As
filed with the Securities and Exchange Commission on August 29,
2008
Registration
No. 333-
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
_____________________
FORM
F-3
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
_____________________
Capital
Product Partners L.P.
(as
specified in its charter)
_____________________
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Republic
of The Marshall Islands
(State
or other jurisdiction of incorporation or organization)
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4412
(Primary
Standard Industrial
Classification
of Code Number)
3
Iassonos Street
Piraeus,
18537 Greece
Telephone: +30
210 458 4950
(Address
and telephone number of
registrant’s
principal executive offices)
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Not
Applicable
(I.R.S.
Employer
Identification
Number)
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_____________________
CT
Corporation System
111
Eighth Avenue, 13th Floor
New
York, NY 10011
Telephone:
212 894 8400
(Name,
address and telephone
number
of agent for service)
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With
copies to:
Gregory
M. Shaw, Esq.
Cravath,
Swaine & Moore LLP
CityPoint
One
Ropemaker Street
London
EC2Y 9HR
United
Kingdom
+44 207 453 1000 (telephone
number)
+44 207 860 1150 (facsimile
number)
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_____________________
Approximate date of commencement of
proposed sale to the public: From time to time after the
effective date of this registration statement.
If only securities being registered on
this Form are being offered pursuant to dividend or interest reinvestment plans,
please check the following box. o
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following
box. x
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If this Form is a registration
statement pursuant to General Instruction I.C. or a post-effective amendment
thereto that shall become effective upon filing with the Commission pursuant to
Rule 462(e) under the Securities Act, check the following
box. ¨
If this Form is a post-effective
amendment to a registration statement filed pursuant to General Instruction I.C.
filed to register additional securities or additional classes of securities
pursuant to Rule 413(b) under the Securities Act, check the following
box. o
_____________________
CALCULATION
OF REGISTRATION FEE
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Title
of each class of
securities
to be registered
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Amount
to be registered
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Proposed
maximum aggregate price per unit
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Proposed
maximum aggregate offering price
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Amount
of registration fee
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Primary
Offering:
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Common
units representing limited partnership interests
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(1)
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(1)
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$300,000,000(1)(2)
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$11,790
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Secondary
Offering:
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Subordinated
units of the selling unitholder
representing limited partnership interests
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8,805,522
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$15.29(3)
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$134,636,431(2)
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$5,291
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Common
units of the selling unitholder representing limited partnership
interests
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11,304,651(4)
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$15.29(3)
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$38,211,682(2)(4)
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$1,502
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(1) An
indeterminate principal amount or number of our units may be issued in primary
offerings from time to time at indeterminate prices, with an aggregate offering
price not to exceed $300,000,000.
(2)
Estimated solely for the purposes of calculating the registration fee pursuant
to Rule 457(o) of the securities Act.
(3)
Estimated based on the high and low prices of the common units on August 25,
2008, as reported on the Nasdaq Global Market, solely for the purpose of
calculating the registration fee pursuant to Rule 457(i) of the Securities
Act.
(4)
Includes the resale of 8,805,522 common units issuable upon conversion of the
subordinated units registered hereby. No separate consideration will be received
for the common units issuable upon conversion of the subordinated units and,
therefore, pursuant to Rule 457(i) of the Securities Act, no registration fee is
required.
_____________________
PROSPECTUS
$300,000,000
Capital
Product Partners L.P.
_________________________
Common
Units
Representing
Limited Partner Interests
_________________________
11,304,651
Common Units
8,805,522
Subordinated Units
Representing
Limited Partner Interests
Offered
by the Selling Unitholder
_________________________
This prospectus relates
to:
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common
units of an aggregate principal amount of up to $300.0 million
representing limited partner interests in Capital Product Partners L.P.;
and
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up
to 11,304,651 common units (including 8,805,522 common units issuable upon
conversion of subordinated units into common units) and 8,805,522
subordinated units, each representing limited partner interests in Capital
Product Partners L.P., offered by the selling
unitholder.
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We may offer these common units, and
the selling unitholder may offer its subordinated units and common units,
directly or to or through underwriters, dealers or other agents. The
names of any underwriters or dealers will be set forth in the applicable
prospectus supplement. We will not receive any proceeds from the sale of
subordinated units or common units by the selling unitholder.
Our common units trade on the Nasdaq
Global Market under the symbol “CPLP”.
This prospectus provides you with a
general description of the common units and the subordinated units. Each time we
offer to sell common units or the selling unitholder offers to sell common units
or subordinated units, we will provide a prospectus supplement that will contain
specific information about those securities and the terms of that
offering. The prospectus supplement may also add, update or change
information contained in this prospectus. This prospectus may be used
to offer and sell securities only if accompanied by a prospectus
supplement. You should read this prospectus and any prospectus
supplement carefully before you invest. You should also read the
documents we refer to in the “Where You Can Find More Information” section of
this prospectus for information about us and our financial
statements.
Limited partnerships are inherently
different than corporations. You should carefully consider each of
the factors described under “Risk Factors” beginning on page 6 of this
prospectus before you make an investment in our units.
_________________________
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 August 29,
2008
ABOUT
THIS PROSPECTUS
This prospectus is part of a
registration statement on Form F-3 that we have filed with the U.S. Securities
and Exchange Commission (the “SEC”) using a “shelf” registration
process. Under this shelf registration process, we may sell, in one
or more offerings, up to $300.0 million in total aggregate offering price of the
common units, and the selling unitholder may sell up to 11,304,651 common units
(including 8,805,522 common units issuable upon conversion of subordinated
units) and 8,805,522 subordinated units, each as described in this
prospectus. This prospectus generally describes us and the securities
we and the selling unitholder may offer. Each time we or the selling
unitholder offers securities with this prospectus, we will provide this
prospectus and a prospectus supplement that will describe, among other things,
the specific amounts and prices of the securities being offered and the terms of
the offering, including, the specific terms of the securities. The
prospectus supplement may also add to, update or change information in this
prospectus. If there is any inconsistency between the information in
this prospectus and any prospectus supplement, you should rely on the
information in the prospectus supplement.
Unless otherwise indicated, references
in this prospectus to “Capital Product Partners”, “we”, “us” and “our” and
similar terms refer to Capital Product Partners L.P. and/or one or more of its
subsidiaries. Unless otherwise indicated, all references in this prospectus to
“dollars” and “$” are to, and amounts are presented in, U.S. Dollars, and
financial information presented in this prospectus is prepared in accordance
with accounting principles generally accepted in the United States or
“GAAP”. References to our “Annual Report” are to our Annual Report on
Form 20-F for the year ended December 31, 2007 incorporated by reference
herein.
You should read carefully this
prospectus, any prospectus supplement, and the additional information described
below under the heading “Where You Can Find More Information”. You should rely
only on the information contained in this prospectus. We have not authorized
anyone to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We
are not making an offer to sell these securities in any jurisdiction where an
offer or sale is not permitted. You should assume that the information appearing
in this prospectus is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
We are a limited partnership
incorporated as Capital Product Partners L.P. under the laws of the Marshall
Islands on January 16, 2007, by Capital Maritime & Trading Corp.
(“Capital Maritime”), an international shipping company with a long history of
operating and investing in the shipping market. Our fleet currently consists of
18 double-hull, high specification tankers including the largest Ice Class 1A MR
product tanker fleet in the world based on number of vessels and carrying
capacity. We maintain our principal executive headquarters at 3 Iassonos Street,
Piraeus, 18537 Greece and our telephone number is +30 210 4584 950.
On April 3, 2007, we completed our
initial public offering (the “IPO”) on the Nasdaq Global Market of 13,512,500
common units at a price of $21.50 per unit. At the time of the IPO, Capital
Maritime transferred all of the shares of eight wholly owned subsidiaries, each
of which owned a newly built, double-hull medium range (“MR”) product tanker, to
us and we entered into a fixed fee agreement with Capital Ship Management Corp.,
a subsidiary of Capital Maritime (“Capital Ship Management”), to provide
management and technical services in connection with these and future vessels.
Since the IPO we have taken delivery of seven newbuildings and have also
acquired three additional vessels from Capital Maritime, greatly increasing the
size of our fleet in terms of both number of vessels and carrying capacity. We
intend to continue to make strategic acquisitions and to take advantage of our
relationship with Capital Maritime in a prudent manner that is accretive to our
unitholders and to long-term distribution growth. Capital Maritime has granted
us a right of first offer for any MR tankers in its fleet under charter for two
or more years, giving us the opportunity to purchase up to an additional six
vessels in the future. As of August 20, 2008, Capital Maritime owned a 46.6%
interest in us, including a 2% interest through its ownership of our general
partner, Capital GP L.L.C.
Our vessels are capable of carrying
crude oil, refined oil products, such as gasoline, diesel, fuel oil and jet
fuel, as well as edible oils and certain chemicals, such as ethanol, and comply
not only with the strict regulatory standards that are currently in place but
also with regulatory standards that are currently expected to be implemented. We
charter our vessels under medium- to long-term time and bareboat charters (two
to 10 years, with an average remaining term of approximately 4.7 years as of
August 20, 2008) to large charterers, such as BP Shipping Limited, Morgan
Stanley Capital Group Inc., Trafigura Beheer B.V., Shell International
Trading & Shipping Company Ltd. and subsidiaries of Overseas Shipholding
Group Inc. All our charters provide for the receipt of a fixed base rate
for the life of the charter, and in the case of 10 of our 12 time charters, also
provide for profit sharing arrangements in excess of the base
rate. Please read “Profit Sharing Arrangements” contained herein for
a detailed description of how profit sharing is calculated.
We have filed with the SEC a
registration statement on Form F-3 regarding the securities covered by this
prospectus. This prospectus does not contain all of the information
found in the registration statement. For further information
regarding us and the securities offered in this prospectus, you may wish to
review the full registration statement, including its exhibits. In
addition, we file annual, quarterly and other reports with and furnish
information to the SEC. You may inspect and copy any document we file
with or furnish to the SEC at the public reference facilities maintained by the
SEC at 100 F Street, NE, Washington, D.C. 20549, at prescribed rates or from the
SEC’s website on the Internet at www.sec.gov free of charge. Please
call the SEC at 1-800-SEC-0330 for further information on public reference
rooms. Our registration statement can also be inspected and copied at
the offices of the Nasdaq Global Market, One Liberty Plaza, New York, New York
10006.
We are subject to the information
requirements of the Securities Exchange Act of 1934, and, in accordance
therewith, are required to file with the SEC annual reports on Form 20-F within
six months of our fiscal year-end, and provide to the SEC other material
information on Form 6-K. These reports and other information may be
inspected and copied at the public reference facilities maintained by the SEC or
obtained from the SEC’s website as provided above.
As a foreign private issuer, we are
exempt under the Securities Exchange Act from, among other things, certain rules
prescribing the furnishing and content of proxy statements, and our directors
and principal unitholders and the executive officers of our general partner are
exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the Exchange Act. In addition, we are not required
under the Exchange Act to file periodic reports and financial statements with
the SEC as frequently or as promptly as U.S. companies whose securities are
registered under the Exchange Act, including the filing of quarterly reports or
current reports on Form 8-K. However, we furnish or make available to our
unitholders annual reports containing our audited consolidated financial
statements prepared in accordance with U.S. GAAP and make available to our
unitholders quarterly reports containing our unaudited interim financial
information for the first three fiscal quarters of each fiscal
year.
We make our periodic reports as well as
other information filed with or furnished to the SEC available, free of charge,
through our website, at www.capitalpplp.com, as soon as reasonably practicable
after those reports and other information are electronically filed with or
furnished to the SEC.
The SEC allows us to “incorporate by
reference” into this prospectus information that we file with the
SEC. This means that we can disclose important information to you
without actually including the specific information in this prospectus by
referring you to other documents filed separately with the SEC. The
information incorporated by reference is an important part of this
prospectus. Information that we later provide to the SEC, and which
is deemed to be “filed” with the SEC, automatically will update information
previously filed with the SEC, and may replace information in this
prospectus.
We incorporate by reference into this
prospectus the documents listed below:
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our
Annual Report on Form 20-F for the fiscal year ended December 31, 2007
(the “Annual Report”);
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our
Current Report on Form 6-K furnished to the SEC on April 30, 2008
containing a press release in which we announced financial results and an
increase in the quarterly distribution to be paid by the Company for the
quarter ended March 31, 2008;
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our
Current Report on Form 6-K furnished to the SEC on April 30, 2008
containing a press release in which we announced the delivery of the M/T
Aristofanis;
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our
Current Report on Form 6-K furnished to the SEC on June 17, 2008
containing a press release in which we announced the delivery of the M/T
Aristotelis II;
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our
Current Report on Form 6-K furnished to the SEC on July 28, 2008
containing a press release in which we announced an increase in the
quarterly distribution for the quarter ended June 30, 2008 to be paid by
the Company;
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our
Current Report on Form 6-K furnished to the SEC on July 31, 2008
containing a press release in which we announced financial results for the
quarter ended June 30, 2008;
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our
Current Report on Form 6-K furnished to the SEC on August 20, 2008
containing a press release in which we announced the delivery of the M/T
Aris II;
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our
Current Report on Form 6-K furnished to the SEC on August 29,
2008 containing our supplemental consolidated and predecessor
combined financial statements for the years ended December 31,
2007, 2006 and 2005, selected financial data and operating and financial
review and prospects; and
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all
subsequent Current Reports on Form 6-K filed prior to the termination of
this offering that we identify in such reports as being incorporated by
reference into the registration statement of which this prospectus is a
part.
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These reports contain important
information about us, our financial condition and our results of
operations.
You may obtain any of the documents
incorporated by reference in this prospectus from the SEC through its public
reference facilities or its website at the addresses provided
above. You also may request a copy of any document incorporated by
reference in this prospectus (excluding exhibits to those documents, unless the
exhibit is specifically incorporated by reference in this document), at no cost
by visiting our Internet website at www.capitalpplp.com, or by writing or
calling us at the following address:
Capital
Product Partners L.P.
3
Iassonos Street Piraeus,
18537
Greece
(+30) 210
458 4950
You should rely only on the information
incorporated by reference or provided in this prospectus or any prospectus
supplement. We have not authorized anyone else to provide you with
any information. You should not assume that the information
incorporated by reference or provided in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of each
document.
This prospectus should be read in
conjunction with the audited consolidated and predecessor combined financial
statements and accompanying notes included in our Annual Report and our audited
supplemental consolidated and predecessor combined financial statements included
in our Current Report on Form 6-K dated August 29, 2008.
Statements included in this prospectus
which are not historical facts (including statements concerning plans and
objectives of management for future operations or economic performance, or
assumptions related thereto) are forward-looking statements. In addition, we and
our representatives may from time to time make other oral or written statements
which are also forward looking statements. Such statements include, in
particular, statements about our plans, strategies, business prospects, changes
and trends in our business, financial condition and the markets in which we
operate, and involve risks and uncertainties. In some cases, you can identify
the forward looking statements by the use of words such as “may”, “could”,
“should”, “would”, “expect”, “plan”, “anticipate”, “intend”, “forecast”,
“believe”, “estimate”, “predict”, “propose”, “potential”, “continue” or the
negative of these terms or other comparable terminology. Forward-looking
statements appear in a number of places and include statements with respect to,
among other things:
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anticipated
future acquisition of vessels from Capital
Maritime;
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our
anticipated growth strategies;
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future
charter hire rates and vessel
values;
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our
ability to make cash distributions on the
units;
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our
future financial condition or results of operations and our future
revenues and expenses, including revenues from profit sharing
arrangements;
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the
repayment of debt and settling of interest rate
swaps;
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our
ability to access debt, credit and equity
markets;
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future
refined product and crude oil prices and
production;
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planned
capital expenditures and availability of capital resources to fund capital
expenditures;
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future
supply of, and demand for, refined products and crude
oil;
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increases
in domestic oil consumption;
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changes
in interest rates;
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our
ability to maintain long-term relationships with major refined product
importers and exporters, major crude oil companies, and major commodity
traders;
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our
ability to leverage to our advantage Capital Maritime’s relationships and
reputation in the shipping
industry;
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our
continued ability to enter into long-term, fixed-rate time charters with
our tanker charterers;
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obtaining
tanker projects that we or Capital Maritime bid
on;
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our
ability to maximize the use of our vessels, including the re-deployment or
disposition of vessels no longer under long-term time
charter;
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timely
purchases and deliveries of newbuilding
vessels;
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our
ability to compete successfully for future chartering and newbuilding
opportunities;
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the
expected cost of, and our ability to comply with, governmental regulations
and maritime self-regulatory organization standards, as well as standard
regulations imposed by our charterers applicable to our
business;
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our
anticipated general and administrative expenses and our expenses under the
management agreement and the administrative services agreement with
Capital Ship Management and for reimbursement for fees and costs of our
general partner;
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the
expected impact of heightened environmental and quality concerns of
insurance underwriters, regulators and
charterers;
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the
anticipated taxation of our partnership and distributions to our
unitholders;
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estimated
future maintenance and replacement capital
expenditures;
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expected
demand in the refined product shipping sector in general and the demand
for our medium range vessels in
particular;
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our
ability to retain key employees;
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customers’
increasing emphasis on environmental and safety
concerns;
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future
sales of our units in the public market;
and
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our
business strategy and other plans and objectives for future
operations.
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These and other forward-looking
statements are made based upon management’s current plans, expectations,
estimates, assumptions and beliefs concerning future events impacting us and
therefore involve a number of risks and uncertainties, including those risks
discussed in “Risk Factors”. The risks, uncertainties and assumptions involve
known and unknown risks and are inherently subject to significant uncertainties
and contingencies, many of which are beyond our control. We caution that
forward-looking statements are not guarantees and that actual results could
differ materially from those expressed or implied in the forward-looking
statements.
We undertake no obligation to update
any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict all of these factors. Further, we cannot assess the
impact of each such factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to be materially different from
those contained in any forward-looking statement. You should carefully review
and consider the various disclosures included in this Annual Report and in our
other filings made with the SEC that attempt to advise interested parties of the
risks and factors that may affect our business, prospects and results of
operations.
Some of the following risks relate
principally to the countries and the industry in which we operate and the nature
of our business in general. Although many of our business risks are comparable
to those that a corporation engaged in a similar business would face, limited
partner interests are inherently different from the capital stock of a
corporation. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impair our business operations. In
particular, if any of the following risks actually occurs, our business,
financial condition or operating results could be materially adversely affected.
In that case, we might not be able to pay distributions on our common units or
subordinated units, the trading price of our common units or subordinated units
could decline and you could lose all or part of your investment.
Risks
Inherent in Our Business
We may not have sufficient cash
from operations to enable us to pay the quarterly distribution on our common
units or subordinated units following the establishment of cash reserves and
payment of fees and expenses.
We may not have sufficient cash
available each quarter to pay the declared quarterly distribution per common
unit or subordinated unit following establishment of cash reserves and payment
of fees and expenses. The amount of cash we can distribute on our common units
or subordinated units principally depends upon the amount of cash we generate
from our operations, which may fluctuate based on numerous factors generally
described under this “Risk Factors” heading, including, among other
things:
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the
rates we obtain from our charters;
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the
level of additional revenues we generate from our profit sharing
arrangements, if any;
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the
level of our operating costs, such as the cost of crews and insurance,
following the expiration of our management agreement pursuant to which we
pay a fixed daily fee for an initial term of approximately five years from
the time we take delivery of each vessel, which includes the expenses for
its next scheduled special or intermediate survey, as applicable, and
related drydocking;
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the
number of unscheduled off-hire days for our fleet and the timing of, and
number of days required for, scheduled drydocking of our
vessels;
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delays
in the delivery of newbuildings and the beginning of payments under
charters relating to those vessels;
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demand
for seaborne transportation of refined oil products and crude
oil;
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supply
of product and crude oil tankers and specifically the number of
newbuildings entering the world tanker fleet each
year;
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prevailing
global and regional economic and political conditions;
and
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the
effect of governmental regulations and maritime self-regulatory
organization standards on the conduct of our
business.
