<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MCN Energy Group Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
MCN
ENERGY GROUP INC.
1999
NOTICE OF
ANNUAL
MEETING
AND
PROXY
STATEMENT
MCN ENERGY GROUP, INC.
<PAGE> 3
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Letter from the Chairman.................................... 3
Notice of 1999 Annual Meeting of Shareholders............... 4
Proxy Statement............................................. 5
- - Proposal 1 -- Election of Directors....................... 5
Committees of the MCN Board............................... 10
Beneficial Security Ownership of Directors, Nominees and
Executive Officers........................................ 11
- Executive Stock Ownership Guidelines.................... 12
Compensation of Directors and Executive Officers.......... 12
- Directors' Compensation................................. 12
- Executives' Compensation................................ 13
- Other Compensation Matters.............................. 15
Report of the Compensation Committee of The Board of
Directors on Executive Compensation..................... 18
Performance Graph......................................... 23
- - Proposal 2 -- Selection of Auditors....................... 24
Other Proxy Matters......................................... 24
</TABLE>
- -------------------------
- - Denotes items to be voted on at the meeting.
<PAGE> 4
MCN ENERGY GROUP INC. LOGO
<TABLE>
<S> <C>
ALFRED R. GLANCY III 500 Griswold Street
Chairman, President and Detroit, Michigan 48226
Chief Executive Officer
</TABLE>
March 5, 1999
To our Shareholders:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of MCN Energy Group Inc. This year's meeting will be held at the Company's
headquarters in Detroit, Michigan on Wednesday, April 28, 1999 at 1:00 p.m.
Eastern Daylight-Saving Time. The business items to be acted on during the
Annual Meeting are listed in the Notice of Annual Meeting and are described more
fully in the Proxy Statement.
If you plan to attend the Annual Meeting, please mark the appropriate box
on the proxy card to request an attendance card. WHETHER OR NOT YOU PLAN TO
ATTEND, YOU CAN ENSURE YOUR SHARES ARE REPRESENTED AT THE MEETING BY PROMPTLY
COMPLETING, SIGNING, DATING AND RETURNING YOUR PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
Along with the other members of the Board of Directors, I look forward to
the opportunity of greeting personally those shareholders who are able to attend
the Annual Meeting.
Sincerely,
/s/ALFRED R. GLANCY III
3
<PAGE> 5
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS OF MCN ENERGY GROUP INC.
- --------------------------------------------------------------------------------
1:00 p.m., April 28, 1999
Guardian Building, 32nd Floor Auditorium
500 Griswold St.
Detroit, Michigan 48226
- --------------------------------------------------------------------------------
March 5, 1999
To our Shareholders:
The 1999 Annual Meeting of Shareholders of MCN Energy Group Inc. will be
held at the Company's headquarters in the Guardian Building, 32nd Floor
Auditorium, 500 Griswold Street, Detroit, Michigan on Wednesday, April 28, 1999
at 1:00 p.m., Eastern Daylight-Saving Time. Shareholders will act on the
following matters:
(1) ELECTION OF THREE DIRECTORS TO SERVE FOR TERMS OF THREE YEARS;
(2) RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR THE YEAR ENDING DECEMBER 31, 1999; AND
(3) TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING, OR ANY ADJOURNMENTS.
Shareholders of record at the close of business on March 1, 1999 are
entitled to receive notice of and to vote at the Annual Meeting.
You are invited to attend the Annual Meeting in person. REGARDLESS OF
WHETHER YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOUR BOARD OF
DIRECTORS URGES YOU TO VOTE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
By order of the Board of Directors,
DANIEL L. SCHIFFER
DANIEL L. SCHIFFER
Senior Vice President,
General Counsel and Secretary
4
<PAGE> 6
MCN ENERGY GROUP INC. LOGO
PROXY STATEMENT
The Board of Directors of MCN Energy Group Inc. (the "MCN Board") solicits
your proxy for use at the Annual Meeting of Shareholders of MCN Energy Group
Inc. ("MCN" or the "Company") to be held on Wednesday, April 28, 1999 at 1:00
p.m., and at any adjournments. This Proxy Statement and a proxy card are to be
mailed to shareholders beginning on March 12, 1999.
In the following pages, you will find information on your Board of
Directors, both the candidates proposed for election and continuing Directors,
as well as, a proposal for ratification of the appointment of auditors. The
information in this Proxy Statement has been supplied to you to help you decide
how to vote at the Annual Meeting of Shareholders or any adjournment of that
meeting.
As of March 1, 1999, the record date for determination of shareholders
entitled to notice of and to vote at the Annual Meeting, there were 79,790,381
outstanding shares of MCN Common Stock, $.01 par value ("MCN Common Stock").
Each outstanding share is entitled to one vote on all matters that may come
before the Annual Meeting.
You can ensure that your shares are voted at the Annual Meeting by
completing, signing, dating and returning the accompanying proxy card in the
enclosed postage-paid envelope. Sending in a signed proxy will not affect your
right to attend the Annual Meeting and vote. A shareholder who gives a proxy may
revoke it at any time before it is exercised. Revocation can be accomplished by
notifying the Secretary of MCN in writing before the proxy is exercised, or by
delivering a proxy bearing a later date to the Secretary of MCN, or by attending
the Annual Meeting and voting in person.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The MCN Board will be reduced from ten members to nine members with the
retirement of William K. McCrackin from the MCN Board effective with the Annual
Meeting. The MCN Board is divided into three classes, with the term of each
director expiring at the Annual Meeting of MCN in the year indicated on the
following pages. Generally, one-third of the MCN Board is elected each year.
Unless otherwise instructed on the proxy card, the proxy holders intend to
vote for the election of Stephen E. Ewing, Roger Fridholm and Helen O.
Petrauskas to three-year terms as directors. Each of the nominees is a current
member of the MCN Board and has served the previous full term. The MCN Board
believes that, if elected, each nominee will be able and willing to serve.
However, if any nominee should be unable or unwilling to serve as a director,
the MCN Board may select a substitute nominee and, in that event, the proxy will
be voted for the person so selected. The remaining six directors will continue
to serve in accordance with their previous elections.
Information concerning the three directors nominated for a term of three
years and the six continuing MCN Board members is set forth on pages 6 through
8.
5
<PAGE> 7
NOMINEES FOR ELECTION AS DIRECTORS FOR THREE-YEAR TERMS TO EXPIRE IN 2002
- --------------------------------------------------------------------------------
STEPHEN E. EWING PHOTO
STEPHEN E. EWING, 55, DIRECTOR SINCE 1988
Attendance: 100% of Board Meetings
Mr. Ewing has been President of Michigan Consolidated Gas
Company ("MichCon") since 1985, Chief Executive Officer since
September 1992 and Chief Operating Officer from 1985 to
September 1992. He previously served as President and Chief
Operating Officer of MCN from August 1988 to September 1992. Mr.
Ewing has been a Director of MichCon since 1984.
Mr. Ewing is Chairman of the Detroit Economic Growth
Corporation, the Natural Gas Vehicle Coalition and Oakwood
Healthcare, Inc. and Vice Chairman of United Way Community
Services. He is past Chairman of the 1997 United Way Community Services Torch
Drive, Greater Detroit Area Health Council, Metropolitan Affairs Corporation and
the Midwest Gas Association. He is a board member of the Michigan Jobs
Commission, Detroit Renaissance, Michigan Opera Theater, Institute of Gas
Technology, the American Gas Association, the Skillman Foundation and AAA
Michigan. Mr. Ewing is also a member of Leadership Detroit, the NAACP and Boy
Scouts of America's Detroit Area Council Executive Board.
