Filed Pursuant to Rule 424(b)(5)
Registration No. 333-88797
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 12, 2002)
$1,000,000,000
[MARATHON OIL CORPORATION LOGO]
MARATHON OIL CORPORATION
$450,000,000 6.125% NOTES DUE 2012
$550,000,000 6.800% NOTES DUE 2032
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The 2012 notes will bear interest at the rate of 6.125% per year. The 2032
notes will bear interest at the rate of 6.800% per year. Interest on each series
of notes is payable on March 15 and September 15 of each year, beginning on
September 15, 2002. The 2012 notes will mature on March 15, 2012. The 2032 notes
will mature on March 15, 2032. We may redeem some or all of either series of
notes at any time at a redemption price equal to the principal amount of the
notes we redeem plus a make-whole premium. The redemption prices are discussed
under the caption "Description of the Notes--Optional Redemption."
The notes will be unsecured, unsubordinated obligations of our company and
will rank equally with all of our other existing and future unsecured,
unsubordinated indebtedness.
------------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF
THE ACCOMPANYING PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
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PER 2012 NOTE TOTAL PER 2032 NOTE TOTAL
------------- ------------ ------------- ------------
Public Offering Price.................. 99.967% $449,851,500 99.590% $547,745,000
Underwriting Discount.................. 0.650% $ 2,925,000 0.875% $ 4,812,500
Proceeds to Marathon (before
expenses)............................ 99.317% $446,926,500 98.715% $542,932,500
Interest on the notes will accrue from March 4, 2002 to date of delivery.
The underwriters expect to deliver the notes to purchasers on or about March 4,
2002.
------------------
Joint Book-Running Managers
BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
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JPMORGAN
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MORGAN STANLEY
COMMERZBANK SECURITIES MIZUHO INTERNATIONAL PLC SCOTIA CAPITAL
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February 27, 2002
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ANY OTHER INFORMATION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION WE HAVE INCLUDED IN THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR THAT ANY
INFORMATION WE HAVE INCORPORATED BY REFERENCE IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE OF THE DOCUMENT INCORPORATED BY REFERENCE. IF THE INFORMATION
VARIES BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT SUPERSEDES THE INFORMATION IN THE
ACCOMPANYING PROSPECTUS. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Marathon Oil Corporation.................................... S-3
Selected Consolidated Financial Information................. S-5
Use of Proceeds............................................. S-6
Capitalization.............................................. S-7
Description of the Notes.................................... S-9
Underwriting................................................ S-14
Legal Matters............................................... S-15
Experts..................................................... S-15
PROSPECTUS
About This Prospectus....................................... 2
The Company................................................. 2
Risk Factors................................................ 3
Forward-Looking Statements.................................. 10
The Separation.............................................. 11
Relationship Between Marathon and United States Steel After
the Separation............................................ 13
Use of Proceeds............................................. 17
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and
Preferred Stock Dividends................................. 17
Description of Debt Securities.............................. 18
Description of Capital Stock................................ 27
Description of Warrants..................................... 32
Plan of Distribution........................................ 34
Legal Matters............................................... 36
Experts..................................................... 36
Where You Can Find More Information......................... 36
S-2
MARATHON OIL CORPORATION
OVERVIEW
We are a global integrated energy company engaged in the exploration,
development, and production of oil, natural gas and natural gas liquids as well
as the refining, marketing and transportation of petroleum products.
Our exploration and production activities take place primarily in three
core geographical areas: North America, Europe and West Africa. Over the past
year, we completed acquisitions of Pennaco Energy, Inc. and of CMS Energy
Corporation's interests in oil and gas properties and related assets in
Equatorial Guinea, West Africa. These acquisitions have provided us with strong
growth platforms in U.S. coal bed methane gas and offshore West Africa,
respectively.
Our total proved reserves as of December 31, 2001 were approximately 1,047
million barrels of oil equivalent ("Boe"). For the year ended December 31, 2001,
our daily production averaged approximately 421 thousand Boe per day. Natural
gas represented 46% and 50% of our proved reserves and daily production,
respectively.
The table below outlines our total proved reserves as of December 31, 2001
and average daily production for the year ended December 31, 2001.
AS OF DECEMBER 31, 2001 YEAR ENDED DECEMBER 31, 2001
TOTAL PROVED RESERVES(1) AVERAGE DAILY PRODUCTION(1)
------------------------------ -----------------------------------
BOE (IN MILLIONS) % OF TOTAL BOE (IN THOUSANDS)/DAY % OF TOTAL
----------------- ---------- ---------------------- ----------
United States................ 567 54.2% 259 61.5%
Europe....................... 191 18.2 100 23.7
Other International.......... 96 9.2 48 11.4
Equity Investees............. 193 18.4 14 3.4
----- ----- --- -----
Total...................... 1,047 100.0% 421 100.0%
===== ===== === =====
---------------
(1) Excludes the effect of the acquisition of interests in oil and gas
properties in Equatorial Guinea, which we acquired on January 3, 2002. At
the time of the acquisition, CMS Energy Corporation reported proved reserves
of 250 million Boe associated with the interests we acquired and year-end
production from those interests of 18 thousand Boe per day.
Our refining, marketing and transportation operations are conducted
primarily through Marathon Ashland Petroleum LLC ("MAP") and its subsidiaries.
MAP is a joint venture, with Ashland Inc., in which we hold a 62% equity
interest and Ashland holds the remaining 38% equity interest.
MAP owns and operates seven refineries with an aggregate refining capacity
of 935,000 barrels of crude oil per day. The refineries are integrated via
pipelines and barges to maximize operating efficiency. These transportation
links allow the movement of intermediate products, which we believe enables MAP
to optimize operations and produce higher margin products. MAP also markets
refined petroleum products through approximately 3,800 Marathon and Ashland
branded retail outlets and approximately 2,100 MAP-operated "Speedway" and
"SuperAmerica" brand units located throughout the Midwest, the upper Great
Plains and the Southern states. MAP operates a large system of pipelines,
terminals and a land and water-based transportation fleet to provide crude oil
to its refineries and refined products to its marketing areas.
In addition, we also own, independent of MAP, interests in crude oil and
natural gas pipeline systems that operate in the Gulf of Mexico, the Midwest and
the East Coast of the United States, and interests in a natural gas
liquefication plant, located in Alaska, and a natural gas processing plant
located in Louisiana.
Marathon Oil Corporation ("Marathon") is a Delaware corporation with its
principal offices located at 5555 San Felipe Road, Houston, Texas 77056-2723. In
this prospectus supplement, we refer to Marathon, its wholly owned and majority
owned subsidiaries and its ownership interest in equity affiliates
S-3
as "we" or "us," unless we specifically state otherwise or the context indicates
otherwise. Our common stock is listed on The New York Stock Exchange, the
Pacific Stock Exchange and the Chicago Stock Exchange under the trading symbol
"MRO."
RECENT DEVELOPMENTS
THE SEPARATION
On December 31, 2001, in a transaction we refer to as the "Separation," we
separated our businesses into two companies and changed our name from USX
Corporation to Marathon Oil Corporation. As a result of the Separation, United
States Steel Corporation ("United States Steel") now conducts the business of
our former U.S. Steel Group as a separate, publicly owned corporation. Marathon
and its subsidiaries are continuing the business of the Marathon Group. See "The
Separation" in the accompanying prospectus for additional information regarding
the Separation.
2001 FINANCIAL RESULTS
On January 29, 2002, we announced our financial results for the year ended
December 31, 2001. We have included our consolidated financial statements as of
December 31, 2001 and 2000 and for the three-year period ended December 31, 2001
in a current report on Form 8-K that we filed with the SEC on February 27, 2002.
We reported net income of $157 million for the year ended December 31, 2001,
compared with net income of $411 million for the year ended December 31, 2000.
Our 2001 results reflect, among other things, a $169 million after-tax loss from
discontinued operations relating to our former U.S. Steel Group and a $984
million after-tax loss on the disposition of United States Steel that we
recorded in connection with the Separation. Our revenues were $33.0 billion in
the year ended December 31, 2001, compared with revenues of $34.4 billion in the
year ended December 31, 2000.
RECENT ACQUISITION
On January 3, 2002, we completed the acquisition of interests in oil and
gas properties and related assets in Equatorial Guinea, West Africa from CMS
Energy Corporation for approximately $993 million in cash, excluding working
capital adjustments. Through this transaction, we acquired:
- a 52.4% interest in, and the designation as operator of, the offshore
Alba Block, which contains the currently producing Alba gas field as well
as undeveloped oil and gas discoveries and several possible exploration
prospects;
- a 37.6% interest in the adjacent offshore Block D;
- a 52.4% interest in an onshore condensate separation facility;
- a 45.0% interest in a joint venture onshore methanol production plant;
and
- a 43.2% interest in an onshore liquified petroleum gas processing plant.
The Alba field began producing in 1991. We funded the payment of the
purchase price for the acquisition using a combination of available cash on
hand, borrowings under our existing revolving credit facilities and borrowings
under newly established short-term credit facilities. See "Use of Proceeds" and
"Capitalization."
S-4
SELECTED CONSOLIDATED FINANCIAL INFORMATION
We have derived the following historical statement of income data for each
of the years in the three-year period ended December 31, 2001, and the following
historical balance sheet data as of December 31, 2001 and 2000, from our audited
consolidated financial statements. You should read the following financial data
in conjunction with our consolidated financial statements and related notes and
the other financial information we have incorporated by reference in the
accompanying prospectus.
YEAR ENDED DECEMBER 31
---------------------------
2001 2000 1999
------- ------- -------
(IN MILLIONS)
STATEMENT OF INCOME DATA:
Total revenues and other income............................. $33,066 $33,799 $23,666
Cost of revenues (excludes items shown below)............... 23,255 25,417 16,612
Selling, general and administrative expenses................ 726 643 498
Depreciation, depletion and amortization.................... 1,236 1,245 950
Taxes other than income taxes............................... 4,679 4,626 4,218
Exploration expenses........................................ 144 238 238
Inventory market valuation charges (credits)................ 72 -- (551)
------- ------- -------
Income from operations.................................... 2,954 1,630 1,701
Net interest and other financial costs...................... 173 236 288
Minority interest in income of Marathon Ashland Petroleum
LLC....................................................... 704 498 447
------- ------- -------
Income from continuing operations before income taxes..... 2,077 896 966
Provision for income taxes.................................. 759 476 320
------- ------- -------
Income from continuing operations......................... 1,318 420 646
Income (loss) from discontinued operations.................. (169) (9) 59
Loss on disposition of United States Steel Corporation...... (984) -- --
------- ------- -------
Income before extraordinary losses and cumulative effect
of change in accounting principle...................... 165 411 705
Extraordinary losses........................................ -- -- (7)
Cumulative effect of change in accounting principle......... (8) -- --
------- ------- -------
Net income................................................ $ 157 $ 411 $ 698
======= ======= =======
SEGMENT INCOME FROM OPERATIONS:
Exploration and production:
Domestic.................................................. $ 1,124 $ 1,111 $ 494
International............................................. 297 420 124
Refining, marketing and transportation...................... 1,914 1,273 611
Other energy related business............................... 60 42 61
------- ------- -------
Segment income from operations............................ 3,395 2,846 1,290
Items not allocated to segments............................. (441) (1,216) 411
------- ------- -------
Income from operations.................................... $ 2,954 $ 1,630 $ 1,701
======= ======= =======
(table continued)
S-5
DECEMBER 31
-----------------
2001 2000
------- -------
(IN MILLIONS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 657 $ 340
Working capital............................................. 943 973
Net property, plant and equipment........................... 9,578 9,375
Total assets................................................ 16,129 17,151
Long-term debt.............................................. 3,432 1,937
Minority interest in Marathon Ashland Petroleum LLC......... 1,963 1,840
Total stockholders' equity.................................. 4,940 6,764
USE OF PROCEEDS
We expect the net proceeds from the sale of the notes to be approximately
$989 million, after deducting underwriting discounts and commissions and
estimated expenses of the offering. We intend to use those net proceeds to repay
amounts that we borrowed to fund the purchase price and associated costs we paid
for our January 3, 2002 acquisition of interests in oil and gas properties and
related assets in Equatorial Guinea, West Africa from CMS Energy Corporation. We
initially funded the payment of that purchase price and those associated costs
through a combination of borrowings under our long-term and short-term revolving
credit facilities, borrowings under other short-term credit facilities and cash
on hand. Borrowings under our long-term revolving credit facility are due and
payable on November 30, 2005 and currently bear interest at a weighted average
rate of 2.2% per year. Borrowings under our short-term revolving credit facility
are due and payable on November 28, 2002 and currently bear interest at the rate
of 2.2% per year. Borrowings under the other short-term credit facilities
referred to above are due and payable in each case prior to June 30, 2002 and
currently bear interest at a weighted average rate of 2.5% per year. Some of the
lenders under these facilities are underwriters for this offering or affiliates
of underwriters for this offering. See "Underwriting."
S-6
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and our consolidated total debt, minority interest in MAP and stockholders'
equity: (1) as of December 31, 2001; (2) on a pro forma basis giving effect to
our January 3, 2002 acquisition of interests in oil and gas properties and
related assets in Equatorial Guinea, West Africa from CMS Energy Corporation and
the borrowings we made to fund that acquisition, as if we had completed that
acquisition and incurred those borrowings on December 31, 2001; and (3) on that
pro forma basis, as adjusted to give effect to the issuance of the notes and our
application of the net proceeds from that issuance as described under "Use of
Proceeds."
DECEMBER 31, 2001
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN MILLIONS)
CASH AND CASH EQUIVALENTS................................... $ 657 $ 614 $ 614
======= ======= =======
SHORT-TERM DEBT:
Short-term borrowings....................................... $ -- $ 750 $ 150
Long-term debt due within one year.......................... 215 215 215
------- ------- -------
Total short-term debt................................... 215 965 365
LONG-TERM DEBT:
Revolving credit facility................................... 475 675 286
Notes payable............................................... 2,281 2,281 2,281
Obligations relating to industrial development and
environmental improvement bonds and notes(1).............. 499 499 499
Sale-leaseback financing(2)................................. 84 84 84
6.125% notes due 2012 offered hereby........................ -- -- 450
6.800% notes due 2032 offered hereby........................ -- -- 550
Consolidated subsidiaries:
Guaranteed notes.......................................... 135 135 135
Guaranteed loan........................................... 172 172 172
All other obligations, including capital leases........... 8 8 8
------- ------- -------
Total................................................... 3,654 3,854 4,465
Less unamortized discount................................... 7 7 7
Less amount due within one year............................. 215 215 215
------- ------- -------
Total long-term debt.................................... 3,432 3,632 4,243
MINORITY INTEREST IN MARATHON ASHLAND PETROLEUM LLC......... 1,963 1,963 1,963
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share:
550,000,000 shares authorized;
312,165,978 shares issued and outstanding................. 312 312 312
Common stock held in treasury (2,770,929 shares)............ (74) (74) (74)
Additional paid-in capital.................................. 3,035 3,035 3,035
Retained earnings........................................... 1,643 1,643 1,643
Accumulated other comprehensive income...................... 34 34 34
Deferred compensation....................................... (10) (10) (10)
------- ------- -------
Total stockholders' equity.............................. 4,940 4,940 4,940
------- ------- -------
Total debt, minority interest in Marathon Ashland
Petroleum LLC and stockholders' equity............... $10,550 $11,500 $11,511
======= ======= =======
(footnotes on next page)
S-7
---------------
(1) Approximately $470 million of these obligations relate to environmental
projects for current and former facilities of United States Steel and its
predecessors. Although Marathon remains the legal obligor under those
obligations, under the financial matters agreement described in the
accompanying prospectus under the caption "Relationship Between Marathon and
United States Steel After the Separation--Financial Matters Agreement,"
United States Steel has agreed to assume and discharge all of Marathon's
principal repayment, interest and other payment obligations under those
obligations. Approximately $146 million of those obligations are supported
by letter of credit arrangements that, under some circumstances, could
become short-term obligations.
