<PAGE> 1
Filed pursuant to Rule 424B(5)
Registration Statement No. 333-01521
SUBJECT TO COMPLETION, DATED JULY 17, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 22, 1996)
3,200,000 PREFERRED SECURITIES
MCN FINANCING I
% TRUST ORIGINATED PREFERRED SECURITIES(SM) ("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MCN COPORATION LOGO
The % Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the assets
of MCN Financing I, a statutory business trust formed under the laws of the
State of Delaware ("MCN Financing" or the "Trust"). MCN Corporation, a Michigan
corporation ("MCN" or the "Company"), will directly or indirectly own all the
common securities (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities") representing undivided beneficial interests
in the assets of MCN Financing. MCN Financing exists for the sole purpose of
issuing the Preferred Securities and Common Securities and investing the
proceeds thereof in an equivalent amount of % Junior Subordinated Debentures
due 2036 (the "Junior Subordinated Debentures") of MCN. The Junior Subordinated
Debentures and the Preferred Securities in respect of which this Prospectus
Supplement is being delivered shall be referred to herein as the "Offered
Securities." The Junior Subordinated Debentures when issued will be unsecured
obligations of MCN and will be subordinate and junior in right to certain other
indebtedness of the Company, as described herein. Upon an event of a default
under the Declaration (as defined herein), the holders of Preferred Securities
will have a preference over the holders of the Common Securities with respect to
payments in respect of distributions and payments upon redemption, liquidation
and otherwise.
(Continued on next page.)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-6 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES,
INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF
DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
The Preferred Securities have been approved for listing on the New York
Stock Exchange, Inc. (the "New York Stock Exchange"). Trading of the Preferred
Securities on the New York Stock Exchange is expected to commence within a
30-day period after the initial delivery of the Preferred Securities. See
"Underwriting."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) COMMISSION(2) TRUST(3)(4)
- -----------------------------------------------------------------------------------------------------------
Per Preferred Security...................... $25.00 (3) $25.00
- -----------------------------------------------------------------------------------------------------------
Total....................................... $ (3) $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued distributions, if any, from , 1996.
(2) MCN Financing and MCN have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures, MCN has
agreed to pay to the Underwriters as compensation (the "Underwriters'
Compensation") for their arranging the investment therein of such proceeds
$ per Preferred Security (or $ in the aggregate); provided,
that such compensation for sales of 10,000 or more Preferred Securities to a
single purchaser will be $ per Preferred Security. Therefore, to the extent
of such sales, the actual amount of Underwriters' Compensation will be less
than the aggregate amount specified in the preceding sentence. See
"Underwriting."
(4) Expenses of the offering which are payable by MCN are estimated to be
$ .
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about ,
1996.
------------------------
MERRILL LYNCH & CO.
ROBERT W. BAIRD & CO.
INCORPORATED
A.G. EDWARDS & SONS, INC.
FIRST OF MICHIGAN CORPORATION
LADENBURG, THALMANN & CO. INC.
PAINEWEBBER INCORPORATED
The date of this Prospectus Supplement is , 1996.
------------------------
(SM)"Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 2
(Continued from previous page)
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing September 30, 1996 ("distributions"). The payment of
distributions out of moneys held by MCN Financing and payments on liquidation of
MCN Financing or the redemption of Preferred Securities, as set forth below, are
guaranteed by MCN (the "Guarantee") to the extent described herein and under
"Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. The Guarantee covers payments of distributions and other payments on
the Preferred Securities only if and to the extent that MCN has made a payment
of interest or principal or other payments on the Junior Subordinated Debentures
held by MCN Financing as its sole asset. The Guarantee, when taken together with
MCN's obligations under the Junior Subordinated Debentures and the Indenture (as
defined below) and its obligations under the Declaration (as defined below),
including its liabilities to pay costs, expenses, debts and liabilities of MCN
Financing (other than with respect to the Trust Securities), provide a full and
unconditional guarantee of amounts due on the Preferred Securities. See "Risk
Factors -- Rights Under the Guarantee" herein. The obligations of MCN under the
Guarantee are subordinate and junior in right of payment to all other
liabilities of MCN and pari passu with the most senior preferred stock issued,
from time to time, if any, by MCN. The obligations of MCN under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
present and future Senior Indebtedness (as defined herein) of MCN, which
aggregated approximately $1,320 million at March 31, 1996, and rank pari passu
with MCN's other general unsecured creditors. The Junior Subordinated Debentures
purchased by MCN Financing may be subsequently distributed pro rata to holders
of the Preferred Securities and Common Securities in connection with the
dissolution of MCN Financing, upon the occurrence of certain events.
The distribution rate and the distribution payment date and other payment
dates for the Preferred Securities will correspond to the interest rate and
interest payment date and other payment dates on the Junior Subordinated
Debentures, which will be the sole assets of MCN Financing. As a result, if
principal or interest is not paid on the Junior Subordinated Debentures, no
amounts will be paid on the Preferred Securities. If MCN does not make principal
or interest payments on the Junior Subordinated Debentures, MCN Financing will
not have sufficient funds to make distributions on the Preferred Securities, in
which event, the Guarantee will not apply to such distributions until MCN
Financing has sufficient funds available therefor.
MCN has the right to defer payments of interest on the Junior Subordinated
Debentures by extending the interest payment period on the Junior Subordinated
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period"). If interest payments are so deferred, distributions on the Preferred
Securities will also be deferred. During such Extension Period, distributions
will continue to accrue with interest thereon (to the extent permitted by
applicable law) at an annual rate of % per annum compounded quarterly, and
during any Extension Period, holders of Preferred Securities will be required to
include deferred interest income in their gross income for United States federal
income tax purposes in advance of receipt of the cash distributions with respect
to such deferred interest payments. There could be multiple Extension Periods of
varying lengths throughout the term of the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures -- Option to Extend Interest
Payment Period." See "Risk Factors -- Option to Extend Interest Payment Period"
and "United States Federal Income Taxation -- Original Issue Discount."
The Junior Subordinated Debentures are redeemable by MCN, in whole or in
part, from time to time, on or after , 2001, or at any time in certain
circumstances upon the occurrence of a Tax Event (as defined herein). If MCN
redeems Junior Subordinated Debentures, MCN Financing must redeem Trust
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Junior Subordinated Debentures so redeemed at $25 per
Preferred Security plus accrued and unpaid distributions thereon (the
"Redemption Price") to the date fixed for redemption. See "Description of the
Preferred Securities -- Mandatory Redemption." The Preferred Securities will be
redeemed upon maturity of the Junior Subordinated Debentures. The Junior
Subordinated Debentures mature on 2036. In addition, upon the occurrence of a
Special Event (as defined herein), unless the Junior Subordinated Debentures are
redeemed in the limited circumstances described herein, MCN Financing shall be
dissolved, with the result that the Junior Subordinated Debentures will be
distributed to the holders of the Preferred Securities, on a pro rata basis, in
lieu of any cash distribution. See "Description of the Preferred Securities --
Special Event Redemption or Distribution." In the case of the occurrence of a
Special Event that is a Tax Event, MCN will have the right in certain
circumstances to redeem the Junior Subordinated Debentures, which would result
in the redemption by MCN Financing of Trust Securities in the same amount on a
pro rata basis. If the Junior Subordinated Debentures are distributed to the
holders of the Preferred Securities, MCN will use its best efforts to have the
Junior Subordinated Debentures listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed. See "Description of
the Preferred Securities -- Special Event Redemption or Distribution" and
"Description of the Junior Subordinated Debentures."
In the event of the involuntary or voluntary dissolution, winding up or
termination of MCN Financing, the holders of the Preferred Securities will be
entitled to receive for each Preferred Security a liquidation amount of $25 plus
accrued and unpaid distributions thereon (including interest thereon) to the
date of payment, unless, in connection with such dissolution, winding up or
termination the Junior Subordinated Debentures are distributed to the holders of
the Preferred Securities. See "Description of the Preferred Securities --
Liquidation Distribution Upon Dissolution."
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
MCN CORPORATION
SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating Revenues(1)............... $ 1,762,362 $1,495,232 $1,473,633 $1,420,754 $1,395,341 $1,236,852
Operating Income(1)................. 220,239 188,229 147,914 138,694 120,744 96,754
Net Income(1)....................... 115,233 96,756 77,768 72,790 57,118 35,078
Earnings Per Share(1)............... 1.74 1.49 1.31 1.24 1.05 .71
Average Number of Common Shares
Outstanding (000's)............... 66,216 64,743 59,394 58,642 54,216 49,386
GAS MARKET (VOLUME IN MMCF*)(2)
Gas Distribution
Gas sales......................... 222,935 209,816 204,384 205,372 203,110 192,770
End user transportation........... 149,577 145,761 140,020 128,643 129,722 119,846
Intermediate transportation(3).... 409,886 374,428 322,969 302,662 209,360 130,831
----------- ---------- ---------- ---------- ---------- ----------
Total........................ 782,398 730,005 667,373 636,677 542,192 443,447
=========== ========== ========== ========== ========== ==========
Diversified Energy
Gas sales
Gas Marketing and
Cogeneration................. 197,977 170,668 142,352 122,782 112,263 91,968
Exploration and Production(4)... 21,649 16,193 7,459 67 -- --
Transportation(3)................. 16,714 1,091 1,194 294 -- --
----------- ---------- ---------- ---------- ---------- ----------
Total........................ 236,340 187,952 151,005 123,143 112,263 91,968
=========== ========== ========== ========== ========== ==========
GAS DISTRIBUTION CUSTOMERS............ 1,178,000 1,172,527 1,141,491 1,129,752 1,120,740 1,112,651
CAPITAL INVESTMENTS(5)
Gas Distribution.................... $ 240,076 $ 241,494 $ 153,059 $ 143,120 $ 130,776 $ 122,428
Diversified Energy.................. 480,963 385,114 196,030 60,925 34,608 14,854
MCN's Share of Joint Venture........ 48,285 52,850 40,422 36,502 31,203 5,139
Discontinued Operations(1).......... 13,884 9,380 12,458 5,064 5,484 2,600
----------- ---------- ---------- ---------- ---------- ----------
Total........................ $ 783,208 $ 688,838 $ 401,969 $ 245,611 $ 202,071 $ 145,021
=========== ========== ========== ========== ========== ==========
TOTAL ASSETS.......................... $ 3,148,191 $2,898,640 $2,240,973 $1,881,900 $1,648,989 $1,517,387
=========== ========== ========== ========== ========== ==========
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS(6)...................... $ 1,137,703 $ 993,407 $ 685,519 $ 494,821 $ 379,811 $ 328,052
=========== ========== ========== ========== ========== ==========
REDEEMABLE CUMULATIVE PREFERRED
SECURITIES OF SUBSIDIARIES(6)....... $ 96,480 $ 96,449 $ 98,967 $ 5,618 $ 9,000 $ 12,000
=========== ========== ========== ========== ========== ==========
COMMON STOCK
Market Price Per Share (end of
period)........................... $ 23.125 $ 23.25 $ 18.00 $ 17.38 $ 15.44 $ 12.19
Dividends Paid Per Share............ $ .9100 $ .9000 $ .8675 $ .8450 $ .8250 $ .8200
</TABLE>
- -------------------------
* MMcf -- One million cubic feet.
(1) In June 1996, MCN completed the sale of its computer operations subsidiary,
The Genix Group, Inc. to Affiliated Computer Services, Inc. For purposes of
calculating Operating Revenues and Operating Income, The Genix Group, Inc.
has been classified as a discontinued operation and therefore excluded from
Operating Revenues and Operating Income for all periods presented. Net
Income and Earnings Per Share include amounts from discontinued operations
for all periods presented.
(2) Includes intercompany volumes.
(3) In January 1996, MCN consolidated its Michigan pipeline operations by
transferring its gathering and transportation network operations to Gas
Distribution. The segment information included herein is presented as though
the combined intrastate pipeline operations were a part of Gas Distribution
for all periods presented.
(4) Represents gas sales made directly to third parties by E&P operations. Other
E&P production is sold to affiliated companies for marketing.
(5) Capital investments represent consolidated capital expenditures,
acquisitions, and MCN's share of capital expenditures of joint ventures,
less the minority partners' share of consolidated capital expenditures.
(6) Excludes current requirements. Long-term debt includes a $100 million term
loan, due 2000, at Supply Development Group, Inc., a wholly-owned subsidiary
of MCN Investment, with recourse to MCN Corporation limited to certain
events, including the realization of tax credits and performance under swap
contracts.
S-3
<PAGE> 4
MCN CORPORATION
MCN is a $3.1 billion (assets) diversified energy holding company with gas
markets and investments in various regions in North America. Its principal
operating subsidiaries are Michigan Consolidated Gas Company ("MichCon"), a
natural gas distribution and intrastate transmission company, and MCN Investment
Corporation ("MCN Investment"), a holding company with subsidiaries involved in
exploration and production, gas gathering and processing, gas storage, and gas
marketing and cogeneration.
MCN's major business segments are Gas Distribution and the Diversified
Energy group.
MCN's strategy is to aggressively invest in a diverse portfolio of domestic
and international energy-related projects. MCN's intent is:
- to continue the growth of its Gas Distribution business through
investments and acquisition of assets leading to business and market
expansion; and
- to invest in a portfolio of projects including investments in
exploration and production, power generation, gas gathering and
processing systems, and gas storage.
Accordingly, MCN's capital investments could range between $2.5 billion and
$3.3 billion from 1996 through 2000. This expected level of investment will
increase capital requirements materially in excess of internally generated funds
and require the issuance of additional debt and equity securities. MCN's capital
requirements and general market conditions will affect the timing and amount of
future issuances. As it expands its business, MCN's capitalization objective is
to maintain its solid investment-grade credit ratings through a strong balance
sheet.
Gas Distribution operates the largest natural gas distribution and
intrastate transmissions system in Michigan and one of the largest in the United
States. For the twelve months ended March 31, 1996, operating revenues in the
Gas Distribution segment exceeded $1.2 billion. In addition, at March 31, 1996,
the segment had total assets of approximately $2.0 billion. Gas Distribution
serves approximately 1.2 million customers in more than 500 communities
throughout Michigan with gas sales and transportation markets of about 780
billion cubic feet (Bcf). Gas Distribution continues to increase its markets by
reaching customers in new communities, offering new services to current
customers and expanding its intrastate gas transportation network.
Diversified Energy is an integrated energy group with investments in
exploration and production, cogeneration, gas gathering and processing, and gas
storage fields. It also markets natural gas to large-volume users and utilities.
For the twelve months ended March 31, 1996, operating revenues for the segment
were approximately $550 million and, at March 31, 1996, assets totalled
approximately $1.2 billion, including interests in the assets of joint ventures.
During 1995, MCN Investment invested over $400 million in various projects, of
which $300 million were for exploration and production projects. Expanding
opportunities throughout North America should enable the Diversified Energy
segments to continue to grow its 180 Bcf markets and asset-based investments.
At December 31, 1995, MCN Investment owned 858 Bcf of proved gas reserves
and proved oil reserves totaled 4.7 million barrels, or the equivalent of
another 28 Bcf of natural gas. Producing oil and gas wells totaled 1,972 at
December 31, 1995.
The mailing address of MCN's principal executive office is 500 Griswold
Street, Detroit, Michigan 48226, and its telephone number is (313) 256-5500.
S-4
<PAGE> 5
RECENT DEVELOPMENTS
In June 1996, MCN completed the sale of its computer operations subsidiary,
The Genix Group, Inc. ("Genix") to Affiliated Computer Services, Inc. for
approximately $135,000,000 resulting in an after-tax gain of $36,176,000. The
selling price of Genix could be adjusted downward by as much as $45 million
depending upon the occurrence of certain contingencies, which include among
other things, adjustments arising from changes in net assets acquired, retention
of certain large customers for one to two years and tax related matters.
Although Genix has experienced significant growth in revenues and operating
income over the past several years, MCN's focused strategy is to invest in
energy-related projects that generate higher rates of return. Proceeds from the
sale were used to partially fund MCN's capital expenditures, including
investments in energy-related projects, which may reach $850 million in 1996.
MCN FINANCING I
MCN Financing is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust, dated as of March 6, 1996 (as amended by
the Amendment to Declaration of Trust, dated May 29, 1996), executed by MCN, as
sponsor (the "Sponsor"), and the trustees of MCN Financing (the "MCN Trustees")
and (ii) the filing of a certificate of trust with the Secretary of State of the
State of Delaware on March 6, 1996. Such declaration will be amended and
restated in its entirety (as so amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the accompanying Prospectus form a part.
The Declaration will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities. See
"Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company." MCN will directly or indirectly acquire Common
Securities in an aggregate liquidation amount equal to 3% of the total capital
of MCN Financing. MCN Financing exists for the exclusive purposes of (i) issuing
the Trust Securities representing undivided beneficial interests in the assets
of the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Junior Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto. MCN Financing has a term of approximately
forty-five (45) years, but may terminate earlier as provided in the Declaration.
Pursuant to the Declaration, the number of MCN Trustees will initially be
three. Two of the MCN Trustees (the "Regular Trustees") will be persons who are
employees or officers of or who are affiliated with MCN. The third trustee will
be a financial institution that is unaffiliated with MCN, which trustee will
serve as institutional trustee under the Declaration and as indenture trustee
for the purposes of compliance with the provisions of the Trust Indenture Act
(the "Institutional Trustee"). Initially, Wilmington Trust Company, a Delaware
banking corporation, will be the Institutional Trustee until removed or replaced
by the holder of the Common Securities. For the purpose of compliance with the
provisions of the Trust Indenture Act, Wilmington Trust Company will also act as
trustee (the "Guarantee Trustee") under the Guarantee and as Delaware Trustee
for the purposes of the Trust Act, until removed or replaced by the holder of
the Common Securities. See "Description of the Preferred Securities Guarantees"
in the accompanying Prospectus. See "Description of the Preferred Securities --
Voting Rights."
The Institutional Trustee will hold title to the Junior Subordinated
Debentures for the benefit of the holders of the Trust Securities and the
Institutional Trustee will have the power to exercise all rights, powers and
privileges under the Indenture (as defined herein) as the holder of the Junior
Subordinated Debentures. In addition, the Institutional Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of the Junior
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Institutional Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Preferred Securities. MCN, as
the direct or indirect holder of all the Common Securities, will have the right
to appoint, remove or replace any MCN Trustee and to increase or decrease the
number of MCN Trustees; provided, that the number of MCN Trustees shall be at
least three, a majority of which shall be Regular Trustees. MCN will pay all
fees and expenses related to MCN Financing and the offering of the Trust
Securities. See "Description of the Junior Subordinated
Debentures -- Miscellaneous."
S-5
<PAGE> 6
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
The trustee in the State of Delaware is Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890. The
principal place of business of the Trust shall be c/o MCN Corporation, 500
Griswold Street, Detroit, Michigan 48226, and its telephone number is (313)
256-5500.
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and should particularly consider the following matters.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE, AND JUNIOR SUBORDINATED
DEBENTURES
MCN's obligations under the Guarantee are subordinate and junior in right
of payment to all liabilities of MCN and pari passu with the most senior
preferred stock issued, from time to time, if any, by MCN. The obligations of
MCN under the Junior Subordinated Debentures are subordinate and junior in right
of payment to all present and future Senior Indebtedness of MCN and pari passu
with obligations to or rights of MCN's other general unsecured creditors. No
payment of principal of (including redemption payments, if any), premium, if
any, or interest on the Junior Subordinated Debentures may be made if (i) any
Senior Indebtedness of MCN is not paid when due and any applicable grace period
with respect to such default has ended with such default not having been cured
or waived or ceasing to exist, or (ii) the maturity of any Senior Indebtedness
has been accelerated because of a default. As of March 31, 1996, Senior
Indebtedness aggregated approximately $1,320 million. There are no terms in the
Preferred Securities, the Junior Subordinated Debentures or the Guarantee that
limit MCN's ability to incur additional indebtedness, including indebtedness
that ranks senior to the Junior Subordinated Debentures and the Guarantee. See
"Description of the Preferred Securities Guarantees -- Status of the Preferred
Securities Guarantees" and "Description of the Junior Subordinated Debentures"
in the accompanying Prospectus, and "Description of the Junior Subordinated
Debentures -- Subordination" herein.