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The actual amount of cash we will have
available for distribution also will depend on other factors, some of which are
beyond our control, such as:
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the
level of capital expenditures we make, including for maintaining vessels,
building new vessels, acquiring existing vessels and complying with
regulations;
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our
debt service requirements and restrictions on distributions contained in
our debt instruments;
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interest
rate fluctuations;
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the
cost of acquisitions, if any;
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fluctuations
in our working capital needs;
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our
ability to make working capital borrowings, including to pay distributions
to unitholders; and
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the
amount of any cash reserves, including reserves for future maintenance and
replacement capital expenditures, working capital and other matters,
established by our board of directors in its
discretion.
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The amount of cash we generate from our
operations may differ materially from our profit or loss for the period, which
will be affected by non-cash items. As a result of this and the other factors
mentioned above, we may make cash distributions during periods when we record
losses and may not make cash distributions during periods when we record net
income.
The
shipping industry is cyclical, which may lead to lower charter hire rates and
lower vessel values, resulting in decreased distributions to our
unitholders.
The shipping industry is cyclical,
which may result in volatility in charter hire rates and vessel values. We may
not be able to successfully charter our vessels in the future or renew existing
charters at the same or similar rates. If we are required to enter into a
charter when charter hire rates are low, our results of operations and our
ability to make cash distributions to our unitholders could be adversely
affected.
In addition, the market value and
charter hire rates of product and crude oil tankers can fluctuate substantially
over time due to a number of different factors, including:
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prevailing
economic conditions in the market in which the vessel
trades;
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regulatory
change;
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lower
levels of demand for the seaborne transportation of refined products and
crude oil;
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increases
in the supply of vessel capacity;
and
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the
cost of retrofitting or modifying existing ships, as a result of
technological advances in vessel design or equipment, changes in
applicable environmental or other regulations or standards, or
otherwise.
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From time to time, we expect to enter
into agreements with Capital Maritime or other unaffiliated third parties to
purchase additional newbuilding vessels (or interests in vessel-owning
companies). Between the time we enter into an agreement for such
purchase and delivery of the vessel, the market value of similar vessels may
decline. In such a case, we would still be required to purchase the
newbuilding vessel at the agreed-upon price.
If we sell a vessel at a time when the
market value of our vessels has fallen, the sale may be at less than the
vessel’s carrying amount, resulting in a loss. A decline in the market value of
our vessels could also lead to a default under any prospective credit facility
to which we become a party, affect our ability to refinance our existing credit
facilities and/or limit our ability to obtain additional financing.
We
have a limited operating history, which makes it more difficult to accurately
forecast our future results and may make it difficult for investors to evaluate
our business and our future prospects, both of which will increase the risk of
your investment.
We were formed as an independent
limited partnership on January 16, 2007. Only five of the vessels in our current
fleet had been delivered to the relevant vessel owning subsidiaries as of
December 31, 2006 and were in operation during a portion of the period then
ended. Moreover, as these vessels were operated as part of Capital Maritime’s
fleet during the reporting period, the vessels were operated in a different
manner than they are currently operated, and thus their historical results may
not be indicative of their future results. Because of our limited operating
history, we lack extended historical financial and operational data, making it
more difficult for an investor to evaluate our business, forecast our future
revenues and other operating results, and assess the merits and risks of an
investment in our common units or subordinated units. This lack of information
will increase the risk of your investment. Moreover, you should consider and
evaluate our prospects in light of the risks and uncertainties frequently
encountered by companies with a limited operating history. These risks and
difficulties include challenges in accurate financial planning as a result of
limited historical data and the uncertainties resulting from having had a
relatively limited time period in which to implement and evaluate our business
strategies as compared to older companies with longer operating histories. Our
failure to address these risks and difficulties successfully could materially
harm our business and operating results.
We
must make substantial capital expenditures to maintain the operating capacity of
our fleet, which will reduce our cash available for distribution. In addition,
each quarter our board of directors is required to deduct estimated maintenance
and replacement capital expenditures from operating surplus, which may result in
less cash available to unitholders than if actual maintenance and replacement
capital expenditures were deducted.
We must make substantial capital
expenditures to maintain, over the long term, the operating capacity of our
fleet. These maintenance and replacement capital expenditures include capital
expenditures associated with drydocking a vessel, modifying an existing vessel
or acquiring a new vessel to the extent these expenditures are incurred to
maintain the operating capacity of our fleet. These expenditures could increase
as a result of changes in:
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the
cost of our labor and materials;
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the
cost and replacement life of suitable replacement
vessels;
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customer/market
requirements;
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increases
in the size of our fleet;
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the
age of the vessels in our fleet;
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charter
rates in the market; and
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governmental
regulations, industry and maritime self-regulatory organization standards
relating to safety, security or the
environment.
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Our significant maintenance and
replacement capital expenditures will reduce the amount of cash we have
available for distribution to our unitholders. Any costs associated with
scheduled drydocking are included in a fixed daily fee of $5,500 per time
chartered vessel ($8,500 for the M/T Amore Mio II), that we pay Capital Ship
Management under a management agreement, for an initial term of approximately
five years from the time we take delivery of each vessel, which includes the
expenses for its next scheduled special or intermediate survey, as applicable,
and related drydocking. In the event our management agreement is not renewed, we
will separately deduct estimated capital expenditures associated with drydocking
from our operating surplus in addition to estimated replacement capital
expenditures.
Our partnership agreement requires our
board of directors to deduct estimated, rather than actual, maintenance and
replacement capital expenditures from operating surplus each quarter in an
effort to reduce fluctuations in operating surplus. The amount of estimated
capital expenditures deducted from operating surplus is subject to review and
change by the conflicts committee at least once a year. In years when estimated
capital expenditures are higher than actual capital expenditures, the amount of
cash available for distribution to unitholders will be lower than if actual
capital expenditures were deducted from operating surplus. If our board of
directors underestimates the appropriate level of estimated maintenance and
replacement capital expenditures, we may have less cash available for
distribution in future periods when actual capital expenditures exceed our
previous estimates.
If
Capital Maritime or any third party seller we may contract with in the future
for the purchase of newbuildings fail to make construction payments for such
vessels, the shipyard may rescind the purchase contract and we may lose access
to such vessels or need to finance such vessels before they begin operating,
which could harm our business and our ability to make cash
distributions.
The seven newbuildings we have acquired
since our IPO in April 2007 have all been contracted directly by Capital
Maritime and all costs for the construction and delivery of such vessels have
been incurred by Capital Maritime. In the future, we may enter into similar
arrangements with Capital Maritime or other third parties for the acquisition of
newbuildings. If Capital Maritime or any third party sellers we contract with in
the future fail to make construction payments for the newbuildings after
receiving notice by the shipbuilder following nonpayment on any installment due
date, the shipbuilder could rescind the newbuilding purchase contract. As a
result of such default, Capital Maritime or the third party seller could lose
all or part of the installment payments made prior to such default, and we could
either lose access to the remaining newbuilding or any future vessels we
contract to acquire or may need to finance such vessels before they begin
operating and generating voyage revenues, which could harm our business and
reduce our ability to make cash distributions.
If
we finance the purchase of any additional vessels we acquire in the future
through cash from operations, by increasing our indebtedness or
by issuing debt or equity securities, our ability to make cash
distributions may be diminished, our financial leverage could increase or our
unitholders could be diluted. In addition, if we expand the size of our fleet by
directly contracting newbuildings in the future, we generally will be required
to make significant installment payments for such acquisitions prior to their
delivery and generation of revenue.
The actual cost of a new product or
crude oil tanker varies significantly depending on the market price charged by
shipyards, the size and specifications of the vessel, governmental regulations
and maritime self-regulatory organization standards. The total delivered cost of
a vessel will be higher and include financing, construction supervision, vessel
start-up and other costs.
To date, all the newbuildings we have
acquired have been contracted directly by Capital Maritime and all costs for the
construction and delivery of these vessels have been incurred by Capital
Maritime. As of August 20, 2008, we had taken delivery of seven newbuildings and
purchased three additional vessels from Capital Maritime. We have financed the
purchase of these vessels either with debt, or partly with debt, cash and partly
by issuing additional equity securities to our sponsor. If we issue
additional common units or other equity securities, your ownership interest in
us will be diluted. Please read “—We may issue additional equity securities
without your approval, which would dilute your ownership interest”
below.
If we elect to expand our fleet in the
future by entering into contracts for newbuildings directly with shipyards, we
generally will be required to make installment payments prior to their delivery.
We typically must pay 5% to 25% of the purchase price of a vessel upon signing
the purchase contract, even though delivery of the completed vessel will not
occur until much later (approximately 18-36 months later for current orders)
which could reduce cash available for distributions to unitholders. If we
finance these acquisition costs by issuing debt or equity securities, we will
increase the aggregate amount of interest payments or quarterly distributions we
must make prior to generating cash from the operation of the
newbuilding.
To fund the acquisition price of any
additional vessels we may contract to purchase from Capital Maritime or other
third parties and other related capital expenditures, we will be required to use
cash from operations or incur borrowings or raise capital through the sale of
debt or additional equity securities. Use of cash from operations will reduce
cash available for distributions to unitholders. Even if we are successful in
obtaining necessary funds, the terms of such financings could limit our ability
to pay cash distributions to unitholders. Incurring additional debt may
significantly increase our interest expense and financial leverage, and issuing
additional equity securities may result in significant unitholder dilution and
would increase the aggregate amount of cash required to meet our quarterly
distributions to unitholders, which could have a material adverse effect on our
ability to make cash distributions.
Our
ability to obtain bank financing and/or to access the capital markets for future
equity offerings may be limited by prevailing economic conditions. If we are
unable to obtain funding or access the capital markets, we may be unable to
complete any future purchases of vessels from Capital Maritime or from third
parties.
Our ability to obtain bank financing or
to access the capital markets for future offerings may be limited by our
financial condition at the time of any such financing or offering, as well as by
adverse market conditions resulting from, among other things, general economic
conditions, weakness in the financial markets and contingencies and
uncertainties that are beyond our control. Our failure to obtain the funds for
necessary future capital expenditures could have a material adverse effect on
our business, results of operations and financial condition and on our ability
to make cash distributions. If the prevailing equity market conditions at the
time of delivery of the vessels are not favorable, we may be unable to complete
the purchases, or we may have to complete them at terms not favorable to us or
to our unitholders.
Our
debt levels may limit our flexibility in obtaining additional financing and in
pursuing other business opportunities.
We entered into a $370.0 million
revolving credit facility on March 22, 2007, which was amended on September 22,
2007 and June 11, 2008 (our “existing credit facility”), and a further $350.0
million revolving credit facility on March 19, 2008 (our “new credit facility”
and together with our “existing credit facility”, our “credit
facilities”). As of August 20, 2008, we had drawn $366.5 million
under our existing credit facility and $107.5 million under our new credit
facility, and had $3.5 and $242.5 million available, respectively. For more
information regarding the terms of our credit facilities, please read
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Borrowings—Revolving Credit
Facilities” in our Current Report on Form 6-K filed August 29, 2008. Our level
of debt could have important consequences to us, including the
following:
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our
ability to obtain additional financing, if necessary, for working capital,
capital expenditures, acquisitions or other purposes may be impaired, or
such financing may not be available on favorable
terms;
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we
will need a substantial portion of our cash flow to make interest payments
and, following the end of the relevant non-amortizing periods, principal
payments on our debt, reducing the funds that would otherwise be available
for operations, future business opportunities and distributions to
unitholders;
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our
debt level will make us more vulnerable to competitive pressures, or to a
downturn in our business or in the economy in general, than our
competitors with less debt; and
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our
debt level may limit our flexibility in responding to changing business
and economic conditions.
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Our ability to service our debt will
depend upon, among other things, our future financial and operating performance,
which will be affected by prevailing economic conditions and financial,
business, regulatory and other factors, some of which are beyond our control. If
our operating results are not sufficient to service our current or future
indebtedness, we will be forced to take actions such as reducing distributions,
reducing or delaying our business activities, acquisitions, investments or
capital expenditures, selling assets, restructuring or refinancing our debt, or
seeking additional equity capital or bankruptcy protection. We may not be able
to effect any of these remedies on satisfactory terms, or at all.
Our
credit facilities contain, and we expect that any future credit facilities we
may enter into will contain, restrictive covenants, which may limit our business
and financing activities.
The operating and financial
restrictions and covenants in our credit facilities and in any future credit
facility we enter into could adversely affect our ability to finance future
operations or capital needs or to engage, expand or pursue our business
activities. For example, our credit facilities require the consent of our
lenders to, or limit our ability to, among other items:
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incur
or guarantee indebtedness;
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charge,
pledge or encumber the vessels;
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change
the flag, class, management or ownership of our
vessels;
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change
the commercial and technical management of our
vessels;
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sell
or change the beneficial ownership or control of our vessels;
and
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subordinate
our obligations thereunder to any general and administrative costs
relating to the vessels, including the fixed daily fee payable under the
management agreement.
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Our credit facilities also require us
to comply with the ISM Code and to maintain valid safety management certificates
and documents of compliance at all times.
In addition, our credit facilities
require us to:
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maintain
minimum free consolidated liquidity (50% of which may be in the form of
undrawn commitments under the relevant credit facility) of at least
$500,000 per financed vessel;
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maintain
a ratio of EBITDA (as defined in each credit facility) to interest expense
of at least 2.00 to 1.00 on a trailing four-quarter basis;
and
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maintain
a ratio of net Total Indebtedness to the aggregate Fair Market Value (as
defined in each credit facility) of our total fleet, current or future, of
no more than 0.725 to 1.00.
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We will also be required to maintain an
aggregate fair market value of our financed vessels equal to 125% of the
aggregate amount outstanding under each credit facility.
Our ability to comply with the
covenants and restrictions contained in our credit facilities and any other debt
instruments we may enter into in the future may be affected by events beyond our
control, including prevailing economic, financial and industry conditions. If
market or other economic conditions deteriorate, our ability to comply with
these covenants may be impaired. If we are in breach of any of the restrictions,
covenants, ratios or tests in our credit facilities, especially if we trigger a
cross-default currently contained in certain of our loan agreements, a
significant portion of our obligations may become immediately due and payable,
and our lenders’ commitment to make further loans to us may terminate. We may
not have, or be able to obtain, sufficient funds to make these accelerated
payments. In addition, obligations under our credit facilities are secured by
our vessels, and if we are unable to repay debt under the credit facilities, the
lenders could seek to foreclose on those assets.
Restrictions
in our debt agreements may prevent us from paying distributions.
Our payment of interest and, following
the end of the relevant non-amortizing periods, principal on the debt will
reduce cash available for distribution on our units. In addition, our credit
facilities prohibit the payment of distributions if we are not in compliance
with certain financial covenants or upon the occurrence of an event
of default or if the fair market value of our financed vessels is less than 125%
of the aggregate amount outstanding under each of our credit
facilities.
Events of default under our credit
facilities include:
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failure
to pay principal or interest when
due;
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breach
of certain undertakings, negative covenants and financial covenants
contained in the credit facility, any related security document or
guarantee or the interest rate swap agreements, including failure to
maintain unencumbered title to any of the vessel owning subsidiaries or
any of the assets of the vessel owning subsidiaries and failure to
maintain proper insurance;
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any
breach of the credit facility, any related security document or guarantee
or the interest rate swap agreements (other than breaches described in the
preceding two bullet points) if, in the opinion of the lenders, such
default is capable of remedy and continues unremedied for 20 days after
written notice of the lenders;
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any
representation, warranty or statement made by us in the credit facility or
any drawdown notice thereunder or related security document or guarantee
or the interest rate swap agreements is untrue or misleading when
made;
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a
cross default of our other indebtedness of $5.0 million or greater or of
the indebtedness of our subsidiaries of $750,000 or
greater;
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we
become, in the reasonable opinion of the lenders, unable to pay our debts
when due;
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any
of our or our subsidiaries’ assets are subject to any form of execution,
attachment, arrest, sequestration or distress in respect of a sum of $1.0
million or more that is not discharged within 10 business
days;
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an
event of insolvency or bankruptcy;
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cessation
or suspension of our business or of a material part
thereof;
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unlawfulness,
non-effectiveness or repudiation of any material provision of our credit
facility, of any of the related finance and guarantee documents or of our
interest rate swap agreements;
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failure
of effectiveness of security documents or
guarantee;
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the
common units cease to be listed on the Nasdaq Global Market or on any
other recognized securities
exchange;
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any
breach under any provisions contained in our interest rate swap
agreements;
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termination
of our interest rate swap agreements or an event of default thereunder
that is not remedied within five business
days;
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invalidity
of a security document in any material respect or if any security document
ceases to provide a perfected first priority security interest;
or
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any
other event that occurs or circumstance that arises in light of which the
lenders reasonably consider that there is a significant risk that we will
be unable to discharge our liabilities under the credit facility, related
security and guarantee documents or interest rate swap
agreements.
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We anticipate that any subsequent
refinancing of our current debt or any new debt could have similar or more
onerous restrictions. For more information regarding our financing arrangements,
please read our Current Report on Form 6-K filed August 29, 2008.
We
currently derive all of our revenues from a limited number of customers, and the
loss of any customer or charter or vessel could result in a significant loss of
revenues and cash flow.
We have derived, and believe that we
will continue to derive, all of our revenues and cash flow from a limited number
of customers. For the year ended December 31, 2007, BP Shipping Limited and
Morgan Stanley Capital Group Inc. accounted for 58% and 24% of our
revenues, respectively. For the year ended December 31, 2006, they accounted for
42% and 18% of the revenues of our predecessor, respectively, and
Canterbury Tankers Inc., the charterer for the M/T Attikos, and Shell
International Trading & Shipping Company Ltd., the charterer for the M/T
Aristofanis, each represented 20% of the revenues of our predecessor. In
January, June and August 2008 we took delivery of three newbuildings chartered
to subsidiaries of Overseas Shipholding Group Inc. In April 2008, we took
delivery of the M/T Aristofanis, which is chartered to Shell International
Trading & Shipping Company Ltd., increasing the number of our customers for
2008 to five. We could lose a customer or the benefits of a charter
if:
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the
customer fails to make charter payments because of its financial
inability, disagreements with us or
otherwise;
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the
customer exercises certain rights to terminate the charter or purchase the
vessel;
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the
customer terminates the charter because we fail to deliver the vessel
within a fixed period of time, the vessel is lost or damaged beyond
repair, there are serious deficiencies in the vessel or prolonged periods
of off-hire, or we default under the charter;
or
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a
prolonged force majeure event affecting the customer, including damage to
or destruction of relevant production facilities, war or political unrest
prevents us from performing services for that
customer.
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Please
read “Item 4: Business Overview—Our Charters” in our Annual Report.
If we lose a key charter, we may be
unable to re-deploy the related vessel on terms as favorable to us due to the
long-term nature of most charters. If we are unable to re-deploy a vessel for
which the charter has been terminated, we will not receive any revenues from
that vessel, but we may be required to pay expenses necessary to maintain the
vessel in proper operating condition. Until such time as the vessel is
re-chartered, we may have to operate it in the spot market at charter rates
which may not be as favorable to us as our current charter rates. In addition,
if a customer exercises its right to purchase a vessel, we would not receive any
further revenue from the vessel and may be unable to obtain a substitute vessel
and charter. This may cause us to receive decreased revenue and cash flows from
having fewer vessels operating in our fleet. Any replacement newbuilding would
not generate revenues during its construction, and we may be unable to charter
any replacement vessel on terms as favorable to us as those of the terminated
charter. Any compensation under our charters for a purchase of the vessels may
not adequately compensate us for the loss of the vessel and related time
charter.
The loss of any of our customers, time
or bareboat charters or vessels, or a decline in payments under our charters,
could have a material adverse effect on our business, results of operations and
financial condition and our ability to make cash distributions.
Delays
in deliveries of newbuildings, our decision to cancel or our inability to
otherwise complete the acquisitions of any newbuildings we may decide to acquire
in the future, could harm our operating results and lead to the termination of
any related charters.
Any newbuildings we may contract to
acquire or order in the future could be delayed, not completed or canceled,
which would delay or eliminate our expected receipt of revenues under any
charters for the vessels. The shipbuilder could fail to deliver the newbuilding
vessel or any other vessels we acquire or order as agreed, or Capital Maritime,
or relevant third party, could cancel a purchase or a newbuilding contract
because the shipbuilder has not met its obligations, including its obligation to
maintain agreed refund guarantees in place for our benefit. For prolonged
delays, the customer may terminate the time charter.