(2) This sale-leaseback financing arrangement relates to a lease of equipment at
United States Steel's Fairfield Works facility in Alabama. Although Marathon
remains the legal obligor under that lease arrangement, under the financial
matters agreement described in the accompanying prospectus under the caption
"Relationship Between Marathon and United States Steel After the
Separation--Financial Matters Agreement," United States Steel has agreed to
assume and discharge all of Marathon's payment obligations relating to that
lease.
CERTAIN CONTINGENT LIABILITIES
In addition to being obligated with respect to the industrial development
and environmental improvement bonds and notes and the sale-leaseback financing
arrangement described in notes (1) and (2) to the table above, we are also
either primarily or contingently obligated with respect to the following items
attributable to United States Steel, which are not reflected in our consolidated
balance sheet (but are disclosed in the notes to our consolidated financial
statements):
- approximately $138 million in obligations relating to various lease
arrangements accounted for as operating leases and various guarantee
arrangements, all of which were assumed by United States Steel; and
- guarantees we have provided with respect to all United States Steel's
obligations under a partnership agreement between United States Steel, as
general partner, and General Electric Credit Corporation of Delaware and
Southern Energy Clairton, L.L.C., as limited partners. United States
Steel may dissolve the partnership under certain circumstances, including
if it is required to fund accumulated cash shortfalls of the partnership
in excess of $150 million. In addition to the normal commitments of a
general partner, United States Steel has indemnified the limited partners
for certain income tax exposures. As of December 31, 2001, United States
Steel had no unpaid outstanding obligations to the limited partners.
For additional information concerning our contingent liabilities relating to
United States Steel, see "Risk Factors--Risks Related to the Separation" in the
accompanying prospectus.
We have equity interests in several pipeline and other affiliates. For many
of our pipeline affiliates, we have secured our proportionate share of the
affiliate's debt by throughput and deficiency agreements or direct guarantees.
As of December 31, 2001, our proportionate share of debt secured by those
arrangements was $147 million. We have described those arrangements in the notes
to our consolidated financial statements, which are incorporated by reference
into the accompanying prospectus.
Several of our equity affiliates have their own debt arrangements that we
do not support, through guarantees or otherwise. As a result, those debt
arrangements are not reflected in our consolidated financial statements or the
related notes. If we were obligated to share in this debt on a pro-rata basis
with our joint venturers, our proportionate share of this debt would have been
approximately $353 million as of December 31, 2001. If any of those equity
affiliates were to default under any of these debt arrangements, we would have
no obligation to support the debt. However, any such default could adversely
impact our investment in the applicable equity affiliate.
S-8
DESCRIPTION OF THE NOTES
The following description of the notes offered by this prospectus
supplement is intended to supplement, and to the extent inconsistent to replace,
the more general terms and provisions of the debt securities described in the
accompanying prospectus, to which we refer you. Each series of notes is a
separate series of debt securities. This description of notes is only a summary.
You should read the indenture we refer to below for more details regarding our
obligations and your rights with respect to the notes.
GENERAL
The 6.125% notes due 2012 (the "2012 notes") will mature on March 15, 2012.
The 6.800% notes due 2032 (the "2032 notes" and, together with the 2012 notes,
the "notes") will mature on March 15, 2032. The notes will be issued in fully
registered form only in denominations of $1,000 and integral multiples of
$1,000.
The 2012 notes and the 2032 notes are initially being offered in the
respective principal amounts of $450,000,000 and $550,000,000. We may, without
the consent of the holders, increase such principal amount in the future, on the
same terms and conditions and with the same CUSIP numbers, as the notes being
offered by this prospectus supplement. We will not issue any such additional
notes unless the additional notes are fungible with the notes being issued
hereby for U.S. federal income tax purposes. Interest on the notes will accrue
at the respective rates per year shown on the cover of this prospectus
supplement and will be payable semiannually on March 15 and September 15 of each
year, beginning September 15, 2002, to the persons in whose names the notes are
registered at the close of business on the March 1 and September 1 preceding the
respective interest payment dates, except that interest payable at maturity
shall be paid to the same persons to whom principal of the notes is payable.
Interest on the notes will be paid on the basis of a 360-day year consisting of
twelve 30-day months. The notes will be issued under an indenture dated as of
February 26, 2002, between JPMorgan Chase Bank, as trustee (the "Trustee"), and
us.
OPTIONAL REDEMPTION
The notes of each series will be redeemable in whole or in part at any time
and from time to time, at our option, at a redemption price equal to the greater
of:
- 100% of the principal amount of the notes of that series to be redeemed;
or
- the sum of the present values of the remaining scheduled payments of
principal and interest on the notes to be redeemed (exclusive of interest
accrued to the date of redemption) discounted to the date of redemption
on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the then current Treasury Rate plus 25 basis points for
the 2012 notes and 30 basis points for the 2032 notes.
In each case we will pay accrued and unpaid interest on the principal amount
being redeemed to the date of redemption.
"Business Day" means any calendar day that is not a Saturday, Sunday or
legal holiday in New York, New York or Houston, Texas and on which commercial
banks are open for business in New York, New York and Houston, Texas.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term ("Remaining Life") of the notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such notes.
"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest
S-9
Reference Treasury Dealer Quotations, or (2) if the Trustee obtains fewer than
four such Reference Treasury Dealer Quotations, the average of all such
quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers
that Marathon appoints to act as the Independent Investment Banker from time to
time.
"Reference Treasury Dealer" means (1) each of Banc of America Securities
LLC, Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., and their
respective successors, and one other firm that is a primary U.S. Government
securities dealer (a "Primary Treasury Dealer") which we specify from time to
time; provided, however, that if any of them ceases to be a Primary Treasury
Dealer, we will substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate per
year equal to: (1) the yield, under the heading which represents the average for
the immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which is
published weekly by the Board of Governors of the Federal Reserve System and
which establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant Maturities,"
for the maturity corresponding to the Comparable Treasury Issue; provided that,
if no maturity is within three months before or after the Remaining Life of the
notes to be redeemed, yields for the two published maturities most closely
corresponding to the Comparable Treasury Issue shall be determined and the
Treasury Rate shall be interpolated or extrapolated from those yields on a
straight line basis, rounding to the nearest month; or (2) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per year equal to the
semiannual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate shall be calculated on the third
Business Day preceding the redemption date.
Notice of redemption will be mailed at least 30 but not more than 60 days
before the redemption date to each holder of record of the notes to be redeemed
at its registered address. The notice of redemption for the notes will state,
among other things, the series and amount of notes to be redeemed, the
redemption date, the redemption price and the place or places that payment will
be made upon presentation and surrender of notes to be redeemed. Unless we
default in the payment of the redemption price, interest will cease to accrue on
any notes that have been called for redemption at the redemption date. If fewer
than all of the notes of a series are to be redeemed at any time, the Trustee
will select, not more than 60 days prior to the redemption date, the particular
notes or portions thereof for redemption from the outstanding notes not
previously called by such method as the Trustee deems fair and appropriate.
SINKING FUND
There is no provision for a sinking fund for the notes.
RANKING
The notes will constitute Marathon's unsecured and unsubordinated
obligations and will rank equally with all its other existing and future
unsecured and unsubordinated indebtedness.
Marathon derives substantially all its operating income from, and holds
substantially all its assets through, its subsidiaries. As a result, the notes
will be structurally subordinated to the liabilities of Marathon's subsidiaries,
including trade payables. For a discussion of Marathon's holding company
S-10
structure and its ability to obtain distributions of earnings and cash flows
from its subsidiaries, see "Description of Debt Securities--General" in the
accompanying prospectus.
As of December 31, 2001, Marathon's subsidiaries had approximately $315
million of indebtedness, excluding intercompany loans. As of December 31, 2001,
as adjusted to give effect to the issuance of the notes and our application of
the net proceeds from that issuance as described under "Use of Proceeds," we
would have had an aggregate of $4.6 billion of consolidated indebtedness.
CERTAIN COVENANTS
Certain covenants in the indenture limit the ability of Marathon and its
subsidiaries to:
- create or permit to exist mortgages and other liens; and
- enter into sale and leaseback transactions.
For a description of these covenants, see "Description of Debt
Securities--Restrictive Covenants Under the Senior Indenture" in the
accompanying prospectus.
DEFEASANCE
Under certain circumstances, we will be deemed to have discharged the
entire indebtedness on all of the outstanding notes of either series by
defeasance. See "Description of the Debt Securities--Satisfaction and Discharge;
Defeasance and Covenant Defeasance" in the accompanying prospectus for a
description of the terms of any discharge or defeasance.
BOOK-ENTRY SYSTEM
We will issue the notes of each series in the form of one or more global
notes in fully registered form initially in the name of Cede & Co., as nominee
of The Depository Trust Company ("DTC"), or such other name as may be requested
by an authorized representative of DTC. The global notes will be deposited with
DTC and may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee to
a successor of DTC or a nominee of such successor.
DTC has advised us and the underwriters as follows:
- DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
- DTC holds securities that its participants deposit with DTC and
facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities,
through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical
movement of securities certificates.
- Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
- DTC is owned by a number of its direct participants and by The New York
Stock Exchange, Inc., The American Stock Exchange LLC and the National
Association of Securities Dealers, Inc.
- Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either
directly or indirectly.
- The rules applicable to DTC and its direct and indirect participants are
on file with the Securities and Exchange Commission.
S-11
Purchases of notes under the DTC system must be made by or through direct
participants, which will receive a credit for the notes in DTC's records. The
ownership interest of each actual purchaser of notes is in turn to be recorded
on the direct and indirect participants' records. Beneficial owners of the notes
will not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
or indirect participant through which the beneficial owner entered into the
transaction. Transfers of ownership interests in the notes are to be
accomplished by entries made on the books of direct and indirect participants
acting on behalf of beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in the notes, except in the
event that use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by direct
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of notes with DTC and their registration in
the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the notes; DTC's records reflect only the identity of the direct participants to
whose accounts such notes are credited, which may or may not be the beneficial
owners. The direct and indirect participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
The laws of some states may require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, those
persons may be prohibited from purchasing beneficial interests in the global
notes from any beneficial owner or otherwise.
So long as DTC's nominee is the registered owner of the global notes, such
nominee for all purposes will be considered the sole owner or holder of the
notes for all purposes under the indenture. Except as provided below, beneficial
owners will not be entitled to have any of the notes registered in their names,
will not receive or be entitled to receive physical delivery of the notes in
definitive form and will not be considered the owners or holders thereof under
the indenture.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or
vote with respect to the notes. Under its usual procedures, DTC mails an omnibus
proxy to the issuer as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants to
whose accounts the notes are credited on the record date (identified in a
listing attached to the omnibus proxy).
All payments on the global notes will be made to Cede & Co., or such other
nominee as may be requested by an authorized representative of DTC. DTC's
practice is to credit direct participants' accounts upon DTC's receipt of funds
and corresponding detail information from the Trustee or Marathon on payment
dates in accordance with their respective holdings shown on DTC's records.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participant and not of DTC, the Trustee or
Marathon, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to Cede & Co. (or
such other nominee as may be requested by an authorized representative of DTC)
shall be the responsibility of the Trustee or Marathon, disbursement of such
payments to direct participants shall be the responsibility of DTC, and
disbursement of such payments to the beneficial owners shall be the
responsibility of direct and indirect participants.
DTC may discontinue providing its service as securities depositary with
respect to the notes at any time by giving reasonable notice to us or the
Trustee. In addition, Marathon may decide to discontinue use
S-12
of the system of book-entry transfers through DTC (or a successor securities
depositary). Under those circumstances, in the event that a successor securities
depositary is not obtained, note certificates in fully registered form are
required to be printed and delivered to beneficial owners of the global notes
representing such notes.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Marathon believes to be reliable (including
DTC), but we take no responsibility for its accuracy.
Neither Marathon, the Trustee nor the underwriters will have any
responsibility or obligation to direct participants, or the persons for whom
they act as nominees, with respect to the accuracy of the records of DTC, its
nominee or any direct participant with respect to any ownership interest in the
notes, or payments to, or the providing of notice to direct participants or
beneficial owners.
So long as the notes are in DTC's book-entry system, secondary market
trading activity in the notes will settle in immediately available funds. All
applicable payments on the notes issued as global notes will be made by Marathon
in immediately available funds.
See "Description of Debt Securities" in the accompanying prospectus for
additional information concerning the notes, the indenture and the book-entry
system.
S-13
UNDERWRITING
Banc of America Securities LLC and Salomon Smith Barney Inc. are acting as
joint book-running managers of the offering and as representatives of the
underwriters named below.
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, each underwriter named below has
agreed to purchase, and we have agreed to sell to that underwriter, the
principal amount of notes set forth opposite the underwriter's name.
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF 2012 NOTES OF 2032 NOTES
----------- ---------------- ----------------
Banc of America Securities LLC........................ $146,250,000 $178,760,000
Salomon Smith Barney Inc.............................. 146,250,000 178,760,000
J.P. Morgan Securities Inc............................ 45,000,000 55,000,000
Credit Suisse First Boston Corporation................ 22,500,000 27,500,000
Goldman, Sachs & Co................................... 22,500,000 27,500,000
Lehman Brothers Inc................................... 22,500,000 27,500,000
Morgan Stanley & Co. Incorporated..................... 22,500,000 27,500,000
Commerzbank Capital Markets Corp...................... 7,500,000 9,160,000
Mizuho International plc.............................. 7,500,000 9,160,000
Scotia Capital (USA) Inc.............................. 7,500,000 9,160,000
------------ ------------
Total............................................ $450,000,000 $550,000,000
============ ============
The underwriting agreement provides that the obligations of the
underwriters to purchase the notes included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the notes if they purchase any of the notes.
The underwriters propose to offer some of the notes directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the notes to dealers at the public offering price less a
concession not to exceed 0.40% of the principal amount in the case of the 2012
notes and 0.50% of the principal amount in the case of the 2032 notes. The
underwriters may allow, and dealers may reallow a concession to certain other
dealers not to exceed 0.25% of the principal amount in the case of the 2012
notes and 0.25% of the principal amount in the case of the 2032 notes. After the
initial offering of the notes to the public, the representatives may change the
public offering price and concessions.
The following table shows the underwriting discounts and commissions that
we are to pay to the underwriters in connection with this offering (expressed as
a percentage of the principal amount of the notes):
PAID BY MARATHON
----------------
Per 2012 note............................................... 0.650%
Per 2032 note............................................... 0.875%
In connection with the offering, Banc of America Securities LLC and Salomon
Smith Barney Inc., on behalf of the underwriters, may purchase and sell notes in
the open market. These transactions may include over-allotment, syndicate
covering transactions and stabilizing transactions. Over-allotment involves
syndicate sales of notes in excess of the principal amount of notes to be
purchased by the underwriters in the offering, which creates a syndicate short
position. Syndicate covering transactions involve purchases of the notes in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of notes made for the purpose of preventing or retarding a decline in
the market price of the notes while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when Banc
of America Securities LLC or Salomon Smith
S-14
Barney Inc., in covering syndicate short positions or making stabilizing
purchases, repurchases notes originally sold by that syndicate member.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the notes. They may also cause the price of the
notes to be higher than the price that otherwise would exist in the open market
in the absence of these transactions. The underwriters may conduct these
transactions in the over-the-counter market or otherwise. If the underwriters
commence any of these transactions, they may discontinue them at any time.