- --------------------------------------------------------------------------------
ROGER FRIDHOLM PHOTO
ROGER FRIDHOLM, 58, DIRECTOR SINCE 1988
Attendance: 100% of Board and Committee Meetings
Mr. Fridholm has been President of the St. Clair Group, a
private investment company, since 1991. He has been Chairman of
Ad Hoc Legal Resources, LLC since 1995 and President of IPG
Services Corporation since 1996, both of which are staffing
service companies. In 1998, Mr. Fridholm became President of the
Business, Technology, and Staffing Services Group of MSX
International. He previously served as President and Chief
Executive Officer of Counsel, Enterprises, Inc. from February
through July 1994 and as Senior Vice President of Corporate
Development of Kelly Services, Inc. from March 1992 through January 1994.
Mr. Fridholm serves as a Director of The Stroh Brewery Company, Comerica
Bank-Michigan, and MascoTech, Inc.
- --------------------------------------------------------------------------------
HELEN O. PETRAUSKAS PHOTO
HELEN O. PETRAUSKAS, 55, DIRECTOR SINCE 1990
Attendance: 93% of Board and Committee Meetings
Ms. Petrauskas has been Vice President for Environmental and
Safety Engineering with Ford Motor Company since 1983.
Ms. Petrauskas is a Director of The Sherwin-Williams Company, a
member of the Board of Governors of Argonne National Laboratory
and a member of the Society of Automotive Engineers. Ms.
Petrauskas is also on the Advisory Boards of the Center for Risk
Analysis, Harvard School of Public Health, and Resources for the
Future in Washington, D.C.
THE MCN BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF STEPHEN E. EWING,
ROGER FRIDHOLM AND HELEN O. PETRAUSKAS TO THE BOARD OF DIRECTORS.
6
<PAGE> 8
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2000
- --------------------------------------------------------------------------------
ALFRED R. GLANCY III PHOTO
ALFRED R. GLANCY III, 61, DIRECTOR SINCE 1988
Attendance: 100% of Board Meetings
Mr. Glancy has been Chairman and Chief Executive Officer of MCN
since August 1988 and President since September 1992. He has
been Chairman of MCN Investment Corporation ("MCNIC") since
1988. Mr. Glancy has been Chairman of MichCon since 1984 and
served as its Chief Executive Officer from 1984 until September
1992. He has been a Director of MichCon since 1981.
Mr. Glancy is Chairman Emeritus of Detroit Symphony Orchestra,
Inc., and past Chairman of The Detroit Medical Center, Detroit
Renaissance, Detroit Economic Growth Corporation and New
Detroit, Inc. He is also a Director of the Detroit Institute of Arts, United Way
Community Services, Community Foundation for Southeastern Michigan, Morton
Industrial Group, Greater Downtown Partnership, Interstate Natural Gas
Association, National Petroleum Council and the Hudson-Webber Foundation. He is
Vice Chairman of UNICO Investment in Seattle, Washington.
- --------------------------------------------------------------------------------
FRANK M. HENNESSEY PHOTO
FRANK M. HENNESSEY, 60, DIRECTOR SINCE 1988
Attendance: 93% of Board and Committee Meetings
Mr. Hennessey has been Vice Chairman of the Board of Directors
and Chief Executive Officer of MascoTech, Inc. since January
1998. He was formerly Executive Vice President of Masco
Corporation. Mr. Hennessey is Chairman of Emco Limited, a
leading Canadian manufacturer and distributor of plumbing-
related products, roofing and other building products. He was
previously Vice President for Strategic Planning at Masco
Corporation, and President, Chief Executive Officer and Director
of Emco Limited from December 1990 through August 1995.
Mr. Hennessey is a Trustee of the Hudson-Webber Foundation and a Director of New
Detroit, Inc. He is a Director and Treasurer of United Way Community Services,
and Trustee of the Citizens Research Council of Michigan, as well as, past
Chairman of the Greater Detroit and Windsor Japan America Society.
- --------------------------------------------------------------------------------
HOWARD F. SIMS PHOTO
HOWARD F. SIMS, 65, DIRECTOR SINCE 1988
Attendance: 100% of Board and Committee Meetings
Mr. Sims is Chairman and Chief Executive Officer of Sims-Varner
& Associates, PLLC, an architecture, engineering and planning
firm, and has been a practicing architect since 1963. He also
serves as Chairman of The SVA Group and SV Associates, LLC, both
engaged in architecture and planning.
Mr. Sims is a Director of Comerica Incorporated. He is a Trustee
of Citizens Research Council of Michigan, the W.K. Kellogg
Foundation, The Community Foundation of Southeastern Michigan
and the Karmanos Cancer Institute. Mr. Sims is a member of the
Executive Board of the Detroit Area Council, Boy Scouts of America, United Way
Community Services of Southeast Michigan and the NAACP.
7
<PAGE> 9
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2001
- --------------------------------------------------------------------------------
JAMES G. BERGES PHOTO
JAMES G. BERGES, 51
Attendance: 100% of Board and Committee Meetings
Mr. Berges has been Vice Chairman of Emerson Electric Co., a
manufacturer of electrical, electromechanical, and electronic
products and systems, since April 1997. He was previously
Executive Vice President from 1990 through March 1997. Mr.
Berges is Chairman of Astec (BSR) Plc, a manufacturer of power
conversion products and electronic components, and EGS
Electrical Group, a joint venture with SPX, a manufacturer of
specialty service tools and engineered components for the global
motor vehicle industry. He is a Director of Emerson Electric.
Mr. Berges is a Board Member of the St. Louis Regional Housing Alliance and has
been active in various roles with the United Way of Greater St. Louis.
- --------------------------------------------------------------------------------
THOMAS H. JEFFS II PHOTO
THOMAS H. JEFFS II, 60, DIRECTOR SINCE 1991
Attendance: 100% of Board and Committee Meetings
Mr. Jeffs retired as Vice Chairman of First Chicago NBD
Corporation and First National Bank of Chicago in October 1998.
Mr. Jeffs was President and Chief Operating Officer of its
subsidiary, NBD Bank Michigan, from January 1994 to October
1998.
Mr. Jeffs is Chairman of New Detroit, Inc. and a Director of The
Economic Club of Detroit, Detroit Renaissance, Inc. and Local
Initiatives Support Corporation of New York, New York. He is
also a Director of Intermet Corporation. Mr. Jeffs serves as
Vice Chairman and a member of the Executive Committee of the Detroit Symphony
Orchestra, Inc. He is a Director of the Detroit Institute of Arts. Mr. Jeffs is
a member of the Visiting Committee of the University of Michigan, School of
Business Administration.
- --------------------------------------------------------------------------------
BILL M. THOMPSON PHOTO
BILL M. THOMPSON, 66, DIRECTOR SINCE 1996
Attendance: 100% of Board and Committee Meetings
Mr. Thompson retired from Phillips Petroleum Company in December
1992 after 38 years of service. He was Chairman of the Board,
President and Chief Executive Officer of GPM Gas Corporation, a
wholly owned subsidiary of Phillips Petroleum Company, from
February 1992 until December 1992. He had been Vice Chairman of
Phillips Petroleum Company from his election in December 1991
until February 1992. Prior to that, he was Executive Vice
President of Phillips' downstream operations from September 1988
until December 1991. He was elected a member of the Board of
Directors of Phillips Petroleum Company in 1988.
Mr. Thompson serves on the Board of Directors of The University of Texas College
of Engineering Foundation Advisory Council. He is a past member of the Board of
Directors of the American Petroleum Institute, The National Association of
Manufacturers, and The Chemical Manufacturers Association.
8
<PAGE> 10
RETIRING DIRECTOR
- --------------------------------------------------------------------------------
[WILLIAM K. MCCRACKIN PHOTO]
WILLIAM K. MCCRACKIN
Mr. McCrackin will retire from the MCN Board effective with the
1999 Annual Meeting. MCN Energy Group Inc. wishes to express its
appreciation to Mr. McCrackin for his contributions during 43
years of dedicated service as an employee and 15 years as a
director of MCN or MichCon.
