an interest rate identical to
the distribution rate of, and with accrued and unpaid interest equal to accrued
and unpaid distributions on, the Preferred Securities outstanding at such time
have been distributed on a pro rata basis to the holders of such Preferred
Securities.
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If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because MCN Financing has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by MCN Financing on the Preferred Securities shall be paid on a pro rata basis.
The holders of the Common Securities will be entitled to receive distributions
upon any such Liquidation pro rata with the holders of the Preferred Securities,
except that if a Declaration Event of Default has occurred and is continuing the
Preferred Securities shall have a preference over the Common Securities with
regard to such distributions.
Pursuant to the Declaration, MCN Financing shall dissolve (i) on November
18, 2043, the expiration of the term of the Trust, (ii) upon the bankruptcy of
the Company or the holder of the Common Securities, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to the holder of the
Common Securities or the Company, or the revocation of the charter of the holder
of the Common Securities or the Company and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) upon the distribution
of Junior Subordinated Debt Securities to the holders of Preferred Securities,
(v) upon the entry of a decree of a judicial dissolution of the holder of the
Common Securities, the Company or MCN Financing, or (vi) upon the redemption of
all the Trust Securities.
DECLARATION EVENTS OF DEFAULT
An event of default under the Subordinated Indenture (an "Indenture Event
of Default") constitutes an event of default under the Declaration with respect
to the Trust Securities (a "Declaration Event of Default"); provided, that
pursuant to the Declaration the holder of the Common Securities will be deemed
to have waived any Declaration Event of Default with respect to the Common
Securities until all Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until such
Declaration Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Institutional Trustee will be
deemed to be acting solely on behalf of the holders of the Preferred Securities
and only the holders of the Preferred Securities will have the right to direct
the Institutional Trustee with respect to certain matters under the Declaration
and therefore the Subordinated Indenture. In the event that any Declaration
Event of Default with respect to the Preferred Securities is waived by the
holders of the Preferred Securities as provided in the Declaration, such waiver
will also constitute a waiver of such Declaration Event of Default with respect
to the Common Securities for all purposes under the Declaration without any
further act, vote or consent of the holders of Common Securities. See "-- Voting
Rights."
If the Institutional Trustee fails to enforce its rights under the Junior
Subordinated Debt Securities, any holder of Preferred Securities may directly
institute a legal proceeding against the Company to enforce the Institutional
Trustee's rights under the Junior Subordinated Debt Securities without first
instituting any legal proceeding against the Institutional Trustee or any other
person or entity. If a Declaration Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Junior Subordinated Debt Securities on the date
such interest or principal is otherwise payable (or in the case of redemption,
the redemption date), then a holder of Preferred Securities may also directly
institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Junior Subordinated Debt Securities having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Junior Subordinated Debt Securities without first (i) directing the
Institutional Trustee to enforce the terms of the Junior Subordinated Debt
Securities or (ii) instituting a legal proceeding against the Company to enforce
the Institutional Trustee's rights under the Junior Subordinated Debt Securities
("Direct Action"). In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. Consequently, the Company will be
entitled to payment of amounts that a holder of Preferred Securities receives in
respect of an unpaid distribution that resulted in the bringing of a Direct
Action to the extent that such holder receives or has already received full
payment with respect to such unpaid distribution from MCN Financing. The holders
of Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debt Securities.
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Upon the occurrence of an Indenture Event of Default, the Institutional
Trustee as the sole holder of the Junior Subordinated Debt Securities will have
the right under the Subordinated Indenture to declare the principal of and
interest on the Junior Subordinated Debt Securities to be immediately due and
payable. The Company and MCN Financing are each required to file annually with
the Institutional Trustee an officers' certificate as to its compliance with all
conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described in this Prospectus Supplement and in the accompanying
Prospectus under "Description of the Preferred Securities Guarantees --
Modification of Guarantee; Assignment," and except as provided under the Trust
Act, the Trust Indenture Act and as otherwise required by law and the
Declaration, the holders of the Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Institutional Trustee,
or direct the exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration including the right to direct the Institutional
Trustee, as holder of the Junior Subordinated Debt Securities, to (i) direct the
time, method and place of conducting any proceeding for any remedy available to
the Subordinated Indenture Trustee, or exercising any trust or power conferred
on the Subordinated Indenture Trustee with respect to the Junior Subordinated
Debt Securities, (ii) waive any past Indenture Event of Default that is waivable
under Section 513 of the Subordinated Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Junior Subordinated
Debt Securities shall be due and payable, or (iv) consent to any amendment,
modification or termination of the Subordinated Indenture or the Junior
Subordinated Debt Securities where such consent shall be required; provided,
however, that, where a consent or action under the Subordinated Indenture would
require the consent or act of holders of more than a majority in principal
amount of the Junior Subordinated Debt Securities (a "Super Majority") affected
thereby, only the holders of at least such Super Majority in aggregate
liquidation amount of the Preferred Securities may direct the Institutional
Trustee to give such consent or take such action. If the Institutional Trustee
fails to enforce its rights under the Junior Subordinated Debt Securities (other
than by reason of the failure to obtain the opinion set forth in the last
sentence of this paragraph), any record holder of Preferred Securities may, to
the fullest extent permitted by law, directly institute a legal proceeding
against the Company to enforce the Institutional Trustee's rights under the
Junior Subordinated Debt Securities without first instituting any legal
proceeding against the Institutional Trustee or any other person or entity. The
Institutional Trustee shall notify all holders of the Preferred Securities of
any notice of default received from the Subordinated Indenture Trustee with
respect to the Junior Subordinated Debt Securities. Such notice shall state that
such Indenture Event of Default also constitutes a Declaration Event of Default.
Except with respect to directing the time, method and place of conducting a
proceeding for a remedy available to the Institutional Trustee, the
Institutional Trustee, as holder of the Junior Subordinated Debt Securities,
shall not take any of the actions described in clauses (i), (ii), (iii) or (iv)
above unless the Institutional Trustee has obtained an opinion of a nationally
recognized independent tax counsel experienced in such matters to the effect
that, as a result of such action, MCN Financing will not fail to be classified
as a grantor trust for United States federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Junior Subordinated Debt Securities, is required under the Subordinated
Indenture with respect to any amendment, modification or termination of the
Subordinated Indenture, the Institutional Trustee shall request the written
direction of the holders of the Trust Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in liquidation amount of
the Trust Securities voting together as a single class; provided, however, that
where any amendment, modification or termination under the Subordinated
Indenture would require the consent of a Super Majority, the Institutional
Trustee may only give such consent at the direction of the holders of at least
the proportion in aggregate liquidation amount of the Trust Securities which the
relevant Super Majority represents of the aggregate principal amount of the
Junior Subordinated Debt Securities outstanding. The Institutional Trustee
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shall be under no obligation to take any such action in accordance with the
directions of the holders of the Trust Securities unless the Institutional
Trustee has obtained an opinion of a nationally recognized independent tax
counsel experienced in such matters to the effect that for United States federal
income tax purposes MCN Financing will not be classified as other than a grantor
trust.
A waiver of an Indenture Event of Default by the Institutional Trustee at
the direction of the holders of the Preferred Securities will constitute a
waiver of the corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for MCN Financing to
redeem and cancel Preferred Securities or distribute Junior Subordinated Debt
Securities in accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Except in certain circumstances as set forth in the Declaration, holders of
the Preferred Securities will have no rights to appoint or remove the MCN
Financing Trustees, who may be appointed, removed or replaced solely by the
Company as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee and the
Delaware Trustee); provided, that, if any proposed amendment provides for, or
the Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise, or (ii)
the dissolution, winding-up or termination of MCN Financing, other than pursuant
to the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of holders of at least a majority in liquidation amount of the Trust
Securities affected thereby; provided, that, if any amendment or proposal
referred to in clause (i) above would adversely affect only the Preferred
Securities or the Common Securities, then only holders of the affected class
will be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of holders of a
majority in liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause MCN Financing
to be classified for United States federal income tax purposes as other than a
grantor trust, (ii) reduce or otherwise adversely affect the powers of the
Institutional Trustee or (iii) cause MCN Financing to be deemed an "investment
company" which is required to be registered under the 1940 Act.
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MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
MCN Financing may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body except as
described above or under "-- Liquidation Distribution Upon Dissolution". MCN
Financing may, with the consent of the Regular Trustees and without the consent
of the holders of the Trust Securities, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided, that (i) such successor entity either (x) expressly assumes all of the
obligations of MCN Financing under the Trust Securities or (y) substitutes for
the Preferred Securities other Securities having substantially the same terms as
the Trust Securities (the "Successor Securities"), so long as the Successor
Securities rank the same as the Trust Securities rank with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly acknowledges a trustee of such successor entity possessing the
same powers and duties as the Institutional Trustee, in its capacity as the
holder of the Junior Subordinated Debt Securities, (iii) the Preferred
Securities or any Successor Securities are listed or quoted, or any Successor
Securities will be listed or quoted upon notification of issuance, on any
national securities exchange or with another organization on which the Preferred
Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (vi) such successor entity has a purpose
substantially identical to that of MCN Financing, (vii) prior to such merger,
consolidation, amalgamation or replacement, MCN Financing has received an
opinion of a nationally recognized independent counsel to MCN Financing
experienced in such matters to the effect that, (A) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), (B) following such merger,
consolidation, amalgamation or replacement, neither MCN Financing nor such
successor entity will be required to register as an "investment company" under
the 1940 Act and (C) following such merger, consolidation, amalgamation or
replacement, MCN Financing (or such successor entity) will continue to be
classified as a grantor trust for United States federal income tax purposes; and
(viii) the Company guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, MCN Financing shall not, except with the consent
of holders of 100% in liquidation amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it, if
in the opinion of a nationally recognized independent tax counsel experienced in
such matters, such consolidation, amalgamation, merger or replacement would
cause MCN Financing or the Successor Entity to be classified as other than a
grantor trust for United States federal income tax purposes. See "-- Special
Event Redemption" and "-- Liquidation Distribution upon Dissolution."