Our receipt of newbuildings could be
delayed, canceled, or otherwise not completed because of:
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quality
or engineering problems;
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changes
in governmental regulations or maritime self-regulatory organization
standards;
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work
stoppages or other labor disturbances at the
shipyard;
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bankruptcy
or other financial crisis of the
shipbuilder;
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a
backlog of orders at the shipyard;
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political
or economic disturbances in the country or region where the vessel is
being built;
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weather
interference or catastrophic event, such as a major earthquake or
fire;
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the
shipbuilder failing to deliver the vessel in accordance with our vessel
specifications;
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our
requests for changes to the original vessel
specifications;
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shortages
of or delays in the receipt of necessary construction materials, such as
steel;
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our
inability to finance the purchase of the
vessel;
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a
deterioration in Capital Maritime’s relations with the relevant
shipbuilder; or
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our
inability to obtain requisite permits or
approvals.
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If delivery of a vessel is materially
delayed, it could adversely affect our results of operations and financial
condition and our ability to make cash distributions.
We
depend on Capital Maritime and its affiliates to assist us in operating and
expanding our business.
Pursuant to a management agreement and
an administrative services agreement between us and Capital Ship Management,
Capital Ship Management provides significant commercial and technical management
services (including the commercial and technical management of our vessels,
class certifications, vessel maintenance and crewing, purchasing and insurance
and shipyard supervision) as well as administrative, financial and other support
services to us. Please read “Item 7B: Related Party Transactions—Management
Agreement” and “—Administrative Services Agreement” in our Annual Report. Our
operational success and ability to execute our growth strategy will depend
significantly upon Capital Ship Management’s satisfactory performance of these
services. Our business will be harmed if Capital Ship Management fails to
perform these services satisfactorily, if Capital Ship Management cancels either
of these agreements, or if Capital Ship Management stops providing these
services to us. We may also in the future contract with Capital Maritime for it
to have newbuildings constructed on our behalf and to incur the
construction-related financing. We would purchase the vessels on or after
delivery based on an agreed-upon price.
Our ability to enter into new charters
and expand our customer relationships will depend largely on our ability to
leverage our relationship with Capital Maritime and its reputation and
relationships in the shipping industry. If Capital Maritime suffers material
damage to its reputation or relationships, it may harm our ability
to:
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renew
existing charters upon their
expiration;
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obtain
new charters;
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successfully
interact with shipyards during periods of shipyard construction
constraints;
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obtain
financing on commercially acceptable terms;
or
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maintain
satisfactory relationships with suppliers and other third
parties.
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If our ability to do any of the things
described above is impaired, it could have a material adverse effect on our
business, results of operations and financial condition and our ability to make
cash distributions.
Our
growth depends on continued growth in demand for refined products and crude oil
and the continued demand for seaborne transportation of refined products and
crude oil.
Our growth strategy focuses on
expansion in the refined product tanker and crude oil shipping sector.
Accordingly, our growth depends on continued growth in world and regional demand
for refined products and crude oil and the transportation of refined products
and crude oil by sea, which could be negatively affected by a number of factors,
including:
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fluctuations
in the actual or projected price of refined products and crude
oil;
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refining
capacity and its geographical
location;
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increases
in the production of oil in areas linked by pipelines to consuming areas,
the extension of existing, or the development of new, pipeline systems in
markets we may serve, or the conversion of existing non-oil pipelines to
oil pipelines in those markets;
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decreases
in the consumption of oil due to increases in its price relative to other
energy sources, other factors making consumption of oil less attractive or
energy conservation measures;
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availability
of new, alternative energy sources;
and
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negative
or deteriorating global or regional economic or political conditions,
particularly in oil consuming regions, which could reduce energy
consumption or its growth.
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Reduced demand for refined products and
crude oil and the shipping of refined products or crude oil or the increased
availability of pipelines used to transport refined products or crude oil, would
have a material adverse effect on our future growth and could harm our business,
results of operations and financial condition.
Our
growth depends on our ability to expand relationships with existing customers
and obtain new customers, for which we will face substantial
competition.
Medium- to long-term time charters and
bareboat charters have the potential to provide income at pre-determined rates
over more extended periods of time. However, the process for obtaining longer
term time charters and bareboat charters is highly competitive and generally
involves a lengthy, intensive and continuous screening and vetting process and
the submission of competitive bids that often extends for several months. In
addition to the quality, age and suitability of the vessel, longer term shipping
contracts tend to be awarded based upon a variety of other factors relating to
the vessel operator further described below under “Our vessels’ present and
future employment could be adversely affected by an inability to clear the oil
majors’ risk assessment process”.
In addition to having to meet the
stringent requirements set out by charterers, it is likely that we will also
face substantial competition from a number of competitors who may have greater
financial resources, stronger reputation or experience than we do when we try to
recharter our vessels. It is also likely that we will face increased numbers of
competitors entering into our transportation sectors, including in the ice class
sector. Increased competition may cause greater price competition, especially
for medium- to long-term charters.
As a result of these factors, we may be
unable to expand our relationships with existing customers or obtain new
customers for medium- to long-term time charters or bareboat charters on a
profitable basis, if at all. However, even if we are successful in employing our
vessels under longer term time charters or bareboat charters, our vessels will
not be available for trading in the spot market during an upturn in the tanker
market cycle, when spot trading may be more profitable. If we cannot
successfully employ our vessels in profitable time charters our results of
operations and operating cash flow could be adversely affected.
Our
vessels’ present and future employment could be adversely affected by an
inability to clear the oil majors’ risk assessment process.
Shipping, and especially crude oil,
refined product and chemical tankers have been, and will remain, heavily
regulated. The so called “oil majors” companies, together with a number of
commodities traders, represent a significant percentage of the production,
trading and shipping logistics (terminals) of crude oil and refined products
worldwide. Concerns for the environment have led the oil majors to develop and
implement a strict ongoing due diligence process when selecting their commercial
partners. This vetting process has evolved into a sophisticated and
comprehensive risk assessment of both the vessel operator and the vessel,
including physical ship inspections, completion of vessel inspection
questionnaires performed by accredited inspectors and the production of
comprehensive risk assessment reports. In the case of term charter
relationships, additional factors are considered when awarding such contracts,
including:
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office
assessments of the vessel operator, including extensive annual office
audits;
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the
operator’s environmental, health and safety
record;
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compliance
with the standards of the International Maritime Organization (IMO), a
United Nations agency that issues international trade standards for
shipping;
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compliance
with heightened industry standards that have been set by some energy
companies;
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shipping
industry relationships, reputation for customer service, technical and
operating expertise;
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shipping
experience and quality of ship operations, including
cost-effectiveness;
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quality,
experience and technical capability of
crews;
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the
ability to finance vessels at competitive rates and overall financial
stability;
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relationships
with shipyards and the ability to obtain suitable
berths;
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construction
management experience, including the ability to procure on-time delivery
of new vessels according to customer
specifications;
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willingness
to accept operational risks pursuant to the charter, such as allowing
termination of the charter for force majeure events;
and
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competitiveness
of the bid in terms of overall
price.
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Should Capital Maritime and Capital
Ship Management not continue to successfully clear the oil majors’ risk
assessment processes on an ongoing basis, our vessels’ present and future
employment as well as our relationship with our existing charterers and our
ability to obtain new charterers, whether medium- or long-term, could be
adversely affected. Such a situation may lead to the oil majors’ terminating
existing charters and refusing to use our vessels in the future which would
adversely affect our results of operations and cash flows. Please read “Item 4:
Information on the Partnership—Major Oil Company Vetting Process” in our Annual
Report for more information regarding this process.
We
may be unable to make or realize expected benefits from acquisitions, and
implementing our growth strategy through acquisitions may harm our business,
financial condition and operating results.
Our growth strategy focuses on a
gradual expansion of our fleet. Any acquisition of a vessel may not be
profitable to us at or after the time we acquire it and may not generate cash
flow sufficient to justify our investment. In addition, our growth strategy
exposes us to risks that may harm our business, financial condition and
operating results, including risks that we, or Capital Ship Management, our
manager, may:
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fail
to realize anticipated benefits, such as new customer relationships,
cost-savings or cash flow
enhancements;
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be
unable to hire, train or retain qualified shore and seafaring personnel to
manage and operate our growing business and
fleet;
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decrease
our liquidity by using a significant portion of our available cash or
borrowing capacity to finance
acquisitions;
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significantly
increase our interest expense or financial leverage if we incur additional
debt to finance acquisitions;
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incur
or assume unanticipated liabilities, losses or costs associated with the
business or vessels acquired; or
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incur
other significant charges, such as impairment of goodwill or other
intangible assets, asset devaluation or restructuring
charges.
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Unlike newbuildings, existing vessels
typically do not carry warranties as to their condition. While we generally
inspect existing vessels prior to purchase, such an inspection would normally
not provide us with as much knowledge of a vessel’s condition as we would
possess if it had been built for us and operated by us during its life. Repairs
and maintenance costs for existing vessels are difficult to predict and may be
substantially higher than for vessels we have operated since they were built.
These costs could decrease our cash flow and reduce our liquidity.
The
vessels that currently make up our fleet, as well as the six vessels we may
purchase from Capital Maritime under our omnibus agreement, have been, or will
be, built in accordance with custom designs from three different shipyards, and
the vessels from each respective shipyard are the same in all material respects.
As a result, any latent defect discovered in one vessel will likely affect all
of our vessels.
The vessels that make up our existing
and contracted fleet, with the exception of the M/T Amore Mio II, as well as the
six vessels in Capital Maritime’s fleet for which we have been granted a right
of first offer, are, or will be, based on standard designs from Hyundai MIPO
Dockyard Co., Ltd., South Korea, STX Shipbuilding Co., Ltd., South Korea and
Baima Shipyard, China, and have been customized by Capital Maritime, in some
cases in consultation with the charterers of the vessel, and are, or will be,
uniform in all material respects. As a result, any latent design defect
discovered in one of our vessels will likely affect all of our other vessels in
that class. In addition, the remaining vessels we have agreed to acquire have,
or will have, the same or similar equipment. As a result, any equipment defect
discovered may affect all of our vessels. Any disruptions in the operation of
our vessels resulting from defects could adversely affect our receipt of
revenues under the charters for the vessels affected.
Certain
design features in our vessels have been modified by Capital Maritime to enhance
the commercial capability of our vessels and have not yet been tested. As a
result, we may encounter unforeseen expenses, complications, delays and other
unknown factors which could adversely affect our revenues.
Capital Maritime has modified certain
design features in our vessels which have not yet been tested and as a result,
they may not operate as intended. If these modifications fail to enhance the
commercial capability of our vessels as intended or interfere with the operation
of our vessels, we could face expensive and time-consuming design modifications,
delays in the operation of our vessels, damaged customer relationships and harm
to our reputation. Any disruptions in the operation of our vessels resulting
from the design modifications could adversely affect our receipt of revenues
under the charters for the vessels affected.
Terrorist
attacks, increased hostilities or war could lead to further economic
instability, increased costs and disruption of our business.
Terrorist attacks, such as the attacks
that occurred in the United States on September 11, 2001, the bombings in Spain
on March 11, 2004, the bombings in London on July 7, 2005, the current conflicts
in Iraq and Afghanistan and other current and future conflicts may adversely
affect our business, operating results, financial condition, ability to raise
capital and future growth. Continuing hostilities in the Middle East may lead to
additional armed conflicts or to further acts of terrorism and civil disturbance
in the United States or elsewhere, which may contribute further to economic
instability and disruption of oil production and distribution, which could
result in reduced demand for our services.
In addition, oil facilities, shipyards,
vessels, pipelines and oil and gas fields could be targets of future terrorist
attacks. Any such attacks could lead to, among other things, bodily injury or
loss of life, vessel or other property damage, increased vessel operational
costs, including insurance costs, and the inability to transport oil and other
refined products to or from certain locations. Terrorist attacks, war or other
events beyond our control that adversely affect the distribution, production or
transportation of oil and other refined products to be shipped by us could
entitle our customers to terminate our charter contracts, which would harm our
cash flow and our business.
Our
operations expose us to political and governmental instability, which could harm
our business.
Our operations may be adversely
affected by changing or adverse political and governmental conditions in the
countries where our vessels are flagged or registered and in the regions where
we otherwise engage in business. Any disruption caused by these factors may
interfere with the operation of our vessels, which could harm our business,
financial condition and results of operations. In particular, we derive a
substantial portion of our revenues from shipping oil and oil products from
politically unstable regions. Past political efforts to disrupt shipping in
these regions, particularly in the Arabian Gulf, have included attacks on ships
and mining of waterways. In addition to acts of terrorism, trading in this and
other regions has also been subject, in limited instances, to piracy. Our
operations may also be adversely affected by expropriation of vessels, taxes,
regulation, tariffs, trade embargoes, economic sanctions or a disruption of or
limit to trading activities, or other adverse events or circumstances in or
affecting the countries and regions where we operate or where we may operate in
the future.
Marine
transportation is inherently risky, and an incident involving significant loss
of, or environmental contamination by, any of our vessels could harm our
reputation and business.
Our vessels and their cargoes are at
risk of being damaged or lost because of events such as:
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marine
disasters;
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bad
weather;
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mechanical
failures;
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grounding,
fire, explosions and collisions;
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piracy;
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human
error; and
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war
and terrorism.
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An accident involving any of our
vessels could result in any of the following:
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environmental
damage, including potential liabilities or costs to recover any spilled
oil or other petroleum products and to restore the eco-system where the
spill occurred;
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death
or injury to persons, loss of
property;
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delays
in the delivery of cargo;
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loss
of revenues from or termination of charter
contracts;
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governmental
fines, penalties or restrictions on conducting
business;
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higher
insurance rates; and
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damage
to our reputation and customer relationships
generally.
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Any of these results could have a
material adverse effect on our business, financial condition and operating
results.
Our
insurance may be insufficient to cover losses that may occur to our property or
result from our operations.
The operation of ocean-going vessels in
international trade is inherently risky. Although we carry protection and
indemnity insurance, all risks may not be adequately insured against, and any
particular claim may not be paid. We do not currently maintain off-hire
insurance, which would cover the loss of revenue during extended vessel off-hire
periods, such as those that occur during an unscheduled drydocking due to damage
to the vessel from accidents. Accordingly, any extended vessel off-hire, due to
an accident or otherwise, could have a material adverse effect on our business
and our ability to pay distributions to our unitholders. Any claims covered by
insurance would be subject to deductibles, and since it is possible that a large
number of claims may be brought, the aggregate amount of these deductibles could
be material. Certain of our insurance coverage is maintained through mutual
protection and indemnity associations, and as a member of such associations we
may be required to make additional payments over and above budgeted premiums if
member claims exceed association reserves.
We may be unable to procure adequate
insurance coverage at commercially reasonable rates in the future. For example,
more stringent environmental regulations have led in the past to increased costs
for, and in the future may result in the lack of availability of, insurance
against risks of environmental damage or pollution. A catastrophic oil spill or
marine disaster could exceed our insurance coverage, which could harm our
business, financial condition and operating results. In addition, certain of our
vessels are under bareboat charters with BP Shipping Limited and subsidiaries of
Overseas Shipholding Group Inc. Under the terms of these charters, the charterer
provides for the insurance of the vessel and as a result these vessels may not
be adequately insured and/or in some cases may be self-insured. Any uninsured or
underinsured loss could harm our business and financial condition. In addition,
our insurance may be voidable by the insurers as a result of certain of our
actions, such as our ships failing to maintain certification with applicable
maritime self-regulatory organizations.
Changes in the insurance markets
attributable to terrorist attacks may also make certain types of insurance more
difficult for us to obtain. In addition, the insurance that may be available to
us may be significantly more expensive than our existing coverage.
The
maritime transportation industry is subject to substantial environmental and
other regulations, which may significantly limit our operations or increase our
expenses.
Our operations are affected by
extensive and changing international, national and local environmental
protection laws, regulations, treaties, conventions and standards in force in
international waters, the jurisdictional waters of the countries in which our
vessels operate, as well as the countries of our vessels’ registration. Many of
these requirements are designed to reduce the risk of oil spills, air emissions
and other pollution, and to reduce potential negative environmental effects
associated with the maritime industry in general. Our compliance with these
requirements can be costly.
These requirements can affect the
resale value or useful lives of our vessels, require a reduction in cargo
capacity, ship modifications or operational changes or restrictions, lead to
decreased availability of insurance coverage for environmental matters or result
in the denial of access to certain jurisdictional waters or ports, or detention
in certain ports. Under local, national and foreign laws, as well as
international treaties and conventions, we could incur material liabilities,
including cleanup obligations, in the event that there is a release of petroleum
or other hazardous substances from our vessels or otherwise in connection with
our operations. We could also become subject to personal injury or property
damage claims relating to the release of or exposure to hazardous materials
associated with our current or historic operations. Violations of or liabilities
under environmental requirements also can result in substantial penalties, fines
and other sanctions, including, in certain instances, seizure or detention of
our vessels.
We could incur significant costs,
including cleanup costs, fines, penalties, third-party claims and natural
resource damages, as the result of an oil spill or other liabilities under
environmental laws. The United States Oil Pollution Act of 1990 (OPA 90) affects
all vessel owners shipping oil or petroleum products to, from or within the
United States. OPA 90 allows for potentially unlimited liability without regard
to fault of owners, operators and bareboat charterers of vessels for oil
pollution in U.S. waters. Similarly, the International Convention on Civil
Liability for Oil Pollution Damage, 1969, as amended, which has been adopted by
most countries outside of the U.S., imposes liability for oil pollution in
international waters. OPA 90 expressly permits individual states to impose their
own liability regimes with regard to hazardous materials and oil pollution
incidents occurring within their boundaries. Coastal states in the U.S. have
enacted pollution prevention liability and response laws, many providing for
unlimited liability.
In addition to complying with OPA 90,
relevant U.S. Coast Guard regulations, IMO regulations, such as Annex IV and
Annex VI to the International Convention for the Prevention of Pollution from
Ships (MARPOL), EU directives and other existing laws and regulations and those
that may be adopted, shipowners may incur significant additional costs in
meeting new maintenance and inspection requirements, in developing contingency
arrangements for potential spills and in obtaining insurance coverage.
Government regulation of vessels, particularly in the areas of safety and
environmental requirements, can be expected to become stricter in the future and
require us to incur significant capital expenditure on our vessels to keep them
in compliance, or even to scrap or sell certain vessels altogether.
For example, draft amendments to revise
the regulations of MARPOL regarding the prevention of air pollution from ships
were agreed by the IMO Sub-Committee on Bulk Liquids and Gases (BLG) when it met
for its 12th session. Following lengthy and technically challenging discussions
in the Air Pollution Working Group, the Sub-Committee agreed a draft revised
Annex VI to the MARPOL Convention and amendments to the NOx Technical Code.
These proposed amendments were approved by the Marine Environment Protection
Committee (MEPC) at its 57th session from March 31 to April 4, 2008. The
amendments will be considered for formal adoption at MEPC 58 in October 2008. If
approved, the amendments would then enter into force, under the tacit acceptance
procedure, 16 months later, in March 2010, or on a date to be decided by the
MEPC. Given the significant environmental, human health, and economic
consequences of a decision on how best to further reduce emissions of sulphur
oxide (SOx), nitrogen oxide (NOx) and particulate matter (PM) from ships, the
Sub-Committee decided that relevant policy decisions should be taken at the
Committee level and that its principal duty was to initiate such
discussions.
Further legislation, or amendments to
existing legislation, applicable to international and national maritime trade is
expected over the coming years in areas such as ship recycling, sewage systems,
emission control (including emissions of greenhouse gases), ballast treatment
and handling, etc. Currently, legislation and regulations that would require
more stringent controls of air emissions from ocean-going vessels are pending at
the federal and state level in the U.S. Such legislation or regulations may
require additional capital expenditures or operating expenses (such as increased
costs for low-sulfur fuel) in order for us to maintain our vessels’ compliance
with international and/or national regulations.