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Guarantee Trustee will act as indenture trustee under the Guarantee for
the purposes of compliance with the provisions of the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
The Guarantee guarantees to the holders of the Preferred Securities the
payment of (i) any accrued and unpaid distributions that are required to be paid
on the Preferred Securities, to the extent the Trust has funds available
therefor, (ii) the Redemption Price, including all accrued and unpaid
distributions with respect to Preferred Securities called for redemption by the
Trust, to the extent the Trust has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Junior Subordinated
Debentures to the holders of Preferred Securities or a redemption of all the
Preferred Securities), the lesser of (a) the aggregate of the liquidation amount
and all accrued and unpaid distributions on the Preferred Securities to the date
of the payment to the extent the Trust has funds available therefor or (b) the
amount of assets of the Trust remaining available for distribution to holders of
the Preferred Securities in liquidation of the Trust. The holders of a majority
in liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Guarantee. Notwithstanding the foregoing,
if the Company has failed to make a payment under the Guarantee, any holder of
Preferred Securities may institute a legal proceeding directly against MCN to
enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If MCN were to default on its
S-6
<PAGE> 7
obligation to pay amounts payable on the Junior Subordinated Debentures, the
Trust would lack available funds for the payment of distributions or amounts
payable on redemption of the Preferred Securities or otherwise, and, in such
event, holders of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, holders of the Preferred
Securities would rely on the enforcement (1) by the Institutional Trustee of its
rights as registered holder of the Junior Subordinated Debentures against MCN
pursuant to the terms of the Junior Subordinated Debentures or (2) by such
holder of its right against MCN to enforce payments on Junior Subordinated
Debentures. See "Description of the Preferred Securities Guarantees" and
"Description of the Subordinated Debt Securities" in the accompanying
Prospectus. The Declaration provides that each holder of Preferred Securities,
by acceptance thereof, agrees to the provisions of the Guarantee, including the
subordination provisions thereof, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If (i) MCN Financing fails to pay distributions in full on the Preferred
Securities for six consecutive quarterly distribution periods or (ii) a
Declaration Event of Default (as defined herein) occurs and is continuing, then
the holders of Preferred Securities would rely on the enforcement by the
Institutional Trustee of its rights as a holder of the Junior Subordinated
Debentures against MCN. In addition, the holders of a majority in liquidation
amount of the Preferred Securities will have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Institutional Trustee or to direct the exercise of any trust or power conferred
upon the Institutional Trustee under the Declaration, including the right to
direct the Institutional Trustee to exercise the remedies available to it as a
holder of the Junior Subordinated Debentures. The Subordinated Debt Securities
Indenture provides that the Debt Trustee (as defined herein) shall give holders
of the Junior Subordinated Debentures notice of all uncured defaults or events
of default within 30 days after occurrence. However, except in the case of a
default or an event of default in payment on the Junior Subordinated Debentures,
the Debt Trustee is protected in withholding such notice if its officers or
directors in good faith determine that withholding of such notice is in the
interest of the holders.
If the Institutional Trustee fails to enforce its rights under the Junior
Subordinated Debentures, a holder of Preferred Securities may institute a legal
proceeding directly against MCN to enforce the Institutional Trustee's rights
under the Junior Subordinated Debentures without first instituting any legal
proceeding against the Institutional Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of MCN to pay
interest or principal on the Junior Subordinated Debentures on the date such
interest or principal is otherwise payable, then a holder of Preferred
Securities may directly institute a proceeding against the Company for payment.
See "Description of the Junior Subordinated Debentures -- Indenture Events of
Default."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
MCN has the right under the Indenture (as such term is defined in
"Description of Junior Subordinated Debentures" herein) to defer payments of
interest on the Junior Subordinated Debentures by extending the interest payment
period at any time, and from time to time, on the Junior Subordinated
Debentures. As a consequence of such an extension, quarterly distributions on
the Preferred Securities would be deferred (but despite such deferral would
continue to accrue with interest thereon compounded quarterly) by MCN Financing
during any such extended interest payment period. Such right to extend the
interest payment period for the Junior Subordinated Debentures is limited to a
period not exceeding 20 consecutive quarters. In the event that MCN exercises
this right to defer interest payments, then (a) MCN shall not declare or pay
dividends on, or make a distribution with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of shares of MCN Common Stock in
connection with the satisfaction by MCN of its obligations under any employee
benefit plans or the satisfaction by MCN of its obligations pursuant to any
contract or security requiring MCN to purchase shares of MCN Common Stock, (ii)
as a result of a reclassification of MCN capital stock or the exchange or
conversion of one class or series of MCN's capital stock for another class or
series of MCN capital stock or (iii) the purchase of fractional interests in
shares of MCN's capital stock pursuant to the conversion or exchange provisions
of such MCN capital stock or the security being converted or exchanged
S-7
<PAGE> 8
(or make any guarantee payments with respect to the foregoing), (b) MCN shall
not make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees) issued by MCN
that rank pari passu with or junior to the Junior Subordinated Debentures and
(c) MCN shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Preferred Securities Guarantee). Prior to the
termination of any such extension period, MCN may further extend the interest
payment period; provided, that such Extension Period, together with all such
previous and further extensions thereof, may not exceed 20 consecutive quarters
or extend beyond the maturity date of the Junior Subordinated Debenture. Upon
the termination of any Extension Period and the payment of all amounts then due,
MCN may commence a new Extension Period, subject to the above requirements. See
"Description of the Preferred Securities -- Distributions" and "Description of
the Junior Subordinated Debentures -- Option to Extend Interest Payment Period."
Should MCN exercise its right to defer payments of interest by extending
the interest payment period, each holder of Preferred Securities will continue
to accrue income (as original issue discount ("OID")) in respect of the deferred
interest allocable to its Preferred Securities for United States federal income
tax purposes, which will be allocated but not distributed, to holders of record
of Preferred Securities. As a result, each such holder of Preferred Securities
will recognize income for United States federal income tax purposes in advance
of the receipt of cash and will not receive the cash from MCN Financing related
to such income if such holder disposes of its Preferred Securities prior to the
record date for the date on which distributions of such amounts are made. MCN
has no current intention of exercising its right to defer payments of interest
by extending the interest payment period on the Junior Subordinated Debentures.
However, should MCN determine to exercise such right in the future, the market
price of the Preferred Securities is likely to be affected. A holder that
disposes of its Preferred Securities during an Extension Period, therefore,
might not receive the same return on its investment as a holder that continues
to hold its Preferred Securities. In addition, as a result of the existence of
MCN's right to defer interest payments, the market price of the Preferred
Securities (which represent an undivided beneficial interest in the Junior
Subordinated Debentures) may be more volatile than other securities on which OID
accrues that do not have such rights. See "United States Federal Income
Taxation -- Original Issue Discount."
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations, such as the Junior Subordinated Debentures, issued on or after
December 7, 1995. On March 29, 1996, Senate Finance Committee Chairman William
V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a
joint statement (the "Joint Statement") indicating their intent that the
Proposed Legislation, if adopted by either of the tax-writing committees of
Congress, would have an effective date that is no earlier than the date of
"appropriate Congressional action." Based upon the Joint Statement, it is
expected that if the Proposed Legislation were to be enacted, such legislation
would not apply to the Junior Subordinated Debentures. There can be no
assurances, however, that the effective date guidance contained in the Joint
Statement will be incorporated into the Proposed Legislation, if enacted, or
that other legislation enacted after the date hereof will not otherwise
adversely affect the ability of MCN to deduct the interest payable on the Junior
Subordinated Debentures. Accordingly, there can be no assurance that a Tax Event
will not occur. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Special Event (as defined herein), MCN Financing
shall be dissolved, except in the limited circumstance described below, with the
result that the Junior Subordinated Debentures would be distributed to the
holders of the Trust Securities in connection with the liquidation of the Trust.
In the case of a Special Event that is a Tax Event, in certain circumstances,
MCN shall have the right to redeem the Junior Subordinated Debentures, in whole
or in part, in lieu of a distribution of the Junior Subordinated Debentures by
the Trust; in which event the Trust will redeem the Trust Securities on a pro
rata basis to the
S-8
<PAGE> 9
same extent as the Junior Subordinated Debentures are redeemed by MCN. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of MCN Financing would not
be a taxable event to holders of the Preferred Securities. Upon occurrence of a
Special Event, however, a dissolution of MCN Financing in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation -- Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of MCN Financing."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution or liquidation of the Trust
were to occur. Accordingly, the Preferred Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary market,
or the Junior Subordinated Debentures that a holder of Preferred Securities may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Junior Subordinated
Debentures upon the occurrence of a Special Event, prospective purchasers of
Preferred Securities are also making an investment decision with regard to the
Junior Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein and in the
accompanying Prospectus. See "Description of the Preferred Securities -- Special
Event Redemption or Distribution" and "Description of the Junior Subordinated
Debentures -- General."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, MCN Trustees, which voting rights are vested exclusively
in the holder of the Common Securities. See "Description of the Preferred
Securities -- Voting Rights."
TRADING PRICE
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder who disposes of his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition in income as ordinary income (i.e., OID), and to
add such amount to his adjusted tax basis in his pro rata share of the
underlying Junior Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include,
in the form of OID, all accrued but unpaid interest), a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
See "United States Federal Income Taxation -- Original Issue Discount" and
"Sales of Preferred Securities."
S-9
<PAGE> 10
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for MCN on a historical basis for the periods indicated.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------------------
1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MCN(1)(2)(3)..................................... 2.77 2.55 2.70 3.15 2.82 2.17
</TABLE>
- -------------------------
(1) MCN has authority to issue up to 25,000,000 shares of preferred stock, no
par value, however, there are currently no shares outstanding and MCN
currently does not have a preferred stock dividend obligation. Therefore,
the Ratio of Earnings to Fixed Charges and Preferred Stock Dividends is
equal to the Ratio of Earnings to Fixed Charges and is not disclosed
separately.
(2) The Ratio of Earnings to Fixed Charges is based on earnings from operations.
"Earnings" consist of the pre-tax income of majority-owned and 50%-owned
companies adjusted to include any income actually received from less than
50%-owned companies, plus fixed charges, less interest capitalized during
the period for nonutility companies and less the preferred stock dividend
requirements of MichCon included in fixed charges but not deducted in the
determination of pre-tax income. "Fixed Charges" represent (a) interest
(whether expensed or capitalized), (b) amortization of debt discount,
premium and expense, (c) as estimate of interest implicit in rentals, and
(d) in the case of MCN, the preferred securities dividend requirements of
subsidiaries (MichCon and MCN Michigan Limited Partnership), increased to
reflect the pre-tax earnings requirement for MichCon.
(3) In June 1996, MCN completed the sale of its computer operations subsidiary,
Genix to Affiliated Computer Services, Inc. For purposes of calculating the
Ratio of Earnings to Fixed Charges, Genix has been classified as a
discontinued operation and therefore excluded from the ratio for all periods
presented.
S-10
<PAGE> 11
CAPITALIZATION
The following table sets forth the unaudited summary capitalization at March 31,
1996 of the Company and its consolidated subsidiaries on a historical basis and
on a pro forma basis after giving effect to the sale by the Company of the
3,200,000 Preferred Securities offered hereby and the application of the net
proceeds therefrom. See "Use of Proceeds". The table should be read in
conjunction with MCN's consolidated financial statements and notes thereto and
other financial data incorporated by reference herein. See "Incorporation of
Certain Documents by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-Term Debt (includes notes payable and current portion of
long-term debt and capital leases)............................... $ 182,195 $ 182,195
========== ==========
Long-Term Debt (including capital leases)(2)....................... $1,137,703 $1,137,703
Redeemable Cumulative Preferred Securities of Subsidiaries......... 96,480 96,480
MCN-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely Junior Subordinated Debentures
of the Company(3)................................................ -- 80,000
Common Stockholders' Equity........................................ 740,025 740,025
---------- ----------
Total Capitalization............................................... $1,974,208 $2,054,208
========== ==========
</TABLE>
- -------------------------
(1) Adjusted for the sale of 3,200,000 Preferred Securities, the application of
the estimated net proceeds to the purchase of Junior Subordinated Debentures
of MCN and the application by MCN of the estimated net proceeds of Junior
Subordinated Debentures for the purpose set out under "Use of Proceeds".
(2) Includes a $100 million term loan, due 2000, at Supply Development Group,
Inc., a wholly-owned subsidiary of MCN Investment, with recourse to MCN
Corporation limited to certain events, including the realization of tax
credits and performance under swap contracts.
(3) The sole assets of MCN Financing I will be the % Junior Subordinated
Debentures due , 2036 of MCN with a principal amount of
approximately $ , and upon redemption of such debt, the Preferred
Securities will be mandatorily redeemable.
ACCOUNTING TREATMENT
The financial statements of MCN Financing will be reflected in MCN's
consolidated financial statements with the Preferred Securities shown as
Company-obligated mandatorily-redeemable preferred securities of the Trust
holding solely $ principal amount of % Junior Subordinated
Debentures of MCN.
USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Securities will be
invested by MCN Financing in Junior Subordinated Debentures of MCN issued
pursuant to the Indenture described herein and ultimately will be used by MCN
for general corporate purposes, which may include capital expenditures,
investment in subsidiaries, working capital, repayment of debt and other
business opportunities.
S-11
<PAGE> 12
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Institutional Trustee, Wilmington Trust Company, an
independent trustee, will act as indenture trustee for the Preferred Securities
under the Declaration for purposes of compliance with the provisions of the
Trust Indenture Act. The terms of the Preferred Securities will include those
stated in the Declaration and those made part of the Declaration by the Trust
Indenture Act. The following summary of the material terms and provisions of the
Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration, a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement is a part, the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities will be owned, directly or
indirectly, by MCN. The Common Securities rank pari passu, and payments will be
made thereon on a pro rata basis, with the Preferred Securities, except that
upon the occurrence and during the continuance of a Declaration Event of
Default, the rights of the holders of the Common Securities to receive payment
of periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Declaration does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any indebtedness
by the Trust. Pursuant to the Declaration, the Institutional Trustee will own
the Junior Subordinated Debentures purchased by the Trust for the benefit of the
holders of the Trust Securities. The payment of distributions out of money held
by the Trust, and payments upon redemption of the Preferred Securities or
liquidation of the Trust, are guaranteed by MCN to the extent described under
"Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. The Guarantee will be held by Wilmington Trust Company, the
Guarantee Trustee, for the benefit of the holders of the Preferred Securities.
The Guarantee does not cover payment of distributions when the Trust does not
have sufficient available funds to pay such distributions. In such event, the
remedy of a holder of Preferred Securities is to vote to direct the
Institutional Trustee to enforce the Institutional Trustee's rights under the
Junior Subordinated Debentures. See "Description of the Preferred
Securities -- Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
the rate per annum of % thereof compounded quarterly. The term
"distribution" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from , 1996, and will be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing September 30,
1996, when, as and if available for payment. Distributions will be made by the
Institutional Trustee, except as otherwise described below.
MCN has the right under the Indenture to defer payments of interest on the
Junior Subordinated Debentures by extending the interest payment period from
time to time on the Junior Subordinated Debentures, which, if exercised, would
defer quarterly distributions on the Preferred Securities (though such
distributions would continue to accrue with interest since interest would
continue to accrue on the Junior Subordinated Debentures) during any such
extended interest payment period. Such right to extend the interest payment
period for the Junior Subordinated Debentures is limited to a period not
exceeding 20 consecutive quarters or extend beyond the maturity date of the
Junior Subordinated Debenture. In the event that MCN exercises this right, then
(a) MCN shall not declare or pay dividends on, make distributions with respect
to, or redeem, purchase or acquire, or make a liquidation payment with respect
to, any of its capital
S-12
<PAGE> 13
stock (other than (i) purchases or acquisitions of shares of MCN Common Stock in
connection with the satisfaction by MCN of its obligations under any employee
benefit plans or the satisfaction by MCN of its obligations pursuant to any
contract or security requiring MCN to purchase shares of MCN Common Stock, (ii)
as a result of a reclassification of MCN capital stock or the exchange or
conversion of one class or series of MCN's capital stock for another class or
series of MCN capital stock or (iii) the purchase of fractional interests in
shares of MCN's capital stock pursuant to the conversion or exchange provisions
of such MCN capital stock or the security being converted or exchanged) or make
any guarantee payments with respect to the foregoing), (b) MCN shall not make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities (including guarantees) issued by MCN that rank
pari passu with or junior to such Junior Subordinated Debentures and (c) MCN
shall not make any guarantee payments with respect to the foregoing (other than
pursuant to the Preferred Securities Guarantee). Prior to the termination of any
such Extension Period, MCN may further extend the interest payment period;
provided, that such Extension Period, together with all such previous and
further extensions thereof, may not exceed 20 consecutive quarters or extend
beyond the maturity date of the Junior Subordinated Debenture. Upon the
termination of any Extension Period and the payment of all amounts then due, MCN
may select a new Extension Period, subject to the above requirements. See
"Description of the Junior Subordinated Debentures -- Interest" and "-- Option
to Extend Interest Payment Period." If distributions are deferred, the deferred
distributions and accrued interest thereon shall be paid to holders of record of
the Preferred Securities as they appear on the books and records of the Trust on
the record date next following the termination of such deferral period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received from MCN on the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures." The payment of
distributions out of moneys held by the Trust is guaranteed by MCN to the extent
set forth under "Description of the Preferred Securities Guarantees" in the
accompanying Prospectus.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in book-entry
only form, will be one Business Day prior to the relevant payment dates. Such
distributions will be paid through the Institutional Trustee who will hold
amounts received in respect of the Junior Subordinated Debentures in the
Property Account for the benefit of the holders of the Trust Securities. Subject
to any applicable laws and regulations and the provisions of the Declaration,
each such payment will be made as described under "Book-Entry Only
Issuance -- The Depository Trust Company" below. In the event that the Preferred
Securities do not continue to remain in book-entry only form, the Regular
Trustee shall have the right to select relevant record dates, which shall be
more than one Business Day but less than 60 Business Days prior to the relevant
payment dates. In the event that any date on which distributions are to be made
on the Preferred Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such record date.
A "Business Day" shall mean any day other than Saturday, Sunday or any other day
on which banking institutions in New York City (in the State of New York) are
permitted or required by any applicable law to close.
MANDATORY REDEMPTION
The Junior Subordinated Debentures will mature on , 2036 and
may be redeemed, in whole or in part, at any time on or after ,
2001, or at any time in certain circumstances upon the occurrence of a Tax Event
(as defined herein). Upon the repayment of the Junior Subordinated Debentures,
whether at maturity or upon redemption, the proceeds from such repayment or
payment shall simultaneously be applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Junior Subordinated Debentures so repaid or redeemed at the Redemption Price;
provided, that
S-13
<PAGE> 14
holders of Trust Securities shall be given not less than 30 nor more than 60
days notice of such redemption, except in the case of payments upon maturity.
See "Description of the Junior Subordinated Debentures -- Optional Redemption."