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as Securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as fully
registered Securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global Preferred Securities certificates, representing
the total aggregate number of Preferred Securities, will be issued and will be
deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
Securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as
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amended (the "Exchange Act"). DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include Securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. (the "NASD").
Access to the DTC system is also available to others, such as securities brokers
and dealers, banks and trust companies that clear transactions through or
maintain a direct or indirect custodial relationship with a Direct Participant
either directly or indirectly ("Indirect Participants"). The rules applicable to
DTC and its Participants are on file with the Securities and Exchange Commission
(the "Commission").
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Preferred Securities, except in the event that
use of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce the amount of the
interest of each Direct Participant in such Preferred Securities in accordance
with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to MCN Financing as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co. consenting or voting
rights to those Direct Participants to whose accounts the Preferred Securities
are credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Distribution payments on the Preferred Securities will be made by transfer
of immediately available funds to DTC. DTC's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the account of customers in
bearer form or registered in "street name," and such payments will be the
responsibility of such Participant and not of DTC, MCN Financing or the Company,
subject to any statutory or regulatory requirements to the contrary that may be
in effect from time to time.
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Payment of distributions to DTC is the responsibility of MCN Financing,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Except as described herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
MCN Financing. Under such circumstances, in the event that a successor
securities depositary is not obtained, Preferred Securities certificates are
required to be printed and delivered. Additionally, the Regular Trustees (with
the consent of the Company) may decide to discontinue use of the system of
book-entry transfers through DTC (or any successor depositary) with respect to
the Preferred Securities. In that event, certificates for the Preferred
Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and MCN Financing believe to be
reliable, but neither the Company nor MCN Financing takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after such a default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provisions, the Institutional
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. Notwithstanding the foregoing, the holders of
Preferred Securities will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the Institutional
Trustee to take any action following a Declaration Event of Default. The
Institutional Trustee also serves as the Guarantee Trustee.
PAYING AGENT; TRANSFER AGENT AND REGISTRAR
In the event that the Preferred Securities do not remain in book-entry only
form, the following provisions will apply: The Institutional Trustee will act as
paying agent and may designate an additional or substitute paying agent at any
time. MCN Financing and the Institutional Trustee shall be entitled to treat the
holders of the Preferred Securities, as their names appear in the registration
books kept by the Institutional Trustee at its corporate office, as the owners
of those Preferred Securities for all purposes under the Declaration.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of MCN Financing, but upon payment (with the giving of
such indemnity as MCN Financing or the Company may require) in respect of any
tax or other government charges that may be imposed in relation to it. MCN
Financing will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption, or on or after the liquidation date.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate MCN Financing
in such a way so that MCN Financing will not be required to register as an
"investment company" under the 1940 Act or be characterized as other than a
grantor trust for United States federal income tax purposes. The Company is
authorized and directed to conduct its affairs so that the Junior Subordinated
Debt Securities will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the
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Company and the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of MCN Financing or
the certificate of incorporation of the Company, that each of the Company and
the Regular Trustees determine in their discretion to be necessary or desirable
to achieve such end, as long as such action does not adversely affect the
interests of the holders of the Preferred Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive or similar rights.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBT SECURITIES
Set forth below is a description of the specific terms of the Junior
Subordinated Debt Securities in which MCN Financing will invest the proceeds
from the issuance and sale of the Trust Securities. This description supplements
the description of the general terms and provisions of the Subordinated Debt
Securities set forth in the accompanying Prospectus under the caption
"Particular Terms of the Subordinated Debt Securities." The following
description does not purport to be complete and is subject to, and is qualified
in its entirety by reference to: (i) the description of Subordinated Debt
Securities in the accompanying Prospectus; (ii) the Subordinated Indenture dated
as of September 1, 1994 (the "Base Indenture") as supplemented by the First
Supplemental Indenture, dated as of April 17, 1996, the Second Supplemental
Indenture, dated as of July 24, 1996, the Third Supplemental Indenture, dated as
of March 19, 1997 and the Fourth Supplemental Indenture dated as of November 18,
1998 (together with the Base Indenture, the "Subordinated Indenture"), between
the Company and NBD Bank, as Trustee (the "Subordinated Indenture Trustee"), the
form of which is incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus Supplement and the accompanying Prospectus
form a part; and (iii) the Trust Indenture Act. Certain capitalized terms used
herein are defined in the Subordinated Indenture.
The Company will have the right at any time to dissolve the Trust and cause
the Junior Subordinated Debt Securities to be distributed to the holders of the
Trust Securities.
If the Junior Subordinated Debt Securities are distributed to the holders
of the Preferred Securities, the Company will use its best efforts to have the
Junior Subordinated Debt Securities listed on the New York Stock Exchange or on
such other national securities exchange or similar organization on which the
Preferred Securities are then listed or quoted.
GENERAL
The Junior Subordinated Debt Securities will be issued as unsecured debt
under the Subordinated Indenture. The Junior Subordinated Debt Securities will
be limited in aggregate principal amount to approximately $103,092,800, such
amount being the sum of the aggregate stated liquidation amount of the Preferred
Securities and the capital contributed by the Company to MCN Financing in
exchange for the Common Securities.
The Junior Subordinated Debt Securities are not subject to a sinking fund
provision. The entire principal amount of the Junior Subordinated Debt
Securities will mature and become due and payable, together with any accrued and
unpaid interest thereon including Compound Interest (as defined herein) and
Additional Interest (as defined herein), if any, on November 15, 2038.
If Junior Subordinated Debt Securities are distributed to holders of
Preferred Securities in liquidation of such holders' interests in MCN Financing,
such Junior Subordinated Debt Securities will initially be issued in the form of
one or more Global Securities (as defined under "Book-Entry and Settlement"
below). As described herein, under certain limited circumstances, Junior
Subordinated Debt Securities may be issued in certificated form in exchange for
a Global Security. See "Book-Entry and Settlement" below. In the event that
Junior Subordinated Debt Securities are issued in certificated form, such Junior
Subordinated Debt Securities will be in denominations of $25 and integral
multiples thereof and may be transferred or exchanged at the offices described
below. Payments on Junior Subordinated Debt Securities issued as a Global
Security will be made to DTC, to a successor depositary or, in the event that no
depositary is used, to a Paying Agent for the Junior Subordinated Debt
Securities. In the event Junior Subordinated Debt Securities are issued in
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certificated form, principal and interest will be payable, the transfer of the
Junior Subordinated Debt Securities will be registrable and Junior Subordinated
Debt Securities will be exchangeable for Junior Subordinated Debt Securities of
other denominations of a like aggregate principal amount at the corporate trust
office of the Subordinated Indenture Trustee in New York, New York; provided,
that payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto.
The Company does not intend to issue and sell the Junior Subordinated Debt
Securities to any purchasers other than MCN Financing.
There are no provisions in the Subordinated Indenture that would afford the
holders of the Junior Subordinated Debt Securities protection in the event of a
highly leveraged transaction involving the Company.
SUBORDINATION
The Subordinated Indenture provides that the Junior Subordinated Debt
Securities are subordinated and junior in right of payment to all Senior
Indebtedness of the Company and pari passu with MCN trade creditors and other
junior subordinated debentures issued by MCN. No payment of principal (including
redemption and sinking fund payments), premium, if any, or interest on the
Junior Subordinated Debt Securities may be made if (i) any Senior Indebtedness
of the Company is not paid when due, (ii) any applicable grace period with
respect to such default has ended and such default has not been cured or waived
or ceased to exist, or (iii) the maturity of any Senior Indebtedness of the
Company has been accelerated because of a default. Upon any distribution of
assets of the Company to creditors upon any dissolution, winding-up, liquidation
or reorganization, whether voluntary or involuntary, or in bankruptcy,
insolvency, receivership or other proceedings, all principal, premium, if any,
and interest due or to become due on all Senior Indebtedness of the Company must
be paid in full before the holders of Junior Subordinated Debt Securities are
entitled to receive or retain any payment. Upon satisfaction of all claims
related to all Senior Indebtedness of the Company then outstanding, the rights
of the holders of the Junior Subordinated Debt Securities will be subrogated to
the rights of the holders of Indebtedness of the Company to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Junior Subordinated Debt Securities are paid in full.
The term "Senior Indebtedness" means the principal of and premium, if any,
and interest on the following, whether outstanding on the date of execution of
the Subordinated Indenture or thereafter incurred or created: (i) indebtedness
of MCN for money borrowed by MCN (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 MCN; (ii) obligations
with respect to letters of credit; (iii) indebtedness of MCN 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. MCN issued the following debt securities that rank
pari passu with the Junior Subordinated Debt Securities to the following
entities on the dates indicated: (i) in November 1994, MCN issued approximately
$101 million of Subordinated Deferrable Interest Debt Securities to MCN Michigan
Limited Partnership, (ii) in July 1996, MCN issued approximately $82 million of
Junior Subordinated Debentures due 2036 to MCN Financing I, (iii) in March 1997,
MCN issued approximately $136 million of 7 1/4% Junior Subordinated Debentures
due 2002 to MCN Financing III and (iv) in June 1997, MCN issued approximately
$103 million of 6.85% Debentures to MCN Financing VI.
The Subordinated Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by the Company. As of September 30, 1998, Senior
Indebtedness of MCN aggregated $2.087 billion.
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OPTIONAL REDEMPTION
The Company shall have the right to redeem the Junior Subordinated Debt
Securities, (i) in whole, at any time, or in part, from time to time, on or
after November 15, 2003, or (ii) at any time, in whole but not in part, upon the
occurrence of a Special Event as described under "Description of the Preferred
Securities -- Special Event Redemption," upon not less than 30 nor more than 60
days notice, in either case at a redemption price equal to 100% of the principal
amount to be redeemed plus any accrued and unpaid interest, including Additional
Interest (as defined herein), if any, to the redemption date. If a partial
redemption of the Preferred Securities resulting from a partial redemption of
the Junior Subordinated Debt Securities would result in the delisting of the
Preferred Securities, the Company may only redeem the Junior Subordinated Debt
Securities in whole. See "Description of the Preferred Securities -- Mandatory
Redemption of Trust Securities" and "-- Special Event Redemption."
