<PAGE> 1
REGISTERED PURSUANT TO RULE 424(b)5
FILE NO. 333-47137
FILE NO. 333-47137-01
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 18, 1998)
$100,000,000
MCN Investment Corporation
6 3/8% RESET PUT SECURITIES (REPS(SM)) DUE 2008*
Entitled to the Benefit of a Support Agreement by MCN Energy Group Inc.
------------------------
Interest payable April 1 and October 1
------------------------
MCN INVESTMENT CORPORATION (THE "COMPANY" OR "MCNIC") WILL ISSUE THE 6 3/8%
RESET PUT SECURITIES DUE 2008 (THE "REPS(SM)"). THE REPS WILL BE SUBJECT TO
MANDATORY REDEMPTION FROM THE EXISTING HOLDERS ON APRIL 1, 2003 THROUGH EITHER
(I) THE EXERCISE OF THE CALL OPTION (AS DEFINED HEREIN) BY THE CALLHOLDER (AS
DEFINED HEREIN) OR (II) IN THE EVENT THE CALLHOLDER DOES NOT PURCHASE THE REPS
PURSUANT TO THE CALL OPTION, THE AUTOMATIC EXERCISE OF THE PUT OPTION (AS
DEFINED HEREIN) BY NBD BANK, AS TRUSTEE (THE "TRUSTEE"), ON BEHALF OF THE
HOLDERS. THE "CALLHOLDER" WILL BE MORGAN STANLEY & CO. INTERNATIONAL LIMITED. IF
THE CALLHOLDER, OR ANY SUCCESSOR OR ASSIGN THERETO, PURCHASES THE REPS PURSUANT
TO THE CALL OPTION, THE REPS WILL BE PURCHASED BY THE CALLHOLDER FROM THE
HOLDERS THEREOF ON APRIL 1, 2003 (THE "COUPON RESET DATE") AT 100% OF THE ENTIRE
PRINCIPAL AMOUNT THEREOF AND THE INTEREST RATE ON THE REPS WILL BE RESET (THE
"COUPON RESET RATE") BY THE CALCULATION AGENT (AS DEFINED HEREIN) EFFECTIVE ON
THE COUPON RESET DATE PURSUANT TO THE COUPON RESET PROCESS (AS DEFINED HEREIN).
IF THE CALLHOLDER FOR ANY REASON FAILS TO PURCHASE THE REPS ON THE COUPON RESET
DATE, THE COMPANY WILL BE REQUIRED TO REPURCHASE THE PRINCIPAL AMOUNT OF THE
REPS FROM THE HOLDERS THEREOF ON THE COUPON RESET DATE AT 100% OF THE PRINCIPAL
AMOUNT THEREOF (THE "PUT OPTION"). SEE "DESCRIPTION OF THE REPS -- CALL OPTION;
MANDATORY PUT." OWNERSHIP OF THE REPS WILL BE MAINTAINED IN BOOK-ENTRY FORM BY
OR THROUGH THE DEPOSITORY TRUST COMPANY ("DTC"). INTERESTS IN THE REPS WILL BE
SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH RECORDS MAINTAINED
BY DTC AND ITS PARTICIPANTS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE 99.90% AND ACCRUED INTEREST, IF ANY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO THE DISCOUNTS AND PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) COMPANY (1)(3)(4)
------------ --------------- -----------------
<S> <C> <C> <C>
Per REPS.................................... 99.90% .60% 101.10%
Total....................................... $99,900,000 $600,000 $101,100,000
</TABLE>
- ------------
(1) Plus accrued interest, if any, from April 6, 1998.
(2) The Company has agreed to indemnify the several Underwriters against
certain labilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriters."
(3) Before deducting expenses payable by the Company estimated at $75,000.
(4) Represents consideration for the REPS, which includes consideration for
the Call Option.
------------------------
* REPS is a service mark of Morgan Stanley Dean Witter & Co.
------------------------
The REPS are offered, subject to prior sale, when, as and if issued to and
accepted by the Underwriters and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the REPS will
be made in book-entry form through the facilities of DTC on or about April 6,
1998, against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER FIRST CHICAGO CAPITAL MARKETS, INC.
April 1, 1998
<PAGE> 2
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE
OFFERING COVERED BY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE REPS.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING OF
THE REPS, AND MAY BID FOR, AND PURCHASE THE REPS IN THE OPEN MARKET. FOR A
DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
---------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
MCN......................................................... S-3
MCNIC....................................................... S-3
Forward-Looking Statements.................................. S-7
Use of Proceeds............................................. S-7
Description of the REPS..................................... S-7
Certain United States Federal Income Tax Consequences....... S-12
Underwriters................................................ S-15
Legal Matters............................................... S-16
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 2
MCN Energy Group Inc........................................ 3
MCN Investment Corporation.................................. 3
Ratio of Earnings to Fixed Charges.......................... 3
Interest Coverage Ratio..................................... 4
Use of Proceeds............................................. 5
Description of Debt Securities.............................. 5
Support Agreement........................................... 11
Validity of Securities...................................... 12
Experts..................................................... 12
Plan of Distribution........................................ 12
</TABLE>
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MCN
MCN is a diversified energy holding company headquartered in Detroit,
Michigan, with more than $4.9 billion in assets and revenues of over $2.8
billion for the year ended December 31, 1997 (including proportionate share of
joint ventures). In 1997, MCN earned net income from continuing operations of
$142.3 million and a return on equity of 14.7%. At December 31, 1997, MCN and
its subsidiaries had 3,209 employees.
With markets and investments throughout North America and in Asia, MCN
operates through two major business groups, Diversified Energy and Gas
Distribution. The Diversified Energy group is involved in oil and gas
exploration and production, gas gathering, processing, transmission and storage,
energy marketing, electric power generation and other energy related businesses.
The Gas Distribution group consists primarily of Michigan Consolidated Gas
Company, a natural gas distribution and transmission company serving 1.2 million
customers in more than 500 communities throughout the State of Michigan.
MCN currently plans to use asset sales and purchases as a key tool in
optimizing its portfolio of businesses. As MCN continues to expand its
businesses both domestically and internationally, it expects to focus on larger
acquisitions of properties and companies to add to its base of expertise and
expand the breadth of its investments. As a result, MCN will take on a more
direct role in the operation of some of its joint ventures within the
Diversified Energy Group.
MCNIC
GENERAL
MCNIC, a wholly-owned subsidiary of MCN, is a subsidiary holding company
for MCN's Diversified Energy group and is involved in the following businesses:
(i) Exploration and Production, with 1.3 trillion cubic feet equivalent of
proved gas and oil reserves at December 31, 1997, in the Midwest/Appalachia,
Midcontinent/Gulf Coast and Western regions of the United States; (ii) Pipelines
and Processing, with gathering, processing and transmission facilities near
areas of rapid reserve development and growing consumer markets; (iii) Energy
Marketing, with total gas sales and exchange delivery markets of 358.8 billion
cubic feet ("Bcf") for 1997; (iv) Electric Power, with investments in electric
generation facilities in operation and under development with a combined 2,804
megawatts ("MW") of gross capacity and investments in electric distribution
facilities; and (v) Gas Storage, with investments in storage facilities that
have 52 Bcf of storage capacity, 42 Bcf of which is currently under development.
The Diversified Energy group's operating revenues for 1997 totaled $951.3
million (including intercompany transactions), while operating and joint venture
income was $112.7 million in 1997, nearly double the 1996 operating and joint
venture income. The Diversified Energy group contributed 43% of the Company's
earnings, up from 28% in 1996. Within the Diversified Energy group's individual
business units, operating and joint venture income rose 75% for Exploration &
Production, 172% for Pipelines & Processing, and 113% for Energy Marketing,
Electric Power and Gas Storage. Partially offsetting the growth in earnings were
increased financing costs resulting from additional capital needed to fund
investments.
EXPLORATION & PRODUCTION
The Company is engaged in natural gas and oil exploration, development and
production through its wholly owned subsidiary, MCNIC Oil & Gas Company ("MOG").
At December 31, 1997, proved gas reserves totaled 1,166.2 Bcf and proved oil
reserves were 155.1 billion cubic feet equivalent ("Bcfe"), up a combined 80.2
Bcfe, or 7%, from December 1996 levels. The increase in gas and oil reserves
during 1997 was tempered by the sale of properties with 57.6 Bcfe of proved
reserves and net downward reserve revisions of 32.8 Bcfe. Operating and joint
venture income for 1997 increased by $24.9 million over 1996 to $58.1 million,
reflecting a significant increase in gas and oil production during 1997 to 98.3
Bcfe from 63.7 Bcfe in 1996. Approximately $17.8 million in federal tax credits
were generated in 1997 related to gas production from certain Antrim and coalbed
methane gas wells.