In the event that fewer than all of the outstanding Preferred Securities are to
be redeemed, the Preferred Securities will be redeemed pro rata as described
under "Book-Entry Only Issuance -- the Depository Trust Company" below.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
(a "Dissolution Tax Opinion") to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to or
change in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority (including
the enactment of any legislation and the publication of any judicial decision or
regulatory determination on or after such date), there is more than an
insubstantial risk that (i) the Trust would be subject to United States federal
income tax with respect to income accrued or received on the Junior Subordinated
Debentures, (ii) interest payable to the Trust on the Junior Subordinated
Debentures would not be deductible by MCN for United States federal income tax
purposes or (iii) the Trust would be subject to more than a de minimis amount of
other taxes, duties or other governmental charges, which change or amendment
becomes effective on or after the date of this Prospectus Supplement.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel experienced in practice under the
1940 Act (as defined herein) to the effect that, as a result of the occurrence
of a change in law or regulation or a written change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), there is more than
an insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the Investment Company Act of
1940, as amended (the "1940 Act"), which Change in 1940 Act Law becomes
effective on or after the date of this Prospectus.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Trust
shall, except in the limited circumstances described below, be dissolved with
the result that the Junior Subordinated Debentures with an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Trust Securities, would be
distributed to the holders of the Trust Securities in liquidation of such
holders' interests in the Trust on a pro rata basis within 90 days following the
occurrence, of such Special Event; provided, however, that in the case of the
occurrence of a Tax Event, that such dissolution and distribution shall be
conditioned on (i) the Regular Trustees' receipt of an opinion of nationally
recognized independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on published revenue rulings of
the Internal Revenue Service, to the effect that the holders of the Trust
Securities will not recognize any gain or loss for United States federal income
tax purposes as a result of such dissolution and distribution of Junior
Subordinated Debentures and (ii) MCN being unable to avoid such Tax Event within
such 90 day period by taking some ministerial action or pursuing some other
reasonable measure that will have no adverse effect on the Trust, MCN or the
holders of the Trust Securities. Furthermore, if after receipt of a Dissolution
Tax Opinion by the Regular Trustee (i) MCN has received an opinion (a
"Redemption Tax Opinion") of nationally recognized independent tax counsel
experienced in such matters that, as a result of a Tax Event, there is more than
an insubstantial risk that MCN would be precluded from deducting the interest on
the Junior Subordinated Debentures for United States federal income tax
purposes, even after the Junior Subordinated Debentures were distributed to the
holders of Trust Securities in liquidation of such holders' interests in the
Trust as described above, or (ii) the Regular Trustees shall have been informed
by such tax counsel that it cannot deliver a No Recognition Opinion to the
Trust, MCN shall have the right, upon not less than 30 nor more than 60 days
notice, to redeem the Junior Subordinated Debentures, in whole or in part, for
cash within 90 days following the occurrence of such Tax Event, and, following
such redemption, Trust
S-14
<PAGE> 15
Securities with an aggregate liquidation amount equal to the aggregate principal
amount of the Junior Subordinated Debentures so redeemed shall be redeemed by
the Trust at the Redemption Price on a pro rata basis; provided, however, that
if at the time there is available to MCN or the Trust the opportunity to
eliminate, within such 90 day period, the Tax Event by taking some ministerial
action, such as filing a form or making an election or pursuing some other
similar reasonable measure that has no adverse effect on the Trust, MCN or the
holders of the Trust Securities, MCN or the Trust will pursue such measure in
lieu of redemption.
If the Junior Subordinated Debentures are distributed to the holders of the
Preferred Securities, MCN will use its best efforts to cause the Junior
Subordinated Debentures to be listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed.
After the date for any distribution of Junior Subordinated Debentures upon
dissolution of the Trust, (i) the Preferred Securities will no longer be deemed
to be outstanding, (ii) the Depositary or its nominee, as the record holder of
the Preferred Securities, will receive a registered global certificate or
certificates representing the Junior Subordinated Debentures to be delivered
upon such distribution, and (iii) any certificates representing Preferred
Securities not held by the Depositary or its nominee will be deemed to represent
Junior Subordinated Debentures having an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on such Preferred Securities until such certificates are
presented to MCN or its agent for transfer or reissuance.
There can be no assurance as to the market prices for either the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Preferred Securities if a dissolution and liquidation of the
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary market,
or the Junior Subordinated Debentures that an investor may receive if a
dissolution and liquidation of the Trust were to occur, may trade at a discount
to the price that the investor paid to purchase the Preferred Securities offered
hereby.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that MCN has paid to the Property
Trustee a sufficient amount of cash in connection with the related redemption or
maturity of the Junior Subordinated Debentures, the Trust will irrevocably
deposit with the Depositary funds sufficient to pay the applicable Redemption
Price and will give the Depositary irrevocable instructions and authority to pay
the Redemption Price to the holders of the Preferred Securities. See "Book-Entry
Only Issuance -- The Depository Trust Company." If notice of redemption shall
have been given and funds deposited as required, then, immediately prior to the
close of business on the date of such deposit, distributions will cease to
accrue and all rights of holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price but without interest on such
Redemption Price. In the event that any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day that is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities is improperly withheld or
refused and not paid either by the Trust, or by MCN pursuant to the Guarantee,
distributions on such Preferred Securities will continue to accrue at the then
applicable rate from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price.
S-15
<PAGE> 16
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed pro rata as
described below under "Book-Entry Only Issuance -- The Depository Trust
Company."
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), MCN or its subsidiaries may at any time,
and from time to time, purchase outstanding Preferred Securities by tender, in
the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Preferred Securities will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors, distributions in an
amount equal to the aggregate of the stated liquidation amount of $25 per
Preferred Security plus accrued and unpaid distributions thereon to the date of
payment (the "Liquidation Distribution"), unless, in connection with such
Liquidation, Junior Subordinated Debentures in an aggregate stated principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Preferred Securities have been
distributed on a pro rata basis to the holders of the Preferred Securities in
exchange for such Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on
, 2041, the expiration of the term of the Trust, (ii) upon the
bankruptcy of MCN, (iii) upon the filing of a certificate of dissolution or its
equivalent with respect to MCN, the filing of a certificate of cancellation with
respect to the Trust after obtaining the consent of the holders of at least a
majority in liquidation amount of the Trust Securities effected thereby voting
together as a single class to file such certificate of cancellation, or the
revocation of the charter of MCN and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) upon the distribution of Junior
Subordinated Debentures upon the occurrence of a Special Event, (v) upon the
entry of a decree of a judicial dissolution of the holder of the Common
Securities, MCN or the Trust, or (vi) upon the redemption of all the Trust
Securities.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived, or
otherwise eliminated, the Institutional Trustee will be deemed to be acting
solely on behalf of the holders of the Preferred Securities and only the holders
of the Preferred Securities will have the right to direct the Institutional
Trustee with respect to certain matters under the Declaration, and therefore the
Indenture. If the Property Trustee fails to enforce its rights under the Junior
Subordinated Debentures, any holder of Preferred Securities may institute a
legal proceeding against MCN to enforce the Property Trustee's rights under the
Junior Subordinated Debentures. Notwithstanding the foregoing, if a Declaration
Event of Default has occurred and is continuing and such event is attributable
to the failure of MCN to pay interest or principal on the Junior Subordinated
Debentures on the date such interest or principal is otherwise payable, then a
holder of Preferred Securities may directly institute a proceeding against the
Company for payment. See "Effects of Obligations under the Junior Subordinated
Debentures and the Guarantee."
S-16
<PAGE> 17
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Junior Subordinated Debentures will have the
right under the Indenture to declare the principal of and interest on the Junior
Subordinated Debentures to be immediately due and payable. MCN and the Trust are
each required to file annually with the Institutional Trustee an officer's
certificate as to its compliance with all conditions and covenants under the
Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and the Trust Indenture Act
and under "Description of the Preferred Securities Guarantees -- Modification of
the Preferred Securities Guarantees; Assignment" in the accompanying Prospectus,
and as otherwise required by law and the Declaration, the holders of the
Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Institutional Trustee,
or direct the exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration including the right to direct the Institutional
Trustee, as holder of the Junior Subordinated Debentures, to (i) exercise the
remedies available under the Indenture with respect to the Junior Subordinated
Debentures, (ii) waive any past Indenture Event of Default that is waivable
under Section 513 of the Indenture (as defined herein), or (iii) exercise any
right to rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable; provided, however, that, where
a consent or action under the Indenture would require the consent or act of
holders of more than a majority in principal amount of the Junior Subordinated
Debentures (a "Super-Majority") affected thereby, only the holders of at least
such Super-Majority in aggregate liquidation amount of the Preferred Securities
may direct the Institutional Trustee to give such consent or take such action.
If the Institutional Trustee fails to enforce its rights under the Junior
Subordinated Debentures or the Declaration, a record holder of Preferred
Securities may, after such holder's written request to the Institutional Trustee
to enforce such rights, institute a legal proceeding directly against MCN to
enforce the Institutional Trustee's rights under the Junior Subordinated
Debentures or the Declaration without first instituting any legal proceeding
against the Institutional Trustee or any other person or entity. The
Institutional Trustee shall notify all holders of the Preferred Securities of
any notice of default received from the Debt Trustee with respect to the Junior
Subordinated Debentures. Such notice shall state that such Indenture Event of
Default also constitutes a Declaration Event of Default. Except with respect to
directing the time, method and place of conducting a proceeding for a remedy,
the Institutional Trustee shall not take any of the actions described in clauses
(i), (ii) or (iii) above unless the Institutional Trustee has obtained an
opinion of tax counsel to the effect that, as a result of such action, the Trust
will not fail to be classified as a grantor trust for United States federal
income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Junior Subordinated Debentures, is required under the Indenture with respect to
any amendment, modification or termination of the Indenture, the Institutional
Trustee shall request the direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by a majority
in liquidation amount of the Trust Securities voting together as a single class;
provided, however, that where a consent under the Indenture would require the
consent of a Super-Majority, the Institutional Trustee may only give such
consent at the direction of the holders of at least the proportion in
liquidation amount of the Trust Securities which the relevant Super-Majority
represents of the aggregate principal amount of the Junior Subordinated
Debentures outstanding. The Institutional Trustee shall be under no obligation
to take any such action in accordance with the directions of the holders of the
Trust Securities unless the Institutional Trustee has obtained an opinion of tax
counsel to the affect that for the purposes of United States federal income tax
the Trust will not be classified as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
S-17
<PAGE> 18
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Junior Subordinated Debentures in
accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by MCN or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, MCN, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company" below.
Holders of the Preferred Securities will have no rights to appoint or
remove the MCN Trustees, who may be appointed, removed or replaced solely by MCN
as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the Delaware
Trustee), provided that, if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise or (ii) the dissolution,
winding-up or termination of the Trust other than pursuant to the terms of the
Declaration, then the holders of the Trust Securities voting together as a
single class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of at
least a majority in liquidation amount of the Trust Securities affected thereby;
provided, that, if any amendment or proposal referred to in clause (i) above
would adversely affect only the Preferred Securities or the Common Securities,
then only the affected class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of a majority in liquidation amount of such class of Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State; provided, that (i) such successor entity either (x)
expressly assumes all of the obligations of the Trust under the Trust Securities
or (y) substitutes for the Preferred Securities other securities having
substantially the same terms as the Trust Securities (the "Successor
Securities"), so long as the Successor Securities rank the same as the Trust
Securities rank with respect to distributions and payments
S-18
<PAGE> 19
upon liquidation, redemption and otherwise, (ii) MCN expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Institutional Trustee as the holder of the Junior Subordinated Debentures, (iii)
the Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which the Preferred
Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (vi) such successor entity has a purpose identical
to that of the Trust, (vii) prior to such merger, consolidation, amalgamation or
replacement, MCN has received an opinion of a nationally recognized independent
counsel to the Trust experienced in such matters to the effect that, (A) such
merger, consolidation, amalgamation or replacement does not adversely affect the
rights, preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), (B)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act and (C) following such merger, consolidation,
amalgamation or replacement, the Trust (or the successor entity) will continue
to be classified as a grantor trust for United States federal income tax
purposes, and (viii) MCN guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the Guarantee
and the Common Securities Guarantee. Notwithstanding the foregoing, the Trust
shall not, except with the consent of holders of 100% in liquidation amount of
the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause the Trust or the Successor
Entity to be classified as other than a grantor trust for United States federal
income tax purposes.
BOOK-ENTRY ONLY ISSUANCE-THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
nominee). One or more fully-registered global Preferred Securities certificates,
representing the total aggregate number of Preferred Securities, will be issued
and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others, such as securities brokers and
dealers, banks and trust companies that clear transactions through or maintain a
direct or indirect custodial relationship with a Direct Participant either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
S-19
<PAGE> 20
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Preferred Securities, except in the event that
use of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce the amount of the
interest of each Direct Participant in such Preferred Securities in accordance
with its procedures. Although voting with respect to the Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede & Co.
will itself consent or vote with respect to Preferred Securities. Under its
usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co. consenting
or voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy). MCN and the Trust believe that the arrangements among DTC,
Direct and Indirect Participants, and Beneficial Owners will enable the
Beneficial Owners to exercise rights equivalent in substance to the rights that
can be directly exercised by a holder of a beneficial interest in the Trust.
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Participant and not of DTC,
the Trust or MCN, subject to any statutory or regulatory requirements to the
contrary that may be in effect from time to time. Payment of distributions to
DTC is the responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with the consent of
MCN) may decide to discontinue use of
S-20
<PAGE> 21
the system of book-entry transfers through DTC (or any successor depositary)
with respect to the Preferred Securities. In that event, certificates for the
Preferred Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that MCN and MCN Financing believe to be
reliable, but neither MCN nor MCN Financing takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities and after the curing of any defaults that may
have occurred, undertakes to perform only such duties as are specifically set
forth in the Declaration and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Institutional Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The holders of Preferred Securities will not be required to
offer such indemnity in the event such holders, by exercising their voting
rights, direct the Institutional Trustee to take any action it is empowered to
take under the Declaration following a Declaration Event of Default. The
Institutional Trustee also serves as trustee under the Guarantee.
PAYING AGENT
In addition, in the event that the Preferred Securities do not remain in
book-entry only form, the following provisions would apply:
The Institutional Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time. Registration of transfers of
Preferred Securities will be effected without charge by or on behalf of the
Trust, but upon payment (with the giving of such indemnity as the Trust or MCN
may require) in respect of any tax or other government charges that may be
imposed in relation to it. The Trust will not be required to register or cause
to be registered the transfer of Preferred Securities after such Preferred
Securities have been called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or characterized as other than a grantor trust for
United States federal income tax purposes. MCN is authorized and directed to
conduct its affairs so that the Junior Subordinated Debentures will be treated
as indebtedness of MCN for United States federal income tax purposes. In this
connection, MCN and the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust or the
certificate of incorporation of MCN, that each of MCN and the Regular Trustees
determine in their discretion to be necessary or desirable to achieve such end,
as long as such action does not adversely affect the interests of the holders of
the Preferred Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
Pursuant to the Guarantee, MCN will irrevocably and unconditionally agree,
to the extent set forth therein, to pay in full, to the holders of the Preferred
Securities issued by the Trust, the Guarantee Payments (as defined in the
accompanying Prospectus)(except to the extent paid by the Trust), as and when
due,
S-21
<PAGE> 22
regardless of any defense, right of set-off or counterclaim which the Trust may
have or assert. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of Preferred Securities or by causing the Trust to pay such amounts to
such holders. The Guarantee will be qualified as an indenture under the Trust
Indenture Act. Wilmington Trust Company will act as indenture trustee under the
Guarantee. The terms of the Guarantee will be those set forth in such Guarantee
and those made part of such Guarantee by the Trust Indenture Act. The Guarantee
will be held by the Guarantee Trustee for the benefit of the holders of the
Preferred Securities. Notwithstanding the foregoing, if the Company has failed
to make a payment under the Guarantee, any holder of Preferred Securities may
institute a legal proceeding directly against the Company to enforce its rights
under the Guarantee without first instituting a legal proceeding directly
against the Trust, the Guarantee Trustee or any other person or entity. A
summary description of the Guarantee appears in the accompanying Prospectus
under the caption "Description of the Preferred Securities Guarantees."
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Junior
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Trust Securities. This description supplements the
description of the general terms and provisions of the Junior Subordinated
Debentures set forth in the accompanying Prospectus under the caption
"Particular Terms of the Subordinated Debt Securities." The following
description does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the description in the accompanying Prospectus
and the Subordinated Debt Securities Indenture, dated as of September 1, 1994
(as supplemented by the First Supplemental Indenture, dated, April 17, 1996, as
so supplemented, the "Base Indenture") between MCN and NBD Bank, as Trustee (the
"Debt Trustee"), as supplemented by a Supplemental Indenture, dated as of
, 1996 (the Base Indenture, as so supplemented, is hereinafter
referred to as the "Indenture"), the form of which is incorporated by reference
as an Exhibit to the Registration Statement of which this Prospectus Supplement
and the accompanying Prospectus form a part. Certain capitalized terms used
herein are defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Junior Subordinated Debentures may
be distributed to the holders of the Trust Securities in liquidation of the
Trust. See "Description of the Preferred Securities -- Special Event Redemption
or Distribution."
If the Junior Subordinated Debentures are distributed to the holders of the
Preferred Securities, MCN will use its best efforts to have the Junior
Subordinated Debentures listed on the New York Stock Exchange or on such other
national securities exchange or similar organization on which the Preferred
Securities are then listed or quoted.
GENERAL
The Junior Subordinated Debentures will be issued as unsecured debt under
the Indenture. The Junior Subordinated Debentures will be limited in aggregate
principal amount to approximately $80,000,000, such amount being the sum of the
aggregate stated liquidation of the Preferred Securities and the capital
contributed by MCN in exchange for the Common Securities (the "MCN Payment").
The Junior Subordinated Debentures are not subject to a sinking fund
provision. The entire principal amount of the Junior Subordinated Debentures
will mature and become due and payable, together with any accrued and unpaid
interest thereon including Compound Interest (as defined herein) and Additional
Interest (as defined herein), if any, on , 2036.
If Junior Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, such Junior
Subordinated Debentures will initially be issued as a Global Security (as
defined herein). As described herein, under certain limited circumstances,
Junior Subordinated Debentures may be issued in certificated form in exchange
for a Global Security. See "--Book-Entry and Settlement" below. In the event
that Junior Subordinated Debentures are issued in certificated form, such Junior
Subordinated Debentures will be in denominations of $25 and integral multiples
thereof and may be
S-22
<PAGE> 23
transferred or exchanged at the offices described below. Payments on Junior
Subordinated Debentures issued as a Global Security will be made to DTC, a
successor depositary or, in the event that no depositary is used, to a Paying
Agent for the Junior Subordinated Debentures. In the event Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other denominations of a like aggregate principal amount at the
corporate trust office of the Institutional Trustee in Wilmington, Delaware;
provided, that at the option of MCN payment of interest may be made by check
mailed to the address of the holder entitled thereto or by wire transfer to an
account appropriately designated by the holder entitled thereto. Notwithstanding
the foregoing, so long as the holder of any Junior Subordinated Debentures is
the Property Trustee, the payment of principal and interest on the Junior
Subordinated Debentures held by the Property Trustee will be made at such place
and to such account as may be designated by the Property Trustee.
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction involving MCN.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinated and junior in right of payment to all Senior Indebtedness of MCN
and pari passu with MCN trade creditors. No payment of principal (including
redemption and sinking fund payments), premium, if any, or interest on the
Junior Subordinated Debentures may be made (i) if any Senior Indebtedness of MCN
is not paid when due, (ii) any applicable grace period with respect to such
default has ended and such default has not been cured or waived or ceased to
exist, or (iii) if the maturity of any Senior Indebtedness of MCN has been
accelerated because of a default. Upon any distribution of assets of MCN to
creditors upon any dissolution, winding-up, liquidation or reorganization,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all principal, premium, if any, and interest due or to become
due on all Senior Indebtedness of MCN must be paid in full before the holders of
Junior Subordinated Debentures are entitled to receive or retain any payment.
Upon satisfaction of all claims of all Senior Indebtedness then outstanding, the
rights of the holders of the Junior Subordinated Debentures will be subrogated
to the rights of the holders of Indebtedness of MCN to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Junior Subordinated Debentures are paid in full.
The term "Senior Indebtedness" means the principal of and premium, if any,
and interest on the following, whether outstanding on the date of execution of
the Subordinated Debt Securities Indenture or thereafter incurred or created:
(i) indebtedness of MCN for money borrowed by MCN (including purchase money
obligations with an original maturity in excess of one year) or evidenced by
debentures (other than the Subordinated Debt Securities), notes, bankers'
acceptances or other corporate debt securities or similar instruments issued by
MCN; (ii) obligations with respect to letters of credit; (iii) indebtedness of
MCN constituting a guarantee of indebtedness of others of the type referred to
in the preceding clauses (i) and (ii); or (iv) renewals, extensions or
refundings of any of the indebtedness referred to in the preceding clauses (i),
(ii) and (iii) unless, in the case of any particular indebtedness, renewal,
extension or refunding, under the express provisions of the instrument creating
or evidencing the same, or pursuant to which the same is outstanding, such
indebtedness or such renewal extension or refunding thereof is not superior in
right of payment to the Subordinated Debt Securities. In November 1994, MCN
issued $101 million of Series A Subordinated Debentures to MCN Michigan Limited
Partnership, a financing entity which issued cumulative preferred securities
that rank pari passu with the Preferred Securities.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by MCN. As of March 31, 1996, Senior Indebtedness of MCN
aggregated approximately $1,320 million.