INTEREST
Each Junior Subordinated Debt Security shall bear interest at the rate of
8 5/8% per annum, from and including the original date of issuance, payable
quarterly in arrears on February 15, May 15, August 15 and November 15 of each
year (each an "Interest Payment Date"), commencing February 15, 1999 to the
person in whose name such Junior Subordinated Debt Security is registered,
subject to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. In the event the Junior Subordinated Debt
Securities shall cease to be held in book-entry only form, the Company shall
have the right to select record dates, which shall be more than one Business Day
but less than 60 Business Days prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. Except as described in the following
sentence, the amount of interest payable for any period shorter than a full
quarterly period for which interest is computed will be computed on the basis of
the actual number of days elapsed per 30-day month. In the event that any date
on which interest is payable on the Junior Subordinated Debt Securities is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, then such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the relevant Interest Payment Date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time, during
the term of the Junior Subordinated Debt Securities, to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive quarters; provided, that no Extension Period may extend beyond the
maturity of the Junior Subordinated Debt Securities, at the end of which
Extension Period, the Company shall pay all interest then accrued and unpaid
(including any Additional Interest (as defined herein)) together with interest
thereon compounded quarterly at the rate specified for the Junior Subordinated
Debt Securities to the extent permitted by applicable law ("Compound Interest");
provided further, that during any such Extension Period, (a) the Company shall
not declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock (other than (i) repurchases, redemptions or other acquisitions
of shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
employees, officers, directors or consultants, (ii) as a result of an exchange
or conversion of any class or series of the Company's capital stock for any
other class or series of the Company's capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, or (iv) distributions of rights under any shareholders
rights plan adopted by the Company), (b) the Company shall not make any payment
of interest on or principal of (or premium, if any, on), or repay, repurchase or
redeem, any debt securities issued by the Company or its subsidiaries which rank
pari passu with or junior to the Junior Subordinated Debt Securities and (c) the
Company shall not make any guarantee payments with respect to the foregoing
(other than
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pursuant to the Guarantee). The foregoing, however, will not apply to any stock
dividends paid by the Company where the dividend stock is the same stock as that
on which the dividend is being paid. Prior to the termination of any Extension
Period, the Company may further defer payments of interest by extending such
Extension Period; provided, however, that such Extension Period, including all
such previous and further extensions, may not exceed 20 consecutive quarterly
interest periods (including the quarterly interest period in which notice of
such Extension Period (as described below) is given); provided further, that no
Extension Period may extend beyond the maturity of the Junior Subordinated Debt
Securities. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension Period, subject to
the terms set forth in this section. No interest during an Extension Period,
except at the end thereof, shall be due and payable. The Company has no present
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Junior Subordinated Debt Securities. If the
Institutional Trustee shall be the sole holder of the Junior Subordinated Debt
Securities, the Company shall give the Regular Trustees and the Institutional
Trustee notice of its selection of such Extension Period one Business Day prior
to the earlier of (i) the date distributions on the Preferred Securities would
be payable, if not for such Extension Period, or (ii) the date the Regular
Trustees are required to give notice to the NYSE (or other applicable
self-regulatory organization) or to holders of the Preferred Securities of the
record date or the date such distribution would be payable, if not for such
Extension Period, but in any event one Business Day prior to such record date.
The Regular Trustees shall give notice of the Company's selection of such
Extension Period to the holders of the Preferred Securities. If the
Institutional Trustee shall not be the sole holder of the Junior Subordinated
Debt Securities, the Company shall give the holders of the Junior Subordinated
Debt Securities notice of its selection of such Extension Period ten Business
Days prior to the earlier of (i) the next succeeding Interest Payment Date or
(ii) the date upon which the Company is required to give notice to the NYSE (or
other applicable self-regulatory organization) or to holders of the Junior
Subordinated Debt Securities of the record or payment date of such related
interest payment.
ADDITIONAL INTEREST
If at any time MCN Financing shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company will pay as additional interest ("Additional Interest")
on the Junior Subordinated Debt Securities such additional amounts as shall be
required so that the net amounts received and retained by MCN Financing after
paying any such taxes, duties, assessments or other governmental charges will be
not less than the amounts MCN Financing would have received had no such taxes,
duties, assessments or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Junior Subordinated Debt Securities,
will have the right to declare the principal of and the interest on the Junior
Subordinated Debt Securities (including any Compound Interest and Additional
Interest, if any) and any other amounts payable under the Subordinated Indenture
to be forthwith due and payable and to enforce its other rights as a creditor
with respect to the Junior Subordinated Debt Securities. See "Particular Terms
of the Subordinated Debt Securities -- Events of Default and Notice Thereof" in
the accompanying Prospectus for a description of the Indenture Events of
Default. An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of Preferred Securities in certain circumstances have the
right to direct the Institutional Trustee to exercise its rights as the holder
of the Junior Subordinated Debt Securities. See "Description of the Preferred
Securities -- Declaration Events of Default" and "-- Voting Rights."
Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Junior Subordinated Debt Securities
on the date such interest or principal is otherwise payable, the Company
acknowledges that, in such event, a holder of Preferred Securities may institute
a Direct Action for payment on or after the respective due date specified in the
Junior Subordinated Debt Securities. Notwithstanding any payment made to such
holder
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of Preferred Securities by the Company in connection with a Direct Action, the
Company shall remain obligated to pay the principal of or interest on the Junior
Subordinated Debt Securities held by MCN Financing or the Institutional Trustee
of MCN Financing, and the Company shall be subrogated to the rights of the
holder of such Preferred Securities with respect to payments on the Preferred
Securities to the extent of any payments made by the Company to such holder in
any Direct Action. The holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debt Securities.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of MCN
Financing, the Junior Subordinated Debt Securities will be issued in the form of
one or more global certificates (each a "Global Security") registered in the
name of the depositary or its nominee. Except under the limited circumstances
described below, Junior Subordinated Debt Securities represented by a Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Junior Subordinated Debt Securities in definitive form. The Global Securities
described above may not be transferred except by the depositary to a nominee of
the depositary or by a nominee of the depositary to the depositary or another
nominee of the depositary or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Debt Securities in definitive form and will not be considered the
Holders (as defined in the Subordinated Indenture) thereof for any purpose under
the Subordinated Indenture, and no Global Security representing Junior
Subordinated Debt Securities shall be exchangeable, except for another Global
Security of like denomination and tenor to be registered in the name of the
depositary or its nominee or to a successor depositary or its nominee.
Accordingly, each Beneficial Owner must rely on the procedures of the depositary
or if such person is not a Participant, on the procedures of the Participant
through which such person owns its interest to exercise any rights of a holder
under the Subordinated Indenture.
THE DEPOSITARY
If Junior Subordinated Debt Securities are distributed to holders of
Preferred Securities in liquidation of such holders' interests in MCN Financing,
DTC will act as securities depositary for the Junior Subordinated Debt
Securities. For a description of DTC and the specific terms of the depositary
arrangements, see "Description of the Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company." As of the date of this Prospectus
Supplement, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Preferred Securities apply in all material respects to any debt
obligations represented by one or more Global Securities held by DTC. The
Company may appoint a successor to DTC or any successor depositary in the event
DTC or such successor depositary is unable or unwilling to continue as a
depositary for the Global Securities.
None of the Company, MCN Financing, the Subordinated Indenture Trustee, any
paying agent and any other agent of the Company or the Subordinated Indenture
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security for such Junior Subordinated Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Junior Subordinated Debt
Securities registered in the names of persons other than the depositary or its
nominee only if (i) the depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such Global Security and no successor
depositary shall have
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been appointed, (ii) the depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the depositary is required to be
so registered to act as such depositary and no successor depositary shall have
been appointed, (iii) the Company, in its sole discretion, determines that such
Global Security shall be so exchangeable or (iv) there shall have occurred an
Indenture Event of Default with respect to such Junior Subordinated Debt
Securities. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Junior Subordinated Debt Securities
registered in such names as the depositary shall direct. It is expected that
such instructions will be based upon directions received by the depositary from
its Participants with respect to ownership of beneficial interests in such
Global Security.
CERTAIN FEES AND EXPENSES
The Subordinated Indenture will provide that the Company will pay all fees
and expenses related to (i) the offering of the Trust Securities and the Junior
Subordinated Debt Securities, (ii) the organization, maintenance and dissolution
of MCN Financing, (iii) the retention of the MCN Financing Trustees and (iv) the
enforcement by the Institutional Trustee of the rights of the holders of the
Preferred Securities.
GOVERNING LAW
The Subordinated Indenture and the Junior Subordinated Debt Securities will
be governed by, and construed in accordance with, the internal laws of the State
of New York.
DESCRIPTION OF GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
will be executed and delivered by the Company for the benefit of the holders of
Preferred Securities. The Guarantee has been qualified as an indenture under the
Trust Indenture Act. Wilmington Trust Company will act as indenture trustee
under the Guarantee (the "Guarantee Trustee"). The terms of the Guarantee will
be those set forth in the Guarantee and those made part of the Guarantee by the
Trust Indenture Act. This description supplements the description of the general
terms and provisions of the Guarantee set forth in the accompanying Prospectus
under the caption "Description of the Preferred Securities Guarantee." The
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
Guarantee, which is filed as an exhibit to the Registration Statement of which
this Prospectus Supplement forms a part, and the Trust Indenture Act. The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company will
irrevocably and unconditionally agree to pay in full to the holders of the
Preferred Securities (except to the extent paid by MCN Financing), as and when
due, regardless of any defense, right of set-off or counterclaim which MCN
Financing may have or assert, the following payments (the "Guarantee Payments"),
without duplication: (i) any accrued and unpaid distributions that are required
to be paid on the Preferred Securities, to the extent MCN Financing has funds
available therefor, (ii) the redemption price of $25 per Preferred Security,
plus all accrued and unpaid distributions (the "Redemption Price"), to the
extent MCN Financing has funds available therefor, with respect to any Preferred
Securities called for redemption by MCN Financing, and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of MCN Financing (other than
in connection with the distribution of Junior 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 the Preferred Securities to the date of
payment or (b) the amount of assets of MCN Financing remaining for distribution
to holders of the Preferred Securities in liquidation of MCN Financing. 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 MCN Financing to pay such amounts to such holders.
