<PAGE> 1
Pursuant to Rule 424b2
Registration No. 333-01521
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 22, 1996)
5,100,000 SECURITIES
8 3/4% PRIDES(SM)
The securities offered hereby are 5,100,000 Preferred Redeemable Increased
Dividend Equity Securities(SM), 8 3/4% PRIDES(SM) (the "Securities") of MCN
Corporation ("MCN" or the "Company"). Each Security has a Stated Amount of
$23.00. Payments of 8 3/4% of the Stated Amount per annum will be made on each
Security on April 30 and October 31 of each year, commencing October 31, 1996,
until the Final Settlement Date of April 30, 1999. These payments will consist
of interest on Treasury Notes payable by the United States Government at the
rate of 6 1/2% per annum and unsecured, subordinated yield enhancement payments
("Yield Enhancement Payments") payable by the Company at the rate of 2 1/4% per
annum. On the Final Settlement Date, the Stated Amount will automatically be
applied to the purchase of between .833 of a share and one share of Common Stock
of the Company (depending on the Applicable Market Value of the Common Stock on
the Final Settlement Date, as described herein), subject to adjustment under
certain circumstances. The last reported per share sale price of the Common
Stock on the New York Stock Exchange on April 22, 1996 was equal to the Stated
Amount. See "Price Range of Common Stock and Dividends".
Each Security will consist of (a) a stock purchase contract ("Purchase
Contract") under which (i) the holder will purchase from the Company on the
Final Settlement Date, for an amount in cash equal to the Stated Amount, a
number of shares of Common Stock equal to the Settlement Rate described herein
and (ii) the Company will pay the holder the Yield Enhancement Payments
described herein, and (b) 6 1/2% United States Treasury Notes having a principal
amount equal to the Stated Amount and maturing on the Final Settlement Date. The
Treasury Notes will be pledged to the Collateral Agent to secure the holder's
obligation to purchase Common Stock under the Purchase Contract. Unless a holder
of Securities settles the underlying Purchase Contracts either through the early
delivery of cash to the Purchase Contract Agent in the manner described herein
or otherwise, or upon certain termination events, as described herein, principal
of the Treasury Notes underlying such Securities, when paid at maturity, will
automatically be applied to satisfy in full the holder's obligation to purchase
Common Stock under the Purchase Contracts. For so long as a Purchase Contract
remains in effect, such Purchase Contract and the Treasury Notes securing it
will not be separable and may be transferred only as an integrated Security. See
"Description of Securities".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-9 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES, INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE
SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF SUCH DEFERRAL.
Prior to the offering made hereby there has been no public market for the
Securities. The Securities have been approved for listing on the New York Stock
Exchange ("NYSE") under the symbol "MCE", subject to official notice of
issuance. On April 22, 1996, the last reported sale price of the Common Stock on
the NYSE was $23 per share.
------------------------
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>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PURCHASE PRICE OF PROCEEDS (DEFICIT) TO
PUBLIC DISCOUNT(1) TREASURY NOTES THE COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Security............... $23.00 $.69 $24.001 $(1.691)
- -----------------------------------------------------------------------------------------------------------------------
Total(3)................... $117,300,000 $3,519,000 $122,403,074 $(8,622,074)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting".
(2) Before deducting estimated expenses payable by the Company estimated at
$400,000. Does not include proceeds per Security and total proceeds of
$23.00 and $117,300,000, respectively ($23.00 and $134,895,000,
respectively, if the Underwriters' over-allotment option is exercised in
full), receivable by the Company upon settlement of Purchase Contracts.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 765,000 Securities, to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds (Deficit) to the Company will be $134,895,000,
$4,046,850 and $(9,915,385), respectively. See "Underwriting".
------------------------
The Securities are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Securities offered hereby will be made in New York, New York on
or about April 26, 1996.
------------------------
MERRILL LYNCH & CO.
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN
WITTER REYNOLDS INC.
RONEY & CO.
------------------------
The date of this Prospectus Supplement is April 22, 1996.
(SM)Service Mark of Merrill Lynch & Co. Inc.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES, THE
COMMON STOCK OR OTHER SECURITIES OF THE COMPANY AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NYSE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in the Prospectus,
this Prospectus Supplement or in the documents incorporated herein by reference.
Except as otherwise noted, all information in this Prospectus Supplement assumes
that the over-allotment option granted to the Underwriters will not be
exercised. All financial information in this Prospectus Supplement, the
Prospectus or in the documents incorporated herein by reference is presented in
accordance with generally accepted accounting principles ("GAAP"), unless
otherwise specified. Unless the context otherwise requires, references in this
Prospectus Supplement to the "Company" include the Company and its consolidated
subsidiaries and affiliates. Capitalized terms used in this Prospectus
Supplement but not defined herein shall have the meanings set forth in the
Prospectus unless otherwise provided herein.
MCN Corporation ("MCN" or the "Company") is a $2.9 billion (assets)
diversified natural gas holding company with gas markets and investments in
various regions of 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, gas marketing and
cogeneration and computer operations services.
MCN's major business segments are Gas Distribution and, within MCN
Investment's Diversified Energy group, Gas Services and Computer Operations
Services.
MCN's strategy is to aggressively invest in a diverse portfolio of domestic
and international natural gas-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;
- to invest in a portfolio of energy-related projects including
investments in exploration and production, power generation, gas
gathering and processing systems, and gas storage; and
- to pursue new opportunities in other areas of expertise.
Accordingly, MCN's capital investments could range between $2.5 billion and
$3.3 billion from 1996 through 2000. This proposed 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 credit ratings through a strong balance sheet.
Gas Distribution operates the largest natural gas distribution and
intrastate transmission system in Michigan and one of the largest in the United
States. For the twelve months ended December 31, 1995, operating revenues in the
Gas Distribution segment exceeded $1.1 billion. In addition, at December 31,
1995, the segment had total assets of approximately $1.9 billion. Gas
Distribution serves approximately 1.2 million customers in more than 500
communities throughout Michigan with gas sales and transportation markets of
about 730 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.
Gas Services 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 December 31, 1995, operating revenues for the segment were
approximately $400 million and, at December 31, 1995, assets totalled
approximately $1.1 billion, including Gas Services' interest 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.
S-3
<PAGE> 4
Expanding opportunities throughout North America should enable Gas Services 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.
Computer Operations Services is a leading provider of computer outsourcing
services in the United States. The Genix Group ("Genix") provides computer
operations management, data processing and related services to approximately 100
corporate clients, including thirteen Fortune 500 companies, in more than a
dozen industries. For 1995, Computer Operations Services had revenues at $105.2
million and operating income of $8.0 million, up 19% and 21%, respectively, over
1994.
Consistent with its strategic focus of investing in energy-related
projects, MCN is evaluating the potential sale of Genix. Proceeds from the
potential sale would partially fund MCN's capital expenditures, which may reach
$850 million in 1996.
S-4
<PAGE> 5
SUMMARY FINANCIAL DATA
The following table sets forth selected historical financial information
with respect to the Company for the periods indicated. This information should
be read in conjunction with the Company's Consolidated Financial Statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, which is incorporated by reference into this Prospectus
Supplement. See "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus. The selected historical financial information for each
of the five years in the period ended December 31, 1995, has been derived from
the audited consolidated financial statements of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating Revenues........................... $1,584,940 $1,545,800 $1,479,654 $1,447,252 $1,284,551
Operating Income............................. 196,225 154,531 143,886 125,493 98,641
Net Income................................... 96,756 77,768 72,790 57,118 35,078
Earnings Per Share........................... 1.49 1.31 1.24 1.05 .71
Average Number of Common Shares Outstanding
(000's).................................... 64,743 59,394 58,642 54,216 49,386
GAS MARKET (VOLUME IN MMCF*)(1)
Gas Distribution
Gas sales.................................. 209,816 204,384 205,372 203,110 192,770
End user transportation.................... 145,761 140,020 128,643 129,722 119,846
Intermediate transportation(2)............. 374,428 322,969 302,662 209,360 130,831
---------- ---------- ---------- ---------- ----------
Total.................................... 730,005 667,373 636,677 542,192 443,447
========== ========== ========== ========== ==========
Diversified Energy
Gas sales
Gas Marketing and Cogeneration........... 170,668 142,352 122,782 112,263 91,968
Exploration and Production(3)............ 16,193 7,459 67 -- --
Transportation(2).......................... 1,091 1,194 294 -- --
---------- ---------- ---------- ---------- ----------
Total.................................... 187,952 151,005 123,143 112,263 91,968
========== ========== ========== ========== ==========
GAS DISTRIBUTION CUSTOMERS..................... 1,172,527 1,141,491 1,129,752 1,120,740 1,112,651
CAPITAL INVESTMENTS(4)
Gas Distribution............................. $ 241,494 $ 153,059 $ 143,120 $ 130,776 $ 122,428
Diversified Energy........................... 394,494 208,488 65,989 40,092 17,454
MCN's Share of Joint Venture................. 52,850 40,422 36,502 31,203 5,139
---------- ---------- ---------- ---------- ----------
Total.................................... $ 688,838 $ 401,969 $ 245,611 $ 202,071 $ 145,021
========== ========== ========== ========== ==========
TOTAL ASSETS................................... $2,898,640 $2,240,973 $1,881,900 $1,648,989 $1,517,387
========== ========== ========== ========== ==========
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS(5)............................... $ 993,407 $ 685,519 $ 494,821 $ 379,811 $ 328,052
========== ========== ========== ========== ==========
REDEEMABLE CUMULATIVE PREFERRED SECURITIES OF
SUBSIDIARIES(5).............................. $ 96,449 $ 98,967 $ 5,618 $ 9,000 $ 12,000
========== ========== ========== ========== ==========
COMMON STOCK
Market Price Per Share (end of period)....... $ 23.25 $ 18.00 $ 17.38 $ 15.44 $ 12.19
Dividends Paid Per Share..................... $ .9000 $ .8675 $ .8450 $ .8250 $ .8200
</TABLE>
- -------------------------
* MMcf -- One million cubic feet.