9
<PAGE> 11
COMMITTEES OF THE MCN BOARD
The MCN Board held 10 regular meetings during 1998. A majority of directors
attended all meetings of the Board. The MCN Board has the following standing
committees, with membership as of the record date of March 1, 1999 identified
below.
AUDIT COMMITTEE
Frank M. Hennessey, Chair
James G. Berges
Bill M. Thompson
- - Recommends the selection of the Company's independent auditors;
- - Reviews the scope of audit procedures, the results of the respective audits,
and audit recommendations to management;
- - Reviews auditors' fees, annual financial statements, adequacy of internal
audit procedures and results of those procedures; and
- - Reviews MCN's policies relating to business conduct.
2 meetings in 1998
COMPENSATION COMMITTEE
Thomas H. Jeffs II, Chair
Roger Fridholm
Howard Sims
Bill M. Thompson
- - Reviews and recommends to the MCN Board salary and incentive compensation for
officers of MCN, MichCon and MCNIC; and
- - Reviews the salary policies for other officers, management and supervisory
personnel.
3 meetings in 1998
FINANCE COMMITTEE
Helen O. Petrauskas, Chair
Roger Fridholm
Frank M. Hennessey
Thomas H. Jeffs II
Reviews and makes recommendations to the MCN Board regarding:
- - Financial plans;
- - Timing and amount of securities to be issued; and
- - Investment policies of the trusteed benefit plans and other corporate funds.
2 meetings in 1998
CORPORATE GOVERNANCE AND
NOMINATING COMMITTEE
Howard F. Sims, Chair
James G. Berges
Helen O. Petrauskas
- - Screens and recommends candidates for the Company's Board of Directors;
- - Reviews matters of corporate governance to ensure continued alignment with
shareholder interests;
- - Reviews efforts of the Company to meet responsibilities to non-owner
stakeholders;
- - Makes recommendations regarding the effectiveness of the Board and the duties
of the committees; and
- - Consults with management regarding community involvement and philanthropic
contributions from the Company and its subsidiaries and foundations.
3 meetings in 1998
10
<PAGE> 12
BENEFICIAL SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table includes MCN Common Stock and stock-based holdings, as
of March 1, 1999, of the Company's chief executive officer and its four most
highly-compensated executive officers in 1998 (collectively, the "Named
Executive Officers") and its directors and nominees.
- --------------------------------------------------------------------------------
COMMON STOCK AND TOTAL STOCK-BASED HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
OWNERSHIP
---------------------- STOCK
NAME AMOUNT(1) PERCENT EQUIVALENTS(2) TOTAL
---- --------- ------- -------------- ---------
<S> <C> <C> <C> <C>
Alfred R. Glancy III.......................... 303,757(3) .4% 361,387 665,144
Stephen E. Ewing.............................. 35,223(3) * 103,312 138,535
Joseph T. Williams............................ 36,762(3) * 10,025 46,787
William K. McCrackin.......................... 37,631(3) * 35,650 73,281
Howard L. Dow III............................. 28,259(3) * 13,075 41,334
James G. Berges............................... 100 * 1,633 1,733
Roger Fridholm................................ 10,300(4) * 4,888 15,188
Frank M. Hennessey............................ 11,059 * 8,846 19,905
Thomas H. Jeffs II............................ 5,000 * 7,623 12,623
Helen O. Petrauskas........................... 3,116 * 4,611 7,727
Howard F. Sims................................ 3,098 * 7,445 10,543
Bill M. Thompson.............................. 3,418 * 4,456 7,874
Directors, nominees and executive officers as
a group..................................... 515,160 .6% 591,751 1,106,911
</TABLE>
- -------------------------
* Less than 0.1%
(1) This column lists voting securities, including shares of restricted stock in
which the beneficial owners have voting power but do not have investment
power until the shares vest. In many instances, voting power and investment
power are shared with another as joint tenants.
(2) This column includes the non-voting common stock equivalents, such as
performance shares granted or deferred under the Stock Incentive Plan,
deferred stock units under the Mandatory Deferred Compensation Plan, special
performance shares granted under the 1999 Annual Performance Plan, share
equivalents under the Supplemental Savings Plan, and performance shares
under the Nonemployee Directors' Compensation Plan.
(3) Includes shares held in the MCN Energy Group Savings and Stock Ownership
Plan (the "Savings Plan"). The beneficial owners of the shares have sole
voting power on all shares. Beneficial owners have investment power on all
shares except those purchased by MCN and held as restricted under provisions
of the Savings Plan.
(4) Includes 2,100 shares held in the St. Clair Charitable Trust, of which Roger
Fridholm is a Trustee. Mr. Fridholm has shared voting and investment power
on these shares.
11
<PAGE> 13
EXECUTIVE STOCK OWNERSHIP GUIDELINES
In 1995, the Compensation Committee of the MCN Board approved stock
ownership guidelines for all executives and non-officer directors to formalize
its policy of encouraging share ownership by officers and directors. In 1998,
those guidelines were amended to require larger share ownership. This change was
made to align further the interests of each executive and non-officer director
to that of the shareholders. Current guidelines require the Chairman & CEO to
own stock with a value at least eight times annual salary. Other executive and
director stock ownership guidelines range from one to five times salary or
retainer fee, depending on their level. The expectation is that the shares
required to at least minimally meet the guidelines will be acquired over a
period of five years from when an individual becomes subject to such guidelines.
At December 31, 1998, 58% of the Named Executive Officers and directors meet or
exceed the guidelines. The comparable percentage for all MCN, MichCon and MCNIC
officers and directors is 50%. The average stockholdings at December 31, 1998
for the Named Executive Officers and directors as a multiple of salary or
retainer fee is 6.3 times. The comparable relationship for all MCN, MichCon and
MCNIC officers and directors is 4.2 times at December 31, 1998.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS' COMPENSATION
As of April 1, 1997, non-officer directors receive an annual fee of
$30,000. Additionally, each year non-officer directors receive performance
shares worth approximately $30,000, calculated at the beginning of the fiscal
year and rounded to the nearest 100 shares. Each performance share is equivalent
to one share of MCN Common Stock. Non-officer directors are permitted to defer
all or a portion of their cash retainer fee in performance shares. The
performance shares will be credited to deferral accounts established for each
non-officer director. The value of the performance shares held in each
non-officer director's account will increase/decrease as the value of the
underlying MCN Common Stock increases/decreases and the account will be credited
with dividend equivalents equal to one-half of the common stock dividend rate.
Upon the non-officer director's death or retirement, the value of the
performance shares will be paid out in shares of MCN Common Stock over a period
of one to fifteen years as elected by the non-officer director. Based on the
elections of the non-officer directors, 100% of their compensation will be in
the form of performance shares, further aligning the interests of each
non-officer director and shareholders by tying compensation to the value of MCN
Common Stock.