S-3
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MOG's strategy is to continue to grow its U.S. gas reserve base and
production in known producing areas through drilling and acquisition, generating
attractive returns. MOG is also pursuing international opportunities in areas
with known hydrocarbons involving both lower risk, unconventional long-life
reserves and higher risk, conventional exploration and development prospects
with substantial upside potential. Although MOG may increase its operating role
in the future, currently it takes primarily a non-operating, but active role,
investing with operators with local expertise in each play. MOG anticipates that
production will increase in the future through the continued development of its
large inventory of unconventional and conventional drilling locations and from
additional exploration and development of MOG's approximately 1.2 million net
(2.6 million gross) acres of undeveloped property.
In 1997, MOG participated in the drilling of 696 wells (412 net), bringing
the total drilled to 2,273 wells (1,47 net) since it began operations in 1992.
The 1997 drilling program achieved an overall drilling success rate of 91% and
added approximately 269 Bcfe of proved reserves. MOG's success rate in its
drilling program since its inception in 1992 has averaged approximately 91%.
During 1997, approximately 42% of MOG's production and 71% of its proved
reserves were associated with the Midwest/Appalachia region, as MOG added 257
net wells in the region. Approximately 33% of production and 14% of reserves
were from the Midcontinent/Gulf Coast, and the Western region became a
significantly larger piece of the business, accounting for 25% of production and
15% of reserves, compared with only 6% and 9%, respectively, in 1996. In 1997,
MOG made significant investments in natural gas reserves, acquiring interests in
more than 32 producing wells. At December 31, 1997, 2,917 wells were producing.
An additional 384 wells were in various stages of completion and are expected to
begin producing in 1998.
MCN follows the full-cost accounting method prescribed by the Securities
and Exchange Commission for investments in gas and oil properties. Under the
full-cost method, substantially all acquisition, exploration and development
costs are capitalized. To the extent such capitalized costs exceed the
"ceiling," the excess is written off to income. The ceiling is the sum of
discounted future net cash flows from proved gas and oil reserves (using
unescalated prices and costs unless contractual arrangements exist), and the
costs of unproved properties after income tax effects. The ceiling test is
applied at the end of each quarter and requires a write-down of gas and oil
properties if the ceiling is exceeded, even if any price decline is temporary.
Management's investment and operating decisions are based upon prices, costs and
production assumptions that are different from those used to compute the
ceiling. As a result, it is possible that future fluctuations in key forecast
assumptions could result in impairments being recorded for accounting purposes,
when long-term economics of such properties have not changed.
It is anticipated that MCN will invest in excess of $400 million in
exploration and production activities in each of 1998 and 1999.
PIPELINES & PROCESSING
Operating and joint venture income for this unit, managed by MCNIC Pipeline
& Processing Company, nearly tripled from $10.7 million in 1996 to $29.1 million
in 1997 due to full-year contributions from projects added in 1996 and strong
growth across the range of its businesses. Transportation volumes increased in
1997 to 116.0 Bcf from 86.4 Bcf in 1996, while there was a slight decrease in
processing volumes in 1997 to 42.8 Bcf from 44.2 Bcf in 1996. Results also
reflect a significant contribution of methanol production totaling 60.8 million
gallons, compared with the initial 1996 production of 10.5 million gallons, from
the Company's partnership with Lyondell Petrochemical Co. ("Lyondell"), formed
in late 1996. Earnings from Lyondell also benefited from higher than expected
methanol prices during 1997.
The Pipelines & Processing group's strategy is to own interests in natural
gas and gas liquid gathering, processing and transmission facilities near areas
of rapid reserve development or growing consumer markets. This strategy includes
working with other Diversified Energy group businesses that complement the
Pipelines & Processing group's operations. Operating responsibilities for these
facilities are generally assigned to the Company's partners.
S-4
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MCN's strategy to grow its pipelines and processing operations is to take
equity positions, usually in partnerships owning natural gas gathering,
processing and transmission facilities near areas of either rapid reserve
development or growing consumer markets. It is anticipated that in excess of
$350 million will be invested in pipelines and processing facilities in 1998, a
level of investment that could rise significantly in future years based on the
numerous potential domestic and international projects currently being pursued.
ENERGY MARKETING, GAS STORAGE & ELECTRIC POWER
Operating and joint venture income for 1997 for the combined results of
these three businesses more than doubled to $29.8 million from $14.0 million in
1996. The improvement reflects the acquisition in May of an interest in the
Midland Cogeneration Venture ("MCV") in Michigan, as well as gas sales and
exchange deliveries that increased 49% to 359 Bcf in 1997 from 242 Bcf in 1996.
These volumes include 61.4 Bcf of supply-area sales added due to the marketing
alliance with Torch Energy Advisors of Houston, which began operations in early
1997.
Capital investments for the combined marketing, storage and electric power
units during 1997 totaled approximately $250 million, compared with $21 million
in 1996, and are anticipated to exceed $250 million in 1998. These capital
investments primarily target electric power generation projects.
ENERGY MARKETING
MCN's non-regulated energy marketing activities are directed by CoEnergy
Trading Company ("CTC"). CTC, a wholly owned subsidiary of the Company, is
engaged in the purchase and sale of natural gas to over 700 commercial and
industrial users, as well as gas and electric utilities and other large-volume
customers throughout the Midwest, Gulf Coast and Northeast regions of the United
States and Eastern Canada. Through its offices located in Hartford, Connecticut,
and Detroit and Grand Rapids, Michigan, CTC is able to offer buyers a bundled
service by making arrangements for the acquisition of the required gas volumes
and delivery to customers' facilities, and for all the necessary services in
between. This bundled service is more in demand during the winter months, when
interstate pipeline capacity in certain areas of the Northeast and Midwest is
either constrained or uneconomical. CTC is able to better meet this demand
through the use of gas production and access to storage fields and other
physical assets owned by affiliates.
CTC competes against numerous marketing companies. A diverse portfolio of
short, medium and long-term sales and supply contracts combined with access to
reliable gas suppliers, storage facilities and multiple pipeline connections
enhances its competitive position. CTC uses its competitive position in both the
market and production regions to identify and complement business opportunities
for the Company's various businesses. Also assisting the Company's marketing
efforts is strategically selected pipeline capacity that is used to deliver gas
to Midwestern, Northeastern and Canadian customers. The Company expects to
increase its reserved pipeline capacity, particularly on recently proposed
west-to-east systems, to help meet customers' needs. In addition to the
Company's anticipated equity interests in three of these projects, CTC expects
to capture significant marketing opportunities utilizing the new pipelines.
GAS STORAGE
The Company, through its subsidiary MCNIC Gas Storage Company ("MCNIC Gas
Storage"), has adopted a strategy of using joint ventures and strategic
partnerships to provide gas storage services, either as a separate service or
bundled with full gas service, to other gas utilities, pipeline companies and
large-volume gas users. Storage facilities near major consuming markets provide
supply flexibility, improve reliability of deliveries and help reduce gas costs.
The Company's 35 Bcf of owned and leased storage capacity in Michigan allows the
Company to flow gas into storage at relatively steady rates during off-peak
periods, and to draw upon this storage for delivery during peak-demand periods.
The Company believes that this strategy allows for a very reliable service while
keeping operating costs low.
The gas industry's changing operating environment has resulted in more
efficient use of existing storage facilities and a reduced immediate need for
additional capacity. However, growing markets will require expanded storage
capabilities in selected areas in the long-term. The Company believes that this
future need,
S-5
<PAGE> 6
together with Michigan's pivotal geographic location and favorable geology,
presents a significant opportunity for MCN's storage services.
During August 1997, MCNIC began developing the $160 million Washington 10
storage field project that will significantly increase the amount of gas storage
capacity available to CTC for its markets. The Washington 10 storage field
project is in the process of converting a depleted gas reservoir in southeast
Michigan to a 42 Bcf storage facility, capable of delivering approximately 400
MMcf of natural gas on an average winter day and much higher volumes during
peak-demand periods. Initial gas injection is currently scheduled for the spring
of 1999, with the facility currently expected to be fully operational in time
for the 1999-2000 winter heating season.
ELECTRIC POWER
The Company's Electric Power unit operates through MCNIC Power Company
("MCNIC Power"), MCNIC International Holdings and MCNIC-GP International
Holdings, wholly owned subsidiaries of the Company, to pursue domestic and
international power generation-related opportunities. Power generation projects
offer the potential for multiple sources of income, such as long-term gas sales,
transportation services and a return on the investment in the facility,
particularly in the United States.
In recent years, an increasing amount of new electric generating capacity
has been fueled by natural gas because of the lower capital costs, lower
emissions and other advantages associated with natural gas- fueled facilities.