We estimate that our total expenses for this offering will be $1.2 million.
The underwriters have performed investment banking and advisory services
for us from time to time for which they have received customary fees and
expenses. The underwriters may, from time to time, engage in transactions with
and perform services for us in the ordinary course of their business. Some of
the underwriters or affiliates of some of the underwriters are lenders under
some of our credit facilities. As described in "Use of Proceeds," the net
proceeds from the sale of the notes will be used to repay indebtedness under
those credit facilities. Because some of the underwriters or affiliates of some
of the underwriters are lenders under those credit facilities and more than 10%
of our net proceeds from this offering will be used to repay indebtedness we owe
them under those credit facilities, the offering will be conducted in conformity
with Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make because of any of those
liabilities.
LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, our outside counsel, will issue an
opinion about the legality of the notes. Certain legal matters will be passed
upon for the underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of Marathon Oil Corporation
incorporated in the accompanying prospectus by reference to Marathon Oil
Corporation's current report on Form 8-K dated February 27, 2002 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
S-15
PROSPECTUS
[MARATHON OIL CORPORATION LOGO]
MARATHON OIL CORPORATION
5555 San Felipe Road
Houston, Texas 77056-2723
(713) 629-6600
$1,685,719,300
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
---------------------
------------------------
CONSIDER CAREFULLY THE
RISK FACTORS BEGINNING THE OFFERING
ON PAGE 3. We may offer from time to time:
- senior debt securities;
We will provide - subordinated debt securities;
additional terms of our - preferred stock;
securities in one or - common stock; and
more supplements to - warrants.
this prospectus. You
should read this
prospectus and the
related prospectus
supplement carefully
before you invest in Our common stock is listed on the New
our securities. No York Stock Exchange, the Pacific Stock
person may use this Exchange and the Chicago Stock Exchange
prospectus to offer and under the symbol "MRO."
sell our securities
unless a prospectus
supplement accompanies
this prospectus.
-----------------------
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is February 12, 2002.
TABLE OF CONTENTS
About This Prospectus....................................... 2
The Company................................................. 2
Risk Factors................................................ 3
Forward-Looking Statements.................................. 10
The Separation.............................................. 11
Relationship Between Marathon and United States Steel After
the Separation............................................ 13
Use of Proceeds............................................. 17
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends............... 17
Description of Debt Securities.............................. 18
Description of Capital Stock................................ 27
Description of Warrants..................................... 32
Plan of Distribution........................................ 34
Legal Matters............................................... 36
Experts..................................................... 36
Where You Can Find More Information......................... 36
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission under a "shelf" registration process.
Using this process, we may offer any combination of the securities this
prospectus describes in one or more offerings with a total initial offering
price of up to $1,685,719,300. This prospectus provides you with a general
description of the securities we may offer. Each time we use this prospectus to
offer securities, we will provide a prospectus supplement and, if applicable, a
pricing supplement. The prospectus supplement and any pricing supplement will
describe the specific terms of that offering. The prospectus supplement and any
pricing supplement may also add to, update or change the information this
prospectus contains. Please carefully read this prospectus, the prospectus
supplement and any pricing supplement, in addition to the information contained
in the documents we refer to under the heading "Where You Can Find More
Information."
THE COMPANY
Marathon Oil Corporation, a Delaware corporation ("Marathon"), is one of
the largest fully integrated oil and gas companies in the United States. Through
its subsidiaries, Marathon is engaged in the worldwide exploration and
production of crude oil and natural gas. It is also engaged in other energy-
related businesses, including the domestic refining, marketing and
transportation of petroleum products primarily through Marathon Ashland
Petroleum LLC ("MAP"), a company in which Marathon owns a 62% equity interest.
On December 31, 2001, in a transaction we refer to as the "Separation," we
separated our businesses into two companies and changed our name from USX
Corporation to Marathon Oil Corporation. As a result of the Separation, United
States Steel Corporation ("United States Steel") now conducts the business of
our former U.S. Steel Group as a separate, publicly owned corporation. Marathon
and its subsidiaries are continuing the business of the Marathon Group. See "The
Separation."
In this prospectus, we refer to Marathon, its wholly owned and majority
owned subsidiaries and its ownership interest in equity affiliates as "we" or
"us," unless we specifically state otherwise or the context indicates otherwise.
Our principal executive offices are located at 5555 San Felipe Road, Houston,
Texas 77056-2723, and our telephone number at that location is (713) 629-6600.
2
RISK FACTORS
You should carefully consider the following matters, in addition to the
other information we have provided in this prospectus, the accompanying
prospectus supplement and the documents we incorporate by reference, before
reaching a decision regarding an investment in our securities.
RISKS RELATED TO THE SEPARATION
UNITED STATES STEEL HAS VARIOUS FINANCIAL AND OTHER OBLIGATIONS WHICH ITS
FAILURE TO PERFORM COULD MATERIALLY ADVERSELY AFFECT US.
In connection with the Separation, United States Steel agreed to hold us
harmless from and against various liabilities, including (amounts as of December
31, 2001):
- approximately $554 million of long-term debt and sale-leaseback financing
obligations we are obligated by contract to pay third parties;
- approximately $138 million in obligations relating to various lease
arrangements accounted for as operating leases and various guarantee
arrangements, all of which were assumed by United States Steel; and
- any federal income tax liabilities that arise from the Separation through
a fault of United States Steel.
See "-- Financial Matters Agreement" and "-- Tax Sharing Agreement" under
"Relationship Between Marathon and United States Steel After the Separation." If
United States Steel fails to perform these agreements, our claims against it
would constitute general unsecured claims subordinate to the claims of secured
creditors and that failure could materially adversely affect us.
In addition, we could be contingently liable for other obligations
associated with the business of United States Steel, as more fully described
under "Relationship Between Marathon and United States Steel After the
Separation -- Financial Matters Agreement."
As a stand-alone company, United States Steel will need to fund any of its
negative operating cash flow from external sources, and adequate sources may be
unavailable or the cost of that funding may adversely impact United States
Steel. United States Steel is more highly leveraged than we are, has a
noninvestment grade credit rating and has granted security interests in some of
its assets, including its accounts receivable and inventory. The steel business
is highly competitive, and a large number of industry participants have sought
protection under bankruptcy laws in recent periods.
The enforceability of our claims against United States Steel could become
subject to the effect of any bankruptcy, fraudulent conveyance or transfer or
other law affecting creditors' rights generally, or of general principles of
equity, which might become applicable to those claims or other claims arising
from the facts and circumstances in which the Separation was effected. Under
fraudulent conveyance or transfer laws, for example, unsecured obligations of a
debtor which a court finds the debtor to have incurred while insolvent or
undercapitalized could be subordinated in right of payment to other unsecured
claims against the debtor.
Under applicable law and regulations, we also may be liable for any
defaults by United States Steel in the performance of its obligations to pay
federal income taxes, fund its ERISA pension plans and pay other obligations
relating to periods prior to the effective date of the Separation.
3
THE TRANSFER BY OUR FORMER PARENT ENTITY TO US OF OWNERSHIP OF THE BUSINESSES
REPRESENTING THE MARATHON GROUP COULD BE ATTACKED UNDER FRAUDULENT CONVEYANCE OR
TRANSFER LAWS BY OR ON BEHALF OF CREDITORS OF UNITED STATES STEEL, AND ANY SUCH
ATTACK, IF SUCCESSFUL, COULD MATERIALLY ADVERSELY AFFECT US AND THE VALUE OF OUR
SECURITIES.
In July 2001, USX Corporation ("Old USX") effected a reorganization of the
ownership of its businesses in which:
- it created Marathon as its publicly owned parent holding company and
transferred ownership of the businesses representing the Marathon Group
to Marathon; and
- it merged into a newly formed subsidiary which survives as United States
Steel.
Prior to this reorganization, the assets of Old USX available to satisfy its
then existing and future creditors included its ownership interest in the
businesses representing the Marathon Group.
If a court in a bankruptcy case respecting United States Steel or a lawsuit
brought by its creditors or their representative were to find that, under the
applicable state fraudulent conveyance or transfer law or corresponding
provisions of the federal bankruptcy code:
- the transfer by Old USX to us of ownership of the businesses representing
the Marathon Group or related transactions were undertaken by Old USX
with the intent of hindering, delaying or defrauding its existing or
future creditors; or
- Old USX received less than reasonably equivalent value or fair
consideration, or no value or consideration, in connection with those
transactions, and either it or United States Steel
- was insolvent or rendered insolvent by reason of those transactions,
- was engaged or about to engage in a business or transaction for which
its assets constituted unreasonably small capital, or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay as they mature,
then that court could determine those transactions entitled one or more classes
of creditors of United States Steel to equitable relief from us. Such a
determination could permit the unpaid creditors to obtain recovery from us or
could result in other actions detrimental to the holders of our debt and equity
securities. The measure of insolvency for purposes of these considerations would
vary depending on the law of the jurisdiction being applied. Generally, however,
an entity would be considered insolvent if either:
- the sum of its debts and liabilities, including contingent liabilities,
was greater than the value of its assets, at a fair valuation; or
- the fair saleable value of its assets was less than the amount required
to pay the probable liability on its total existing debts and
liabilities, including contingent liabilities, as they become absolute
and matured.
THE SEPARATION MAY BECOME TAXABLE UNDER SECTION 355(E) OF THE INTERNAL REVENUE
CODE IF CAPITAL STOCK REPRESENTING A 50% OR GREATER INTEREST IN EITHER MARATHON
OR UNITED STATES STEEL IS ACQUIRED AS PART OF A PLAN THAT INCLUDES THE
SEPARATION.
The Separation may become taxable to Marathon under section 355(e) of the
Internal Revenue Code of 1986 if capital stock representing a 50% or greater
interest in either Marathon or United States Steel is acquired, directly or
indirectly, as part of a plan or series of related transactions that include the
Separation. For this purpose, a "50% or greater interest" means capital stock
possessing at least 50% of the total combined voting power of all classes of
stock entitled to vote or at least 50% of the total value of shares of all
classes of capital stock. If section 355(e) applies, the amount of the tax could
be material. If an acquisition occurs that results in the Separation being
taxable under section 355(e), the tax sharing agreement described below under
"Relationship Between Marathon and United States Steel After the
4
Separation -- Tax Sharing Agreement" provides that the resulting corporate tax
liability will be borne by the party involved in that acquisition transaction.
RISKS RELATED TO OUR BUSINESS
A SUBSTANTIAL OR EXTENDED DECLINE IN OIL OR GAS PRICES WOULD HAVE A MATERIAL
ADVERSE EFFECT ON US.
Prices for oil and gas fluctuate widely. Our revenues, operating results
and future rate of growth are highly dependent on the prices we receive for our
oil, gas and refined products. Historically, the markets for oil, gas and
refined products have been volatile and may continue to be volatile in the
future. Many of the factors influencing prices of oil, gas and refined products
are beyond our control. These factors include:
- worldwide and domestic supplies of oil and gas;
- weather conditions;
- the ability of the members of OPEC to agree to and maintain oil price and
production controls;
- political instability or armed conflict in oil-producing regions;
- the price and level of foreign imports;
- the level of consumer demand;
- the price and availability of alternative fuels;
- the availability of pipeline capacity; and
- domestic and foreign governmental regulations and taxes.
The long-term effects of these and other conditions on the prices of oil
and gas are uncertain. For example, oil prices declined significantly in 1998
and, for an extended period of time, remained substantially below prices
obtained in previous years. In late 1999, oil and natural gas prices increased
significantly and remained at higher levels through the first half of 2001. In
the second half of 2001, oil and natural gas prices declined significantly from
the price levels of 2000 and the first half of 2001.
Lower oil and gas prices may reduce the amount of oil and gas that we
produce, which may adversely affect our revenues and operating income.
Significant reductions in oil and gas prices may require us to reduce our
capital expenditures.
The recent terrorists' attacks on the United States may directly and
indirectly negatively affect our operating results. The national and global
responses to those terrorist attacks, many of which are still being formulated,
including recent military, diplomatic and financial responses and any possible
reprisals as a consequence of unilateral U.S. actions and/or allied actions, may
materially adversely affect us in ways we cannot predict at this time.
OUR OIL AND GAS RESERVE DATA AND FUTURE NET REVENUE ESTIMATES ARE UNCERTAIN.
Estimates of reserves by necessity are projections based on engineering
data, the projection of future rates of production and the timing of future
expenditures. We base the estimates of our proved oil and gas reserves and
projected future net revenues on reserve reports we prepare. The process of
estimating oil and gas reserves requires substantial judgment on the part of the
petroleum engineers, resulting in imprecise determinations, particularly with
respect to new discoveries. Different reserve engineers may make different
estimates of reserve quantities and revenues attributable to those reserves
based on the same data. Future performance that deviates significantly from the
reserve reports could have a material adverse effect on our business and
prospects.
Fluctuations in the price of oil and natural gas have the effect of
significantly altering reserve estimates, because the economic projections
inherent in the estimates may reduce or increase the quantities of commercially
recoverable reserves. We may not realize the prices our reserve estimates
reflect
5
or produce the estimated volumes during the periods those estimates reflect.
Actual future production, oil and natural gas prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and natural gas reserves most likely will vary from our estimates.
Any downward revision in our estimated quantities of reserves or writedown
of the book value of our reserves could have adverse consequences on our
financial results, such as decreasing earnings, which may result in noncash
losses and impairment charges.
IF WE FAIL TO ACQUIRE OR FIND ADDITIONAL RESERVES, OUR RESERVES AND PRODUCTION
WILL DECLINE MATERIALLY FROM THEIR CURRENT LEVELS.
The rate of production from oil and gas properties generally declines as
reserves are depleted. Except to the extent we acquire additional properties
containing proved reserves, conduct successful exploration and development
activities or, through engineering studies, identify additional behind-pipe
zones or secondary recovery reserves, our proved reserves will decline
materially as oil and gas is produced. Future oil and gas production is,
therefore, highly dependent on our level of success in acquiring or finding
additional reserves. Because we are smaller than many of our competitors, we
have fewer reserves and will be at an even greater disadvantage in relation to
our competitors if we fail to acquire or find additional reserves.
INCREASES IN CRUDE OIL PRICES AND ENVIRONMENTAL REGULATIONS MAY ADVERSELY AFFECT
OUR REFINED PRODUCT MARGINS.
We conduct domestic refining, marketing and transportation operations
primarily through MAP. MAP conducts its operations mainly in the Midwest, the
Southeast, the Ohio River Valley and the upper Great Plains. The profitability
of these operations depends largely on the margin between the cost of crude oil
and other feedstocks MAP refines and the selling prices it obtains for refined
products. MAP's overall profitability could be adversely affected by
availability of supply and rising crude oil and other feedstock prices which it
does not recover in the marketplace. Refined product margins have been
historically volatile and vary with the level of economic activity in the
various marketing areas, the regulatory climate, logistical capabilities and the
available supply of refined products.
In addition, environmental regulations, particularly the 1990 Amendments to
the Clean Air Act, have imposed, and are expected to continue to impose,
increasingly stringent and costly requirements on refining and marketing
operations, which may have an adverse effect on margins.
THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY IS VERY COMPETITIVE, AND
MANY OF OUR EXPLORATION AND PRODUCTION COMPETITORS HAVE GREATER FINANCIAL AND
OTHER RESOURCES THAN WE DO.