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The Guarantee will be a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of issuance of the Preferred Securities
but will not apply to any payment of distributions or Redemption Price, or to
payments upon the dissolution, winding-up or termination of MCN Financing,
except to the extent MCN Financing shall have funds available therefor. If the
Company does not make interest payments on the Junior Subordinated Debt
Securities, MCN Financing will not pay distributions on the Preferred Securities
and will not have funds available therefor. See "Description of the Junior
Subordinated Debt Securities." The Company has through the Guarantee, the Junior
Subordinated Debt Securities, the Subordinated Indenture and the Declaration,
taken together, fully, irrevocably and unconditionally guaranteed the
obligations of the Company under the Preferred Securities.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company will covenant that, so long as any Preferred
Securities remain outstanding, if there shall have occurred any event that would
constitute an Event of Default under such Guarantee or the Declaration, then (a)
the Company shall not declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock or make any guarantee payment with respect
thereto (other than (i) repurchases, redemptions or other acquisitions of shares
of capital stock of the Company in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of employees,
officers, directors or consultants, (ii) as a result of an exchange or
conversion of any class or series of the Company's capital stock for any other
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged or (iv) distributions of rights under any shareholders rights plan
adopted by the Company), (b) the Company shall not make any payment of interest
on, or principal of (or premium, if any, on), or repay, repurchase or redeem,
any debt securities issued by the Company which rank pari passu with or junior
to the Junior Subordinated Debt Securities and (c) the Company shall not make
any guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). The Guarantee, however, will except from the foregoing any stock
dividends paid by the Company where the dividend stock is the same stock as that
on which the dividend is being paid.
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required), the
Guarantee may be amended only with the prior approval of the holders of not less
than a majority in aggregate liquidation amount of the outstanding Preferred
Securities. All guarantees and agreements contained in the Guarantee shall bind
the successors, assignees, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.
EVENTS OF DEFAULT
An Event of Default under the 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 aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce
the Guarantee Trustee's rights under the Guarantee, any holder of related
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Guarantee Trustee's rights under the Guarantee without
first instituting a legal proceeding against MCN Financing, the Guarantee
Trustee or any other person or entity. A holder of Preferred Securities may also
directly institute a legal proceeding against the Company to enforce such
holder's right to receive payment under the Guarantee without first (i)
directing the Guarantee Trustee to enforce the terms of the Guarantee or (ii)
instituting a legal proceeding against MCN Financing or any other person or
entity.
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The Company will be required to provide annually to the Guarantee Trustee a
statement as to the performance by the Company of certain of its obligations
under the Guarantee and as to any default in such performance.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default with respect to the Guarantee, 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 provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to the Preferred Securities upon full
payment of the Redemption Price of all Preferred Securities, upon distribution
of the Junior Subordinated Debt Securities to the holders of the Preferred
Securities or upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of MCN Financing. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities must restore payment of any sums paid under the
Preferred Securities or the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, including Senior Indebtedness, (ii) pari passu with
the most senior preferred stock now or hereafter issued by the Company and with
any guarantee now or hereafter entered into by the Company in respect of any
preferred or preference stock of any subsidiary 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 by acceptance thereof agrees to the
subordination provisions and other terms of the Guarantee.
The Guarantee 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).
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBT SECURITIES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of MCN Financing is to
issue the Trust Securities evidencing undivided beneficial interests in the
assets of MCN Financing, to invest the proceeds from such issuance and sale in
the Junior Subordinated Debt Securities and to engage in other activities
necessary or incidental thereto.
As long as payments of interest and other payments are made when due on the
Junior 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 Junior 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 Junior Subordinated Debt Securities will match the
distribution rate and distribution and other payment dates for the Preferred
Securities; (iii) pursuant to the Subordinated Indenture, the Company shall pay,
and MCN Financing shall not be obligated to pay, directly or indirectly, all
costs, expenses, debt and obligations of MCN Financing other than with respect
to the Trust Securities; and (iv) the Declaration further provides that the MCN
Financing Trustees shall not cause or permit MCN Financing to, among other
things, engage in any activity that is not consistent with the purposes of MCN
Financing.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are irrevocably guaranteed by the Company as and to the extent set
forth under "Description of the Preferred Securities Guarantee" in the
accompanying Prospectus. If the Company does not make interest payments on the
Junior Subordinated Debt Securities purchased by MCN Financing, it is expected
that MCN Financing will not have sufficient funds to pay distributions on the
Preferred Securities. The Guarantee is a guarantee on a subordinated basis with
respect to the Preferred Securities from the time of its issuance but does not
apply to any payment of distributions unless and until MCN Financing has
sufficient funds for the payment of such distributions.
The Company has through the Guarantee, the Junior Subordinated Debt
Securities, the Subordinated Indenture and the Declaration, taken together,
fully, irrevocably and unconditionally guaranteed the obligations of the Company
under the Preferred Securities.
If the Company fails to make interest or other payments on the Junior
Subordinated Debt Securities when due (taking account of any Extension Period),
the Declaration provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities -- Book Entry Only Issuance -- The Depository Trust Company" and "--
Voting Rights," may direct the Institutional Trustee to enforce its rights under
the Junior Subordinated Debt Securities. If the Institutional Trustee fails to
enforce its rights under the Junior Subordinated Debt Securities, any holder of
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Institutional Trustee's rights under the Junior
Subordinated Debt Securities without first instituting any legal proceeding
against the Institutional Trustee or any other person or entity. If a
Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Junior Subordinated 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 also institute a Direct Action for payment on
or after the respective due date specified in the Junior Subordinated Debt
Securities without first (i) directing the Institutional Trustee to enforce the
terms of the Junior Subordinated Debt Securities or (ii) instituting a legal
proceeding against the Company to enforce the Institutional Trustee's rights
under the Junior 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 Declaration to the extent of any payment made by the
Company to such holder of Preferred Securities in such Direct Action.
Consequently, the Company will be entitled to payment of amounts that a holder
of Preferred Securities receives in respect of an unpaid distribution that
resulted in the bringing of a Direct Action to the extent that such holder
receives or has already received full payment with respect to such unpaid
distribution from MCN Financing. The Company, under the Guarantee, acknowledges
that the Guarantee Trustee shall enforce the
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Guarantee on behalf of the holders of the Preferred Securities. If the Company
fails to make payments under the Guarantee, the Guarantee provides a mechanism
whereby the holders of the Preferred Securities may direct the Guarantee Trustee
to enforce its rights thereunder. If the Guarantee Trustee fails to enforce the
Guarantee, any holder of Preferred Securities may directly institute a legal
proceeding against the Company to enforce the Guarantee Trustee's rights under
the Guarantee without first instituting a legal proceeding against MCN
Financing, the Guarantee Trustee, or any other person or entity. A holder of
Preferred Securities may also directly institute a legal proceeding against the
Company to enforce such holder's right to receive payment under the Guarantee
without first (i) directing the Guarantee Trustee to enforce the terms of the
Guarantee or (ii) instituting a legal proceeding against MCN Financing or any
other person or entity.
The Company and MCN Financing believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by the Company of payments due on the Preferred Securities. See
"Description of Guarantee -- General."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax considerations relevant to the purchase, ownership and disposition of
Preferred Securities by a beneficial owner acquiring Preferred Securities on
their original issue at their original offering price who is, for United States
federal income tax purposes, (i) an individual citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any state thereof or the District of
Columbia or (iii) an estate the income of which is subject to United States
federal income taxation regardless of its source or (iv) a trust if a court
within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust, in each case
holding Preferred Securities as a capital asset (for purposes of this summary, a
"U.S. Holder"). The statements of law or legal conclusion set forth in this
summary constitute the opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Company and MCN Financing.
This summary does not address potential tax considerations applicable to a
prospective purchaser that is not a U.S. Holder. Prospective investors in the
Preferred Securities that are not U.S. Holders are urged to consult their tax
advisors.
This summary does not purport to address all potential tax consequences
that may be applicable to a beneficial owner of a Preferred Security, and is not
intended to be wholly applicable to all categories of U.S. Holders (including,
for example, banks, insurance companies, tax-exempt organizations and dealers in
securities or currencies), or to persons that will hold Preferred Securities as
a part of a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for United States federal income tax purposes or whose functional
currency is not the United States dollar. In addition, it does not include any
description of any alternative minimum tax consequences or the laws of any state
or local government that may be applicable to the Preferred Securities. This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations (including proposed Treasury Regulations),
Internal Revenue Service rulings and pronouncements and judicial decisions now
in effect, all of which are subject to change at any time. Such changes may be
applied retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of a Preferred Security. These authorities are
subject to various interpretations and it is therefore possible that the United
States federal income tax treatment of the Preferred Securities may differ from
the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE UNITED STATES FEDERAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES,
AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
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CLASSIFICATION OF MCN FINANCING
In connection with the issuance of the Preferred Securities, Skadden, Arps,
Slate, Meagher & Flom LLP will render its opinion to the effect that, under
current law and assuming full compliance with the terms of the Declaration (and
certain other documents) and based on certain assumptions described in such
opinion, the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. Accordingly, for United States federal income tax purposes each U.S.
Holder will be treated as owning an undivided beneficial interest in the Junior
Subordinated Debt Securities and will take into account its pro rata share of
the interest income accrued with respect to the Junior Subordinated Debt
Securities whether or not actually distributed. Any amount included in a U.S.