12
<PAGE> 14
EXECUTIVES' COMPENSATION
The following table sets forth the aggregate compensation paid or awarded
for performance from 1996 through 1998 to the Named Executive Officers of MCN.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) -----------------------------------
-------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
COMPENSATION AWARD OPTIONS PAYOUT COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) ($)(3) ($)(4) (#)(5) ($)(1)(6) ($)(7)
- --------------------------- ---- --------- ----------- ------------ ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. R. GLANCY III............ 1998 667,800 0 -- -- 100,000 0 66,326
Chairman, President, & 1997 620,833 500,000 -- -- -- 2,382,016 61,110
Chief Executive Officer 1996 575,000 520,000 -- -- -- 1,984,000 42,069
S. E. EWING................. 1998 412,500 450,000 -- -- 48,300 0 37,356
President & Chief 1997 356,667 240,000 -- -- -- 1,339,884 33,818
Executive Officer, MichCon 1996 335,625 136,000 -- -- -- 1,240,000 23,404
J. T. WILLIAMS(8)........... 1998 352,000 0 68,509 -- -- -- 12,918
President & Chief 1997 128,225 385,000 -- 1,156,594 -- -- --
Executive Officer, MCNIC
W. K. MCCRACKIN............. 1998 369,400 0 -- -- -- 0 60,146
Vice Chairman & 1997 335,833 260,000 -- -- -- 1,191,008 52,586
Chief Financial Officer 1996 306,875 210,000 -- -- -- 1,240,000 26,085
H. L. DOW III............... 1998 211,539 180,000 -- -- 14,000 0 13,312
Senior Vice President & 1997 205,000 98,200 -- -- -- 558,285 11,675
Treasurer 1996 168,750 47,200 -- -- -- 446,400 9,228
</TABLE>
- -------------------------
(1) Includes amounts received or deferred.
(2) Amounts under the MCN Energy Group Inc. Annual Performance Plan are shown
for the year upon which performance is measured. They are paid in February
or March of the subsequent year. Messrs. Ewing and Dow earned bonuses for
1998 based upon MichCon's performance. Mr. Williams' 1997 bonus includes a
signing bonus of $250,000.
(3) Amount represents payment by the Company to cover taxes on the vesting of
restricted stock.
(4) The Company's current use of restricted stock is limited to special
situations, such as the retention of newly hired executives. Mr. Williams
was granted 36,500 shares upon his hiring. 2,100 of those shares vested on
July 28, 1998. As of December 31, 1998, the remaining 34,400 shares were
worth $655,750 and are scheduled to vest as follows:
<TABLE>
<CAPTION>
DATE SHARES
---- ------
<S> <C>
7/28/99..................................................... 2,100
7/28/00..................................................... 17,600
7/28/01..................................................... 2,100
Upon Normal Retirement...................................... 12,600
</TABLE>
Mr. Williams' retirement in conjunction with the sale of the Company's
exploration and production properties will accelerate the vesting of these
shares. Regular dividends are paid on the restricted stock.
(5) Stock options are granted in the February subsequent to the fiscal year
indicated in the table.
(6) Amounts shown in this column represent the dollar value of final payouts of
previous awards pursuant to the Performance Share Plan for the 6 year
periods 1991 through 1996, 1992 through 1997, and 1993 through 1998,
respectively. See page 20 for a detailed description of the plan. The
current value of awards for the years 1996 and 1997 that were paid in stock
or deferred under the Mandatory Deferred Compensation Plan are significantly
less than shown due to the decline in the price of MCN Common Stock.
(7) Amounts shown in this column represent the Company's contributions to
defined contribution plans and its payment of life insurance premiums.
(8) Mr. Williams was hired on July 28, 1997. Mr. Williams plans to retire from
the Company when the sale of the Company's exploration and production
properties is completed.
13
<PAGE> 15
LONG-TERM COMPENSATION
Beginning with the 1998 performance year, the Company determined that 50%
of its long-term incentive awards should be in the form of stock options (See
the Compensation Committee Report page 20). The stock options granted to the
Named Executive Officers on February 24, 1999 are indicated in the table below.
- --------------------------------------------------------------------------------
OPTIONS GRANTED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OF OPTION TERM
OPTIONS GRANTED TO BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) EMPLOYEES ($/SHARE) DATE 5%($) 10%($)
---- ----------- ------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
A. R. Glancy III............ 100,000 15.4 17.25 2/24/09 1,084,840 2,749,210
S. E. Ewing................. 48,300 7.4 17.25 2/24/09 523,978 1,327,868
J. T. Williams.............. -- -- -- -- -- --
W. K. McCrackin............. -- -- -- -- -- --
H. L. Dow III............... 14,000 2.2 17.25 2/24/09 151,878 384,889
</TABLE>
The options have a strike price of $17.25, which was the market price of
MCN common stock on February 24, 1999 (the grant date). The options vest ratably
over three years following the date of grant and are exercisable from the time
of vesting until the tenth anniversary of the grant.
Beginning with the 1992 performance year, the Company adopted a performance
share plan pursuant to the Stock Incentive Plan approved by its shareholders. In
1998, the Company determined that 50%, rather than 100%, of the long-term
incentive awards should be in the form of performance shares. Performance shares
are granted in February subsequent to the three-year period upon which
performance is measured. Performance shares granted February 24, 1999 for the
1996 to 1998 performance period to the Named Executive Officers are indicated in
the table below.
- --------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLAN AWARDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
OR OTHER NON-STOCK PRICE-BASED PLANS
PERIOD UNTIL ------------------------------
NUMBER OF MATURATION THRESHOLD TARGET MAXIMUM
NAME SHARES(#) OR PAYOUT (#) (#) (#)
---- --------- ------------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
A. R. Glancy III...... 14,250 3 years 0 14,250 28,500
S. E. Ewing........... 6,900 3 years 0 6,900 13,800
J. T. Williams........ 0 3 years 0 0 0
W. K. McCrackin....... 0 3 years 0 0 0
H. L. Dow III......... 2,000 3 years 0 2,000 4,000
</TABLE>
Each performance share is equivalent to a share of MCN Common Stock. The
number of performance shares initially granted is based on MCN's total
shareholder return for the previous three years compared to the total
shareholder return for a group of peer companies (identified in the Compensation
Committee Report on page 21) over the same period. Once initially granted,
regular dividend equivalents are paid on performance shares. The initial grants
are adjusted upward or downward after a three-year period based on MCN's total
shareholder return for this subsequent period compared to the total shareholder
return for a group of peer companies over the same period. (See the discussion
of peer groups and award periods on page 21.) The final award, which will be
payable in MCN Common Stock, will range from zero to 200% of the initial grant.
14
<PAGE> 16
Alternatively, participants are provided the option of deferring their awards
until their employment terminates. The deferrals are in the form of common stock
equivalents that earn dividend equivalents equal to one-half of the common stock
dividend. Final awards are included as Long-Term Incentive Payouts in the
Summary Compensation Table on page 13 in the year they are paid out.
OTHER COMPENSATION MATTERS
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
MCN has entered into Change of Control Employment Agreements with its Named
Executive Officers and certain other officers of MCN and its two principal
subsidiaries. Change of control is defined in the agreements as any of the
following: (1) the acquisition of beneficial ownership of 20% or more of the
outstanding voting securities of the Company, (2) the appointment or election of
new directors to the Company's Board which causes the existing directors to no
longer constitute at least a majority of the Company's Board, (3) a
reorganization, merger or consolidation in which the beneficial owners of the
outstanding voting securities have a beneficial interest of less than 60% of the
common stock or outstanding voting securities of the corporation resulting from
such reorganization, merger or consolidation, or (4) a complete liquidation or
dissolution of the Company. The agreements generally have a term of three years
beginning with the later of the change of control or the consummation of a
change of control transaction. The agreements obligate the officer to continue
to serve MCN in the officer's then current capacity, require MCN to compensate
the officer in an amount at least equal to the officer's base salary plus the
average annual bonus paid to the officer during the preceding three years and
provide for the vesting of various unfunded benefits. These unfunded benefits
include the Supplemental Retirement Plan discussed on page 17, the Supplemental
Death Benefit and Retirement Income Plan discussed on page 17 and the
Supplemental Savings Plan, which permits certain key executives to defer income
and be credited with matching contributions to the extent that would otherwise
be permitted under the Savings Plan but for limitations imposed by Federal tax
law on tax-qualified savings plans. The agreements also provide for the
grossed-up payment of any Federal excise taxes due from the executive as a
result of any payments received under the agreement and provide three years of
continued participation in MCN's benefit and retirement programs. MCN's
obligations to the officer, including the obligation to pay base salary and any
bonuses, can only be extinguished if the officer's employment is terminated by
MCN for "good cause" or by the officer without "good reason" both as defined in
the agreements, or by death or disability.