Strong competition exists in all sectors of the oil and gas exploration and
production industry and, in particular, in the exploration and development of
new reserves. We compete with major integrated and independent oil and gas
companies for the acquisition of oil and gas leases and other properties, for
the equipment and labor required to develop and operate those properties and in
the marketing of oil and natural gas to end-users. Many of our competitors have
financial and other resources substantially greater than those available to us.
As a consequence, we may be at a competitive disadvantage in bidding for
drilling rights. In addition, many of our larger competitors may be better able
to respond to factors that affect the demand for oil and natural gas production,
such as changes in worldwide prices and levels of production, the cost and
availability of alternative fuels and the application of government regulations.
We also compete in attracting and retaining personnel, including geologists,
geophysicists and other specialists. We may not be able to attract or retain
technical personnel in the future.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION COULD RESULT IN INCREASED CAPITAL
REQUIREMENTS AND OPERATING COSTS.
Our businesses are subject to numerous laws and regulations relating to the
protection of the environment. We have incurred and will continue to incur
substantial capital, operating and maintenance,
6
and remediation expenditures as a result of these laws and regulations. Our
compliance with amended, new or more stringent requirements, stricter
interpretations of existing requirements or the future discovery of
contamination may require us to make material expenditures or subject us to
liabilities that we currently do not anticipate. In addition, any failure by us
to comply with existing or future laws could result in civil or criminal fines
and other enforcement action against us.
Our operations and those of our predecessors could expose us to civil
claims by third parties for alleged liability resulting from contamination of
the environment or personal injuries caused by releases of hazardous substances.
For example:
- we are investigating or remediating contamination at several formerly and
currently owned sites; and
- we have been identified as a potentially responsible party at several
Superfund sites where we or our predecessors are alleged to have disposed
of wastes in the past.
Environmental laws are subject to frequent change and many of them have
become more stringent. In some cases, they can impose liability for the entire
cost of cleanup on any responsible party without regard to negligence or fault
and impose liability on us for the conduct of others or conditions others have
caused, or for our acts that complied with all applicable requirements when we
performed them.
Of particular significance to MAP are the new Tier II Fuels regulations
issued by the U.S. Environmental Protection Agency. These rules require
substantially reduced sulfur levels in the manufacture of gasoline and diesel
fuel. We estimate that MAP's combined capital cost to achieve compliance with
these rules could amount to approximately $700 million between 2003 and 2005.
This is only a preliminary estimate because of the ongoing evolution of
regulatory requirements. Some factors that could potentially affect MAP's
gasoline and diesel fuel compliance costs include obtaining the necessary
construction and environmental permits, operating considerations and unforeseen
hazards, such as weather conditions. To the extent these expenditures are not
ultimately reflected in the prices of our products and services, our operating
results will be adversely affected.
In connection with government inspections at some of our refineries, we
have received a number of notices of violations of environmental laws from the
Environmental Protection Agency and state environmental agencies. In some cases,
we have entered into consent decrees or orders that require us to pay fines or
install pollution controls to settle our alleged liability. For example, MAP
agreed to settle alleged violations of several environmental laws, including New
Source Review regulations, with a global consent decree signed on May 11, 2001.
The agreement requires MAP to install environmental control equipment which we
expect to require approximately $300 million in expenditures over the next seven
years, pay a $3.8 million fine and perform supplemental environmental projects
which we expect to cost approximately $8 million. These supplemental
environmental projects are being undertaken as part of a settlement of an
enforcement action for alleged Clean Air Act violations.
OUR RELIANCE ON OUR FOREIGN PRODUCTION OF OIL AND GAS EXPOSES US TO RISKS FROM
ABROAD, WHICH COULD NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.
Our production of oil and gas outside of the United States accounted for
48%, 33% and 34%, respectively, of our total production in the years 2000, 1999
and 1998. Development of new production properties in countries outside the
United States may require protracted negotiations with host governments,
national oil companies and third parties and is frequently subject to economic
and political considerations, such as taxation, nationalization, inflation,
currency fluctuations, increased regulation and approval requirements and
governmental regulation, which could adversely affect the economics of projects.
OUR OPERATIONS ARE SUBJECT TO BUSINESS INTERRUPTIONS AND CASUALTY LOSSES, AND WE
DO NOT INSURE AGAINST ALL POTENTIAL LOSSES AND COULD BE SERIOUSLY HARMED BY
UNEXPECTED LIABILITIES.
Our exploration and production operations are subject to unplanned
occurrences, including blowouts, explosions, fires, loss of well control,
spills, adverse weather, labor disputes and maritime accidents. In
7
addition, our refining, marketing and transportation operations are subject to
business interruptions due to scheduled refinery turnarounds and unplanned
events such as explosions, fires, pipeline interruptions, crude oil or refined
product spills, inclement weather or labor disputes. They are also subject to
the additional hazards of marine operations, such as capsizing, collision and
damage or loss from severe weather conditions. We maintain insurance against
many, but not all, potential losses or liabilities arising from these operating
hazards in amounts that we believe to be prudent. Uninsured losses and
liabilities arising from operating hazards could reduce the funds available to
us for exploration, drilling and production and could have a material adverse
effect on our financial position or results of operations.
AS A HOLDING COMPANY WITH NO OPERATIONS OF ITS OWN, MARATHON WILL DEPEND ON
DISTRIBUTIONS FROM ITS SUBSIDIARIES TO MAKE PAYMENTS ON ANY DEBT SECURITIES IT
OFFERS UNDER THIS PROSPECTUS, AND PROVISIONS OF APPLICABLE LAW OR CONTRACTUAL
RESTRICTIONS COULD LIMIT THE AMOUNT OF THOSE DISTRIBUTIONS.
Marathon derives substantially all its operating income from, and holds
substantially all its assets through, its subsidiaries. As a result, Marathon
will depend on distributions of cash flow and earnings of its subsidiaries in
order to meet its payment obligations under any debt securities it offers under
this prospectus and its other obligations. These subsidiaries are separate and
distinct legal entities and will have no obligation to pay any amounts due on
Marathon's debt securities or to provide Marathon with funds for its payment
obligations, whether by dividends, distributions, loans or otherwise. In
addition, provisions of applicable law, such as those limiting the legal sources
of dividends, could limit their ability to make payments or other distributions
to Marathon, and they could agree to contractual restrictions on their ability
to make distributions.
Marathon's right to receive any assets of any subsidiary, and therefore the
right of the holders of Marathon's debt securities to participate in those
assets, will be effectively subordinated to the claims of that subsidiary's
creditors, including trade creditors. In addition, even if Marathon is a
creditor of any subsidiary, Marathon's rights as a creditor would be subordinate
to any security interest in the assets of that subsidiary and any indebtedness
of that subsidiary senior to that held by Marathon.
MARATHON MAY ISSUE PREFERRED STOCK WHOSE TERMS COULD ADVERSELY AFFECT THE VOTING
POWER OR VALUE OF ITS COMMON STOCK.
Marathon's restated certificate of incorporation authorizes it to issue,
without the approval of its stockholders, one or more classes or series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights, including preferences over its common stock
respecting dividends and distributions, as its board of directors generally may
determine. The terms of one or more classes or series of preferred stock could
adversely impact the voting power or value of Marathon's common stock. For
example, Marathon might grant holders of preferred stock the right to elect some
number of its directors in all events or on the happening of specified events or
the right to veto specified transactions. Similarly, the repurchase or
redemption rights or liquidation preferences Marathon might assign to holders of
preferred stock could affect the residual value of the common stock. See
"Description of Capital Stock -- Preferred Stock."
PROVISIONS IN MARATHON'S CORPORATE DOCUMENTS AND DELAWARE LAW COULD DELAY OR
PREVENT A CHANGE IN CONTROL OF MARATHON, EVEN IF THAT CHANGE WOULD BE BENEFICIAL
TO ITS STOCKHOLDERS.
The existence of some provisions in Marathon's corporate documents and
Delaware law could delay or prevent a change in control of Marathon, even if
that change would be beneficial to its stockholders. Marathon's restated
certificate of incorporation and by-laws contain provisions that may make
acquiring control of Marathon difficult, including:
- provisions relating to the classification, nomination and removal of its
directors;
- a provision prohibiting stockholder action by written consent;
- a provision that allows only its board of directors to call a special
meeting of its stockholders;
8
- provisions regulating the ability of its stockholders to bring matters
for action at annual meetings of its stockholders; and
- the authorization given to its board of directors to issue and set the
terms of preferred stock.
In addition, Marathon has also adopted a stockholder rights plan, which
would cause extreme dilution to any person or group who attempts to acquire a
significant interest in Marathon without advance approval of its board of
directors, while a provision of the Delaware General Corporation Law would
impose some restrictions on mergers and other business combinations between
Marathon and any holder of 15% or more of its outstanding common stock. See
"Description of Capital Stock."
9
FORWARD-LOOKING STATEMENTS
This prospectus and the accompanying prospectus supplement, including the
information we incorporate by reference, include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. You can identify our forward-looking
statements by words such as "estimate," "project," "predict," "believe,"
"expect," "anticipate," "plan," "forecast," "budget," "goal" or other words that
convey the uncertainty of future events or outcomes. When considering these
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements contained in this prospectus, any prospectus supplement
and the documents we have incorporated by reference.
The forward-looking statements are not guarantees of future performance,
and we caution you not to rely unduly on them. We have based many of these
forward-looking statements on expectations and assumptions about future events
that may prove to be inaccurate. While our management considers these
expectations and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other risks,
contingencies and uncertainties, most of which are difficult to predict and many
of which are beyond our control. These risks, contingencies and uncertainties
relate to, among other matters, the following:
- our financial exposure for obligations of United States Steel;
- fluctuations in crude oil and natural gas prices and refining and
marketing margins;
- potential failure or delays in achieving expected reserve or production
levels from existing and future oil and gas development projects due to
operating hazards, drilling risks and the inherent uncertainties in
predicting oil and gas reserves and oil and gas reservoir performance;
- drilling rig availability;
- unexpected geological or other conditions or events encountered in
drilling operations;
- unsuccessful exploratory drilling activities;
- unexpected difficulties in refining, marketing or transporting petroleum
products;
- potential disruption or interruption of our production facilities and our
refining, marketing and transportation operations due to accidents, acts
of terrorism or political events;
- our ability to achieve the benefits we expect to achieve from the
Separation;
- the highly competitive nature of our businesses;
- international monetary conditions and exchange controls;
- changes in, and our ability to comply with government regulations,
including those relating to the environment;
- liability for remedial actions under environmental regulations;
- changes in tax laws applicable to us; and
- general domestic and international economic and political conditions.
We have discussed some of these factors in more detail in the "Risk Factors"
section of this prospectus. These factors are not necessarily all the important
factors that could affect us. We advise you that you should (1) be aware that
important factors we do not refer to above could affect the accuracy of our
forward-looking statements and (2) use caution and common sense when considering
our forward-looking statements. We do not intend to update these statements
unless the securities laws require us to do so.
10
THE SEPARATION
GENERAL
Marathon was originally organized in 2001 as USX HoldCo, Inc. ("USX
HoldCo") to become a holding company for the two principal businesses of our
former parent company, Old USX:
- the steel production and sale business, the steel mill products, coke,
taconite pellets and coal transportation business and other steel-related
businesses comprising the U.S. Steel Group; and
- the oil and gas exploration and production and other energy businesses
conducted by Marathon Oil Company, an Ohio corporation, and other
subsidiaries comprising the Marathon Group.
In a series of transactions (the "Holding Company Reorganization") Old USX
completed on July 2, 2001:
- USX HoldCo became the holding company for Marathon Oil Company and United
States Steel LLC;
- Old USX was merged with and into United States Steel LLC;
- USX HoldCo assumed a substantial part of the outstanding indebtedness,
obligations under various capital and operating leases and guarantee
obligations and other contingent liabilities of Old USX; and
- USX HoldCo changed its name to USX Corporation.
On December 31, 2001, pursuant to an Agreement and Plan of Reorganization
dated as of July 31, 2001 (the "Reorganization Agreement") Marathon completed
the Separation transaction, in which:
- United States Steel LLC converted into a Delaware corporation named
United States Steel Corporation and became a separate, publicly traded
company; and
- USX HoldCo, then known as USX Corporation, changed its name to Marathon
Oil Corporation.
Marathon and its subsidiaries are continuing the energy business that comprised
the Marathon Group of Old USX.
ASSUMPTION OF INDEBTEDNESS AND OTHER OBLIGATIONS BY UNITED STATES STEEL
Prior to the Separation, Old USX, and then Marathon, managed most of its
financial activities on a centralized, consolidated basis and, in its financial
statements, attributed amounts that related primarily to the following items to
the Marathon Group and the U.S. Steel Group on the basis of their cash flows for
the applicable periods and the initial capital structure for each group:
- invested cash;
- short-term and long-term debt, including convertible debt, and related
net interest and other financing costs; and
- preferred stock and related dividends.
The following items, however, were specifically attributed to and reflected
in their entirety in the financial statements of the group to which they
related:
- leases;
- collateralized financings;
- indexed debt instruments;
- financial activities of consolidated entities that were not wholly owned
subsidiaries; and
11
- transactions that related to securities convertible solely into common
stock that tracked the performance of the Marathon Group or the U.S.
Steel Group.
These attributions were for accounting purposes only and did not reflect
the legal ownership of cash or the legal obligations to pay and discharge debt
or other obligations.
In connection with the Separation:
- United States Steel and its subsidiaries incurred indebtedness to third
parties and assumed various obligations from Marathon in an aggregate
amount approximately equal to all the net amounts attributed to the U.S.
Steel Group immediately prior to the Separation, both absolute and
contingent, less the amount of a $900 million value transfer (the "Value
Transfer"); and
- Marathon and its subsidiaries remained responsible for all the
liabilities attributed to the Marathon Group, both absolute and
contingent, plus $900 million.
These arrangements will require a post-Separation cash settlement between
Marathon and United States Steel following the audit of the balance sheets for
both the Marathon Group and the U.S. Steel Group as of December 31, 2001, in
order to ensure that the Value Transfer was $900 million.
As a result of its assumption of various items of indebtedness and other
obligations from its former parent entity in the Holding Company Reorganization,
Marathon remained obligated after the Separation for the following items of
indebtedness and other obligations that were attributed to the U.S. Steel Group
in accordance with the provisions of the Reorganization Agreement (amounts as of
December 31, 2001):
- approximately $470 million of obligations under industrial revenue bonds
related to environmental projects for current and former U.S. Steel Group
facilities, with maturities ranging from 2009 through 2033;
- approximately $84 million of sale-leaseback financing obligations under a
lease for equipment at United States Steel's Fairfield Works facility,
with the lease term extending to 2012, subject to extensions;
- approximately $138 million in obligations relating to various lease
arrangements accounted for as operating leases and various guarantee
arrangements, all of which were assumed by United States Steel; and
- other guarantees referred to under "Relationship Between Marathon and
United States Steel After the Separation -- Financial Matters Agreement."
As contemplated by the Reorganization Agreement, Marathon and United States
Steel entered into a financial matters agreement to reflect United States
Steel's agreement to assume and discharge all Marathon's principal repayment,
interest payment and other payment obligations under the industrial revenue
bonds, the capital lease arrangement and the guarantees associated with the
other lease and similar obligations referred to above. In addition, the
financial matters agreement requires United States Steel to use commercially
reasonable efforts to have Marathon released from its obligations under the
other guarantees referred to above. The financial matters agreement also
provides that on or before the tenth anniversary of the Separation, United
States Steel will provide for Marathon's discharge from any remaining liability
under any of the assumed industrial revenue bonds. United States Steel may
accomplish that discharge by refinancing or, to the extent not refinanced,
paying Marathon an amount equal to the remaining principal amount of, all
accrued and unpaid debt service outstanding on, and any premium required to
immediately retire, the then outstanding industrial revenue bonds. Only $1.8
million of the industrial revenue bonds are scheduled to mature in the period
extending through 2012. For additional information relating to the financial
matters agreement, see "Relationship Between Marathon and United States Steel
After the Separation -- Financial Matters Agreement."