(1) Includes intercompany volumes.
(2) In January 1996, MCN consolidated its Michigan pipeline operations by
transferring its gathering and transportation network operations to Gas
Distributions. The segment information included herein is presented as
though the combined intrastate pipeline operations was a part of Gas
Distribution for all periods presented.
(3) Represents gas sales made directly to third parties by E&P operations. Other
E&P production is sold to affiliated companies for marketing.
(4) 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.
(5) Excludes current requirements. Includes a $100 million term loan, due 2000,
at Supply Development Group, Inc., a wholly-owned subsidiary of MCN
Investment Corporation, with recourse to MCN Corporation limited to certain
events, including the realization of tax credits and performance under swap
contracts.
S-5
<PAGE> 6
THE OFFERING
Securities.................... 5,100,000 8 3/4% PRIDES
Stated Amount................. $23.00 per Security
Payments...................... 8 3/4% of the Stated Amount per annum, payable
semi-annually in arrears. These payments will
consist of interest on the Treasury Notes (as
defined below) payable by the United States
Government at the rate of 6 1/2% of the Stated
Amount per annum and unsecured, subordinated
yield enhancement payments ("Yield Enhancement
Payments") payable semi-annually by the Company
at the rate of 2 1/4% of the Stated Amount per
annum, subject to the Company's option to defer
Yield Enhancement Payments. See "Description of
the Purchase Contracts -- Yield Enhancement
Payments" and "Risk Factors -- Right to Defer
Yield Enhancement Payments." The Company's
obligations with respect to Yield Enhancement
Payments are subordinated and junior in right
of payment to all liabilities of the Company
and pari passu with the most senior preferred
stock directly issued, from time to time, if
any, by the Company. Amounts payable on the
first Payment Date (as defined below) will be
adjusted as described under "Description of the
Securities -- General."
Payment Dates................. April 30 and October 31 of each year,
commencing October 31, 1996, through and
including the Final Settlement Date referred to
below (each, a "Payment Date").
Final Settlement Date......... April 30, 1999 (the "Final Settlement Date").
On the Final Settlement Date, the Stated Amount
per Security will automatically be applied to
the purchase of between .833 of a share and one
share of Common Stock, par value $.01 per share
("Common Stock"), of the Company (depending on
the Applicable Market Value of the Common Stock
on the Final Settlement Date, as described
below), subject to adjustment under certain
circumstances.
Components of the
Securities.................... The Securities will be issued under a Purchase
Contract Agreement, dated as of April 22, 1996
(the "Purchase Contract Agreement"), between
the Company and The First National Bank of
Chicago, as agent for the holders of the
Securities (together with any successor thereto
in such capacity, the "Purchase Contract
Agent").
Each Security offered hereby (each, a
"Security" and collectively, the "Securities")
will consist of (a) a stock purchase contract
("Purchase Contract") under which (i) the
holder will purchase from the Company on the
Final Settlement Date, for an amount in cash
equal to the Stated Amount, a number of shares
of Common Stock equal to the Settlement Rate
described below, and (ii) the Company will pay
Yield Enhancement Payments to the holder, and
(b) 6 1/2% United States Treasury Notes due
April 30, 1999 ("Treasury Notes") having a
principal amount equal to the Stated Amount and
maturing on the Final Settlement Date. The
aggregate fair market value of the Treasury
Notes at the time of purchase may exceed their
aggregate principal amount, in which case, the
Company shall, for the benefit of the Security
holders,
S-6
<PAGE> 7
provide the amount of such excess as additional
purchase price for the Treasury Notes (such
amounts, "Initial Premium Payments"). Holders
will not directly receive any cash as a result
of any Initial Premium Payments. The Treasury
Notes will be pledged with Chemical Bank, as
collateral agent for the Company (together with
any successor thereto in such capacity, the
"Collateral Agent"), to secure the holder's
obligation to purchase Common Stock under the
Purchase Contract. Unless a holder of
Securities settles the underlying Purchase
Contracts either through the early delivery of
cash to the Purchase Contract Agent in the
manner described below or otherwise, or unless
the Purchase Contracts are terminated (upon the
occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to
the Company), principal of the Treasury Notes
underlying such Securities, when paid at
maturity, will automatically be applied to
satisfy in full the holder's obligation to
purchase Common Stock under the Purchase
Contracts. For so long as a Purchase Contract
remains in effect, such Purchase Contract and
the Treasury Notes securing it will not be
separable and may be transferred only as an
integrated Security. See "Risk Factors" and
"Description of the Securities".
Settlement Rate............... The number of new shares of Common Stock
issuable upon settlement of each Purchase
Contract (the "Settlement Rate") will be
calculated as follows (subject to adjustment
under certain circumstances): (a) if the
Applicable Market Value (as defined below) is
greater than $27.60 (the "Threshold
Appreciation Price"), the Settlement Rate will
be .833, (b) if the Applicable Market Value is
less than or equal to the Threshold
Appreciation Price but greater than the Stated
Amount, the Settlement Rate will equal the
Stated Amount divided by the Applicable Market
Value and (c) if the Applicable Market Value is
less than or equal to the Stated Amount, the
Settlement Rate will be one. "Applicable Market
Value" means the average of the Closing Prices
(as defined) per share of Common Stock on each
of the twenty consecutive Trading Days (as
defined) ending on the second Trading Day
immediately preceding the Final Settlement
Date.
Early Settlement.............. A holder of Securities may settle the
underlying Purchase Contracts prior to the
Final Settlement Date in the manner described
herein, but only in integral multiples of
Securities. Upon such early settlement, (a) the
holder will purchase, for an amount in cash
equal to the Stated Amount per Security, .833
of a share of Common Stock per Security
(regardless of the market price of the Common
Stock on the date of purchase), subject to
adjustment under certain circumstances, (b) the
Treasury Notes underlying such Securities will
thereupon be transferred to the holder free and
clear of the Company's security interest
therein, (c) the holder's right to receive
Deferred Yield Enhancement Payments (as defined
below), if any, on the Purchase Contracts being
settled will be forfeited, and (d) the holder's
right to receive additional Yield Enhancement
Payments will terminate and, except as
contemplated by clause (a) above, no adjustment
will be made to or for the holder on account of
current or deferred amounts accrued in respect
thereof.
S-7
<PAGE> 8
Termination................... The Purchase Contracts (including the right to
receive accrued or Deferred Yield Enhancement
Payments and the obligation to purchase Common
Stock) will automatically terminate upon the
occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to
the Company. Upon such termination, the
Collateral Agent will release the Treasury
Notes held by it to the Purchase Contract Agent
for distribution to the holders, although there
may be a limited delay before such release and
distribution.
Relationship to Common
Stock......................... The aggregate of the Yield Enhancement Payments
and interest payments on the Treasury Notes
will be paid at a rate per annum that is
greater than the current dividend yield on the
Common Stock. However, since the number of
shares of Common Stock issuable upon settlement
of each Purchase Contract may decline by up to
16.7% as the Applicable Market Value increases,
the opportunity for equity appreciation
afforded by an investment in the Securities is
less than that afforded by a direct investment
in the Common Stock.
Voting Rights................. Holders of the Securities will have no voting
rights. See "Risk Factors -- No Shareholder
Rights."
Listing of the Securities..... The Securities have been approved for listing
on the New York Stock Exchange, subject to
notice of issuance, under the symbol "MCE".
NYSE Symbol of Common Stock... MCN
Federal Income Tax
Consequences.................. Holders will include interest on the Treasury
Notes in income when received or accrued, in
accordance with the holder's method of
accounting. The Company intends to report the
Yield Enhancement Payments (and Initial Premium
Payments, if any) as income to holders, but
holders should consult their tax advisors
concerning the possibility that the Yield
Enhancement Payments (and Initial Premium
Payments, if any) may be treated as a reduction
in the holders' basis in the Securities rather
than included in income on a current basis.
Additional income, gain or loss may be realized
on maturity of the Treasury Notes to the extent
that the Treasury Notes are purchased at a
premium or discount, and certain elections
should be considered in this regard. See
"Certain Federal Income Tax Consequences".
