<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10070
MCN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-2820658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 GRISWOLD STREET, DETROIT, MICHIGAN 48226
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code 313-256-5500
NO CHANGES
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the registrant's classes of common
stock, as of April 30, 1995:
Common Stock, par value $.01 per share: 65,828,408
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<PAGE> 2
INDEX TO FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
COVER............................................................................... i
INDEX............................................................................... ii
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements...................................................... 1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 5
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders....................... 15
Item 6. Exhibits and Reports on Form 8-K.......................................... 15
SIGNATURE........................................................................... 16
</TABLE>
ii
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------ ------------
1995 1994 1994
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost (which approximates market value)...... $ 12,764 $ 23,916 $ 11,547
Accounts receivable, less allowance for doubtful accounts of $21,217,
$29,630 and $16,101, respectively....................................... 268,034 326,134 214,158
Accrued unbilled revenues................................................. 60,323 83,932 83,053
Gas in inventory (Note 1)................................................. 59,277 15,579 131,649
Property taxes assessed applicable to future periods...................... 43,964 40,089 54,728
Gas receivable............................................................ 28,405 17,188 21,069
Other..................................................................... 26,717 23,320 27,306
---------- ---------- ------------
499,484 530,158 543,510
---------- ---------- ------------
DEFERRED CHARGES AND OTHER ASSETS
Investment in and advances to joint ventures.............................. 64,202 60,541 64,505
Deferred postretirement benefit cost...................................... 19,867 25,406 20,670
Other..................................................................... 141,536 83,703 123,501
---------- ---------- ------------
225,605 169,650 208,676
---------- ---------- ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Gas distribution.......................................................... 2,231,588 2,119,117 2,206,462
Exploration & production.................................................. 313,114 104,822 277,118
Gas gathering & processing................................................ 74,020 56,731 67,889
Computer operations services & other...................................... 53,158 39,848 53,356
---------- ---------- ------------
2,671,880 2,320,518 2,604,825
Less -- Accumulated depreciation and depletion............................ 1,139,898 1,070,418 1,112,387
---------- ---------- ------------
1,531,982 1,250,100 1,492,438
---------- ---------- ------------
$2,257,071 $1,949,908 $2,244,624
========= ========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................................... $ 114,162 $ 148,407 $ 142,647
Notes payable............................................................. 144,031 105,043 228,807
Current portion of long-term debt, capital lease obligations and
redeemable cumulative preferred stock................................... 6,671 6,009 7,319
Gas inventory equalization (Note 1)....................................... 67,808 109,155 --
Federal income, property and other taxes payable.......................... 86,541 96,394 86,972
Refunds payable to customers.............................................. 5,760 11,120 19,560
Customer deposits......................................................... 10,485 10,940 11,581
Other..................................................................... 61,291 73,490 67,809
---------- ---------- ------------
496,749 560,558 564,695
---------- ---------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes......................................... 101,698 72,706 93,326
Unamortized investment tax credit......................................... 38,213 40,101 38,684
Tax benefits amortizable to customers..................................... 113,344 128,279 115,067
Accrued postretirement benefit cost....................................... 9,290 11,179 26,060
Minority interest......................................................... 18,478 18,185 18,670
Other..................................................................... 115,577 70,993 88,490
---------- ---------- ------------
396,600 341,443 380,297
---------- ---------- ------------
LONG-TERM DEBT, including capital lease obligations......................... 601,081 514,661 685,519
---------- ---------- ------------
REDEEMABLE CUMULATIVE PREFERRED SECURITIES OF SUBSIDIARIES.................. 100,000 2,618 102,618
---------- ---------- ------------
COMMITMENTS AND CONTINGENCIES (Note 3)
COMMON SHAREHOLDERS' EQUITY
Common stock.............................................................. 658 591 598
Additional paid-in capital................................................ 434,476 320,907 331,571
Retained earnings......................................................... 228,137 210,014 179,862
Unearned compensation and ESOP benefit.................................... (630) (884) (536)
---------- ---------- ------------
662,641 530,628 511,495
---------- ---------- ------------
$2,257,071 $1,949,908 $2,244,624
========= ========= ============
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
1
<PAGE> 4
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- -------------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES...................................... $547,968 $656,757 $1,437,011 $1,577,063
-------- -------- ---------- ----------
OPERATING EXPENSES
Cost of gas........................................... 288,295 392,017 719,714 900,138
Operation and maintenance............................. 104,329 106,899 396,655 359,110
Depreciation, depletion and amortization.............. 29,013 24,052 108,581 85,435
Property and other taxes.............................. 18,822 20,235 63,575 65,580
-------- -------- ---------- ----------
Total operating expenses............................ 440,459 543,203 1,288,525 1,410,263
-------- -------- ---------- ----------
OPERATING INCOME........................................ 107,509 113,554 148,486 166,800
-------- -------- ---------- ----------
EQUITY IN EARNINGS OF JOINT VENTURES.................... 1,244 1,598 5,935 8,541
-------- -------- ---------- ----------
OTHER INCOME AND (DEDUCTIONS)
Interest income....................................... 1,813 1,877 6,429 6,079
Interest on long-term debt............................ (11,319) (8,139) (41,393) (29,905)
Other interest expense................................ (4,124) (2,420) (12,439) (10,260)
Dividends on preferred securities of subsidiaries..... (2,418) (136) (4,300) (666)
Minority interest..................................... (564) (761) (2,682) (3,298)
Other................................................. (1,081) (690) (6,032) (5,765)
-------- -------- ---------- ----------
Total other income and (deductions)................. (17,693) (10,269) (60,417) (43,815)
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES.............................. 91,060 104,883 94,004 131,526
INCOME TAX PROVISION.................................... 29,470 35,761 23,768 43,658
-------- -------- ---------- ----------
NET INCOME.............................................. $ 61,590 $ 69,122 $ 70,236 $ 87,868
========= ========= ========== ==========
EARNINGS PER SHARE...................................... $ 1.02 $ 1.17 $ 1.18 $ 1.49
========= ========= ========== ==========
AVERAGE COMMON SHARES OUTSTANDING....................... 60,595 59,088 59,766 58,824
========= ========= ========== ==========
DIVIDENDS DECLARED PER SHARE............................ $ .2225 $ .2150 $ .8750 $ .8500
========= ========= ========== ==========
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE -- Beginning of period.......................... $179,862 $153,589 $210,014 $172,128
ADD -- Net income....................................... 61,590 69,122 70,236 87,868
-------- -------- -------- --------
241,452 222,711 280,250 259,996
DEDUCT -- Cash dividends declared on common stock....... 13,315 12,697 52,110 49,979
Other......................................... -- -- 3 3
-------- -------- -------- --------
BALANCE -- End of period................................ $228,137 $210,014 $228,137 $210,014
========= ========= ========= =========
</TABLE>
The notes to the consolidated financial statements are an integral part of these
statements.
2
<PAGE> 5
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1994
-------- ---------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income........................................................................ $ 61,590 $ 69,122
Adjustments to reconcile net income to net cash provided from operating activities
Depreciation, depletion and amortization
Per statement of income....................................................... 29,013 24,052
Charged to other accounts..................................................... 1,865 1,586
Deferred income taxes and investment tax credit -- net.......................... 6,178 (2,781)
Equity in earnings of joint ventures, net of distributions...................... 92 (1,386)
Other........................................................................... 261 777
-------- ---------
98,999 91,370
Changes in assets and liabilities, exclusive of changes shown separately........ 52,347 126,318
-------- ---------
Net cash provided from operating activities................................... 151,346 217,688
-------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable -- net.............................................................. (86,055) (175,261)
Common stock dividends paid....................................................... (13,315) (12,697)
Issuance of common stock (Note 2)................................................. 102,964 3,885
Revolving credit facility -- net.................................................. (80,000) 21,100
Retirement of long-term debt and preferred stock.................................. (4,671) (4,252)
Other............................................................................. (671) (787)
-------- ---------
Net cash used for financing activities........................................ (81,748) (168,012)
-------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures.............................................................. (74,768) (38,651)
Investment in joint ventures...................................................... (1,560) (2,014)
Sale of investment in joint ventures.............................................. 7,628 --
Return of investment from joint ventures.......................................... -- 3,223
Other............................................................................. 319 (792)
-------- ---------
Net cash used for investing activities........................................ (68,381) (38,234)
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 1,217 11,442
CASH AND CASH EQUIVALENTS, JANUARY 1................................................ 11,547 12,474
-------- ---------
CASH AND CASH EQUIVALENTS, MARCH 31................................................. $ 12,764 $ 23,916
======== =========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Accounts receivable -- net........................................................ $(53,876) $ (89,200)
Accrued unbilled revenues......................................................... 22,730 17,395
Gas in inventory.................................................................. 72,372 29,984
Gas receivable.................................................................... (7,335) (6,229)
Accounts payable.................................................................. (28,485) 21,111
Deferred income taxes -- current.................................................. (1,880) (7,470)
Gas inventory equalization........................................................ 67,808 109,155
Federal income, property and other taxes payable.................................. (431) 32,614
Refunds payable to customers...................................................... (13,800) 326
Other current assets and liabilities.............................................. 3,792 12,776
Deferred assets and liabilities................................................... (8,548) 5,856
-------- ---------
$ 52,347 $ 126,318
======== =========
SUPPLEMENTAL DISCLOSURES
Interest paid, net of amounts capitalized......................................... $ 9,416 $ 6,860
======== =========
Federal income taxes received..................................................... $ (1,309) $ --
======== =========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
3
<PAGE> 6
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GAS IN INVENTORY
Inventory gas is priced on a last-in, first-out (LIFO) basis. In
anticipation that interim inventory reductions will be replaced prior to year
end, the cost of gas for net withdrawals from inventory is recorded at the
estimated average purchase rate for the calendar year. The excess of these
charges over the LIFO cost is credited to the gas inventory equalization
account. During interim periods when there are net injections to inventory, the
equalization account is reversed. Approximately 42.8 billion cubic feet (Bcf)
and 20.2 Bcf of gas was in inventory at March 31, 1995 and 1994, respectively.
2. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
In March 1995, MCN sold 5,750,000 shares of new common stock in a public
offering, generating net proceeds of approximately $99,000,000.
3. CONTINGENCIES
As described in MCN's 1994 Annual Report on Form 10-K, the Federal Energy
Regulatory Commission (FERC) issued an order in 1993 which required Panhandle
Eastern Pipe Line Company (Panhandle) to refund to MichCon the costs of certain
direct billings totaling $5.4 million plus interest of $4.4 million. During
1994, the FERC issued an order permitting Panhandle to bill MichCon $4.4 million
in interest. These costs were accrued in 1994. MichCon's request for rehearing
of the 1994 order was denied. MichCon has appealed the issue to the District of
Columbia Circuit Court. In March 1995, Panhandle sued MichCon in the United
States District Court seeking judgment for the $4.4 million. If MichCon is
ultimately unsuccessful in defeating Panhandle's claim, it is anticipated that
these costs will be recoverable through the GCR mechanism and therefore, an
asset has been recorded for their future recovery.
MCN is involved in certain legal and administrative proceedings before
various courts and governmental agencies concerning claims arising in the
ordinary course of business. Management cannot predict the final disposition of
such proceedings, but believes that adequate provision has been made for
probable losses. It is management's belief, after discussion with legal counsel,
that the ultimate resolution of those proceedings still pending will not have a
material adverse effect on MCN's financial statements.
4. GENERAL
There have been no changes in MCN's principal accounting policies from
those set forth in MCN's 1994 Annual Report on Form 10-K. Certain
reclassifications have been made to the prior year's financial statements to
conform with the 1995 presentation.
The unaudited information furnished herein, in the opinion of management,
reflects all adjustments (consisting of only recurring adjustments or accruals)
necessary for a fair presentation of the results of operations during the
periods.
Because of seasonal and other factors, revenues, expenses, net income and
earnings per share for the interim periods should not be construed as
representative of revenues, expenses, net income and earnings per share for all
or any part of the balance of the current year or succeeding periods.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
EARNINGS SUPPRESSED BY WARM WEATHER -- MCN reported earnings of $61.6
million ($1.02 per share) for the first quarter of 1995, a decrease of $7.5
million ($.15 per share) from the 1994 quarter. Earnings for the 1995
twelve-month period decreased $17.7 million ($.31 per share) from the
corresponding 1994 period. A summary of financial performance follows:
<TABLE>
<CAPTION>
QUARTER 12 MONTHS
--------------- ---------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
NET INCOME (in Millions)
Gas Distribution......................................... $56.7 $66.0 $51.6 $75.4
Diversified Services..................................... 4.9 3.1 18.6 12.5
----- ----- ----- -----
$61.6 $69.1 $70.2 $87.9
===== ===== ===== =====
EARNINGS PER SHARE
Gas Distribution......................................... $ .94 $1.12 $ .87 $1.28
Diversified Services..................................... .08 .05 .31 .21
----- ----- ----- -----
$1.02 $1.17 $1.18 $1.49
===== ===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
STRATEGIC DIRECTION -- MCN's strategic direction is to invest in a
portfolio of gas-related projects, including gas distribution, exploration and
production, gathering and processing systems, storage projects, cogeneration
facilities and other areas of expertise. MCN is continuing to pursue
opportunities in these areas through both its Gas Distribution and Diversified
Services businesses, as subsequently discussed.
GAS DISTRIBUTION
RESULTS REFLECT 13.7% WARMER WEATHER -- Earnings decreased $9.3 million and
$23.8 million for the 1995 quarter and twelve-month period, respectively, as
compared to the 1994 periods. The decrease in earnings for both periods was
primarily due to lower gas deliveries resulting from significantly warmer
weather from the comparable periods last year. Under normal weather conditions,
earnings for the 1995 quarter would have been $61.4 million ($1.02 per share)
compared to $59.0 million ($1.00 per share) for the 1994 quarter. Likewise,
weather adjusted earnings for the 1995 twelve-month period were $67.4 million
($1.13 per share) versus $69.3 million ($1.18 per share) in 1994.
<TABLE>
<CAPTION>
QUARTER 12 MONTHS
-------------- ---------------
1995 1994 1995 1994
----- ---- ------ ----
<S> <C> <C> <C> <C>
EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
Percentage Colder (Warmer) than Normal...................... (5.8)% 7.9% (11.0)% 3.5%
Increase (Decrease) from Normal in:
Gas Markets (Bcf)......................................... (5.2) 7.8 (17.4) 6.7
Net Income (Millions)..................................... $(4.7) $7.0 $(15.8) $6.1
Earnings Per Share........................................ $(.08) $.12 $ (.26) $.10
</TABLE>
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
GROSS MARGIN
GROSS MARGIN DOWN 9% -- Gas Distribution gross margin (operating revenues
less cost of gas) decreased $22.4 million for the 1995 quarter due to lower gas
deliveries resulting from the warmer weather. Gross margin for the twelve-month
period decreased $9.1 million also due to the effects of warmer weather offset
partially by an increase in gas sales rates, reflecting a general rate increase
of $15.7 million, effective January 1994.
<TABLE>
<CAPTION>
QUARTER 12 MONTHS
----------------- ---------------------
1995 1994 1995 1994
------ ------ -------- --------
<S> <C> <C> <C> <C>
GAS DISTRIBUTION OPERATIONS (in Millions)
Operating Revenues*.................................. $427.8 $540.8 $1,013.1 $1,210.8
Cost of Gas.......................................... 212.9 303.5 446.1 634.7
------ ------ -------- --------
Gross Margin....................................... 214.9 237.3 567.0 576.1
------ ------ -------- --------
Operating Expenses*
Operation & Maintenance............................ 78.4 87.5 308.1 289.2
Depreciation, Depletion & Amortization............. 22.3 21.3 85.8 77.1
Property & Other Taxes............................. 16.7 18.9 56.5 61.5
------ ------ -------- --------
117.4 127.7 450.4 427.8
------ ------ -------- --------
Operating Income..................................... 97.5 109.6 116.6 148.3
------ ------ -------- --------
Equity in Earnings of Joint Ventures................. .4 .8 1.6 3.8
------ ------ -------- --------
Other Income & (Deductions)*
Interest Income.................................... 1.0 1.4 3.8 4.7
Interest on Long-Term Debt......................... (8.3) (6.6) (29.7) (25.9)
Other Interest Expense............................. (3.0) (2.2) (9.9) (8.1)
Other.............................................. (.8) (.8) (5.3) (6.4)
------ ------ -------- --------
(11.1) (8.2) (41.1) (35.7)
------ ------ -------- --------
Income Before Income Taxes........................... 86.8 102.2 77.1 116.4
------ ------ -------- --------
Income Taxes......................................... 30.1 36.2 25.5 41.0
------ ------ -------- --------
Net Income........................................... $ 56.7 $ 66.0 $ 51.6 $ 75.4
====== ====== ======= =======
</TABLE>
*Includes intercompany transactions
Gas sales and end user transportation deliveries in total decreased in the
1995 quarter and twelve-month period by 16.8 Bcf and 23.2 Bcf, respectively, due
mainly to warmer weather. However, the effect of weather for the 1995
twelve-month period was partially offset by growth in the end user
transportation market.
<TABLE>
<CAPTION>
QUARTER 12 MONTHS
--------------- ---------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
GAS DISTRIBUTION MARKETS (in Bcf)
Gas Sales................................................... 90.5 106.0 188.9 218.4
End User Transportation..................................... 43.6 44.9 138.7 132.4
Intermediate Transportation*................................ 105.9 107.7 301.9 313.1
----- ----- ----- -----
240.0 258.6 629.5 663.9
===== ===== ===== =====
</TABLE>
*Includes intercompany volumes
Intermediate transportation deliveries decreased in the 1995 quarter and
twelve-month period primarily as the result of reduced volumes transported for
Canadian customers, partially offset by increased transportation for
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
Michigan gas producers and brokers. Profit margins on intermediate
transportation services are considerably less than margins on gas sales or for
end user transportation markets.