OPTIONAL REDEMPTION
MCN shall have the right to redeem the Junior Subordinated Debentures, in
whole or in part, from time to time, on or after , 2001, or at any
time in certain circumstances upon the occurrence of a Special Event as
described under "Description of the Preferred Securities -- Special Event
Redemption or
S-23
<PAGE> 24
Distribution," upon not less than 30 nor more than 60 days notice, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest, including Additional Interest, if any, to the
redemption date. If a partial redemption of the Preferred Securities resulting
from a partial redemption of the Junior Subordinated Debentures would result in
the delisting of the Preferred Securities,by such exchange on which the
Preferred Securities are then listed, MCN may only redeem the Junior
Subordinated Debentures in whole.
INTEREST
Each Junior Subordinated Debenture shall bear interest at the rate of
% per annum from the original date of issuance, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (each an
"Interest Payment Date"), commencing September 30, 1996, to the person in whose
name such Junior Subordinated Debenture is registered, subject to certain
exceptions, at the close of business on the Business Day next preceding such
Interest Payment Date. In the event the Junior Subordinated Debentures shall not
continue to remain in book-entry only form, MCN shall have the right to select
record dates, which shall be more than one Business Day prior to the Interest
Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed,
will be computed on the basis of the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, then
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date.
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations, such as the Junior Subordinated Debentures, issued on or after
December 7, 1995. On March 29, 1996, Senate Finance Committee Chairman William
V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a
joint statement (the "Joint Statement") indicating their intent that the
Proposed Legislation, if adopted by either of the tax-writing committees of
Congress, would have an effective date that is no earlier than the date of
"appropriate Congressional action." Based upon the Joint Statement, it is
expected that if the Proposed Legislation were to be enacted, such legislation
would not apply to the Junior Subordinated Debentures. There can be no
assurances, however, that the effective date guidance contained in the Joint
Statement will be incorporated into the Proposed Legislation, if enacted, or
that other legislation enacted after the date hereof will not otherwise
adversely affect the ability of MCN to deduct the interest payable on the Junior
Subordinated Debentures. Accordingly, there can be no assurance that a Tax Event
will not occur. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
MCN shall have the right at any time, and from time to time, during the
term of the Junior Subordinated Debentures to defer payments of interest by
extending the interest payment period for a period not exceeding 20 consecutive
quarters, at the end of which Extension Period, MCN shall pay all interest then
accrued and unpaid (including any Additional Interest, as herein defined)
together with interest thereon compounded quarterly at the rate specified for
the Junior Subordinated Debentures to the extent permitted by applicable law
("Compound Interest"); provided, that during any such Extension Period, (a) MCN
shall not declare or pay dividends on, make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to any of
its capital stock (other than (i) purchases or acquisitions of shares of MCN
Common Stock in connection with the satisfaction by MCN of its obligations under
any employee benefit plans or the satisfaction by MCN of its obligations
pursuant to any contract or security requiring MCN to
S-24
<PAGE> 25
purchase shares of MCN Common Stock, (ii) as a result of a reclassification of
MCN capital stock or the exchange or conversion of one class or series of MCN's
capital stock for another class or series of MCN capital stock or (iii) the
purchase of fractional interests in shares of MCN's capital stock pursuant to
the conversion or exchange provisions of such MCN capital stock or the security
being converted or exchanged) or make any guarantee payments with respect to the
foregoing), (b) MCN shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by MCN that rank pari passu with or junior to the
Junior Subordinated Debentures and (c) MCN shall not make any guarantee payments
with respect to the foregoing (other than pursuant to the Preferred Securities
Guarantee). Prior to the termination of any such Extension Period, MCN may
further defer payments of interest by extending the interest payment period;
provided, however, that, such Extension Period, including all such previous and
further extensions, may not exceed 20 consecutive quarters or beyond the
maturity of the Junior Subordinated Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, MCN may commence a new
Extension Period, subject to the terms set forth in this section. No interest
during an Extension Period, except at the end thereof, shall be due and payable.
MCN has no present intention of exercising its right to defer payments of
interest by extending the interest payment period on the Junior Subordinated
Debentures. If the Institutional Trustee shall be the sole holder of the Junior
Subordinated Debentures, MCN shall give the Regular Trustees and the
Institutional Trustee notice of its selection of such Extension Period one
Business Day prior to the earlier of (i) the date distributions on the Preferred
Securities are payable or (ii) the date the Regular Trustees are required to
give notice to the New York Stock Exchange (or other applicable self-regulatory
organization) or to holders of the Preferred Securities of the record date or
the date such distribution is payable. The Regular Trustees shall give notice of
MCN's selection of such Extension Period to the holders of the Preferred
Securities. If the Institutional Trustee shall not be the sole holder of the
Junior Subordinated Debentures, MCN shall give the holders of the Junior
Subordinated Debentures notice of its selection of such Extension Period ten
Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the
date upon which MCN is required to give notice to the New York Stock Exchange
(or other applicable self-regulatory organization) or to holders of the Junior
Subordinated Debentures of the record or payment date of such related interest
payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, MCN will pay as additional interest ("Additional Interest") such
additional amounts as shall be required so that the net amounts received and
retained by the Trust after paying any such taxes, duties, assessments or other
governmental charges will be not less than the amounts the Trust would have
received had no such taxes, duties, assessments or other governmental charges
been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Junior Subordinated Debentures, will
have the right to declare the principal of and the interest on the Junior
Subordinated Debentures (including any Compound Interest and Additional
Interest, if any) and any other amounts payable under the Indenture to be
forthwith due and payable and to enforce its other rights as a creditor with
respect to the Junior Subordinated Debentures. See "Particular Terms of the
Subordinated Debt Securities -- Events of Default and Notice Thereof" in the
accompanying Prospectus for a description of the Events of Default. An Indenture
Event of Default also constitutes a Declaration Event of Default. The holders of
Preferred Securities in certain circumstances have the right to direct the
Institutional Trustee to exercise its rights as the holder of the Junior
Subordinated Debentures. See "Description of the Preferred
Securities -- Declaration Events of Default" and "-- Voting Rights."
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of MCN to pay interest
or principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, MCN acknowledges that then a holder of Preferred
Securities may institute a Direct Action for payment on or after the respective
due date specified in the Junior Subordinated Debentures. Notwithstanding any
payments made to such holder of Preferred Securities by MCN in connection with a
Direct Action, MCN shall remain obligated to pay the principal of or
S-25
<PAGE> 26
interest on the Junior Subordinated Debt Securities held by MCN Financing or the
Institutional Trustee of MCN Financing, and MCN shall be subrogated to the
rights of the holder of such Preferred Securities with respect to payments on
the Preferred Securities to the extent of any payments made by the Company to
such holder in any Direct Action. The holders of Preferred Securities will not
be able to exercise directly any other remedy available to the holders of the
Junior Subordinated Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust as
a result of the occurrence of a Special Event, the Junior Subordinated
Debentures will be issued in the form of one or more global certificates (each a
"Global Security") registered in the name of the Depositary or its nominee.
Except under the limited circumstances described below, Junior Subordinated
Debentures represented by the Global Security will not be exchangeable for, and
will not otherwise be issuable as, Junior Subordinated Debentures in definitive
form. The Global Securities described above may not be transferred except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or to a successor depositary
or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Debentures in definitive form and will not be considered the
holders (as defined in the Indenture) thereof for any purpose under the
Indenture, and no Global Security representing Junior Subordinated Debentures
shall be exchangeable, except for another Global Security of like denomination
and tenor to be registered in the name of the Depositary or its nominee or to a
successor Depositary or its nominee. Accordingly, each Beneficial Owner must
rely on the procedures of the Depositary or if such person is not a Participant,
on the procedures of the Participant through which such person owns its interest
to exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Junior Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, DTC will act
as securities depositary for the Junior Subordinated Debentures. For a
description of DTC and the specific terms of the depositary arrangements, see
"Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company." As of the date of this Prospectus Supplement, the
description therein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by MCN. MCN may appoint a
successor to DTC or any successor depositary in the event DTC or such successor
depositary is unable or unwilling to continue as a depository for the Global
Securities.
None of MCN, the Trust, the Institutional Trustee, any paying agent and any
other agent of MCN or the Debt Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Security for such Junior Subordinated
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the depositary notifies MCN that it is unwilling or unable to continue as
a depositary for such Global Security and no successor depositary shall have
been appointed, (ii) the depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the depositary is required to be
so registered to act as such depositary and no successor depositary shall have
been appointed, (iii) MCN, in its sole discretion, determines that such Global
Security
S-26
<PAGE> 27
shall be so exchangeable or (iv) there shall have occurred an Event of Default
with respect to such Junior Subordinated Debentures. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for Junior
Subordinated Debentures registered in such names as the Depositary shall direct.
It is expected that such instructions will be based upon directions received by
the Depositary from its Participants with respect to ownership of beneficial
interests in such Global Security.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
MCN will pay all fees and expenses related to (i) the offering of the Trust
Securities and the Junior Subordinated Debentures, (ii) the organization,
maintenance and dissolution of the Trust, (iii) the retention of the MCN
Trustees and (iv) the enforcement by the Institutional Trustee of the rights of
the holders of the Preferred Securities. The payment of such fees and expenses
will be fully and unconditionally guaranteed by MCN.
S-27
<PAGE> 28
EFFECT OF OBLIGATIONS UNDER THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the Junior
Subordinated Debentures.
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Junior Subordinated Debentures
will be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Junior Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the Preferred Securities; (iii) MCN
shall pay all, and the Trust shall not be obligated to pay, directly or
indirectly, all costs, expenses, debt, and obligations of the Trust (other than
with respect to the Trust Securities); and (iv) the Declaration further provides
that the MCN Trustees shall not take or cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by MCN as and to the extent set forth under
"Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. If MCN does not make interest payments on the Junior Subordinated
Debentures purchased by the Trust, it is expected that the Trust will not have
sufficient funds to pay distributions on the Preferred Securities. The Guarantee
does not apply to any payment of distributions unless and until the Trust has
sufficient funds for the payment of such distributions. The Guarantee covers the
payment of distributions and other payments on the Preferred Securities only if
and to the extent that MCN has made a payment of interest or principal on the
Junior Subordinated Debentures held by the Trust as its sole asset.
If MCN fails to make interest or other payments on the Junior Subordinated
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Book --
Entry Only Issuance -- The Depository Trust Company" and "-- Voting Rights," may
direct the Institutional Trustee to enforce its rights under the Junior
Subordinated Debentures. If the Institutional Trustee fails to enforce its
rights under the Junior Subordinated Debentures, a holder of Preferred
Securities may institute a legal proceeding against MCN to enforce the
Institutional Trustee's rights under the Junior Subordinated Debentures without
first instituting any legal proceeding against the Institutional Trustee or any
other person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of MCN to pay interest or principal on the Junior Subordinated
Debentures on the date such interest or principal is otherwise payable, then a
holder of Preferred Securities may directly institute a proceeding against the
Company for payment. MCN, under the Guarantee, acknowledges that the Guarantee
Trustee shall enforce the Guarantee on behalf of the holders of the Preferred
Securities. If MCN fails to make payments under the Guarantee, the Guarantee
provides a mechanism whereby the holders of the Preferred Securities may direct
the Guarantee Trustee to enforce its rights thereunder. Notwithstanding the
foregoing, if the Company has failed to make a payment under the Guarantee, any
holder of Preferred Securities may institute a legal proceeding directly against
MCN to enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee, or any other person or
entity.
The Guarantee, when taken together with MCN's obligations under the Junior
Subordinated Debentures and the Indenture and its obligations under the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
provide a full and unconditional guarantee of amounts due on the Preferred
Securities. See "Description of the Preferred Securities Guarantees -- General"
in the accompanying Prospectus.
S-28
<PAGE> 29
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of Preferred
Securities. Unless otherwise stated, this summary deals only with Preferred
Securities held as capital assets by holders who purchase the Preferred
Securities upon original issuance ("Initial Holders"). It does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that will hold the
Preferred Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. Dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Preferred Securities. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable to
the Preferred Securities. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Junior Subordinated Debentures,
Skadden, Arps, Slate, Meagher & Flom, special tax counsel to MCN and the Trust,
will render its opinion generally to the effect that, although not entirely free
from doubt, under then current law and assuming full compliance with the terms
of the Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Junior Subordinated Debentures held
by the Trust will be classified for United States federal income tax purposes as
indebtedness of MCN.
CLASSIFICATION OF MCN FINANCING
In connection with the issuance of the Preferred Securities, Skadden, Arps,
Slate, Meagher & Flom, special tax counsel to MCN and the Trust, will render its
opinion generally to the effect that, under then current law and assuming full
compliance with the terms of the Declaration and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Preferred Securities generally will be considered the owner of an undivided
interest in the Junior Subordinated Debentures, and each holder will be required
to include in its gross income any OID accrued with respect to its allocable
share of those Junior Subordinated Debentures.
ORIGINAL ISSUE DISCOUNT
Because MCN has the option, under the terms of the Junior Subordinated
Debentures, to defer payments of interest by extending interest payment periods
for up to 20 quarters, all of the stated interest payments on the Junior
Subordinated Debentures will be treated as "original issue discount." Holders of
debt instruments issued with OID must include that discount in income on an
economic accrual basis before the receipt of cash attributable to the interest,
regardless of their method of tax accounting. Generally, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures will
be accounted for as OID, and actual distributions of stated interest will not be
separately reported as taxable income. The amount of OID that accrues in any
month will approximately equal the amount of the interest that accrues on the
Junior Subordinated Debentures in that month at the stated interest rate. In the
event that the interest payment period is extended, holders will continue to
accrue OID approximately equal to the amount of the interest payment due at the
end of the extended interest payment period on an economic accrual basis over
the length of the extended interest period.
S-29
<PAGE> 30
Because income on the Preferred Securities will constitute OID, corporate
holders of Preferred Securities will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Preferred
Securities.
MARKET DISCOUNT AND BOND PREMIUM
Holders of Preferred Securities other than Initial Holders may be
considered to have acquired their undivided interests in the Junior Subordinated
Debentures with market discount or acquisition premium as such phrases are
defined for United States federal income tax purposes. Such holders are advised
to consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Preferred Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF MCN
FINANCING
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution," Junior
Subordinated Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of the Trust. Under current law, such a
distribution, for United States federal income tax purposes, would be treated as
a non-taxable event to each holder, and each holder would receive an aggregate
tax basis in the Junior Subordinated Debentures equal to such holder's aggregate
tax basis in its Preferred Securities. A holder's holding period in the Junior
Subordinated Debentures so received in liquidation of the Trust would include
the period during which the Preferred Securities were held by such holder. If,
however, the related Special Event is a Tax Event which results in the Trust
being treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to holders of the Preferred Securities.
Under certain circumstances described herein (see "Description of the
Preferred Securities -- Special Event Redemption or Distribution"), the Junior
Subordinated Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Preferred Securities.
Under current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Preferred Securities,
and a holder could recognize gain or loss as if it sold such redeemed Preferred
Securities for cash. See "-- Sales of Preferred Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. A holder's
adjusted tax basis in the Preferred Securities generally will be its initial
purchase price increased by OID previously includible in such holder's gross
income to the date of disposition and decreased by payments received on the
Preferred Securities. Such gain or loss generally will be a capital gain or loss
and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who disposes of his Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Junior Subordinated
Debentures through the date of disposition in income as ordinary income, and to
add such amount to his adjusted tax basis in his pro rata share of the
underlying Junior Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include,
in the form of OID, all accrued but unpaid interest) a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust.
S-30
<PAGE> 31
Under present United States federal income tax law: (i) payments by the
Trust or any of its paying agents to any holder of a Preferred Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the
Preferred Security does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of MCN entitled to vote, (b)
the beneficial owner of the Preferred Security is not a controlled foreign
corporation that is related to MCN through stock ownership, and (c) either (A)
the beneficial owner of the Preferred Security certifies to the Trust or its
agent, under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution"), and holds the
Preferred Security in such capacity, that certifies to the Trust or its agent,
under penalties of perjury, that such statement has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Trust or its agent with a copy thereof; and
(ii) a United States Alien Holder of a Preferred Security will not be subject to
United States federal withholding tax on any gain realized upon the sale or
other disposition of a Preferred Security.
On April 15, 1996, the Internal Revenue Service proposed regulations (the
"Proposed Regulations"), which, if enacted in their current form, could affect
the procedures to be followed by a United States Alien Holder in establishing
such United States Alien Holder's status as a United States Alien for the
purposes of the withholding rules (including the back-up withholding rules
referred to below). The Proposed Regulations, if adopted in their present form,
generally would be effective for payments made after December 31, 1997.
Prospective investors should consult their tax advisors concerning the potential
adoption of such Proposed Regulations and the potential effect on their
ownership of the Preferred Securities.
INFORMATION REPORTING TO HOLDERS
Subject to the qualifications discussed below, income on the Preferred
Securities will be reported to holders on Forms 1099, which forms should be
mailed to holders of Preferred Securities by January 31 following each calendar
year.
The Trust will be obligated to report annually to Cede & Co., as holder of
record of the Preferred Securities, the OID related to the Junior Subordinated
Debentures that accrued during the year. the Trust currently intends to report
such information on Form 1099 prior to January 31 following each calendar year
even though the Trust is not legally required to report to record holders until
April 15 following each calendar year. The Underwriters (as defined herein) have
indicated to the Trust that, to the extent that they hold Preferred Securities
as nominees for beneficial holders, they currently expect to report to such
beneficial holders on Forms 1099 by January 31 following each calendar year.
Under current law, holders of Preferred Securities who hold as nominees for
beneficial holders will not have any obligation to report information regarding
the beneficial holders to the Trust. The Trust, moreover, will not have any
obligation to report to beneficial holders who are not also record holders.
Thus, beneficial holders of Preferred Securities who hold their respective
Preferred Securities through the Underwriters will receive Forms 1099 reflecting
the income on their respective Preferred Securities from such nominee holders
rather than the Trust.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States federal income tax, provided the
required information is provided to the Service.
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations, such as the Junior Subordinated Debentures, issued on or after
December 7, 1995. On March 29, 1996, Senate Finance Committee Chairman William
V. Roth, Jr. and
S-31
<PAGE> 32
House Ways and Means Committee Chairman Bill Archer issued a joint statement
(the "Joint Statement") indicating their intent that the Proposed Legislation,
if adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." Based upon the Joint Statement, it is expected that if the Proposed
Legislation were to be enacted, such legislation would not apply to the Junior
Subordinated Debentures. There can be no assurances, however, that the effective
date guidance contained in the Joint Statement will be incorporated into the
Proposed Legislation, if enacted, or that other legislation enacted after the
date hereof will not otherwise adversely affect the ability of MCN to deduct the
interest payable on the Junior Subordinated Debentures. Accordingly, there can
be no assurance that a Tax Event will not occur. See "Description of the
Preferred Securities -- Special Event Redemption or Distribution."
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
S-32
<PAGE> 33
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Robert W. Baird & Co. Incorporated, A.G.
Edwards & Sons, Inc., First of Michigan Corporation, Ladenburg, Thalmann & Co.
Inc. and PaineWebber Incorporated are acting as representatives (the
"Representatives"), has severally agreed to purchase the number of Preferred
Securities set forth opposite its name below. In the Underwriting Agreement, the
several Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all the Preferred Securities offered hereby if any of the
Preferred Securities are purchased. In the event of default by an Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Robert W. Baird & Co. Incorporated.................................
A.G. Edwards & Sons, Inc. .........................................
First of Michigan Corporation......................................
Ladenburg, Thalmann & Co. Inc. ....................................
PaineWebber Incorporated...........................................
---------
Total................................................. 3,200,000
=========
</TABLE>
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price, as set forth on the cover
page of this Prospectus Supplement, and in part to certain securities dealers at
such price less a concession of $ per Preferred Security, provided that
such concession for sales of 10,000 or more Preferred Securities to any single
purchaser will be $ per Preferred Security. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per
Preferred Security to certain brokers and dealers. After the Preferred
Securities are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures of MCN,
the Underwriting Agreement provides that MCN will agree to pay as compensation
("Underwriters' Compensation") to the Underwriters for the Underwriters'
arranging the investment therein of such proceeds, an amount in New York
Clearing House (same day) funds of $ per Preferred Security (or
$ in the aggregate) for the accounts of the several Underwriters,
provided that such compensation for sales of 10,000 or more Preferred Securities
to any single purchaser will be $ per Preferred Security. Therefore, to
the extent of such sales, the actual amount of Underwriters' Compensation will
be less than the aggregate amount specified in the preceding sentence.