Use of Proceeds............... Substantially all of the proceeds from the sale
of the Securities offered hereby will be used
by the Underwriters to purchase, at the
direction of the Company, the underlying
Treasury Notes, which are being transferred to
holders pursuant to the terms of the
Securities, and the Company will receive no
proceeds from such sale. Amounts received by
the Company upon settlement of Purchase
Contracts are expected to be used for general
corporate purposes including capital
expenditures, investment in subsidiaries,
working capital, repayment of debt and other
business opportunities. See "Use of Proceeds".
S-8
<PAGE> 9
RISK FACTORS
Prospective purchasers of Securities should consider, in addition to the
other information contained or incorporated by reference in this Prospectus
Supplement or the accompanying Prospectus, the following characteristics of the
Securities.
INVESTMENT IN THE SECURITIES WILL BECOME INVESTMENT IN COMMON STOCK
Although holders of the Securities will be the beneficial owners of the
underlying Treasury Notes prior to the Final Settlement Date, unless a holder of
Securities settles the underlying Purchase Contracts either through the early
delivery of cash to the Purchase Contract Agent in the manner described below or
otherwise, or unless the Purchase Contracts are terminated (upon the occurrence
of certain events of bankruptcy, insolvency or reorganization with respect to
the Company), principal of the Treasury Notes, when paid at maturity, will
automatically be applied to the purchase of a specified number of shares of
Common Stock on behalf of such holders. Thus, following the Final Settlement
Date, holders will own shares of Common Stock rather than a beneficial interest
in Treasury Notes. See "Description of the Securities -- General". There can be
no assurance that such amount receivable by the holder on the Final Settlement
Date will be equal to or greater than the Stated Amount of the Securities. If
the Applicable Market Value of the Common Stock is less than the Stated Amount,
such amount receivable by the holder on the Final Settlement Date will be less
than the Stated Amount paid for the Securities, in which case an investment in
the Securities will result in a loss. Accordingly, a holder of the Securities
assumes the risk that the market value of the Common Stock may decline, and that
such decline could be substantial.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an investment in the
Securities is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock, because the amount receivable by a holder
of Securities on the Final Settlement Date will only exceed the Stated Amount of
such Securities if the Applicable Market Value of the Common Stock exceeds the
Threshold Appreciation Price (which represents an appreciation of 20% over the
Stated Amount). Moreover, holders of the Securities will only be entitled to
receive on the Final Settlement Date 83.3% (the percentage equal to the Stated
Amount divided by the Threshold Appreciation Price) of any appreciation of the
value of Common Stock in excess of the Threshold Appreciation Price.
FACTORS AFFECTING TRADING PRICES
The trading prices of the Securities in the secondary market will be
directly affected by the trading prices of the Common Stock in the secondary
market. It is impossible to predict whether the price of Common Stock will rise
or fall. Trading prices of Common Stock will be influenced by MCN's operating
results and prospects and by economic, financial and other factors and market
conditions that can affect the capital markets generally, including the level
of, and fluctuations in, the trading prices of stocks generally and sales of
substantial amounts of Common Stock in the market subsequent to the offering of
the Securities or the perception that such sales could occur.
NO SHAREHOLDER RIGHTS
Holders of the Securities will not be entitled to any rights with respect
to the Common Stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions in respect thereof) unless and
until such time as the Company shall have delivered shares of Common Stock for
Securities on the Final Settlement Date and unless the applicable record date,
if any, for the exercise of such rights occurs after such date. For example, in
the event that an amendment is proposed to the Articles of Incorporation or By-
Laws of MCN and the record date for determining the stockholders of record
entitled to vote on such amendment occurs prior to such delivery, holders of the
Securities will not be entitled to vote on such amendment.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the Securities are
entitled to receive on the Final Settlement Date is subject to adjustment for
certain events arising from stock splits and combinations, stock
S-9
<PAGE> 10
dividends and certain other actions of MCN that modify its capital structure.
See "Description of the Securities -- Anti-Dilution Adjustments." Such number of
shares of Common Stock to be received by such holders on the Final Settlement
Date will not be adjusted for other events, such as offerings of Common Stock
for cash or in connection with acquisitions. MCN is not restricted from issuing
additional Common Stock during the term of the Securities and has no obligation
to consider the interests of the holders of the Securities for any reason.
Additional issuances may materially and adversely affect the price of the Common
Stock and, because of the relationship of the number of shares to be received on
the Final Settlement Date to the price of the Common Stock, such other events
may adversely affect the trading price of the Securities.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how the Securities will trade in the
secondary market or whether such market will be liquid or illiquid. The
Securities are novel securities and there is currently no secondary market for
the Securities. Application has been made to list the Securities on the NYSE.
However, there can be no assurance that an active trading market for the
Securities will develop or that such listing will provide the holders of the
Securities with liquidity of investment.
TREASURY NOTES ENCUMBERED
Although holders of Securities will be beneficial owners of the underlying
Treasury Notes, those Treasury Notes will be pledged with the Collateral Agent
to secure the obligations of the holders under the Purchase Contracts. Thus,
rights of the holders to their Treasury Notes will be subject to the Company's
security interest and no holder will be permitted to withdraw Treasury Notes
except in connection with the early settlement or termination of the related
Purchase Contracts. Additionally, upon the automatic termination of the Purchase
Contracts in the event that the Company becomes the subject of a case under the
United States Bankruptcy Code (the "Bankruptcy Code"), the delivery of the
Treasury Notes to holders of the Securities may be delayed by the imposition of
the automatic stay of Section 362 of the Bankruptcy Code. During the period of
any such delay, the Treasury Notes will continue to accrue interest, payable by
the United States Government, until their maturity.
SUBORDINATION OF YIELD ENHANCEMENT PAYMENTS
The Company's obligations with respect to Yield Enhancement Payments are
subordinate and junior in right of payment to all liabilities of the Company and
pari passu with the most senior preferred stock directly issued from time to
time, if any, by the Company. There are no terms in the Purchase Contract
Agreement or the Purchase Contracts that limit the Company's ability to incur
obligations that rank senior to the Yield Enhancement Payments.
RIGHT TO DEFER YIELD ENHANCEMENT PAYMENTS
The Company may, at its option, defer the payment of Yield Enhancement
Payments on the Purchase Contracts until the Final Settlement Date. However,
deferred installments of Yield Enhancement Payments will bear additional Yield
Enhancement Payments at the rate of 8 3/4% per annum (compounding on each
succeeding Payment Date) until paid (such deferred installments of Yield
Enhancement Payments together with the additional Yield Enhancement Payments
shall be referred to herein as the "Deferred Yield Enhancement Payments"). If
the Purchase Contracts are settled early or terminated (upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to the
Company), the right to receive Yield Enhancement Payments, and Deferred Yield
Enhancement Payments, will terminate.
In the event that the Company elects to defer the payment of Yield
Enhancement Payments on the Purchase Contracts until the Final Settlement Date,
each holder will receive on the Final Settlement Date, in lieu of a cash
payment, a number of shares of Common Stock (in addition to a number of shares
of Common Stock equal to the Settlement Rate) equal to (x) the aggregate amount
of Deferred Yield Enhancement Payments payable to a holder of Securities divided
by (y) the Applicable Market Value. See "Description of the Purchase Contracts
- -- Yield Enhancement Payments."
S-10
<PAGE> 11
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT; LIMITED
OBLIGATIONS OF PURCHASE CONTRACT AGENT
The Purchase Contract Agreement will not be qualified as an indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the
Purchase Contract Agent will not be required to qualify as a trustee thereunder.
Accordingly, holders of the Securities will not have the benefits of the
protections of the Trust Indenture Act. Under the terms of the Purchase Contract
Agreement, the Purchase Contract Agent will have only limited obligations to the
holders of the Securities. See "Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement -- Information Concerning the Purchase
Contract Agent".
THE COMPANY
MCN is a $2.9 billion (assets) diversified natural gas holding company with
gas markets and investments in various regions in North America. Its principal
operating subsidiaries are MichCon, a natural gas distribution and intrastate
transmission company, and 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's major business segments are Gas Distribution and, within MCN
Investment's Diversified Energy group, Gas Services and Computer Operations
Services.
MCN's strategy is to aggressively invest in a diverse portfolio of domestic
and international natural gas-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;
- to invest in a portfolio of energy-related projects including
investments in exploration and production, power generation, gas
gathering and processing systems, and gas storage; and
- to pursue new opportunities in other areas of expertise.
Accordingly, MCN's capital investments could range between $2.5 billion and
$3.3 billion from 1996 through 2000. This proposed 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 credit ratings through a strong balance sheet.
Gas Distribution operates the largest natural gas distribution and
intrastate transmission system in Michigan and one of the largest in the United
States. For the twelve months ended December 31, 1995, operating revenues in the
Gas Distribution segment exceeded $1.1 billion. In addition, at December 31,
1995, the segment had total assets of approximately $1.9 billion. Gas
Distribution serves approximately 1.2 million customers in more than 500
communities throughout Michigan with gas sales and transportation markets of
about 730 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.
Gas Services 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 December 31, 1995, operating revenues for the segment were
approximately $400 million and, at December 31, 1995, assets totalled
approximately $1.1 billion, including Gas Services' interest 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 Gas
Services to continue to grow its 180 Bcf markets and asset-based investments.