There has been a significant increase in Michigan Antrim gas production
over the past few years, resulting in a growing demand by gas producers and
brokers for intermediate transportation services. The increased demand has
resulted from time to time in capacity constraints on MichCon's northern
Michigan pipeline system. In March 1995, MichCon received approval from the
Michigan Public Service Commission (MPSC) to expand its transportation system.
The expansion project will require approximately $40 million for additional
pipeline and related facilities. Construction is planned to commence this summer
and to be completed by the fall of 1995. The expanded system, in conjunction
with existing facilities, is expected to transport approximately 135 Bcf of
Antrim gas annually, generating revenues of approximately $12 million per year.
COST OF GAS
Cost of gas is affected by variations in sales volumes and cost of gas
rates. Through the Gas Cost Recovery (GCR) mechanism, MichCon's rates are set to
recover 100% of prudently and reasonably incurred gas costs. Therefore,
significant fluctuations in total gas costs have little effect on gross margins
or earnings.
Cost of gas sold decreased in the 1995 quarter and twelve-month period due
to lower sales volumes resulting from the warmer weather as well as lower prices
paid for natural gas in the spot market. The decrease in market prices paid for
gas resulted in a decrease in the cost of gas sold per thousand cubic feet of
$.60 (20.2%) and $.65 (21.6%) in the 1995 quarter and twelve-month period,
respectively, from the comparable 1994 periods.
A majority of MichCon's interstate gas supply contracts are priced based on
natural gas spot indices. To mitigate price volatility associated with gas
purchases, MichCon has reserved the right to fix the prices it pays under some
of these contracts. In order to capture declining gas prices during 1994,
MichCon fixed the price on approximately 34 Bcf of gas in advance of the month
of purchase. As a result of a further decline in gas prices during 1994,
MichCon's cost of gas would have been approximately $10.0 million (1.9%) lower
in 1994 had it not fixed these prices.
MichCon filed its 1994 GCR reconciliation case with the MPSC in February
1995. In this case, the MPSC will decide whether MichCon's 1994 gas costs were
reasonable and prudent. To date, MichCon's 1994 gas purchase practices have not
been challenged. An order is expected at the end of 1995. MichCon believes that
it acted reasonably and prudently by fixing the gas prices based upon the
information available at the time.
As described in MCN's 1994 Annual Report on Form 10-K, the Federal Energy
Regulatory Commission (FERC) issued an order in 1993 which required Panhandle
Eastern Pipe Line Company (Panhandle) to refund to MichCon the costs of certain
direct billings totaling $5.4 million plus interest of $4.4 million. During
1994, the FERC issued an order permitting Panhandle to bill MichCon for $4.4
million in interest. These costs were accrued in 1994. MichCon's request for
rehearing of the 1994 order was denied. MichCon has appealed the issue to the
District of Columbia Circuit Court. In March 1995, Panhandle sued MichCon in the
United States (U.S.) District Court seeking judgment for the $4.4 million. If
MichCon is ultimately unsuccessful in defeating Panhandle's claim, it is
anticipated that these costs will be recoverable through the GCR mechanism and
therefore, an asset has been recorded for their future recovery.
OTHER OPERATING EXPENSES
Operation and maintenance expenses were lower in the 1995 quarter due to
lower uncollectible accounts resulting from warmer than normal weather and a
reduction in retirement benefit costs. Operation and maintenance expenses
increased for the 1995 twelve-month period due to higher postretirement benefit
costs
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
of $25.2 million being recognized as a result of the new accounting requirements
under Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." These costs are
being recovered in rates that became effective in January 1994. Management's
continuing efforts to reduce operating costs contributed to the decrease in
operation and maintenance expenses for the 1995 quarter and partially offset the
increase for the 1995 twelve-month period.
In March 1995, the U.S. House of Representatives voted to eliminate all
funding for the Low-Income Home Energy Assistance Program (LIHEAP).
Subsequently, the U.S Senate voted to restore the program's $1.3 billion
appropriation. Currently, delegates from the House and Senate are organizing to
meet to resolve the differences between the House and Senate packages. MichCon
continues its vigorous efforts to maintain this funding. LIHEAP funding
currently provides approximately $78 million in heating assistance to 385,000
Michigan households through the Department of Social Services, with
approximately 40% of the funds going to MichCon customers.
Depreciation and depletion increased for the 1995 quarter and twelve-month
period due mainly to higher plant balances, reflecting capital expenditures of
$289.1 million over the past two calendar years. The 1995 twelve-month period
also reflects higher depreciation rates that were implemented in January 1994.
Property and other taxes for the 1995 quarter and twelve-month period
reflect a decrease in Michigan single business taxes due primarily to lower
earnings. In addition, the 1995 periods also reflect lower property taxes due to
changes in Michigan legislation, partially offset by increased taxes due to
higher property balances.
EQUITY IN EARNINGS OF JOINT VENTURES
Earnings from joint ventures decreased for the 1995 quarter and
twelve-month period due primarily to higher operating and interest expenses
incurred by the Blue Lake gas storage venture. MCN's 50% interest in the Blue
Lake project is owned equally by Gas Distribution and Diversified Services.
MCN TO ACQUIRE AN INTEREST IN MISSOURI UTILITY -- During the 1995 quarter,
MCN agreed to acquire an approximately 50% interest in an entity formed to
construct, own and operate a natural gas transmission and distribution system
located in southern Missouri. The agreement is subject to MCN obtaining
assurance from the Securities and Exchange Commission (SEC) that the acquisition
is consistent with its exemption under the Public Utility Holding Company Act of
1935. Construction of the system, which began in March 1995, is expected to be
completed in early 1997 at a cost of approximately $40 million. The 475 mile
pipeline system will initially provide service to approximately 10,000
customers.
OTHER INCOME & DEDUCTIONS
The increase in other income and deductions for the 1995 quarter and
twelve-month period reflects additional interest expense relating to the
issuance of $80 million of first mortgage bonds in September 1994. In addition,
the interest on varying levels of pending customer refunds contributed to the
1995 twelve-month period increase.
INCOME TAXES
Income taxes decreased for the 1995 quarter and twelve-month period due to
reduced earnings and the favorable resolution of prior years' tax issues.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
DIVERSIFIED SERVICES
EARNINGS INCREASE 58% -- The Diversified Services group continued to make
an increasing contribution to MCN's earnings. Earnings increased $1.8 million
($.03 per share) for the current quarter and $6.1 million ($.10 per share) for
the twelve-month period. Higher earnings from both the gas services and the
computer operations services segments resulted in the improvement, as
subsequently discussed.
<TABLE>
<CAPTION>
QUARTER 12 MONTHS
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
DIVERSIFIED SERVICES OPERATIONS (in Millions)
Operating Revenues*
Gas Services.......................................... $104.0 $103.5 $357.9 $313.6
Computer Operations Services.......................... 25.7 20.1 93.8 78.3
------ ------ ------ ------
129.7 123.6 451.7 391.9
------ ------ ------ ------
Operating Expenses*
Gas Services.......................................... 93.4 98.7 325.0 294.5
Computer Operations Services.......................... 23.4 18.7 86.3 71.9
Corporate & Other..................................... 2.9 2.2 8.6 6.9
------ ------ ------ ------
119.7 119.6 419.9 373.3
------ ------ ------ ------
Operating Income (Loss)
Gas Services
Exploration & Production........................... 5.6 .4 18.9 2.5
Gas Marketing & Cogeneration....................... 3.3 2.2 6.3 7.5
Gas Gathering & Processing......................... 1.7 2.2 7.7 9.1
------ ------ ------ ------
10.6 4.8 32.9 19.1
Computer Operations Services.......................... 2.3 1.4 7.5 6.4
Corporate & Other..................................... (2.9) (2.2) (8.6) (6.9)
------ ------ ------ ------
10.0 4.0 31.8 18.6
------ ------ ------ ------
Equity in Earnings of Joint Ventures.................... .8 .8 4.3 4.7
------ ------ ------ ------
Other Income & (Deductions)*
Interest Income....................................... .3 .5 .4 1.6
Interest Expense...................................... (3.7) (1.8) (12.0) (6.3)
Minority Interest..................................... (.6) (.8) (2.7) (3.3)
Dividends on preferred securities of subsidiary....... (2.3) -- (3.8) --
Other................................................. (.3) -- (1.3) (.1)
------ ------ ------ ------
(6.6) (2.1) (19.4) (8.1)
------ ------ ------ ------
Income Before Income Taxes.............................. 4.2 2.7 16.7 15.2
------ ------ ------ ------
Income Taxes
Current and Deferred Provision........................ 1.6 1.0 6.9 6.4
Federal Gas Production Tax Credits.................... (2.3) (1.4) (8.8) (3.7)
------ ------ ------ ------
(.7) (.4) (1.9) 2.7
------ ------ ------ ------
Net Income.............................................. $ 4.9 $ 3.1 $ 18.6 $ 12.5
====== ====== ====== ======
</TABLE>
*Includes intercompany transactions
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
GAS SERVICES
OPERATING INCOME INCREASES OVER 120% -- Gas services increase in operating
income of $5.8 million for the 1995 quarter and $13.8 million for the 1995
twelve-month period primarily reflects earnings from gas exploration &
production operations. The increase for the 1995 quarter also reflects improved
results in the gas marketing & cogeneration business.