During a period of 30 days from the date of the Prospectus Supplement,
neither the Trust nor MCN will, without the prior written consent of the
Representatives, directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities or
the Junior Subordinated Debentures or any debt
S-33
<PAGE> 34
securities substantially similar to the Junior Subordinated Debentures or any
equity securities substantially similar to the Preferred Securities (except for
the Junior Subordinated Debentures and the Preferred Securities offered hereby).
The Preferred Securities have been approved for listing on the NYSE under
the symbol "MCNprA". Trading of the Preferred Securities on the New York Stock
Exchange is expected to commence within a 30 day period after the initial
delivery of the Preferred Securities. The Representatives have advised the Trust
that they intend to make a market in the Preferred Securities prior to the
commencement of trading on the New York Stock Exchange. The Representatives will
have no obligation to make a market in the Preferred Securities, however, and
may cease market making activities, if commenced, at any time.
Prior to this offering, there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders.
MCN and the Trust have agreed to indemnify the Underwriters against, or
contribute to payments that the Underwriters may be required to make in respect
of, certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, MCN and its subsidiaries in the ordinary
course of business.
LEGAL MATTERS
The validity of the Indenture, the Guarantee and the Junior Subordinated
Debentures and certain matters relating thereto will be passed upon on behalf of
MCN by Daniel L. Schiffer, Senior Vice President, General Counsel and Secretary
of MCN. Certain matters of Delaware law relating to the validity of the
Preferred Securities and certain United States federal income taxation matters
will be passed upon for MCN Financing by Skadden, Arps, Slate, Meagher & Flom,
special counsel to the Company. Certain legal matters will be passed upon for
the Underwriters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., New York, New York.
Mr. Schiffer is a full-time employee and officer of MCN and owns 24,663 shares
of MCN as of May 31, 1996. LeBoeuf, Lamb, Greene & MacRae, L.L.P. from time to
time renders legal services to the Company.
S-34
<PAGE> 35
PROSPECTUS
$400,000,000
MCN CORPORATION LOGO
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
COMMON STOCK
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
-------------------------
MCN FINANCING I
MCN FINANCING II
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MCN CORPORATION
-------------------------
MCN Corporation, a Michigan Corporation, ("MCN or the "Company") may
offer, from time to time, (i) unsecured senior debt securities (the "Senior Debt
Securities") consisting of debentures, notes or other unsecured evidences of
indebtedness, (ii) unsecured subordinated debt securities (the "Subordinated
Debt Securities") consisting of debentures, notes and other unsecured evidence
of indebtedness (item (i) or (ii) above being referred to herein as the "Debt
Securities"), (iii) Common Stock, $.01 par value ("MCN Common Stock"), (iv)
Stock Purchase Contracts ("Stock Purchase Contracts") to purchase Common Stock
or (v) Stock Purchase Units ("Stock Purchase Units" or "PRIDES(SM)"), each
representing ownership of a Stock Purchase Contract and Debt Securities or debt
obligations of third parties, including U.S. Treasury Securities, securing the
holder's obligation to purchase the Common Stock under the Stock Purchase
Contract, in each case in one or more series and in amounts, at prices and on
terms to be determined at or prior to the time of sale.
MCN Financing I and MCN Financing II (each, an "MCN Trust"), statutory
business trusts formed under the laws of the State of Delaware, may offer, from
time to time, preferred securities, representing undivided beneficial interests
in the assets of the respective MCN Trust ("Preferred Securities"). The payment
of periodic cash distributions ("distributions") with respect to Preferred
Securities of each of the MCN Trusts out of moneys held by each of the MCN
Trusts, and payment on liquidation, redemption or otherwise with respect to such
Preferred Securities, will be guaranteed by MCN to the extent described herein
(each a "Guarantee"). See "Description of the Preferred Securities Guarantees"
below. MCN's obligations under the Preferred Securities Guarantees are
subordinate and junior in right of payment to all other liabilities of MCN and
rank pari passu with the most senior preferred stock, if any, issued from time
to time by MCN. Subordinated Debt Securities may be issued and sold from time to
time in one or more series to an MCN Trust, or a trustee of such MCN Trust, in
connection with the investment of the proceeds from the offering of Preferred
Securities and Common Securities (as defined herein) of such MCN Trust. The
Subordinated Debt Securities purchased by an MCN Trust may be subsequently
distributed pro rata to holders of Preferred Securities and Common Securities in
connection with the dissolution of such MCN Trust upon the occurrence of certain
events as may be described in an accompanying Prospectus Supplement.
Specific terms of the particular Subordinated Debt Securities, the Preferred
Securities and the related Preferred Securities Guarantees, together with the
Stock Purchase Contracts, the Stock Purchase Units, the MCN Common Stock and the
Senior Debt Securities, in respect of which this Prospectus is being delivered
(the "Offered Securities") will be set forth in an accompanying Prospectus
Supplement or Supplements, together with the terms of the offering of the
Offered Securities, the initial price thereof and the net proceeds from the sale
thereof. The Prospectus Supplement will set forth with regard to the particular
Offered Securities, without limitation, the following: (i) in the case of Debt
Securities, the designation, aggregate principal amount, denomination, maturity,
any exchange, conversion, redemption or sinking fund provisions, interest rate
(which may be fixed or variable), the time and method of calculating interest
payments, the right of the Company, if any, to defer payment or interest on the
Subordinated Debt Securities and the maximum length of such deferral period,
public offering price, ranking as senior or subordinated debt, any listing on a
securities exchange and other specific terms of the offering, (ii) in the case
of MCN Common Stock, the designation, number of shares, public offering price
and other specific terms of the offering, (iii) in the case of Preferred
Securities, the designation, number of securities, liquidation preference per
security, initial public offering price, any listing on a securities exchange,
dividend rate (or method of calculation thereof), dates on which dividends shall
be payable and dates from which dividends shall accrue, any voting rights, any
redemption, exchange or sinking fund provisions, any other rights, preferences,
privileges, limitations or restrictions relating to the Preferred Securities of
a specific series and the terms upon which the proceeds of the sale of the
Preferred Securities will be used to purchase a specific series of Subordinated
Debt Securities of MCN, (iv) in the case of Stock Purchase Contracts, the
designation and number of shares of Common Stock issuable thereunder, the
purchase price of Common Stock, the date or dates on which the Common Stock is
required to be purchased by the holders of the Stock Purchase Contracts, any
periodic payments required to be made by the Company to the holders of the Stock
Purchase Contract or visa versa, and the terms of the offering and sale thereof,
and (v) in the case of Stock Purchase Units, the specific terms of the Stock
Purchase Contracts and any Debt Securities or debt obligations of third parties
securing the holder's obligation to purchase the Common Stock under the Stock
Purchase Contracts, and the terms of the offering and sale thereof. The Offered
Securities may be offered in amounts, at prices and on terms to be determined at
the time of the offering, provided, however, that the aggregate offering price
to the public of the Offered Securities will be limited to $400,000,000.
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "MCN". See "Description of MCN Capital Stock -- Price Range of
MCN Common Stock and Common Stock Dividends".
MCN and/or each of the MCN Trusts may sell the Offered Securities directly,
through agents designated from time to time or through underwriters or dealers.
See "Plan of Distribution." If any agents of MCN and/or any MCN Trust or any
underwriters or dealers are involved in the sale of the Offered Securities, the
names of such agents, underwriters or dealers and any applicable commissions and
discounts will be set forth in the related Prospectus Supplement.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is April 22, 1996.
<PAGE> 36
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR DEEMED INCORPORATED BY
REFERENCE HEREIN, AND ANY INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN OR
THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MCN OR THE MCN
TRUSTS OR BY ANY AGENT, DEALER OR UNDERWRITER. THIS PROSPECTUS AND ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
AVAILABLE INFORMATION
MCN is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "1934 Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Reports, proxy statements and other information
concerning MCN can be inspected and copied at the SEC's Public Reference Room,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as the
following Regional Offices of the SEC: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, at prescribed rates. Such reports,
proxy statements and other information may also be inspected at the offices of
the NYSE, on which MCN Common Stock is traded, at 20 Broad Street, New York, New
York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by MCN Corporation and the MCN Trusts with the SEC under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to MCN, the MCN Trusts, and the Offered Securities. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the SEC or
incorporated by reference herein are not necessarily complete, and in each
instance reference is made to the copy of such document so filed for a more
complete description of the matter involved. Each such statement is qualified in
its entirety by such reference.
No separate financial statements of any of the MCN Trusts have been
included herein. MCN does not consider that such financial statements would be
material to holders of the Preferred Securities because (i) all of the voting
securities of each of the MCN Trusts will be owned, directly or indirectly, by
MCN, a reporting company under the Exchange Act, (ii) each of the MCN Trusts has
no independent operations but exists for the sole purpose of issuing securities
representing undivided beneficial interests in the assets of such MCN Trust and
investing the proceeds thereof in Subordinated Debt Securities issued by MCN,
and (iii) MCN's obligations described herein and in any accompanying prospectus
supplement under the Declarations of each Trust, the Guarantee issued with
respect to Preferred Securities issued by that Trust, the Subordinated Debt
Securities purchased by that Trust and the related Indenture, taken together,
constitute a full and unconditional guarantee of payments due on the Trust
Securities. See "Particular Terms of the Subordinated Debt Securities" and
"Description of the Preferred Securities Guarantees."
The MCN Trusts are not currently subject to the information reporting
requirements of the 1934 Act. The MCN Trusts will become subject to such
requirements upon the effectiveness of the Registration Statement, although they
intend to seek and expect to receive exemptions therefrom.
2
<PAGE> 37
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by MCN (File No. 1-10070) with the SEC
pursuant to the 1934 Act are incorporated by reference herein and made a part
hereof:
1. Annual Report on Form 10-K for the year ended December 31, 1995.
2. The description of MCN's Common Stock as contained in its Form 8-B dated
September 29, 1988.
3. The description of MCN's Preferred Share Purchase Rights contained in
its Form 8-A dated December 28, 1989.
4. MCN's Current Reports on Form 8-K dated January 10, 1996, February 6,
1996, April 8, 1996 and April 18, 1996.
All documents filed by MCN pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the 1934 Act subsequent to the date hereof and prior to the termination of
the offering of the Offered Securities pursuant hereto shall be deemed to be
incorporated by reference in this Prospectus or in any Prospectus Supplement and
to be a part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference in this Prospectus or in any Prospectus Supplement
shall be deemed to be modified or superseded for purposes of this Prospectus or
any Prospectus Supplement to the extent that a statement contained in this
Prospectus or in any Prospectus Supplement or in any other subsequently filed
document which also is or is deemed to be incorporated by reference in this
Prospectus or in any Prospectus Supplement modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus or any
Prospectus Supplement.
MCN undertakes to provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of any such
person, a copy of any or all of the foregoing documents incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to: Investor Relations, MCN Corporation, 500 Griswold Street,
Detroit, Michigan 48226; telephone 1-800-548-4655.
3
<PAGE> 38
MCN CORPORATION
MCN is a diversified natural gas holding company. Its principal operating
subsidiaries are Michigan Consolidated Gas Company ("MichCon"), a natural gas
distribution and intrastate transmission company; and MCN Investment Corporation
("MCN Investment"), a holding company with subsidiaries involved in exploration
and production, gas gathering and processing, gas storage, gas marketing and
cogeneration and computer operations services. MCN, a Michigan corporation
organized in 1988, is exempt from most provisions of the Public Utility Holding
Company Act of 1935.
MCN's major business segments are Gas Distribution and, within the
Diversified Energy group, Gas Services and Computer Operations Services.
GAS DISTRIBUTION operates the largest natural gas distribution and
intrastate transmission system in Michigan and one of the largest in the United
States. This segment includes the following companies:
MichCon -- A Michigan corporation organized in 1898 that, with its
predecessors has been in business for nearly 150 years. MichCon is a public
utility, engaged in the distribution and transmission of natural gas in the
State of Michigan serving over 1.2 million residential, commercial and
industrial customers.
Citizens Gas Fuel Company -- A Michigan corporation organized in 1951
that, with its predecessors, has been in business for more than 135 years.
Citizens is a gas utility that conducts all of its business in the State of
Michigan serving 13,000 residential, commercial and industrial customers.
GAS SERVICES is an integrated energy group with investments in: Exploration
and Production, Gas Gathering and Processing, Gas Storage and Gas Marketing and
Cogeneration.
COMPUTER OPERATIONS SERVICES is a leading provider of computer outsourcing
services in the United States. The Genix Group provides computer operations
management, data processing and related services to approximately 100 corporate
clients.
The mailing address of MCN's principal executive office is 500 Griswold
Street, Detroit, Michigan 48226 and its telephone number is (313) 256-5500.
THE MCN TRUSTS
Each of MCN I and MCN II is a statutory business trust formed under
Delaware law pursuant to (i) a separate declaration of trust (each a
"Declaration") executed by the Company, as sponsor for such trust (the
"Sponsor") and the MCN Trustees (as defined herein) for such trust and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on March
6, 1996. Each MCN Trust exists for the exclusive purposes of (i) issuing the
Preferred Securities and common securities representing undivided beneficial
interests in the assets of such Trust (the "Common Securities" and, together
with the Preferred Securities, the "Trust Securities"), (ii) investing the gross
proceeds of the Trust Securities in the Subordinated Debt Securities and (iii)
engaging in only those other activities necessary or incidental thereto. All of
the Common Securities will be directly or indirectly owned by the Company. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Preferred Securities except that upon an event of default under
the Declaration, the rights of the holders of the Common Securities to payment
in respect of distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Company will, directly or indirectly, acquire Common Securities
in an aggregate liquidation amount equal to 3% of the total capital of each MCN
Trust. Each MCN Trust has a term of approximately 25 years, but may earlier
terminate as provided in the Declaration. Each MCN Trust's business and affairs
will be conducted by the trustees (the "MCN Trustees") appointed by the Company,
as the direct or indirect holder of all the Common Securities. The holder of the
Common Securities will be entitled to appoint, remove or replace any of, or
increase or reduce the number of, the MCN Trustees of an MCN Trust. The duties
and obligations of the MCN Trustees shall be governed by the Declaration of such
MCN Trust. A majority of the MCN Trustees (the "Regular Trustees") of each MCN
Trust will be persons who are employees or officers of or affiliated with the
Company. In certain limited circumstances set forth in a
4
<PAGE> 39
Prospectus Supplement, the holders of a majority of the Preferred Securities
will be entitled to appoint one additional Regular Trustee, who need not be an
employee or officer of or otherwise affiliated with the Company. One MCN Trustee
of each MCN Trust will be a financial institution which will be unaffiliated
with the Company and which shall act as property trustee and as indenture
trustee for purposes of the Trust Indenture Act of 1939 (the "Trust Indenture
Act"), pursuant to the terms set forth in a Prospectus Supplement (the "Property
Trustee" or the "Institutional Trustee"). In addition, unless the Property
Trustee maintains a principal place of business in the State of Delaware, and
otherwise meets the requirements of applicable law, one MCN Trustee of each MCN
Trust will have its principal place of business or reside in the State of
Delaware (the "Delaware Trustee"). The Company will pay all fees and expenses
related to the MCN Trusts and the offering of Trust Securities, the payment of
which will be guaranteed by the Company. The office of the Delaware Trustee for
each MCN Trust in the State of Delaware is Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890. The
principal place of business of each MCN Trust shall be c/o MCN Corporation, 500
Griswold Street, Detroit, Michigan 48226; telephone 1-313-256-5500.
USE OF PROCEEDS
Each MCN Trust will use the proceeds received from the sale of its
Preferred Securities to purchase Subordinated Debt Securities from MCN. Unless
otherwise indicated in a Prospectus Supplement with respect to the proceeds from
the sale of the particular Offered Securities to which such Prospectus
Supplement relates, MCN intends to add the net proceeds from the sale of Offered
Securities to its general funds, to be used for general corporate purposes,
which may include capital expenditures, investment in subsidiaries, working
capital, repayment of debt and other business opportunities.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to fixed charges and preferred stock dividends for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(1)(2)................. 2.51 2.64 3.04 2.74 2.08
</TABLE>
- -------------------------
(1) MCN has authority to issue up to 25,000,000 shares of preferred stock, no
par value, however, there are currently no shares outstanding and MCN
currently does not have a preferred stock dividend obligation. Therefore,
the Ratio of Earnings to Fixed Charges and Preferred Stock Dividends is
equal to the Ratio of Earnings to Fixed Charges and is not disclosed
separately.
(2) The Ratio of Earnings to Fixed Charges is based on earnings from operations.
"Earnings" consist of the pre-tax income of majority-owned and 50%-owned
companies adjusted to include any income actually received from less than
50% owned companies, plus fixed charges, less interest capitalized during
the period for nonutility companies and less the preferred stock dividend
requirements of MichCon included in fixed charges but not deducted in the
determination of pre-tax income. "Fixed Charges" represent (a) interest
(whether expensed or capitalized), (b) amortization of debt discount,
premium and expense, (c) an estimate of interest implicit in rentals, and
(d) in the case of MCN, the preferred securities dividend requirements of
subsidiaries (MichCon and MCN Michigan Limited Partnership), increased to
reflect the pre-tax earnings requirement for MichCon.
5
<PAGE> 40
DESCRIPTION OF MCN DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement and
the extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Debt Securities.
The Debt Securities may be issued, from time to time, in one or more series
and will constitute either Senior Debt Securities or Subordinated Debt
Securities. Senior Debt Securities will be issued under an Indenture (the
"Senior Debt Securities Indenture"), between the Company and NBD Bank Michigan
("NBD"), as trustee (the "Senior Debt Securities Trustee"). NBD is a
wholly-owned subsidiary of First Chicago NBD Corporation. The Subordinated Debt
Securities will be issued under an Indenture, as supplemented by the First
Supplemental Indenture dated April 17, 1996, (the "Subordinated Debt Securities
Indenture") between the Company and NBD as trustee (the "Subordinated Debt
Securities Trustee").
The Senior Debt Securities Indenture and the Subordinated Debt Securities
Indenture are referred to herein individually as an "Indenture" and,
collectively, as the "Indentures," and the Senior Debt Securities Trustee and
the Subordinated Debt Securities Trustee are referred to herein as the
"Trustee."
The following summaries of certain provisions of the Debt Securities and
the Indentures do not purport to be complete and are subject to, and are
qualified in their entirety by express reference to, all the provisions of the
Indentures, including the definitions therein of certain terms. Certain
capitalized terms herein are defined in the Indentures.
GENERAL
The Debt Securities will be unsecured obligations of the Company.
The Indentures do not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provide that Debt Securities may
be issued thereunder, from time to time, in one or more series.
Reference is made to the Prospectus Supplement relating to the Debt
Securities being offered (the "Offered Debt Securities") for, among other
things, the following terms thereof: (1) the title of the Offered Debt
Securities; (2) any limit on the aggregate principal amount of the Offered Debt
Securities; (3) the date or dates on which the Offered Debt Securities will
mature; (4) the rate or rates (which may be fixed or variable) per annum at
which the Offered Debt Securities will bear interest or the method by which such
rate or rates shall be determined and the date from which such interest will
accrue or the method by which such date or dates shall be determined; (5) the
dates on which such interest will be payable and the Regular Record Dates for
such Interest Payment Dates; (6) the dates, if any, on which, and the price or
prices at which, the Offered Debt Securities may, pursuant to any mandatory or
optional sinking fund provisions, be redeemed by the Company and other detailed
terms and provisions of such sinking funds; (7) the date, if any, after which,
and the price or prices at which, the Offered Debt Securities may, pursuant to
any optional redemption provisions, be redeemed at the option of the Company or
of the Holder thereof and other detailed terms and provisions of such optional
redemption; (8) the right of the Company, if any, to defer payment of interest
on the Subordinated Debt Securities and the maximum length of any such deferral
period; and (9) any other terms of the Offered Debt Securities (which terms
shall not be inconsistent with the appropriate Indenture). For a description of
the terms of the Offered Debt Securities, reference must be made to both the
Prospectus Supplement relating thereto and to the description of Debt Securities
set forth herein.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal of, and any premium or interest on, the Offered Debt Securities
will be payable, and the Offered Debt Securities will be exchangeable and
transfers thereof will be registrable, at the Place of Payment, provided that,
at the option of the Company, payment of interest may be made by check mailed to
the address of the person entitled thereto as it appears in the Security
Register.