S-11
<PAGE> 12
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.
Computer Operations Services is a leading provider of computer outsourcing
services in the United States. Genix provides computer operations management,
data processing and related services to approximately 100 corporate clients,
including thirteen Fortune 500 companies, in more than a dozen industries. For
1995, Computer Operations Services had revenues of $105.2 million and operating
income of $8.0 million, up 19% and 21%, respectively, over 1994.
The mailing address of MCN's principal executive office is 500 Griswold
Street, Detroit, Michigan 48226, and its telephone number is (313) 256-5500.
RECENT DEVELOPMENTS
Consistent with its strategic focus of investing in energy-related
projects, MCN is evaluating the potential sale of Genix. MCN is pursuing growth
opportunities in the energy industry including gas and oil exploration and
production, gas marketing, gas gathering and processing and power generation
projects. Proceeds from the potential sale of Genix would partially fund MCN's
capital expenditures, including investments in energy-related projects, which
may reach $850 million in 1996.
S-12
<PAGE> 13
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Securities offered
hereby will be used by the Underwriters, to purchase, at the direction of the
Company, the underlying Treasury Notes, which are being transferred to holders
pursuant to the terms of the Securities, and the Company will receive no
proceeds from the sale of the Securities. The proceeds to be received by the
Company upon settlement of the Purchase Contracts are expected to be used for
general corporate purposes, which may include capital expenditures, investment
in subsidiaries, working capital, repayment of debt and other business
opportunities.
PRICE RANGE OF COMMON STOCK AND 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 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
PAID PER
HIGH* LOW* 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.
For a recent closing sales price for the Common Stock, as reported on the
NYSE, see the cover page of this Prospectus Supplement. As of December 31, 1995,
the approximate number of holders of record of Common Stock was 24,100.
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 the 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.
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<PAGE> 14
CAPITALIZATION
The following table sets forth the summary capitalization at December 31,
1995 of the Company and its consolidated subsidiaries and has been derived from
the audited consolidated financial statements of the Company. 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 DECEMBER 31,
1995
---------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Short-term debt (includes notes payable and current portion of long-term debt
and capital leases)......................................................... $ 252,635
==========
Long-Term Debt (including capital leases)(1).................................. 993,407
Redeemable Cumulative Preferred Securities of Subsidiaries.................... 96,449
Common Stockholders' Equity................................................... 664,776
----------
Total Capitalization.......................................................... $ 1,754,632
==========
</TABLE>
- -------------------------
(1) 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-14
<PAGE> 15
DESCRIPTION OF THE SECURITIES
The following description of certain terms of the Securities offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Securities set forth in the
accompanying Prospectus, to which reference is hereby made. The summaries of
certain provisions of documents described below do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of such documents (including the definitions therein of certain
terms), forms of which are on file with the Commission. Wherever particular
Sections of, or terms defined in, such documents are referred to herein, such
Sections or defined terms are incorporated by reference herein. Capitalized
terms not defined herein have the meanings assigned to such terms in the
accompanying Prospectus.
GENERAL
Each Security will have a Stated Amount of $23.00 and will be issued under
the Purchase Contract Agreement between the Company and the Purchase Contract
Agent. Each Security will consist of (a) a Purchase Contract under which (i) the
holder will purchase from the Company on the Final Settlement Date of April 30,
1999, for an amount in cash equal to the Stated Amount, a number of shares of
Common Stock equal to the Settlement Rate described below and (ii) the Company
will pay Yield Enhancement Payments to the holder, and (b) Treasury Notes having
a principal amount equal to the Stated Amount and maturing on the Final
Settlement Date. The aggregate fair market value of the Treasury Notes at the
time of purchase may exceed their aggregate principal amount, in which case, the
Company shall, for the benefit of the Security holders, provide the amount of
such excess as additional purchase price for the Treasury Notes (such amounts,
"Initial Premium Payments"). Holders will not directly receive any cash as a
result of any Initial Premium Payments. The Treasury Notes will be pledged with
the Collateral Agent to secure the holder's obligation to purchase Common Stock
under the Purchase Contract. Unless a holder of Securities settles the
underlying Purchase Contracts either through the early delivery of cash to the
Purchase Contract Agent in the manner described below or otherwise, or unless
the Purchase Contracts are terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company), principal
of the Treasury Notes underlying such Securities, when paid at maturity, will
automatically be applied to satisfy in full the holder's obligation to purchase
Common Stock under the Purchase Contracts. For so long as a Purchase Contract
remains in effect, such Purchase Contract and the Treasury Notes securing it
will not be separable and may be transferred only as an integrated Security.
The semi-annual payments on the Securities set forth on the cover page of
this Prospectus Supplement will consist of interest on the Treasury Notes
payable by the United States Government at the rate of 6 1/2% of the Stated
Amount per annum and unsecured, subordinated Yield Enhancement Payments payable
semi-annually on each Payment Date by the Company at the rate of 2 1/4% of the
Stated Amount per annum. The Company's obligations with respect to Yield
Enhancement Payments are subordinated and junior in right of payment to all
liabilities of the Company and pari passu with the most senior preferred stock
directly issued, from time to time, if any, by the Company.
The semi-annual interest payment due on the Treasury Notes on April 30,
1996 (the "Treasury Accrued Interest"), will be remitted by the Purchase
Contract Agent to the Company, except for an amount representing accrued
interest on the Treasury Notes from the date of issuance of the Securities until
April 30, 1996 (the "Holders' Accrued Interest"). Holders' Accrued Interest will
be remitted by the Collateral Agent to the Purchase Contract Agent, who will
invest such amount in permitted investments on behalf of the holders until the
first Payment Date, at which time such amount and any reinvestment income
thereon, net of expenses associated therewith, will be paid to holders, together
with the regularly scheduled semi-annual interest payment on the Treasury Notes.
The Yield Enhancement Payments payable on the first Payment Date will be
adjusted so that the Yield Enhancement Payments payable on such date will be the
equivalent of 2 1/4% of the Stated Amount per annum accruing from April 26, 1996
to October 31, 1996.
The Company may, at its option, defer the payment of Yield Enhancement
Payments on the Purchase Contracts until the Final Settlement Date. However,
deferred installments of Yield Enhancement Payments will bear additional Yield
Enhancement Payments at the rate of 8 3/4% per annum (compounding on each
succeeding Payment Date) until paid. If the Purchase Contracts are terminated
(upon the occurrence of
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<PAGE> 16
certain events of bankruptcy, insolvency or reorganization with respect to the
Company), the right to receive Yield Enhancement Payments and Deferred Yield
Enhancement Payments will terminate. In the event that the Company elects to
defer the payment of Yield Enhancement Payments on the Purchase Contracts until
the Final Settlement Date, each holder will receive on the Final Settlement
Date, in lieu of cash payment, a number of shares of Common Stock (in addition
to a number of shares of Common Stock equal to the Settlement Rate) equal to (x)
the aggregate amount of Deferred Yield Enhancement Payments payable to a holder
of Securities divided by (y) the Applicable Market Value. See "Description of
the Purchase Contracts -- Yield Enhancement Payments."
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each Purchase Contract underlying a Security (unless earlier terminated or
settled at the holder's option) will obligate the holder of the Security to
purchase, and the Company to sell, on the Final Settlement Date, for an amount
in cash equal to the Stated Amount, a number of new shares of Common Stock equal
to the Settlement Rate. The Settlement Rate will be calculated as follows
(subject to adjustment under certain circumstances): (a) if the Applicable
Market Value is greater than the Threshold Appreciation Price of $27.60, the
Settlement Rate will be .833, (b) if the Applicable Market Value is less than or
equal to the Threshold Appreciation Price but greater than the Stated Amount,
the Settlement Rate will equal the Stated Amount divided by the Applicable
Market Value and (c) if the Applicable Market Value is less than or equal to the
Stated Amount, the Settlement Rate will be one. "Applicable Market Value" means
the average of the Closing Prices (as defined) per share of Common Stock on each
of the twenty consecutive Trading Days (as defined) ending on the second Trading
Day immediately preceding the Final Settlement Date.
No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of fractional shares otherwise issuable in
respect of Purchase Contracts being settled by a holder of Securities, the
holder will be entitled to receive an amount of cash equal to the value of such
fractional shares at the Closing Price per share on the second Trading Day
immediately preceding the date of purchase.
Unless a holder of Securities settles the underlying Purchase Contracts
prior to the Final Settlement Date through the delivery of cash to the Purchase
Contract Agent in the manner described under "-- Early Settlement" below or an
event described under "-- Termination" below occurs, principal of the Treasury
Notes underlying such Securities, when paid at maturity, will automatically be
transferred to the Company to satisfy in full the holder's obligation to
purchase Common Stock under the Purchase Contracts. Such stock will then be
issued and delivered to such holder or such holder's designee, upon presentation
and surrender of the certificate evidencing such Securities (a "Security
Certificate") and payment by the holder of any transfer or similar taxes payable
in connection with the issuance of the stock to any person other than such
holder.