In addition, many states have passed regulations requiring electric utilities to
consider bids from third parties to meet new electric generation needs. The
Company believes that MCNIC Power has the capacity to provide long-term gas
supplies at known prices to power generation facilities.
MCNIC Power's strategy is to capture synergies among MCN's businesses and
to profitably apply the expertise they have gained in managing energy-related
projects. The gas-fueled power generation industry has seen an increase in the
number of participants, many of whom are willing to accept returns on power
generation projects that are considerably below MCNIC Power's threshold. The
restructuring of the electric utility industry could increase the long-term
opportunities for MCNIC Power. The Company believes that MCN's experience in the
natural gas industry's transition to a more competitive environment, combined
with its success as a partner in several independent power projects, should
enable it to capture such opportunities.
Electric Power sales increased 160% to 1.8 million MW hours ("MWh") in 1997
from 700,000 MWh in 1996, primarily due to the addition of interests in MCV in
April 1997 and a power generation and distribution partnership in India in March
1997. Net generating capacity climbed to 506 MW from 91 MW.
The Company's experience and relationships in the energy business have
provided a solid base with which to pursue opportunities internationally. The
Company believes that India holds significant investment potential, where there
is tremendous demand for additional power generation capacity and the business
environment remains conducive to attractive returns on investment. The Company's
strategy in India is to partner with others who bring expertise and capital to
the venture, including an experienced Indian partner.
In March 1997, the Company made its first international investment with the
formation of Torrent Power Ltd. ("Torrent"), a venture with Torrent Exports
Ltd., of Ahmedabad, India. The Company's investment of approximately $173
million gives it a 40% interest in Torrent and its growing electricity
generation and distribution business in the state of Gujarat in western India.
Entering 1998, MCN is pursuing opportunities to participate in the construction
of more than 5,000 additional gross MW of generating capacity in India. Among
them are a 525 MW coal-fired facility in the state of Tamil Nadu and a 347 MW
dual-fuel project in the state of Madhya Pradesh, as well as several captive
power projects ranging from 20 MW to 210 MW in various locations.
RISK MANAGEMENT STRATEGY
MCN primarily manages commodity price risk by utilizing futures, options
and swap contracts to more fully balance its portfolio of gas and oil supply and
sales agreements. MCN has hedged through long-term financial swaps most of its
anticipated future gas production not covered by long-term, fixed-price sales
S-6
<PAGE> 7
obligations. MCN's Energy Marketing group coordinates all of MCN's hedging
activities. A management committee ensures compliance with risk management
policies and periodically reports to MCN's board of directors. Certain hedging
gains or losses related to gas and oil production are recorded by MCN's
Exploration & Production group. Gains and losses on gas hedging transactions
that are not recorded by MCN's Exploration & Production group are absorbed by
the Energy Marketing group.
FORWARD-LOOKING STATEMENTS
Statements contained in or incorporated by reference into this Prospectus
Supplement or the accompanying Prospectus include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). 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 and MCN's
businesses; (iv) economic climate and growth in the geographic areas in which
the Company and MCN do 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 MCN;
(viii) conditions of capital markets and equity markets; (ix) changes in the
economic and political climate and currencies of foreign countries where the
Company and MCN have 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.
USE OF PROCEEDS
Proceeds from the sale of the REPS, in respect of which this Prospectus
Supplement is being delivered, will be used for general corporate purposes,
including capital expenditures, investment in subsidiaries, working capital and
repayment of short-term borrowings.
DESCRIPTION OF THE REPS
The following description of the particular terms of the REPS supplements
and, to the extent inconsistent therewith, replaces the description of the
general terms and provisions of the Debt Securities set forth in the
accompanying Prospectus, to which description reference is hereby made. Whenever
a defined term is referred to and not herein defined, the definition thereof is
contained in the accompanying Prospectus or in the Indenture referred to
therein.
GENERAL
The REPS will be issued as a series of Debt Securities under the Indenture,
dated as of September 1, 1995, between the Company and NBD Bank, as trustee (the
"Trustee"), which is more fully described in the accompanying Prospectus.
The REPS will bear interest at the rate of 6 3/8% from April 6, 1998 to but
excluding April 1, 2003 (the "Coupon Reset Date"). Interest on the REPS is
payable semi-annually on April 1 and October 1 of each year, commencing October
1, 1998 (each an "Interest Payment Date"). Interest will be calculated based on
a 360-day year consisting of twelve 30-day months. On each Interest Payment
Date, interest shall be payable to the persons in whose name the REPS are
registered on the fifteenth calendar day (whether or not a Business Day)
immediately preceding the related Interest Payment Date (each, a "Record Date").
"Business Day" means any day other than a Saturday, Sunday or a day on which
banking institutions in The City of New York are authorized or obligated by law,
executive order or governmental decree to be closed. If Morgan Stanley & Co.
International Limited as Callholder (the "Callholder") elects to purchase the
REPS pursuant to the Call
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<PAGE> 8
Option (as defined below), the Calculation Agent (as defined below) will reset
the interest rate effective on the Coupon Reset Date, pursuant to the Coupon
Reset Process described below. In such circumstance, (i) the REPS will be
purchased from the holders by the Callholder, in whole but not in part, at 100%
of the principal amount thereof on the Coupon Reset Date, on the terms and
subject to the conditions described herein (interest accrued to the Coupon Reset
Date will be paid by the Company on such date to holders on the immediately
preceding Record Date) and (ii) on and after the Coupon Reset Date, the REPS
will bear interest at the rate determined by the Calculation Agent in accordance
with the procedures set forth under "-- Coupon Reset Process if the REPS are
Called" below.
FINAL MATURITY DATE
The REPS will mature on April 1, 2008 (the "Final Maturity Date"). On April
1, 2003, however, holders of the REPS will be entitled to receive 100% of the
principal amount thereof (i) from the Callholder if it purchases the REPS
pursuant to the Call Option or (ii) in the event the Callholder does not
exercise the Call Option or fails for any reason to pay the Call Price (as
defined below) to the Trustee when required, from the Company following the
exercise by the Trustee for and on behalf of the holders of the REPS of the
Mandatory Put (as defined below). The Trustee will exercise the Mandatory Put
without the consent of, or notice to, the holders of the REPS.
CALL OPTION: MANDATORY PUT
(i) Call Option. The initial Callholder will be Morgan Stanley & Co.
International Limited. Pursuant to the terms of the REPS, the Callholder has the
right to purchase the REPS, in whole but not in part, on the Coupon Reset Date
(the "Call Option"), at a price equal to 100% of the principal amount thereof
(the "Call Price"), by giving irrevocable notice to the Trustee (the "Call
Notice"). If the Callholder exercises the Call Option, the Trustee will send a
copy of the Call Notice to the holders as required by the terms of the REPS. The
Callholder will be required to give the Call Notice to the Trustee, in writing,
prior to 4:00 p.m., New York City time, no later than fifteen calendar days
prior to the Coupon Reset Date. If the Callholder exercises the Call Option, (a)
not later than 2:00 p.m., New York City time, on the Business Day prior to the
Coupon Reset Date, the Callholder shall pay the amount of the Call Price in
immediately available funds to the Trustee for payment of the Call Price to the
holders of the REPS on the Coupon Reset Date and (b) the holders of the REPS
will be required to deliver the REPS against payment therefor on the Coupon
Reset Date through the facilities of DTC. The Callholder is not required to
exercise the Call Option, and no holder of the REPS or any interest therein
shall have any right or claim against the Callholder as a result of the
Callholder not purchasing the REPS.
The Call Option provides for certain circumstances under which such Call
Option may be terminated. If the Call Option terminates or if the Callholder
fails to pay the Call Price to the Trustee at or prior to the required time, the
Trustee shall exercise the Mandatory Put described below. The Trustee shall
notify the holders that it is exercising the Mandatory Put as required by the
terms of the Indenture.
(ii) Mandatory Put. If the Callholder fails for any reason to purchase the
REPS on the Coupon Reset Date, the Trustee will be obligated to exercise on
behalf of the holders the right to require the Company to purchase the REPS, in
whole but not in part (the "Mandatory Put"), on the Coupon Reset Date at a price
equal to 100% of the principal amount thereof (the "Put Price"). By its purchase
of the REPS, each holder irrevocably agrees that the Trustee shall exercise the
Mandatory Put for, or on behalf of, the holder of the REPS as provided herein.
If the Trustee exercises the Mandatory Put, then the Company shall deliver the
Put Price in immediately available funds to the Trustee by no later than 12:00
noon, New York City time, on the Coupon Reset Date and the holders will be
required to deliver the REPS to the Company against payment therefor on the
Coupon Reset Date through the facilities of DTC. No holder of the REPS or any
interest therein has the right to consent or object to the exercise of the
Trustee's duties under the Mandatory Put.