6
<PAGE> 41
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Debt Securities will be issued in United States dollars in fully
registered form, without coupons, in denominations of $1,000 or any integral
multiple thereof. No service charge will be made for any transfer or exchange of
the Offered Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
For purposes of the descriptions of both the Senior Debt Securities and the
Subordinated Debt Securities, certain defined terms have the following meanings:
"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all
obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all obligations under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit); (v) all obligations of the type referred to in clauses
(i) through (iv) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable as
obligor, guarantor or otherwise; and (vi) all obligations of the type referred
to in clauses (i) through (v) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation is assumed by
such Person), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured.
"Significant Subsidiary" means a Subsidiary or Subsidiaries of the Company
possessing assets (including the assets of its own Subsidiaries but without
regard to the Company or any other Subsidiary) having a book value, in the
aggregate, equal to not less than 10% of the book value of the aggregate assets
of the Company and its Subsidiaries calculated on a consolidated basis.
"Capitalized Lease Obligations" means an obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with such
principles.
The Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be offered and sold at a substantial discount below their
principal amount. Special federal income tax, accounting and other
considerations applicable to any such Original Issue Discount Securities will be
described in any Prospectus Supplement relating thereto. "Original Issue
Discount Security" means any security which provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof as a result of the occurrence of an Event
of Default and the continuation thereof.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities (as such term is defined below) that will
be deposited with, or on behalf of, a Depositary ("Depositary") or its nominee
identified in the applicable Prospectus Supplement. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denomination
equal to the portion of the aggregate principal amount of outstanding Debt
Securities of the series to be represented by such Global Security or Global
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in registered form, a Global Security may not be registered for
transfer or exchange except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any nominee to a successor Depositary or a nominee of such successor Depositary
and except in the circumstances described in the
7
<PAGE> 42
applicable Prospectus Supplement. The term "Global Security", when used with
respect to any series of Debt Securities, means a Debt Security that is executed
by the Company and authenticated and delivered by the Trustee to the Depositary
or pursuant to the Depositary's instruction, which shall be registered in the
name of the Depositary or its nominee and which shall represent, and shall be
denominated in an amount equal to the aggregate principal amount of, all of the
Outstanding Debt Securities of such series or any portion thereof, in either
case having the same terms, including, without limitation, the same original
issue date, date or dates on which principal is due, and interest rate or method
of determining interest.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Company expects
that the following provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of such Global
Security, and the deposit of such Global Security with or on behalf of the
Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or, if such Debt Securities are
offered and sold directly by the Company, by the Company. Ownership of
beneficial interests in such Global Security will be limited to participants or
Persons that may hold interests through participants. Ownership of beneficial
interests by participants in such Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee for such Global Security. Ownership
of beneficial interests in such Global Security by Persons that hold through
participants will be shown on, and the transfer of that ownership interest
within such participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in certificated form.
The foregoing limitations and such laws may impair the ability to transfer
beneficial interests in such Global Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Securities
represented by such Global Security for all purposes under the Indenture. Unless
otherwise specified in the applicable Prospectus Supplement, owners of
beneficial interests in such Global Security will not be entitled to have Debt
Securities of the series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities of such series in certificated form and will not be considered the
Holders thereof for any purposes under the Indenture. Accordingly, each Person
owning a beneficial interest in such Global Security must rely on the procedures
of the Depositary and, if such Person is not a participant, on the procedures of
the participant through which such Person owns its interest, to exercise any
rights of a Holder under the Indenture. The Company understands that under
existing industry practices, if the Company requests any action of Holders or an
owner of a beneficial interest in such Global Security desires to give any
notice or take any action a Holder is entitled to give or take under the
Indenture, the Depositary would authorize the participants to give such notice
or take such action, and participants would authorize beneficial owners owning
through such participants to give such notice or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
THE TRUSTEE
NBD is the Trustee under the Senior Debt Securities Indenture and the
Subordinated Debt Securities Indenture. NBD has extended lines of credit to
various subsidiaries of MCN. MCN and various of its subsidiaries maintain bank
accounts and have other customary banking relationships with NBD in the
8
<PAGE> 43
ordinary course of business. In addition, various MCN subsidiaries borrow money
from NBD. Mr. Thomas H. Jeffs II, President and Chief Operating Officer of NBD,
serves as a Director of MCN. Mr. Alfred R. Glancy III, Chairman, President and
Chief Executive Officer of MCN, serves as a Director of NBD.
PARTICULAR TERMS OF THE SENIOR DEBT SECURITIES
The following description of the Senior Debt Securities sets forth certain
general terms and provisions of the Senior Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Senior Debt
Securities offered by any Prospectus Supplement and the extent, if any, to which
such general provisions may apply to the Senior Debt Securities so offered will
be described in the Prospectus Supplement relating to such Senior Debt
Securities.
RESTRICTIONS
The Senior Debt Securities Indenture provides that the Company shall not
consolidate with, merge with or into any other corporation (whether or not the
Company shall be the surviving corporation), or sell, assign, transfer or lease
all or substantially all of its properties and assets as an entirety or
substantially as an entirety to any Person or group of affiliated Persons, in
one transaction or a series of related transactions, unless: (1) either the
Company shall be the continuing Person or the Person (if other than the Company)
formed by such consolidation or with which or into which the Company is merged
or the Person (or group of affiliated Persons) to which all or substantially all
the properties and assets of the Company are sold, assigned, transferred or
leased is a corporation (or constitute corporations) organized under the laws of
the United States or any State thereof or the District of Columbia and expressly
assumes, by an indenture supplemental to the Senior Debt Securities Indenture,
all the obligations of the Company under the Senior Debt Securities and the
Senior Debt Securities Indenture, executed and delivered to the Trustee in form
satisfactory to the Trustee; (2) immediately before and after giving effect to
such transaction or series of transactions, no Event of Default, and no Default,
with respect to the Senior Debt Securities shall have occurred and be
continuing; and (3) the Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indentures comply with the Senior Debt
Securities Indenture.
The Senior Debt Securities Indenture also provides that the Company will
not, nor will it permit any Significant Subsidiary to, create, incur, or suffer
to exist any Lien in, of or on the property of the Company or any of its
Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges
or levies on its property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith and
by appropriate proceedings and for which adequate reserves in accordance with
generally accepted principles of accounting shall have been set aside on its
books; (ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books; (iii) Liens arising
out of pledges or deposits under worker's compensation laws, unemployment
insurance, old age pensions, or other social security or retirement benefits, or
similar legislation; (iv) utility easements, building restrictions and such
other encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Company or its Subsidiaries; (v) Liens on the
capital stock, partnership interest, or other evidence of ownership of any
Subsidiary or such Subsidiary's assets that secure project financing for such
Subsidiary; (vi) Liens arising in connection with first mortgage bonds issued by
any Significant Subsidiary pursuant to any first mortgage indenture in effect as
of the date of the Senior Debt Securities Indenture, as such indenture may be
supplemented from time to time; (vii) purchase money liens upon or in property
now owned or hereafter acquired in the ordinary course of business (consistent
with the Company's business practices) to secure (A) the purchase price of such
property or (B) Indebtedness incurred solely for the purpose of financing the
acquisition, construction, or improvement of any such property to be subject to
such liens, or Liens existing on any such property at the time of acquisition,
or extensions, renewals, or replacements of any of the foregoing for the same or
a lesser
9
<PAGE> 44
amount; provided that no such lien shall extend to or cover any property other
than the property being acquired, constructed, or improved and replacements,
modifications, and proceeds of such property, and no such extension, renewal, or
replacement shall extend to or cover any property not theretofore subject to the
Lien being extended, renewed, or replaced; (viii) Liens existing on the date
Senior Debt Securities are first issued; and (ix) Liens for no more than 90 days
arising from a transaction involving accounts receivable of the Company
(including the sale of such accounts receivable), where such accounts receivable
arose in the ordinary course of the Company's business.
The Senior Debt Securities Indenture provides that the Company will not,
nor will it permit any Subsidiary to, enter into any arrangement with any lender
or investor (other than the Company or a Subsidiary), or to which such lender or
investor (other than the Company or a Subsidiary) is a party, providing for the
leasing by the Company or such Subsidiary for a period, including renewals, in
excess of three years of any real property located within the United States
which has been owned by the Company or such Subsidiary for more than six months
and which has been or is to be sold or transferred by the Company or such
Subsidiary to such lender or investor or to any person to whom funds have been
or are to be advanced by such lender or investor on the security of such real
property unless either (a) the Company or such Subsidiary could create
Indebtedness secured by a lien consistent with the restrictions set forth in the
foregoing paragraph on the real property to be leased in an amount equal to the
Value of such transaction without equally and ratably securing the Senior Debt
Securities or (b) the Company, within six months after the sale or transfer
shall have been made, applies an amount equal to the greater of (i) the net
proceeds of the sale of the real property leased pursuant to such arrangement or
(ii) the fair market value of the real property so leased to the retirement of
Senior Debt Securities and other obligations of the Company ranking on a parity
with the Senior Debt Securities.
RANKING OF SENIOR DEBT SECURITIES
The Senior Debt Securities will rank pari passu in right of payment with
all other unsecured indebtedness of the Company, except that the Senior Debt
Securities will be senior in right of payment to any subordinated indebtedness
which, by its terms, is subordinate to the Senior Debt Securities.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following are Events of Default under the Senior Debt Securities
Indenture with respect to Senior Debt Securities of any series: (1) failure to
pay interest on any Senior Debt Security of that series when due, continued for
30 days; (2) failure to pay the principal of (or premium, if any, on) any Senior
Debt Security of that series when due and payable at Maturity, upon redemption
or otherwise; (3) failure to observe or perform any other covenant, warranty or
agreement contained in the Senior Debt Securities of that series or in the
Senior Debt Securities Indenture (other than a covenant, agreement or warranty
included in the Senior Debt Securities Indenture solely for the benefit of
Senior Debt Securities other than that series), continued for a period of 60
days after notice has been given to the Company by the Trustee or Holders of at
least 25% in aggregate principal amount of the Outstanding Senior Debt
Securities of that series; (4) failure to pay at final maturity, or acceleration
of, Indebtedness of the Company having an aggregate principal amount of more
than 1% of the Company's consolidated total assets (determined as of its most
recent fiscal year-end), unless cured within 10 days after notice has been given
to the Company by the Trustee or Holders of at least 10% in aggregate principal
amount of the Outstanding Senior Debt Securities of that series; (5) certain
events of bankruptcy, insolvency or reorganization relating to the Company; and
(6) any other Event of Default with respect to Senior Debt Securities of that
series specified in the Prospectus Supplement relating thereto or Supplemental
Indenture under which such series of Senior Debt Securities is issued.
The Senior Debt Securities Indenture provides that the Trustee shall,
within 30 days after the occurrence of any Default or Event of Default with
respect to Senior Debt Securities of any series, give the Holders of Senior Debt
Securities of that series notice of all uncured Defaults or Events of Default
known to it (the term "Default" includes any event which after notice or passage
of time or both would be an Event of Default); provided, however, that, except
in the case of an Event of Default or a Default in payment on any Senior Debt
Securities of any series, the Trustee shall be protected in withholding such
notice if and so long as the board of
10
<PAGE> 45
directors, the executive committee or directors or responsible officers of the
Trustee in good faith determine that the withholding of such notice is in the
interest of the Holders of Senior Debt Securities of that series.
If an Event of Default with respect to Senior Debt Securities of any series
(other than due to events of bankruptcy, insolvency or reorganization) occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Outstanding Senior Debt Securities of that series, by
notice in writing to the Company (and to the Trustee if given by the Holders of
at least 25% in aggregate principal amount of the Senior Debt Securities of that
series), may declare the unpaid principal of and accrued interest to the date of
acceleration on all the Outstanding Senior Debt Securities of that series to be
due and payable immediately and, upon any such declaration, the Senior Debt
Securities of that series shall become immediately due and payable.
If an Event of Default occurs due to bankruptcy, insolvency or
reorganization, all unpaid principal of and accrued interest on the Outstanding
Senior Debt Securities of any series will become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder of
any Senior Debt Security of that series.
Any such declaration with respect to Senior Debt Securities of any series
may be annulled and past Events of Default and Defaults (except, unless
theretofore cured, an Event of Default or a Default in payment of principal of
or interest on the Senior Debt Securities of that series) may be waived by the
Holders of a majority of the principal amount of the Outstanding Senior Debt
Securities, upon the conditions provided in the Senior Debt Securities
Indenture.
The Senior Debt Securities Indenture provides that the Company shall
periodically file statements with the Trustee regarding compliance by the
Company with certain of the respective covenants thereof and shall specify any
Event of Default or Defaults with respect to Senior Debt Securities of any
series, in performing such covenants, of which the signers may have knowledge.
MODIFICATION OF SENIOR DEBT SECURITIES INDENTURE; WAIVER
The Senior Debt Securities Indenture may be modified by the Company and the
Trustee without the consent of any Holders with respect to certain matters,
including (i) to cure any ambiguity, defect or inconsistency or to correct or
supplement any provision which may be inconsistent with any other provision of
the Senior Debt Securities Indenture and (ii) to make any change that does not
materially adversely affect the interests of any Holder of Senior Debt
Securities of any series. In addition, under the Senior Debt Securities
Indenture, certain rights and obligations of the Company and the rights of
Holders of the Senior Debt Securities may be modified by the Company and the
Trustee with the written consent of the Holders of at least a majority in
aggregate principal amount of the Outstanding Senior Debt Securities of each
series affected thereby; but no extension of the maturity of any Senior Debt
Securities of any series, reduction in the interest rate or extension of the
time for payment of interest, change in the optional redemption or repurchase
provisions in a manner adverse to any Holder of Senior Debt Securities of any
series, other modification in the terms of payment of the principal of, or
interest on, any Senior Debt Securities of any series, or reduction of the
percentage required for modification, will be effective against any Holder of
any Outstanding Senior Debt Security of any series affected thereby without the
Holder's consent. The Senior Debt Securities Indenture does not limit the
aggregate amount of Senior Debt Securities of the Company which may be issued
thereunder.
The Holders of a majority in aggregate principal amount of the Outstanding
Senior Debt Securities of any series may on behalf of the Holders of all Senior
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain restrictive covenants of the Senior Debt
Securities Indenture. The Holders of not less than a majority in aggregate
principal amount of the Outstanding Senior Debt Securities of any series may on
behalf of the Holders of all Senior Debt Securities of that series waive any
past Event of Default or Default under the Senior Debt Securities Indenture with
respect to that series, except an Event of Default or a Default in the payment
of the principal of, or premium, if any, or any interest on any Senior Debt
Security of that series or in respect of a provision which under the Senior Debt
Securities
11
<PAGE> 46
Indenture cannot be modified or amended without the consent of the Holder of
each Outstanding Senior Debt Security of that series affected.
DEFEASANCE
The Company may terminate its substantive obligations in respect of Senior
Debt Securities of any series (except for its obligations to pay the principal
of (and premium, if any, on) and the interest on the Senior Debt Securities of
that series) by (i) depositing with the Trustee, under the terms of an
irrevocable trust agreement, money or U.S. Government Obligations sufficient to
pay all remaining indebtedness on the Senior Debt Securities of that series,
(ii) delivering to the Trustee either an Opinion of Counsel or a ruling directed
to the Trustee from the Internal Revenue Service to the effect that the Holders
of the Senior Debt Securities of that series will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and termination
of obligations, and (iii) complying with certain other requirements set forth in
the Senior Debt Securities Indenture.
PARTICULAR TERMS OF THE SUBORDINATED DEBT SECURITIES
The following description of the Subordinated Debt Securities sets forth
the general terms and provisions of the Subordinated Debt Securities to which
any Prospectus Supplement may relate. The particular terms of the Subordinated
Debt Securities offered by any Prospectus Supplement and the extent, if any, to
which such general provisions may apply will be described in the Prospectus
Supplement relating to such Subordinated Debt Securities.
For purposes of the description of the Subordinated Debt Securities,
certain defined terms have the following meanings:
"Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date of execution of
the Subordinated Debt Securities Indenture or thereafter incurred or
created: (i) indebtedness of the Company for money borrowed by the Company
(including purchase money obligations with an original maturity in excess
of one year) or evidenced by debentures (other than the Subordinated Debt
Securities), notes, bankers' acceptances or other corporate debt securities
or similar instruments issued by the Company; (ii) obligations with respect
to letters of credit; (iii) indebtedness of the Company constituting a
guarantee of indebtedness of others of the type referred to in the
preceding clauses (i) and (ii); or (iv) renewals, extensions or refundings
of any of the indebtedness referred to in the preceding clauses (i), (ii)
and (iii) unless, in the case of any particular indebtedness, renewal,
extension or refunding, under the express provisions of the instrument
creating or evidencing the same, or pursuant to which the same is
outstanding, such indebtedness or such renewal, extension or refunding
thereof is not superior in right of payment to the Subordinated Debt
Securities.
"Project Finance Indebtedness" means Indebtedness of a Subsidiary
(other than a Utility and other than the Company) secured by a Lien on any
property, acquired, constructed or improved by such Subsidiary after the
date of execution of the Subordinated Debt Securities Indenture which Lien
is created or assumed contemporaneously with, or within 120 days after,
such acquisition or completion of such construction or improvement, or
within six months thereafter pursuant to a firm commitment for financing
arranged with a lender or investor within such 120-day period, to secure or
provide for the payment of all or any part of the purchase price of such
property or the cost of such construction or improvement or on any property
existing at the time of acquisition thereof; provided that such a Lien
shall not apply to any property theretofore owned by any such Subsidiary
other than, in the case of any such construction or improvement, any
theretofore unimproved real property on which the property so constructed
or the improvement is located; and provided further that such Indebtedness,
by its terms, shall limit the recourse of any holder of such Indebtedness
(or trustee on such holder's behalf) in the event of any default in such
Indebtedness to the assets subject to such Liens and the capital stock of,
or the dividends received from, the Subsidiary issuing such Indebtedness.
Notwithstanding the foregoing, Project Finance Indebtedness shall include
all Indebtedness that would constitute Project Finance Indebtedness but for
the fact that such Indebtedness was issued prior to the execution of the
12
<PAGE> 47
Subordinated Debt Securities Indenture and taking into account the fact
that the property subject to the Lien may have been acquired prior to the
execution of the Subordinated Debt Securities Indenture.
RESTRICTIONS
The Subordinated Debt Securities Indenture provides that the Company shall
not consolidate with, merge with or into any other corporation (whether or not
the Company shall be the surviving corporation), or sell, assign, transfer or
lease all or substantially all of its properties and assets as an entirety or
substantially as an entirety to any Person or group of affiliated Persons, in
one transaction or a series of related transactions, unless: (1) either the
Company shall be the continuing Person or the Person (if other than the Company)
formed by such consolidation or with which or into which the Company is merged
or the Person (or group of affiliated Persons) to which all or substantially all
the properties and assets of the Company are sold, assigned, transferred or
leased is a corporation (or constitute corporations) organized under the laws of
the United States or any State thereof or the District of Columbia and expressly
assumes, by indentures supplemental to the Subordinated Debt Securities
Indenture executed and delivered to the Trustee in form satisfactory to the
Trustee, all the obligations of the Company under the Subordinated Debt
Securities and the Subordinated Debt Securities Indenture; (2) immediately
before and after giving effect to such transaction or series of related
transactions or series of transactions, no Event of Default, and no Default,
with respect to the Subordinated Debt Securities shall have occurred and be
continuing; and (3) the Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or sale, assignment, transfer or lease and such supplemental indentures
comply with the Subordinated Debt Securities Indenture.