12
EFFECTS ON HISTORICAL RELATIONSHIP
Historically, the U.S. Steel Group has funded its negative operating cash
flow with cash supplied by us, a portion of which was reflected as a payment
from us under our tax allocation policy and the remainder of which was
represented by increased amounts of debt attributed by us. As a stand-alone
company, United States Steel will need to fund any of its negative operating
cash flow from external sources, and adequate sources may be unavailable or the
cost of such funding may adversely impact United States Steel.
For the nine months ended September 30, 2001 and the year ended December
31, 2000, the U.S. Steel Group had segment income (loss) from operations of
($146) million and $25 million, respectively. Additionally, for the year ended
December 31, 2000, the U.S. Steel Group generated negative cash flow of $494
million after investing activities and dividends, excluding an additional $500
million elective employee benefit funding.
As we discuss below, the financial matters agreement does not contain any
financial covenants, and United States Steel is free to incur additional debt
and grant mortgages on or security interests in its property and sell or
transfer assets without our consent. United States Steel is more highly
leveraged than we are, has a noninvestment grade credit rating and has granted
security interests in some of its assets, including its accounts receivable and
inventory. Additionally, United States Steel's operations are capital intensive.
United States Steel's business also requires substantial expenditures for
routine maintenance. The steel business is highly competitive and a large number
of industry participants have sought protection under bankruptcy laws in recent
periods.
RELATIONSHIP BETWEEN MARATHON
AND UNITED STATES STEEL AFTER THE SEPARATION
As a result of the Separation, Marathon and United States Steel are
separate companies, and neither has any ownership interest in the other. Thomas
J. Usher is chairman of the board of both companies, and four of the remaining
ten members of Marathon's board of directors are also directors of United States
Steel.
In connection with the Separation and pursuant to the Reorganization
Agreement, Marathon and United States Steel have entered into a series of
agreements governing their relationship subsequent to the Separation and
providing for the allocation of tax and certain other liabilities and
obligations arising from periods prior to the Separation. Set forth below is a
summary of some of the provisions of each of those agreements.
TAX SHARING AGREEMENT
Marathon and United States Steel have a tax sharing agreement that applies
to each of their consolidated tax reporting groups. Provisions of this agreement
include the following:
- for any taxable period, or any portion of any taxable period, ended on or
before December 31, 2001, unpaid tax sharing payments will be made
between Marathon and United States Steel generally in accordance with our
general tax sharing principles in effect prior to the Separation;
- no tax sharing payments will be made with respect to taxable periods, or
portions thereof, beginning after December 31, 2001; and
- provisions relating to the tax and related liabilities, if any, that
result from the Separation ceasing to qualify as a tax-free transaction
and limitations on post-Separation activities that might jeopardize the
tax-free status of the Separation.
13
Under the general tax sharing principles in effect prior to the Separation:
- the taxes payable by each of the Marathon Group and the U.S. Steel Group
were determined as if each of them had filed its own consolidated,
combined or unitary tax return; and
- the U.S. Steel Group would receive the benefit, in the form of tax
sharing payments by the parent corporation, of the tax attributes,
consisting principally of net operating losses and various credits, that
its business generated and the parent used on a consolidated basis to
reduce its taxes otherwise payable.
In accordance with the tax sharing agreement, at the time of the
Separation, we made a preliminary settlement with United States Steel of $441
million as the net tax sharing payments we owed to it for the year ended
December 31, 2001 under the pre-Separation tax sharing principles.
The tax sharing agreement also addresses the handling of tax audits and
contests and other matters respecting taxable periods, or portions of taxable
periods, ended prior to December 31, 2001.
In the tax sharing agreement, each of Marathon and United States Steel
promised the other party that it:
- would not, prior to January 1, 2004, take various actions or enter into
various transactions that might, under section 355 of the Internal
Revenue Code of 1986, jeopardize the tax-free status of the Separation;
and
- would be responsible for, and indemnify and hold the other party harmless
from and against, any tax and related liability, such as interest and
penalties, that results from the Separation ceasing to qualify as
tax-free because of its taking of any such action or entering into any
such transaction.
The proscribed actions and transactions include:
- the liquidation of Marathon or United States Steel; and
- the sale by Marathon or United States Steel of its assets, except in the
ordinary course of business.
In case a taxing authority seeks to collect a tax liability from one party
which the tax sharing agreement has allocated to the other party, the other
party has agreed in the sharing agreement to indemnify the first party against
that liability.
Even if the Separation otherwise qualifies for tax-free treatment under
section 355 of the Internal Revenue Code, the Separation may become taxable to
Marathon under section 355(e) of the Internal Revenue Code if capital stock
representing a 50% or greater interest in either Marathon or United States Steel
is acquired, directly or indirectly, as part of a plan or series of related
transactions that include the Separation. For this purpose, a "50% or greater
interest" means capital stock possessing at least 50% of the total combined
voting power of all classes of stock entitled to vote or at least 50% of the
total value of shares of all classes of capital stock. To minimize this risk,
both Marathon and United States Steel agreed in the tax sharing agreement that
they would not enter into any transactions or make any change in their equity
structures that could cause the Separation to be treated as part of a plan or
series of related transactions to which those provisions of section 355(e) of
the Internal Revenue Code may apply. If an acquisition occurs that results in
the Separation being taxable under section 355(e) of the Internal Revenue Code,
the agreement provides that the resulting corporate tax liability will be borne
by the party involved in that acquisition transaction.
Although the tax sharing agreement allocates tax liabilities relating to
taxable periods ending on or prior to the Separation, each of Marathon and
United States Steel, as members of the same consolidated tax reporting group
during any portion of a taxable period ended on or prior to the date of the
Separation, is jointly and severally liable under the Internal Revenue Code for
the federal income tax liability of the entire consolidated tax reporting group
for that year. To address the possibility that the taxing authorities may seek
to collect all or part of a tax liability from one party where the tax sharing
agreement allocates that liability to the other party, the agreement includes
indemnification provisions that would entitle the
14
party from whom the taxing authorities are seeking collection to obtain
indemnification from the other party, to the extent the agreement allocates that
liability to that other party. We can provide no assurance, however, that United
States Steel will be able to meet its indemnification obligations, if any, to
Marathon that may arise under the tax sharing agreement.
TRANSITION SERVICES AGREEMENT
Marathon and United States Steel have a transition services agreement that
will govern the provision of the following services until December 31, 2002:
- common corporate support services; and
- interunit computer services.
Common corporate support services include services personnel at our former
Pittsburgh corporate headquarters historically provided prior to the Separation.
These include accounting, finance and financial management, government affairs,
investor relations, public affairs and tax services. Most of these personnel now
work for Marathon or United States Steel. Each company has agreed to provide
these services to the other, to the extent it is able to do so and the other
company cannot satisfy its own needs.
Interunit computer services consist of computer and information technology
services either company historically provided to our former Pittsburgh corporate
headquarters or to the other company.
A company providing common corporate support or inter-unit computer
services under the transition services agreement will be entitled to recover the
costs it incurs in providing those services.
The transition services agreement also includes each company's grant to the
other company and its subsidiaries of a nonexclusive, fully paid, worldwide
license for their internal use only of the granting company's computer programs,
software, source code and know-how that were utilized prior to the Separation or
are utilized under the transition services agreement to provide common corporate
support or inter-unit computer services to the other company and its
subsidiaries.
FINANCIAL MATTERS AGREEMENT
Marathon and United States Steel have a financial matters agreement that
provides for United States Steel's assumption of the obligations under
Marathon's outstanding industrial revenue bonds, the sale-leaseback financing
arrangement and the lease and guarantee obligations referred to above under "The
Separation -- Assumption of Indebtedness and Other Obligations by United States
Steel." Under the financial matters agreement, United States Steel has assumed
and agreed to discharge all Marathon's principal repayment, interest payment and
other obligations under those industrial revenue bonds and lease and guarantee
arrangements described above, including any amounts due on any default or
acceleration of any of those obligations, other than any default caused by
Marathon. The financial matters agreement also provides that, on or before the
tenth anniversary of the Separation, United States Steel will provide for
Marathon's discharge from any remaining liability under any of the assumed
industrial revenue bonds.
The financial matters agreement also requires United States Steel to use
commercially reasonable efforts to have Marathon released from its obligations
under a guarantee we have provided with respect to all United States Steel's
obligations under a partnership agreement between United States Steel, as
general partner, and General Electric Credit Corporation of Delaware and
Southern Energy Clairton, L.L.C., as limited partners. United States Steel may
dissolve the partnership under certain circumstances, including if it is
required to fund accumulated cash shortfalls of the partnership in excess of
$150 million. In addition to the normal commitments of a general partner, United
States Steel has indemnified the limited partners for certain income tax
exposures. As of December 31, 2001, United States Steel had no unpaid
outstanding obligations to the limited partners.
The financial matters agreement requires Marathon to use commercially
reasonable efforts to take all necessary action or refrain from acting so as to
assure compliance with all covenants and other obligations under the documents
relating to the assumed obligations to avoid the occurrence of a default or the
15
acceleration of the payment obligations under the assumed obligations. The
agreement also obligates Marathon to use commercially reasonable efforts to
obtain and maintain letters of credit and other liquidity arrangements required
under the assumed obligations.
United States Steel's obligations to Marathon under the financial matters
agreement are general unsecured obligations which rank equal to United States
Steel's accounts payable and other general unsecured obligations. The financial
matters agreement does not contain any financial covenants, and United States
Steel is free to incur additional debt, grant mortgages on or security interests
in its property and sell or transfer assets without our consent.
LICENSE AGREEMENT
Marathon and United States Steel have entered into a license agreement
under which Marathon granted to United States Steel a nonexclusive, fully paid,
worldwide license to use the "USX" name and various trade secrets, know-how and
intellectual property rights previously used in connection with the business of
both companies. The license agreement provides that United States Steel may use
these rights solely in the conduct of its internal business. It also provides
United States Steel with the right to sublicense these rights to any of its
subsidiaries. The license agreement provides for a perpetual term, so long as
United States Steel performs its obligations under the agreement.
INSURANCE ASSISTANCE AGREEMENT
Marathon and United States Steel have an insurance assistance agreement,
which provides for:
- the division of responsibility for joint insurance arrangements; and
- the entitlement to insurance claims and the allocation of deductibles
with respect to claims associated with pre-Separation periods.
Under the insurance assistance agreement:
- Marathon is entitled to all rights in and to all claims and is solely
liable for the payment of uninsured retentions and deductibles arising
out of or relating to pre-Separation events or conditions exclusively
associated with the business of the Marathon Group;
- United States Steel is entitled to all rights in and to all claims and is
solely liable for the payment of uninsured retentions and deductibles
arising out of or relating to pre-Separation events or conditions
exclusively associated with the business of the U.S. Steel Group;
- Marathon is entitled to 65% and United States Steel is entitled to 35% of
all rights in and to all claims, and Marathon and United States Steel are
liable on the same percentage basis for the payment of uninsured
retentions and deductibles, arising out of or relating to pre-Separation
events or conditions and not related exclusively to either the Marathon
Group or the U.S. Steel Group; and
- the cost of extended reporting insurance for pre-Separation periods will
be split between Marathon and United States Steel on a 65%-35% basis,
respectively, if both companies elect to purchase the same extended
reporting insurance.
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USE OF PROCEEDS
Unless we inform you otherwise in the prospectus supplement, we will use
the net proceeds from the sale of the offered securities for general corporate
purposes. These purposes may include funding working capital requirements,
acquisitions and other capital expenditures, repayment and refinancing of
indebtedness and repurchases and redemptions of securities. Pending any specific
application, we may initially invest those funds in short-term marketable
securities or apply them to the reduction of short-term indebtedness.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Our ratios of earnings to fixed charges and earnings to combined fixed
charges and preferred stock dividends for each of the periods indicated, in each
case determined on a total enterprise basis are as follows:
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- -------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ----- -----
Ratio of earnings to fixed charges....................... 3.65 3.79 3.56 4.32 3.89 6.77 8.77
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to combined fixed charges and preferred
stock dividends........................................ 3.41 3.63 3.45 4.20 3.79 6.60 8.51
==== ==== ==== ==== ==== ==== ====
The term "earnings" is the amount resulting from adding the following items
relating to Old USX and its consolidated subsidiaries:
- pre-tax income before adjustment for minority interests in consolidated
subsidiaries or income or loss from equity investees;
- fixed charges;
- amortization of capitalized interest;
- distributed income of equity investees; and
- share of pre-tax losses of equity investees for which charges arising
from guarantees are included in fixed charges;
and subtracting from the total the following:
- interest capitalized; and
- preference security dividend requirements of consolidated subsidiaries.
For this purpose, "fixed charges" consists of:
- interest on all indebtedness and amortization of debt discount and
expense;
- interest capitalized;
- an estimate of the portion of annual rental expense on operating leases
that represents the interest factor attributable to rentals;
- pre-tax earnings required to cover preferred stock dividend requirements;
and
- fixed charges from debt of any entity less than 50% owned, which is
guaranteed by us if it is probable that we will have to satisfy the
guarantee.
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DESCRIPTION OF DEBT SECURITIES
The debt securities this prospectus covers will be Marathon's general
unsecured obligations. The debt securities will be either senior debt securities
or subordinated debt securities. Marathon will issue the debt securities under
one or more separate indentures between Marathon and JPMorgan Chase Bank, as
trustee. Senior debt securities will be issued under a senior indenture, and
subordinated debt securities will be issued under a subordinated indenture. In
this description, we sometimes call the senior indenture and the subordinated
indenture the "indentures."
We have summarized the provisions of the indentures and the debt securities
below. You should read the indentures for more details regarding the provisions
described below and for other provisions that may be important to you. We have
filed the forms of the indentures with the SEC as exhibits to the registration
statement, and we will include the applicable final indenture and any other
instrument establishing the terms of any debt securities we offer as exhibits to
a filing we will make with the SEC in connection with that offering. See "Where
You Can Find More Information."
The following description primarily relates to senior debt securities that
we may issue under the senior indenture. We have summarized some of the
provisions of the subordinated indenture below under the caption
"-- Subordinated Debt Securities." If we offer subordinated debt securities, we
will provide more specific terms in the related prospectus supplement. In this
summary description of the debt securities, all references to "Marathon," "we"
or "us" mean Marathon Oil Corporation only, unless we state otherwise or the
context clearly indicates otherwise.
GENERAL
The senior debt securities will constitute senior debt of Marathon and will
rank equally with all its unsecured and unsubordinated debt. The subordinated
debt securities will be subordinated to, and thus have a position junior to, any
senior debt securities and all other senior debt of Marathon. Neither indenture
limits the amount of debt we may issue under the indentures, and neither limits
the amount of other unsecured debt or securities we may incur or issue. We may
issue debt securities under either indenture from time to time in one or more
series, each in an amount we authorize prior to issuance.