Holder's gross income will increase such U.S. Holder's tax basis in its
Preferred Securities, and the amount of distributions to a U.S. Holder will
reduce such U.S. Holder's tax basis in its Preferred Securities.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBT SECURITIES
The Company intends to take the position that the Junior Subordinated Debt
Securities will be classified for United States federal income tax purposes as
indebtedness of the Company under current law, and by acceptance of a Preferred
Security, each holder covenants to treat the Junior Subordinated Debt Securities
as indebtedness and the Preferred Securities as evidence of an indirect
beneficial ownership interest in the Junior Subordinated Debt Securities. The
remainder of this discussion assumes that the Junior Subordinated Debentures
will be classified as indebtedness of the Company for United States federal
income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under the terms of the Subordinated Indenture, the Company has the right to
defer the payment of interest on the Junior Subordinated Debt Securities for up
to 20 consecutive quarters (each, an "Extension Period"); provided, that no
Extension Period may extend beyond the maturity of the Junior Subordinated Debt
Securities. The existence of the Company's option to extend the interest payment
period could cause the Junior Subordinated Debt Securities to be subject to the
original issue discount ("OID") rules for United States federal income tax
purposes. The Company, however, believes, and intends to take the position,
that, as of the issue date, the terms and conditions of the Junior Subordinated
Debt Securities (in particular the restrictions on the Company's ability to pay
dividends during an Extension Period) make the likelihood that the Company would
elect to defer the payment of interest a "remote" contingency for these
purposes. As a result, the Junior Subordinated Debt Securities should not be
subject to the OID rules unless the Company exercises its option to extend the
interest payment period. Unless and until the Company exercises its option, a
U.S. Holder generally should include stated interest in income as ordinary
income when paid to the Trust or accrued, in accordance with such U.S. Holder's
regular method of accounting.
If the Company were to exercise its option to defer payments of interest,
the Junior Subordinated Debt Securities would at that time be treated, solely
for purposes of the OID rules, as reissued with OID. In such event, all of a
U.S. Holder's taxable interest income with respect to the Junior Subordinated
Debt Securities would thereafter be accounted for on an economic accrual basis
regardless of such U.S. Holder's method of tax accounting. Consequently, each
U.S. Holder (including those using the cash basis of accounting) would be
required to include OID in its gross income daily even though the Company would
not make actual cash payments during an Extension Period.
The IRS could take the position that the likelihood the Company would
exercise its right to defer payments of interest is not a "remote" contingency
for purposes of the OID rules, in which case U.S. Holders would be required to
accrue OID on the Junior Subordinated Debt Securities on an economic accrual
basis under the OID rules described in the preceding paragraph.
Corporate U.S. Holders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Preferred
Securities.
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DISTRIBUTION OF JUNIOR SUBORDINATED DEBT SECURITIES TO U.S. HOLDERS OF PREFERRED
SECURITIES
The Company will have the right at any time to dissolve the Trust and cause
the Junior Subordinated Debt Securities to be distributed to the holders of the
Trust Securities. Under current law, such distribution would be non-taxable to
U.S. Holders. In such event, a U.S. Holder would have an aggregate tax basis in
the Junior Subordinated Debt Securities received in the liquidation equal to the
aggregate tax basis such U.S. Holder had in its Preferred Securities surrendered
therefor, and the holding period of such Junior Subordinated Debt Securities
would include the period during which such U.S. Holder had held the Preferred
Securities. A U.S. Holder will continue to include interest (or OID) in respect
of Junior Subordinated Debt Securities received from the Trust in the manner
described above under "-- Interest Income and Original Issue Discount."
SALES OR REDEMPTION OF PREFERRED SECURITIES
Gain or loss will be recognized by a U.S. Holder on a sale or redemption of
the Preferred Securities (including a redemption for cash) in an amount equal to
the difference between the amount realized by the U.S. Holder on the sale or
redemption (except to the extent that such amount realized is attributable to
accrued interest, which will be taxable as ordinary income to the extent not
previously included in income) and the U.S. Holder's adjusted tax basis in the
Preferred Securities sold or so redeemed. Gain or loss recognized by a U.S.
Holder on Preferred Securities held for more than one year will generally be
taxable as long-term capital gain or loss. Under recently adopted amendments to
the Internal Revenue Code, long term capital gains recognized by U.S. Holders
that are individuals will generally be subject to a maximum tax rate of 20% if
the U.S. Holder held the Preferred Securities for more than 12 months. Gains on
Preferred Securities that have been held for 12 months or less will be subject
to tax at ordinary income tax rates.
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debt Securities. A U.S. Holder who disposes of Preferred Securities
between record dates for payments of distributions will nevertheless be required
to include in income as ordinary income accrued but unpaid interest on the
Junior Subordinated Debt Securities to the date of disposition, and to add such
amount to its adjusted tax basis in its pro rata share of the underlying Junior
Subordinated Debt Securities deemed disposed of. Similarly, should the Company
exercise its option to defer interest payments on the Junior Subordinated Debt
Securities, a holder would be required to include as ordinary income the accrued
OID through the date of disposition and add such amount to its adjusted basis in
the Preferred Securities disposed of. Such U.S. Holder generally will recognize
a capital loss to the extent the selling price (which may not fully reflect the
value of accrued but unpaid interest or OID) is less than the U.S. Holder's
adjusted tax basis (which will include accrued but unpaid interest and OID, if
any). Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
PROPOSED TAX LAW CHANGES
From time to time, the Clinton Administration has proposed certain tax law
changes that would, among other things, generally deny interest deductions to a
corporate issuer if the debt instrument has a term exceeding 15 years (earlier
proposed tax law changes would have denied interest deductions if the debt
instrument had a term exceeding 20 years) and if such debt instrument is not
reflected as indebtedness on such issuer's consolidated balance sheet. As of the
date hereof, no such proposal is pending. However, in the event similar tax law
changes were proposed and enacted in the future and applied retroactively to the
Junior Subordinated Debt Securities, such changes could give rise to a Tax
Event, which would permit the Company to cause a redemption of the Junior
Subordinated Debt Securities and of the related Trust Securities, as described
more fully under "Description of the Preferred Securities -- Special Event
Redemption."
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
In general, information reporting requirements on Form 1099 will apply to
payments on the Preferred Securities to non-corporate U.S. Holders, and "backup
withholding" at a rate of 31% may apply to such payments if the U.S. Holder
thereof fails to supply an accurate taxpayer identification number or otherwise
fails to comply with applicable United States information reporting or
certification requirements.
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ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (an "ERISA Plan"), should consider the fiduciary standards of ERISA in
the context of the ERISA Plan's particular circumstances before authorizing an
investment in the Preferred Securities of the Trust. Among other factors, the
fiduciary should consider whether such an investment is in accordance with the
documents governing the ERISA Plan and whether the investment is appropriate for
the ERISA Plan in view of its overall investment policy and diversification of
its portfolio.
Certain provisions of ERISA and the Code prohibit ERISA Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (collectively, "Plans"), from engaging in certain transactions involving
"plan assets" with parties that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the Plan. The U.S.
Department of Labor has issued a final regulation (the "Regulation") with regard
to whether the underlying assets of an entity in which employee benefit plans
acquire equity interests are deemed to be plan assets.
Under such Regulation, for purposes of ERISA and Section 4975 of the Code,
the assets of the Trust would be deemed to be "plan assets" of a Plan whose
assets were used to purchase Preferred Securities of the Trust if the Preferred
Securities of the Trust were considered to be equity interests in the Trust and
no exception to plan asset status were applicable under the Regulation. An
"equity interest" is defined under the Regulation as any interest in an entity
other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features and specifically includes a
beneficial interest in a trust.
Pursuant to an exception contained in the Regulation, the assets of the
Trust would not be deemed to be "plan assets" of investing Plans if, immediately
after the most recent acquisition of any equity interest in the Trust, less than
25% of the value of each class of equity interests in the Trust were held by
Plans, other employee benefit plans not subject to ERISA or Section 4975 of the
Code (such as governmental, church and foreign plans), and entities holding
assets deemed to be "plan assets" of any Plan (collectively, "Benefit Plan
Investors"). No assurance can be given that the value of the Preferred
Securities held by Benefit Plan Investors will be less than 25% of the total
value of such Preferred Securities at the completion of the initial offering or
thereafter, and no monitoring or other measures will be taken with respect to
the satisfaction of the conditions of this exception.
If the assets of the Trust were determined under ERISA or the Code to be
"plan assets" of Plans holding Preferred Securities, fiduciaries of such Plans
might under certain circumstances be subject to liability for actions taken by
the Trust. Moreover, fiduciaries with responsibilities to Plans (other than
IRAs) might be deemed to have improperly delegated their fiduciary
responsibilities to the Trustees of the Trust in violation of ERISA. If this
were the case, an investment in Preferred Securities of the Trust by a Plan
might constitute, or in the course of the operation of the Trust give rise to, a
prohibited transaction under ERISA or the Code. In particular, it is likely that
under such circumstances a prohibited extension of credit to the Company would
be considered to have occurred under ERISA and the Code.
In addition, the Company might be considered to be a "party in interest" or
"disqualified person" with respect to certain Plans for reasons unrelated to the
operation of the Trust, e.g., because of the provision of services by the
Company or an affiliate to the Plan. A purchase of Preferred Securities of the
Trust by any such Plan would be likely to result in a prohibited transaction, as
a prohibited extension of credit to the Company by the Plan, without regard to
whether the assets of the Trust constitute plan assets of any Plan.
Because of the possibility that a prohibited transaction could occur as a
result of the purchase or holding of the Preferred Securities of the Trust by a
Plan, the Preferred Securities of the Trust may not be purchased or held by any
Plan or any person investing "plan assets" of any Plan, in either case, with
respect to which the Company is a "party in interest" or "disqualified person,"
unless such purchase or holding is eligible for the exemptive relief available
under Prohibited Transaction Class Exemption ("PTCE") 96-23 (for certain
transactions determined by in-house asset managers), PTCE 95-60 (for certain
transactions involving
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insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions
involving insurance company separate accounts), or PTCE 84-14 (for certain
transactions determined by independent qualified asset managers), or pursuant to
any other available applicable exemptive relief. Any purchaser of the Preferred
Securities of the Trust or any interest therein, in either case, with respect to
which the Company is a "party in interest" or "disqualified person," will be
deemed to have represented to the Trust and the Company that either (a) it is
not a Plan and is not purchasing such securities (or interest therein) on behalf
of or with "plan assets" of any Plan or (b) its purchase and holding of the
Preferred Securities of the Trust (or interest therein) is eligible for the
exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or
pursuant to any other available applicable exemptive relief.