<TABLE>
<CAPTION>
QUARTER 12 MONTHS
------------- ---------------
1995 1994 1995 1994
---- ---- ----- -----
<S> <C> <C> <C> <C>
DIVERSIFIED SERVICES GAS STATISTICS (in Bcf)
Gas Sales*
Gas Marketing & Cogeneration................................ 43.5 38.5 147.3 122.2
Exploration & Production**.................................. 3.3 -- 10.7 .1
Transportation................................................ 7.2 5.7 22.1 21.8
---- ---- ----- -----
54.0 44.2 180.1 144.1
==== ==== ===== =====
Company Gas Production........................................ 6.4 1.5 21.4 3.8
==== ==== ===== =====
Exchange Gas Flows............................................ 12.0 10.4 24.6 26.9
==== ==== ===== =====
Gas Processed................................................. 3.2 -- 5.2 --
==== ==== ===== =====
</TABLE>
* Includes intercompany volumes
**Represents gas sales made directly to third parties by E&P operations. Other
E&P production is sold to affiliated companies for marketing.
Exploration & production (E&P) operating income increased $5.2 million and
$16.4 million for the 1995 quarter and twelve-month period, respectively. The
results reflect a significantly higher level of gas produced due to the start-up
of production in early 1993 as well as production from properties that were
acquired in mid-1994 and the development of other new projects during 1994 and
1995. Additionally, E&P operations have increased the earnings of the
Diversified Services group through the generation of increased federal gas
production tax credits.
E&P operating results were also impacted by lower sales rates and lower
unit operating costs being achieved as production volumes have increased. The
lower sales prices were mitigated by risk management strategies, as subsequently
discussed.
Gas marketing & cogeneration operating income for the 1995 quarter
increased $1.1 million due to more favorable margins on a higher level of gas
sales. As discussed below, favorable margins were maintained in part due to the
use of natural gas hedging contracts. Profit margins were also affected by
additional revenues earned from providing gas peaking services and increased
volumes related to exchange gas contracts. Typically under exchange contracts,
MCN's gas marketing business delivers gas to customers during periods of peak
demand and takes redelivery of the gas at an off-peak time.
Operating income for the 1995 twelve-month period decreased $1.2 million
despite an increase in gas sales of 25.1 Bcf. The decrease reflects higher costs
associated with increased storage and transportation capacity. The higher
storage and transportation costs were incurred to support further anticipated
increases in the level of gas sales in future periods.
MCN's gas marketing & cogeneration business has several long-term sales
contracts in place under which it will sell annual volumes ranging from 10 Bcf
to 55 Bcf through 2014.
RISK MANAGEMENT STRATEGY -- MCN primarily manages price risk through the
maintenance of a portfolio of gas supply and gas sale agreements. MCN uses
natural gas futures, options and swap contracts to manage
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
net open positions that give rise to price risk. As of March 31, 1994, net open
positions over the next ten years are minimal and therefore the price risk has
been largely hedged.
Gas gathering & processing operating income decreased by $.5 million and
$1.4 million for the 1995 quarter and twelve-month period, respectively,
reflecting a lower average transportation rate. The decrease was partially
offset by revenues from volumes transported through new pipeline extensions. The
1995 periods were also favorably affected by income from new gas processing
plants that reduce carbon dioxide levels in Michigan Antrim gas.
In response to an increase in Michigan Antrim gas production, MCN has
partnered with others to meet a growing demand for transportation and processing
services. MCN will continue to both construct and acquire pipeline extensions
and processing plants which interconnect with its existing Gas Distribution and
Diversified Services pipeline network.
COMPUTER OPERATIONS SERVICES
OPERATING INCOME INCREASES OVER 60% -- Computer operations services'
operating income increased $.9 million for the current quarter and $1.1 million
for the twelve-month period. The improvements reflect higher operating revenues
from new business added throughout 1994 and from increased services to existing
customers.
CORPORATE & OTHER
Both the 1995 quarter and twelve-month period reflect increased expenses
associated with the development of new projects.
EQUITY IN EARNINGS OF JOINT VENTURES
Diversified Services earnings from joint ventures decreased $.4 million in
the 1995 twelve-month period. The decrease reflects lower earnings from the Blue
Lake gas storage venture due to higher operating and interest expenses. Earnings
from the gas marketing and gas processing joint ventures have been impacted by
the sale of a Canadian gas brokering partnership and two gas processing
facilities in the 1995 quarter. The loss in other joint ventures for the 1994
twelve-month period includes a reserve for the write-off of assets related to
the natural gas torch business.
<TABLE>
<CAPTION>
QUARTER 12 MONTHS
--------------- -----------------
1995 1994 1995 1994
---- ---- ----- -----
<S> <C> <C> <C> <C>
EQUITY IN EARNINGS OF JOINT VENTURES (in Millions)
Gas Storage........................................... $1.2 $1.0 $ 4.4 $ 5.4
Gas Marketing & Cogeneration.......................... (.4) (.5) (1.2) (1.4)
Gas Gathering & Processing............................ .1 .5 1.3 1.9
Other................................................. (.1) (.2) (.2) (1.2)
---- ---- ----- -----
$ .8 $ .8 $ 4.3 $ 4.7
==== ==== ===== =====
</TABLE>
In 1993, MCN acquired a 40% interest in a partnership which was formed to
own and operate a $120 million, 42 Bcf underground natural gas storage field in
southeastern Michigan. In March 1995, MCN acquired the remaining 60% interest in
the partnership, giving MCN 100% control over the development of the storage
field. However, it is MCN's intention to sell a 50% interest in the project to a
third party. The development of the storage field is awaiting the negotiation of
long-term storage agreements with potential customers.
11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
OTHER INCOME & DEDUCTIONS
The 1995 quarter and twelve-month period reflect higher interest costs on
long-term debt due to increased borrowings, at higher interest rates, required
to finance capital investments in the Diversified Services operations. Other
income and deductions for the 1995 periods also include dividends on $100
million of preferred securities of a subsidiary which were issued in November
1994.
INCOME TAXES
Income taxes for the 1995 quarter and twelve-month period were favorably
impacted by increased federal gas production tax credits related to E&P
projects. This impact was offset partially by taxes on improved earnings in all
1995 periods.
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MCN's cash flow from operating activities totaled $151.3 million for the
first quarter of 1995, decreasing $66.4 million from the comparable 1994
quarter. The decrease was due primarily to higher working capital requirements.
<TABLE>
<CAPTION>
QUARTER
------------------
1995 1994
------ ------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES (in Millions)
Gas Distribution....................................................... $ 87.7 $ 86.7
Diversified Services................................................... 11.3 4.7
------ ------
99.0 91.4
Changes in Assets and Liabilities...................................... 52.3 126.3
------ ------
Cash Flow from Operating Activities.................................... $151.3 $217.7
====== ======
</TABLE>
FINANCING ACTIVITIES
MCN sold 5,750,000 shares of new common stock in a public offering during
the 1995 first quarter, generating net proceeds of approximately $99 million.
Proceeds from the common stock issuance were used to fund capital expenditures,
repay loans under bank credit agreements and for general corporate purposes.
MCN also issues new shares of common stock pursuant to its Dividend
Reinvestment and Stock Purchase Plan and various employee benefit plans. During
1995, MCN anticipates the issuance of new shares of common stock pursuant to
these plans, generating approximately $16 million. During the 1995 first
quarter, MCN issued approximately 226,000 shares, generating $4.0 million.
Gas Distribution
Cash and cash equivalents normally increase and short-term debt is reduced
in the first part of each year as gas inventories are depleted and funds are
received from winter heating sales. During the first quarter of 1995, MichCon
repaid $88.8 million of short-term debt, including commercial paper. During the
latter part of the year, cash and cash equivalents decrease as funds are used to
finance increases in gas inventories and customer accounts receivable. To meet
its seasonal short-term borrowing needs, MichCon normally issues commercial
paper which is backed by credit lines with several banks. MichCon has
established credit lines of up to $109 million through August 1995. Commercial
paper of $54.7 million was outstanding as of March 31, 1995 under these lines.
MichCon's commercial paper is currently rated "A-1" or its equivalent by the
major rating agencies.
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
In 1994, MichCon began a Trust Demand Note program which allows MichCon to
borrow up to $25 million. As of March 31, 1995, borrowings of $25 million were
outstanding under this program, but were repaid in April 1995.
Cash requirements for capital investments are estimated to be approximately
$250 million for 1995. In anticipation of future permanent capital requirements,
MichCon filed with and received approval from the MPSC for the authority to
issue and sell securities and enter into additional long-term financing
arrangements of up to $150 million. In May 1995, MichCon filed a registration
statement with the SEC for the issuance of up to $150 million of first mortgage
bonds. MichCon's current shelf registrations allow for the issuance of up to an
additional $30 million of first mortgage bonds. During the second quarter of
1995, MichCon anticipates issuing approximately $70 million of first mortgage
bonds under these shelf registration statements. MichCon's capital requirements
and general financial market conditions will affect the timing and amount of
future debt issuances. MichCon's capitalization objective is to maintain a ratio
of approximately 50% debt to 50% equity. Future long-term debt offerings are
expected to carry MichCon's current debt rating of "A."