In addition, various jurisdictions are
considering regulating the management of ballast water to prevent the
introduction of non-indigenous species considered to be invasive. For example,
the IMO has adopted the International Convention for the Control and Management
of Ships' Ballast Water and Sediments (the BWM Convention), which calls for a
phased introduction of mandatory ballast water exchange requirements, to be
replaced in time with mandatory concentration limits. The BWM
Convention will enter into force 12 months after it has been adopted by 30
states, the combined merchant fleets of which represent not less than 35% of the
gross tonnage of the world's merchant shipping tonnage. To date, 13 states,
representing about 3.62% of the world’s merchant shipping tonnage, have ratified
the BWM Convention. In the United States, ballast water management legislation
has been enacted in several states, and federal legislation is currently pending
in the U.S. Congress. The U.S. Environmental Protection Agency has
also proposed a rule which would require commercial vessels to obtain a Clean
Water Act permit regulating the discharge of ballast water and other discharges
to U.S. waters. Significant expenditures for the installation of
additional equipment or new systems on board our vessels may be required in
order to comply with new regulations regarding ballast water management which
may come into effect.
Other requirements may also come into
force regarding the protection of endangered species which could lead to changes
in the routes our vessels follow or in trading patterns generally and thus to
additional capital expenditures. Furthermore, new environmental
regulations are expected to come into effect following the agreement and
execution of a G8 environmental agreement.
Additionally, as a result of marine
accidents (such as the November 2002 oil spill from the motor tanker Prestige, a
26-year-old single-hull tanker and the December 2007 oil spill from the motor
tanker Hebei Spirit in South Korea further to a collision (both vessels were
owned by companies unrelated to us), we believe that regulation of the shipping
industry will continue to become more stringent and more expensive for us and
our competitors. In recent years, the IMO and EU have both accelerated their
existing non-double-hull phase-out schedules in response to highly publicized
oil spills and other shipping incidents involving companies unrelated to us.
Future incidents may result in the adoption of even stricter laws and
regulations, which could limit our operations or our ability to do business and
which could have a material adverse effect on our business and financial
results.
Please read “Item 4: Business
Overview—Regulation” in our Annual Report and “Environmental and Other
Regulations” below for a more detailed discussion of the regulations applicable
to our vessels.
We
have a limited history operating as a publicly traded entity.
We completed our IPO on the Nasdaq
Global Market on April 3, 2007 and have a limited history operating as a
publicly traded entity. As a publicly traded limited partnership, we are
required to comply with the SEC’s reporting requirements and with corporate
governance and related requirements of the U.S. Sarbanes-Oxley Act, the SEC and
the Nasdaq Global Market, on which our common units are listed. Section 404 of
the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness
of our internal control over financial reporting. As a newly public
non−accelerated filer, we are subject to this requirement at the end of our
fiscal year ending December 31, 2008. If we have a material weakness in our
internal control over financial reporting, we may not detect errors on a timely
basis and our financial statements may be materially misstated. We will have to
dedicate a significant amount of time and resources to ensure compliance with
the regulatory requirements of Section 404. We will continue to work with our
legal, accounting and financial advisors to identify any areas in which changes
should be made to our financial and management control systems to manage our
growth and our obligations as a public company. However, these and other
measures we may take may not be sufficient to allow us to satisfy our
obligations as a public company on a timely and reliable basis. We have incurred
and will continue to incur significant legal, accounting and other expenses in
complying with these and other applicable regulations. We anticipate that our
incremental general and administrative expenses as a publicly traded limited
partnership taxed as a corporation for U.S. federal income tax purposes will
include costs associated with annual reports to unitholders, tax returns,
investor relations, registrar and transfer agent’s fees, incremental director
and officer liability insurance costs and director compensation.
The
crew employment agreements manning agents enter into on behalf of Capital
Maritime or its affiliates may not prevent labor interruptions and the failure
to renegotiate these agreements successfully in the future may disrupt our
operations and adversely affect our cash flows.
The crew employment agreements that
manning agents enter into on behalf of Capital Maritime or its affiliates may
not prevent labor interruptions and are subject to renegotiation in the future.
Any labor interruptions, including due to a failure to renegotiate employment
agreements with our crew members successfully could disrupt our operations and
could adversely affect our business, financial condition and results of
operations.
A
global economic slowdown could have a material adverse effect on our business,
financial position and results of operations.
Oil has been one of the world’s primary
energy sources for a number of decades. Global economic growth has been strong
in recent years which has had a significant impact on shipping
demand. However, such growth may not be sustained or the global
economy may experience negative growth in the near future. Such an economic
downturn may sharply reduce the demand for oil and refined petroleum products,
and also potentially affect tanker demand. Even though our vessels are chartered
under medium- or long-term charters, a negative change in global economic
conditions will likely have a material adverse effect on our business, financial
position, results of operations and ability to pay dividends, as well as our
future prospects.
Risks
Inherent in an Investment in Us
Capital
Maritime and its affiliates may engage in competition with us.
Pursuant to the omnibus agreement that
we and Capital Maritime have entered into, Capital Maritime and its controlled
affiliates (other than us, our general partner and our subsidiaries) generally
will agree not to acquire, own or operate medium-range tankers under time
charters of two or more years without the consent of our general partner. The
omnibus agreement, however, contains significant exceptions that may allow
Capital Maritime or any of its controlled affiliates to compete with us, which
could harm our business. Please read “Item 7B: Related Party
Transactions—Omnibus Agreement—Noncompetition” in our Annual
Report.
Unitholders
have limited voting rights and our partnership agreement restricts the voting
rights of unitholders owning 5% or more of our common units or subordinated
units.
Holders of common units and
subordinated units have only limited voting rights on matters affecting our
business. We will hold a meeting of the limited partners every year to elect one
or more members of our board of directors and to vote on any other matters that
are properly brought before the meeting. Common unitholders elect only four of
the seven members of our board of directors and holders of subordinated units do
not elect any members of the board. The elected directors will be elected on a
staggered basis and will serve for three-year terms. Our general partner in its
sole discretion has the right to appoint the remaining three directors and to
set the terms for which those directors will serve. The partnership agreement
also contains provisions limiting the ability of unitholders to call meetings or
to acquire information about our operations, as well as other provisions
limiting the unitholders’ ability to influence the manner or direction of
management. Unitholders will have no right to elect our general partner and our
general partner may not be removed except by a vote of the holders of at least
66⅔% of the outstanding units, including any units owned by our general partner
and its affiliates, voting together as a single class and a majority vote of our
board of directors.
Our partnership agreement further
restricts unitholders’ voting rights by providing that if any person or group,
other than our general partner, its affiliates, their transferees and persons
who acquired such units with the prior approval of our board of directors, owns
beneficially 5% or more of any class of units then outstanding, any such units
owned by that person or group in excess of 4.9% may not be voted on any matter
and will not be considered to be outstanding when sending notices of a meeting
of unitholders, calculating required votes, except for purposes of nominating a
person for election to our board, determining the presence of a quorum or for
other similar purposes, unless required by law. The voting rights of any such
unitholders in excess of 4.9% will be redistributed pro rata among the other
unitholders holding less than 4.9% of the voting power of all classes of units
entitled to vote.
Our
general partner and its other affiliates own a controlling interest in us and
have conflicts of interest and limited fiduciary and contractual duties, which
may permit them to favor their own interests to your detriment.
As of August 20, 2008, Capital Maritime
owned a 46.6% interest in us, including a 2% interest through its ownership of
our general partner which effectively controls our day-to-day affairs consistent
with policies and procedures adopted by and subject to the direction of our
board of directors. Although our general partner and its affiliates and our
directors have a fiduciary duty to manage us in a manner beneficial to us and
our unitholders, the officers of our general partner have a fiduciary duty to
manage our general partner in a manner beneficial to Capital Maritime.
Furthermore, all of the officers of our general partner and certain of our
directors are directors or officers of Capital Maritime and its affiliates, and
as such they have fiduciary duties to Capital Maritime that may cause them to
pursue business strategies that disproportionately benefit Capital Maritime or
which otherwise are not in the best interests of us or our unitholders.
Conflicts of interest may arise between Capital Maritime and its affiliates,
including our general partner and its officers, on the one hand, and us and our
unitholders, on the other hand. As a result of these conflicts, our general
partner and its affiliates may favor their own interests over the interests of
our unitholders. Please read “—Our partnership agreement limits the fiduciary
duties of our general partner and our directors to our unitholders and restricts
the remedies available to unitholders for actions taken by our general partner
or our directors” below. These conflicts include, among others, the following
situations:
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neither
our partnership agreement nor any other agreement requires our general
partner or Capital Maritime or its affiliates to pursue a business
strategy that favors us or utilizes our assets, and Capital Maritime’s
officers and directors have a fiduciary duty to make decisions in the best
interests of the unitholders of Capital Maritime, which may be contrary to
our interests;
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the
executive officers of our general partner and three of our directors also
serve as executive officers and/or directors of Capital
Maritime;
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our
general partner and our board of directors are allowed to take into
account the interests of parties other than us, such as Capital Maritime,
in resolving conflicts of interest, which has the effect of limiting their
fiduciary duties to our
unitholders;
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our
general partner and our directors have limited their liabilities and
reduced their fiduciary duties under the laws of the Marshall Islands,
while also restricting the remedies available to our unitholders, and, as
a result of purchasing common units or subordinated units, unitholders are
treated as having agreed to the modified standard of fiduciary duties and
to certain actions that may be taken by our general partner and our
directors, all as set forth in the partnership
agreement;
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our
general partner and our board of directors will be involved in determining
the amount and timing of our asset purchases and sales, capital
expenditures, borrowings, and issuances of additional partnership
securities and reserves, each of which can affect the amount of cash that
is available for distribution to our
unitholders;
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our
general partner may have substantial influence over our board of
directors’ decision to cause us to borrow funds in order to permit the
payment of cash distributions, even if the purpose or effect of the
borrowing is to make a distribution on the subordinated units or to make
incentive distributions or to accelerate the expiration of the
subordination period;
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our
general partner is entitled to reimbursement of all reasonable costs
incurred by it and its affiliates for our
benefit;
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our
partnership agreement does not restrict us from paying our general partner
or its affiliates for any services rendered to us on terms that are fair
and reasonable or entering into additional contractual arrangements with
any of these entities on our behalf;
and
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our
general partner may exercise its right to call and purchase our common
units or subordinated units if it and its affiliates own more than 80% of
our common units or subordinated
units.
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Although a majority of our directors
will over time be elected by common unitholders, our general partner will likely
have substantial influence on decisions made by our board of directors. Please
read “Item 7B: Related Party Transactions” in our Annual
Report.
We
currently do not have any officers and expect to rely solely on officers of our
general partner, who face conflicts in the allocation of their time to our
business.
We do not currently expect our board of
directors to exercise its power to appoint officers of Capital Product Partners
L.P., and as a result, we expect to rely solely on the officers of our general
partner, who are not required to work full-time on our affairs and who also work
for affiliates of our general partner, including Capital Maritime. For example,
our general partner’s Chief Executive Officer and Chief Financial Officer is
also an executive officer of Capital Maritime. The affiliates of our general
partner conduct substantial businesses and activities of their own in which we
have no economic interest. As a result, there could be material competition for
the time and effort of the officers of our general partner who also provide
services to our general partner’s affiliates, which could have a material
adverse effect on our business, results of operations and financial
condition.
Our
partnership agreement limits our general partner’s and our directors’ fiduciary
duties to our unitholders and restricts the remedies available to unitholders
for actions taken by our general partner or our directors.
Our partnership agreement contains
provisions that reduce the standards to which our general partner and directors
would otherwise be held by Marshall Islands law. For example, our
partnership agreement:
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permits
our general partner to make a number of decisions in its individual
capacity, as opposed to in its capacity as our general partner. Where our
partnership agreement permits, our general partner may consider only the
interests and factors that it desires, and in such cases it has no duty or
obligation to give any consideration to any interest of, or factors
affecting us, our affiliates or our unitholders. Decisions made by our
general partner in its individual capacity will be made by its sole owner,
Capital Maritime. Specifically, pursuant to our partnership agreement, our
general partner will be considered to be acting in its individual capacity
if it exercises its call right, pre-emptive rights or registration rights,
consents or withholds consent to any merger or consolidation of the
partnership, appoints any directors or votes for the election of any
director, votes or refrains from voting on amendments to our partnership
agreement that require a vote of the outstanding units, voluntarily
withdraws from the partnership, transfers (to the extent permitted under
our partnership agreement) or refrains from transferring its units,
general partner interest or incentive distribution rights or votes upon
the dissolution of the partnership;
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provides
that our general partner and our directors are entitled to make other
decisions in “good faith” if they reasonably believe that the decision is
in our best interests;
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generally
provides that affiliated transactions and resolutions of conflicts of
interest not approved by the conflicts committee of our board of directors
and not involving a vote of unitholders must be on terms no less favorable
to us than those generally being provided to or available from unrelated
third parties or be “fair and reasonable” to us and that, in determining
whether a transaction or resolution is “fair and reasonable,” our board of
directors may consider the totality of the relationships between the
parties involved, including other transactions that may be particularly
advantageous or beneficial to us;
and
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provides
that neither our general partner and its officers nor our directors will
be liable for monetary damages to us, our limited partners or assignees
for any acts or omissions unless there has been a final and non-appealable
judgment entered by a court of competent jurisdiction determining that our
general partner or directors or its officers or directors or those other
persons engaged in actual fraud or willful
misconduct.
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In order to become a limited partner of
our partnership, a unitholder is required to agree to be bound by the provisions
in the partnership agreement, including the provisions discussed
above.
Fees
and cost reimbursements, which Capital Ship Management will determine for
services provided to us and certain of our subsidiaries, will be substantial,
may fluctuate, and will reduce our cash available for distribution to you. Such
fees and cost reimbursements may change upon the expiration of the management
and administrative agreements currently in place.
We pay a fixed daily fee for an initial
term of approximately five years from the time we take delivery of each vessel
for services provided to us by Capital Ship Management, and we reimburse Capital
Ship Management for all expenses it incurs on our behalf. The fixed daily fee to
be paid to Capital Ship Management includes all costs incurred in providing
certain commercial and technical management services to us, including vessel
maintenance, crewing, purchasing and insurance and also includes the expenses
for each vessel’s next scheduled special or intermediate survey, as applicable,
and related drydocking. In addition to the fixed daily fees payable
under the management agreement, Capital Ship Management is entitled to
reasonable supplementary remuneration for extraordinary fees and costs of any
direct and indirect expenses it incurs in providing these services which may
vary from time to time. In addition, Capital Ship Management provides
us with administrative services, including audit, legal, banking and insurance
services, pursuant to an administrative services agreement with an initial term
of five years from the date of our initial public offering, and we reimburse
Capital Ship Management for all costs and expenses reasonably incurred by it in
connection with the provision of those services. Costs for these services are
not fixed and may fluctuate depending on our requirements.
Going forward, when we acquire new
vessels or when the respective management agreements for our vessels expire, we
will have to enter into new agreements with Capital Ship Management or a third
party for the provision of the above services. It is possible that any such new
agreement may not be on the same or similar terms as our existing agreements,
and that the level of our operating costs may change following any such renewal.
Any increase in the costs and expenses associated with the provision of these
services by our manager in the future, such as the costs of crews for our time
chartered vessels and insurance, will lead to an increase in the fees we will
have to pay to Capital Ship Management under any new agreements we enter into.
The payment of fees to Capital Ship Management and reimbursement of expenses to
Capital Ship Management could adversely affect our ability to pay cash
distributions.
Our
partnership agreement contains provisions that may have the effect of
discouraging a person or group from attempting to remove our current management
or our general partner, and even if public unitholders are dissatisfied, they
will be unable to remove our general partner without Capital Maritime’s consent,
unless Capital Maritime’s ownership share in us is decreased, all of which could
diminish the trading price of our units.
Our partnership agreement contains
provisions that may have the effect of discouraging a person or group from
attempting to remove our current management or our general partner.
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The
unitholders will be unable to remove our general partner without its
consent because our general partner and its affiliates own sufficient
units to be able to prevent its removal. The vote of the holders of at
least 66 2/3% of all outstanding units voting together as a single class
and a majority vote of our board of directors is required to remove the
general partner. As of August 20, 2008 Capital Maritime owned a 46.6%
interest in us, including a 2% interest through its ownership of our
general partner.
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If
our general partner is removed without “cause” during the subordination
period and units held by our general partner and Capital Maritime are not
voted in favor of that removal, all remaining subordinated units will
automatically convert into common units and any existing arrearages on the
common units will be extinguished. A removal of our general partner under
these circumstances would adversely affect the common units by prematurely
eliminating their distribution and liquidation preference over the
subordinated units, which would otherwise have continued until we had met
certain distribution and performance tests. “Cause” is narrowly defined to
mean that a court of competent jurisdiction has entered a final,
non-appealable judgment finding our general partner liable for actual
fraud or willful or wanton misconduct in its capacity as our general
partner. Cause does not include most cases of charges of poor management
of the business, so the removal of our general partner because of the
unitholders’ dissatisfaction with the general partner’s performance in
managing our partnership will most likely result in the termination of the
subordination period.
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Common
unitholders elect only four of the seven members of our board of
directors. Our general partner in its sole discretion has the right to
appoint the remaining three directors. Subordinated unitholders do not
elect any directors.
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Election
of the four directors elected by common unitholders is staggered, meaning
that the members of only one of three classes of our elected directors are
selected each year. In addition, the directors appointed by our general
partner will serve for terms determined by our general
partner.
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Our
partnership agreement contains provisions limiting the ability of
unitholders to call meetings of unitholders, to nominate directors and to
acquire information about our operations as well as other provisions
limiting the unitholders’ ability to influence the manner or direction of
management.
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Unitholders’
voting rights are further restricted by the partnership agreement
provision providing that if any person or group, other than our general
partner, its affiliates, their transferees, and persons who acquired such
units with the prior approval of our board of directors, owns beneficially
5% or more of any class of units then outstanding, any such units owned by
that person or group in excess of 4.9% may not be voted on any matter and
will not be considered to be outstanding when sending notices of a meeting
of unitholders, calculating required votes, except for purposes of
nominating a person for election to our board, determining the presence of
a quorum or for other similar purposes, unless required by law. The voting
rights of any such unitholders in excess of 4.9% will be redistributed pro
rata among the other common unitholders holding less than 4.9% of the
voting power of all classes of units entitled to
vote.
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We
have substantial latitude in issuing equity securities without unitholder
approval.
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The effect of these provisions may be
to diminish the price at which the common units or the subordinated units will
trade.
The
control of our general partner may be transferred to a third party without
unitholder consent.
Our general partner may transfer its
general partner interest to a third party in a merger or in a sale of all or
substantially all of its assets without the consent of the unitholders. In
addition, our partnership agreement does not restrict the ability of the members
of our general partner from transferring their respective membership interests
in our general partner to a third party. Any such change in control of our
general partner may affect the way we and our operations are managed which could
have a material adverse effect on our business, results of operations or
financial condition and our ability to make cash distributions.
Substantial
future sales of our units in the public market could cause the price of our
units to fall.
We have granted registration rights to
Capital Maritime and certain affiliates of Capital Maritime. These unitholders
have the right, subject to some conditions, to require us to file registration
statements covering any of our common, subordinated or other equity securities
owned by them or to include those securities in registration statements that we
may file for ourselves or other unitholders. As of August 20, 2008, Capital
Maritime owned the 2,499,129 common units and 8,805,522 subordinated units
registered herein and certain incentive distribution rights. Following their
registration and sale under the applicable registration statement, the
subordinated units or common units will become freely tradeable. By exercising
their registration rights and selling a large number of common units,
subordinated units or other securities, these unitholders could cause the price
of our common units or subordinated units to decline.
We
may issue additional equity securities without your approval, which would dilute
your ownership interests.
We may, without the approval of our
unitholders, issue an unlimited number of additional units or other equity
securities, including securities to Capital Maritime. In particular, we have
financed a portion of the purchase price of the non-contracted vessel we
acquired from Capital Maritime during the first quarter of 2008 through the
issuance of additional common units to Capital Maritime.
The issuance by us of additional units
or other equity securities of equal or senior rank will have the following
effects:
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our
unitholders’ proportionate ownership interest in us will
decrease;
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the
amount of cash available for distribution on each unit may
decrease;
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because
a lower percentage of total outstanding units will be subordinated units
if we issue additional common units, the risk that a shortfall in the
payment of the quarterly distribution will be borne by our common
unitholders will increase;
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the
relative voting strength of each previously outstanding unit may be
diminished; and
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the
market price of the units may
decline.
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In
establishing cash reserves, our board of directors may reduce the amount of cash
available for distribution to you.