An exception from the above rules may be available under the Regulation for
investments by Plans in certain publicly-registered securities. In order to
qualify for this exception, the securities in question must be: (i) freely
transferable; (ii) owned by at least 100 investors independent of the issuer and
of one another; and (iii) either (a) part of a class of securities registered
under Section 12(b) or 12(g) of the Securities Exchange Act, or (b) sold as part
of a public offering pursuant to an effective registration statement under the
Securities Act and registered under the Securities Exchange Act within 120 days
(or such later time as may be allowed by the Commission) after the end of the
issuer's fiscal year during which the offering occurred.
It is currently anticipated that the Preferred Securities will be "freely
transferable" for purposes of the above-referred exception, and will be owned by
at least 100 investors independent of the issuer and of one another. Finally, no
Preferred Securities will be sold except pursuant to an effective registration
statement under the Securities Act, and it is intended that the required filings
under the Securities Exchange Act will be made for purposes of the
above-referred exception. Therefore, the Trust should qualify for the exception,
so that the Trust assets should not be "plan assets" of any Plan, and the
Trust's underlying assets should not be treated as "plan assets" of Plan
investors for purposes of determining whether any prohibited transaction has
occurred.
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is important that any person considering
the purchase of Preferred Securities of the Trust with Plan assets consult with
its counsel regarding the consequences under ERISA and the Code of the
acquisition and ownership of Preferred Securities of the Trust and the
availability of exemptive relief under the class exemptions listed above. In
John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114
S.Ct. 517 (1993), the Supreme Court ruled that assets held in an insurance
company's general account may be deemed to be "plan assets" for ERISA purposes
under certain circumstances. The issues raised in Harris Trust have also been
the subject of legislative action, and have been addressed in proposed
regulations issued by the U.S. Department of Labor in December 1997.
S-40
<PAGE> 41
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement
dated November 13, 1998 (the "Underwriting Agreement"), each Underwriter named
below (the "Underwriters"), for whom Salomon Smith Barney Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Robert W. Baird & Co. Incorporated,
Ladenburg Thalmann & Co. Inc. and Roney Capital Markets, a division of First
Chicago Capital Markets, Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase from MCN Financing, and MCN
Financing has agreed to sell to such Underwriter, the number of Preferred
Securities set forth opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
UNDERWRITING
SHARES
------------
<S> <C>
Salomon Smith Barney Inc. .................................. 1,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 1,000,000
Robert W. Baird & Co. Incorporated.......................... 375,000
Ladenburg Thalmann & Co. Inc. .............................. 375,000
Roney Capital Markets, a division of First Chicago Capital
Markets, Inc. ............................................ 375,000
A.G. Edwards & Sons, Inc. .................................. 150,000
Dain Rauscher Incorporated.................................. 75,000
EVEREN Securities, Inc. .................................... 75,000
Prudential Securities Incorporated.......................... 75,000
J.C. Bradford & Co. ........................................ 75,000
Piper Jaffray Inc. ......................................... 75,000
Fahnestock & Co. Inc. ...................................... 25,000
Fidelity Capital Markets, A Division of National Financial
Services Corporation...................................... 25,000
First of Michigan Corporation............................... 25,000
Gibraltar Securities Co. ................................... 25,000
Gruntal & Co., L.L.C. ...................................... 25,000
Janney Montgomery Scott Inc. ............................... 25,000
Legg Mason Wood Walker, Incorporated........................ 25,000
McDonald & Company Securities, Inc. ........................ 25,000
Morgan Keegan & Company, Inc. .............................. 25,000
Raymond James & Associates, Inc. ........................... 25,000
Stephens Inc. .............................................. 25,000
The Robinson-Humphrey Company, LLC.......................... 25,000
Tucker Anthony Incorporated................................. 25,000
Wheat First Butcher Singer.................................. 25,000
---------
Total.................................................. 4,000,000
=========
</TABLE>
The Underwriters are obligated to take and pay for the total number of
Preferred Securities offered hereby if any such Preferred Securities are
purchased. In the event of default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Underwriting Agreement provides that MCN Financing and the Company will
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, and to make certain
contributions in respect thereof.
MCN Financing and the Company have agreed, during the period beginning on
the date of the Underwriting Agreement and continuing to and including the date
that is 30 days after the closing date for the
S-41
<PAGE> 42
purchase of the Preferred Securities, not to offer, sell, contract to sell or
otherwise dispose of any preferred securities, any preferred stock or any other
securities (including any backup undertakings of such preferred stock or other
securities) of the Company or of MCN Financing, in each case that are
substantially similar to the Preferred Securities, or any securities convertible
into or exchangeable for the Preferred Securities or such substantially similar
securities of either MCN Financing or the Company, except preferred securities
offered pursuant to the accompanying Prospectus, without the prior written
consent of Salomon Smith Barney Inc.
In view of the fact that the proceeds of the sale of the Preferred
Securities will ultimately be used to purchase the Junior Subordinated Debt
Securities of the Company, the Underwriting Agreement provides that the Company
will pay as compensation to the Underwriters $0.7875 per Preferred Security for
the accounts of the several Underwriters ($3,150,000 in the aggregate).
Therefore, to the extent of such sales, the actual amount of Underwriters'
Compensation will be less than the aggregate amount specified in the preceding
sentence.
The Underwriters propose to offer the Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession of $0.50 per Preferred Security. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $0.35 per Preferred
Security to certain brokers and dealers. After the Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives of the Underwriters.
The Preferred Securities have been approved for listing on the NYSE,
subject to official notice of issuance. Trading of the Preferred Securities on
the New York Stock Exchange is expected to commence within a 30-day period after
the initial delivery of the Preferred Securities.
In order to facilitate the offering of the Preferred Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Preferred Securities. Specifically, the Underwriters may
overallot in connection with the offering, creating a short position in the
Preferred Securities for their own account. In addition, to cover overallotments
or to stabilize the price of the Preferred Securities, the Underwriters may bid
for, and purchase, the Preferred Securities in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the Preferred Securities in the offering, if the
syndicate repurchases previously distributed Preferred Securities in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price
of the Preferred Securities above independent market levels. The Underwriters
are not required to engage in those activities, and if commenced, may end any of
these activities at any time.
Certain of the Underwriters and their affiliates have in the past provided,
and may in the future provide, investment and/or commercial banking services to
the Company and its subsidiaries in the ordinary course of business.
LEGAL MATTERS
The validity of the Junior Subordinated Debt Securities, the Guarantee and
certain matters relating thereto will be passed upon for the Company by Daniel
L. Schiffer, Esq., Senior Vice President, General Counsel and Secretary of MCN.
Certain matters will be passed upon for the Company by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, which has also acted as special tax
counsel for the Company in connection with this offering. Certain legal matters
will be passed upon for the Underwriters by LeBoeuf, Lamb, Greene & MacRae,
L.L.P., a limited liability partnership including professional corporations, New
York, New York. Mr. Schiffer is a full-time employee and officer of the Company
and owned 37,106 shares of MCN's Common Stock as of September 30, 1998. LeBoeuf,
Lamb, Greene & MacRae, L.L.P. from time to time renders legal services to the
Company.
S-42
<PAGE> 43
PROSPECTUS
$935,908,125
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
COMMON STOCK
COMMON STOCK WARRANTS
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
-------------------------
MCN FINANCING II
MCN FINANCING IV
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MCN ENERGY GROUP INC.
-------------------------
MCN Energy Group Inc., a Michigan Corporation ("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) and/or (ii) above being referred to herein as the
"Debt Securities"), (iii) common stock, $.01 par value ("MCN Common Stock"),
(iv) warrants to purchase shares of MCN Common Stock ("Common Stock Warrants"),
(v) stock purchase contracts ("Stock Purchase Contracts") to purchase MCN Common
Stock or (vi) stock purchase units ("Stock Purchase Units"), 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 MCN
Common Stock under the Stock Purchase Contracts, 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 and MCN Financing IV (each, an "MCN Trust" and
collectively, the "MCN Trusts"), each a statutory business trust formed under
the laws of the State of Delaware, may offer, from time to time, preferred
securities, representing preferred 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
"Preferred Securities 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 directly or
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, the Common Stock Warrants and the Senior Debt Securities, in respect of
which this Prospectus is being delivered (the "Offered Securities") will be set
forth in an accompanying Prospectus Supplement or Supplements, together with the
(continued on following 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 18, 1998.
<PAGE> 44
(continued from previous page)
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, denominations, maturity, premium, if any, any exchange,
conversion, redemption or sinking fund provisions, interest payment dates,
interest rate (which may be fixed or variable) or method of calculating
interest, the right of the Company, if any, to defer payment of interest on the
Subordinated Debt Securities and the maximum length of such deferral period, put
options, if any, initial offering or purchase 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 Common Stock Warrants, the offering price, the aggregate number
of shares of MCN Common Stock purchasable upon exercise of such Common Stock
Warrants, and the price at which such number of shares of MCN Common Stock may
be purchased upon such exercise, the date on which the right to exercise such
Common Stock Warrants shall commence and the expiration date of such right,
whether the Common Stock Warrants will be issued in registered or bearer form
and other specific terms of the offering, (iv) in the case of Preferred
Securities, the specific title, aggregate amount, number of securities, stated
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, (v) in the case of Stock
Purchase Contracts, the number of shares of MCN Common Stock issuable
thereunder, the purchase price of the MCN Common Stock, the date or dates on
which the MCN 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 (vi) 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 MCN 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 $935,908,125. If so
specified in the applicable Prospectus Supplement, the Offered Securities
offered thereby may be issued in whole or in part in the form of one or more
temporary or permanent global securities.