Construction of the $40 million transmission and distribution system
located in southern Missouri is expected to be funded through $25 million of
construction financing and $15 million of partner contributions.
Diversified Services
In anticipation of future permanent capital requirements, MCN Investment
and MCN plan to file a joint shelf registration with the SEC during the second
quarter of 1995 for the issuance of up to $200 million of debt securities. MCN
Investment's capital requirements and general market conditions will affect the
timing and amount of future debt issuances.
MCN Investment also maintains $320 million of credit lines to finance
capital investments and working capital requirements of its gas marketing
operations. During the second quarter of 1995, MCN Investment plans to initiate
a $400 million commercial paper program. MCN Investment intends to increase its
credit lines to allow for all commercial paper issuances to be backed by such
lines.
INVESTING ACTIVITIES
CAPITAL INVESTMENTS IN 1995 TO EXCEED $600 MILLION -- Capital investments
increased $47.0 million in the first quarter of 1995 primarily due to higher
capital expenditures for Gas Distribution investments and Diversified Services
E&P and joint venture cogeneration projects. Gas Distribution capital
expenditures included construction of distribution lines to reach communities
not previously served by MichCon.
<TABLE>
<CAPTION>
QUARTER
----------------
1995 1994
----- -----
<S> <C> <C>
CAPITAL INVESTMENTS (in Millions)
Consolidated Capital Expenditures:
Gas Distribution......................................................... $28.4 $20.4
Diversified Services..................................................... 47.8 18.3
----- -----
76.2 38.7
----- -----
MCN's Share of Joint Venture Capital Expenditures:
Gas Cogeneration......................................................... 8.9 --
Other.................................................................... 1.7 1.1
----- -----
10.6 1.1
----- -----
Minority Partners' Share of Consolidated Capital Expenditures.............. .1 .1
----- -----
Total Capital Investments.................................................. $86.7 $39.7
===== =====
</TABLE>
13
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--(CONTINUED)
MCN's strategic direction is to significantly grow MCN by investing in a
portfolio of gas-related projects. Accordingly, MCN's capital investments are
anticipated to range from $300 to $650 million annually over the next several
years. For 1995, MCN anticipates investing approximately $250 million in Gas
Distribution to add new customers and develop new gas transportation markets.
Another $400 million is expected to be spent in Diversified Services, of which
$200 million will be in exploration and production, $40 million to develop the
Michigan Power cogeneration facility and the remainder primarily in gas storage
and gathering pipeline projects.
The proposed level of investments in 1995 and future years will increase
capital requirements materially in excess of internally generated funds and
require the issuance of additional debt and equity securities. MCN's
capitalization objective is to maintain a ratio of approximately 50% debt to 50%
equity, excluding nonrecourse project debt. Including nonrecourse debt, MCN has
targeted a ratio of approximately 60% debt to 40% equity. It is management's
opinion that MCN and its subsidiaries will have sufficient capital resources,
both internal and external, to meet anticipated capital requirements.
14
<PAGE> 17
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
MCN held its Annual Meeting of Shareholders on April 27, 1995. As of
February 27, 1995, the record date for determination of shareholders entitled to
vote at the Annual Meeting, there were 59,986,300 shares outstanding and
entitled to vote. Of these shares, 49,708,735, or 82.9%, were present by proxy,
and 10,277,565 shares were not voted.
At the Annual Meeting, shareholders voted:
1) To elect the following Directors to serve for three year terms:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES WITHHOLDING
DIRECTOR CONSENTING FOR CONSENT
------------------------------------------ ---------------- ----------------
<S> <C> <C>
Thomas H. Jeffs II........................ 49,168,196 540,539
Arthur L. Johnson......................... 49,101,414 607,321
Dale A. Johnson........................... 49,175,774 532,961
William K. McCrackin...................... 49,024,331 684,404
</TABLE>
2) To approve an amendment to the MCN Corporation Stock Incentive Plan
to increase the number of shares of MCN Common Stock, par value $.01 per
share, authorized to be issued under the plan, with 42,913,386 shares voted
for ratification of the amendment, 5,877,630 shares voted against, and
abstentions of 917,719 shares.
3) To appoint Deloitte & Touche LLP as independent auditors for the
year ending December 31, 1995, with 49,207,949 shares voted for
ratification of the appointment, 169,835 shares voted against, and
abstentions of 330,951 shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------
<S> <C>
10-1 MCN Corporation Stock Incentive Plan, as amended.
27-1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
MCN filed a report on Form 8-K dated March 14, 1995, under Item 5, with
respect to the offering of its Common Stock (par value $.01 per share) in which
the Form of Purchase Agreement was filed as an Exhibit.
MCN filed an additional report on Form 8-K dated March 14, 1995, under Item
5, in connection with gas purchases during 1994 of Michigan Consolidated Gas
Company, a wholly owned subsidiary of MCN.
15
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MCN CORPORATION
Date: May 9, 1995 By: /s/ Patrick Zurlinden
--------------------------------------
Patrick Zurlinden
Vice President, Controller
and Chief Accounting Officer
16
<PAGE> 1
EXHIBIT 10.1
MCN CORPORATION
STOCK INCENTIVE PLAN
(as amended effective April 27, 1995)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purpose
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Administration
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Shares Subject to the Plan
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Eligibility
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Stock Options
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Restricted Stock Awards
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Performance Unit Awards
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General Provisions
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Amendment and Termination
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Miscellaneous
</TABLE>
<PAGE> 3
MCN CORPORATION
STOCK INCENTIVE PLAN
(as amended effective April 27, 1995)
ARTICLE I
PURPOSE
The purpose of the MCN Corporation Stock Incentive Plan (the "Plan") is to
promote the success of MCN Corporation (the "Corporation" or "MCN") by
providing a method whereby eligible employees of the Corporation and its
affiliated companies may be awarded additional remuneration for services
rendered and encouraged to invest in the Common Stock of the Corporation,
thereby increasing their proprietary interest in the Corporation's business,
encouraging them to remain in the employ of the Corporation or its affiliated
companies, and increasing their personal interest in the continued success and
progress of the Corporation.
ARTICLE II
DEFINITIONS
2.1 The following terms have the meaning described below when used in the
Plan:
(a) "Award" shall refer to the Restricted Stock Award granted under
Article VII and except for purposes of Article VII, a Performance
Unit Award granted under Article VIII.
(b) "Board of Directors" shall mean the Board of Directors of the
Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(d) "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan pursuant to Article III.
(e) "Common Stock" shall mean common stock, par value $.01 of the
Corporation.
(f) "Corporation" shall mean MCN Corporation or any successor to it
in ownership of all or substantially all of its assets.
(g) "Earlier Plan" shall mean the MCN Stock Option Plan.
<PAGE> 4
(h) "Incentive Stock Option" shall mean a stock option granted under
Article VI which is intended to meet the requirements of Section
422A of the Code.
(i) "Nonqualified Stock Option" shall mean a stock option granted
under Article VI which is not intended to be an Incentive Stock
Option.
(j) "Option" shall mean an Incentive or Non-qualified Stock Option.
(k) "Participant" shall mean an eligible employee who has been
granted an option or Award.
(l) "Participating Company" shall mean the Corporation or any
subsidiary or other affiliated entity (whether or not
incorporated) designated by the Board of Directors.
(m) "Restricted Stock Award" shall mean an award of common stock
under Article VII hereof.
(n) "Stock Appreciation Right" shall mean a right granted under
Section 6.5.
(o) "Performance Unit Award" shall mean an award granted under
Article VIII.
(p) "Vesting Date" shall mean the date upon which restrictions or
limitations on Options or Awards lapse.
ARTICLE III
ADMINISTRATION
3.1 (a) The Board of Directors of the Corporation shall appoint not less
than three Directors or disinterested persons to the Committee
which shall administer the Plan. No individual shall become a
member of a Committee if he or she shall have been eligible to
receive an Option or Award under the Plan (or a predecessor of
any part of the Plan) at any time during the twelve month period
prior to his or her becoming a member and no member of the
Committee shall be eligible to receive an option, Stock
Appreciation Right or Award granted by such Committee under the
Plan while a member of that Committee. The Committee shall have
full power and authority subject to such orders or resolutions
not inconsistent with the provisions of the Plan as may from time
to time be issued or adopted by the Board of Directors to grant
to eligible persons options and Stock Appreciation Rights
2
<PAGE> 5
under Article VI of the Plan, to grant Restricted Stock Awards
under Article VII of the Plan, to grant Performance Unit Awards
under Article VIII of the Plan, to interpret the provisions of
the Plan and any agreements relating to Options, Stock
Appreciation Rights and Awards granted under the Plan and to
supervise the administration of the Plan, all subject to
ratification or modification by the Board of Directors, a
majority of which directors acting in any such matter shall be
disinterested persons.