SPECIAL RETENTION AGREEMENTS
In July 1998 the Board determined that it was in the best interest of the
Company and its shareholders to ensure that the Company have the continued
dedication and expertise of Mr. McCrackin beyond his sixty-fifth birthday
(August 1998). The Board believed the services of Mr. McCrackin were critical
for the refocusing of the Company's strategic direction that occurred during the
later part of 1998. Mr. McCrackin committed to extending his employment for up
to one year. Therefore, the Board entered into a special retention agreement
with Mr. McCrackin that authorized a lump-sum cash payment of $400,000 upon his
retirement.
As part of his offer of employment from MCNIC, Mr. Williams received a
signing bonus of $250,000 and 36,500 shares of restricted stock, which vest as
set forth in footnote 4 to the Summary Compensation Table on page 13. In
addition, the agreement provides a guaranteed level of compensation for the
second year of employment which is expected to result in an additional grant of
restricted stock equal to $645,000 in July 1999 with vesting two years
subsequently. Other compensation and benefits provided Mr. Williams include; (1)
three year severance package should employment terminate prior to normal
retirement and (2) retiree health care based on 15 years of service.
15
<PAGE> 17
INDEBTEDNESS OF MANAGEMENT
In order to encourage executives to maintain their holdings in shares
purchased under a stock option plan, which was replaced by the MCN Stock
Incentive Plan in May 1989, the Company provided loans at an interest rate in
accordance with IRS guidelines based on the market yield of U.S. short-term
marketable securities. Pursuant to this provision, Mr. Glancy initiated a loan
in 1992 at an interest rate of 4.43%, which was renewed in 1995 and again in
1998 at the then current interest rates of 5.65% and 5.41%, respectively. The
loan covered a maximum outstanding amount of $725,014, including interest,
during 1998. A balance of $581,981, including interest, was outstanding as of
December 31, 1998. The loan is secured by 169,628 shares of MCN Common Stock
with a year-end market value of $3,233,534.
RETIREMENT PLANS
- --------------------------------------------------------------------------------
PENSION PLAN TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFIT AT AGE 65 FOR YEARS OF SERVICE
---------------------------------------------------------------
FINAL AVERAGE 20 25 30 35 40 45
ANNUAL EARNINGS YEARS YEARS YEARS YEARS YEARS YEARS
- --------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000.................... $ 54,700 $ 68,400 $ 82,100 $ 95,700 $105,700 $115,600
200,000.................... 73,000 91,300 109,500 127,800 141,000 154,300
250,000.................... 91,300 114,100 137,000 159,800 176,400 193,000
300,000.................... 109,600 137,000 164,400 191,800 211,700 231,600
350,000.................... 127,900 159,900 191,900 223,800 247,100 270,300
400,000.................... 146,200 182,800 219,300 255,900 282,400 309,000
450,000.................... 164,500 205,600 246,800 287,900 317,800 347,700
500,000.................... 182,800 228,500 274,200 319,900 353,100 386,300
550,000.................... 241,800 276,100 301,600 351,900 388,500 425,000
600,000.................... 263,800 301,300 329,100 383,900 423,800 463,700
650,000.................... 285,800 326,400 356,500 415,900 459,100 502,400
700,000.................... 307,800 351,500 384,000 447,900 494,500 541,000
</TABLE>
RETIREMENT PLANS. All salaried employees of MCN and certain of its
subsidiaries (the "Participating Companies") participate in a noncontributory,
defined benefit retirement plan (the "Retirement Plan"), under which benefits
have been based upon the final average salary. Specifically, the monthly pension
at normal retirement (age 65) is calculated using a formula providing a single
life monthly benefit equal to (1) 1.33% of final average monthly earnings
multiplied by the number of total years of credited service with the
Participating Companies; plus (2) 0.5% of final average monthly earnings that
exceed a 35-year average Social Security wage base multiplied by the number of
years of credited service up to 35 years. Early retirement benefits (at a
reduced benefit if such retirement is before the participant attains age 62) are
permitted under the plan, (1) on or after the date a participant attains age 55,
if the participant's age plus years of credited service (as defined in the plan)
equals or exceeds 70, or (2) when the participant has attained 30 years of
credited service. An employee's final average monthly earnings is defined as his
or her highest average monthly earnings for a consecutive 60-month period during
the participant's last 15 years of employment. Average monthly earnings are
calculated based on an individual's base salary only. An employee is not vested
under the Retirement Plan until he or she has completed five years of credited
service or has attained age 65.
The table above illustrates the total estimated annual normal retirement
pension benefits including the Supplemental Retirement Plan amounts (discussed
below), if applicable, that will be payable upon normal retirement at age 65 to
participants for the specified remuneration and years of credited service
classifications. Retirement benefits are not subject to any deduction for social
16
<PAGE> 18
security or other offset amounts. The table does not reflect any reductions in
retirement benefits that would result from the selection of one of various
available survivorship options or the election to retire prior to age 62.
Benefit amounts are computed on a straight life annuity basis.
As of December 31, 1998, the credited years of service (rounded to the
nearest whole year) for the Named Executive Officers participating in the final
average salary plan are as follows: Mr. Ewing, 27 years and Mr. Dow, 20 years.
In 1998, the Company adopted a cash balance plan feature within its defined
benefit plan to better attract and retain employees. The cash balance plan will
be the defined benefit plan for all new hires at MCN and MCNIC and was offered
as a one-time option to all current employees of MCN and MCNIC. For employees
electing to switch from the final average salary to the cash balance plan, a
retirement annuity as of January 1, 1998 was calculated under the "traditional"
defined benefit plan formula described above and present-valued using a 6.11%
interest rate, the average interest rate on 30-year Treasury Bills for November
1997. This amount represented the opening account balance under the cash balance
feature. Under the cash balance plan, at the beginning of each year, each
participant's account is credited with 8% of the individual's salary and bonus
plus an additional 5% of such compensation over the Social Security wage base.
In addition, each participant's account is credited with interest based on the
30-year Treasury Bill rate as of November of the prior year. All vested
participants in the cash balance plan are entitled to receive a lump sum payment
in lieu of monthly pension annuities. Messrs., Glancy, McCrackin, Williams and
246 other incumbent employees out of an eligible group of 330 opted to
participate in the cash balance plan. Had Mr. Glancy and Mr. McCrackin, who is
age 65, retired effective January 1, 1999, they could have elected to receive an
immediate annual annuity under the cash balance plan of $379,000 and $267,000,
respectively. Mr. Williams age 65 annuity amount currently accrued is
approximately $10,000 per year.
The Company also maintains the Supplemental Retirement Plan, which provides
for the payment of benefits that would otherwise be payable under the Retirement
Plan but for limitations imposed by Federal tax law on benefits paid by
qualified plans.
SUPPLEMENTAL DEATH BENEFIT AND RETIREMENT INCOME PLAN. The Company's Named
Executive Officers and certain other officers of the Participating Companies
currently participate in a Supplemental Death Benefit and Retirement Income
Plan. Under this plan, the pre-retirement death benefits payable to an
employee's surviving spouse are 50% of the employee's final salary until such
time as the employee would have reached age 65. Thereafter, payments are 20% of
salary until the employee would have reached age 75. At retirement an employee
may elect to receive (1) annual supplemental retirement income equal to 20% of
the employee's final annual salary payable for a period of 10 years after age
62; or (2) other available post retirement benefits that are actuarially
equivalent to the 10-year payment option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Thomas H. Jeffs II, Mr. Roger Fridholm, Mr. Howard Sims and Mr. Bill M.