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<PAGE> 9
COUPON RESET PROCESS IF THE REPS ARE CALLED
Pursuant to the terms of a calculation agency agreement, Morgan Stanley &
Co. Incorporated has been appointed the calculation agent for the REPS (in its
capacity as calculation agent for the REPS, the "Calculation Agent"). If the
Callholder exercises the Call Option as set forth above, then the following
steps (the "Coupon Reset Process") shall be taken in order to determine the
interest rate to be paid on the REPS from and including such Coupon Reset Date
to the Final Maturity Date (the "Coupon Reset Rate"). The Company and the
Calculation Agent shall use reasonable efforts to cause the actions contemplated
below to be completed in as timely a manner as possible.
(a) The Company shall provide the Calculation Agent with (i) a list (the
"Dealer List") no later than five Business Days prior to the Coupon Reset Date,
containing the names and addresses of five dealers, one of which shall be Morgan
Stanley & Co. Incorporated, from which it desires the Calculation Agent to
obtain the Bids (as defined below) for the purchase of the REPS and (ii) a copy
of any other material reasonably requested by the Calculation Agent to
facilitate a successful Coupon Reset Process.
(b) Within one Business Day following receipt by the Calculation Agent of
the Dealer List, the Calculation Agent shall provide to each dealer ("Dealer")
on the Dealer List (i) a copy of this Prospectus Supplement and the accompanying
Prospectus, (ii) a copy of the form of the REPS and (iii) a written request that
each such Dealer submit a Bid to the Calculation Agent by 12:00 noon, New York
City time, on the third Business Day prior to the Coupon Reset Date (a "Bid
Date"). "Bid" shall mean an irrevocable written offer given by a Dealer for the
purchase of the REPS, settling on the Coupon Reset Date, and shall be quoted by
such Dealer as a stated yield to maturity on the REPS ("Yield to Maturity").
Each Dealer shall be provided with (A) the name of the Company, (B) an estimate
of the Purchase Price (which shall be stated as a U.S. dollar amount and be
calculated by the Calculation Agent in accordance with clause (c) below), (C)
the principal amount and maturity of the REPS and (D) the method by which
interest will be calculated on the REPS.
(c) The Purchase Price to be paid by any Dealer for the REPS (the "Purchase
Price") shall be equal to (i) the principal amount of the REPS plus (ii) a
premium (the "REPS Premium") which shall be equal to the excess, if any, of (A)
the discounted present value to the Coupon Reset Date of a bond with a maturity
of April 1, 2008, which has an interest rate of 5.61%, semiannual interest
payments on each April 1 and October 1, commencing October 1, 2003 and a
principal amount of $100,000,000, and assuming a discount rate equal to the
Treasury Rate over (B) $100,000,000. "Treasury Rate" for the REPS means the per
annum rate equal to the offer side yield to maturity of the current-on-the-run
five-year United States Treasury Security per Telerate page 500 (or any
successor or substitute page as may replace such page on such service) at 11:00
a.m., New York City time, on the applicable Bid Date (or such other date or time
that may be agreed upon by the Company and the Calculation Agent) or, if such
rate does not appear on Telerate page 500 (or any successor or substitute page
as may replace such page on such service) at such time, the rates on GovPx
End-of-Day Pricing at 3:00 p.m. on the applicable Bid Date (or such other date
or time that may be agreed upon by the Company and the Calculation Agent).
(d) The Calculation Agent shall notify the Company by 12:30 p.m., New York
City time, on the Bid Date of (i) the names of each of the Dealers from whom the
Calculation Agent received Bids on the Bid Date, (ii) the Bid submitted by each
such Dealer and (iii) the Purchase Price as determined pursuant to paragraph (c)
hereof. Unless the Call Option has terminated, the Calculation Agent shall
thereafter select from the Bids received the Bid with the lowest Yield to
Maturity (the "Selected Bid") and set the Coupon Reset Rate equal to the
interest rate which would amortize the REPS Premium fully over the term of the
REPS at the Yield to Maturity indicated by the Selected Bid; provided, however,
that if the Calculation Agent has not received a timely Bid from a Dealer, the
Selected Bid shall be the lowest of all Bids received by such time and provided,
further, that if any two or more of the lowest Bids submitted are equivalent,
the Company shall in its sole discretion select any of such equivalent Bids (and
such selected Bid shall be the Selected Bid).
(e) Immediately after calculating the Coupon Reset Rate, the Calculation
Agent shall provide written notice to the Company and the Trustee, setting forth
the Coupon Reset Rate. The Coupon Reset Rate for the REPS will be effective from
and including the Coupon Reset Rate.
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<PAGE> 10
(f) The Callholder shall sell the REPS to the Dealer that made the Selected
Bid at the Purchase Price, such sale to be settled on the Coupon Reset Date in
immediately available funds.
If the Calculation Agent (i) determines that since the Call Notice, an
Event of Default has occurred and is continuing under Sections 501(1), (2), (3),
(4) or (7) of the Indenture (in such event, termination is at the Callholder's
option) or under Sections 501(5) or (6) of the Indenture (in such event,
termination is automatic), (ii) following the Call Notice, fails to pay the Call
Price by 2:00 p.m., New York City time, on the Business Day prior to the Coupon
Reset Day due to the occurrence of a Market Disruption Event (as defined below)
or (iii) determines that, following the Call Notice, less than two Dealers have
provided Bids in a timely manner substantially as provided above, such Call
Option will be automatically revoked, and the Trustee will exercise the
Mandatory Put on behalf of the holders. "Market Disruption Event" shall mean any
of the following: (A) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange, Inc. or the establishment
of minimum prices on such exchange; (B) a general moratorium on commercial
banking activities declared by either federal or New York State authorities; (C)
any material adverse change in the existing financial, political or economic
conditions in the United States of America; (D) an outbreak or escalation of
major hostilities involving the United States of America or a declaration of a
national emergency or war by the United States; or (E) any material disruption
of the U.S. government securities market, U.S. corporate bond market or U.S.
federal wire system; provided, in each case, that in the judgment of the
Calculation Agent the effect of the foregoing makes it impracticable to conduct
the Coupon Reset Process.
The calculation agency agreement provides that the Calculation Agent may
resign at any time, such resignation to be effective ten business days after the
delivery to the Company and the Trustee of notice of such resignation. In such
case, the Company may appoint a successor Calculation Agent.
The Calculation Agent, in its individual capacity, may buy, sell, hold and
deal in the REPS and may exercise any vote or join in any action which any
holder of the REPS may be entitled to exercise or take as if it were not the
Calculation Agent. The Calculation Agent, in its individual capacity, may also
engage in any transaction with the Company and any of its affiliates as if it
were not the Calculation Agent.
BOOK-ENTRY SYSTEM
The REPS will be represented by one or more Global Securities registered in
the name of Cede & Co., the nominee of the Depositary. The Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
holds securities that its participants (the "Direct Participants") deposit with
the Depositary. The Depositary also facilitates the settlement among Direct
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Direct 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. The Depositary is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the Depositary's system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
(the "Indirect Participants," and together with the Direct Participants, the
"Participants"). The rules applicable to the Depositary and its Participants are
on file with the Securities and Exchange Commission.
Purchases of the REPS within the Depositary's system must be made by or
through Direct Participants, which will receive a credit for the REPS on the
Depositary's records. The ownership interest of each actual purchaser of the
REPS (a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' respective records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the
S-10
<PAGE> 11
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the REPS 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 REPS except in the event that use of the book-entry
system for the REPS is discontinued.
To facilitate subsequent transfers, all REPS deposited by Direct
Participants with the Depositary will be registered in the name of Cede & Co.
The deposit of the REPS with the Depositary and their registration in the name
of Cede & Co. effect no change in beneficial ownership. The Depositary has no
knowledge of the actual Beneficial Owners of the REPS; the Depositary's records
reflect only the identity of the Direct Participants to whose accounts such REPS
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 the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the REPS
are being redeemed, the Depositary's practice is to determine by lot the amount
of the interest of each Direct Participant to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the REPS. Under its usual procedures, the Depositary mails an omnibus proxy (an
"Omnibus Proxy") to the Participants as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the REPS are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal, redemption premium, if any, and interest payments on the REPS
will be made to the Depositary. The Depositary's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on the Depositary's records unless the Depositary has
reason to believe that it will not receive payment 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 for the
accounts of customers in bearer form or registered in "street-name," and will be
the responsibility of such Participant and not of the Depositary, the
Underwriters, or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
redemption premium, if any, and interest to the Depositary is the responsibility
of the Company or the Paying Agent. Disbursement of such payments to Direct
Participants is the responsibility of the Depositary, and disbursement of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants. Global Securities will settle in immediately available funds in
the secondary trading market. No assurance can be given as to the effect, if
any, of settlement in immediately available funds on trading activity in the
REPS.