Marathon derives substantially all its operating income from, and holds
substantially all its assets through, its subsidiaries. As a result, Marathon
will depend on distributions of cash flow and earnings of its subsidiaries in
order to meet its payment obligations under any debt securities it offers under
this prospectus and its other obligations. These subsidiaries are separate and
distinct legal entities and will have no obligation to pay any amounts due on
Marathon's debt securities or to provide Marathon with funds for its payment
obligations, whether by dividends, distributions, loans or otherwise. In
addition, provisions of applicable law, such as those limiting the legal sources
of dividends, could limit their ability to make payments or other distributions
to Marathon and they could agree to contractual restrictions on their ability to
make distributions.
Marathon's right to receive any assets of any subsidiary, and therefore the
right of the holders of Marathon's debt securities to participate in those
assets, will be effectively subordinated to the claims of that subsidiary's
creditors, including trade creditors. In addition, even if Marathon is a
creditor of any subsidiary, Marathon's rights as a creditor would be subordinate
to any security interest in the assets of that subsidiary and any indebtedness
of that subsidiary senior to that held by Marathon.
We may issue the debt securities of any series in definitive form or as a
book-entry security in the form of a global security registered in the name of a
depositary we designate.
We may issue the debt securities in one or more series with various
maturities. They may be sold at par, at a premium or with an original issue
discount.
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The prospectus supplement relating to any series of debt securities being
offered will specify whether the debt securities are senior debt securities or
subordinated debt securities and will include specific terms relating to the
offering. These terms will include some or all of the following:
- the title of the debt securities;
- any limit on the aggregate principal amount of the debt securities;
- the person or entity to whom any interest will be payable, if that person
or entity is not the registered owner of the debt securities;
- the date or dates on which the principal of and any premium on the debt
securities will be payable;
- the rates, which may be fixed or variable, per annum at which the debt
securities will bear interest, if any, and the date or dates from which
any interest will accrue;
- the dates on which the interest, if any, on the debt securities will be
payable, and the regular record dates for the interest payment dates or
the method for determining those dates;
- the place or places where payments on the debt securities will be
payable;
- the terms and conditions on which the debt securities may, under any
optional or mandatory redemption provisions, be redeemed;
- any mandatory or optional sinking fund or similar provisions or
provisions for mandatory redemption or purchase at the option of the
holder;
- the denominations in which the debt securities will be issuable, if other
than denominations of $1,000 or any multiple of that amount;
- any index, formula or other method used to determine the amount of
payment of principal of or any premium or interest on the debt
securities;
- if other than the currency of the United States of America, the currency
of payment of principal of or any premium or interest on the debt
securities;
- if, at our election or the election of the holder, the principal of or
any premium or interest on any debt securities is to be payable in one or
more currencies or currency units other than those in which the debt
securities are stated to be payable, the terms and conditions on which
that election is to be made and the amount so payable;
- if other than the full principal amount of the debt securities, the
portion of the principal amount of the debt securities that will be
payable on the declaration of acceleration of the maturity of the debt
securities;
- if the principal amount payable at maturity will not be determinable as
of one or more dates prior to maturity, the amount that will be deemed to
be the principal amount as of any such date;
- any terms on which the debt securities may be convertible into or
exchanged for securities or indebtedness of any kind of Marathon or of
any other issuer or obligor and the terms and conditions on which a
conversion or exchange will be effected, including the initial conversion
or exchange price or rate, the conversion period and any other additional
provisions;
- the applicability of the defeasance provisions described below under
"-- Satisfaction and Discharge; Defeasance under the Senior Indenture,"
and any conditions under which those provisions will apply;
- if the debt securities will be issuable only in the form of a global
security as described below under "-- Book-entry Debt Securities," the
depositary for the debt securities;
- any changes in or additions to the events of default or covenants this
prospectus describes;
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- the payment of any additional amounts with respect to the debt
securities; and
- any other terms of the debt securities.
If we sell any of the debt securities for any foreign currency or currency
unit or if payments on the debt securities are payable in any foreign currency
or currency unit, we will describe in the prospectus supplement the
restrictions, elections, tax consequences, specific terms and other information
relating to those debt securities and the foreign currency or currency unit.
RESTRICTIVE COVENANTS UNDER THE SENIOR INDENTURE
Marathon has agreed to two principal restrictions on its activities for the
benefit of holders of the senior debt securities. The restrictive covenants
summarized below will apply to a series of senior debt securities (unless waived
or amended) as long as any of those senior debt securities are outstanding,
unless the prospectus supplement for the series states otherwise.
CREATION OF CERTAIN LIENS
If Marathon or any subsidiary of Marathon mortgages or encumbers as
security for money borrowed any property capable of producing oil or gas which
(1) is located in the United States and (2) is determined to be a principal
property by Marathon's board of directors in its discretion, Marathon will, or
will cause such subsidiary to, secure each series of senior debt equally and
ratably with all obligations secured by the mortgage then being given. This
covenant will not apply in the case of any mortgage:
- existing on the date of the senior indenture;
- incurred in connection with the acquisition or construction of any
property;
- previously existing on acquired property or existing on the property of
any entity when it becomes a subsidiary of ours;
- in favor of the United States, any state, or any agency, department,
political subdivision or other instrumentality of either, to secure
payments to us under the provisions of any contract or statute;
- in favor of the United States, any state, or any agency, department,
political subdivision or other instrumentality of either, to secure
borrowings for the purchase or construction of the property mortgaged;
- in connection with a sale or other transfer of (1) oil, gas or other
minerals in place for a period of time until, or in an amount such that,
the purchase will realize a specified amount of money or a specified
amount of minerals or (2) any interest of the character commonly referred
to as an "oil payment" or a "production payment";
- to secure the cost of the repair, construction, improvement, alteration,
exploration, development or drilling of all or part of a principal
property;
- in various facilities and personal property located at or on a principal
property;
- arising in connection with the sale of accounts receivable resulting from
the sale of oil or gas at the wellhead; or
- that is a renewal of or substitution for any mortgage permitted under any
of the provisions described in the preceding clauses.
In addition, Marathon may, and may permit its subsidiaries to, grant mortgages
or incur liens on property covered by the restriction described above as long as
the net book value of the property so encumbered, together with all property
subject to the restriction on sale and leaseback transactions described below,
does not, at the time such Mortgage or lien is granted, exceed 10% of our
"Consolidated Net Tangible
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Assets," which the senior indenture defines to mean the aggregate value of all
assets of Marathon and its subsidiaries after deducting:
- all current liabilities, excluding all long-term debt due within one
year;
- all investments in unconsolidated subsidiaries and all investments
accounted for on the equity basis; and
- all goodwill, patents and trademarks, unamortized debt discount and other
similar intangibles;
all determined in conformity with generally accepted accounting principles and
calculated on a basis consistent with our most recent audited consolidated
financial statements.
LIMITATIONS ON CERTAIN SALE AND LEASEBACK TRANSACTIONS
Marathon and its subsidiaries are generally prohibited from selling and
leasing back the principal properties described above under "-- Creation of
Certain Liens." However, this covenant will not apply if:
- the lease is an intercompany lease between Marathon and one of its
subsidiaries or between any of its subsidiaries;
- the lease is for a temporary period by the end of which it is intended
that the use of the leased property will be discontinued;
- Marathon or a subsidiary of Marathon could mortgage the property without
equally and ratably securing the senior debt securities under the
covenant described above under the caption "-- Creation of Certain
Liens";
- the transfer is incident to or necessary to effect any operating,
farm-out, farm-in, unitization, acreage exchange, acreage contribution,
bottom-hole or dry-hole arrangement or pooling agreement or other
agreement of the same general nature relating to the acquisition,
exploration, maintenance, development or operation of oil and gas
properties in the ordinary course of business or as required by any
regulatory agency having jurisdiction over the property; or
- Marathon promptly informs the trustee of the sale, the net proceeds of
the sale are at least equal to the fair value of the property and within
180 days of the sale the net proceeds are applied to the retirement or
in-substance defeasance of our funded debt (subject to reduction, under
circumstances the senior indenture specifies).
As of the date of this prospectus, neither Marathon nor any subsidiary of
Marathon has any property that Marathon's board of directors has determined to
be a principal property.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The senior indenture provides that Marathon may not merge or consolidate
with any other entity or sell or convey all or substantially all its assets
except as follows:
- Marathon is the continuing corporation or the successor entity (if other
than Marathon) is a corporation or other entity organized under the laws
of the United States or any state thereof that expressly assumes the
obligations of Marathon under the senior indenture and the outstanding
senior debt securities; and
- immediately after the merger, consolidation, sale or conveyance, no event
of default under the senior indenture shall have occurred and be
continuing.
On the assumption by the successor of the obligations under the indentures,
the successor will be substituted for Marathon, and Marathon will be relieved of
any further obligation under the indentures and the debt securities.
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EVENTS OF DEFAULT UNDER THE SENIOR INDENTURE
The senior indenture defines an event of default with respect to the senior
debt securities of any series as being:
(1) Marathon's failure to pay interest on any senior debt security of
that series when due, continuing for 30 days;
(2) Marathon's failure to pay the principal of or premium on any
senior debt security of that series when due and payable;
(3) Marathon's failure to deposit any sinking fund payment when due by
the terms of the senior debt securities of that series;
(4) Marathon's failure to perform under any other covenant or warranty
applicable to the senior debt securities of that series and not
specifically dealt with in the definition of "event of default"
for a period of 90 days after written notice to Marathon of that
failure;
(5) specified events of bankruptcy, insolvency or reorganization of
Marathon; or
(6) any other event of default provided with respect to the senior
debt securities of that series.
The trustee is required to give holders of the senior debt securities of
any series written notice of a default with respect to that series as provided
by the Trust Indenture Act. In the case of any default of the character
described above in clause (4) of the immediately preceding paragraph, no such
notice to holders must be given until at least 60 days after the occurrence of
that default.
Marathon is required annually to deliver to the trustee an officer's
certificate stating whether or not the signers have any knowledge of any default
by Marathon in its performance and observance of any terms, provisions and
conditions of the senior indenture.
In case an event of default (other than an event of default involving an
event of bankruptcy, insolvency or reorganization of Marathon) shall occur and
be continuing with respect to any series, the trustee or the holders of not less
than 25% in principal amount of the senior debt securities of that series then
outstanding may declare the principal amount of those senior debt securities
(or, in the case of any senior debt securities Marathon issues at an original
issue discount, the portion of such principal amount that we will specify in the
applicable prospectus supplement) to be due and payable. If an event of default
relating to any event of bankruptcy, insolvency or reorganization of Marathon
occurs, the principal of all the senior debt securities then outstanding (or, in
the case of any senior debt securities Marathon issues at an original issue
discount, the portion of such principal amount that we will specify in the
applicable prospectus supplement) will become immediately due and payable
without any action on the part of the applicable trustee or any holder. The
holders of a majority in principal amount of the outstanding senior debt
securities of any series affected by the default may in some cases rescind this
accelerated payment requirement. Depending on the terms of our other
indebtedness, an event of default may give rise to cross defaults on our other
indebtedness.
Any past default with respect to a series of senior debt securities may be
waived on behalf of all holders of those senior debt securities by at least a
majority in principal amount of the holders of the outstanding senior debt
securities of that series, except a default:
- in the payment of principal of or any premium or interest on any senior
debt security of that series; or
- respecting a covenant or provision that cannot be modified without the
consent of the holder of each outstanding senior debt security of that
series.
Any default that is so waived will cease to exist and any event of default
arising from that default will be deemed to be cured for every purpose under the
senior indenture, but no such waiver will extend to any subsequent or other
default or impair any right arising from a subsequent or other default.
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A holder of a senior debt security of any series will be able to pursue any
remedy under the senior indenture only if:
- the holder has given prior written notice to the trustee of a continuing
event of default with respect to the senior debt securities of that
series;
- the holders of at least 25% in principal amount of the outstanding senior
debt securities of that series have made a written request to the trustee
to institute proceedings with respect to the event of default;
- the holders making the request have offered the trustee reasonable
indemnity against costs, expenses and liabilities to be incurred in
compliance with the request;
- the trustee for 60 days after its receipt of the notice, request and
offer of indemnity has failed to institute any such proceeding; and
- during that 60-day period, the holders of a majority in principal amount
of the senior debt securities of that series do not give the trustee a
direction inconsistent with the request.
It is intended that rights provided for holders under the senior indenture
are for the equal and ratable benefit of all such holders.
MODIFICATION OF THE SENIOR INDENTURE
Marathon and the trustee may modify the senior indenture without the
consent of the holders of the senior debt securities for one or more of the
following purposes:
- to evidence the succession of another person to Marathon;
- to add to covenants for the benefit of the holders of senior debt
securities or to surrender any right or power conferred on Marathon by
the senior indenture;
- to add additional events of default for the benefit of holders of all or
any series of senior debt securities;
- to add or change provisions of the senior indenture to allow the issuance
of senior debt securities in other forms;
- to add to, change or eliminate any of the provisions of the senior
indenture respecting one or more series of senior debt securities under
conditions the senior indenture specifies;
- to secure the senior debt securities under the requirements of the senior
indenture or otherwise;
- to establish the form or terms of senior debt securities of any series as
permitted by the senior indenture;
- to evidence the appointment of a successor trustee; or
- to cure any ambiguity or to correct or supplement any provision of the
senior indenture that may be defective or inconsistent with any other
provision in the senior indenture, or to make any other provisions with
respect to matters or questions arising under the senior indenture as
shall not adversely affect the interests of the holders of senior debt
securities of any series in any material respect.
Marathon and the trustee may otherwise modify the senior indenture or any
supplemental senior indenture with the consent of the holders of not less than a
majority in aggregate principal amount of each series of senior debt securities
affected. However, without the consent of the holder of each outstanding senior
debt security affected, no modification may:
- change the fixed maturity or reduce the principal amount, reduce the rate
or extend the time of payment of any premium or interest thereon, or
change the currency in which the senior debt
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securities are payable, or adversely affect any right of the holder of
any senior debt security to require Marathon to repurchase that senior
debt security; or
- reduce the percentage of senior debt securities required for consent to
any such modification or supplemental indenture.
SATISFACTION AND DISCHARGE; DEFEASANCE UNDER THE SENIOR INDENTURE
The senior indenture will be satisfied and discharged if:
- Marathon delivers to the trustee all senior debt securities then
outstanding for cancellation; or
- all senior debt securities have become due and payable or are to become
due and payable within one year or are to be called for redemption within
one year and Marathon deposits an amount of cash sufficient to pay the
principal of and premium, if any, and interest on those senior debt
securities to the date of maturity or redemption.
In addition to the right of discharge described above, we may deposit with
the trustee funds or government securities sufficient to make payments on the
senior debt securities of a series on the dates those payments are due and
payable, then, at our option, either of the following will occur:
- we will be discharged from our obligations with respect to the senior
debt securities of that series ("legal defeasance"); or
- we will no longer have any obligation to comply with the restrictive
covenants under the senior indenture, and the related events of default
will no longer apply to us, but some of our other obligations under the
senior indenture and the senior debt securities of that series, including
our obligation to make payments on those senior debt securities, will
survive ("covenant defeasance").
If we defease a series of senior debt securities, the holders of the senior
debt securities of the series affected will not be entitled to the benefits of
the senior indenture, except for our obligations to:
- register the transfer or exchange of senior debt securities;
- replace mutilated, destroyed, lost or stolen senior debt securities; and
- maintain paying agencies and hold moneys for payment in trust.
As a condition to either legal defeasance or covenant defeasance, we must
deliver to the trustee an opinion of counsel that the holders of the senior debt
securities will not recognize gain or loss for federal income tax purposes as a
result of the action.
SUBORDINATED DEBT SECURITIES
Although the senior indenture and the subordinated indenture are generally
similar and many of the provisions discussed above pertain to both senior and
subordinated debt securities, there are many substantive differences between the
two indentures. This section discusses some of those differences.