Thompson serve on the Compensation Committee of MCN. There are no Compensation
Committee interlocks, nor do any officer directors participate on this
committee.
17
<PAGE> 19
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
THE COMPENSATION COMMITTEE (THE "COMMITTEE") ESTABLISHES MCN'S STRATEGIC
COMPENSATION OBJECTIVES. THE COMMITTEE THEN MONITORS AND EVALUATES THE DESIGN
AND EFFECTIVENESS OF MCN'S EXECUTIVE PAY PROGRAMS AGAINST THOSE OBJECTIVES.
UNDER COMMITTEE REVIEW, MCN'S EXECUTIVE COMPENSATION PROGRAMS ARE ADMINISTERED
TO LINK EXECUTIVE PAY WITH MCN'S STRATEGIC DIRECTION AND BUSINESS OBJECTIVES. IN
LIGHT OF 1998'S DISAPPOINTING FINANCIAL RESULTS, THE COMMITTEE REVIEWED EACH
ELEMENT OF EXECUTIVE COMPENSATION TO ASSURE ITSELF THAT THE COMPANY'S PROGRAMS
TAKEN AS A WHOLE CONTINUE TO SUPPORT ITS BUSINESS STRATEGY.
OBJECTIVE:
Our primary and overriding objective continues to be to provide a total
compensation package that allows MCN to attract, retain, and motivate executive
employees. In doing so,
- MCN establishes total compensation opportunity (base salary, annual
incentive, and long-term incentive) at competitive levels.
- Base salary levels are generally set between the 40th and 65th
percentile.
- Total cash compensation (base salary and annual incentive) is
targeted for the 65th percentile with the opportunity to exceed or
fall short of that level when warranted by company and individual
performance.
- Long-term incentives are also targeted for the 65th percentile with
the opportunity to exceed or fall short of that level when MCN
performance warrants.
METHODOLOGY:
The methodology used to determine market competitiveness is an annual
survey of comparable companies as well as analysis of national and industry
executive compensation data. Three separate sets of comparable companies have
been identified to best match the three distinct business environments of MCN,
MichCon, and MCNIC.
- Performance, both Company and individual, drive total compensation
levels.
- The relationship of an executive's current salary in relation to
the specific marketplace data, along with an assessment of the
individual's performance against a set of objectives, determines
base pay increases.
- Annual incentives relate to attaining financial and individual
objectives.
- Long-term incentives relate to creating shareholder value.
- Variable ("incentive") compensation opportunities are set at levels to
put a significant percentage of executive compensation at risk relative
to Company performance, thus linking executive and shareholder interests.
At target payout projections, the short-term and long-term incentive
programs put more than 60% of the Chairman & CEO's total direct
compensation at-risk.
- Program design encourages and increases stock ownership by executives to
better align their interests with those of shareholders. Currently, any
final awards under the performance share aspect of the long-term
incentive plan are paid out 100% in MCN Common Stock or common stock
equivalents.
- All components of executive compensation programs are communicated to
participating employees annually to ensure they understand the
opportunity (and the risks) available based on performance, thus
increasing the motivational impact of the plans. The status of actual
performance relative to the targets is communicated throughout the year
to maintain focus on the targets.
18
<PAGE> 20
ROLE OF THE COMMITTEE:
The Committee makes recommendations to the Board of Directors on the
compensation levels of all officers of MCN, MCNIC, and MichCon and reviews the
aggregate recommendations for base pay, annual incentive awards, and long-term
incentive awards for the other senior executives of the Company. In addition,
the Committee has oversight responsibility for all the Company's compensation
programs to ensure that they are aligned with the strategic direction and
objectives of the Company.
In fulfilling these responsibilities, the Committee utilizes the Company's
internal compensation function and outside consultants to research and summarize
pay and incentive practices of comparable companies, industry averages, and
other benchmarks. This year the Committee, in addition to MCN's executive
compensation staff, utilized Hewitt Associates LLC to assist in this process.
SPECIFIC DISCUSSION ON THE COMPONENTS OF EXECUTIVE COMPENSATION:
SHORT-TERM INCENTIVES -- The MCN Energy Group Inc. Annual Performance Plan
provides for annual incentive payments to executives based on the accomplishment
of corporate goals established by the Committee prior to the start of the fiscal
year. The target award opportunity for the Chairman & CEO is 60% of base salary.
Target awards for all other executives range from 15% to 55%. The adjusted award
can be more or less than the target award depending on the achievement of the
corporate goals. An executive's individual final award may vary from 0% to 125%
of the adjusted award amount based on individual performance measured using a
combination of criteria including:
- the performance assessment measured by specific accomplishments,
- leadership abilities, and
- the executive's fiscal responsibility.
1998 Results -- For 1998 the goals were defined as Return on Equity (ROE),
calculated separately for MCN, MCNIC, and MichCon, and also included a factor
for growth in earnings per share.
MichCon's performance in 1998 resulted in a calculated award fund equal to
190% of the target payout. Based on 1998 results, there was no award fund for
MCN or MCNIC. Neither Mr. Glancy, nor any other employee at MCN or MCNIC,
received any bonus award. Mr. Dow, who moved to MCN from MichCon in late 1998,
received a bonus based on MichCon results.
1999 Plan Design -- As a result of the overall compensation review of the
market, the Committee, determined that the target awards for all executives,
including the Chairman & CEO of MCN at 60% of base salary, remain unchanged.
In order to better focus employees on the need to rebuild shareholder value
and to address retention concerns, the plan for 1999 for MCN and MCNIC was
completely revised. Employees at MCN & MCNIC were granted special performance
units (Units) that will be adjusted after one year based on total shareholder
return during 1999 versus the new peer group, as described in the long-term
incentive section of this report. Final payouts, which will occur in early 2000,
will be in the form of MCN common stock, with the final number of shares being
anywhere from 0% to 200% of the initial Units granted based on peer group
ranking. For executives, one-half of the final payout will occur in early 2000
with the second half paid in early 2001. The number of Units granted was
calculated using the existing base salary targets divided by an assumed share
price of $20. For Mr. Glancy this resulted in an initial grant of 20,250 Units.
For MichCon, the goal for 1999 continues to be based on ROE with an
additional 25% funding available if MCN finishes in the top half of the peer
group as measured by total shareholder return during 1999.
19
<PAGE> 21
LONG-TERM INCENTIVES -- The MCN Energy Group Inc. Long-Term Incentive Plan
is designed to provide a significant level of executives' total compensation in
a format that encourages them to remain in the employment of the corporation and
matches their interests with those of shareholders. The plan is an omnibus plan
that allows the corporation to issue a variety of long-term incentives. The
total economic value delivered to executives is designed to provide competitive
compensation, regardless of the long-term incentive methodology. The Committee
determined that the range of target awards as a percent of base salary should
remain basically unchanged from 1998 to 1999.
STOCK OPTIONS -- In 1999 the Committee determined that 50% of the long-term
economic value should be delivered using standard stock options. Specifically,
the number of options granted was determined based on a value of $3.83 per
option utilizing the Black-Scholes model. The options have a strike price of
$17.25, which was the market price of MCN common stock on February 24, 1999 (the
grant date). The options will vest ratably over three years following the date
of grant and are exercisable from the time of vesting until the 10th anniversary
of the grant. The remaining 50% of the long-term award was granted in the form
of performance shares subject to the same vesting and adjustment procedures used
in the past as described below.
The Committee's decision to utilize stock options was primarily based on
three reasons. First, stock options directly support the Corporation's goal of
rebuilding shareholder value since they have value only if the Company's stock
price increases. In contrast, performance shares focus on growing and preserving
shareholder value. Second, stock options are purely future-oriented, while the
performance share plan looks both back and forward three years. Third, most of
the Corporation's peer companies use two or more long-term incentive vehicles;
including stock options. The Committee is persuaded that substituting stock
options for a portion of the performance shares more closely aligns shareholder
and executive interest while furthering the Corporation's ability to retain and
attract needed talent.