The Subordinated Debt Securities Indenture also provides that the Company
will not, nor will it permit any Significant Subsidiary to, create, incur, or
suffer to exist any Lien in, of or on the property of the Company or any of its
Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges
or levies on its property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith and
by appropriate proceedings and for which adequate reserves in accordance with
generally accepted principles of accounting shall have been set aside on its
books; (ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books; (iii) Liens arising
out of pledges or deposits under worker's compensation laws, unemployment
insurance, old age pensions, or other social security or retirement benefits, or
similar legislation; (iv) utility easements, building restrictions and such
other encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Company or its Subsidiaries; (v) Liens on the
capital stock, partnership interest, or other evidence of ownership of any
Subsidiary or such Subsidiary's assets that secure project financing for such
Subsidiary; (vi) Liens arising in connection with first mortgage bonds issued by
any Significant Subsidiary pursuant to any first mortgage indenture in effect as
of the date of the Subordinated Debt Securities Indenture, as such indenture may
be supplemented from time to time; (vii) purchase money liens upon or in
property now owned or hereafter acquired in the ordinary course of business
(consistent with the Company's business practices) to secure (A) the purchase
price of such property or (B) Indebtedness incurred solely for the purpose of
financing the acquisition, construction, or improvement of any such property to
be subject to such liens, or Liens existing on any such property at the time of
acquisition, or extensions, renewals, or replacements of any of the foregoing
for the same or a lesser amount; provided that no such lien shall extend to or
cover any property other than the property being acquired, constructed, or
improved and replacements, modifications, and proceeds of such property, and no
such extension, renewal, or replacement shall extend to or cover any property
not theretofore subject to the Lien being extended, renewed, or replaced; (viii)
Liens existing on the date Subordinated Debt Securities are first issued; and
(ix) Liens for no more than 90 days arising from a transaction involving
accounts receivable of the Company (including the sale of such accounts
receivable), where such accounts receivable arose in the ordinary course of the
Company's business.
13
<PAGE> 48
The Subordinated Debt Securities Indenture provides that the Company will
not, nor will it permit any Subsidiary to, enter into any arrangement with any
lender or investor (other than the Company or a Subsidiary), or to which such
lender or investor (other than the Company or a Subsidiary) is a party,
providing for the leasing by the Company or such Subsidiary for a period,
including renewals, in excess of three years of any real property located within
the United States which has been owned by the Company or such Subsidiary for
more than six months and which has been or is to be sold or transferred by the
Company or such Subsidiary to such lender or investor or to any person to whom
funds have been or are to be advanced by such lender or investor on the security
of such real property unless either (a) the Company or such Subsidiary could
create Indebtedness secured by a lien consistent with the restrictions set forth
in the foregoing paragraph on the real property to be leased in an amount equal
to the Value of such transaction without equally and ratably securing the
Subordinated Debt Securities or (b) the Company, within six months after the
sale or transfer shall have been made, applies an amount equal to the greater of
(i) the net proceeds of the sale of the real property leased pursuant to such
arrangement or (ii) the fair market value of the real property so leased to the
retirement of Subordinated Debt Securities and other obligations of the Company
ranking senior to or on a parity with the Subordinated Debt Securities.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following are Events of Default under the Subordinated Debt Securities
Indenture with respect to the Subordinated Debt Securities of any series: (1)
failure to pay interest on any Subordinated Debt Securities of that series when
due, continued for 30 days; however, if the Company is permitted by the terms of
the Subordinated Debt Securities of the applicable series to defer the payment
in question, the date on which such payment is due and payable shall be the date
on which the Company is required to make payment following such deferral, if
such deferral has been elected pursuant to the terms of the Subordinated Debt
Securities; (2) failure to pay the principal of (or premium, if any, on) any
Subordinated Debt Securities of that series when due and payable at Maturity,
upon redemption or otherwise; however, if the Company is permitted by the terms
of the Subordinated Debt Securities, of the applicable series to defer the
payment in question, the date on which such payment is due and payable shall be
the date on which the Company is required to make payment following such
deferral, if such deferral has been elected pursuant to the terms of the
Subordinated Debt Securities; (3) failure to observe or perform any other
covenant, warranty or agreement contained in the Subordinated Debt Securities of
that series or in the Subordinated Debt Securities Indenture (other than a
covenant, agreement or warranty included in the Subordinated Debt Securities
Indenture solely for the benefit of Subordinated Debt Securities of a series
other than that series), continued for a period of 60 days after notice has been
given to the Company by the applicable Trustee or Holders of at least 25% in
aggregate principal amount of the Outstanding Subordinated Debt Securities of
that series; (4) failure to pay at final maturity, or acceleration of,
Indebtedness of the Company, (but excluding Project Finance Indebtedness and
certain other gas and oil reserve-based financing with limited recourse to MCN
as described below), having an aggregate principal amount of more than 1% of the
Company's consolidated total assets (determined as of its most recent fiscal
year-end), unless cured within 10 days after notice has been given to the
Company by the Trustee or Holders of at least 10% in aggregate principal amount
of the Outstanding Subordinated Debt Securities of that series; (5) certain
events of bankruptcy, insolvency or reorganization relating to the Company; and
(6) any other Event of Default with respect to Subordinated Debt Securities of
that series specified in the Prospectus Supplement relating thereto; as noted in
(4) above, it will not be an Event of Default under the Subordinated Debt
Securities Indenture if a default occurs in certain gas and oil reserve-based
financing of Supply Development Group, Inc. ( a Subsidiary of the Company) or
its Subsidiaries if the obligations of MCN and its Subsidiaries with respect to
such Indebtedness (other than Supply Development Group, Inc. and its
Subsidiaries) are limited to (i) payments with respect to Section 29 tax
credits, (ii) payments with respect to certain material contracts of the
borrower (generally limited to gas and oil supply contracts and gas and oil
hedging contracts) and (iii) certain environmental obligations of the borrowers.
As of December 31, 1995, $100,000,000 of such gas and oil reserve-based
Indebtedness was outstanding. From time to time, MCN or its Subsidiaries may
establish additional similar reserve-based credit facilities with respect to
which a default would not result in an Event of Default under the Subordinated
Debt Securities Indenture.
14
<PAGE> 49
The Subordinated Debt Securities Indenture provides that the Trustee shall,
within 30 days after the occurrence of any Default or Event of Default with
respect to Subordinated Debt Securities of any series, give the Holders of
Subordinated Debt Securities of that series notice of all uncured Defaults or
Events of Default known to it (the term "Default" includes any event which after
notice or passage of time or both would be an Event of Default); provided,
however, that, except in the case of an Event of Default or a Default in payment
on any Subordinated Debt Securities of any series, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or directors or responsible officers of the Trustee in
good faith determine that the withholding of such notice is in the interest of
the Holders of Subordinated Debt Securities of that series.
If an Event of Default with respect to Subordinated Debt Securities of any
series (other than due to events of bankruptcy, insolvency or reorganization)
occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Outstanding Subordinated Debt Securities of
that series, by notice in writing to the Company (and to the Trustee if given by
the Holders of at least 25% in aggregate principal amount of the Subordinated
Debt Securities of that series), may declare the unpaid principal of and accrued
interest to the date of acceleration on all the Outstanding Subordinated Debt
Securities of that series to be due and payable immediately and, upon any such
declaration, the Subordinated Debt Securities of that series shall become
immediately due and payable.
In addition, in the case of a Junior Subordinated Debenture issued to an
MCN Trust, if an Event of Default has occurred and is continuing and such event
is attributable to the failure of the Company to pay interest or principal, then
a holder of Preferred Securities of such MCN Trust may directly institute a
proceeding against the Company for payment.
If an Event of Default occurs due to bankruptcy, insolvency or
reorganization, all unpaid principal of and accrued interest on the Outstanding
Subordinated Debt Securities of any series will become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder of any Subordinated Debt Security of that series.
Any such declaration with respect to Subordinated Debt Securities of any
series may be annulled and past Events of Default and Defaults (except, unless
theretofore cured, an Event of Default or a Default in payment of principal of
or interest on the Subordinated Debt Securities of that series) may be waived by
the Holders of a majority of the principal amount of the Outstanding
Subordinated Debt Securities of that series, upon the conditions provided in the
Subordinated Debt Securities Indenture.
The Subordinated Debt Securities Indenture provides that the Company shall
periodically file statements with the Trustees regarding compliance by the
Company with certain of the respective covenants thereof and shall specify any
Event of Default or Defaults with respect to Subordinated Debt Securities of any
series, in performing such covenants, of which the signers may have knowledge.
MODIFICATION OF SUBORDINATED DEBT SECURITIES INDENTURE; WAIVER
The Subordinated Debt Securities Indenture may be modified by the Company
and the Trustee without the consent of any Holders with respect to certain
matters, including (i) to cure any ambiguity, defect or inconsistency or to
correct or supplement any provision which may be inconsistent with any other
provision of the Subordinated Debt Securities Indenture and (ii) to make any
change that does not materially adversely affect the interests of any Holder of
Subordinated Debt Securities of any series. In addition, under the Subordinated
Debt Securities Indenture, certain rights and obligations of the Company and the
rights of Holders of the Subordinated Debt Securities may be modified by the
Company and the Trustee with the written consent of the Holders of at least a
majority in aggregate principal amount of the Outstanding Subordinated Debt
Securities of each series affected thereby; but no extension of the maturity of
any Subordinated Debt Securities of any series, reduction in the interest rate
or extension of the time for payment of interest, change in the optional
redemption or repurchase provisions in a manner adverse to any Holder of
Subordinated Debt Securities of any series, other modification in the terms of
payment of the principal of, or interest on, any Subordinated Debt Securities of
any series, or reduction of the percentage required for modification, will be
effective against any Holder of any Outstanding Subordinated Debt Security of
any series
15
<PAGE> 50
affected thereby without the Holder's consent. The Subordinated Debt Securities
Indenture does not limit the aggregate amount of Subordinated Debt Securities of
the Company which may be issued thereunder.
The Holders of a majority in aggregate principal amount of the Outstanding
Subordinated Debt Securities of any series may on behalf of the Holders of all
Subordinated Debt Securities of that series waive, insofar as that series is
concerned, compliance by the Company with certain restrictive covenants of the
Subordinated Debt Securities Indenture. The Holders of not less than a majority
in aggregate principal amount of the Outstanding Subordinated Debt Securities of
any series may on behalf of the Holders of all Subordinated Debt Securities of
that series waive any past Event of Default or Default under the Subordinated
Debt Securities Indenture with respect to that series, except an Event of
Default or a Default in the payment of the principal of, or premium, if any, or
any interest on any Subordinated Debt Security of that series or in respect of a
provision which under the Subordinated Debt Securities Indenture cannot be
modified or amended without the consent of the Holder of each Outstanding
Subordinated Debt Security of that series affected.
DEFEASANCE
The Company may terminate its substantive obligations in respect of
Subordinated Debt Securities of any series (except for its obligations to pay
the principal of (and premium, if any, on) and the interest on the Subordinated
Debt Securities of that series) by (i) depositing with the Trustee, under the
terms of an irrevocable trust agreement, money or U.S. Government Obligations
sufficient to pay all remaining indebtedness on the Subordinated Debt Securities
of that series, (ii) delivering to the Trustee either an Opinion of Counsel or a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Subordinated Debt Securities of that series will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination of obligations, and (iii) complying with certain
other requirements set forth in the Subordinated Debt Securities Indenture.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
Subordinated Debt Securities will be subordinated in right of payment to the
prior payment in full of all Senior Indebtedness of the Company and pari passu
with MCN trade creditors. No payment on account of principal of, premium, if
any, or interest on the Subordinated Debt Securities and no acquisition of, or
payment on account of any sinking fund for, the Subordinated Debt Securities may
be made unless full payment of amounts then due for principal, premium, if any,
and interest then due on all Senior Indebtedness by reason of the maturity
thereof (by lapse of time, acceleration or otherwise) has been made or duly
provided for in cash or in a manner satisfactory to the Holders of such Senior
Indebtedness. In addition, the Subordinated Debt Securities Indenture provides
that if a default has occurred giving the holders of such Senior Indebtedness
the right to accelerate the maturity thereof, or an event has occurred which,
with the giving of notice, or lapse of time, or both, would constitute such an
event of default, then unless and until such event shall have been cured or
waived or shall have ceased to exist, no payment on account of principal,
premium, if any, or interest on the Subordinated Debt Securities and no
acquisition of, or payment on account of a sinking fund for, the Subordinated
Debt Securities may be made. The Company shall give prompt written notice to the
Trustee of any default under any Senior Indebtedness or under any agreement
pursuant to which Senior Indebtedness may have been issued. The Subordinated
Debt Securities Indenture provisions described in this paragraph, however, do
not prevent the Company from making a sinking fund payment with Subordinated
Debt Securities acquired prior to the maturity of Senior Indebtedness or, in the
case of default, prior to such default and notice thereof. Upon any distribution
of its assets in connection with any dissolution, liquidation or reorganization
of the Company, all Senior Indebtedness must be paid in full before the Holders
of the Subordinated Debt Securities are entitled to any payments whatsoever. As
a result of these subordinated provisions, in the event of the Company's
insolvency, holders of the Subordinated Debt Securities may recover ratably less
than senior creditors of the Company.
16
<PAGE> 51
DESCRIPTION OF MCN CAPITAL STOCK
The following is a brief description of certain provisions relating to MCN
capital stock:
MCN has authority to issue up to 125,000,000 shares of capital stock, which
are divided into two classes as follows: 25,000,000 shares of MCN Preferred
Stock, no par value ("MCN Preferred Stock") and 100,000,000 shares of MCN Common
Stock, par value $.01 per share. On April 17, 1996, there were no shares of MCN
Preferred Stock outstanding and 66,826,150 shares of MCN Common Stock
outstanding.
MCN COMMON STOCK
Voting Rights: The holders of MCN Common Stock are entitled to one vote for
each share on all matters voted upon by MCN's shareholders and, subject to any
voting rights of outstanding MCN Preferred Stock, the holders of such shares
possess all voting power.
Any action required or permitted to be taken by any shareholder of MCN must
be effected at a duly called annual or special meeting of such shareholders and
may not be effected by any consent in writing by such shareholders. Except as
otherwise permitted by law, special shareholder meetings of MCN may be called
only pursuant to a resolution approved by the Board.
The holders of MCN Common Stock have noncumulative voting rights, which
means that the holders of more than 50% of the shares of MCN Common Stock voting
for the election of directors can elect 100% of the directors standing for
election at any meeting if they choose to do so and, in such event, the holders
of the remaining shares voting for the election of directors would not be able
to elect any person or persons to the Board at that meeting.
Dividend Rights: The holders of MCN Common Stock are entitled to such
dividends as may be declared from time to time by the Board from funds legally
available therefor subject to: (1) preferential dividend rights, if any, of any
series of MCN Preferred Stock then outstanding; and (2) applicable requirements,
if any, with respect to the setting aside of sums for purchase, retirement or
sinking funds for MCN Preferred Stock.
Liquidation Rights: In the event of liquidation, the holders of MCN Common
Stock will be entitled to receive pro rata any assets distributable to
shareholders in respect of shares held by them, subject to the rights of any
holders of MCN Preferred Stock.
No Preemptive Rights: No holder of MCN Common Stock has any right to
subscribe to any additional securities which may be issued by MCN.
Redemption and Conversion Provisions: MCN Common Stock does not have any
redemption provisions or conversion rights.
Preferred Share Purchase Rights: MCN Common Stock currently trades with
Preferred Share Purchase Rights. The Rights, which cannot be traded separately
from MCN Common Stock, are intended to protect shareholders in the event of an
unsolicited attempt to acquire MCN and become exercisable upon the occurrence of
certain triggering events. Triggering events include acquisition by a person or
group of beneficial ownership of 20% or more of MCN's Common Stock. The Rights
could also have the effect of delaying, deferring or preventing a takeover or
change in control of MCN that has not been approved by the Board of Directors.
Transfer Agent: The transfer agent and registrar for MCN Common Stock is
First Chicago Trust Company of New York, 525 Washington Boulevard, Jersey City,
New Jersey 07310.
PRICE RANGE OF MCN COMMON STOCK AND COMMON STOCK DIVIDENDS
MCN Common Stock began trading on the NYSE on January 4, 1989, following
the effective date of the restructuring of MichCon and subsequent formation of
MCN as its holding company. The high and low sales
17
<PAGE> 52
prices of the Common Stock of MCN, as reported on the NYSE Composite Tape, and
the dividends declared on the Common Stock, have been as follows:
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH* LOW* PAID PER SHARE*
----- ---- ---------------
<S> <C> <C> <C>
1994
First Quarter................................................ $20 $16 7/8 $ .2150
Second Quarter............................................... 20 1/8 17 5/8 .2150
Third Quarter................................................ 20 1/4 17 1/4 .2150
Fourth Quarter............................................... 19 1/16 17 1/8 .2225
1995
First Quarter................................................ 18 5/8 16 3/8 .2225
Second Quarter............................................... 19 7/8 18 .2225
Third Quarter................................................ 20 17 7/8 .2225
Fourth Quarter............................................... 23 1/2 19 3/8 .2325
1996
First Quarter................................................ 25 1/2 21 5/8 .2325
Second Quarter (through April 17, 1996)...................... 23 7/8 22 3/4 **
</TABLE>
- -------------------------
* Adjusted for a 2:1 stock split in November 1994.
** Not yet declared.
The closing price of MCN Common Stock on April 17, 1996 was $23.00 per
share. The book value of the Company's Common Stock on December 31, 1995 was
$10.02 per share.
The timing and amount of future cash dividends will depend on the financial
condition of MCN, the income from its subsidiaries, internal cash requirements
and other factors deemed relevant by MCN's Board of Directors.
MCN sponsors a dividend reinvestment and stock purchase plan under which
holders of record of MCN Common Stock may purchase a limited amount of MCN
Common Stock without paying brokerage fees and other expenses. Under this plan,
the MCN Common Stock may be purchased in the open market at prevailing prices or
purchased from MCN at the average of the high and low sales prices on the NYSE
for the trading day immediately preceding the purchase.
MCN PREFERRED STOCK
The Board of Directors of MCN is authorized, without further action by the
shareholders of MCN, to issue up to 25,000,000 shares of MCN Preferred Stock,
without par value, in one or more series, from time to time, with such voting
powers, full or limited, or without voting powers, and with such designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, as may be provided in a
resolution or resolutions adopted by the Board of Directors. The authority of
the Board of Directors includes, but is not limited to, the determination or
fixing of the following with respect to shares of such class or any series
thereof: (i) the number of shares and designation; (ii) the dividend rate and
whether the dividends are to be cumulative; (iii) whether shares are to be
redeemable and, if so, the terms and provisions applying; (iv) whether the
shares are subject to a purchase, retirement or sinking fund and, if so, the
terms and provisions applying; (v) whether shares shall be convertible and, if
so, the terms and provisions applying; (vi) what voting rights are to apply, if
any, not to exceed one vote per share; (vii) the rights to which the holders of
shares are entitled upon voluntary or involuntary liquidation or dissolution;
and (viii) what restrictions are to apply, if any, on the issue or reissue of
any additional MCN Preferred Stock. If MCN Preferred Stock of a class were to be
issued, it would be preferred to the MCN Common Stock with respect to dividends
and other matters and might have the effect of making more difficult any change
in control of MCN.
Management cannot currently foresee whether or when MCN might issue any
shares of MCN Preferred Stock.
18
<PAGE> 53
OTHER PROVISIONS
The Articles of Incorporation of MCN provide for a classified Board of
Directors; the removal of directors by a two-thirds vote of shareholders (but
only for cause) or by vote of two-thirds of the other directors (with or without
cause); procedures for nomination by shareholders of candidates for election as
a director; director consideration of other constituencies when evaluating a
business combination; the prohibition of shareholder action by written consent;
supermajority (two-thirds) shareholder vote to amend or repeal the foregoing
provisions; and limitations on the personal liability of directors. These
provisions are generally intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and ensure the careful
consideration of proposed business combinations and any appropriate alternatives
for MCN's stockholders. Such provisions may have the effect of making more
difficult or discouraging a proxy contest, or delaying, deferring or preventing
a future takeover or change in control of MCN.
DESCRIPTION OF THE MCN TRUST PREFERRED SECURITIES
Each MCN Trust may issue, from time to time, only one series of Preferred
Securities having terms described in the Prospectus Supplement relating thereto.
The Declaration of each MCN Trust authorizes the Regular Trustees of such MCN
Trust to issue on behalf of such MCN Trust one series of Preferred Securities.