Prior to the date on which shares of Common Stock are issued in settlement
of a Purchase Contract, the Common Stock underlying the related Security will
not be deemed to be outstanding for any purpose and the holder thereof will not
have any voting rights, rights to dividends or other distributions or other
rights or privileges of a stockholder by virtue of holding such Security.
Each holder of Securities, by acceptance thereof, will under the terms of
the Purchase Contract Agreement and the Securities be deemed to have (a)
irrevocably agreed to be bound by the terms of the related Purchase Contracts
for so long as such holder remains a holder of such Securities and (b) newly
appointed the Purchase Contract Agent as such holder's attorney-in-fact to enter
into and perform the related Purchase Contracts on behalf of and in the name of
such holder.
S-16
<PAGE> 17
EARLY SETTLEMENT
A holder of Securities may settle the underlying Purchase Contracts prior
to the Final Settlement Date by presenting and surrendering the Security
Certificate evidencing such Securities at the offices of the Purchase Contract
Agent with the form of "Election to Settle Early" on the reverse side of the
certificate completed and executed as indicated, accompanied by payment (in the
form of a certified or cashier's check payable to the order of the Company in
immediately available funds) of an amount equal to the Stated Amount times the
number of Purchase Contracts being settled. So long as the Securities are
evidenced by one or more global security certificates deposited with the
Depositary (as defined below), procedures for early settlement will also be
governed by standing arrangements between the Depositary and the Purchase
Contract Agent. HOLDERS MAY SETTLE SECURITIES EARLY ONLY IN INTEGRAL MULTIPLES
OF 1000 SECURITIES.
Upon early settlement of Purchase Contracts underlying any Securities, (a)
the holder will receive .833 of a share of Common Stock per Security (regardless
of the market price of the Common Stock on the date of purchase), subject to
adjustment under certain circumstances, (b) the Treasury Notes underlying such
Securities will thereupon be transferred to the holder free and clear of the
Company's security interest therein, (c) the holder's right to receive Deferred
Yield Enhancement Payments, if any, on the Purchase Contracts being settled will
be forfeited and (d) the holder's right to receive additional Yield Enhancement
Payments will terminate and, except as contemplated by clause (a) above, no
adjustment will be made to or for the holder on account of current or deferred
amounts accrued in respect thereof.
If the Purchase Contract Agent receives the Security Certificate,
accompanied by the completed Election to Settle Early and requisite check, from
a holder of Securities by 5:00 p.m., New York City time, on a Business Day, that
day will be considered the settlement date. If the Purchase Contract Agent
receives the foregoing after 5:00 p.m., New York City time, on a Business Day or
at any time on a day that is not a Business Day, the next Business Day will be
considered the settlement date.
Upon early settlement of Purchase Contracts in the manner described above,
presentation and surrender of the Security Certificate evidencing the related
Securities and payment of any transfer or similar taxes payable by the holder in
connection with the issuance of the stock to any person other than the holder of
such Securities, the Company will cause the shares of Common Stock being
purchased to be issued, and the Treasury Notes securing such Purchase Contracts
to be released from the pledge under the Pledge Agreement described below and
transferred, within three Business Days following the settlement date, to the
purchasing holder or such holder's designee.
YIELD ENHANCEMENT PAYMENTS
Yield Enhancement Payments will be payable semi-annually on each Payment
Date to the persons in whose names the related Securities are registered at the
close of business on the Business Day (as defined below) immediately preceding
such Payment Date (the "Record Date"). Yield Enhancement Payments will be
computed on the basis of actual days elapsed in a year of 365 or 366 days, as
the case may be. If a Payment Date falls on a day that is not a Business Day,
the Yield Enhancement Payment may be paid on the next succeeding Business Day
with the same force and effect as if made on such Payment Date, and no
additional amounts will accrue as a result of such delayed payment. "Business
Day" means any day that is not a Saturday, a Sunday or a day on which the New
York Stock Exchange or banking institutions or trust companies in The City of
New York are authorized or obligated by law or executive order to be closed.
The Company's obligations with respect to Yield Enhancement Payments are
subordinate and junior in right of payment to all liabilities of the Company and
pari passu with the most senior preferred stock directly issued, from time to
time, if any, by the Company.
The Company may, at its option and upon prior written notice to the holders
of Securities and the Purchase Contract Agent, defer the payment of Yield
Enhancement Payments on the Purchase Contracts until the Final Settlement Date.
However, deferred installments of Yield Enhancement Payments will bear
additional Yield Enhancement Payments at the rate of 8 3/4% per annum
(compounding on each succeeding
S-17
<PAGE> 18
Payment Date) until paid. If the Purchase Contracts are terminated (upon the
occurrence of certain events of bankruptcy, insolvency or reorganization with
respect to the Company), the right to receive Yield Enhancement Payments and
Deferred Yield Enhancement Payments will terminate.
In the event that the Company elects to defer the payment of Yield
Enhancement Payments on the Purchase Contracts until the Final Settlement Date,
each holder will receive on the Final Settlement Date, in lieu of a cash
payment, a number of shares of Common Stock (in addition to a number of shares
of Common Stock equal to the Settlement Rate) equal to (x) the aggregate amount
of Deferred Yield Enhancement Payments payable to a holder of Securities divided
by (y) the Applicable Market Value.
No fractional shares of Common Stock will be issued by the Company with
respect to the payment of Deferred Yield Enhancement Payments on the Final
Settlement Date. In lieu of fractional shares otherwise issuable with respect to
such payment of Deferred Yield Enhancement Payments, the holder will be entitled
to receive an amount in cash equal to the value of such fractional shares at the
Closing Price per share on the second Trading Day immediately preceding the
Final Settlement Date.
In the event the Company exercises its option to defer the payment of Yield
Enhancement Payments, then, until the Deferred Yield Enhancement Payments have
been paid, (a) the Company 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 stock (other than (i)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of Common Stock, (ii) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged) or make any guarantee payments with respect to the
foregoing) and (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 that rank pari passu with or junior
to such Yield Enhancement Payments and (c) the Company shall not make any
guarantee payments with respect to the foregoing.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment upon the occurrence of certain events, including: (a) the payment of
dividends (and other distributions) of Common Stock on Common Stock; (b) the
issuance to all holders of Common Stock of rights, warrants or options entitling
them, for a period of up to 45 days, to subscribe for or purchase Common Stock
at less than the Current Market Price (as defined) thereof; (c) subdivisions,
splits and combinations of Common Stock; (d) distributions to all holders of
Common Stock of evidences of indebtedness of the Company, shares of capital
stock, securities, cash or property (excluding any dividend or distribution
covered by clause (a) or (b) above and any dividend or distribution paid
exclusively in cash); (e) distributions consisting exclusively of cash to all
holders of Common Stock in an aggregate amount that, together with (i) other
all-cash distributions made within the preceding 12 months and (ii) any cash and
the fair market value, as of the expiration of the tender or exchange offer
referred to below, of consideration payable in respect of any tender or exchange
offer by the Company or a subsidiary for the Common Stock concluded within the
preceding 12 months, exceeds 15% of the Company's aggregate market
capitalization (such aggregate market capitalization being the product of the
Current Market Price (as defined) of the Common Stock multiplied by the number
of shares of Common Stock then outstanding) on the date of such distribution;
and (f) the successful completion of a tender or exchange offer made by the
Company or any subsidiary for the Common Stock which involves an aggregate
consideration that, together with (i) any cash and the fair market value of
other consideration payable in respect of any tender or exchange offer by the
Company or a subsidiary for the Common Stock concluded within the preceding 12
months and (ii) the aggregate amount of any all-cash distributions to all
holders of the Company's Common Stock made within the preceding 12 months,
exceeds 15% of the Company's aggregate market capitalization on the expiration
of such tender or exchange offer.
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<PAGE> 19
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is
converted into the right to receive other securities, cash or property, each
Purchase Contract then outstanding would, without the consent of the holders of
Securities, become a contract to purchase only the kind and amount of
securities, cash and other property receivable upon consummation of the
transaction by a holder of the number of shares of Common Stock which would have
been received by the holder of the related Security immediately prior to the
date of consummation of such transaction if such holder had then settled such
Purchase Contract.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (i.e., distributions of evidences of indebtedness or
assets of the Company, but generally not stock dividends or rights to subscribe
to capital stock) and, pursuant to the Settlement Rate adjustment provisions of
the Purchase Contract Agreement, the Settlement Rate is increased, such increase
may be deemed to be the receipt of taxable income to holders of Securities. See
"Certain Federal Income Tax Consequences -- Adjustment of Settlement Rate."
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of shares of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
occurrence of an event that requires or permits an adjustment in the Settlement
Rate, to provide written notice to the Purchase Contract Agent of the occurrence
of such event and a statement in reasonable detail setting forth the method by
which the adjustment to the Settlement Rate was determined and setting forth the
revised Settlement Rate.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of shares of Common Stock issuable upon early
settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the Securities thereunder (including the right to receive
accrued or deferred Yield Enhancement Payments and the right and obligation to
purchase Common Stock), will automatically terminate upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to the
Company. Upon such termination, the Collateral Agent will release the Treasury
Notes held by it to the Purchase Contract Agent for distribution to the holders.