Mr. Glancy received a grant of 100,000 stock options on February 24, 1999.
PERFORMANCE SHARES -- Performance shares are awarded to executives based on
total shareholder return covering a six-year period, as compared to a peer group
of companies. This period is divided into two parts. The first three years
determine the initial grant of performance shares. Participants receive dividend
equivalents on the performance shares during the subsequent three-year period.
The initial grant is adjusted upward or downward based upon performance over the
subsequent three-year period. The final award, if any, is paid 100% in MCN
Common Stock or may be deferred in common stock equivalents. One half of any
shares not deferred may be sold to satisfy tax-withholding obligations. The
remaining shares must be retained until the recipient meets or exceeds specified
stock ownership guidelines, retires, or terminates employment with the Company.
Both the initial grant and the final award are based on MCN's performance
ranking within its peer group using the following parameters:
<TABLE>
<CAPTION>
PERFORMANCE
RANKING PERCENT OF
(QUARTILE) AWARD
----------- ------------
<S> <C> <C>
First....................................... 125% - 200%
Second...................................... 75% - 150%
Third....................................... 25% - 100%
Fourth...................................... 0% - 50%
</TABLE>
Individual standard awards are based on the impact of the executive's
position to corporate success and to the size of the standard grant (at current
market value) compared to base salary to achieve an appropriate market-based
relationship between base pay and incentive opportunity. The target award
levels, which are expressed as a percentage of base salary, are reviewed
annually as part of the overall compensation survey analysis and were adjusted
in 1999 to reflect the issuance of stock options. As a result, the standard
award for the Chairman & CEO for 1999 was approximately 55% of base salary. In
1999 this equated to 28,500 performance shares (based on a value of
20
<PAGE> 22
$13.44 per performance unit as determined through the use of Hewitt's
proprietary model) for Mr. Glancy. Standard awards for other executives were
consistently calculated.
In 1999 the Committee adopted a new peer group to recognize MCN's new
portfolio of businesses without the E&P business. The new peer group will be
used as the basis for final awards of performance shares granted in 1999 and
subsequent years. The old peer group was used as the basis for issuing final
awards of performance shares initially granted in 1996 and will also be used for
the 1997 and 1998 grants. Total shareholder return for the new peer group was
75.1% for 1996 through 1998 versus 73.8% for the old peer group. The companies
currently included in the respective peer groups are identified below:
<TABLE>
<CAPTION>
NEW PEER GROUP OLD PEER GROUP
-------------- --------------
<S> <C>
CMS Energy Corporation Brooklyn Union (Keyspan Energy)
Columbia Energy Group CMS Energy Corporation
Consolidated Natural Gas Company Columbia Energy Group
DTE Energy Company Consolidated Natural Gas Company
El Paso Energy Corporation Enron Corporation
Enbridge Inc. Equitable Resources, Inc.
Equitable Resources, Inc. KN Energy, Inc.
KN Energy, Inc. National Fuel Gas Company
MDU Resources Group, Inc. ONEOK, Inc.
National Fuel Gas Company Questar Corporation
ONEOK, Inc. Sonat, Inc.
Peoples Energy Corporation Southwestern Energy Company
Questar Corporation The Coastal Corporation
Sempra Energy The Williams Companies, Inc.
Westcoast Energy, Inc. WICOR, Inc.
</TABLE>
For the three-year period 1996-1998, MCN's total return to shareholders was
(7.9)%, which placed the Company 16th in the new peer group. Using the program
guidelines above, and considering MCN's ranking, the need to motivate and retain
employees, and the significant discretion reserved for the Board when making a
final adjustment in 2002; the Committee granted 1999 performance shares at 50%
of the standard award level. For Mr. Glancy the Committee granted 14,250
performance shares. These units may as much as double or be forfeited completely
based on how MCN's total shareholder return compares to peer companies using the
above scale for the 1999-2001 period.
The performance shares initially granted in February 1996 vested in
February 1999. The Company finished 14th in the old peer group for the 1996-1998
period. Based on the Company's disappointing performance, the Committee
determined that the performance shares granted in 1996 should be completely
forfeited.
BASE SALARY -- The base salary of an executive is established when entering
the position based on the individual's experience in relation to external market
comparisons for that position. Annually, each executive's salary is reviewed
relative to the specific marketplace data and adjustments are made with
consideration of the individual's level of performance, scope and role within
the organization, and recent salary history.
For 1999, the Committee found that Mr. Glancy's base salary was slightly
below the 50th percentile of the diversified energy company market. The
Committee determined to leave Mr. Glancy's current base salary of $675,000
unchanged. Mr. Glancy's base salary was last increased on March 1, 1998. Using
similar methodology, the committee determined that 20 other officers of MCN,
21
<PAGE> 23
MichCon, and MCNIC should receive base salary increases averaging 7.8%. Five
other officers did not receive any increase in base salary. Overall, base
salaries were increased by a total of 5.7% for the 25 officers other than Mr.
Glancy.
TREATMENT OF INDIVIDUAL EXECUTIVE WITH COMPENSATION EXCEEDING $1 MILLION
ANNUALLY
In 1994, the Company adopted a plan requiring covered executives whose
total compensation in any calendar year exceeded the $1 million limitation on
deductibility set forth on Section 162(m) of the Internal Revenue Code of 1986
to defer the excess until he or she leaves the Company. This excess amount is
placed in an account in which the value is adjusted in terms of MCN Common Stock
at prevailing market prices. Executives receive dividend equivalents on 50% of
the common stock units deferred.
CONCLUSION
The Committee reviewed all executive compensation programs in light of
1998's disappointing results along with the Company's need to attract and retain
the management talent to rebuild shareholder value. The tie between Company
performance and executive compensation, coupled with the stock ownership
guidelines, clearly balanced these competing interests. The Committee believes
that MCN's executive compensation programs clearly align each executive's total
compensation potential with individual and Company performance as well as
shareholder returns, while providing a balanced compensation mix between base
pay and incentives that is based on market and performance factors. It is the
Committee's intent to ensure that this alignment continues into the future and
to review and refine the Company's pay and incentive programs to reflect this
objective.
THE COMPENSATION COMMITTEE
Thomas H. Jeffs II, Chairman
Roger Fridholm
Howard F. Sims
Bill M. Thompson
22
<PAGE> 24
PERFORMANCE GRAPH
COMPARISON OF $100 INVESTED IN MCN STOCK
SINCE DECEMBER 1993
WITH DIVIDENDS REINVESTED
GRAPH
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
OLD NEW
DATE MCN S&P 500 PEER GROUP PEER GROUP
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/93 $100.00 $100.00 $100.00 $100.00
- ----------------------------------------------------------------------------------------------------
12/94 $108.38 $101.32 $ 98.30 $ 91.28
- ----------------------------------------------------------------------------------------------------
12/95 $146.64 $139.34 $137.86 $122.02
- ----------------------------------------------------------------------------------------------------
12/96 $188.80 $171.32 $176.36 $149.88
- ----------------------------------------------------------------------------------------------------
12/97 $272.23 $228.46 $215.52 $197.75
- ----------------------------------------------------------------------------------------------------
12/98 $133.99 $293.74 $239.59 $213.65
- ----------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------
(1) The above graph compares the performance of MCN with that of a broad equity
market index, the S&P 500 Composite. Also included is the performance of the
old peer group of companies, which is used in connection with the payout for
the vesting of Performance units initially granted in 1996 through 1998. In
1999, the Company changed to the new peer group of companies to be used in
connection with its Performance Unit Plan to better reflect its current
business mix. (See the discussion of peer groups and award periods on page
20.)
(2) The returns for each company included in the peer group are weighted
according to the company's stock market capitalization at the beginning of
each month.