SUBORDINATION
Subordinated debt securities will be subordinate, in right of payment, to
all "senior debt," which the subordinated indenture defines to mean, with
respect to Marathon, the principal of and premium, if any, and interest on:
- all indebtedness of Marathon, whether outstanding on the date of the
subordinated indenture or subsequently created, incurred or assumed,
which is for money borrowed, or evidenced by a note or similar instrument
given in connection with the acquisition of any business, properties or
assets, including securities;
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- any indebtedness of others of the kinds described in the preceding clause
for the payment of which Marathon is responsible or liable (directly or
indirectly, contingently or otherwise) as guarantor or otherwise; and
- amendments, renewals, extensions and refundings of any indebtedness
described in the two preceding clauses, unless in any instrument or
instruments evidencing or securing that indebtedness or pursuant to which
the same is outstanding, or in any such amendment, renewal, extension or
refunding, it is expressly provided that such indebtedness is not
superior in right of payment to the subordinated debt securities of any
series.
TERMS OF SUBORDINATED DEBT SECURITIES MAY CONTAIN CONVERSION OR EXCHANGE
PROVISIONS
The prospectus supplement for a particular series of subordinated debt
securities will include some or all of the specific terms discussed above under
"-- General." Additionally, the prospectus supplement may contain subordination
provisions (to the extent that those provisions might differ from those provided
in the subordinated indenture) and, if applicable, conversion or exchange
provisions.
MODIFICATION OF THE SUBORDINATED INDENTURE
The subordinated indenture may be modified by Marathon and the trustee
without the consent of the holders of the subordinated debt securities for one
or more of the purposes we discuss above under "-- Modification of the Senior
Indenture." Additionally, Marathon and the trustee may modify the subordinated
indenture to make provision with respect to any conversion or exchange rights as
contemplated in that indenture.
DEFEASANCE OF SUBORDINATED DEBT SECURITIES
The subordination of the subordinated debt securities is expressly made
subject to the provisions for legal defeasance and covenant defeasance (for
similar provisions, see "-- Satisfaction and Discharge; Defeasance Under the
Senior Indenture." On the effectiveness of any legal defeasance or covenant
defeasance with respect to outstanding subordinated debt securities, those debt
securities will cease to be subordinated.
GOVERNING LAW
New York law will govern the indentures and the debt securities.
THE TRUSTEE
JPMorgan Chase Bank will be the trustee under each of the indentures.
If an event of default occurs and is continuing, the trustee must use the
degree of care and skill of a prudent person in the conduct of his own affairs.
The trustee will become obligated to exercise any of its powers under the
indentures at the request of any of the holders of any debt securities only
after those holders have offered the trustee indemnity reasonably satisfactory
to it.
Each indenture limits the right of the trustee, if it is one of our
creditors, to obtain payment of claims or to realize on certain property
received for any such claim, as security or otherwise. The trustee may engage in
other transactions with us. If it acquires any conflicting interest, however, it
must eliminate that conflict or resign.
EXCHANGE, REGISTRATION AND TRANSFER
Debt securities of any series will be exchangeable for other debt
securities of the same series with the same total principal amount and the same
terms but in different authorized denominations in accordance with the
applicable indenture. Holders may present registered debt securities for
registration of transfer at the office of the security registrar or any transfer
agent we designate. The security registrar or transfer
25
agent will effect the transfer or exchange when it is satisfied with the
documents of title and identity of the person making the request.
Unless we inform you otherwise in the prospectus supplement, we will
appoint the trustee under each indenture as security registrar for the debt
securities we issue in registered form under that indenture. If the prospectus
supplement refers to any transfer agent initially designated by us, we may at
any time rescind that designation or approve a change in the location through
which any transfer agent acts. We will be required to maintain an office or
agency for transfers and exchanges in each place of payment. We may at any time
designate additional transfer agents for any series of debt securities or
rescind the designation of any transfer agent. No service charge will be made
for any registration of transfer or exchange of those securities. Marathon or
the trustee may, however, require the payment of any tax or other governmental
charge payable for that registration.
In the case of any redemption, neither the security registrar nor the
transfer agent will be required to register the transfer of or exchange of any
debt security:
- during a period beginning 15 business days before the day of mailing of
the relevant notice of redemption and ending on the close of business on
that day of mailing; or
- if we have called the debt security for redemption in whole or in part,
except the unredeemed portion of any debt security being redeemed in
part.
PAYMENT AND PAYING AGENTS
Unless we inform you otherwise in the prospectus supplement, we will make
payments on the debt securities in U.S. dollars at the office of the applicable
trustee or any paying agent we designate. At our option, we may make payments by
check mailed to the holder's registered address or, with respect to global debt
securities, by wire transfer. Unless we inform you otherwise in the prospectus
supplement, we will make interest payments to the person in whose name the debt
security is registered at the close of business on the record date for the
interest payment.
Unless we inform you otherwise in the prospectus supplement, we will
designate the trustee under each indenture as our paying agent for payments on
debt securities we issue under that indenture. We may at any time designate
additional paying agents or rescind the designation of any paying agent or
approve a change in the office through which any paying agent acts.
Subject to the requirements of any applicable abandoned property laws, the
trustee and paying agent will repay to us on our written request any funds they
hold for payments on the debt securities that remain unclaimed for two years
after the date upon which that payment has become due. After repayment to us,
holders entitled to those funds must look only to us for payment.
BOOK-ENTRY DEBT SECURITIES
We may issue the debt securities of a series in the form of one or more
global debt securities that would be deposited with a depositary or its nominee
identified in the prospectus supplement. We may issue global debt securities in
either temporary or permanent form. We will describe in the prospectus
supplement the terms of any depositary arrangement and the rights and
limitations of owners of beneficial interests in any global debt security.
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DESCRIPTION OF CAPITAL STOCK
Marathon's authorized capital stock consists of:
- 550,000,000 shares of common stock; and
- 26,000,000 shares of preferred stock, issuable in series.
Each authorized share of common stock has a par value of $1.00. The authorized
shares of preferred stock have no par value. As of January 31, 2002, 309,424,276
shares of common stock were issued and outstanding. As of January 31, 2002, no
shares of Marathon's preferred stock were issued and outstanding.
In the discussion that follows, we have summarized provisions of Marathon's
restated certificate of incorporation and by-laws relating to its capital stock,
as well as provisions of the rights agreement between Marathon and National City
Bank, as rights agent. You should read the provisions of the restated
certificate of incorporation, by-laws and rights agreement as currently in
effect for more details regarding the provisions described below and for other
provisions that may be important to you. We have filed copies of those documents
with the SEC, and they are incorporated by reference as exhibits to the
registration statement. See "Where You Can Find More Information."
COMMON STOCK
Each share of common stock has one vote in the election of each director
and on all other matters voted on generally by the stockholders. No share of
common stock affords any cumulative voting rights. This means that the holders
of a majority of the voting power of the shares voting for the election of
directors can elect all directors to be elected if they choose to do so.
Marathon's board of directors may grant holders of preferred stock, in the
resolutions creating the series of preferred stock, the right to vote on the
election of directors or any questions affecting Marathon.
Holders of common stock will be entitled to dividends in such amounts and
at such times as Marathon's board of directors in its discretion may declare out
of funds legally available for the payment of dividends. Dividends on the common
stock will be paid at the discretion of Marathon's board of directors after
taking into account various factors, including:
- our financial condition and performance;
- our cash needs and capital investment plans;
- our obligations to holders of any preferred stock we may issue;
- income tax consequences; and
- the restrictions Delaware and other applicable laws and our credit
arrangements then impose.
In addition, the terms of the loan agreements, indentures and other agreements
we enter into from time to time may restrict the payment of cash dividends.
If Marathon liquidates or dissolves its business, the holders of common
stock will share ratably in all assets available for distribution to
stockholders after Marathon's creditors are paid in full and the holders of all
series of Marathon's outstanding preferred stock, if any, receive their
liquidation preferences in full.
The common stock has no preemptive rights and is not convertible or
redeemable or entitled to the benefits of any sinking or repurchase fund. All
issued and outstanding shares of common stock are fully paid and nonassessable.
Any shares of common stock Marathon may offer and sell under this prospectus
will also be fully paid and nonassessable.
Marathon's outstanding shares of the common stock are listed on the New
York Stock Exchange, the Pacific Stock Exchange and the Chicago Stock Exchange
and trade under the symbol "MRO." Any additional shares of common stock Marathon
may offer and sell under this prospectus will also be listed on those stock
exchanges.
The transfer agent and registrar for the common stock is National City
Bank.
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PREFERRED STOCK
At the direction of its board of directors, without any action by the
holders of its common stock, Marathon may issue one or more series of preferred
stock from time to time. Marathon's board of directors can determine the number
of shares of each series of preferred stock and the designation, powers,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions applicable to any of those
rights, including dividend rights, voting rights, conversion or exchange rights,
terms of redemption and liquidation preferences, of each series.
The prospectus supplement relating to any series of preferred stock
Marathon offers will include specific terms relating to the offering. These
terms will include some or all of the following:
- the series designation of the preferred stock;
- the maximum number of shares of the series;
- the dividend rate or the method of calculating the dividend, the date
from which dividends will accrue and whether dividends will be
cumulative;
- any liquidation preference;
- any optional redemption provisions;
- any sinking fund or other provisions that would obligate us to redeem or
repurchase the preferred stock;
- any terms for the conversion or exchange of the preferred stock for any
other securities;
- any voting rights; and
- any other preferences and relative, participating, optional or other
special rights or any qualifications, limitations or restrictions on the
rights of the shares.
Any preferred stock Marathon offers and sells under this prospectus will be
fully paid and nonassessable.
The registration statement will include the certificate of designation as
an exhibit or will incorporate the certificate of designation by reference. You
should read that document for provisions that may be important to you.
The existence of undesignated preferred stock may enable Marathon's board
of directors to render more difficult or to discourage an attempt to obtain
control of Marathon by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of its management. The issuance
of shares of preferred stock may adversely affect the rights of the holders of
common stock. For example, any preferred stock issued may rank prior to the
common stock as to dividend rights, liquidation preference or both, may have
full or limited voting rights and may be convertible into shares of common
stock. As a result, the issuance of shares of preferred stock may discourage
bids for common stock or may otherwise adversely affect the market price of the
common stock or any existing preferred stock.
THE RIGHTS AGREEMENT
Marathon has entered into a rights agreement with National City Bank, as
rights agent, providing for the issuance of preferred stock purchase rights to
holders of common stock. Under the plan, each share of common stock currently
includes one right to purchase from Marathon one one-hundredth of a share of its
Series A junior preferred stock at an exercise price of $110.00 per unit,
subject to adjustment. We have summarized selected provisions of the rights
agreement below. You should read the rights agreement for more details regarding
the provisions described below and for other provisions that may be important to
you. We have filed a copy of the rights agreement with the SEC, and it is
incorporated by reference as an exhibit to the registration statement. See
"Where You Can Find More Information."
28
Under the rights agreement, each right will become exercisable, subject to
some exceptions the rights agreement specifies, after any person or group of
affiliated or associated persons has become an "acquiring person" by acquiring,
obtaining the right to acquire or making a tender or an exchange offer for 15%
or more of the outstanding voting power represented by Marathon's outstanding
common stock, except pursuant to a qualifying all-cash tender offer for all
outstanding common stock which results in the offeror's owning common stock
representing a majority of the voting power (other than common stock
beneficially owned by the offeror immediately prior to the offer) (a "qualifying
offer").
If the rights become exercisable, each right will entitle the holder, other
than the acquiring person or group, to purchase one one-hundredth of a share of
Marathon's series A junior preferred stock by paying the exercise price.
Following the acquisition by any person or group of affiliated or associated
persons of 15% or more of the outstanding voting power represented by Marathon's
outstanding common stock (other than pursuant to a qualifying offer), each
holder other than the acquiring person or group may purchase shares of Marathon
common stock (or, in some circumstances, cash, property or other securities of
Marathon) having a market value of twice the exercise price. After a person or
group of affiliated or associated persons has acquired 15% or more of the
outstanding voting power, if Marathon engages in a merger or other business
combination where it is not the surviving corporation or where it is the
surviving corporation and its common stock is changed or exchanged, or if 50% or
more of its assets, earnings power or cash flow is sold or transferred, each
right will entitle the holder to purchase common stock of the acquiring entity
having a market value of twice the exercise price.
Marathon's board of directors may, at any time until ten days after the
public announcement that a person or group of affiliated or associated persons
has become an acquiring person, cause Marathon to redeem the rights in whole,
but not in part, at a redemption price of $.01 per right, subject to adjustment
for any stock split, stock dividend or similar transaction occurring before the
date of redemption. At its option, Marathon may pay that redemption price in
cash, shares of its common stock or any other consideration its board of
directors selects. After a person becomes an acquiring person, the right of
redemption is subject to some limitations. The agreement does not, however,
prevent a stockholder from conducting a proxy contest to remove and replace
members of Marathon's board with directors who then vote to redeem the rights,
if those actions are taken prior to the time that the stockholder becomes an
acquiring person. The rights will not be exercisable after a person or group of
affiliated or associated persons has become an acquiring person until the rights
are no longer redeemable. If Marathon's board of directors timely orders the
redemption of the rights, the rights will terminate on the effectiveness of that
action.
The number of outstanding rights associated with a share of common stock,
the number of fractional shares of series A junior preferred stock issuable on
exercise of a right and the exercise price of the rights are subject to
adjustment in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the common stock. The exercise price of the rights and the
number of fractional shares of series A junior preferred stock or other
securities or property issuable on exercise of the rights also are subject to
adjustment from time to time to prevent dilution in the event of some
transactions affecting the series A junior preferred stock.
Under some circumstances, Marathon's board of directors has the option to
exchange one share of common stock for each exercisable right, subject to
adjustment for any stock split, stock dividend or similar transaction occurring
before the date of exchange.
The rights will expire on October 9, 2009, unless Marathon's board of
directors determines to extend that expiration date or to redeem or exchange the
rights on some earlier date.
Until a right is exercised, the holder thereof, as such, will have no
rights to vote or receive dividends or any other rights as a stockholder.
The rights have anti-takeover effects. They will cause severe dilution to
any person or group that attempts to acquire Marathon without the approval of
its board of directors. As a result, the overall effect of the rights may be to
render more difficult or discourage any attempt to acquire Marathon, even if the
29
acquisition may be favorable to the interests of its stockholders. Because
Marathon's board of directors can redeem the rights or approve a permitted
offer, the rights should not interfere with a merger or other business
combination that Marathon's board of directors approves.
LIMITATION ON DIRECTORS' LIABILITY
Delaware law authorizes Delaware corporations to limit or eliminate the
personal liability of their directors to them and their stockholders for
monetary damages for breach of a director's fiduciary duty of care. The duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations Delaware law authorizes,
directors of Delaware corporations are accountable to those corporations and
their stockholders for monetary damages for conduct constituting gross
negligence in the exercise of their duty of care. Delaware law enables Delaware
corporations to limit available relief to equitable remedies such as injunction
or rescission. Marathon's restated certificate of incorporation limits the
liability of the members of its board of directors by providing that no director
will be personally liable to Marathon or its stockholders for monetary damages
for any breach of the director's fiduciary duty as a director, except for
liability:
- for any breach of the director's duty of loyalty to Marathon or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; and
- for any transaction from which the director derived an improper personal
benefit.
This provision could have the effect of reducing the likelihood of
derivative litigation against Marathon's directors and may discourage or deter
Marathon's stockholders or management from bringing a lawsuit against Marathon's
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited Marathon and its stockholders.