The Depositary may discontinue providing its services as securities
depository with respect to the REPS at any time by giving reasonable notice to
the Company. Under such circumstances and in the event that a successor
securities depository is not obtained, REPS certificates are required to be
printed and delivered. In addition, the Company may decide to discontinue use of
the system of book-entry transfers through the Depositary (or a successor
securities depository). In that event, REPS certificates will be printed and
delivered.
The Company will not have any responsibility or obligation to Participants
or the persons for whom they act as nominees with respect to the accuracy of the
records of the Depositary, its nominee or any Direct or Indirect Participant
with respect to any ownership interest in the REPS, or with respect to payments
to or providing of notice for the Direct Participants, the Indirect Participants
or the Beneficial Owners.
S-11
<PAGE> 12
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the REPS is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, Internal Revenue Service ("IRS") rulings and pronouncements and
administrative and judicial decisions currently in effect, all of which are
subject to change (possibly with retroactive effect) or possible differing
interpretations. This summary deals only with REPS held as capital assets
(within the meaning of section 1221 of the Code) and does not purport to deal
with persons in special tax situations, such as financial institutions,
insurance companies, regulated investment companies, real estate investment
trusts, dealers in securities or currencies, persons holding REPS as a hedge
against currency risk or as a position in a "straddle", or conversion
transaction, or persons whose functional currency is not the U.S. dollar.
PROSPECTIVE INVESTORS CONSIDERING THE PURCHASE OF THE REPS SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE REPS ARISING UNDER THE LAWS OF
ANY OTHER TAXING JURISDICTION.
As used herein, the term "U.S. Holder" means a Beneficial Owner of a REPS
that is for United States Federal income tax purposes (i) a 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 of any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), (iii) an estate whose
income is subject to United States Federal income tax regardless of its source,
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust, or
(v) any other person whose income or gain in respect of a REPS is effectively
connected with the conduct of a United States trade or business. Notwithstanding
the preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons also will be a U.S. Holder. As used herein, the term "non-U.S. Holder"
means a beneficial owner of a REPS that is not a U.S. Holder.
The United States Federal income tax treatment of debt obligations such as
the REPS is not entirely certain. Because the REPS are subject to mandatory
tender on the Coupon Reset Date, the Company intends to treat the REPS as
maturing on the Coupon Reset Date for United States Federal income tax purposes
and as being reissued on the Coupon Reset Date should the Callholder sell the
REPS pursuant to the Coupon Reset Process. Based on such treatment, interest on
the REPS should constitute "qualified stated interest" and generally should be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or received (in accordance with the U.S. Holder's regular method of
accounting). Under the foregoing, if the REPS are issued to the Holder at par
value or alternatively, the excess of the par value over the issue price does
not exceed the statutory de minimis amount (generally 1/4 of 1% of the REPS'
stated redemption price at the Coupon Reset Date multiplied by the number of
complete years to the Coupon Reset Date from its issue date), the REPS will not
be treated as having original issue discount.
If the REPS are issued at a discount greater than the statutory de minimis
amount, a Holder must include original issue discount in income as ordinary
interest for United States Federal income tax purposes as it accrues under a
constant yield method in advance of receipt of the cash payments attributable to
such income, regardless of the Holder's regular method of accounting. In
general, the amount of original issue discount included in income by the initial
U.S. Holder of a REPS would be the sum of the daily portions of original issue
discount with respect to such REPS for each day during the taxable year (or
portion of the taxable year) on which such U.S. Holder held such REPS. The
"daily portion" of original issue discount on any REPS is determined by
allocating to each day in any accrual period a ratable portion of the original
issue discount allocable to that accrual period. An "accrual period" may be of
any length and the accrual periods may vary in length over the term of the REPS,
provided that each accrual period is not longer than one year and each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on
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<PAGE> 13
the first day of an accrual period. The amount of original issue discount
allocable to each accrual period generally is equal to the difference between
(i) the product of the REPS' adjusted issue price at the beginning of such
accrual period and its yield to maturity (appropriately adjusted to take into
account the length of the particular accrual period) and (ii) the amount of any
qualified stated interest payments allocable to such accrual period. The
"adjusted issue price" of a REPS at the beginning of any accrual period is the
sum of the issue price of the REPS plus the amount of original issue discount
allocable to all prior accrual periods minus the amount of any prior payments on
the REPS that were not qualified stated interest payments. Under these rules,
U.S. Holders generally will have to include in income increasingly greater
amounts of original issue discount in successive accrual periods.
Under the foregoing treatment, upon the sale, exchange or retirement of a
REPS, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the REPS. A U.S. Holder's adjusted tax basis in a
REPS generally will equal such U.S. Holder's initial investment in the REPS
increased by any original issue discount included in income and decreased by the
amount of any payments, other than qualified stated interest payments, received
and amortizable bond premium taken with respect to such REPS. Such gain or loss
will generally be capital gain or loss.
The highest marginal individual Federal income tax rate (which applies to
ordinary income and gain from sales or exchanges of capital assets held for one
year or less) is 39.6%. The maximum regular Federal income tax rate on capital
gains derived by individual taxpayers is 28% for sales and exchanges of capital
assets held for more than one year but not more than eighteen months, and 20%
for sales and exchanges of capital assets held for more than eighteen months.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate income tax rates of up to 35%.
There can be no assurance that the IRS will agree with the Company's
treatment of the REPS and it is possible that the IRS could assert another
treatment. For instance, it is possible that the IRS could seek to treat the
REPS as maturing on the Final Maturity Date and to treat the issue price of the
REPS as including the value of the Call Option.
In the event the REPS were treated as maturing on the Final Maturity Date
for United States Federal income tax purposes, because of the Coupon Reset
Process, the REPS would be treated as having contingent interest under the Code.
In such event, under Treasury regulations governing debt instruments that
provide for contingent payments (the "Contingent Payment Regulations"), the
Company would be required to construct a projected payment schedule for the
REPS, based upon the Company's current borrowing costs for comparable debt
instruments of the Company, from which an estimated yield on the REPS would be
calculated. A U.S. Holder would be required to include in income original issue
discount in an amount equal to the product of the adjusted issue price of the
REPS at the beginning of each interest accrual period and the estimated yield of
the REPS. In general, for these purposes, a REPS' adjusted issue price would
equal the REPS' issue price increased by the interest previously accrued on the
REPS, and reduced by all payments made on the REPS. As a result of the
application of the Contingent Payment Regulations, it is possible that a U.S.
Holder would be required to include interest in income in excess of actual cash
payments received for certain taxable years.
In addition, the character of any gain or loss, upon the sale or exchange
of a REPS (including a sale pursuant to the mandatory tender on the Coupon Reset
Date) by a U.S. Holder, will likely differ if the REPS were treated as
contingent payment obligations. Any such taxable gain generally would be treated
as ordinary income. Any such taxable loss generally would be ordinary to the
extent of previously accrued original issue discount, and any excess would
generally be treated as capital loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a REPS, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of the Company, a controlled foreign corporation
related to the Company or a bank receiving interest described in section
881(c)(3)(A) of the Code. To
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<PAGE> 14
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding Agent")
must have received in the year in which a payment of interest or principal
occurs, or in either of the two preceding calendar years, a statement that (i)
is signed by the Beneficial Owner of the REPS under penalties of perjury, (ii)
certifies that such owner is not a U.S. Holder and (iii) provides the name and
address of the Beneficial Owner. The statement may be made on an IRS Form W-8 or
a substantially similar form, and the Beneficial Owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If a REPS is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However, in
such case, the signed statement must be accompanied by a copy of the IRS Form
W-8 or the substitute form provided by the Beneficial Owner to the organization
or institution. The Treasury Department is considering implementation of further
certification requirements aimed at determining whether the issuer of a debt
obligation is related to holders thereof.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes gain upon retirement or disposition
of a REPS, provided the gain is not effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The REPS will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the Company
or, at the time of such individual's death, payments in respect of the REPS
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the REPS to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the REPS to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a REPS to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
Beneficial Owner would be allowed as a refund or a credit against such
Beneficial Owner's United States Federal income tax provided the required
information is furnished to the IRS.
FINAL WITHHOLDING REGULATIONS
The Treasury Department recently issued final Treasury regulations (the
"Final Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The Final
Regulations attempt to unify certification requirements and modify reliance
standards. The Final Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the Final
Regulations.