(b) All decisions made by the Committee pursuant to the provisions of
the Plan and related orders or resolutions of the Board of
Directors shall be final, conclusive and binding on all persons,
including the Corporation, stockholders, employees and
beneficiaries of employees.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.1(a) Subject to adjustment pursuant to Section 4.1(b), the aggregate
number of shares of Common Stock with respect to which Options,
Stock Appreciation Rights, Awards and Performance Units may be
granted under the Plan in any calendar year shall not exceed one
percent of the shares of Common Stock outstanding in any year.
The one-percent limitation shall be calculated by dividing the
aggregate number of shares of Common Stock with respect to which
Options, Stock Appreciation Rights, Awards and Performance Units
are granted under the Plan in any calendar year by the total
number of shares outstanding on the first day during the calendar
year on which Options, Stock Appreciation Rights, Awards, and
Performance Units are granted. If the number of shares granted
with respect to Options, Stock Appreciation Rights, Awards, or
Performance Units is not determinable, then the limitation shall
be calculated using the largest number of shares expected to be
issued. Provided, however, that the number of Shares, Options,
Stock Appreciation Rights, Awards, or Performance Units that may
issued under this Plan subsequent to February 27, 1995 may not
exceed 5% of the number of shares issued and outstanding on that
date.
3
<PAGE> 6
Shares of Common Stock may be made available from the authorized
but unissued shares of the Corporation or from shares reacquired
by the Corporation including shares purchased in the open market.
If an Option, Restricted Stock Award, or Performance Unit Award
granted under the Plan shall expire or terminate for any reason
during a calendar year, the shares subject to, but not delivered,
under such option or Award shall be available for other options
and Awards to the same employee or other employees.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in
corporate structure affecting the Common Stock, the Committee
shall make the appropriate adjustment in the aggregate number of
shares which may be delivered under the Plan and the number of
shares subject to outstanding options, Stock Appreciation Rights
and Awards to reflect such action. If any such adjustment shall
result in a fractional share, such fraction shall be disregarded.
ARTICLE V
ELIGIBILITY
5.1 Key employees of the Corporation and other Participating Companies, as
shall be determined by the Committee, are eligible to participate in the
Plan.
ARTICLE VI
STOCK OPTIONS
6.1 Subject to the limitations of the Plan, the Committee shall, after such
consultation with and consideration of the recommendations of management
as the Committee considers desirable, select from eligible employees
those to be granted options and determine the time when each option
shall be granted and the number of shares subject to each option, and
shall select the optionees to receive Stock Appreciation Rights and the
Options on which such rights shall relate. options may be either
Incentive Stock Options or
4
<PAGE> 7
Nonqualified Stock Options, and more than one option and Stock
Appreciation Right may be granted to the same person. Stock
Appreciation Rights may be granted to holders of any unexpired options
granted under the Plan or the Earlier Plan.
6.2 Option Agreements. Each Option under the Plan shall be evidenced by an
option agreement which shall be signed by an officer of the Corporation
and the optionee and shall contain such provisions as may be approved by
the Committee. Any such option agreement may be supplemented and
amended from time to time as approved by the Committee, provided that
the terms of such option agreement after being amended or supplemented
conform to the terms of the Plan. Any option agreement for Nonqualified
Stock options shall state that the Nonqualified Stock Options granted
thereunder shall not be treated as Incentive Stock Options. Each Stock
Appreciation Right shall be evidenced by the option agreement for the
option to which it relates. In the case of any such right relating to a
previously granted option, the option agreement shall be supplemented to
evidence such right.
6.3 Option Price. The price at which shares may be purchased upon exercise
of a particular Incentive Stock option shall be not less than one
hundred percent (100%) of the fair market value of such shares on the
date such Option is granted as determined in accordance with procedures
to be established by the Committee.
6.4 Exercise of Options.
(a) Subject to the provisions of the Plan with respect to death,
disability, retirement and termination of employment, the period
during which each Option may be exercised shall be fixed by the
Committee at the time such Option is granted but such period in
no event shall expire later than ten years from the date the
Option is granted.
(b) Except as permitted by Sections 6.7 and 9.1, each option may be
exercised only after one year of continued employment by the
Corporation or any of its affiliated companies and only during
the continuance of the optionee's employment with the Company or
any of its affiliated companies. Subject to the foregoing
limitations and the terms and conditions of the option agreement
and unless canceled prior to exercise, each Option shall be
exercisable in whole or in part in installments at
5
<PAGE> 8
such time or times as the Committee may prescribe and specify in
the applicable option agreement.
(c) No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price therefor is
received by the Corporation. Such payment shall be made in cash
or, in the discretion of the Committee, through the delivery of
shares of Common Stock of the corporation with a value equal to
the total option price, or a combination of cash and shares, or
by other means which the Committee determines are consistent with
the Plan's purpose and applicable law, provided that for
Incentive Stock Options such other means are established on or
before the date such Option was granted. Any shares so delivered
shall be valued at their fair market value on the trading day
preceding the exercise date determined as provided in Section
6.3. Payment of the option price may be made by borrowing from
the Corporation pursuant to the terms and conditions provided for
in the MCN Stock Option Plan previously approved by shareholders.
No optionee or legal representative, legatee of distributee of
any optionee shall be deemed to be a holder of any shares subject
to any Option prior to the issuance of such shares upon exercise
of such Option or any related Stock Appreciation Right.
6.5 Stock Appreciation Rights.
(a) Stock Appreciation Rights may be granted to such optionees
holding Options granted under the Plan or the Earlier Plan as the
Committee may select and upon such terms and conditions as the
Committee may prescribe. Each Stock Appreciation Right shall
relate to a specific option granted and may be granted
concurrently with the Option to which it relates or at any time
prior to the exercise, expiration or termination of such Option.
A Stock Appreciation Right shall entitle the optionee, subject to
the provisions of the Plan and the related option agreement, to
receive from the Corporation an amount not more than the excess
of the fair market value on the exercise date of the number of
shares for which the Stock Appreciation Right is exercised over
the option price for shares under the related Option. For this
purpose such fair market value shall be determined as provided in
Section 6.3.
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<PAGE> 9
(b) A Stock Appreciation Right shall be exercisable on such dates or
during such periods as may be determined by the Committee from
time to time, provided that the Committee may for administrative
convenience, determine that for any Stock Appreciation Right
relating to a Nonqualified Stock Option which right can only be
exercised during a limited period of time in order to satisfy
rules imposed by the Securities and Exchange Commission, the
exercise of any such right for cash during such limited period
shall be deemed to occur for all purposes hereunder on the day
during such limited period on which the fair market value of the
Common Stock determined as provided in Section 6.3, is the
highest and provided, further, that no Stock Appreciation Right
shall be exercisable at a time when the related Option could not
be exercised nor may it be exercised with respect to a number of
shares in excess of the number for which such Option could then
be exercised. Any such determination by the Committee may be
changed by the Committee from time to time and may govern the
exercise of Stock Appreciation Rights granted prior to such
determination as well as Stock Appreciation Rights thereafter
granted.
(c) A stock Appreciation Right may be exercised only upon surrender
of the related Option by the optionee which shall be terminated
to the extent of the number of shares for which the Stock
Appreciation Right is exercised. Shares covered by such a
terminated Option or portion thereof granted under the Plan shall
be available for other Options or Awards under the Plan.
(d) The amount payable by the Corporation upon exercise of a Stock
Appreciation Right may be paid in cash, in shares (valued at
their fair market value on the exercise date determined as
provided in Section 6.3) or in any combination thereof as the
Committee shall determine from time to time. No fractional
shares shall be issued and the optionee shall receive cash in
lieu thereof.
(e) The Committee may impose any other conditions upon the exercise
of a Stock Appreciation Right, which may include a condition that
the Stock Appreciation Right may be exercised only in accordance
with rules and regulations adopted by the Committee from time to
time. Such rules and regulations may govern the right
7
<PAGE> 10
to exercise Stock Appreciation Rights granted prior to the
adoption or amendment of such rules and regulations as well as
Stock Appreciation Rights granted thereafter.
(f) The Committee may at any time amend or suspend any Stock
Appreciation Right theretofore granted under the Plan, provided
that the terms of any Stock Appreciation Right after any
amendment shall conform to the provisions of the Plan. A Stock
Appreciation Right shall terminate upon the termination or
expiration of the related Option.
6.6 Transferability of Options and Stock Appreciation Rights. An Option
granted under the Plan may not be transferred except by will or the laws
of descent and distribution and, during the lifetime of the person to
whom granted, may be exercised only by such person. A Stock
Appreciation Right may not be transferred to anyone and my be exercised
only by the optionee to whom it was granted.