Our partnership agreement requires our
general partner to deduct from operating surplus cash reserves that it
determines are necessary to fund our future operating expenditures. These
reserves will also affect the amount of cash available for distribution to our
unitholders. Our board of directors may establish reserves for distributions on
the subordinated units, but only if those reserves will not prevent us from
distributing the full quarterly distribution, plus any arrearages, on the common
units for the following four quarters. As described above in “—Risks Inherent in
Our Business—We must make substantial capital expenditures to maintain the
operating capacity of our fleet, which will reduce our cash available for
distribution. In addition, each quarter our board of directors is required to
deduct estimated maintenance and replacement capital expenditures from operating
surplus, which may result in less cash available to unitholders than if actual
maintenance and replacement capital expenditures were deducted.” Our partnership
agreement requires our board of directors each quarter to deduct from operating
surplus estimated maintenance and replacement capital expenditures, as opposed
to actual expenditures, which could reduce the amount of available cash for
distribution. The amount of estimated maintenance and replacement capital
expenditures deducted from operating surplus is subject to review and change by
our board of directors at least once a year, provided that any change must be
approved by the conflicts committee of our board of directors.
Our
general partner has a limited call right that may require you to sell your
common units or subordinated units at an undesirable time or price.
If at any time our general partner and
its affiliates own more than 80% of the common units or 80% of the subordinated
units, our general partner will have the right, which it may assign to any of
its affiliates or to us, but not the obligation, to acquire all, but not less
than all, of the common units or subordinated units held by unaffiliated persons
at a price not less than their then-current market price. As a result, you may
be required to sell your common units or subordinated units at an undesirable
time or price and may not receive any return on your investment. You may also
incur a tax liability upon a sale of your units.
As of August 20, 2008, Capital
Maritime, an affiliate of our general partner, owned 15.6% of our common units
and 100% of our subordinated units. At the end of the subordination period,
assuming no further issuances of common units or subordinated units, conversion
of our subordinated units into common units and no sales or transfers of common
units or subordinated units by Capital Maritime, Capital Maritime will own 46.6%
of the common units, including its 2% ownership interest in our general
partner.
You
may not have limited liability if a court finds that unitholder action
constitutes control of our business.
As a limited partner in a partnership
organized under the laws of the Marshall Islands, you could be held liable for
our obligations to the same extent as a general partner if you participate in
the “control” of our business. Our general partner generally has unlimited
liability for the obligations of the partnership, such as its debts and
environmental liabilities, except for those contractual obligations of the
partnership that are expressly made without recourse to our general partner. In
addition, the limitations on the liability of holders of limited partner
interests for the obligations of a limited partnership have not been clearly
established in some jurisdictions in which we do business. Please read “The
Partnership Agreement—Limited Liability” in our Annual Report for a discussion
of the implications of the limitations on liability to a
unitholder.
We
can borrow money to pay distributions, which would reduce the amount of credit
available to operate our business.
Our partnership agreement will allow us
to make working capital borrowings to pay distributions. Accordingly, we can
make distributions on all our units even though cash generated by our operations
may not be sufficient to pay such distributions. Any working capital borrowings
by us to make distributions will reduce the amount of working capital borrowings
we can make for operating our business. For more information, please read
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Borrowings” in our Current Report on
Form 6-K filed August 29, 2008.
Increases
in interest rates may cause the market price of our units to
decline.
An increase in interest rates may cause
a corresponding decline in demand for equity investments in general, and in
particular for yield based equity investments such as our common and
subordinated units. Any such increase in interest rates or reduction in demand
for our units resulting from other relatively more attractive investment
opportunities may cause the trading price of our units to decline.
Unitholders
may have liability to repay distributions.
Under some circumstances, unitholders
may have to repay amounts wrongfully returned or distributed to them. Under the
Marshall Islands Act, we may not make a distribution to you if the distribution
would cause our liabilities to exceed the fair value of our assets. Marshall
Islands law provides that for a period of three years from the date of the
impermissible distribution, limited partners who received the distribution and
who knew at the time of the distribution that it violated Marshall Islands law
will be liable to the limited partnership for the distribution amount. Assignees
who become substituted limited partners are liable for the obligations of the
assignor to make contributions to the partnership that are known to the assignee
at the time it became a limited partner and for unknown obligations if the
liabilities could be determined from the partnership agreement. Liabilities to
partners on account of their partnership interest and liabilities that are
non-recourse to the partnership are not counted for purposes of determining
whether a distribution is permitted.
We
have been organized as a limited partnership under the laws of the Republic of
The Marshall Islands, which does not have a well developed body of partnership
law.
Our partnership affairs are governed by
our partnership agreement and by the Marshall Islands Act. The provisions of the
Marshall Islands Act resemble provisions of the limited partnership laws of a
number of states in the United States, most notably Delaware. The Marshall
Islands Act also provides that it is to be applied and construed to make it
uniform with the Delaware Revised Uniform Partnership Act and, so long as it
does not conflict with the Marshall Islands Act or decisions of the Marshall
Islands courts, interpreted according to the non-statutory law (or case law) of
the State of Delaware. There have been, however, few, if any, court cases in the
Marshall Islands interpreting the Marshall Islands Act, in contrast to Delaware,
which has a fairly well-developed body of case law interpreting its limited
partnership statute. Accordingly, we cannot predict whether Marshall Islands
courts would reach the same conclusions as the courts in Delaware. For example,
the rights of our unitholders and the fiduciary responsibilities of our general
partner under Marshall Islands law are not as clearly established as under
judicial precedent in existence in Delaware. As a result, unitholders may have
more difficulty in protecting their interests in the face of actions by our
general partner and its officers and directors than would unitholders of a
limited partnership formed in the United States.
Because
we are organized under the laws of the Marshall Islands, it may be difficult to
serve us with legal process or enforce judgments against us, our directors or
our management.
We are organized under the laws of the
Marshall Islands, and all of our assets are located outside of the United
States. Our business is operated primarily from our office in Greece. In
addition, our general partner is a Marshall Islands limited liability company
and its directors and officers generally are or will be non-residents of the
United States, and all or a substantial portion of the assets of these
non-residents are located outside the United States. As a result, it may be
difficult or impossible for you to bring an action against us or against these
individuals in the United States if you believe that your rights have been
infringed under securities laws or otherwise. Even if you are successful in
bringing an action of this kind, the laws of the Marshall Islands and of other
jurisdictions may prevent or restrict you from enforcing a judgment against our
assets or the assets of our general partner or its directors and officers. For
more information regarding the relevant laws of the Marshall Islands, please
read “Service of Process and Enforcement of Civil Liabilities.”
Tax
Risks
In addition to the following risk
factors, you should read “Material U.S. Federal Tax Consequences” for a more
complete discussion of the expected material U.S. federal and non-U.S. income
tax considerations relating to us and the ownership and disposition of our
units.
U.S.
tax authorities could treat us as a “passive foreign investment company,” which
could have adverse U.S. federal income tax consequences to U.S.
holders.
A foreign entity taxed as a corporation
for U.S. federal income tax purposes will be treated as a “passive foreign
investment company” (a “PFIC”), for U.S. federal income tax purposes if at least
75.0% of its gross income for any taxable year consists of certain types of
“passive income,” or at least 50.0% of the average value of the entity’s assets
produce or are held for the production of those types of “passive income.” For
purposes of these tests, “passive income” includes dividends, interest, gains
from the sale or exchange of investment property, and rents and royalties other
than rents and royalties that are received from unrelated parties in connection
with the active conduct of a trade or business. For purposes of these tests,
income derived from the performance of services does not constitute “passive
income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S.
federal income tax regime with respect to the income derived by the PFIC, the
distributions they receive from the PFIC, and the gain, if any, they derive from
the sale or other disposition of their shares in the PFIC.
Based on our current and projected
method of operation, and on opinion of counsel, we do not believe that we were a
PFIC for our 2006 or 2007 taxable years nor do we expect to become a PFIC with
respect to any other taxable year. We have received an opinion from our counsel,
Cravath, Swaine & Moore LLP dated August 29, 2008 that (1) the income we
receive from time chartering activities and assets engaged in generating such
income should not be treated as passive income or assets, respectively, and (2)
so long as our income from time charters exceeds 25% of our gross income for
each taxable year after our initial taxable year and assets engaged in time
charters exceed 50% of the average value of our assets for each taxable year
after our initial taxable year, we should not be a PFIC. This opinion is based
on representations and projections provided by us regarding our assets, income
and charters to our counsel, and its validity is conditioned on the accuracy of
such representations and projections. At the time of this prospectus, 12 out of
the 18 vessels in our fleet are engaged in time chartering activities and we
intend to treat our income from those activities as non-passive income, and the
vessels engaged in those activities as non-passive assets, for PFIC
purposes. However, no assurance can be given that the Internal
Revenue Service (the “IRS”) will accept this position. The remainder of our
fleet is engaged in activities that may be characterized as passive for PFIC
purposes and the income from that portion of our fleet may be treated as passive
income for PFIC purposes. See “Material U.S. Federal Income Tax
Consequences—PFIC Status and Significant Tax Consequences”.
The
preferential tax rates applicable to qualified dividend income are temporary,
and the enactment of previously proposed legislation could affect whether
dividends paid by us constitute qualified dividend income eligible for the
preferential rate.
Certain of our distributions may be
treated as qualified dividend income eligible for preferential rates of U.S.
federal income tax to U.S. individual unitholders (and certain other U.S.
unitholders). In the absence of legislation extending the term for these
preferential tax rates, all dividends received by such U.S. taxpayers in tax
years beginning on January 1, 2011 or later will be taxed at ordinary graduated
tax rates. Please read “Material U.S. Federal Income Tax Consequences—U.S.
Federal Income Taxation of U.S. Holders—Distributions”.
In addition, previously proposed
legislation would deny the preferential rate of U.S. federal income tax
currently imposed on qualified dividend income with respect to dividends
received from a non-U.S. corporation, unless the non-U.S. corporation either is
eligible for benefits of a comprehensive income tax treaty with the United
States or is created or organized under the laws of a foreign country that has a
comprehensive income tax system. Because the Marshall Islands has not entered
into a comprehensive income tax treaty with the United States and imposes only
limited taxes on entities organized under its laws, it is unlikely that we could
satisfy either of these requirements. Consequently, if this legislation were
enacted the preferential tax rates of federal income tax discussed under
“Material U.S. Federal Income Tax Consequences—U.S. Federal Income Taxation of
U.S. Holders—Distributions” may no longer be applicable to distributions
received from us. As of the date hereof, it is not possible to predict with any
certainty whether this previously proposed legislation will be reintroduced and
enacted.
We
may have to pay tax on United States source income, which would reduce our
earnings.
Under the Code, 50% of the gross
shipping income of a vessel-owning or chartering corporation that is
attributable to transportation that both begins or ends, but that does not begin
and end, in the U.S. is characterized as U.S. source shipping income and such
income generally is subject to a 4% U.S. federal income tax without allowance
for deduction, unless that corporation qualifies for exemption from tax under
Section 883 of the Code.
We have received an opinion of counsel
that, based on certain assumptions and representations, we and each of our
subsidiaries will qualify for this statutory tax exemption, and we will take
this position for U.S. federal income tax return reporting purposes. See
“Material U.S. Federal Income Tax Consequences”. However, there are factual
circumstances, including some that may be beyond our control, which could cause
us to lose the benefit of this tax exemption. In addition, our conclusion as
well as that of our counsel, Cravath, Swaine & Moore LLP that we qualify for
this exemption is based upon legal authorities that do not expressly contemplate
an organization structure such as ours. Although we have elected to be treated
as a corporation for U.S. federal income tax purposes, for corporate law
purposes we are organized as a limited partnership under Marshall Islands law
and our general partner will be responsible for managing our business and
affairs and has been granted certain veto rights over decisions of our board of
directors. Therefore, we can give no assurances that the IRS will not take a
different position regarding our qualification, or the qualification of any of
our subsidiaries, for this tax exemption.
If we or our subsidiaries are not
entitled to this exemption under Section 883 for any taxable year, we or our
subsidiaries generally would be subject for those years to a 4% U.S. federal
gross income tax on our U.S. source shipping income. The imposition of this
taxation could have a negative effect on our business and would result in
decreased earnings available for distribution to our unitholders.
You
may be subject to income tax in one or more non-U.S. countries, including
Greece, as a result of owning our units if, under the laws of any such country,
we are considered to be carrying on business there. Such laws may require you to
file a tax return with and pay taxes to those countries.
We intend that our affairs and the
business of each of our controlled affiliates will be conducted and operated in
a manner that minimizes income taxes imposed upon us and these controlled
affiliates or which may be imposed upon you as a result of owning our units.
However, because we are organized as a partnership, there is a risk in some
jurisdictions that our activities and the activities of our subsidiaries may be
attributed to our unitholders for tax purposes and, thus, that you will be
subject to tax in one or more non-U.S. countries, including Greece, as a result
of owning our units if, under the laws of any such country, we are considered to
be carrying on business there. If you are subject to tax in any such country,
you may be required to file a tax return with and to pay tax in that country
based on your allocable share of our income. We may be required to reduce
distributions to you on account of any withholding obligations imposed upon us
by that country in respect of such allocation to you. The United States may not
allow a tax credit for any foreign income taxes that you directly or indirectly
incur.
We believe we can conduct our
activities in a manner so that our unitholders should not be considered to be
carrying on business in Greece solely as a consequence of the acquisition,
holding, disposition or redemption of our units. However, the question of
whether either we or any of our controlled affiliates will be treated as
carrying on business in any country, including Greece, will largely be a
question of fact determined through an analysis of contractual arrangements,
including the management agreement and the administrative services agreement we
will enter into with Capital Ship Management, and the way we conduct business or
operations, all of which may change over time. The laws of Greece or any other
foreign country may also change, which could cause the country’s taxing
authorities to determine that we are carrying on business in such country and
are subject to its taxation laws. Any foreign taxes imposed on us or any
subsidiaries will reduce our cash available for distribution.
Unless we specify otherwise in any
prospectus supplement, we will use the net proceeds from our sale of securities
covered by this prospectus for general partnership purposes, which may include,
among other things:
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acquisitions;
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paying
or refinancing all or a portion of our indebtedness outstanding at the
time; and
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funding
working capital or capital
expenditures.
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The actual application of proceeds from
the sale of any particular offering of securities covered by this prospectus
will be described in the applicable prospectus supplement relating to the
offering.
Our common units started trading on the
Nasdaq Global Market under the symbol "CPLP" on March 30, 2007. The following
table sets forth the high and low market prices in U.S. Dollars for our common
units for each of the periods indicated.
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Year Ended:
|
||||||||
|
December 31,
2007*
|
$ | 32.50 | $ | 20.80 | ||||
|
Quarter
Ended:
|
||||||||
|
June 30,
2008
|
$ | 22.07 | $ | 18.40 | ||||
|
March 31,
2008
|
$ | 24.93 | $ | 16.35 | ||||
|
December 31,
2007
|
$ | 27.75 | $ | 20.80 | ||||
|
September 30,
2007
|
$ | 32.50 | $ | 23.33 | ||||
|
Month
Ended:
|
||||||||
|
July 31,
2008
|
$ | 20.50 | $ | 15.68 | ||||
|
June 30,
2008
|
$ | 21.00 | $ | 18.40 | ||||
|
May 31,
2008
|
$ | 22.07 | $ | 19.50 | ||||
|
April 30,
2008
|
$ | 21.03 | $ | 18.54 | ||||
|
March 31,
2008
|
$ | 20.31 | $ | 16.35 | ||||
|
February 29,
2008
|
$ | 20.75 | $ | 19.05 | ||||
_________________
* Period commenced on March 30,
2007.
The
Units
The common units and the subordinated
units represent limited partner interests in us. The holders of units are
entitled to participate in partnership distributions and exercise the rights and
privileges available to limited partners under our partnership
agreement.
For a description of the relative
rights and privileges of holders of common units and subordinated units in and
to partnership distributions, please read the sections “Cash Distributions”
herein and “How We Make Cash Distributions” in the prospectus included in our
registration statement on Form F-1 filed with the SEC on March 19, 2007 and
incorporated by reference in our Annual Report. For a description of
the rights and privileges of limited partners under our partnership agreement,
including voting rights, please read “The Partnership Agreement” in such
prospectus.
Transfer
Agent and Registrar
Duties
The Bank of New York will serve as
registrar and transfer agent for the common units. We pay all fees charged by
the transfer agent for transfers of common units, except the following, which
must be paid by common unitholders:
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●
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surety
bond premiums to replace lost or stolen certificates, taxes and other
governmental charges;
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●
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special
charges for services requested by a holder of a common unit;
and
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●
|
other
similar fees or charges.
|
There is no charge to unitholders for
disbursements of our cash distributions. We will indemnify the transfer agent,
its agents and each of their stockholders, directors, officers and employees
against all claims and losses that may arise out of acts performed or omitted
for its activities in that capacity, except for any liability due to any gross
negligence or intentional misconduct of the indemnified person or
entity.
Resignation
or Removal
The transfer agent may resign, by
notice to us, or be removed by us. The resignation or removal of the transfer
agent will become effective upon our appointment of a successor transfer agent
and registrar and its acceptance of the appointment. If a successor has not been
appointed or has not accepted its appointment within 30 days after notice of the
resignation or removal, our general partner may, at the direction of our board
of directors, act as the transfer agent and registrar until a successor is
appointed.
Transfer
of Common Units
By transfer of common units in
accordance with our partnership agreement, each transferee of common units shall
be admitted as a limited partner with respect to the common units transferred
when such transfer and admission is reflected in our books and records. Each
transferee:
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●
|
represents
that the transferee has the capacity, power and authority to become bound
by our partnership agreement;
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●
|
automatically
agrees to be bound by the terms and conditions of, and is deemed to have
executed, our partnership
agreement;
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●
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gives
the consents and approvals contained in our partnership agreement, such as
the approval of all transactions and agreements we are entering into in
connection with our formation and this
offering.
|
A transferee will become a substituted
limited partner of our partnership for the transferred common units
automatically upon the recording of the transfer on our books and records. Our
general partner will cause any transfers to be recorded on our books and records
no less frequently than quarterly.
We may, at our discretion, treat the
nominee holder of a common unit as the absolute owner. In that case, the
beneficial holder’s rights are limited solely to those that it has against the
nominee holder as a result of any agreement between the beneficial owner and the
nominee holder.
Common units are securities and are
transferable according to the laws governing transfer of securities. In addition
to other rights acquired upon transfer, the transferor gives the transferee the
right to become a limited partner in our partnership for the transferred common
units.
Until a common unit has been
transferred on our books, we and the transfer agent may treat the record holder
of the unit as the absolute owner for all purposes, except as otherwise required
by law or stock exchange regulations.
The subordinated units represent a
separate class of limited partner interests in us, and the rights of holders of
subordinated units to participate in distributions to partners differ from, and
are subordinated to, the rights of the holders of common units. For any given
quarter, any available cash will first be distributed to the general partner and
to the holders of common units, until the holders of common units have received
the minimum quarterly distribution plus any arrearages, and then will be
distributed to the holders of subordinated units.
For a description of the relative
rights and privileges of holders of common units and subordinated units in and
to partnership distributions, please read the sections “Cash Distributions”
herein and “How We Make Cash Distributions” in the prospectus included in our
registration statement on Form F-1 filed with the SEC on March 19, 2007 and
incorporated by reference in our Annual Report. For a description of
the rights and privileges of limited partners under our partnership agreement,
including voting rights, please read “The Partnership Agreement” in such
prospectus.
Subordination
Period
During the subordination period the
common units will have the right to receive distributions of available cash from
operating surplus in an amount equal to the minimum quarterly distribution of
$0.3750 per quarter, plus any arrearages in the payment of the minimum quarterly
distribution on the common units from prior quarters, before any distributions
of available cash from operating surplus may be made on the subordinated units.
Distribution arrearages do not accrue on the subordinated units. The purpose of
the subordinated units is to increase the likelihood that during the
subordination period there will be available cash to be distributed on the
common units.