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<PAGE> 15
UNDERWRITERS
Under the terms and subject to the conditions set forth in the Underwriting
Agreement, dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below have severally agreed to purchase, and the Company has
agreed to sell to them, severally, respective principal amounts of the REPS set
forth opposite their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL
NAME AMOUNT
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated........................... $ 50,000,000
First Chicago Capital Markets, Inc. ........................ 50,000,000
------------
Total....................................................... $100,000,000
============
</TABLE>
Under the terms of the Underwriting Agreement, the Underwriters are
committed to take and pay for all of the REPS if any are taken.
The Underwriters initially propose to offer the REPS directly to the public
at the public offering price set forth on the cover page hereof and in part to
certain securities dealers at such price less a concession of .35% of the
principal amount of the REPS. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of .25% of the principal amount of the REPS
to certain brokers and dealers. After the REPS are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, or contribute to payments the Underwriters may be required to make in
respect thereof.
The Company does not intend to apply for listing of any of the REPS on a
national securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the REPS, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the REPS and any such market-making may be discontinued at any time at the
sole discretion of the Underwriters. Accordingly, no assurance can be given as
to the liquidity of, or trading markets for, the REPS.
In order to facilitate the offering of the REPS, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the prices
of the REPS. Specifically, the Underwriters may overallot in connection with the
offering, creating a short position in the REPS for their own account. In
addition, to cover overallotments or to stabilize the price of the REPS, the
Underwriters may bid for, and purchase, the REPS in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the REPS in the offering, if the
syndicate repurchases previously distributed REPS in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market prices of the REPS above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
In the ordinary course of business, the Underwriters and their respective
affiliates have engaged and may in the future engage in investment banking
transactions with the Company and certain of its affiliates.
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<PAGE> 16
LEGAL MATTERS
The validity of the Indenture, the Support Agreement and the REPS will be
passed upon for the Company and MCN by Daniel L. Schiffer, Esq., Vice President,
General Counsel and Secretary of the Company and Senior Vice President, General
Counsel and Secretary of MCN. Certain matters will be passed upon for the
Company by Skadden, Arps, Slates, Meagher & Flom LLP, New York, New York.
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 MCN and owned 40,280 shares of MCN's Common Stock as
of February 25, 1998.
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<PAGE> 17
PROSPECTUS
$920,000,000
MCN INVESTMENT CORPORATION
DEBT SECURITIES
ENTITLED TO THE BENEFITS OF A SUPPORT AGREEMENT BY
[MCN LOGO]
------------------------
MCN Investment Corporation, a Michigan Corporation ("MCN Investment" or the
"Company"), may offer, from time to time, its unsecured notes, debentures, or
other unsecured evidence of indebtedness (the "Debt Securities"), in one or more
series, in an aggregate principal amount of up to $920,000,000. Debt Securities
may be issued in registered form without coupons or in the form of one or more
global securities (each a "Global Security"). The Debt Securities are entitled
to the benefits of the Support Agreement between MCN Investment and its parent
company, MCN Energy Group Inc. ("MCN"), whereby MCN will provide funds to MCN
Investment to pay principal, premium, if any, and interest on the Debt
Securities in the event of default by MCN Investment. See "Description of Debt
Securities" and "Support Agreement."
When a particular series of Debt Securities is offered, a supplement to
this Prospectus will be delivered (the "Prospectus Supplement") together with
this Prospectus setting forth the terms of such Debt Securities, including where
applicable, the specific designation, aggregate principal amount, denominations,
maturity, rate (which may be fixed or variable) and time of payment of interest,
any terms for redemption, any terms for repayment at the option of the holder,
any terms for sinking fund payments, the initial public offering price, the
names of, and the principal amounts to be purchased by or sold through,
underwriters, agents or dealers and the compensation of such underwriters,
agents or dealers, any listing of the Debt Securities on a securities exchange
and other terms in connection with the offering and sale of such Debt
Securities.
MCN Investment may sell the Debt Securities to or through dealers or
underwriters, directly to other purchasers or through agents. See "Plan of
Distribution." Underwriters may include Merrill Lynch & Co. (Merrill Lynch,
Pierce, Fenner & Smith Incorporated) or such other underwriter or underwriters
as may be designated by MCN Investment, or an underwriting syndicate represented
by one or more of such firms. Such firms may also act as agents. The Prospectus
Supplement will set forth the names of such underwriters, dealers or agents, if
any, any applicable commissions or discounts and the proceeds to MCN Investment
from such sales.
The Prospectus may not be used to consummate sales of Debt Securities
unless accompanied by a Prospectus Supplement applicable to the Debt Securities
being sold.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is March 18, 1998.
<PAGE> 18
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"). Such reports, proxy statements and other information
concerning MCN can be inspected and copied at the public reference facilities
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549, and at the following Regional Offices of the SEC: 7 World Trade Center,
Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. 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 on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. Such reports, proxy
statements and other information may also be inspected at the offices of the New
York Stock Exchange, Inc., on which MCN's common stock is traded, at 20 Broad
Street, New York, New York 10005.
MCN Investment and MCN have filed a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") with the SEC under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Debt Securities. This Prospectus does not
contain all of the information set forth in such Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. Reference is made to such Registration Statement and to the exhibits
relating thereto for further information with respect to MCN Investment, MCN and
the Debt Securities. Material provisions of the documents filed as exhibits to
the Registration Statement or otherwise filed with the SEC or incorporated by
reference are contained herein. Reference is made to the copy of such document
so filed for a more complete description of the matter involved.
MCN Investment will not file, as a separate registrant, the periodic
reports required by Sections 13 and 15(d) of the 1934 Act because management has
determined that separate financial statements of MCN Investment are not material
to holders of the Debt Securities. MCN Investment does not intend to issue any
periodic or other reports to holders of the Debt Securities. MCN's consolidating
financial statements, concerning MCN Investment, Michigan Consolidated Gas
Company ("MichCon"), and MCN and other subsidiaries, currently are included in
the footnotes to MCN's consolidated financial statements and will continue to be
included for as long as the Debt Securities remain outstanding and are subject
to the Support Agreement.
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.
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 Debt 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
in 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.
2
<PAGE> 19
MCN ENERGY GROUP INC.
MCN is a diversified energy holding company with natural gas markets and
investments throughout North America and India. 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, 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.
MCN INVESTMENT CORPORATION
MCN Investment, a wholly-owned subsidiary of MCN, is involved in the
following businesses:
EXPLORATION & PRODUCTION: Engaged in natural gas and oil exploration,
development and production with proved gas and oil reserves in the
Midwest/Appalachia, Midcontinent/Gulf Coast and Western regions.
PIPELINES & PROCESSING: Owns interests in gathering, processing and
transmission facilities near areas of rapid reserve development and growing
consumer markets.
ENERGY MARKETING: Engaged in non-regulated energy marketing activities.
POWER GENERATION: Involved with investments in electric generation
facilities in North America and electric generation and distribution facilities
in India and other countries in Asia.
GAS STORAGE: Owns interests in storage facilities.
The mailing address of MCN Investment's principal executive office is 150
W. Jefferson Avenue, Suite 1800, Detroit, Michigan 48226, and its telephone
number is (313) 256-5500.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MCN Investment(1)......................................... 1.46 1.28 1.24 1.29 1.55
MCN(1).................................................... 2.18 2.28 2.55 2.70 3.15
</TABLE>
- -------------------------
(1) The Ratios of Earnings to Fixed Charges are 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, in the
case of MCN, 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,
3
<PAGE> 20
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 requirement for MichCon.
INTEREST COVERAGE RATIO
The following table sets forth the interest coverage ratio for MCN
Investment and 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 MCNIC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MCN Investment(1)...................................... 3.22 2.00 1.72 1.59 1.77
MCN(2)................................................. 2.94 2.70 3.02 3.40 3.25
</TABLE>
- -------------------------
(1) The interest coverage ratio is the quotient of MCNIC'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 MCNIC's
Consolidated Statement of Income has been adjusted to add (1) Interest Rate
Charges as defined below and (2) intercompany interest expense. In addition,
capitalized interest has been subtracted from Income From Continuing
Operations Before Income Taxes.
The computation of Interest Rate Charges includes interest expense as
reported on MCNIC's Consolidated Statement of Income adjusted to add (1)
capitalized interest expense and (2) interest implicit in rentals. In
addition, intercompany interest expense and 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,
have been subtracted from interest expense.
(2) 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 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.
4
<PAGE> 21
USE OF PROCEEDS
MCN Investment intends to add the net proceeds from the sale of the Debt
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.
DESCRIPTION OF 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. Debt Securities will be issued under an Indenture, dated as of September
1, 1995 (the "Indenture"), between the Company and NBD Bank ("NBD"), as trustee
(the "Trustee"). NBD is a wholly-owned subsidiary of First Chicago NBD
Corporation. A copy of the Indenture is incorporated by reference as an exhibit
to this Registration Statement.