Upon such termination, however, such release and termination may be subject to a
limited delay. In the event that the Company becomes the subject of a case under
the Bankruptcy Code, such delay may occur as a result of the automatic stay
under the Bankruptcy Code and continue until such automatic stay has been
lifted. During the period of any such delay, the Treasury Notes will continue to
accrue interest, payable by the United States Government, until their maturity.
TREASURY NOTES AND PLEDGE AGREEMENT; INTEREST ON TREASURY NOTES
The Treasury Notes underlying the Securities will be pledged to the
Collateral Agent, for the benefit of the Company, pursuant to a pledge
agreement, to be dated as of April 22, 1996 (the "Pledge Agreement"), to secure
the obligations of the holders to purchase Common Stock under the Purchase
Contracts. The rights of holders of Securities to the underlying Treasury Notes
will be subject to the Company's security interest therein created by the Pledge
Agreement; no holder of Securities will be permitted to withdraw the Treasury
Notes underlying such Securities from the pledge arrangement except upon the
termination or early settlement of the related Purchase Contracts. Subject to
such security interest, however, holders of Securities
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<PAGE> 20
will have full beneficial ownership of the underlying Treasury Notes. The
Company will have no interest in the Treasury Notes other than its security
interest.
The Collateral Agent will, upon receipt of interest payments on the
Treasury Notes, except for the accrued interest on the Treasury Notes payable on
April 30, 1996, distribute such payments to the Purchase Contract Agent, who
will in turn distribute those payments to the persons in whose names the related
Securities are registered at the close of business on the Record Date
immediately preceding the date of such distribution. See "Description of the
Securities -- General."
THE TREASURY NOTES WILL BE OBLIGATIONS OF THE UNITED STATES GOVERNMENT AND
NOT OF THE COMPANY.
BOOK-ENTRY SYSTEM
The Depositary Trust Company (the "Depositary") will act as securities
depositary for the Securities. The Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global security certificates
("Global Security Certificates"), representing the total aggregate number of
Securities, will be issued and will be deposited with the Depositary and will
bear a legend regarding the restrictions on exchanges and registration of
transfer thereof referred to below.
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 Securities so
long as such Securities are represented by Global Security Certificates.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Depositary holds
securities that its participants ("Participants") deposit with the Depositary.
The Depositary 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").
The Depositary 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 Depositary 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 the Depositary and its
Participants are on file with the Securities and Exchange Commission.
No Securities represented by Global Security Certificates may be exchanged
in whole or in part for Securities registered, and no transfer of Global
Security Certificates in whole or in part may be registered, in the name of any
person other than the Depositary or any nominee of the Depositary unless the
Depositary has notified the Company that it is unwilling or unable to continue
as depositary for such Global Security Certificates or has ceased to be
qualified to act as such as required by the Purchase Contract Agreement or there
shall have occurred and be continuing a default by the Company in respect of its
obligations under one or more Purchase Contracts. All Securities represented by
one or more Global Security Certificates or any portion thereof will be
registered in such names as the Depositary may direct.
As long as the Depositary, or its nominee, is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all Securities represented thereby for all purposes under the
Securities and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the Securities represented thereby registered in their names,
will not receive or be entitled to receive physical
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<PAGE> 21
delivery of Security Certificates in exchange therefor and will not be
considered to be owners or holders of such Global Security Certificates or any
Securities represented thereby for any purpose under the Securities or the
Purchase Contract Agreement. All payments on the Securities represented by the
Global Security Certificates and all transfers and deliveries of Treasury Notes
and Common Stock with respect thereto will be made to the Depositary or its
nominee, as the case may be, as the holder thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests through
institutions that have accounts with the Depositary or its nominee. Ownership of
beneficial interests in Global Security Certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants'
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Purchase
Contracts on the Final Settlement Date or upon Early Settlement will be governed
by arrangements among the Depositary, Participants and persons that may hold
beneficial interests through Participants designed to permit such settlement
without the physical movement of certificates. Payments, transfers, deliveries,
exchanges and other matters relating to beneficial interests in Global Security
Certificates may be subject to various policies and procedures adopted by the
Depositary from time to time. None of the Company, the Purchase Contract Agent
or any agent of the Company or the Purchase Contract Agent will have any
responsibility or liability for any aspect of the Depositary's or any
Participant's records relating to, or for payments made on account of,
beneficial interests in Global Security Certificates, or for maintaining,
supervising or reviewing any of the Depositary's records or any participant's
records relating to such beneficial ownership interests.
CERTAIN PROVISIONS OF THE PURCHASE CONTRACT AGREEMENT
AND THE PLEDGE AGREEMENT
PAYMENT OF INTEREST AND YIELD ENHANCEMENT PAYMENTS; TRANSFER OF SECURITIES;
DELIVERY OF COMMON STOCK OR TREASURY NOTES
Interest on the Treasury Notes and Yield Enhancement Payments will be
payable, Purchase Contracts (and documents related thereto) will be settled and
transfers of the Securities will be registrable at the office of the Purchase
Contract Agent in the Borough of Manhattan, The City of New York. In addition,
in the event that the Securities do not remain in book-entry form, payment of
interest on the Treasury Notes and Yield Enhancement Payments may be made, at
the option of the Company, by check mailed to the address of the person entitled
thereto as shown on the Security Register.
Payments in respect of principal of the Treasury Notes on the Final
Settlement Date will be applied in satisfaction of the obligations of the
holders of the Securities under the Purchase Contracts and shares of Common
Stock will be delivered, or, if the Purchase Contracts have terminated, Treasury
Notes will be delivered potentially after a limited delay (see "Description of
the Purchase Contracts -- Termination"), in each case upon presentation and
surrender of the Security Certificates evidencing the related Securities at the
office of the Purchase Contract Agent.
If a holder of outstanding Securities fails to present and surrender the
Security Certificate evidencing such Securities to the Purchase Contract Agent
on the Final Settlement Date, the shares of Common Stock issuable in settlement
of the applicable Purchase Contract and in payment of any Deferred Yield
Enhancement Payments will be registered in the name of the Purchase Contract
Agent and, together with any distributions thereon, shall be held by the
Purchase Contract Agent as agent for the benefit of such holder, until such
Security Certificate is presented and surrendered or the holder provides
satisfactory evidence that such certificate has been destroyed, lost or stolen,
together with any indemnity that may be required by the Purchase Contract Agent
and the Company.
If the Purchase Contracts have terminated prior to the Final Settlement
Date, the Treasury Notes have been transferred to the Purchase Contract Agent
for distribution to the holders entitled thereto and a holder fails to present
and surrender the Security Certificate evidencing such holder's Securities to
the Purchase Contract Agent, the Treasury Notes delivered to the Purchase
Contract Agent and payments thereon shall be
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<PAGE> 22
held by the Purchase Contract Agent as agent for the benefit of such holder,
until such Security Certificate is presented or the holder provides the evidence
and indemnity described above.
The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the Securities, except for any tax or other governmental charge that may be
imposed in connection therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting the Company and the Purchase Contract Agent or Collateral
Agent, as the case may be, with the consent of the holders of not less than
66 2/3% of the Securities at the time outstanding, to modify the terms of the
Purchase Contracts, the Purchase Contract Agreement and the Pledge Agreement,
except that no such modification may, without the consent of the holder of each
outstanding Security affected thereby, (a) change any Payment Date, (b) change
the amount or type of Treasury Notes underlying a Security, impair the right of
the holder of any Security to receive interest payments on the underlying
Treasury Notes or otherwise adversely affect the holder's rights in or to such
Treasury Notes, (c) change the place or currency of payment or reduce any Yield
Enhancement Payments or any Deferred Yield Enhancement Payments, (d) impair the
right to institute suit for the enforcement of any Purchase Contract, (e) reduce
the amount of Common Stock purchasable under any Purchase Contract, increase the
price to purchase Common Stock on settlement of any Purchase Contract, change
the Final Settlement Date or otherwise adversely affect the holder's rights
under any Purchase Contract or (f) reduce the above-stated percentage of
outstanding Securities, the consent of whose holders is required for the
modification or amendment of the provisions of the Purchase Contracts, the
Purchase Contract Agreement or the Pledge Agreement.
NO CONSENT TO ASSUMPTION
Each holder of Securities, by acceptance thereof, will under the terms of
the Purchase Contract Agreement and the Securities be deemed expressly to have
withheld any consent to the assumption (i.e., affirmance) of the Purchase
Contracts by the Company or its trustee in the event that the Company becomes
the subject of a case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with any other entity or sell, assign, transfer, lease
or convey all or substantially all of its properties and assets to any person,
firm or corporation unless the Company is the continuing corporation or the
successor corporation is a corporation organized under the laws of the United
States of America or a state thereof and such corporation expressly assumes the
obligations of the Company under the Purchase Contracts, the Purchase Contract
Agreement and the Pledge Agreement, and the Company or such successor
corporation is not, immediately after such merger, consolidation, sale,
assignment, transfer, lease or conveyance, in default in the performance of any
of its obligations thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral Agent may treat
the registered owner of any Security as the absolute owner thereof for the
purpose of making payment and settling the Purchase Contracts and for all other
purposes.