Definition
of Subordination Period
Except as described below under "—Early
Termination of Subordination Period", the subordination period will extend until
the first day of any quarter, beginning after March 31, 2011, that each of the
following tests are met:
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●
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distributions
of available cash from operating surplus on each of the outstanding common
units and subordinated units equaled or exceeded the minimum quarterly
distribution for each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that
date;
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●
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the
adjusted operating surplus (as defined in our partnership agreement)
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or exceeded
the sum of the minimum quarterly distributions on all of the outstanding
common units and subordinated units during those periods on a fully
diluted basis and the related distribution on the 2.0% general partner
interest during those periods; and
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●
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there
are no arrearages in payment of the minimum quarterly distribution on the
common units.
|
If the unitholders remove our general
partner without cause, the subordination period may end before March 31,
2011.
Early
Termination of Subordination Period
The subordination period will
automatically terminate and the subordinated units will convert into common
units on a one-for-one basis if the following tests are met:
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●
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distributions
of available cash from operating surplus (as defined in our partnership
agreement) on each of the outstanding common units, subordinated units and
general partner units equaled or exceeded $2.25 (150.0% of the annualized
minimum quarterly distribution) for the four-quarter period immediately
preceding the date of determination;
and
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●
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the
adjusted operating surplus (as defined in our partnership agreement)
generated during the four-quarter period immediately preceding the date of
determination equaled or exceeded the sum of a distribution of $2.25 per
unit (150.0% of the annualized minimum quarterly distribution) on all of
the outstanding common units, subordinated units and general partner units
on a fully diluted basis; and
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●
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there
are not arrearages in payment of the minimum quarterly distribution on the
common units.
|
For purposes of determining whether
sufficient adjusted operating surplus has been generated under these conversion
tests, the conflicts committee may adjust adjusted operating surplus upwards or
downwards if it determines in good faith that the estimated amount of
maintenance and replacement capital expenditures used in the determination of
operating surplus was materially incorrect, based on circumstances prevailing at
the time of original determination of the estimate.
Effect
of Expiration of the Subordination Period
Upon expiration of the subordination
period, each outstanding subordinated unit will convert into one common unit and
will then participate pro rata with the other common units in distributions of
available cash. In addition, if the unitholders remove our general partner other
than for cause and units held by our general partner and its affiliates are not
voted in favor of such removal:
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●
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the
subordination period will end and each subordinated unit will immediately
convert into one common unit;
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●
|
any
existing arrearages in payment of the minimum quarterly distribution on
the common units will be extinguished;
and
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●
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our
general partner will have the right to convert its general partner
interest and, if any, its incentive distribution rights into common units
or to receive cash in exchange for those
interests.
|
Distributions
of Available Cash From Operating Surplus During the Subordination
Period
We will make distributions of available
cash from operating surplus for any quarter during the subordination period in
the following manner:
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●
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first,
98% to the common unitholders, pro rata, and 2.0% to our general partner,
until we distribute for each outstanding common unit an amount equal to
the minimum quarterly distribution for that
quarter;
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●
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second,
98% to the common unitholders, pro rata, and 2.0% to our general partner,
until we distribute for each outstanding common unit an amount equal to
any arrearages in payment of the minimum quarterly distribution on the
common units for any prior quarters during the subordination
period;
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●
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third,
98% to the subordinated unitholders, pro rata, and 2.0% to our general
partner, until we distribute for each subordinated unit an amount equal to
the minimum quarterly distribution for that quarter;
and
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●
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thereafter,
in the manner described in “Cash Distributions—Incentive Distribution
Rights” and “—Percentage Allocations of Available Cash From Operating
Surplus.”
|
The preceding paragraph is based on the
assumption that our general partner maintains its 2.0% general partner interest
and that we do not issue additional classes of securities.
Rationale
for Our Cash Distribution Policy
Our cash distribution policy reflects a
basic judgment that our unitholders will be better served by our distributing
our cash available (after deducting expenses, including estimated maintenance
and replacement capital expenditures and reserves) rather than retaining it.
Because we believe we will generally finance any expansion capital expenditures
from external financing sources, we believe that our investors are best served
by our distributing all of our available cash. Our cash distribution policy is
consistent with the terms of our partnership agreement, which requires that we
distribute all of our available cash quarterly (after deducting expenses,
including estimated maintenance and replacement capital expenditures and
reserves).
Limitations
on Cash Distributions and Our Ability to Change Our Cash Distribution
Policy
There is no guarantee that unitholders
will receive quarterly distributions from us. Our distribution policy is subject
to certain restrictions and may be changed at any time, including:
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●
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Our
unitholders have no contractual or other legal right to receive
distributions other than the obligation under our partnership agreement to
distribute available cash on a quarterly basis, which is subject to the
broad discretion of our board of directors to establish reserves and other
limitations.
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|
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●
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While
our partnership agreement requires us to distribute all of our available
cash, our partnership agreement, including provisions requiring us to make
cash distributions contained therein, may be amended. Although during the
subordination period, with certain exceptions, our partnership agreement
may not be amended without the approval of non-affiliated common
unitholders, our partnership agreement can be amended with the approval of
a majority of the outstanding common units after the subordination period
has ended.
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●
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Even
if our cash distribution policy is not modified or revoked, the amount of
distributions we pay under our cash distribution policy and the decision
to make any distribution is determined by our board of directors, taking
into consideration the terms of our partnership agreement and the
establishment of any reserves for the prudent conduct of our
business.
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●
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Under
Section 51 of the Marshall Islands Limited Partnership Act, we may
not make a distribution if the distribution would cause our liabilities to
exceed the fair value of our
assets.
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●
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We
may lack sufficient cash to pay distributions to our unitholders due to
decreases in net revenues or increases in operating expenses, principal
and interest payments on outstanding debt, tax expenses, working capital
requirements, maintenance and replacement capital expenditures or
anticipated cash needs.
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●
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Our
distribution policy will be affected by restrictions on distributions
under our revolving credit facilities which contain material
financial tests and covenants that must be satisfied. Should we be unable
to satisfy these restrictions included in our credit facilities or if we
are otherwise in default under the credit agreements, our ability to make
cash distributions to our unitholders, notwithstanding our stated cash
distribution policy, would be materially adversely
affected.
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●
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If
we make distributions out of capital surplus, as opposed to operating
surplus, such distributions will constitute a return of capital and will
result in a reduction in the quarterly distribution and the target
distribution levels. We do not anticipate that we will make any
distributions from capital surplus.
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●
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If
the ability of our subsidiaries to make any distribution to us is
restricted by, among other things, the provisions of existing and future
indebtedness, applicable partnership and limited liability company laws or
any other laws and regulations, our ability to make distributions to our
unitholders may be restricted.
|
Quarterly
Distributions
Our unitholders are entitled under our
partnership agreement to receive a quarterly distribution to the extent we have
sufficient cash on hand to pay the distribution after we establish cash reserves
and pay fees and expenses. Although we intend to continue to make strategic
acquisitions and to take advantage of our unique relationship with Capital
Maritime in a prudent manner that is accretive to our unitholders and to
long-term distribution growth there is no guarantee that we will pay a quarterly
distribution on the common units and subordinated units in any quarter. Even if
our cash distribution policy is not modified or revoked, the amount of
distributions paid under our policy and the decision to make any distribution is
determined by our board of directors, taking into consideration the terms of our
partnership agreement and other factors. We will be prohibited from making any
distributions to unitholders if it would cause an event of default, or an event
of default is existing, under the terms of our credit
facilities.
Following the completion of our IPO on
April 3, 2007, the following cash distributions have been declared and
paid:
|
Distributions for
Quarter Ended
|
Amount of Cash
Distributions
|
Cash Distributions per
Unit
|
|
|
Jun.
30, 2007*
|
$8.3
million
|
$0.3626
per unit
|
|
|
Sep.
30, 2007
|
$8.8
million
|
$0.385
per unit
|
|
|
Dec. 31,
2007
|
$9.0
million
|
$0.395 per
unit
|
|
|
Mar. 31,
2008
|
$10.1
million
|
$0.400 per
unit
|
|
|
Jun. 30,
2008
|
$ 10.4
million
|
$0.410 per
unit
|
___________
* Prorated for the period from April 4,
2007 to June 30, 2007.
Subordination
Period
During the subordination period
applicable to the subordinated units registered herein, the common units have
the right to receive quarterly distributions of available cash from operating
surplus, plus any arrearages in the payment of the quarterly distribution on the
common units from prior quarters, before any distributions of available cash
from operating surplus may be made on the subordinated units. Distribution
arrearages do not accrue on the subordinated units. The purpose of the
subordinated units is to increase the likelihood that during the subordination
period there will be available cash to be distributed on the common
units.
Incentive
Distribution Rights
Incentive distribution rights represent
the right to receive an increasing percentage of quarterly distributions of
available cash from operating surplus (as defined in our partnership agreement)
after the minimum quarterly distribution and the target distribution levels have
been achieved. Our general partner currently holds the incentive distribution
rights, but may transfer these rights separately from its general partner
interest, subject to restrictions in the partnership agreement. Except for
transfers of incentive distribution rights to an affiliate or another entity as
part of our general partner’s merger or consolidation with or into, or sale of
substantially all of its assets to such entity, the approval of a majority of
our common units (excluding common units held by our general partner and its
affiliates), voting separately as a class, generally is required for a transfer
of the incentive distribution rights to a third party prior to March 31,
2017. Any transfer by our general partner of the incentive distribution rights
would not change the percentage allocations of quarterly distributions with
respect to such rights.
Percentage
Allocations of Available Cash From Operating Surplus
The following table illustrates the
percentage allocations of the additional available cash from operating surplus
among the unitholders and our general partner up to the various target
distribution levels. The amounts set forth under “Marginal Percentage Interest
in Distributions” are the percentage interests of the unitholders and our
general partner in any available cash from operating surplus we distribute up to
and including the corresponding amount in the column “Total Quarterly
Distribution Target Amount,” until available cash from operating surplus we
distribute reaches the next target distribution level, if any. The percentage
interests shown for the unitholders and our general partner for the minimum
quarterly distribution are also applicable to quarterly distribution amounts
that are less than the minimum quarterly distribution. The percentage interests
shown for our general partner assume that our general partner maintains its 2%
general partner interest and assume our general partner has not transferred the
incentive distribution rights.
|
Marginal
Percentage Interest in Distributions
|
|||||
|
Total
Quarterly Distribution Target Amount
|
Unitholders
|
General
Partner
|
|||
|
Minimum Quarterly
Distribution
|
$0.3750
|
98%
|
2%
|
||
|
First Target
Distribution
|
up to
$0.4313
|
98%
|
2%
|
||
|
Second Target
Distribution
|
above $0.4313 up to
$0.4688
|
85%
|
15%
|
||
|
Third Target
Distribution
|
above $0.4688 up to
$0.5625
|
75%
|
25%
|
||
|
Thereafter
|
above
$0.5625
|
50%
|
50%
|
||
The following is a discussion of the
material U.S. federal income tax considerations that may be relevant to
prospective unitholders and, unless otherwise noted in the following discussion,
is the opinion of Cravath, Swaine & Moore LLP, our U.S. counsel, insofar as
it relates to matters of U.S. federal income tax law and legal conclusions with
respect to those matters. The opinion of our counsel is dependent on the
accuracy of representations made by us to them, including descriptions of our
operations contained herein.
This discussion is based upon
provisions of the Code as currently in effect, Treasury Regulations, and current
administrative rulings and court decisions, all of which are subject to change,
possibly with retroactive effect. Changes in these authorities may cause the tax
consequences to vary substantially from the consequences described below. Unless
the context otherwise requires, references to this section to “we”, “our” or
“us” are references to Capital Product Partners L.P.
The following discussion does not
comment on all aspects of U.S. federal income taxation which may be important to
particular unitholders in light of their individual circumstances, such as
unitholders subject to special tax rules (e.g., financial institutions,
insurance companies, broker-dealers, tax-exempt organizations, or former
citizens or long-term residents of the United States) or to persons that will
hold the units as part of a straddle, hedge, conversion, constructive sale, or
other integrated transaction for U.S. federal income tax purposes, partnerships
or their partners, or that have a functional currency other than the U.S.
dollar, all of whom may be subject to tax rules that differ significantly from
those summarized below. If a partnership or other entity classified as a
partnership for U.S. federal income tax purposes holds our units, the tax
treatment of a partner thereof will generally depend upon the status of the
partner and upon the activities of the partnership. If you are a partner in a
partnership holding our units, you should consult your tax advisor.
No ruling has been or will be requested
from the Internal Revenue Service (or the IRS) regarding any matter affecting us
or prospective unitholders. The opinions and statements made here may not be
sustained by a court if contested by the IRS.
This discussion does not contain
information regarding any U.S. state or local, estate or alternative minimum tax
considerations concerning the ownership or disposition of our units. Each
prospective unitholder is urged to consult its tax advisor regarding the U.S.
federal, state, local, and other tax consequences of the ownership or
disposition of our units.
Taxation
of the Partnership
Election
to be Taxed as a Corporation
We have elected to be taxed as a
corporation for U.S. federal income tax purposes. As such, among other
consequences, U.S. Holders (as defined below) will not directly be subject to
U.S. federal income tax on our income, but rather will be subject to U.S.
federal income tax on distributions received from us and dispositions of units
as described below. As a corporation, we are subject to U.S. federal
income tax on our income to the extent it is from U.S. sources or otherwise is
effectively connected with the conduct of a trade or business in the United
States as discussed below.
Taxation
of Operating Income
We expect that substantially all of our
gross income will continue to be attributable to the transportation of crude oil
and related oil products. For this purpose, gross income attributable
to transportation (or “Transportation Income”) includes income derived from, or
in connection with, the use (or hiring or leasing for use) of a vessel to
transport cargo, or the performance of services directly related to the use of
any vessel to transport cargo, and thus includes both time charter or bareboat
charter income.
Transportation Income that is
attributable to transportation that begins or ends, but that does not both begin
and end, in the United States (or “U.S. Source International Transportation
Income”) will be considered to be 50.0% derived from sources within the United
States. Transportation Income attributable to transportation that
both begins and ends in the United States (or “U.S. Source Domestic
Transportation Income”) will be considered to be 100.0% derived from sources
within the United States. Transportation Income attributable to
transportation exclusively between non-U.S. destinations will be considered to
be 100% derived from sources outside the United
States. Transportation Income derived from sources outside the United
States generally will not be subject to U.S. federal income tax.
Based on our current operations, we do
not expect to have U.S. Source Domestic Transportation
Income. However, certain of our activities give rise to U.S. Source
International Transportation Income, and future expansion of our operations
could result in an increase in the amount of U.S. Source International
Transportation Income, as well as give rise to U.S. Source Domestic
Transportation Income, all of which could be subject to U.S. federal income
taxation, unless the exemption from U.S. taxation under Section 883 of the Code
(or the “Section 883 Exemption”) applies.
The
Section 883 Exemption
In general, the Section 883 Exemption
provides that if a non-U.S. corporation satisfies the requirements of Section
883 of the Code and the Treasury Regulations thereunder (or the “Section 883
Regulations”), it will not be subject to the net basis and branch taxes or 4.0%
gross basis tax described below on its U.S. Source International Transportation
Income. The Section 883 Exemption only applies to U.S. Source
International Income. As discussed below, we believe that under our
current ownership structure, the Section 883 Exemption will apply and we will
not be taxed on our U.S. Source International Transportation
Income. The Section 883 Exemption does not apply to U.S. Source
Domestic Transportation Income.
We will qualify for the Section 883
Exemption if, among other matters, we meet the following three
requirements:
|
|
●
|
We
are organized in a
jurisdiction outside the United States that grants an equivalent exemption
from tax to corporations organized in the United States (an “Equivalent
Exemption”);
|
|
|
●
|
We satisfy the “Publicly Traded
Test” (as described below);
and
|
|
|
●
|
We meet certain
substantiation, reporting and other
requirements.
|
The Publicly Traded Test requires that
one or more classes of equity representing more than 50.0% of the voting power
and value in a non-U.S. corporation be “primarily and regularly traded” on an
established securities market either in the United States or in a jurisdiction
outside the United States that grants an Equivalent Exemption. The
Section 883 Regulations provide, in pertinent part, that equity interests in a
non-U.S. corporation will be considered to be “primarily traded” on an
established securities market in a given country if the number of units of each
class of equity that are traded during any taxable year on all established
securities markets in that country exceeds the number of units in each such
class that are traded during that year on established securities markets in any
other single country. Equity of a non-U.S. corporation will be
considered to be “regularly traded” on an established securities market under
the Section 883 Regulations if one or more classes of equity of the corporation
that, in the aggregate, represent more than 50.0% of the combined vote and value
of the non-U.S. corporation are listed on such market and certain trading volume
requirements are met or deemed met as described below. For this
purpose, if one or more “5.0% unitholders” (i.e., a unitholder holding, actually
or constructively, at least 5.0% of the vote and value of a class of equity) own
in the aggregate 50.0% or more of the vote and value of a class of equity, such
class of equity will not be treated as primarily and regularly traded on an
established securities market (the “Closely Held Block Exception”).
We are organized under the laws of the
Republic of The Marshall Islands. The U.S. Treasury Department has
recognized the Republic of The Marshall Islands as a jurisdiction that grants an
Equivalent Exemption. Consequently, our U.S. Source International
Transportation Income (including for this purpose, any such income earned by our
subsidiaries that have properly elected to be treated as partnerships or
disregarded as entities separate from us for U.S. federal income tax purposes)
will be exempt from U.S. federal income taxation provided we meet the Publicly
Traded Test.
Since our common units will only be
traded on the Nasdaq Global Market, which is considered to be an established
securities market, our common units will be deemed to be “primarily traded” on
an established securities market. In addition, we have received the
opinion of Cravath, Swaine & Moore LLP dated August 29, 2008 that our common
units will represent more than 50.0% of our vote and, assuming that they
represent more than 50% of our value, will be considered to be “regularly
traded” on an established securities market. We believe that our
common units represent more than 50% of our value and intend to take that
position. These conclusions, however, are based upon legal
authorities which do not expressly contemplate an organization structure such as
ours. In particular, although we have elected to be treated as a
corporation for U.S. federal income tax purposes, for corporate law purposes we
are organized as a limited partnership under Marshall Islands law and our
general partner will be responsible for managing our business and affairs and
has been granted certain veto rights over decisions of our board of
directors. Accordingly, it is possible that the IRS could assert that
our common units do not meet the “regularly traded” test.
Provided our common units are treated
as representing more than 50.0% of our vote and value, we believe we will meet
the trading volume requirements described previously because the pertinent
regulations provide that trading volume requirements will be deemed to be met
with respect to a class of equity traded on an established securities market in
the United States where, as will be the case for our common units, the units are
regularly quoted by dealers who regularly and actively make offers, purchases
and sales of such common units to unrelated persons in the ordinary course of
business.
In addition, we expect that our common
units will not lose eligibility for the Section 883 Exemption as a result of the
Closely Held Block Exemption, because our partnership agreement provides that
the voting rights of any 5.0% unitholders are limited to a 4.9% voting interest
in us regardless of how many common units are held by that 5.0%
unitholder. Thus, although the matter is not free from doubt, we
believe that we will satisfy the Publicly Traded Test. Should any of
the facts described above cease to correct, our ability to satisfy the test will
be compromised.
The
Net Basis Tax and Branch Profits Tax
If we earn U.S. Source International
Transportation Income and the Section 883 Exemption does not apply, the U.S.
source portion of such income may be treated as effectively connected with the
conduct of a trade or business in the United States (or “Effectively Connected
Income”) if we have a fixed place of business in the United States and
substantially all of our U.S. Source International Transportation Income is
attributable to regularly scheduled transportation or, in the case of bareboat
charter income, is attributable to a fixed place of business in the United
States. Based on our current operations, none of our potential U.S.
Source International Transportation Income is attributable to regularly
scheduled transportation or is received pursuant to bareboat charters
attributable to a fixed place of business in the United States. As a
result, we do not anticipate that any of our U.S. Source International
Transportation Income will be treated as Effectively Connected
Income. However, there is no assurance that we will not earn income
pursuant to regularly scheduled transportation or bareboat charters attributable
to a fixed place of business in the United States in the future, which would
result in such income being treated as Effectively Connected
Income. In addition, any U.S. Source Domestic Transportation Income
generally will be treated as Effectively Connected Income.