Marathon's by-laws provide indemnification to its officers and directors and
other specified persons with respect to their conduct in various capacities.
STATUTORY BUSINESS COMBINATION PROVISION
As a Delaware corporation, Marathon is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder," which is defined generally as a person owning 15% or
more of a Delaware corporation's outstanding voting stock or any affiliate or
associate of that person, from engaging in a broad range of "business
combinations" with the corporation for three years following the date that
person became an interested stockholder unless:
- before that person became an interested stockholder, the board of
directors of the corporation approved the transaction in which that
person became an interested stockholder or approved the business
combination;
- on completion of the transaction that resulted in that person's becoming
an interested stockholder, that person owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, other than stock held by (1) directors who are also officers
of the corporation or (2) any employee stock plan that does not provide
employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
- following the transaction in which that person became an interested
stockholder, both the board of directors of the corporation and the
holders of at least two-thirds of the outstanding voting stock of the
corporation not owned by that person approve the business combination.
30
Under Section 203, the restrictions described above also do not apply to
specific business combinations proposed by an interested stockholder following
the announcement or notification of designated extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if a
majority of the directors who were directors prior to any person's becoming an
interested stockholder during the previous three years, or were recommended for
election or elected to succeed those directors by a majority of those directors,
approve or do not oppose that extraordinary transaction.
OTHER MATTERS
Some of the provisions of Marathon's restated certificate of incorporation
and by-laws discussed below may have the effect, either alone or in combination
with the provisions of Marathon's restated certificate of incorporation that we
have discussed above, the Marathon rights agreement and Section 203 of the
Delaware General Corporation Law, of making more difficult or discouraging a
tender offer, proxy contest, merger or other takeover attempt that Marathon's
board of directors opposes but that a stockholder might consider to be in its
best interest.
Marathon's restated certificate of incorporation provides that its
stockholders may act only at an annual or special meeting of stockholders and
may not act by written consent. Marathon's by-laws provide that only its board
of directors may call a special meeting of its stockholders.
Marathon's restated certificate of incorporation provides for a classified
board of directors. Marathon's board of directors is divided into three classes,
with the directors of each class as nearly equal in number as possible. At each
annual meeting of Marathon's stockholders, the term of a different class of
Marathon's directors will expire. As a result, the stockholders will elect
approximately one-third of Marathon's board of directors each year. Board
classification could prevent a party who acquires control of a majority of
Marathon's outstanding voting stock from obtaining control of its board of
directors until the second annual stockholders' meeting following the date that
party obtains that control.
Marathon's restated certificate of incorporation provides that the number
of directors will be fixed from time to time by, or in the manner provided in,
its by-laws, but will not be less than three. It also provides that directors
may be removed only for cause. This provision, along with provisions authorizing
the board of directors to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
Marathon's by-laws contain advance-notice and other procedural requirements
that apply to stockholder nominations of persons for election to the board of
directors at any annual meeting of stockholders and to stockholder proposals
that stockholders take any other action at any annual meeting. A stockholder
proposing to nominate a person for election to the board of directors or
proposing that any other action be taken at an annual meeting of stockholders
must give Marathon's corporate secretary written notice of the proposal not less
than 45 days and not more than 75 days before the first anniversary of the date
on which Marathon first mailed its proxy materials for the immediately preceding
year's annual meeting of stockholders. These stockholder proposal deadlines are
subject to exceptions if the pending annual meeting date is more than 30 days
prior to or more than 30 days after the first anniversary of the immediately
preceding year's annual meeting. Marathon's by-laws prescribe specific
information that any such stockholder notice must contain. These advance-notice
provisions may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of those nominees or
proposals might be harmful or beneficial to Marathon and its stockholders.
Marathon's restated certificate of incorporation provides that its
stockholders may adopt, amend and repeal its by-laws at any regular or special
meeting of stockholders by an affirmative vote of at least two-thirds of the
shares outstanding and entitled to vote on that action, provided the notice of
intention to adopt, amend or repeal the by-laws has been included in the notice
of that meeting.
31
DESCRIPTION OF WARRANTS
Marathon may issue warrants to purchase debt securities, common stock,
preferred stock or other securities. Marathon may issue warrants independently
or together with other securities. Warrants issued with other securities may be
attached to or separate from those other securities. If Marathon issues
warrants, it will do so under one or more warrant agreements between Marathon
and a warrant agent that we will name in the prospectus supplement.
If Marathon offers any warrants, we will file the forms of warrant
certificate and warrant agreement with the SEC, and you should read those
documents for provisions that may be important to you.
The prospectus supplement relating to any warrants being offered will
include specific terms relating to the offering. These terms will include some
or all of the following:
- the title of the warrants;
- the aggregate number of warrants offered;
- the designation, number and terms of the debt securities, common stock,
preferred stock or other securities purchasable on exercise of the
warrants, and procedures that may result in the adjustment of those
numbers;
- the exercise price of the warrants;
- the dates or periods during which the warrants are exercisable;
- the designation and terms of any securities with which the warrants are
issued;
- if the warrants are issued as a unit with another security, the date on
and after which the warrants and the other security will be separately
transferable;
- if the exercise price is not payable in U.S. dollars, the foreign
currency, currency unit or composite currency in which the exercise price
is denominated;
- any minimum or maximum amount of warrants that may be exercised at any
one time;
- any terms, procedures and limitations relating to the transferability,
exchange or exercise of the warrants; and
- any other terms of the warrants.
Warrant certificates will be exchangeable for new warrant certificates of
different denominations at the office indicated in the prospectus supplement.
Prior to the exercise of their warrants, holders of warrants will not have any
of the rights of holders of the securities subject to the warrants.
MODIFICATIONS
Marathon may amend the warrant agreements and the warrants without the
consent of the holders of the warrants to cure any ambiguity, to cure, correct
or supplement any defective or inconsistent provision, or in any other manner
that will not materially and adversely affect the interests of holders of
outstanding warrants.
Marathon may also modify or amend various other terms of the warrant
agreements and the warrants with the consent of the holders of not less than a
majority in number of the then outstanding unexercised warrants affected.
Without the consent of the holders affected, however, no modification or
amendment may:
- shorten the period of time during which the warrants may be exercised; or
- otherwise materially and adversely affect the exercise rights of the
holders of the warrants.
32
ENFORCEABILITY OF RIGHTS
The warrant agent will act solely as Marathon's agent and will not assume
any agency or trust obligation or relationship for or with any holder or
beneficial owner of warrants. The warrant agent will not have any duty or
responsibility if Marathon defaults under the warrant agreements or the warrant
certificates. A warrant holder may, without the consent of the warrant agent,
enforce by appropriate legal action on its own behalf the holder's right to
exercise the holder's warrants.
33
PLAN OF DISTRIBUTION
We may sell the offered securities in and outside the United States (1)
through underwriters or dealers, (2) directly to purchasers or (3) through
agents. The prospectus supplement will set forth the following information:
- the terms of the offering;
- the names of any underwriters or agents;
- the name or names of any managing underwriter or underwriters;
- the purchase price of the securities from us;
- the net proceeds we will receive from the sale of the securities;
- the place and time of delivery of the securities;
- any delayed delivery arrangements;
- any underwriting discounts, commissions and other items constituting
underwriters' compensation;
- any initial public offering price;
- any discounts or concessions allowed or reallowed or paid to dealers; and
- any commissions paid to agents.
SALE THROUGH UNDERWRITERS OR DEALERS
If we use underwriters in the sale of the offered securities, the
underwriters will acquire the securities for their own account. The underwriters
may resell the securities 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. Underwriters may offer securities
to the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more firms acting as underwriters.
Unless we inform you otherwise in the prospectus supplement, the obligations of
the underwriters to purchase the securities will be subject to several
conditions, and the underwriters will be obligated to purchase all the offered
securities if they purchase any of them. The underwriters may change from time
to time any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers.
If we use underwriters in the sale of the offered securities, rules of the
SEC may limit the ability of the underwriters and certain selling group members
to bid for and purchase our securities until the distribution of the offered
securities is completed. As an exception to these rules, the underwriters are
permitted to engage in certain transactions that stabilize, maintain or
otherwise affect the price of the offered securities.
In connection with an underwritten offering, the underwriters may make
short sales of the offered securities and may purchase our securities on the
open market to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of securities than they are
required to purchase in the offering. "Covered" short sales are made in an
amount not greater than the over-allotment option we may grant to the
underwriters in connection with the offering. The underwriters may close out any
covered short position by either exercising the over-allotment option or
purchasing our securities in the open market. In determining the source of
securities to close out the covered short position, the underwriters will
consider, among other things, the price of securities available for purchase in
the open market as compared to the price at which they may purchase securities
through the over-allotment option. "Naked" short sales are sales in excess of
the over-allotment option. The underwriters must close out any naked short
position by purchasing our securities in the open market. A naked short position
is more likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the
34
securities in the open market after pricing that could adversely affect
investors who purchase in the offering.
The underwriters may also impose a penalty bid on certain selling group
members. This means that if the underwriters purchase our securities in the open
market to reduce the selling group members' short position or to stabilize the
price of the securities, they may reclaim the amount of the selling concession
from the selling group members who sold those securities as part of the
offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of those purchases or those purchases could prevent
or retard a decline in the price of the security. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither we nor the underwriters will make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the offered securities. In addition, neither we
nor the underwriters will make any representation that the underwriters will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
If we use dealers in the sale of securities, we will sell the securities to
them as principals. They may then resell those securities to the public at
varying prices determined by the dealers at the time of resale. We will include
in the prospectus supplement the names of the dealers and the terms of the
transaction.
DIRECT SALES AND SALES THROUGH AGENTS
We may sell the securities directly. In that event, no underwriters or
agents would be involved. We may also sell the securities through agents we
designate from time to time. In the prospectus supplement, we will name any
agent involved in the offer or sale of the offered securities, and we will
describe any commissions payable by us to the agent. Unless we inform you
otherwise in the prospectus supplement, any agent will agree to use its
reasonable best efforts to solicit purchases for the period of its appointment.
We may sell the securities directly to institutional investors or others
who may be deemed to be underwriters within the meaning of the Securities Act of
1933 with respect to any sale of those securities. We will describe the terms of
any such sales in the prospectus supplement.
DELAYED DELIVERY CONTRACTS
If we so indicate in the prospectus supplement, we may authorize agents,
underwriters or dealers to solicit offers from various types of institutions to
purchase securities from us at the public offering price under delayed delivery
contracts. These contracts would provide for payment and delivery on a specified
date in the future. The contracts would be subject only to those conditions the
prospectus supplement describes. The prospectus supplement will describe the
commission payable for solicitation of those contracts.
GENERAL INFORMATION
We may have agreements with the agents, dealers and underwriters to
indemnify them against civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute with respect to payments that the
agents, dealers or underwriters may be required to make. Agents, dealers and
underwriters may be customers of, engage in transactions with or perform
services for us in the ordinary course of their businesses.
35
LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, our outside counsel, will issue an
opinion about the legality of any securities we offer through this prospectus.
Any underwriters will be advised about issues relating to any offering by their
own legal counsel.
EXPERTS
The consolidated financial statements of USX Corporation and the financial
statements of the Marathon Group and the U.S. Steel Group incorporated in this
prospectus by reference to the annual report on Form 10-K/A of USX Corporation
for the year ended December 31, 2000 have been so incorporated in reliance on
the reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Marathon files annual, quarterly and current reports, proxy statements and
other information with the SEC. You can read and copy any materials filed by
Marathon, including materials it filed under its former name, USX Corporation,
with the SEC at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain information about the operation of the
SEC's public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a Web site that contains information Marathon files electronically
with the SEC, which you can access over the Internet at http://www.sec.gov. You
can also obtain information about Marathon at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
This prospectus is part of a registration statement Marathon has filed with
the SEC relating to the securities. This prospectus does not contain all the
information the registration statement sets forth or includes in its exhibits
and schedules, in accordance with the rules and regulations of the SEC, and we
refer you to that omitted information. The statements this prospectus makes
pertaining to the content of any contract, agreement or other document that is
an exhibit to the registration statement necessarily are summaries of their
material provisions, and we qualify them in their entirety by reference to those
exhibits for complete statements of their provisions. The registration statement
and its exhibits and schedules are available at the SEC's public reference room
or through its Web site.
The SEC allows us to "incorporate by reference" the information Marathon
files with it, which means we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
an important part of this prospectus, and later information that Marathon files
with the SEC will automatically update and supersede that information. We
incorporate by reference the documents listed below, and any future filings
Marathon makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until all the offered securities are sold:
- our annual report on Form 10-K for the year ended December 31, 2000, as
amended by Forms 10-K/A filed on September 14, 2001 and October 11, 2001;
- our quarterly reports on Form 10-Q for the quarters ended March 31, June
30, and September 30, 2001;
- our current reports on Form 8-K dated February 27, 2001, April 24, 2001
(filed on April 25, 2001), June 15, 2001, July 2, 2001, July 31, 2001,
August 1, 2001, August 2, 2001, August 6, 2001, October 12, 2001, October
22, 2001 (as amended by a Form 8-K/A filed on October 22, 2001), October
25, 2001, November 2, 2001, November 5, 2001, November 7, 2001, November
28, 2001, December 4, 2001, December 9, 2001, December 10, 2001, December
13, 2001, December 17, 2001 and December 31, 2001 (as amended by a Form
8-K/A filed on January 15, 2002);
36
- the description of the common stock included in our Form 8 amendment to
the registration statement on Form 8-B filed with the SEC on April 11,
1991; and
- the description of the rights to purchase preferred stock included in our
registration statement on Form 8-A filed with the SEC on September 28,
1999, as amended.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus has been delivered, upon written or
oral request, a copy of any or all the documents we incorporate by reference in
this prospectus, other than any exhibit to any of those documents, unless we
have specifically incorporated that exhibit by reference into the information
this prospectus incorporates. You may request copies by writing or telephoning
Marathon at the following address:
Marathon Oil Corporation
5555 San Felipe Road
Houston, Texas 77056-2723
Attention: Corporate Secretary
Telephone: (713) 629-6600
YOU SHOULD RELY ONLY ON THE INFORMATION WE HAVE PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT OR PRICING SUPPLEMENT.
WE HAVE NOT AUTHORIZED ANY PERSON (INCLUDING ANY SALESMAN OR BROKER) TO PROVIDE
INFORMATION OTHER THAN THAT WHICH THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT
OR PRICING SUPPLEMENT PROVIDES. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT
THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE ON ITS COVER PAGE OR THAT ANY INFORMATION IN ANY
DOCUMENT WE HAVE INCORPORATED BY REFERENCE IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE OF THE DOCUMENT INCORPORATED BY REFERENCE. ACCORDINGLY, WE URGE YOU TO
REVIEW EACH DOCUMENT WE SUBSEQUENTLY FILE WITH THE SEC AND INCORPORATE BY
REFERENCE AS DESCRIBED ABOVE FOR UPDATED INFORMATION.
37
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$1,000,000,000
MARATHON OIL CORPORATION
MARATHON LOGO
$450,000,000 6.125% NOTES DUE 2012
$550,000,000 6.800% NOTES DUE 2032
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PROSPECTUS SUPPLEMENT
February 27, 2002
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Joint Book-Running Managers
BANC OF AMERICA SECURITIES LLC
SALOMON SMITH BARNEY
------------------
JPMORGAN
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MORGAN STANLEY
------------------
COMMERZBANK SECURITIES
MIZUHO INTERNATIONAL PLC
SCOTIA CAPITAL
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