The following summary contains material provisions of the Debt Securities
and the Indenture. For a complete description of all the provisions of the
Indenture, including the definitions therein of certain terms, reference is made
to the Indenture incorporated by reference as an exhibit to this Registration
Statement. Certain capitalized terms herein are defined in the Indenture.
GENERAL
The Debt Securities will be unsecured obligations of the Company.
The Indenture does not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provides that Debt Securities may
be issued thereunder, from time to time, in one or more series. The Indenture
does not contain any debt covenants or provisions which would afford bondholders
protection in the event of a highly leveraged transaction.
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; and (8) any other terms of the Offered Debt Securities (which terms
shall not be inconsistent with the provisions of the Indenture). For a
description of the terms of the Offered Debt Securities, reference must be made
to both the Prospectus Supplement relating thereto and to the description of
Debt Securities set forth herein.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal of, and any premium or interest on, the Offered Debt Securities
will be payable, and the Offered Debt Securities will be exchangeable and
transfers thereof will be registrable, at the Place of Payment, provided that,
at the option of the Company, payment of interest may be made by check mailed,
or wire transfer, 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
5
<PAGE> 22
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 description of the 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.
"Capitalized Lease Obligations" means an obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with such
principles.
"Project Finance Indebtedness" means Indebtedness of a Subsidiary (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 the
Indenture which Lien is created or assumed contemporaneously with, or within 120
days after, such acquisition or completion of such construction or improvement,
or within six months thereafter pursuant to a firm commitment for financing
arranged with a lender or investor within such 120-day period, to secure or
provide for the payment of all or any part of the purchase price of such
property or the cost of such construction or improvement, or on any property
existing at the time of acquisition thereof; provided that such a Lien shall not
apply to any property theretofore owned by any such Subsidiary other than, in
the case of any such construction or improvement, any theretofore unimproved
real property on which the property so constructed or the improvement is
located; and provided further that such Indebtedness, by its terms, shall limit
the recourse of any holder of such Indebtedness (or trustee on such holder's
behalf) in the event of any default in such Indebtedness to the assets subject
to such Liens and the capital stock of the Subsidiary issuing such Indebtedness.
Notwithstanding the foregoing, Project Finance Indebtedness shall include all
Indebtedness that would constitute Project Finance Indebtedness but for the fact
that such Indebtedness was issued prior to the date of the Indenture and taking
into account the fact that the property subject to the Lien may have been
acquired prior to the date of the Indenture.
The Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount below their
principal amount. Special federal income tax, accounting and other
considerations applicable to any such Original Issue Discount Securities will be
described in any Prospectus Supplement relating thereto. "Original Issue
Discount Security" means any security which provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof as a result of the occurrence of an Event
of Default and the continuation thereof.
6
<PAGE> 23
THE TRUSTEE
NBD is the Trustee under the Indenture. NBD is also the Trustee under MCN's
Senior and Subordinated Indentures. 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, including MCN Investment
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.
RESTRICTIONS
The Indenture provides that neither the Company nor MCN shall consolidate
with, merge with or into any other corporation (whether or not the Company or
MCN, as the case may be, 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 or MCN, as the case may be, shall be the continuing Person or
the Person (if other than the Company or MCN) formed by such consolidation or
with which or into which the Company or MCN is merged or the Person (or group of
affiliated Persons) to which all or substantially all the properties and assets
of the Company or MCN 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, in the case
of the Company, by an indenture supplemental to the Indenture, all the
obligations of the Company under the Debt Securities and the Indenture, executed
and delivered to the Trustee in form satisfactory to the Trustee; and in the
case of MCN, the performance of every covenant of the Indenture on the part of
MCN, as applicable, and all the obligations under the Support Agreement to be
performed or observed; (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 Debt Securities shall have occurred and be continuing; and (3)
the Company or MCN, as applicable, 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 Indenture. Each of the Company and MCN covenants and agrees in the Indenture
that if, upon its consolidation with or merger into any other corporation, or
upon any consolidation or merger of any other corporation with or into it, or
upon any sale or conveyance of all or substantially all of its property and
assets to any other corporation, any of its property or any property of any
Subsidiary or any Indebtedness issued by any Subsidiary owned by it or by any
other Subsidiary immediately prior thereto would thereupon become subject to any
mortgage, security interest, pledge, lien or other encumbrance not permitted by
the Indenture, prior to or concurrently with such consolidation, merger, sale or
conveyance, it will effectively secure the Securities then Outstanding issued
under the Indenture (equally and ratably with (or prior to) any other
Indebtedness of or guaranteed by it or such Subsidiary then entitled thereto) by
a direct lien, on such of its property or such property of a Subsidiary or such
other Indebtedness issued by a Subsidiary, prior to all liens other than any
theretofore existing thereon.
The Indenture also provides that neither the Company nor MCN will, nor will
MCN permit any Significant Subsidiary to, create, incur, or suffer to exist any
Lien in, of or on the property of the Company, MCN or any of their 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
7
<PAGE> 24
affect the marketability of the same or interfere with the use thereof in the
business of the Company, MCN or their Subsidiaries, as the case may be; (v)
Liens on the capital stock, partnership interest, or other evidence of ownership
of any Subsidiary or such Subsidiary's assets that secure Project Finance
Indebtedness 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 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 or MCN's business practices, as the case may be)
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 Debt
Securities are first issued; and (ix) Liens for no more than 90 days arising
from a transaction involving accounts receivable of the Company or MCN, as the
case may be (including the sale of such accounts receivable), where such
accounts receivable arose in the ordinary course of the Company's or MCN's
business, as the case may be.
The Indenture provides that neither the Company nor MCN will, nor will they
permit any Subsidiary to, enter into any arrangement with any lender or investor
(other than the Company, MCN or a Subsidiary), or to which such lender or
investor (other than the Company, MCN or a Subsidiary) is a party, providing for
the leasing by the Company, MCN 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, MCN or such Subsidiary, as
the case may be, for more than six months and which has been or is to be sold or
transferred by the Company, MCN or such Subsidiary, as the case may be, 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, MCN or such Subsidiary, as the case may be, 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 Debt
Securities or (b) the Company or MCN, as the case may be, 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 Debt Securities and other obligations of the Company or
MCN, as the case may be, ranking on a parity with the Debt Securities. Debt
Securities rank pari passu with other unsecured indebtedness.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following are Events of Default under the Indenture with respect to
Debt Securities of any series: (1) failure to pay interest on any Debt Security
of that series when due and payable, continued for 30 days; (2) failure to pay
the principal of (or premium, if any, on) any 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 of the Company or
MCN contained in the Debt Securities of that series, the Indenture or the
Support Agreement (other than a covenant, agreement or warranty included in the
Indenture solely for the benefit of 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 Debt Securities of that series; (4) failure to pay at final
maturity, or acceleration of, Indebtedness of the Company, MCN or a Subsidiary
(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 consolidated total assets
of MCN (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 Debt Securities of
that series; (5) certain events of bankruptcy, insolvency or reorganization
relating to the Company, MCN or a Significant Subsidiary; and (6) any other
Event of Default with respect to Debt Securities of that series specified in the
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Prospectus Supplement relating thereto or Supplemental Indenture under which
such series of Debt Securities is issued. As noted in (4) above, it will not be
an Event of Default under the 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) 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 Indenture.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to Debt Securities of
any series, give the Holders of 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 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 Debt Securities of that series.
If an Event of Default with respect to 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 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 Outstanding Debt Securities of that series),
may declare the unpaid principal of and accrued interest to the date of
acceleration on all the Outstanding Debt Securities of that series to be due and
payable immediately and, upon any such declaration, the Outstanding 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
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
Debt Security of that series.
The 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 Debt Securities of any series, in performing such covenants, of
which the signers may have knowledge.
MODIFICATION OF INDENTURE; WAIVER
The 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 Indenture and (ii) to
make any change that does not materially adversely affect the interests of any
Holder of Debt Securities of any series. In addition, under the Indenture,
certain rights and obligations of the Company and the rights of Holders of the
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 Debt Securities of each series affected thereby; but no
extension of the maturity of any 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 Debt Securities of any series, other modification in the terms of payment of
the principal of, or interest on, any Debt Securities of any series, or
reduction of the percentage required for modification, will be effective against
any Holder of any Outstanding Debt Security of any series
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affected thereby without the Holder's consent. The Indenture does not limit the
aggregate amount of Debt Securities of the Company which may be issued
thereunder.
The Holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of any series may on behalf of the Holders of all Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with certain restrictive covenants of the Indenture. The Holders
of not less than a majority in aggregate principal amount of the Outstanding
Debt Securities of any series may on behalf of the Holders of all Debt
Securities of that series waive any past Event of Default or Default under the
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
Debt Security of that series or in respect of a provision which under the
Indenture cannot be modified or amended without the consent of the Holder of
each Outstanding Debt Security of that series affected.