Any income we earn that is treated as
Effectively Connected Income would be subject to U.S. federal corporate income
tax (the highest statutory rate is currently 35.0%). In addition, a
30.0% branch profits tax imposed under Section 884 of the Code also would apply
to such income, and a branch interest tax could be imposed on certain interest
paid or deemed paid by us.
On the sale of a vessel that has
produced Effectively Connected Income, we could be subject to the net basis
corporate income tax and to the 30.0% branch profits tax with respect to our
gain not in excess of certain prior deductions for depreciation that reduced
Effectively Connected Income. Otherwise, we would not be subject to
U.S. federal income tax with respect to gain realized on the sale of a vessel,
provided the sale is considered to occur outside of the United States under U.S.
federal income tax principles.
The
4.0% Gross Basis Tax
If the Section 883 Exemption does not
apply and the net basis tax does not apply, we would be subject to a 4.0% U.S.
federal income tax on the U.S. source portion of our gross U.S. Source
International Transportation Income, without benefit of deductions.
Marshall
Islands Taxation
Based on the opinion of Watson, Farley
& Williams (New York) LLP, our counsel as to matters of the law of the
Republic of The Marshall Islands, because we, our operating subsidiary and our
controlled affiliates do not, and we do not expect that we and our controlled
affiliates will, conduct business or operations in the Republic of The Marshall
Islands, neither we nor our controlled affiliates will be subject to income,
capital gains, profits or other taxation under current Marshall Islands
law. As a result, distributions by our operating subsidiary and our
controlled affiliates to us will not be subject to Marshall Islands
taxation.
U.S.
Federal Income Taxation of U.S. Holders
As used herein, the term U.S. Holder means a
beneficial owner of our units that:
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is
an individual U.S.
citizen or resident (as determined for U.S. federal income tax purposes),
a corporation or other entity organized under the laws of the United
States or its political subdivisions and classified as a corporation for
U.S. federal income tax purposes, an estate the income of which is subject
to U.S. federal income taxation regardless of its source, or a trust if a
court within the United States is able to exercise primary jurisdiction
over the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the
trust;
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owns
the units as a capital asset, generally, for investment purposes,
and
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owns
less than 10% of our
units for United States federal income tax
purposes.
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Distributions
Subject to the discussion of the rules
applicable to passive foreign investment companies (or PFICs) below, any
distributions made by us with respect to our units to a U.S. Holder generally
will constitute dividends, which may be taxable as ordinary income or “qualified
dividend income” as described in more detail below, to the extent of our current
and accumulated earnings and profits, as determined under U.S. federal income
tax principles. Distributions in excess of our earnings and profits will be
treated first as a nontaxable return of capital to the extent of the U.S.
Holder’s tax basis in its units on a dollar-for-dollar basis and thereafter as
capital gain. U.S. Holders that are corporations generally will not be entitled
to claim a dividends received deduction with respect to any distributions they
receive from us. Dividends paid with respect to our units generally will be
treated as “passive category income” for purposes of computing allowable foreign
tax credits for U.S. federal income tax purposes.
Dividends paid on our units to a U.S.
Holder who is an individual, trust or estate (or a U.S. Individual Holder) will
be treated as “qualified dividend income” that is taxable to such U.S.
Individual Holder at preferential capital gain tax rates (through 2010) provided
that: (i) our units are readily tradable on an established securities market in
the United States (such as the Nasdaq Global Market on which our units are
traded); (ii) we are not a PFIC for the taxable year during which the dividend
is paid or the immediately preceding taxable year (which we do not believe we
are, have been or will be, as discussed below); (iii) the U.S. Individual Holder
has owned the units for more than 60 days in the 121-day period beginning 60
days before the date on which the units become ex-dividend; and (iv) the U.S.
Individual Holder is not under an obligation to make related payments with
respect to positions in substantially similar or related property. There is no
assurance that any dividends paid on our units will be eligible for these
preferential rates in the hands of a U.S. Individual Holder, and any dividends
paid on our units that are not eligible for these preferential rates will be
taxed as ordinary income to a U.S. Individual Holder. In the absence of
legislation extending the term of the preferential tax rates for qualified
dividend income, all dividends received by a taxpayer in tax years beginning
January 1, 2011 or later will be taxed at rates applicable to ordinary
income.
Special rules may apply to any
“extraordinary dividend” paid by us. An extraordinary dividend is, generally, a
dividend with respect to a unit if the amount of the dividend is equal to or in
excess of 10 percent of a unitholder’s adjusted basis (or fair market value in
certain circumstances) in such unit. If we pay an “extraordinary dividend” on
our units that is treated as “qualified dividend income,” then any loss derived
by a U.S. Individual Holder from the sale or exchange of such units will be
treated as long-term capital loss to the extent of the amount of such
dividend.
In addition, under previously proposed
legislation, the preferential rate of federal income tax currently imposed on
qualified dividend income would be denied with respect to dividends received
form a non-U.S. corporation, unless the non-U.S. corporation either is eligible
for benefits of a comprehensive income tax treaty with the United States or is
created or organized under the laws of a foreign country which has a
comprehensive income tax system. Because the Marshall Islands has not entered
into a comprehensive income tax treaty with the United States and imposes only
limited taxes on corporations organized under its laws, it is unlikely that we
could satisfy either of these requirements. Consequently, if this legislation
were enacted the preferential tax rates imposed on qualified dividend income may
no longer be applicable to dividends received from us. Any dividends paid on our
shares that are not eligible for the preferential rate will be taxed as ordinary
income to a U.S. Individual Holder. As of the date hereof, it is not possible to
predict with any certainty whether this previously proposed legislation will be
reintroduced or enacted.
Sale,
Exchange or other Disposition of Units
Subject to the discussion of PFICs
below, a U.S. Holder generally will recognize taxable gain or loss upon a sale,
exchange or other disposition of our units in an amount equal to the difference
between the amount realized by the U.S. Holder from such sale, exchange or other
disposition and the U.S. Holder’s tax basis in such units. Such gain or loss
will be treated as long-term capital gain or loss if the U.S. Holder’s holding
period is greater than one year at the time of the sale, exchange or other
disposition. Such capital gain or loss will generally be treated as U.S. source
income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S.
Holder’s ability to deduct capital losses is subject to certain
limitations.
Conversion
of Subordinated Units
In general, a U.S. Holder of
subordinated units will not recognize gain or loss upon the conversion of
subordinated units into common units. If a U.S. Holder receives cash
in lieu of a fractional common or retained subordinated unit upon conversion,
such distribution of cash will generally be treated as if the U.S. Holder has
sold such fractional share for cash. For the tax consequences of such
sale, see “Sale,
Exchange or Other Disposition of Units” above. The U.S. Holder’s
holding period for these common units will include the holding period for the
corresponding converted subordinated units.
PFIC
Status and Significant Tax Consequences
Special and adverse U.S. federal income
tax rules apply to a U.S. Holder that owns an equity interest in a non-U.S.
entity taxed as a corporation and classified as a PFIC for U.S. federal income
tax purposes. In general, we will be treated as a PFIC with respect to a U.S.
Holder if, for any taxable year in which such holder held our units,
either:
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at
least 75.0% of our gross income (including the gross income of our
vessel-owning subsidiaries) for such taxable year consists of passive
income (e.g., dividends, interest, capital gains and rents derived other
than in the active conduct of a rental business),
or
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at
least 50.0% of the average value of the assets held by us (including the
assets of our vessel-owning subsidiaries) during such taxable year
produce, or are held for the production of, passive
income.
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Income earned, or deemed earned, by us
in connection with the performance of services would not constitute passive
income. By contrast, rental income would generally constitute “passive income”
unless we were treated under specific rules as deriving our rental income in the
active conduct of a trade or business.
Based on our current and projected
methods of operation, and an opinion of counsel, we do not believe that we were
a PFIC for our 2006 or 2007 taxable years nor do we expect to become a PFIC with
respect to any other taxable year. We have received an opinion from our U.S.
counsel, Cravath, Swaine & Moore LLP dated August 29, 2008 that (1) the
income we currently receive from time chartering activities and assets engaged
in generating such income should not be treated as passive income or assets,
respectively, and (2) so long as our income from time charters exceeds 25% of
our gross income for each taxable year after our initial taxable year and assets
engaged in time charters exceed 50% of the average value of our assets for each
taxable year after our initial taxable year, we should not be a PFIC. This
opinion is based on representations and projections provided by us regarding our
assets, income and charters to our counsel, and its validity is conditioned on
the accuracy of such representations and projections.
Although there is no legal authority
directly on point, and we are not obtaining a ruling from the IRS on this issue,
our counsel’s opinion is based principally on the position that, for purposes of
determining whether we are a PFIC, the gross income we derive or are deemed to
derive from the time chartering activities of our wholly owned subsidiaries
should constitute services income, rather than rental income. Correspondingly,
such income should not constitute passive income, and the assets that we or our
wholly owned subsidiaries own and operate in connection with the production of
such income, in particular, the vessels we or our subsidiaries own that are
subject to time charters, should not constitute passive assets for purposes of
determining whether we were a PFIC. As of the date of this prospectus
12 of our 18 vessels are engaged in time chartering activities and we intend to
treat our income from those activities as non-passive income, and the vessels
engaged in those activities as nonpassive assets. The remainder of our fleet
will be engaged in activities that may be characterized as passive for PFIC
purposes and the income from that portion of our fleet may be treated as passive
income for PFIC purposes. Our counsel believes that there is substantial legal
authority supporting our position consisting of case law and IRS pronouncements
concerning the characterization of income derived from time charters as services
income for other tax purposes. However, in the absence of any legal authority
specifically relating to the statutory provisions governing PFICs, the IRS or a
court could disagree with this position. In addition, although we intend to
conduct our affairs in a manner to avoid being classified as a PFIC with respect
to any taxable year, we cannot assure you that the nature of our operations will
not change in the future.
As discussed more fully below, if we
were to be treated as a PFIC for any taxable year, a U.S. Holder would be
subject to different taxation rules depending on whether the U.S. Holder makes
an election to treat us as a “Qualified Electing Fund”, which election we refer
to as a “QEF election”. As an alternative to making a QEF election, a U.S.
Holder should be able to make a “mark-to-market” election with respect to our
units, as discussed below.
Taxation
of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF
election, which U.S. Holder we refer to as an “Electing Holder”, the Electing
Holder must report each year for U.S. federal income tax purposes his pro rata
share of our ordinary earnings and our net capital gain, if any, for our taxable
year that ends with or within the taxable year of the Electing Holder,
regardless of whether or not distributions were received from us by the Electing
Holder. The Electing Holder’s adjusted tax basis in the units will be increased
to reflect taxed but undistributed earnings and profits. Distributions of
earnings and profits that had been previously taxed will result in a
corresponding reduction in the adjusted tax basis in the units and will not be
taxed again once distributed. An Electing Holder would generally recognize
capital gain or loss on the sale, exchange or other disposition of our units. A
U.S. Holder would make a QEF election with respect to any year that we are a
PFIC by filing one copy of IRS Form 8621 with his U.S. federal income tax return
and a second copy in accordance with the instructions to such form. If we were
to be treated as a PFIC for any taxable year, we would provide each U.S. Holder
with all necessary information in order to make the QEF election described
above.
Taxation
of U.S. Holders Making a “Mark-to-Market” Election
Alternatively, if we were to be treated
as a PFIC for any taxable year and, as we anticipate, our units were treated as
“marketable stock,” a U.S. Holder would be allowed to make a “mark-to-market”
election with respect to our units, provided the U.S. Holder completes and files
IRS Form 8621 in accordance with the relevant instructions and related Treasury
Regulations. If that election is made, the U.S. Holder generally would include
as ordinary income in each taxable year the excess, if any, of the fair market
value of the units at the end of the taxable year over such holder’s adjusted
tax basis in the units. The U.S. Holder would also be permitted an ordinary loss
in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the
units over the fair market value thereof at the end of the taxable year, but
only to the extent of the net amount previously included in income as a result
of the mark-to-market election. A U.S. Holder’s tax basis in his units would be
adjusted to reflect any such income or loss amount. Gain realized on the sale,
exchange or other disposition of our units would be treated as ordinary income,
and any loss realized on the sale, exchange or other disposition of the units
would be treated as ordinary loss to the extent that such loss does not exceed
the net mark-to-market gains previously included by the U.S.
Holder.
Taxation
of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a
PFIC for any taxable year, a U.S. Holder who does not make either a QEF election
or a “mark-to-market” election for that year, whom we refer to as a
“Non-Electing Holder,” would be subject to special rules with respect to (1) any
excess distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on our units in a taxable year in excess of 125 percent of
the average annual distributions received by the Non-Electing Holder in the
three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding
period for the units), and (2) any gain realized on the sale, exchange or other
disposition of our units. Under these special rules:
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the
excess distribution or gain would be allocated ratably over the
Non-Electing Holder’s aggregate holding period for the
units;
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the
amount allocated to the current taxable year and any year prior to the
year we were first treated as a PFIC with respect to the Non-Electing
Holder would be taxed as ordinary income;
and
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the
amount allocated to each of the other taxable years would be subject to
tax at the highest rate of tax in effect for the applicable class of
taxpayer for that year, and an interest charge for the deemed deferral
benefit would be imposed with respect to the resulting tax attributable to
each such other taxable year.
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These penalties would not apply to a
qualified pension, profit sharing or other retirement trust or other tax-exempt
organization that did not borrow money or otherwise utilize leverage in
connection with its acquisition of our units. If we were treated as a PFIC for
any taxable year and a Non-Electing Holder who is an individual dies while
owning our units, such holder’s successor generally would not receive a step-up
in tax basis with respect to such units.
U.S.
Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our units (other
than a partnership, including any entity or arrangement treated as a partnership
for U.S. federal income tax purposes) that is not a U.S. Holder is a Non-U.S.
Holder.
Distributions
Distributions we pay to a Non-U.S.
Holder will not be subject to U.S. federal income tax or withholding tax if the
Non-U.S. Holder is not engaged in a U.S. trade or business. If the Non-U.S.
Holder is engaged in a U.S. trade or business, distributions we pay will be
subject to U.S. federal income tax to the extent those distributions constitute
income effectively connected with that Non-U.S. Holder’s U.S. trade or business.
However, distributions paid to a Non-U.S. Holder who is engaged in a trade or
business may be exempt from taxation under an income tax treaty if the income
represented thereby is not attributable to a U.S. permanent establishment
maintained by the Non-U.S. Holder.
Disposition
of Units and Conversion of Subordinated Units
The U.S. federal income taxation of
Non-U.S. Holders on any gain resulting from the disposition of our units is
generally the same as described above regarding distributions. However,
individual Non-U.S. Holders may be subject to tax on gain resulting from the
disposition of our units if they are present in the United States for 183 days
or more during the taxable year in which those shares are disposed and meet
certain other requirements. Non-U.S. holders will generally not be
subject to U.S. federal income taxation upon the conversion of the subordinated
units into common units. If the unitholder receives cash in lieu of a
fractional common or retained subordinated unit upon conversion, such
distribution of cash will generally be treated as if the unitholder has sold
such fractional share for cash and have the U.S. federal income tax consequences
described above.
Backup
Withholding and Information Reporting
In general, payments of distributions
or the proceeds of a disposition of our units to a non-corporate U.S. Holder
will be subject to information reporting requirements. These payments to a
non-corporate U.S. Holder also may be subject to backup withholding, if the
non-corporate U.S. Holder:
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fails
to provide an accurate taxpayer identification
number;
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is
notified by the IRS that he has failed to report all interest or corporate
distributions required to be shown on its U.S. federal income tax returns;
or
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in
certain circumstances, fails to comply with applicable certification
requirements.
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Non-U.S. Holders may be required to
establish their exemption from information reporting and backup withholding on
payments within the United States by certifying their status on IRS Form W-8BEN,
W-8ECI or W-8IMY, as applicable.
Backup withholding is not an additional
tax. Rather, a unitholder generally may obtain a credit for any amount withheld
against his liability for U.S. federal income tax (and a refund of any amounts
withheld in excess of such liability) by filing a return with the
IRS.
NON-UNITED
STATES TAX CONSEQUENCES
Marshall
Islands Tax Consequences
The following discussion is based upon
the opinion of Watson, Farley & Williams (New York) LLP, our counsel as to
matters of the laws of the Republic of The Marshall Islands, and is applicable
to persons who do not reside in, maintain offices in or engage in business in
the Republic of the Marshall Islands.
Because we and our subsidiaries do not,
and we do not expect that we and our subsidiaries will, conduct business or
operations in the Marshall Islands, and because all documentation related to
this offering will be executed outside of the Marshall Islands, under current
Marshall Islands law you will not be subject to Marshall Islands taxation or
withholding on distributions, including upon a return of capital, we make to you
as a unitholder. In addition, you will not be subject to Marshall Islands stamp,
capital gains or other taxes on the purchase, ownership or disposition of our
units, and you will not be required by the Marshall Islands to file a tax return
relating to the units.
It is the responsibility of each
unitholder to investigate the legal and tax consequences, under the laws of
pertinent jurisdictions, including the Marshall Islands, of his investment in
us. Accordingly, each prospective unitholder is urged to consult his tax counsel
or other advisor with regard to those matters. Further, it is the responsibility
of each unitholder to file all state, local and non-U.S., as well as U.S.
federal tax returns, that may be required of him.
Our operations and our status as an
operator and manager of ships are significantly regulated by international
conventions, (i.e. SOLAS, MARPOL), Class requirements, U.S. federal, state and
local and foreign health, safety and environmental protection laws and
regulations, including OPA 90, the Comprehensive Environmental Response,
Compensation, and Liability Act (“CERCLA”), the U.S. Port and Tanker Safety Act,
the Act to Prevent Pollution from Ships, regulations adopted by the IMO and the
European Union, various volatile organic compound air emission requirements,
IMO/U.S. Coast Guard pollution regulations and various Safety of Life at Sea
(“SOLAS”) amendments, as well as other regulations, all as described in our
Annual Report.
You should carefully review the
information described below in addition to the information on and discussion of
the various ways in which governmental regulation affects the operation of our
vessels beginning on page 34 of our Annual Report.
United
States
The Clean Water Act prohibits the
discharge of oil or hazardous substances in U.S. navigable waters and imposes
strict liability in the form of penalties for unauthorized discharges. The Clean
Water Act also imposes substantial liability for the costs of removal,
remediation and damages and complements the remedies available under the more
recent OPA 90 and CERCLA, discussed in our Annual Report. The U.S. Environmental
Protection Agency (the ‘EPA’) had exempted the discharge of ballast water and
other substances incidental to the normal operation of vessels in U.S. ports
from Clean Water Act permitting requirements. However, on March 30, 2005, a U.S.
District Court ruled that the EPA exceeded its authority in creating an
exemption for ballast water. On September 18, 2006, the court issued an order
invalidating the exemption in the EPA’s regulations for all discharges
incidental to the normal operation of a vessel as of September 30, 2008, and
directing the EPA to develop a system for regulating all discharges from vessels
by that date. The District Court's decision was affirmed by the Ninth Circuit
Court of Appeals on July 23, 2008.
In June 2008, the EPA proposed rules
governing the regulation of ballast water discharges and other discharges
incidental to the normal operation of vessels. Under the proposed
rules, commercial vessels would be required to obtain a Clean Water Act permit
regulating such discharges. The proposed permit would incorporate
current U.S. Coast Guard requirements for ballast water management as well as
supplemental ballast water requirements, and would provide technology-based and
water-quality based limits for other discharges, such as deck runoff, bilge
water and gray water. Administrative provisions, such as monitoring,
recordkeeping and reporting requirements, would also be
included. Until the EPA promulgates final rules, we can not predict
the effect of the pending rulemaking on our operations, However, as a result of
these court decisions, we ultimately will be subject to Clean Water
Act permit requirements that could include ballast water treatment obligations
that could increase the cost of operating in the United States. For example,
this could require the installation of equipment on our vessels to treat ballast
water before it is discharged or the implementation of other port facility
disposal arrangements or procedures at potentially substantial cost and/or
otherwise restrict our vessels from entering U.S. waters.
Morgan Stanley Profit Sharing.