6.7 Death, Disability, Retirement and Termination of Employment. Subject to
the condition that no Option may be exercised in whole or in part after
the expiration of the option period specified in the applicable option
agreement and subject to the Committee's right to cancel any Option:
(a) Upon the death of any optionee while employed or within the
three-year period referred to in clause (b) below, the person or
persons to whom such optionee's rights under the Option are
transferred by will or the laws of descent and distribution may,
prior to three (3) years after (i) the date of such optionee's
death while employed or (ii) the termination of such optionee's
employment for a reason referred to in clause (b) below, as the
case may be, purchase any or all of the shares with respect to
which such optionee was entitled to exercise such Option
immediately prior to his or her death.
(b) Upon termination of employment as a result of disability as
defined in section 22(e)(3) of the Code or retirement pursuant to
a retirement Plan of the Corporation or any of its direct or
indirect subsidiaries, an optionee may, within three years after
the date of such termination, purchase any or all of the shares
with respect to which such optionee was entitled to exercise such
Option immediately prior to
8
<PAGE> 11
such termination, and
(c) Upon termination of employment for cause, an optionee's Options
shall be canceled to the extent not theretofore exercised.
(d) Upon termination of employment for any reason other than death,
disability, retirement or cause, an optionee may exercise any
Option or Stock Appreciation Right which was exercisable on the
date of termination of employment or such additional period as
the Committee may determine, but in no event later than the
original expiration date of the Option.
(e) For purpose of the Plan, the term "cause" shall mean repeated
material breaches of an optionee's duties of employment which are
not cured after receipt by the optionee of written notice
specifying such breaches or the optionee's conviction of a felony
involving moral turpitude.
ARTICLE VII
RESTRICTED STOCK AWARDS
7.1 Subject to the limitations of the Plan, the Committee shall, after such
consultation with and consideration of the recommendations of management
as the Committee considers desirable, select from eligible employees
those Participants to be granted Restricted Stock Awards, determine the
time when each Award shall be granted, the number of shares subject to
each Award, and the date upon which the shares will vest (the Vesting
Date).
7.2 Vesting of Restricted Stock Awards.
(a) Subject to the rules of Sections 7.2(b) and 9.1 each Award shall
fully vest and be one hundred percent (100%) nonforfeitable on
the Vesting Date.
(b) Subject to the rules of Section 9.1, upon termination of a
Participant's employment prior to Vesting Date for any reason
except for disability or retirement, as described below, or
death, his or her Awards shall be forfeited and the Participant
shall have no right with respect to such Awards. Upon
termination of employment prior to the Vesting Date by reason of
the Participant's disability as defined in Section 22(e)(3) of
the Code or retirement at age 62 or older under a retirement Plan
maintained by the Company or a subsidiary or by reason of death,
any Award
9
<PAGE> 12
granted to such Participant shall be vested and nonforfeitable to
the extent of one hundred percent. Vesting for participants who
retire prior to age 62 shall be as determined by the Committee.
7.3 Payment of Awards.
(a) As soon as practicable after an Award has become vested in
accordance with Section 7.2, such vested Award shall be paid to
the Participant or, in the case of the death of the Participant,
his or her designated beneficiary or beneficiaries or, in the
absence of a designated beneficiary, to the estate of the
Participant.
(b) In addition to the payment provided for in Section 7.3(a), prior
to Vesting Date, each Participant shall receive a cash payment
equal to the amount of dividends which would have been paid on
the number of shares awarded had such shares been issued as
shares of Common Stock on the date of grant of such Award. This
payment shall be made on or about the date such dividends would
have been paid.
(c) Payments pursuant to Section 7.3(a) shall be made in either
shares of Common Stock or cash as determined by the Committee
provided, however, that the Participant or his or her beneficiary
may request that the Committee approve a payment composed of a
different ratio of cash and shares of Common Stock. Payment in
cash pursuant to this paragraph shall be made in the amount which
is equal to the closing price of a share of Common Stock on the
New York Stock Exchange Composite Tape for the trading day
preceding the day on which payment is to be made, multiplied by
the number of shares of the Award which are to be paid in cash.
ARTICLE VIII
PERFORMANCE UNIT AWARDS
8.1 In addition to granting Options, Stock Appreciation Rights and
Restricted Stock Awards, the Committee shall have authority to grant to
eligible employees Performance Unit Awards which can be in the form of
Common Stock or units, the value of which is based on whole or in part,
on the value of Common Stock. Subject to the provisions of the Plan
10
<PAGE> 13
including Section 8.2 below, Performance Unit Awards shall be subject to
such terms, restrictions, conditions, vesting requirements and payment
rules (all of which are sometimes hereinafter collectively referred to
as "rules") as the Committee may determine in its sole discretion, all
such rules applicable to a particular Performance Unit Award to be
reflected in writing and furnished to the employee at the time of grant.
The rules need not be identical for each Performance Unit Award.
8.2 Rules. In the sole discretion of the Committee a Performance Unit Award
shall be granted subject to the following rules:
(a) Any shares of Common Stock which are part of a Performance Unit
Award may not be assigned, sold, transferred, pledged or
otherwise encumbered prior to the date on which the shares are
issued or, if later, the date provided by the Committee at the
time of the Award.
(b) Performance Unit Awards may provide for the payment of cash
consideration by the person to whom such Award is granted or
provide that the Award and Common Stock be issued in connection
therewith, if applicable, shall be delivered without the payment
of cash consideration, provided that for any Common Stock to be
purchased in connection with a Performance Unit Award the
purchase price shall be at least fifty percent of the fair market
value of such Common Stock on the date such Award is granted.
(c) Performance Unit Awards may relate in whole or in part to certain
performance criteria established by the Committee at the time of
grant.
(d) Performance Unit Awards may provide for deferred payment
schedules, vesting over a specified period of employment, the
payment (on a current or deferred basis) of dividend equivalent
amounts, with respect to the number of shares of Common Stock
covered by the Award, and elections by the employee to defer
payment of the Award or the lifting of restrictions on the Award,
if any.
(e) In such circumstances as the Committee may deem advisable, the
Committee may waive or otherwise remove, in whole or in part, any
restrictions or limitation to which a Performance Unit Award was
made subject to the time of grant.
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<PAGE> 14
ARTICLE IX
GENERAL PROVISIONS
9.1 Change in Control.
(a) (i) In the case of a Change in Control (as defined below) of
the Corporation, each Option and Stock Appreciation Right
then outstanding shall immediately become exercisable in
full.
(ii) In the case of a Change in Control (as defined below) of
the Corporation, each Award shall immediately be fully
vested and nonforfeitable and shall be paid within 20 days
thereafter at no less than one hundred (100) percent of
the standard or target award amount or, if greater, the
actual award amount as extrapolated in the determination
of the Committee (as so constituted immediately prior to
the Change in Control of the Corporation), utilizing in
each case the Change in Control Price (as defined below)
as the value per share of Common Stock.
(b) A change in Control shall mean (i) the acquisition by any
individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership
(within the meaning of Rule 13(d)-3 promulgated under the
Exchange Act) of twenty (20) percent or more of either (1) the
then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (2) the combined
voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of
directors (the "Outstanding Corporation Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change of Control: (1) any acquisition directly from
the Corporation (excluding an acquisition by virtue of the
exercise of a conversion privilege), (2) any acquisition by the
Corporation, (3) any acquisition by any employee benefit Plan (or
related trust) sponsored or maintained by the Corporation or any
corporation controlled by the Corporation or (4) any acquisition
by any
12
<PAGE> 15
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (1),(2) and
(3) of subparagraph (iii) of this Section 9.1(b) are satisfied;
or (ii) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of
the directors than comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms
are used in Rule 14(a)-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board; or (iii) approval by the shareholders of the Corporation
of a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or consolidation,
(1) more than sixty (60) percent of, respectively, the then
outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entitled who were
the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (2) no Person (excluding the
Corporation, any employee benefit Plan (or related trust) of the
Corporation or such corporation resulting from such
13
<PAGE> 16
reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, twenty (20)
percent or more of the Outstanding Corporation Common Stock or
Outstanding Voting Securities, as the case may be) beneficially
owns, directly or indirectly, twenty (20) percent or more of
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (3) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or (iv) approval by the
shareholders of the Corporation of (1) a complete liquidation or
dissolution of the Corporation or (2) the sale or other
disposition of all or substantially all of the assets of the
Corporation, other than a corporation, with respect to which
following such sale or other disposition, (A) more than sixty
(60) percent of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (B) no Person (excluding the
Corporation and any employee benefit Plan (or related trust) of
the Corporation or such corporation any person beneficially
owning, immediately prior to such sale or other disposition,
directly or indirectly, twenty (20) percent or more of the
Outstanding Corporation Common Stock or Outstanding Corporation
Voting
14
<PAGE> 17
Securities,as the case may be) beneficially owns, directly or
indirectly, twenty (20) percent or more of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors and (C) at least a majority of the members
of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Corporation.
9.2 Designation of Beneficiary. Each employee who shall be granted an Award
under the Plan may designate a beneficiary or beneficiaries and may
change such designation from time to time by filing a written
designation of beneficiaries with the Committee on a form to be
prescribed by it, provided that no such designations shall be effective
unless so filled prior to the death of such employee.