REPLACEMENT OF SECURITY CERTIFICATES
Any mutilated Security Certificate will be replaced by the Company at the
expense of the holder upon surrender of such certificate to the Purchase
Contract Agent. Security Certificates that become destroyed, lost or stolen will
be replaced by the Company at the expense of the holder upon delivery to the
Company and the
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<PAGE> 23
Purchase Contract Agent of evidence of the destruction, loss or theft thereof
satisfactory to the Company and the Purchase Contract Agent. In the case of a
destroyed, lost or stolen Security Certificate, an indemnity satisfactory to the
Purchase Contract Agent and the Company may be required at the expense of the
holder of the Securities evidenced by such certificate before a replacement will
be issued.
Notwithstanding the foregoing, the Company will not be obligated to issue
any Security on or after the Final Settlement Date or after the Purchase
Contracts have terminated. The Purchase Contract Agreement will provide that, in
lieu of the delivery of a replacement Security Certificate following the Final
Settlement Date, the Purchase Contract Agent, upon delivery of the evidence and
indemnity described above, will deliver the Common Stock issuable pursuant to
the Purchase Contracts included in the Securities evidenced by such certificate,
or, if the Purchase Contracts have terminated prior to the Final Settlement
Date, transfer the principal amount of the Treasury Notes included in the
Securities evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the Purchase Contract Agent. The
Purchase Contract Agent will act as the agent for the holders of Securities from
time to time. The Purchase Contract Agreement will not obligate the Purchase
Contract Agent to exercise any discretionary actions in connection with a
default under the terms of the Securities or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such
resignation or replacement would be effective upon the appointment of a
successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
Chemical Bank will be the Collateral Agent. The Collateral Agent will act
solely as the agent of the Company and will not assume any obligation or
relationship of agency or trust for or with any of the holders of the Securities
except for the obligations owed by a pledgee of property to the owner thereof
under the Pledge Agreement and applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
VOTING RIGHTS
Holders of the Securities will have no voting rights.
LISTING OF THE SECURITIES
The Securities have been approved for listing on the New York Stock
Exchange under the symbol "MCE", subject to official notice of issuance.
NYSE SYMBOL OF COMMON STOCK
The Common Stock of the Company is listed on the NYSE under the symbol
"MCN".
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<PAGE> 24
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal U.S. federal income tax
consequences of the purchase, ownership and disposition of Securities. The
summary represents the opinion of Skadden, Arps, Slate, Meagher & Flom, special
tax counsel to the Company, insofar as it relates to matters of law and legal
conclusions. The summary deals only with Securities held as capital assets by
purchasers who or which are (i) citizens or residents of the United States, (ii)
domestic corporations or (iii) otherwise subject to U.S. federal income taxation
on a net income basis in respect of income and gain from securities. It does not
deal with Securities held by specially treated classes of holders, such as
dealers in securities or life insurance companies. Prospective purchasers of
Securities should consult their respective tax advisors concerning the U.S.
federal income tax consequences to Security holders in their particular
situations, as well as any consequences under the laws of any other taxing
jurisdiction. 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.
INCOME FROM SECURITIES
A holder will include interest on the Treasury Notes in income when
received or accrued, in accordance with the holder's method of accounting. For
federal income tax purposes, a holder is deemed to receive interest payments on
the Treasury Notes when such payments are made to the Collateral Agent, even if
such interest payment is not distributed to the holders until a later date, as
will be the case for the interest paid on the Treasury Notes with respect to the
first interest payment date on the Treasury Notes following the issuance date of
the Securities.
There is no authority for the treatment of the Yield Enhancement Payments,
Initial Premium Payments or Deferred Yield Enhancement Payments, if any, under
current law, but the Company intends to file information returns on the basis
that the Yield Enhancement Payments are taxable income to holders when received
or accrued, in accordance with the holder's method of accounting and, similarly,
that the Initial Premium Payments (although a payment in the form of an
additional interest in the Treasury Notes and not a direct payment of cash) are
taxable income to holders when made (i.e., the day the Treasury Notes are
purchased). Holders should consult their respective tax advisors concerning the
treatment of Yield Enhancement Payments and Initial Premium Payments, including
the possibility that Yield Enhancement Payments and Initial Premium Payments may
be treated as a reduction in the holders' basis in the Securities, rather than
included in income upon receipt (or, in the case of Initial Premium Payments,
when made), by analogy to the treatment of rebates or of option premiums. For
example, if, as a result of having entered into the Purchase Contracts, the
holders were treated as having sold a put option, the Yield Enhancement Payments
and the Initial Premium Payments could be viewed as premium payments for the put
option reducing the holder's basis in the Securities but not includible in gross
income when received. In addition, if the Company elects to defer a Yield
Enhancement Payment in a taxable year, the Company may determine to report the
amount of such Deferred Yield Enhancement Payment as constructive taxable income
to holders for such taxable year, and such Deferred Yield Enhancement Payment
may result in holders recognizing taxable income or gain for such taxable year
prior to the receipt of cash or additional shares of Common Stock. Accordingly,
holders should consult their respective tax advisors as to whether or not
Deferred Yield Enhancement Payments should be treated as constructive taxable
distributions and, if taxable, whether such income would be recognized prior to
the receipt of cash or additional shares of Common Stock or upon the Final
Settlement Date. The Company does not intend to deduct the Yield Enhancement
Payments, Initial Premium Payments or any Deferred Yield Enhancement Payments
for federal income tax purposes because it views them as a cost of issuing the
Common Stock. Yield Enhancement Payments and Initial Premium Payments received
by a regulated investment company should be treated as income derived with
respect to such company's business of investing in stock and securities.
SALE OR DISPOSITION OF SECURITIES
If a holder sells, exchanges or otherwise disposes of a Security before the
maturity of the Treasury Notes, the holder will generally recognize capital gain
or loss equal to the difference between the holder's tax basis in
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the Security (generally equal (a) to the amount paid for the Security, increased
by the (b) amount of any constructive dividend included in such holder's income
as a result of an adjustment of the Settlement Rate (see "-- Adjustment of
Settlement Rate") previously included in such holder's taxable income plus (c)
the amount with respect to (i) any Deferred Yield Enhancement Payments not paid
in cash or (ii) any Initial Premium Payments reduced by (d) the sum of any Yield
Enhancement Payments and Initial Premium Payments received (or in the case of
Initial Premium Payment deemed received) by the holder and not previously
included in income) and the amount realized from the disposition of the
Security, except to the extent of any non-de minimis market discount, which, if
the holder does not have an election to amortize such discount currently in
effect, would be treated as ordinary interest income (see "-- Gain or Loss on
Maturity of the Treasury Notes"). If a holder sells a Security between interest
payment dates, a portion of the proceeds of the sale will be treated as a
receipt of interest accrued since the last interest payment date, rather than as
an amount realized from the sale of the Security, consistent with the general
treatment of proceeds from the sale of debt instruments such as Treasury Notes.
GAIN OR LOSS ON MATURITY OF THE TREASURY NOTES: MARKET DISCOUNT AND BOND PREMIUM
The tax basis of the Treasury Notes will equal the fair market value of the
Treasury Notes at the time of purchase of a Security. If such fair market value
equals the amount payable at maturity of the Treasury Notes, the holder will not
realize gain or loss upon payment of the Treasury Notes at maturity. If such
fair market value is less than the amount payable at maturity of the Treasury
Notes, the holder will generally realize gain equal to the difference upon
payment of the Treasury Notes at maturity. This gain will be treated as ordinary
interest income (i.e., market discount) unless it is "de minimis", in which case
it will be treated as capital gain. The gain will be "de minimis" if it is less
than 1/4 of one percent of the amount payable at maturity of the Treasury Notes
multiplied by the number of complete years remaining to maturity of the Treasury
Notes. A holder may instead elect to accrue market discount into income on a
current basis over the remaining life of the Treasury Notes. An election to
amortize market discount may apply to other debt instruments acquired with
market discount by the holder, and a holder should consult a tax advisor before
making such an election.
If such fair market value is greater than the amount payable at maturity of
the Treasury Notes (as would be the case if the Company makes any Initial
Premium Payments), the excess will be "bond premium". A holder may either
recognize the bond premium as a capital loss upon payment of the Treasury Notes
at maturity or make an election to amortize it over the term of the Treasury
Notes. If the election is made, the bond premium will generally reduce the
interest income on the Treasury Notes on a constant yield basis over the
remaining term of the Treasury Notes and will reduce the basis of the Treasury
Notes by the amount of the amortization. An election to amortize bond premium
may apply to other debt instruments acquired at a premium by the holder, and a
holder should consult a tax advisor before making such an election.