MCN Common Stock is listed 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". The Prospectus Supplement will state
whether any Offered Securities offered thereby will be listed on any national
securities exchange. If such Offered Securities are not listed on any national
securities exchange, there can be no assurance that there will be a secondary
market for any such Offered Securities.
MCN and/or each of the MCN Trusts may sell the Offered Securities to or
through underwriters, directly to purchasers, through agents or dealers or
through a combination of such methods. 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 fees, 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> 45
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 AND/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 Energy Group Inc. 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> 46
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, 1997.
2. The description of the MCN 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 and July 23, 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.
FORWARD-LOOKING STATEMENTS
Statements contained in or incorporated by reference into this Prospectus
which are not historical in nature are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve certain risks and uncertainties that may cause actual future
results to differ materially from those contemplated, projected, estimated or
budgeted in such forward-looking statements. Factors that may impact forward
looking statements include, but are not limited to, the following: (i) the
effects of weather and other natural phenomena; (ii) increased competition from
other energy suppliers as well as alternative forms of energy; (iii) the capital
intensive nature of the Company's business; (iv) economic climate and growth in
the geographic areas in which the Company does business; (v) the uncertainty of
gas and oil 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; (ix) changes in the economic and political climate and
currencies of foreign countries where the Company has invested or may invest in
the future and (x) the effects of changes in governmental policies and
regulatory actions, including income taxes, environmental compliance and
authorized rates. See "Incorporation of Certain Documents by Reference" above.
4
<PAGE> 47
MCN ENERGY GROUP INC.
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,
as amended.
DIVERSIFIED ENERGY, operating through MCN Investment Corporation ("MCNIC"),
is involved in the following businesses: Exploration & Production with proved
gas and oil reserves in the Midwest/Appalachia, Midcontinent/Gulf Coast and
Western regions of the United States; Pipelines & Processing with gathering,
processing and transmission facilities near areas of rapid reserve development
and growing consumer markets; Energy Marketing and Power Generation with gas and
electric markets and investments in electric generation and distribution
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 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 with
respect to the distribution and 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 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, in the case of MCN Financing II and February 3, 1997, in the case of
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. Each MCN Trust has a term of approximately 45 years,
other than MCN Financing II, which has a term of approximately 25 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 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
5
<PAGE> 48
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,
which may include capital expenditures, investment in subsidiaries, working
capital, repayment of debt and other business opportunities.
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,
--------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MCN(1)(2)(3)......................... 2.18 2.28 2.55 2.70 3.15
</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) as 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, MCN Financing I,
MCN Financing III, MCN Financing V and MCN Financing VI), increased to
reflect the pre-tax earnings requirement for MichCon.
(3) In June 1996, MCN completed the sale of 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.
INTEREST COVERAGE RATIO
The following table sets forth the interest coverage ratio for MCN on a
historical basis for the periods indicated. This ratio differs from the SEC
prescribed "Ratio of Earnings to Fixed Charges" in its treatment of certain
hybrid securities of MCN.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MCN(1)............................... 2.94 2.70 3.02 3.40 3.25
</TABLE>
- -------------------------
(1) The interest coverage ratio is the quotient of MCN's Income From Continuing
Operations Before Income Taxes, as adjusted and defined below, divided by
Interest Rate Charges as defined below.
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<PAGE> 49
Income From Continuing Operations Before Income Taxes as reported on MCN's
Consolidated Statement of Income has been adjusted to add the following: (1)
Interest Rate Charges as defined below, (2) dividends on the $100,000,000 of
9 3/8% redeemable preferred securities of MCN Michigan Limited Partnership, (3)
dividends on the $132,250,000 of 8% FELINE PRIDES of MCN Financing III, (4)
interest on the $130,000,000 of 6.82% Series Medium-Term Notes issued in
conjunction with the $135,000,000 of 8 3/4% Preferred Redeemable Increased
Dividend Equity Securities of MCN, (5) dividends on the $80,000,000 of 8 5/8%
Trust Originated Preferred Securities of MCN Financing I and (6) interest
related to nonrecourse debt of MCN. In addition, capitalized interest, pension
cost and postretirement benefit costs have been subtracted from the
determination of Income From Continuing Operations Before Income Taxes.
The computation of Interest Rate Charges includes total interest expense as
reported on MCN's Consolidated Statement of Income adjusted to add: (1)
capitalized interest expense, (2) dividends on the $100,000,000 of Single Point
Remarketed Reset Capital Securities of MCN Financing VI, (3) dividends on the
$100,000,000 of Private Institutional Trust Securities of MCN Financing V and
(4) interest expense implicit in rentals. In addition, interest expense reported
on MCN's Consolidated Statement of Income has been adjusted to exclude: (1)
interest on the $130,000,000 of 6.82% Series Medium-Term Notes issued in
conjunction with the $135,000,000 of 8 3/4% Preferred Redeemable Increased
Dividend Equity Securities of MCN and (2) interest expense related to
nonrecourse debt of MCN.
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<PAGE> 50
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. The Senior Debt Securities will be issued under an Indenture dated
as of September 1, 1994, as supplemented by the First Supplemental Indenture,
dated June 4, 1997, the Second Supplemental Indenture dated June 6, 1997, and
the Third Supplemental Indenture dated June 6, 1997 (the "Senior Debt Securities
Indenture"), between the Company and NBD Bank Michigan ("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, the Second Supplemental Indenture
dated July 24, 1996, and the Third Supplemental Indenture dated March 19, 1997
(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
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<PAGE> 51
exchangeable and transfers thereof will be registrable, at the Place of Payment,
provided that, at the option of the Company, payment of interest may be made by
check mailed or wire transferred to the address of the person entitled thereto
as it appears in the Security Register.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Debt Securities will be issued in United States dollars in fully
registered form, without coupons, in denominations of $1,000 or any integral
multiple thereof. No service charge will be made for any transfer or exchange of
the Offered 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
Unless otherwise specified in the applicable Prospectus Supplement, 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
9
<PAGE> 52
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 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.
Unless otherwise specified in the applicable Prospectus Supplement, so long
as the Depositary for a Global Security, or its nominee, is the registered owner
of such Global Security, such Depositary or such nominee, as the case may be,
will be considered the sole owner or Holder of the 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.
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<PAGE> 53
THE TRUSTEE
NBD is the Trustee under the Senior Debt Securities Indenture and the
Subordinated Debt Securities Indenture. 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. In addition, various MCN subsidiaries borrow money from NBD.
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.
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;
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<PAGE> 54
(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.
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.
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<PAGE> 55
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.
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
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<PAGE> 56
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.
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, 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,
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<PAGE> 57
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
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
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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.
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., a Subsidiary of the Company) or its Subsidiaries if the obligations of MCN
and its Subsidiaries with respect to such Indebtedness (other than Supply
Development Group, Inc. 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)
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<PAGE> 59
and (iii) certain environmental obligations of the borrowers. As of December 31,
1997, $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 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
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<PAGE> 60
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.
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
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<PAGE> 61
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.
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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 December 31, 1997, there were no
shares of MCN Preferred Stock outstanding and 78,231,889 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 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 therefor 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"). 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
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
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prices of the MCN Common Stock, as reported on the NYSE Composite Tape, and the
dividends declared on the MCN Common Stock, have been as follows:
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH LOW PAID PER SHARE
---- --- --------------
<S> <C> <C> <C> <C> <C>
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............................................ 30 13/16 27 3/8 .2425
Third Quarter............................................. 33 30 3/8 .2425
Fourth Quarter............................................ 40 1/2 32 .2550
1998
First Quarter (through February 25, 1998)................. 39 7/8 36 1/2 .2550
</TABLE>
The closing price of MCN Common Stock on December 31, 1997 was $40.375 per
share. The book value of the MCN Common Stock on December 31, 1997 was $14.74
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 direct stock purchase and dividend reinvestment plan under
which investors 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.
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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, 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 rates (or method of determining
such rate or rates) 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 or option, 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 or
option (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
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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 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.
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.
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
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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 to 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.
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 therefor;
(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 therefor 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 therefor 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 therefor. 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 therefor. 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
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
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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 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
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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.
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 PREFERRED SECURITIES 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 therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by MCN as and to the extent set forth under
"Description of the Preferred Securities Guarantees." 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
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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 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 COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of MCN Common
Stock. Common Stock Warrants may be issued independently or together with other
Offered Securities offered by any Prospectus Supplement and may be attached to
or separate from such Offered Securities. Each series of Common Stock Warrants
will be issued under one or more warrant agreements (each a "Common Stock
Warrant Agreement") to be entered into between the Company and a bank or trust
company, as common stock warrant agent which will be designated in the
applicable Prospectus Supplement (the "Common Stock Warrant Agent"), all as set
forth in the Prospectus Supplement relating to the particular issue of Common
Stock Warrants. The Common Stock Warrant Agent will act solely as an agent of
the Company in connection with the Common Stock Warrants and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Common Stock Warrants. The following summaries of certain
provisions of the form of Common Stock Warrant Agreement and certificate
representing Common Stock Warrants (the "Common Stock Warrant Certificates") do
not purport to be complete and are subject to and are qualified in their
entirety by reference to, all the provisions of the Common Stock Warrant
Agreement and the Common Stock Warrant Certificate which Agreement and
Certificate will be filed as an exhibit to or incorporated by reference in the
Registration Statement of which this prospectus forms a part.
GENERAL
If Common Stock Warrants are offered, the related Prospectus Supplement
will describe the terms of such Common Stock Warrants, including the following,
where applicable: (1) the offering price; (2) the aggregate number of shares of
MCN Common Stock purchasable upon exercise of such Common Stock Warrants and the
minimum number of Common Stock Warrants that are exercisable; (3) the number of
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shares of MCN Common Stock with which such Common Stock Warrants are being
offered and the number of such Common Stock Warrants being offered with each
such share of MCN Common Stock; (4) the date on and after which such Common
Stock Warrants and the related shares of MCN Common Stock will be transferable
separately; (5) the number of shares of MCN Common Stock purchasable upon
exercise of each such Common Stock Warrant and the price at which such number of
shares of MCN Common Stock may be purchased upon such exercise; (6) the date on
which the right to exercise such Common Stock Warrants shall commence and the
date on which such right shall expire (the "Common Stock Warrant Expiration
Date"); (7) whether the Common Stock Warrants represented by the Common Stock
Warrant Certificates will be issued in registered or bearer form; (8)
information with respect to book-entry procedures, if any; and (9) any other
terms of such Common Stock Warrants for the purchase of shares of MCN Common
Stock which shall not be inconsistent with the provisions of the Common Stock
Warrant Agreements.