The Declaration will be qualified as an indenture under the Trust Indenture Act.
The Institutional Trustee, Wilmington Trust Company, an independent trustee,
will act as indenture trustee for the Preferred Securities, to be issued by each
MCN Trust, for the purposes of compliance with the provisions of the Trust
Indenture Act. The Preferred Securities will have such terms, including
distributions, redemption, voting, liquidation rights and such other preferred,
deferred or other special rights or such restrictions as shall be set forth in
the Declaration or made part of the Declaration by the Trust Indenture Act, and
which will mirror the terms of the Subordinated Debt Securities held by the MCN
Trust and as described in the Prospectus Supplement related thereto. Reference
is made to the Prospectus Supplement relating to the Preferred Securities of the
Company for specific terms, including (i) the distinctive designation of such
Preferred Securities; (ii) the number of Preferred Securities issued by such MCN
Trust; (iii) the annual distribution rate (or method of determining such rate)
for Preferred Securities issued by such MCN Trust and the date or dates upon
which such distributions shall be payable; provided, however, that distributions
on such Preferred Securities shall be payable on a quarterly basis to holders of
such Preferred Securities as of a record date in each quarter during which such
Preferred Securities are outstanding; (iv) whether distributions on Preferred
Securities issued by such MCN Trust shall be cumulative, and, in the case of
Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates from which distributions on
Preferred Securities issued by such MCN Trust shall be cumulative; (v) the
amount or amounts which shall be paid out of the assets of such MCN Trust to the
holders of Preferred Securities of such MCN Trust upon voluntary or involuntary
dissolution, winding-up or termination of such MCN Trust; (vi) the obligation,
if any, of such MCN Trust to purchase or redeem Preferred Securities issued by
such MCN Trust and the price or prices at which, the period or periods within
which, and the terms and conditions upon which, Preferred Securities issued by
such MCN Trust shall be purchased or redeemed, in whole or in part, pursuant to
such obligation (with such redemption price to be determined through
negotiations among the Company and the Underwriters based on, among other
factors, redemption prices of securities similar to the Preferred Securities and
market conditions generally); (vii) the voting rights, if any, of Preferred
Securities issued by such MCN Trust in addition to those required by law,
including the number of votes per Preferred Security and any requirement for the
approval by the holders of Preferred Securities, or of Preferred Securities
issued by one or more MCN Trusts, or of both, as a condition to specified action
or amendments to the Declaration of such MCN Trust; (viii) the terms and
conditions, if any, upon which the Subordinated Debt Securities may be
distributed to holders of Preferred Securities; (ix) if applicable, any
securities exchange upon which the Preferred Securities shall be listed; and (x)
any other relevant rights, preferences, privileges, limitations or restrictions
of Preferred Securities issued by such MCN Trust not inconsistent with the
Declaration of such MCN Trust or with applicable law. All Preferred Securities
offered hereby will be guaranteed by the Company to the extent set forth below
under "Description of the Preferred Securities Guarantees." The Preferred
Securities Guarantee of MCN, when taken together with MCN's obligations under
the
19
<PAGE> 54
Subordinated Debt Securities and the relevant Supplemental Indenture, and its
obligations under each Declaration, including obligations to pay costs,
expenses, debts and liabilities of the MCN Trust (other than with respect to the
Trust Securities), would provide a full and unconditional guarantee of amounts
due on Preferred Securities issued by each of MCN Financing I and MCN Financing
II. Any United States federal income tax considerations applicable to any
offering of Preferred Securities will be described in the Prospectus Supplement
relating thereto.
In connection with the issuance of Preferred Securities, each MCN Trust
will issue one series of Common Securities. The Declaration of each MCN Trust
authorizes the Regular Trustees of such trust to issue on behalf of such MCN
Trust one series of Common Securities having such terms including distributions,
redemption, voting, liquidation rights or such restrictions as shall be set
forth therein. The terms of the Common Securities issued by an MCN Trust will be
substantially identical to the terms of the Preferred Securities issued by such
trust and the Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the Preferred Securities except that, upon an event of
default under the Declaration, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. Except in certain limited circumstances, the Common
Securities will also carry the right to vote to appoint, remove or replace any
of the MCN Trustees of an MCN Trust. All of the Common Securities of each MCN
Trust will be directly or indirectly owned by the Company.
PROPOSED TAX LEGISLATION
On December 7, 1995, the Treasury Department proposed legislation, which
was introduced in Congress on March 19, 1996 (the "Proposed Legislation"), that,
among other things, would prevent companies from deducting interest on debt
instruments with a maturity of more than 40 years and would treat as equity for
United States federal income tax purposes instruments with a maximum term of
more than 20 years that are not shown as indebtedness on the consolidated
balance sheet of the issuer. The Proposed Legislation, by its own terms provides
for an effective date, with certain exceptions not relevant to the Subordinated
Debt Securities and the Preferred Securities, that is retroactive to December 7,
1995. On March 29, 1996, however, Senate Finance Committee Chairman Roth and
House Ways and Means Committee Chairman Archer released a joint statement (the
"Joint Statement") indicating that "the effective date of any of [the provisions
of the Proposed Legislation] that may be adopted by either of the tax-writing
committees will be no earlier than the date of appropriate Congressional
action." Accordingly, if, contrary to the Joint Statement, if the Proposed
Legislation were enacted in its current form, it would apply to the Subordinated
Debt Securities and the Preferred Securities if their maximum term were more
than 20 years. If the Proposed Legislation were to apply to the Subordinated
Debt Securities, the United States federal income tax consequences of the
purchase, ownership and disposition of the Preferred Securities would differ
from those described herein. In addition, if the Proposed Legislation were to
apply to the Subordinated Debt Securities, the Company would not be able to
deduct interest paid on the Subordinated Debt Securities, which would constitute
a Tax Event. A Tax Event could result in the distribution of the Subordinated
Debt Securities to holders of the Preferred Securities or, at the Company's
option, redemption of the Subordinated Debt Securities by the Company. Although
it is not the Company's intention to issue securities to which the Proposed
Legislation would apply in such a way as to create a Tax Event, and the Company
believes that the Joint Statement indicates that it is unlikely that the
Proposed Legislation would be enacted in a form which would apply retroactively
to any securities offered hereby, there can be no assurances as to whether or in
what form the Proposed Legislation may be enacted into law or whether other
legislation will be enacted that otherwise adversely affects the tax treatment
of the Subordinated Debt Securities and the Preferred Securities. The discussion
herein assumes that the Proposed Legislation, if enacted, will not apply to the
Subordinated Debt Securities or the Preferred Securities.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees which will be executed and delivered by MCN for the
benefit of the holders from time to time of Preferred Securities. Each Preferred
Securities Guarantee will be qualified as an indenture under the Trust Indenture
Act.
20
<PAGE> 55
Wilmington Trust Company, an independent trustee, will act as indenture trustee
under each Preferred Securities Guarantee (the "Preferred Guarantee Trustee")
for the purposes of compliance with the provisions of the Trust Indenture Act.
The terms of each Preferred Securities Guarantee will be those set forth in such
Preferred Securities Guarantee and those made part of such Preferred Securities
Guarantee by the Trust Indenture Act. The following summary does not purport to
be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the form of Preferred Securities
Guarantee, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, and the Trust Indenture Act. Each Preferred
Securities Guarantee will be held by the Preferred Guarantee Trustee for the
benefit of the holders of the Preferred Securities of the applicable MCN Trust.
GENERAL
Pursuant to each Preferred Securities Guarantee, the Company will
irrevocably and unconditionally agree, to the extent set forth therein, to pay
in full, to the holders of the Preferred Securities issued by an MCN Trust, the
Guarantee Payments (as defined herein)(except to the extent paid by such MCN
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which such MCN Trust may have or assert. The following payments or
distributions with respect to Preferred Securities issued by an MCN Trust to the
extent not paid by such MCN Trust (the "Guarantee Payments"), will be subject to
the Preferred Securities Guarantee thereon (without duplication): (i) any
accrued and unpaid distributions which are required to be paid on such Preferred
Securities, to the extent such MCN Trust shall have funds available therefor;
(ii) the redemption price (the "Redemption Price") and all accrued and unpaid
distributions to the date of redemption to the extent such MCN Trust has funds
available therefor with respect to any Preferred Securities called for
redemption by such MCN Trust and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of such MCN Trust (other than in
connection with the distribution of Subordinated Debt Securities to the holders
of Preferred Securities or the redemption of all of the Preferred Securities),
the lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on such Preferred Securities to the date of payment, to the
extent such MCN Trust has funds available therefor and (b) the amount of assets
of such MCN Trust remaining available for distribution to holders of such
Preferred Securities in liquidation of such MCN Trust. The Company's obligation
to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Preferred Securities or by causing the
applicable MCN Trust to pay such amounts to such holders.
Each Preferred Securities Guarantee will be a guarantee with respect to the
Preferred Securities issued by the applicable MCN Trust, but will not apply to
any payment of distributions except to the extent such MCN Trust shall have
funds available therefor. If the Company does not make interest payments on the
Subordinated Debt Securities purchased by an MCN Trust, such MCN Trust will not
pay distributions on the Preferred Securities issued by such MCN Trust and will
not have funds available therefor. See "Description of the MCN Debt Securities
- -- Particular Terms of the Subordinated Debt Securities." The Preferred
Securities Guarantee, when taken together with MCN's obligations under the
Subordinated Debt Securities, the Subordinated Debt Securities Indenture, and
the Declaration will provide a full and unconditional guarantee on a
subordinated basis by the Company of payments due on the Preferred Securities.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the MCN Trusts with respect to the Common
Securities (the "Common Securities Guarantees") to the same extent as the
Preferred Securities Guarantee, except that upon an event of default under the
Subordinated Debt Securities Indenture, holders of Preferred Securities shall
have priority over holders of Common Securities with respect to distributions
and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In each Preferred Securities Guarantee, the Company will covenant that, so
long as any Preferred Securities issued by the applicable MCN Trust remain
outstanding, if there shall have occurred any event that would constitute an
event of default under such Preferred Securities Guarantee or the Declaration of
such MCN Trust, then (a) the Company shall not declare or pay any dividend on,
make any distributions with respect to, or redeem, purchase, acquire or make
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of MCN Common Stock in connection with the
21
<PAGE> 56
satisfaction by MCN of its obligations under any employee benefit plans or the
satisfaction by MCN of its obligations pursuant to any contract or security
requiring MCN to purchase shares of MCN Common Stock, (ii) as a result of a
reclassification of MCN capital stock or the exchange or conversion of one class
or series of MCN's capital stock for another class or series of MCN capital
stock or, (iii) the purchase of fractional interests in shares of MCN's capital
stock pursuant to the conversion or exchange provisions of such MCN capital
stock or the security being converted or exchanged), (b) the Company shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees) issued by the
Company which rank pari passu with or junior to such Subordinated Debt
Securities and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than pursuant to a Preferred Securities
Guarantee).
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required),
each Preferred Securities Guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities issued by the applicable MCN Trust. The manner
of obtaining any such approval of holders of such Preferred Securities will be
as set forth in an accompanying Prospectus Supplement. All guarantees and
agreements contained in a Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Preferred Securities of the
applicable MCN Trust then outstanding.
TERMINATION
Each Preferred Securities Guarantee will terminate as to the Preferred
Securities issued by the applicable MCN Trust (a) upon full payment of the
Redemption Price of all Preferred Securities of such MCN Trust, (b) upon
distribution of the Subordinated Debt Securities held by such MCN Trust to the
holders of the Preferred Securities of such MCN Trust or (c) upon full payment
of the amounts payable in accordance with the Declaration of such MCN Trust upon
liquidation of such MCN Trust. Each Preferred Securities Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of Preferred Securities issued by the applicable MCN Trust must restore
payment of any sums paid under such Preferred Securities or such Preferred
Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
to which such Preferred Securities Guarantee relates have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Preferred Guarantee Trustee in respect of the Preferred Securities
Guarantee or to direct the exercise of any trust or power conferred upon the
Preferred Guarantee Trustee under such Preferred Securities Guarantee. If the
Preferred Guarantee Trustee fails to enforce such Preferred Securities
Guarantee, any holder of Preferred Securities to which such Preferred Securities
Guarantee relates may institute a legal proceeding directly against the Company
to enforce such holder's rights under such Preferred Securities Guarantee,
without first instituting a legal proceeding against the relevant MCN Trust, the
Preferred Guarantee Trustee or any other person or entity. The Company waives
any right or remedy to require that any action be brought first against such MCN
Trust or any other person or entity before proceeding directly against the
Company.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
The Preferred Securities Guarantees will constitute unsecured obligations
of the Company and will rank (i) subordinate and junior in right of payment to
all other liabilities of the Company, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by the Company and with
any guarantee now
22
<PAGE> 57
or hereafter entered into by MCN in respect of any preferred or preference stock
of any affiliate of the Company; and (iii) senior to the Company's common stock.
The terms of the Preferred Securities provide that each holder of Preferred
Securities issued by the applicable MCN Trust by acceptance thereof agrees to
the subordination provisions and other terms of the Preferred Securities
Guarantee relating thereto.
The Preferred Securities Guarantees will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by a Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby; but the foregoing shall not relieve the Preferred Guarantee Trustee,
upon the occurrence of an event of default under such Preferred Securities
Guarantee, from exercising the rights and powers vested in it by such Preferred
Securities Guarantee.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by and construed in
accordance with the internal laws of the State of New York.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
MCN may issue Stock Purchase Contracts, representing contracts obligating
holders to purchase from the Company, and the Company to sell to the holders, a
specified number of shares of Common Stock at a future date or dates. The price
per share of Common Stock may be fixed at the time the Stock Purchase Contracts
are issued or may be determined by reference to a specific formula set forth in
the Stock Purchase Contracts. The Stock Purchase Contracts may be issued
separately or as a part of units ("Stock Purchase Units" or "PRIDES(SM)")
consisting of a Stock Purchase Contract and Debt Securities or debt obligations
of third parties, including U.S. Treasury securities, securing the holders'
obligations to purchase the Common Stock under the Purchase Contracts. The Stock
Purchase Contracts may require MCN to make periodic payments to the holders of
the Stock Purchase Units or visa versa, and such payments may be unsecured or
prefunded on some basis. The Stock Purchase Contracts may require holders to
secure their obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not purport to be complete and will be qualified in its entirety
by reference to the Stock Purchase Contracts, and, if applicable, collateral
arrangements and depositary arrangements, relating to such Stock Purchase
Contracts or Stock Purchase Units.
PLAN OF DISTRIBUTION
MCN and/or any MCN Trust may sell the Offered Securities (i) to or through
underwriters or dealers; (ii) directly to purchasers; or (iii) through agents.
The Prospectus Supplement with respect to the Offered Securities will set forth
the terms of the offering of the Offered Securities, including the name or names
of any underwriters, dealers or agents; the purchase price of the Offered
Securities and the proceeds to MCN and/or an MCN Trust from such sale; any
underwriting discounts and commissions or agency fees and other items
constituting underwriters' or agents' compensation; any initial public offering
price and any discounts or
23
<PAGE> 58
concessions allowed or reallowed or paid to dealers and any securities exchange
on which such Offered Securities may be listed. Any initial public offering
price, discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Offered Securities will be
named in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters will be
set forth on the cover of such Prospectus Supplement. Unless otherwise set forth
in the Prospectus Supplement relating thereto, the obligations of the
underwriters to purchase the Offered Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all the
Offered Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities, MCN and/or the
applicable MCN Trust will sell such Offered Securities to the dealers as
principals. The dealers may then resell such Offered Securities to the public at
varying prices to be determined by such dealers at the time of resale. The names
of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
The Offered Securities may be sold directly by MCN and/or an MCN Trust or
through agents designated by MCN and/or such MCN Trust from time to time. Any
agent involved in the offer or sale of the Offered Securities in respect to
which this Prospectus is delivered will be named, and any commissions payable by
MCN and/or the applicable MCN Trust to such agent will be set forth, in the
Prospectus Supplement relating thereto. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
The Offered Securities may be sold directly by MCN and/or an MCN Trust to
institutional investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act with respect to any resale thereof. The terms
of any such sales will be described in the Prospectus Supplement relating
thereto.
Agents, dealers and underwriters may be entitled under agreements with MCN
and/or an MCN Trust to indemnification by MCN and/or the applicable MCN Trust
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for MCN and/or an MCN Trust in the ordinary course of business.
Each series of Offered Securities will be a new issue of securities and
will have no established trading market. Any underwriters to whom Offered
Securities are sold for public offering and sale may make a market in such
Offered Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice.The Offered Securities
may or may not be listed on a national securities exchange. No assurance can be
given that there will be a market for the Offered Securities.
VALIDITY OF SECURITIES
The validity of the Offered Securities of MCN will be passed upon for MCN
by Daniel L. Schiffer, Esq., Senior Vice President, General Counsel and
Secretary of MCN Corporation, and for the underwriters by LeBoeuf, Lamb, Greene
and MacRae, L.L.P., a partnership including professional corporations, New York,
New York. Mr. Schiffer is a full-time employee and officer of MCN and owns
24,491 shares of MCN Common Stock as of February 26, 1996. Certain matters of
Delaware law relating to the validity of the Preferred Securities will be passed
upon on behalf of the MCN Trusts by Skadden, Arps, Slate, Meagher & Flom,
special Delaware counsel to the MCN Trusts. Certain United States federal income
taxation matters will be passed upon for MCN and the MCN Trusts by Skadden,
Arps, Slate, Meagher & Flom, special tax counsel to MCN and the MCN Trusts.
Skadden, Arps, Slate, Meagher & Flom has represented certain of the
24
<PAGE> 59
Underwriters in various legal matters from time to time. LeBoeuf, Lamb, Greene &
MacRae, L.L.P. from time to time renders legal services to the Company.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 have been audited by
DELOITTE & TOUCHE LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
MCN's Annual Report on Form 10-K for the year ended December 31, 1995,
includes various oil and gas reserve information summarized from reports
prepared by the independent petroleum consultants Ryder Scott Company; Miller
and Lents, Ltd.; Lee Keeling & Associates, Inc. and S.A. Holditch & Associates,
Inc. This reserve information and related schedules have been incorporated
herein by reference in reliance upon such reports given upon the authority of
said firms as experts in oil and gas reserve estimation.
25
<PAGE> 60
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY MCN CORPORATION, MCN FINANCING I OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF MCN CORPORATION OR MCN FINANCING I SINCE THE DATE HEREOF. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Historical Financial
Information.............................. S-3
MCN Corporation............................ S-4
Recent Developments........................ S-5
MCN Financing I............................ S-5
Risk Factors............................... S-6
Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.... S-10
Capitalization............................. S-11
Accounting Treatment....................... S-11
Use of Proceeds............................ S-11
Description of the Preferred Securities.... S-12
Description of the Guarantee............... S-21
Description of the Junior Subordinated
Debentures............................... S-22
Effect of Obligations Under the Junior
Subordinated Debentures and the
Guarantee................................ S-28
United States Federal Income Taxation...... S-29
Underwriting............................... S-33
Legal Matters.............................. S-34
PROSPECTUS
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 3
MCN Corporation............................ 4
The MCN Trusts............................. 4
Use of Proceeds............................ 5
Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends................ 5
Description of MCN Debt Securities......... 6
Particular Terms of the Senior Debt
Securities............................... 9
Particular Terms of the Subordinated Debt
Securities............................... 12
Description of MCN Capital Stock........... 17
Description of the MCN Trust Preferred
Securities............................... 19
Description of the Preferred Securities
Guarantees............................... 20
Description of Stock Purchase Contracts and
Stock Purchase Units..................... 23
Plan of Distribution....................... 23
Validity of Securities..................... 24
Experts.................................... 25
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
3,200,000 PREFERRED SECURITIES
MCN CORPORATION LOGO
MCN FINANCING I
% TRUST ORIGINATED
PREFERRED SECURITIES(SM)
("TOPRS(SM)")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
MCN CORPORATION
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
ROBERT W. BAIRD & CO.
INCORPORATED
A.G. EDWARDS & SONS, INC.
FIRST OF MICHIGAN CORPORATION
LADENBURG, THALMANN & CO. INC.
PAINEWEBBER INCORPORATED
, 1996
------------------------------------------------------
------------------------------------------------------