TAX BASIS OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT
The tax basis of the Common Stock acquired by a holder of Securities under
the Purchase Contract will equal the amount paid for the Security (a) increased
by the amount of any gain recognized on receipt of principal of the Treasury
Notes, or market discount included in income, as set forth above, (b) increased
by the amount of any constructive dividend included in such holder's income as a
result of an adjustment of the Settlement Rate (see "-- Adjustment of Settlement
Rate") plus the amount previously included in such holder's taxable income with
respect to (i) any Deferred Yield Enhancement Payments not paid in cash or (ii)
any Initial Premium Payments (c) reduced by the amount of any loss recognized on
receipt of principal of the Treasury Notes, or bond premium amortized over the
term of the Treasury Notes, as set forth above, (d) reduced by the amount of any
Yield Enhancement Payments and any Initial Premium Payments received (or, in the
case of Initial Premium Payments, deemed received) by the holder and not
previously included in income, and (e) reduced by the amount of any cash
received in lieu of fractional shares of Common Stock.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT
Except as described below under the caption "-- Adjustment of Settlement
Rate," a holder of Securities who does not otherwise own Common Stock, will not
include in income dividends paid on the Common Stock
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<PAGE> 26
for periods prior to such holder's acquisition of Common Stock under the
Purchase Contracts. Assuming that the Company has current or accumulated
earnings and profits at least equal to the amount of the dividends, a holder of
Common Stock acquired under the Purchase Contract will include a dividend on the
Common Stock in income when paid, and the dividend will be eligible for the
dividends received deduction if received by an otherwise qualifying corporate
holder which meets the holding period and other requirements for the dividends
received deduction.
Upon the sale, exchange or other disposition of Common Stock, the holder
will recognize gain or loss equal to the difference between the holder's tax
basis in the Common Stock and the amount realized on the disposition. The gain
or loss will be capital gain or loss, and will be long-term capital gain or loss
if the holder has held the stock for more than one year at the time of
disposition.
ADJUSTMENT OF SETTLEMENT RATE
Holders of Securities might be treated as receiving a constructive
distribution from the Company if (i) the Settlement Rate is adjusted and as a
result of such adjustment, the proportionate interest of holders of Securities
in the assets or earnings and profits of the Company is increased, and (ii) the
adjustment is not made pursuant to a bona fide, reasonable antidilution formula.
An adjustment in the Settlement Rate would not be considered made pursuant to
such a formula if the adjustment were made to compensate for certain taxable
distributions with respect to Common Stock. Thus, under certain circumstances,
an increase in the Settlement Rate is likely to be taxable to holders of
Securities as a dividend to the extent of the current or accumulated earnings
and profits of the Company. Holders of Securities would be required to include
their allocable share of such constructive dividend in gross income but would
not receive any cash related thereto.
STATE AND OTHER TAX CONSIDERATIONS
Under federal law, interest on Treasury obligations is generally exempt
from state and local income taxes imposed on individual investors. This
exemption generally should apply to an individual Security holder's share of
interest on the Treasury Notes to the extent that an individual's state of
residence (or other applicable state or local taxing jurisdiction) characterizes
the Security for its income tax purposes consistently with the Security's
federal income tax characterization. There can be no assurance, however, that an
individual's state of residence (or other applicable state or local taxing
jurisdiction) would so characterize the Security, and, in any event, the
exemption would not extend to gain on sale or other disposition of a Security.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCE OF THE ACQUISITION AND HOLDING OF A
SECURITY.
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<PAGE> 27
UNDERWRITING
Subject to the terms and conditions set forth in a Purchase Agreement (the
"Purchase Agreement") between the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Dean Witter Reynolds Inc. and Roney & Co., LLC, who are acting as
representatives (the "Representatives") for the underwriters named below (the
"Underwriters"), the Company has agreed to sell to the Underwriters, and each of
the Underwriters severally has agreed to purchase from the Company, the number
of Securities set forth opposite each Underwriter's name. In the Purchase
Agreement, the several Underwriters severally have agreed, subject to the terms
and conditions set forth therein, to purchase all of the Securities offered
hereby if any of the Securities are purchased. In the event of default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances, the
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SECURITIES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................... 860,000
Smith Barney Inc. ................................................. 860,000
Donaldson, Lufkin & Jenrette Securities Corporation................ 860,000
Dean Witter Reynolds Inc. ......................................... 860,000
Roney & Co., LLC................................................... 860,000
A.G. Edwards & Sons, Inc. ......................................... 200,000
PaineWebber Incorporated........................................... 200,000
Robert W. Baird & Co. Incorporated................................. 100,000
First of Michigan Corporation...................................... 100,000
Edward D. Jones & Co., L.P. ....................................... 100,000
Ladenburg, Thalman & Co. Inc. ..................................... 100,000
---------
Total................................................. 5,100,000
========
</TABLE>
The Representatives have advised the Company that they propose initially to
offer the Securities to the public at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession not in excess of $.41 per Security. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $.10 per
Security on sales to certain other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days following the date of this Prospectus Supplement, to purchase up to an
aggregate of 765,000 additional Securities at the price to the public set forth
on the cover page of this Prospectus Supplement, less the underwriting discount.
The Underwriters may exercise this option only to cover over-allotments, if any,
made on the sale of the Securities offered hereby. If Purchase Contracts
underlying any such additional Securities are entered into, the Underwriters, at
the direction of the Company, would purchase and pledge under the Pledge
Agreement the Treasury Notes underlying such Securities and the Company or the
Underwriters, as appropriate, would pay a net amount equal to the proceeds
(deficit) to the Company in respect of such Securities as set forth on the cover
page of this Prospectus Supplement. If the Underwriters exercise their
over-allotment option, each of the Underwriters has severally agreed, subject to
certain conditions, to effect the foregoing transactions with respect to
approximately the same percentage of such Securities that the respective number
of Securities set forth opposite its name in the foregoing table bears to the
Securities offered hereby. The price of the Treasury Notes underlying Securities
with respect to which an over-allotment option is exercised may be different
from that set forth on the cover page of this Prospectus Supplement. Any such
difference will be for the account of the Underwriters and will not affect the
amount of the proceeds (deficit) to the Company in respect of such Securities as
shown on the cover page of this Prospectus Supplement. The Underwriters may
enter into certain hedge transactions for their own account to reduce or
eliminate their risk in this regard.
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The Company has agreed, for a period of 120 days after the date of this
Prospectus Supplement, to not, without the prior written consent of Merrill
Lynch, Pierce, Fenner and Smith Incorporated, directly or indirectly, sell,
offer to sell, grant any option for the sale of, or otherwise dispose of, or
enter into any agreement to sell, any Securities, Purchase Contracts or Common
Stock or any securities of the Company similar to the Securities, Purchase
Contracts or Common Stock or any security convertible into or exchangeable or
exercisable for Securities, Purchase Contracts or Common Stock other than to the
Underwriters pursuant to the Purchase Agreement, other than shares of Common
Stock or options for shares of Common Stock issued pursuant to or sold in
connection with any employee benefit, dividend reinvestment and stock option and
stock purchase plans of the Company and its subsidiaries and other than shares
of Common Stock issuable upon early settlement of the Securities or exercise of
stock options.
Prior to this offering, there has been no public market for the Securities.
The public offering price for the Securities was determined in negotiations
between the Company and the Representatives. In determining the terms of the
Securities, including the public offering price, the Company and the
Representatives considered the market price of the Company's Common Stock and
also considered the Company's recent results of operations, the future prospects
of the Company and the industry in general, market prices and terms of, and
yields on, securities of other companies considered to be comparable to the
Company and prevailing conditions in the securities markets. There can be no
assurance that an active trading market will develop for the Securities or that
the Securities will trade in the public market subsequent to the offering at or
above the initial public offering price.
The Company has agreed to indemnify the Underwriters against, or to
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 Purchase Contracts and the Common Stock issuable upon
settlement thereof will be passed upon for MCN by Daniel L. Schiffer, Esq.,
Senior Vice President, General Counsel and Secretary of MCN Corporation. Certain
matters will be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom, New York, New York, which has also acted as special tax counsel for the
Company in connection with the Securities. 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
24,491 shares of MCN Common Stock as of February 26, 1996. Skadden, Arps, Slate,
Meagher & Flom has represented certain of the 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.
S-28
<PAGE> 29
PROSPECTUS
$400,000,000
[MCN 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> 30
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> 31
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> 32
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> 33
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> 34
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.
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<PAGE> 35
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> 36
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
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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
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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
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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
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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
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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.
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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.
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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
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<PAGE> 44
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.
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<PAGE> 45
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
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<PAGE> 46
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.
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<PAGE> 47
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
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<PAGE> 48
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.
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<PAGE> 49
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
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<PAGE> 50
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
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<PAGE> 51
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
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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
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<PAGE> 53
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.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON 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 THE COMPANY OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.............. S-3
Risk Factors............................... S-9
The Company................................ S-11
Recent Developments........................ S-12
Use of Proceeds............................ S-13
Price Range of Common Stock and
Dividends................................ S-13
Capitalization............................. S-14
Description of the Securities.............. S-15
Description of the Purchase Contracts...... S-16
Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement....... S-21
Certain Federal Income Tax Consequences.... S-24
State and Other Tax Considerations......... S-26
Underwriting............................... S-27
Legal Matters.............................. S-28
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>
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5,100,000 SECURITIES
[MCN LOGO]
8 3/4% PRIDES(SM)
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
RONEY & CO.
APRIL 22, 1996
(SM)SERVICE MARK OF MERRILL LYNCH & CO. INC.
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