Common Stock Warrant Certificates may be exchanged for new Common Stock
Warrant Certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Common Stock Warrant Agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Common Stock
Warrants to purchase MCN Common Stock, holders of such Common Stock Warrants
will not have any rights of holders of shares of MCN Common Stock purchasable
upon such exercise, including the right to receive payments of dividends, if
any, on the MCN Common Stock purchasable upon such exercise or to exercise any
applicable right to vote.
Prospective purchasers of Common Stock Warrants should be aware that
special U.S. Federal income tax, accounting and other considerations may be
applicable to instruments such as Common Stock Warrants. The Prospectus
Supplement relating to any issue of Common Stock Warrants will describe such
considerations.
EXERCISE OF COMMON STOCK WARRANTS
Each Common Stock Warrant will entitle the holder thereof to purchase such
number of shares of MCN Common Stock at such exercise price as shall be set
forth in, or calculable from, the Prospectus Supplement relating to the Common
Stock Warrants. After the close of business on the Common Stock Warrant
Expiration Date (or such earlier or later date to which such Common Stock
Warrant Expiration Date may be accelerated or extended by the Company),
unexercised Common Stock Warrants will become void.
Common Stock Warrants may be exercised by delivery to the Common Stock
Warrant Agent of payment as provided in the applicable Prospectus Supplement of
the amount required to purchase the shares of MCN Common Stock purchasable upon
such exercise together with certain information set forth on the reverse side of
the Common Stock Warrant Certificate. Common Stock Warrants will be deemed to
have been exercised upon receipt of the exercise price, subject to the receipt,
within five business days, of the Common Stock Warrant Certificate evidencing
such Common Stock Warrants. Upon receipt of such payment and the Common Stock
Warrant Certificate properly completed and duly executed at the corporate trust
office of the Common Stock Warrant Agent or any other office indicated in the
applicable Prospectus Supplement, the Company will, as soon as practicable,
issue and deliver the shares of MCN Common Stock purchasable upon such exercise.
If fewer than all of the Common Stock Warrants represented by such Common Stock
Warrant Certificate are exercised, a new Common Stock Warrant Certificate will
be issued for the remaining amount of Common Stock Warrants.
MODIFICATIONS
The Common Stock Warrant Agreement and the terms of the Common Stock
Warrants may be amended by the Company and the Common Stock Warrant Agent,
without the consent of the holders, for the purpose of curing any ambiguity, or
of curing, correcting or supplementing any defective or inconsistent provision
contained therein, or in any other manner which the Company may deem necessary
or desirable and which will not materially and adversely affect the interests of
the owners.
The Company and the Common Stock Warrant Agent also may modify or amend the
Common Stock Warrant Agreement and the terms of the Common Stock Warrants, with
the consent of the holders of not less
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than a majority in number of the then outstanding unexercised Common Stock
Warrants affected, provided that no such modification or amendment that shortens
the period of time during which the Common Stock Warrants may be exercised,
increases the exercise price of such Common Stock Warrants or otherwise
materially and adversely affects the exercise rights of the holders of the
Common Stock Warrants or reduces the number of outstanding Common Stock Warrants
the consent of whose holders is required for modification or amendment of the
Common Stock Warrant Agreement or the terms of the Common Stock Warrants, may be
made without the consent of the holders affected thereby.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of MCN Common Stock covered by a
Common Stock Warrant, will be subject to adjustment in certain events,
including: (i) dividends (and other distributions) payable in MCN Common Stock
on any class of capital stock of the Company; (ii) subdivision, combinations and
reclassifications of MCN Common Stock; (iii) the issuance to all holders of MCN
Common Stock of certain rights or warrants entitling them to subscribe for or
purchase MCN Common Stock, at less than the current market price (as defined in
the Common Stock Warrant Agreement for such series of Common Stock Warrants);
and (iv) the distribution to all holders of MCN Common Stock of evidences of
indebtedness or assets of the Company (including securities, but excluding those
dividends and distributions referred to above and dividends and distributions
paid in cash out of surplus or retained earnings of the Company) or rights or
warrants (excluding those referred to above) of the Company, subject to the
limitation that all adjustments by reason of any of the foregoing need not be
made until they result in a cumulative change in the exercise price of at least
1%.
In the event that the Company shall distribute or shall have distributed
any rights or warrants to acquire capital stock pursuant to clause (iv) of the
preceding paragraph ("Capital Stock Rights"), pursuant to which separate
certificates representing such Capital Stock Rights are distributed subsequent
to the initial distribution of such Capital Stock Rights (whether or not such
distribution shall have occurred prior to the date of the issuance of a series
of Common Stock Warrants), the subsequent distribution shall be deemed to be the
distribution of such Capital Stock Rights; provided, however, that the Company
may, in lieu of making any adjustment in the exercise price of, and the number
of shares of MCN Common Stock covered by, a Common Stock Warrant upon a
distribution of separate certificates representing such Capital Stock Rights,
make proper provision so that each holder of a Common Stock Warrant who
exercises such Common Stock Warrant (or any portion thereof) (a) on or before
the record date for such distribution of separate certificates shall be entitled
to receive upon such exercise shares of MCN Common Stock issued with Capital
Stock Rights and (b) after such record date and prior to the expiration,
redemption or termination of such Capital Stock Rights shall be entitled to
receive upon such exercise, in addition to the shares of MCN Common Stock
issuable upon such exercise, the same number of such Capital Stock Rights as
would a holder of the number of shares of MCN Common Stock that such Common
Stock Warrant so exercised would have entitled the holder thereof to acquire in
accordance with the terms and provisions applicable to the Capital Stock Rights
if such Common Stock Warrant were exercised immediately prior to the record date
for such distribution. MCN Common Stock owned by or held for the account of the
Company or any majority owned subsidiary shall not be deemed outstanding for the
purpose of any adjustment.
In the event the Company shall effect any capital reorganization or
reclassification of its shares or shall consolidate, merge or engage in a
statutory share exchange with or into any other corporation (other than a
consolidation, merger or share exchange into which the Company is the surviving
corporation) or shall sell or transfer substantially all its assets to any other
corporation for a consideration consisting in whole or in part of equity
securities of such other corporation, the holders of the Common Stock Warrants
then outstanding will be entitled thereafter to exercise such Common Stock
Warrants to acquire the kind and amount of stock and other securities, cash or
property which they would have received in connection with such transaction had
such Common Stock Warrants been exercised immediately prior to such transaction.
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MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
If at any time there shall be a merger, consolidation, sale, transfer,
conveyance or other disposition of substantially all of the assets of the
Company, then the successor or assuming corporation shall succeed to and be
substituted for the Company in, and the Company will be relieved of any further
obligation under, the Common Stock Warrant Agreement or the Common Stock
Warrants.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
MCN may issue Stock Purchase Contracts, including contracts obligating
holders to purchase from the Company, and the Company to sell to the holders, a
specified number of shares of MCN Common Stock at a future date or dates. The
price per share of MCN 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") 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 MCN Common Stock under the Stock 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 necessarily 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, (ii) directly to purchasers, (iii) through agents, or (iv) through
dealers. 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
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
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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.
Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for the Company and/or applicable MCN Trust. Any
remarketing firm will be identified and the terms of its agreement, if any, with
its compensation will be described in the applicable Prospectus Supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the Securities remarketed thereby.
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, underwriters and remarketing firms 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, underwriters or remarketing firms may be required to make in
respect thereof. Agents, dealers, underwriters and remarketing firms may be
customers of, engage in transactions with, or perform services for MCN and/or an
MCN Trust in the ordinary course of business. Remarketing firms may be entitled
under agreements which may be entered into with the Company and/or the
applicable MCN Trust to indemnification or contribution by the Company and/or
the applicable MCN Trust against certain civil liabilities under the Securities
Act, and may be customers of, engage in transactions with or perform services
for MCN and its subsidiaries in the ordinary course of business.
Each series of Offered Securities will be a new issue of securities and,
other than the MCN Common Stock, which is listed on the NYSE, 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, and in the case of the MCN Common
Stock, on any additional 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 Energy Group Inc., and for the underwriters by LeBoeuf, Lamb,
Greene & MacRae, L.L.P., a limited liability partnership including professional
corporations, New York, New York. Mr. Schiffer is a full-time employee and
officer of MCN and owned 33,255 shares of MCN Common Stock as of December 31,
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 LLP, 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 MCN and the MCN Trusts. LeBoeuf, Lamb, Greene & MacRae, L.L.P. from time to
time renders legal services to the Company.
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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, 1997 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, 1997,
includes various oil and gas reserve information summarized from reports
prepared by the independent petroleum consultants Ryder Scott Company; Miller
and Lents, Ltd.; Williamson Petroleum Consultants, Inc.; S.A. Holditch &
Associates, Inc.; Questa Engineering Corporation and Netherland, Sewell &
Associates, Inc. This reserve information and related schedules have been
incorporated herein by reference in reliance upon such reports given upon the
authority of said firms as experts in oil and gas reserve estimation.
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4,000,000 SECURITIES
MCN FINANCING II
8 5/8% TRUST PREFERRED SECURITIES (TRUPS(R))
$25 LIQUIDATION AMOUNT
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MCN LOGO
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PROSPECTUS SUPPLEMENT
NOVEMBER 13, 1998
(INCLUDING PROSPECTUS
DATED MARCH 18, 1998)
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SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
ROBERT W. BAIRD & CO. INCORPORATED
LADENBURG THALMANN & CO. INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO CAPITAL MARKETS, INC.
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