DEFEASANCE
The Company may terminate its substantive obligations in respect of Debt
Securities of any series (except for its obligations to pay the principal of
(and premium, if any, on) and the interest on the 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 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 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 Indenture.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities (as such term is defined below) that will
be deposited with, or on behalf of, a Depositary ("Depositary") or its nominee
identified in the applicable Prospectus Supplement. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denomination
equal to the portion of the aggregate principal amount of outstanding Debt
Securities of the series to be represented by such Global Security or Global
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in registered form, a Global Security may not be registered for
transfer or exchange except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any nominee to a successor Depositary or a nominee of such successor Depositary
and except in the circumstances described in the applicable Prospectus
Supplement. The term "Global Security", when used with respect to any series of
Debt Securities, means a Debt Security that is executed by the Company and
authenticated and delivered by the Trustee to the Depositary or pursuant to the
Depositary's instruction, which shall be registered in the name of 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
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underwriters or agents of such Debt Securities or, if such Debt Securities are
offered and sold directly by the Company, by the Company. Ownership of
beneficial interests in such Global Security will be limited to participants or
Persons that may hold interests through participants. Ownership of beneficial
interests by participants in such Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee for such Global Security. Ownership
of beneficial interests in such Global Security by Persons that hold through
participants will be shown on, and the transfer of that ownership interest
within such participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in certificated form.
The foregoing limitations and such laws may impair the ability to transfer
beneficial interests in such Global Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Securities
represented by such Global Security for all purposes under the Indenture. Unless
otherwise specified in the applicable Prospectus Supplement, owners of
beneficial interests in such Global Security will not be entitled to have Debt
Securities of the series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities of such series in certificated form and will not be considered the
Holders thereof for any purposes under the Indenture. Accordingly, each Person
owning a beneficial interest in such Global Security must rely on the procedures
of the Depositary and, if such Person is not a participant, on the procedures of
the participant through which such Person owns its interest, to exercise any
rights of a Holder under the Indenture. The Company understands that under
existing industry practices, if the Company requests any action of Holders or an
owner of a beneficial interest in such Global Security desires to give any
notice or take any action a Holder is entitled to give or take under the
Indenture, the Depositary would authorize the participants to give such notice
or take such action, and participants would authorize beneficial owners owning
through such participants to give such notice or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
SUPPORT AGREEMENT
The Support Agreement between the Company and MCN provides that, during the
term thereof, (i) MCN will own all of the voting stock of the Company, (ii) MCN
will cause the Company to have at all times a positive net worth (net assets,
less intangible assets, if any), as determined in accordance with generally
accepted accounting principles and (iii) if the Company is unable to make timely
payment of principal of, or any premium or interest on, any Debt (as defined
below) issued by the Company, MCN will, at the request of the Company or any
Lender (as defined below), provide funds to the Company to make such payments.
The Support Agreement also provides that any Lender to the Company shall have
the right to demand that the Company enforce its rights against MCN under the
Support Agreement as described in the previous sentence, and in the event that
the Company fails to require MCN to perform such obligations or the Company
defaults in the timely payment of principal of, or any premium or interest on,
any Debt owed to a Lender, such Lender may proceed directly against MCN to
enforce the Company's rights against MCN under the Support Agreement or to
obtain payment of such defaulted principal, premium or interest owed to such
Lender.
The Support Agreement provides that in no event may any Lender, on default
of the Company or MCN or upon failure by the Company or MCN to comply with the
Support Agreement, have recourse to or against the stock or assets of MichCon,
or any interest of the Company or MCN therein. Notwithstanding this limitation,
the Support Agreement provides that funds available to MCN to satisfy any
obligations under the Support Agreement will include cash dividends paid by
MichCon to MCN. In addition to the cash dividends paid to MCN by any of its
subsidiaries, the assets of MCN other than the stock and assets of MichCon are
available as recourse to holders of the Company's Debt. The carrying value of
such assets reflected in MCN's
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balance sheet on an unconsolidated basis, at September 30, 1997 is approximately
$1.1 billion. The term "Debt" is defined in the Support Agreement as debt
securities or other obligations, and includes the Debt Securities. The term
"Lender" is defined in the Support Agreement as any person, firm, corporation or
other entity to which the Company is indebted for money borrowed or to which the
Company otherwise owes any Debt or which is acting as trustee or authorized
representative on behalf of such person, firm, corporation or other entity. The
Indenture provides that each Holder of a Debt Security, as well as the Trustee,
shall be considered a "Lender" for purposes of the Support Agreement.
Funds to repay the Debt Securities at maturity pursuant to the Support
Agreement would come from earnings in the form of dividends paid to MCN by
MichCon and MCN's other subsidiaries, the earnings of other businesses of MCN
and its subsidiaries, or the proceeds of financing transactions.
The Support Agreement provides that MCN will not take any action (or
refrain from taking any action) to the extent that such action or inaction would
cause a default in the performance or breach of any term or provision of the
Indenture, or any Debt outstanding under the Indenture, and MCN will comply with
all covenants and provisions of the Indenture applicable to it as if it were a
party to the Indenture.
The Support Agreement may be amended or terminated at any time by agreement
of MCN and the Company, provided that (i) no amendment regarding the terms
described above may be made unless all Lenders consent in advance and in writing
to such amendment, (ii) no amendment regarding any other term of the Support
Agreement may be made in a manner that adversely affects the rights of Lenders
unless all affected Lenders consent in advance and in writing to such amendment
and (iii) no termination shall be effective until such time as all Debt
(including the Debt Securities) shall have been paid in full.
VALIDITY OF SECURITIES
The validity of the Debt Securities and obligations under the Support
Agreement of MCN will be passed upon by Daniel L. Schiffer, Esq., Senior Vice
President, General Counsel and Secretary of MCN, and for any agents or
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 owns 33,255 of MCN's
Common Stock as of December 31, 1997. LeBoeuf, Lamb, Greene & MacRae, L.L.P.
from time to time renders legal services to MCN and the Company.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from MCN'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.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities (i) to or through underwriters or
dealers, (ii) directly to purchasers, or (iii) through agents. A Prospectus
Supplement with respect to the Offered Debt Securities will set forth the terms
of the offering of the Offered Debt Securities, including the name or names of
any underwriters, dealers or agents; the purchase price of the Offered Debt
Securities and the proceeds to MCN Investment from such sale; any underwriting
discounts and commissions and other items constituting
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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 Debt 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. Only firms named in the
Prospectus Supplement or a related pricing supplement, if applicable, will be
deemed to be underwriters, dealers or agents in connection with the Debt
Securities offered thereby, and if any of the firms expressly referred to below
is not named in such Prospectus Supplement or a related pricing supplement, then
such firm will not be a party to the underwriting or distribution agreement in
respect of such Debt Securities, will not be purchasing any such Debt Securities
from the Company and will have no direct or indirect participation in the
underwriting or other distribution of such Debt Securities, although it may
participate in the distribution of such Debt Securities under circumstances
entitling it to a dealer's commission.
If underwriters are used in the sale, the Offered Debt Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Debt Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of Offered Debt
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 Debt Securities will be
subject to certain conditions precedent, and the underwriters will be obligated
to purchase all the Debt Securities if any are purchased.
If dealers are utilized in the sale of Offered Debt Securities, MCN
Investment will sell such Offered Debt Securities to the dealers as principals.
The dealers may then resell such Offered Debt Securities to the public at
varying prices to be determined by such dealers at the time of resale. The names
of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
The Debt Securities may be sold from time to time either directly by MCN
Investment or through agents designated by MCN Investment. Any agent involved in
the offer or sale of the Offered Debt Securities in respect to which this
Prospectus is delivered will be named, and any commissions payable by MCN
Investment to such agent will be set forth in the Prospectus Supplement relating
thereto. Unless otherwise indicated in the Prospectus Supplement, any such agent
will be acting on a best efforts basis for the period of its appointment.
The Debt Securities may be sold directly by MCN Investment 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.
If so indicated in the Prospectus Supplement, MCN Investment will authorize
agents, underwriters or dealers to solicit offers from certain types of
institutions to purchase Offered Debt Securities from MCN Investment at the
public offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject only to those conditions set forth in the
Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Agents, dealers and underwriters may be entitled under agreements with MCN
Investment and MCN to indemnification against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such agents, dealers or underwriters may be required to make
in respect thereof. Agents, dealers and underwriters may be customers of, engage
in transactions with, or perform services for MCN Investment or MCN in the
ordinary course of business.
The Debt Securities may or may not be listed on a national securities
exchange. No assurance can be given that there will be a market for the Debt
Securities.
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