23
<PAGE> 25
PROPOSAL 2 -- SELECTION OF AUDITORS
The MCN Board has selected Deloitte & Touche LLP as independent auditors to
audit the financial statements of MCN and its subsidiaries for the year ending
December 31, 1999 and is submitting its choice for ratification by shareholders.
Deloitte & Touche LLP, or its predecessors, has served as MCN's auditors since
1988 and MichCon's auditors since 1986. A representative of Deloitte & Touche
LLP will be present at the Annual Meeting of Shareholders and will have an
opportunity to make a statement and respond to appropriate questions. If the
appointment is not ratified, the MCN Board will appoint another firm as the
independent auditors for the year ending December 31, 1999.
THE MCN BOARD OF DIRECTORS RECOMMENDS THE RATIFICATION OF DELOITTE & TOUCHE
LLP AS INDEPENDENT AUDITORS, TO AUDIT THE FINANCIAL STATEMENTS OF THE
CORPORATION AND ITS SUBSIDIARIES FOR THE YEAR ENDING DECEMBER 31, 1999.
OTHER PROXY MATTERS
VOTING
Michigan law and the Company's bylaws require the presence of a quorum for
the annual meeting, defined here as a majority of the votes entitled to be cast
at the meeting. Votes withheld from director nominees and abstentions will be
counted in determining whether a quorum has been reached.
Assuming a quorum has been reached, a determination must be made as to the
results of the vote on each matter submitted for shareholders' approval. The
director nominees must receive a plurality of the votes cast at the meeting;
therefore, abstentions will not affect the election of directors. The selection
of the Company's auditors must be approved by a majority of the votes cast at
the meeting; therefore, abstentions will not affect the selection of the
Company's auditors.
Under the rules of the New York Stock Exchange ("NYSE"), brokers who hold
shares on behalf of their customers (shares held in street name) have the
authority to vote on certain items when they have not received instructions from
beneficial owners. However, brokers are not authorized to vote on "non-routine"
matters if they do not receive instructions from beneficial owners ("Broker
Non-votes"). Under NYSE rules, all the matters presently before the meeting are
"routine" matters, therefore brokers holding shares in street name for their
customers may vote, in their discretion, on behalf of any customer who does not
furnish voting instructions. If a "non-routine" matter comes before the meeting,
Broker Non-votes will not be treated as votes cast in determining the outcome of
the vote.
COST OF SOLICITATION OF PROXIES
The cost of soliciting Proxies will be borne by MCN and the solicitation
will be made by use of the mails, personally or by telephone or telegraph by
officers, directors and regular employees of MCN and its subsidiaries who will
not be additionally compensated therefore. The firm of D.F. King & Co., Inc. has
been retained to assist with the solicitation of broker and nominee Proxies at a
cost of approximately $7,500. MCN will also reimburse banks, brokers, nominees
and other fiduciaries for reasonable expenses incurred by them in forwarding the
Proxy material to the beneficial owners of MCN Common Stock.
FILINGS UNDER SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, chief financial officer, chief accounting officer and
directors to file reports with the Securities and Exchange Commission ("SEC") of
ownership and changes in ownership of the Company's equity securities. James G.
Berges was elected a director of MCN on April 22, 1998. The
24
<PAGE> 26
initial report for Mr. Berges was filed nine days late due to an inadvertent
error by the Company's counsel.
SHAREHOLDER PROPOSALS
Shareholder proposals to be considered for inclusion in MCN's 2000 proxy
statement for presentation at the 2000 Annual Meeting of Shareholders must be
received by the Secretary of MCN at 500 Griswold Street, Detroit, Michigan
48226, no later than November 12, 1999. Other shareholder proposals concerning
business to be conducted at MCN's annual meeting must be received by the
Secretary of MCN at 500 Griswold Street, Detroit, Michigan 48226 not earlier
than January 28, 2000 nor later than February 27, 2000.
25
<PAGE> 27
500 Griswold Street
Detroit, Michigan 48226
1-800-548-4655
<PAGE> 28
500 Griswold Street
Detroit, Michigan 48226
/X/ PLEASE MARK YOUR 4769
VOTES AS IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL OF THE BOARD
OF DIRECTORS' NOMINEES AND "FOR" PROPOSAL 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of FOR WITHHELD FOR ALL
Directors EXCEPT 2.Ratification of FOR AGAINST ABSTAIN
/ / / / / / appointment of / / / / / /
Deloitte & Touche LLP as independent
auditor for the year ending
December 31, 1999
NOMINEES:
STEPHEN E. EWING, ROGER FRIDHOLM AND
HELEN O. PETRAUSKAS
IF YOU DO NOT WISH YOUR SHARES
VOTED "FOR" A PARTICULAR NOMINEE,
MARK THE "FOR ALL EXCEPT" BOX
AND STRIKE A LINE THROUGH THE
NOMINEE(S) NAME. YOUR SHARES
WILL BE VOTED FOR THE REMAINING 3. In their
NOMINEE(S). discretion the
Proxies are
authorized to vote
upon such other
business as may
properly come
before the meeting
or adjournments.
Mark box at right //
to request that an
Attendance Card to
the Annual Meeting
be sent to you.
Mark box at right //
if comments have
been noted on the
reverse side of
this card.
Please sign
exactly as name
appears hereon.
Joint owners
should each sign.
When signing as
attorney,
executor,
administrator,
trustee or
guardian, please
give full title
as such.
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 29
[MCN ENERGY GROUP INC. LOGO]
500 GRISWOLD
DETROIT, MICHIGAN 48226
Dear Shareholder:
Your vote is very important to the successful conduct of the company's business.
I strongly encourage you to exercise your right to vote your shares. We must
receive your vote prior to the Annual Meeting of Shareholders on April 28, 1999.
Please mark the boxes on the proxy card to indicate how you wish to vote your
shares. Then sign, date and detach the card and return it in the enclosed
postage-paid envelope. If you expect to attend the Annual Meeting, please mark
the appropriate box above and an Attendance Card will be mailed to you prior to
the meeting.
We look forward to meeting you if you are able to attend the Annual Meeting and
thank you for promptly returning your proxy card.
Sincerely,
/S/ ALFRED R. GLANCY III
Alfred R. Glancy III
Chairman, President
& Chief Executive Officer
[MCN ENERGY GROUP INC. LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MCN ENERGY GROUP
INC.
P
R
O
X
Y
I (we), have received the proxy soliciting material relative to the Annual
Meeting, and (i) appoint Alfred R. Glancy III, Howard L. Dow III and Daniel
L. Schiffer, or any one of them, as Proxies with full power of
substitution, for and in my (our) name, to vote all shares of Common Stock
of MCN Energy Group Inc. owned of record by me (us), and (ii) direct Putnam
Fiduciary Trust Company, Trustee under MCN Energy Group Inc.'s 401(k) plans
to vote in person or by proxy all shares of Common Stock of MCN Energy
Group Inc. allocated to my accounts under those Plans, and which I am
entitled to vote, in each case, on all matters which may come before the
1999 Annual Meeting of Shareholders to be held at the Company's
Headquarters in the Guardian Building, 32nd Floor Auditorium, 500 Griswold,
Detroit, Michigan on April 28, 1999 at 1:00 p.m. Eastern Daylight-Saving
Time, and any adjournments, unless otherwise specified herein. The Proxies,
in their discretion, are further authorized (i) to vote for the election of
a person to the Board of Directors if any nominee named in this proxy
becomes unable to serve or for good cause will not serve, (ii) to vote on
matters that the Board of Directors does not know a reasonable time before
making the proxy solicitation will be presented at the meeting, and (iii)
to vote on other matters that may properly come before the 1999 Annual
Meeting and any adjournments.
DO YOU HAVE ANY COMMENTS?
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