9.3 No Right of Continued Employment. Neither the establishment of the
Plan, the granting of Options, Stock Appreciation Rights or Awards, or
the payment of any benefits hereunder or any action of the Corporation
or of the Board of Directors or of the Committee shall be held or
construed to confer upon any person any legal right to be continued in
the employ of the Corporation or its direct or indirect subsidiaries,
each of which expressly reserves the right to discharge any employee
whenever the interest of any such company in its sole discretion may so
require without liability to such company, the Board of Directors or the
Committee except as to any rights which may be expressly conferred upon
such employee under the Plan.
9.4 No Segregation of Cash or Shares. The Corporation shall not be required
to segregate any cash or any shares of Common Stock which may at any
time be represented by Options, Awards, or amounts and the Plan shall
constitute an "unfunded" Plan of the Corporation. No employee shall
have voting or other rights with respect to such shares of Common Stock
prior to the delivery of such shares. The Corporation shall not, by any
provisions of the Plan, be deemed to be a trustee of any Common Stock or
any other property and the liabilities of the Corporation to any
employee pursuant to the Plan shall be those of a debtor pursuant to
such contract obligations as are created by or pursuant to the Plan, and
15
<PAGE> 18
the rights of any employee, former employee or beneficiary under the
Plan shall be limited to those of a general creditor of the Corporation.
In its sole discretion, the Board of Directors may authorize the
creation of trusts or other arrangements to meet the obligations of the
Corporation and each other Participating Company under the Plan
provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
9.5 Delivery of Shares. No shares shall be delivered pursuant to any
exercise of an Option, Stock Appreciation Right or pursuant to the
payment of any Award unless the requirements of such laws and
regulations as may be deemed by the Committee to be applicable thereto
are satisfied.
9.6 Option Cancellation Payment. Notwithstanding any other provision of
this Plan and the terms of any agreement under which the Committee has
granted an Option or Award under this Plan, during the 60 day period
from and after a Change of Control (as defined in Section 9.1) (the
"Exercise Period"), in the case of all Options, an optionee shall have
the right, in lieu of the payment of the exercise price of the shares of
stock being purchased under the Option and by giving notice to the
Corporation, to elect (within the Exercise Period) in lieu of exercise
thereof to surrender all or part of the Option to the Corporation and to
receive in cash, within 30 days of such notice, an amount in
cancellation of the Option (the "Cancellation Payment") equal to the
amount by which the Change in Control Price (as defined below) per share
of Common Stock on the date of such election shall exceed the exercise
price per share of Common Stock under the Option multiplied by the
number of shares of Common Stock granted under the Option as to which
the right granted under this Section 9.6 shall have been exercised;
provided, however, that if such Option is held by an officer or director
of the Corporation (within the meaning of Section 16 of the Exchange
Act) and not more than six months has elapsed from the grant thereof, or
the receipt of the Cancellation Payment at the time above-specified
would subject the optionee to liability under said Section 16, then the
Cancellation Payment shall be made on the first day when no liability to
the optionee under said Section 16 would result.
9.7 Transfer and Leave of Absence
(a) A transfer of an employee from a Participating Company to an
affiliated company,
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<PAGE> 19
and
(b) A leave of absence duly authorized in writing by the
Participating Company, for military service or sickness, or for
any other purpose approved by the Participating Company shall not
be deemed a termination of employment.
9.8 Michigan Law to Govern. All questions pertaining to the construction,
regulation, validity and effect of the provisions of the Plan shall be
determined in accordance with the laws of the State of Michigan.
9.9 Payments and Tax Withholding. The delivery of any shares of Common
Stock and the payment of any amount in respect of a Stock Appreciation
Right or Award shall be for the account of the applicable Participating
Company and any such delivery or payment shall not be made until the
recipient shall have made satisfactory arrangements for the payment of
any applicable withholding taxes.
9.10 Earlier Plan. The options granted under the Earlier Plan shall continue
to be subject to the terms and conditions of the Earlier Plan and shall
not be subject to this Plan.
9.11 Compliance with Rule 16(b)-3. It is MCN's intent that, with respect to
persons who are subject to Section 16(b) of the Securities Exchange Act
of 1934 (the "Act"), the Plan comply in all material respects with the
provisions of Rule 16(b)-3 promulgated under the Act, as such rule or a
successor rule or rules may be in effect from time to time. If any such
Plan provision is found not to be in compliance with Rule 16(b)-3, such
provision shall be deemed null and void.
9.12 Change in Control Price. Change in Control Price shall mean the higher
of (i) the highest reported sales price, regular way, of a share of
Common Stock on the Composite Tape for New York Stock Exchange Listed
Stocks or, if such shares of the Corporation are not listed or admitted
to trading on the New York Stock Exchange, the highest reported sales
price as reported on the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which such shares of the Corporation are listed
or admitted to trading, or if such shares of the Corporation are not
listed or admitted to trading on any national securities exchange, the
highest quoted price or, if not so quoted, the highest average of the
high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers,
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<PAGE> 20
Inc. Automated Quotations System ("NASDAQ") or such other system then in
use, or, if on any such date such shares of the Corporation are not
quoted by any such organization, the highest average of the closing bid
and asked prices as furnished by a professional market maker making a
market in such shares of the Corporation as selected by the Board of
Directors of the Corporation, in each case during the 60-day period
prior to and ending on the date of the Change of Control and (ii) if the
Change of Control is the result of a transaction or series of
transactions described in subparagraphs (i) or (iii) of the definition
of Change of Control set forth in Section 9.1, the highest price per
share of the Common Stock paid in such transaction or series of
transactions (which in the case of paragraph (i) shall be the highest
price per share of the Common Stock as reflected in a Schedule 13D by
the person having made the acquisition); provided, however, that with
respect to any Incentive Stock Option, the Change of Control Price shall
not exceed the market price of a share of Common Stock (to the extent
required pursuant to Section 422A of the Code) on the date of surrender
thereof.
ARTICLE X
AMENDMENT AND TERMINATION
10.1 Amendments, Suspension or Discontinuance. The Board of Directors may
amend, suspend or discontinue the Plan provided, however, that except as
permitted by Sections 4.1(b), the Board of Directors may not, without
the prior approval of the stockholders of the Company, make any
amendment which operates:
(a) To abolish the Committee, change the qualification of its
members or withdraw the administration of the Plan from
the Committee unless otherwise required or directed by law
or regulation,
(b) To make any material change in the class of eligible
employees as defined in the Plan,
(c) To increase the total number of shares of Common Stock
available for Options, Stock Appreciation Rights and
Awards granted under the Plan, or
(d) To extend the period during which Options or Awards may
be granted
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under the Plan, and provided further that upon the
occurrence of a Change in Control no amendment may
adversely affect the rights of any person in connection
with any Option or Award previously granted.
10.2 Limitation. No Option or Award shall be granted under the Plan after
March 1, 2005.
ARTICLE XI
MISCELLANEOUS
No director who also serves as an officer of the Corporation shall be
eligible to vote on any matter regarding the MCN Corporation Stock Incentive
Plan.
IN WITNESS WHEREOF, the undersigned officer of the Company has executed
this Plan this 27th day of April, 1995, pursuant to the resolution adopted by
the Board of Directors of the Company.
MCN CORPORATION
BY: /s/ Daniel L. Schiffer
------------------------------------
Daniel L. Schiffer, Vice President,
General Counsel and Secretary
Dated as of April 27, 1995
Restated April 27, 1995
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<PAGE> 22
4.1 (a) is amended to read:
"Subject to adjustment pursuant to Section 4.1(b), the aggregate
number of shares of Common Stock with respect to which Options,
Stock Appreciation Rights, Awards and Performance Units may be
granted under the Plan in any calendar year shall not exceed one
percent of the shares of Common Stock outstanding in any year.
The one-percent limitation shall be calculated by dividing the
aggregate number of shares of Common Stock with respect to which
Options, Stock Appreciation Rights, Awards and Performance Units
are granted under the Plan in any calendar year by the total
number of shares outstanding on the first day during the calendar
year on which Options, Stock Appreciation Rights, Awards, and
Performance Units are granted. If the number of shares granted
with respect to Options, Stock Appreciation Rights, Awards, or
Performance Units is not determinable, then the limitation shall
be calculated using the largest number of shares expected to be
issued. Provided, however, that the number of Shares, Options,
Stock Appreciation Rights, Awards, or Performance Units that may
issued under this Plan subsequent to February 27, 1995 may not
exceed 5% of the number of shares issued and outstanding on that
date."
"Shares of Common Stock may be made available from the authorized
but unissued shares of the Corporation or from shares reacquired
by the Corporation including shares purchased in the open market.
If an Option, Restricted Stock Award, or Performance Unit Award
granted under the Plan shall expire or terminate for any reason
during a calendar year, the shares subject to, but not delivered,
under such option or Award shall be available for other options
and Awards to the same employee or other employees."
Section 10.2 is deleted in its entirety and new section 10.2 is
inserted as follows:
(New 10.2)
10.2 Limitation. No Option or Award shall be granted under the Plan after
March 1, 2005.
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Income and the Consolidated Statement of Financial
Position and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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100,000
0
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</TABLE>