Further to an agreement reached on July 28, 2008 which will take effect
retroactively as of June 1, 2008, the profit sharing arrangements for our
vessels time chartered with Morgan Stanley Capital Group Inc. are calculated
according to the two-step process set out below. Initially, a weighted average
of two indices published daily by the Baltic Exchange based on specific routes
and cargo sizes representative of the vessel’s trading is calculated and settled
quarterly. Specifically, the calculation is based on the performance of the
transatlantic route (TC2) and the Caribbean-US route (TC3) at certain
predetermined weights. If the weighted average time charter equivalent (“TCE”)
is less than or equal to the basic hire rate, then we receive the basic hire
rate only. If the weighted average TCE exceeds the basic hire rate, then we
receive the basic hire rate plus 50% of the excess. In addition, we have the
right to access the charterer's annual results of operations for each vessel,
and, if these show that the vessel has earned more than the calculation above,
we receive 50% of the vessel’s actual profits less any profits already
received. If the annual results of operations for each vessel do not
exceed the estimated profit calculation based on the two routes then no
additional payments are made. With the exception of the profit share arrangement
for the M/T Assos, where 1.25% commission is deducted from the gross profit
share amount, no commissions are payable on revenues derived from our profit
shares. Annual results of operations from the charterer are to be presented by
December 31 of each year for the period commencing December 1 of the previous
year to November 30 of the year in question, with the exception of the fiscal
year from December 1, 2007 to November 30, 2008 for which annual results of
operations will be settled bi-annually.
BP Profit Sharing. With the
exception of the M/T Amore Mio II, our profit sharing arrangements for our
vessels time chartered with BP Shipping Limited are based on the calculation of
the TCE according to the “last to next” principle. Actual voyage revenues earned
and received, actual expenses incurred and actual time taken to perform the
voyage are used for the purpose of the calculation. The charterer is obliged to
provide us with a copy of each fixture note and all reasonable documentation
with respect to items of cost and earnings referring to each voyage within every
calculation period, as well as with a statement listing actual voyage results
for voyages completed and estimated results for any voyage not completed at the
time of settlement. When actual revenue and/or expenses have not been settled,
BP Shipping Limited’s estimates apply but remain subject to adjustment upon
closing of actual accounts. If the average daily TCE is less than or equal to
the basic gross hire rate, then we receive the basic net hire rate only. If the
average daily TCE exceeds the basic gross hire rate, then we receive the basic
net hire rate plus 50% of the excess over the gross hire rate. In addition to
the 1.25% commission we pay on the gross charter rate for each vessel, the
relevant ship broker is also entitled to an additional 1.25% commission on the
amount of profit share received from the M/T Agisilaos, the M/T Arionas, the M/T
Axios and the M/T Amore Mio II. In the case of the M/T
Amore Mio II, the calculation of the profit share is based on the weighted
monthly average of two indices published daily by the Baltic Exchange based on
specific routes and cargo sizes representative of the vessel’s trading. The
profit share with BP Shipping Limited is calculated and settled quarterly,
except for the profit share for the M/T Amore Mio II, which is calculated and
settled monthly.
TCE rate is a shipping industry
performance measure used primarily to compare daily earnings generated by
vessels on time charters with daily earnings generated by vessels on voyage
charters, because charter hire rates for vessels on voyage charters are
generally not expressed in per day amounts while charter hire rates for vessels
on time charters generally are expressed in such amounts. TCE is expressed as
per ship per day rate and is calculated as voyage and time charter revenues less
voyage expenses during a period divided by the number of operating days during
the period, which is consistent with industry standards.
Please read “Item 4: Business
Overview—Our Fleet” in our Annual Report, including the chart and accompanying
notes, for more information on our time charters, including expected expiration
dates and daily charter rates.
This prospectus covers the offering for
resale of up to 11,304,651 common units (including 8,805,522 common units
issuable upon conversion of subordinated units) and 8,805,522 subordinated
units, by Capital Maritime, the selling unitholder.
The following table sets forth
information relating to the selling unitholder’s beneficial ownership of our
subordinated units and common units as of the date of this
prospectus:
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Name of Selling
Unitholder
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Number
of
Common
Units
Owned
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Number of
Subordinated
Units
Owned
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||
|
Capital
Maritime
|
2,499,129
|
8,805,522
|
The applicable prospectus supplement
will set forth, with respect to the selling unitholder:
|
|
●
|
the
nature of the material relationship that the selling unitholder will have
had within the prior three years with us or any of our affiliates, if not
already described in our Annual Report, in the prospectus included in our
registration statement on Form F-1 filed with the SEC on March 19, 2007
and incorporated by reference in our Annual Report, or
herein;
|
|
|
●
|
the
number of subordinated units and common units, if any, owned by the
selling unitholder prior to the
offering;
|
|
|
●
|
the
number of subordinated units and common units, if any, to be offered for
the selling unitholder’s account;
and
|
|
|
●
|
the
number and the percentage of the outstanding subordinated units and common
units to be owned by the selling unitholder after the completion of the
offering.
|
We may sell the securities offered by
this prospectus and applicable prospectus supplements:
|
|
●
|
through
underwriters or dealers;
|
|
|
●
|
through
agents;
|
|
|
●
|
directly
to purchasers; or
|
|
|
●
|
through
a combination of any such methods of
sale.
|
If underwriters are used to sell
securities, we will enter into an underwriting agreement or similar agreement
with them at the time of the sale to them. In that connection, underwriters may
receive compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the securities
for whom they may act as agent. Any such underwriter, dealer or agent may be
deemed to be an underwriter within the meaning of the U.S. Securities Act of
1933.
The applicable prospectus supplement
relating to the securities will set forth, among other things:
|
|
●
|
the
offering terms, including the name or names of any underwriters, dealers
or agents;
|
|
|
●
|
the
purchase price of the securities and the proceeds to us from such
sale;
|
|
|
●
|
any
underwriting discounts, concessions, commissions and other items
constituting compensation to underwriters, dealers or
agents;
|
|
|
●
|
any
initial public offering price;
|
|
|
●
|
any
discounts or concessions allowed or reallowed or paid by underwriters or
dealers to other dealers;
|
If underwriters or dealers are used in
the sale, the securities will be acquired by the underwriters or dealers for
their own account and may be resold from time to time in one or more
transactions in accordance with the rules of the Nasdaq Global
Market:
|
|
●
|
at
a fixed price or prices that may be
changed;
|
|
|
●
|
at
market prices prevailing at the time of
sale;
|
|
|
●
|
at
prices related to such prevailing market prices;
or
|
|
|
●
|
at
negotiated prices.
|
The securities may be offered to the
public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more of such firms. Unless otherwise
set forth in an applicable prospectus supplement, the obligations of
underwriters or dealers to purchase the securities will be subject to certain
conditions precedent and the underwriters or dealers will be obligated to
purchase all the securities if any are purchased. Any public offering price and
any discounts or concessions allowed or reallowed or paid by underwriters or
dealers to other dealers may be changed from time to time.
Securities may be sold directly by us
or through agents designated by us from time to time. Any agent involved in the
offer or sale of the securities in respect of which this prospectus and a
prospectus supplement is delivered will be named, and any commissions payable by
us to such agent will be set forth, in the prospectus supplement. Unless
otherwise indicated in the prospectus supplement, any such agent will be acting
on a best efforts basis for the period of its appointment.
If so indicated in the prospectus
supplement, we will authorize underwriters, dealers or agents to solicit offers
from certain specified institutions to purchase securities from us at the public
offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject to any conditions set forth in the
prospectus supplement and the prospectus supplement will set forth the
commissions payable for solicitation of such contracts. The
underwriters and other persons soliciting such contracts will have no
responsibility for the validity or performance of any such
contracts.
Underwriters, dealers and agents may be
entitled under agreements entered into with us to be indemnified by us against
certain civil liabilities, including liabilities under the U.S. Securities Act
of 1933, or to contribution by us to payments which they may be required to
make. The terms and conditions of such indemnification will be described in an
applicable prospectus supplement.
Underwriters, dealers and agents may be
customers of, engage in transactions with, or perform services for us or our
affiliates in the ordinary course of business.
Any underwriters to whom securities are
sold by us for public offering and sale may make a market in such securities,
but such underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for any securities.
Certain persons participating in any
offering of securities may engage in transactions that stabilize, maintain or
otherwise affect the price of the securities offered. In connection with any
such offering, the underwriters or agents, as the case may be, may purchase and
sell securities in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the securities and syndicate short
positions involve the sale by the underwriters or agents, as the case may be, of
a greater number of securities than they are required to purchase from us in the
offering. The underwriters may also impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers for the
securities sold for their account may be reclaimed by the syndicate if such
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the securities, which may be higher than the price that might
otherwise prevail in the open market, and if commenced, may be discontinued at
any time. These transactions may be effected on the Nasdaq Global Market, in the
over-the-counter market or otherwise. These activities will be described in more
detail in the applicable prospectus supplement.
We are organized under the laws of the
Marshall Islands as a limited partnership. Our general partner is
organized under the laws of the Marshall Islands as a limited liability
company. The Marshall Islands has a less developed body of securities
laws as compared to the United States and provides protections for investors to
a significantly lesser extent.
Most of our directors and the directors
and officers of our general partner and those of our subsidiaries are residents
of countries other than the United States. Substantially all of our
and our subsidiaries’ assets and a substantial portion of the assets of our
directors and the directors and officers of our general partner are located
outside the United States. As a result, it may be difficult or
impossible for United States investors to effect service of process within the
United States upon us, our directors, our general partner, our subsidiaries or
the directors and officers of our general partner or to realize against us or
them judgments obtained in United States courts, including judgments predicated
upon the civil liability provisions of the securities laws of the United States
or any state in the United States. However, we have expressly
submitted to the jurisdiction of the U.S. federal and New York state courts
sitting in The City of New York for the purpose of any suit, action or
proceeding arising under the securities laws of the United States or any state
in the United States, and we have appointed CT Corporation System, 111 Eighth
Avenue, 13th Floor, New York, NY 10011, to accept service of process on our
behalf in any such action.
Watson, Farley & Williams (New
York) LLP, our counsel as to Marshall Islands law, has advised us that there is
uncertainty as to whether the courts of the Marshall Islands would (1) recognize
or enforce against us, our general partner’s officers judgments of courts of the
United States based on civil liability provisions of applicable U.S. federal and
state securities laws; or (2) impose liabilities against us, our directors, our
general partner or our general partner’s officers in original actions brought in
the Marshall Islands, based on these laws.
The validity of the common units and
the subordinated units and certain other legal matters with respect to the laws
of the Republic of The Marshall Islands will be passed upon for us by our
counsel as to Marshall Islands law, Watson, Farley & Williams (New York)
LLP. Certain other legal matters will be passed upon for us by
Cravath, Swaine & Moore LLP, New York, New York. Cravath, Swaine
& Moore LLP may rely on the opinion of Watson, Farley & Williams (New
York) LLP for all matters of Marshall Islands law.
The
consolidated and predecessor combined financial statements incorporated in this
Prospectus by reference from Capital Product Partners
L.P.’s Annual
Report on Form 20-F for the
year ended December 31, 2007 and the supplemental consolidated and predecessor
combined financial statements reflecting the retroactive adjustment of the
financial statements included in Capital Product Partners
L.P.’s Form
20-F for the year ended December 31, 2007, incorporated in this Prospectus by
reference from Capital Product
Partners L.P.’s Form 6-K
dated August 29, 2008, have been audited by Deloitte, Hadjipavlou Sofianos &
Cambanis S.A., an independent registered public accounting firm, as stated in
their reports, which are incorporated herein by reference and which reports (1)
express an unqualified opinion on the consolidated and predecessor combined
financial statements and includes explanatory paragraphs relating to the
formation of Capital Product Partners L.P. and retroactive adjustment to
previously issued predecessor financial statements resulting from transactions
between entities under common control and (2) express an unqualified opinion on
the supplemental consolidated and predecessor combined financial statements and
includes explanatory paragraphs relating to the formation of Capital Product
Partners L.P. and retroactive adjustments to previously issued predecessor
financial statements resulting from transactions between entities under common
control. Such financial statements have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The following table sets forth the main
costs and expenses, other than the underwriting discounts and commissions, in
connection with this offering.
|
U.S.
Securities and Exchange Commission registration fee
|
$ | 18,583 | ||
|
Financial
Industry Regulatory Authority filing fee
|
* | |||
|
The
Nasdaq Global Market listing fee
|
* | |||
|
Legal
fees and expenses
|
* | |||
|
Accounting
fees and expenses
|
* | |||
|
Printing
and engraving costs
|
* | |||
|
Transfer
agent fees and other
|
* | |||
|
Miscellaneous
|
* | |||
|
Total
|
$ | 18,583 |
* Amounts to be provided in a
prospectus supplement or in a Current Report on Form 6-K subsequently
incorporated by reference into this prospectus.
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item 8. Indemnification
of Directors and Officers.
We will generally indemnify our
directors and the officers and other affiliates of our general partner to the
fullest extent permitted by the law against all losses, claims, damages or
similar events. We refer you to “The Partnership Agreement” in the
prospectus included in our registration statement on Form F-1 filed with the SEC
on March 19, 2007 (the “Registrant’s Form F-1”) and incorporated by reference in
our Annual Report. Reference is also made to the Purchase Agreement to be filed
as Exhibit 1.1 to a prospectus supplement to this registration statement in
which we anticipate that Capital Maritime, Capital Product Partners L.P.,
Capital GP L.L.C. and certain of their affiliates will agree to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, and to contribute to payments that
may be required to be made in respect of these liabilities.
Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
Item
9. Exhibits
|
Exhibit
No.
|
Description
|
|
|
1.1
|
Form
of Purchase Agreement*
|
|
|
4.1
|
First
Amended and Restated Agreement of Limited Partnership of Capital Product
Partners L.P. (1)
|
|
|
5.1
|
Opinion
of Watson, Farley & Williams (New York) LLP as to the legality of the
securities being registered
|
|
|
8.1
|
Opinion
of Cravath, Swaine & Moore LLP relating to tax
matters
|
|
|
8.2
|
Opinion
of Watson, Farley & Williams (New York) LLP relating to tax
matters
|
|
|
10.1
|
Revolving
$370.0 Million Credit Facility dated March 22, 2007 (2)
|
|
|
10.2
|
Amendment
1 to Revolving $370.0 Million Credit Facility dated September 19, 2007
(3)
|
|
|
10.3
|
Supplemental
Agreement to Revolving $370.0 Million Credit Facility dated June 11,
2008
|
|
|
10.4
|
Omnibus
Agreement (2)
|
|
|
10.5
|
Management
Agreement with Capital Ship Management (2)
|
|
|
10.6
|
Amendment
1 to Management Agreement with Capital Ship Management dated September 24,
2007 (3)
|
|
|
10.7
|
Amendment
2 to Management Agreement with Capital Ship Management dated March 27,
2008 (3)
|
|
|
10.8
|
Amendment
3 to the Management Agreement with Capital Ship Management dated April 30,
2008
|
|
|
10.9
|
Administrative
Services Agreement with Capital Ship Management (2)
|
|
|
10.10
|
Contribution
and Conveyance Agreement for Initial Fleet (2)
|
|
|
10.11
|
Share
Purchase Agreement for 2007 and 2008 Vessels (2)
|
|
|
10.12
|
Revolving
$350.0 Million Credit Facility dated March 19, 2008 (3)
|
|
|
10.13
|
Share
Purchase Agreement for M/T Attikos dated September 24, 2007
(3)
|
|
|
10.14
|
Share
Purchase Agreement for M/T Amore Mio II dated March 27, 2008
(3)
|
|
|
10.15
|
Share
Purchase Agreement for M/T Aristofanis dated April 30,
2008
|
|
|
21.1
|
List
of Subsidiaries of Capital Product Partners L.P.
|
|
|
23.1
|
Consent
of Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
|
|
| 23.2 |
Consent
of Deloitte Hadjipavlou, Sofianos & Cambanis
S.A.
|
|
|
23.3
|
Consent
of Watson, Farley & Williams (New York) LLP (contained in Exhibit 5.1
and 8.2)
|
|
|
23.4
|
Consent
of Cravath, Swaine & Moore LLP (contained in Exhibit
8.1)
|
* To be
filed as an exhibit to a prospectus supplement to this registration
statement.
(1)
Previously filed as Appendix A to the registrant’s Rule 424(b)(4) Prospectus
filed with the SEC on March 30, 2007 and incorporated by reference in our Annual
Report.
(2)
Previously filed as an exhibit to the registrant’s registration statement on
Form F-1 (File No. 333-141422) filed with the SEC on March 19, 2007 and
incorporated by reference in our Annual Report.
(3)
Previously filed as an exhibit to the registrant’s Annual Report.
Item
10. Undertakings.
The Registrant hereby
undertakes:
1. To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration
statement:
a. To include any prospectus required
by section 10(a)(3) of the Securities Act;
b. To reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the effective registration
statement;
c. To include any material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement;
Provided, however, that
paragraphs 1(a), 1(b) and 1(c) of this section do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement, or is contained in a
form of prospectus filed pursuant to Rule 424(b) that is part of the
registration statement.
2. That, for the purpose of determining
any liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. To remove from registration by means
of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
4. To file a post-effective amendment
to the registration statement to include any financial statements required by
Item 8.A. of Form 20-F at the start of any delayed offering or throughout a
continuous offering. Financial statements and information otherwise required by
Section 10(a)(3) of the Securities Act need not be furnished, provided that the
registrant includes in the prospectus, by means of a post-effective amendment,
financial statements required pursuant to this paragraph 4 and other information
necessary to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a post-effective
amendment need not be filed to include financial statements and information
required by Section 10(a)(3) of the Securities Act or § 210.3-19 of this chapter
if such financial statements and information are contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
5. That, for the purpose of determining
liability under the Securities Act of 1933 to any purchaser:
a. Each prospectus filed by the
registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed part of
and included in the registration statement; and
b. Each prospectus required to be filed
pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the information
required by Section 10(a) of the Securities Act shall be deemed to be part of
and included in the registration statement as of the earlier of the date such
form of prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the prospectus. As
provided in Rule 430B, for liability purposes of the issuer and any person that
is at that date an underwriter, such date shall be deemed to be a new effective
date of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such effective date.
6. That, for the purpose of determining
liability of the registrant under the Securities Act to any purchaser in the
initial distribution of the securities, the undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant pursuant
to this registration statement, regardless of the underwriting method used to
sell the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
a. Any preliminary prospectus or
prospectus of the undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
b. Any free writing prospectus relating
to the offering prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
c. The portion of any other free
writing prospectus relating to the offering containing material information
about the undersigned registrant or its securities provided by or on behalf of
the undersigned registrant; and
d. Any other communication that is an
offer in the offering made by the undersigned registrant to the
purchaser.
The undersigned registrant hereby
undertakes that, for purposes of determining any liability under the Securities
Act, each filing of the registrant’s annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the registrant certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form F-3 and
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Piraeus, Country
of Greece on the 29th day of August, 2008.
|
CAPITAL
PRODUCT PARTNERS L.P.,
|
|||||
|
By:
|
Capital
GP L.L.C., its general partner
|
||||
|
/s/ IOANNIS E.
LAZARIDIS
|
|||||
| Name: |
Ioannis
E. Lazaridis
|
||||
| Title: |
Chief
Executive Officer and Chief Financial Officer of Capital GP
L.L.C.
|
||||
POWER
OF ATTORNEY
Each person whose signature appears
below appoints Ioannis E. Lazaridis as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement and any
registration statement (including any amendments thereto) for this offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended and to file the same with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he or she might or would do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his or her substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the
Securities Act of 1933, as amended, this registration statement has been signed
by the following persons in the capacities and on the dates
indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ IOANNIS E.
LAZARIDIS
|
Chief
Executive Officer and Chief Financial Officer
|
August
29, 2008
|
||
| (Principal Executive, Financial and Accounting Officer) of Capital GP L.L.C. and Director | ||||
|
/s/ EVANGELOS M.
MARINAKIS
|
Director
and Chairman of the Board
|
August
29, 2008
|
||
|
Evangelos
M. Marinakis
|
||||
|
/s/ KEITH FORMAN
|
Director
|
August
29, 2008
|
||
|
Keith
Forman
|
||||
|
/s/ NIKOLAOS
SYNTYCHAKIS
|
Director
|
August
29, 2008
|
||
|
Nikolaos
Syntychakis
|
||||
|
/s/ ROBERT P.
CURT
|
Director
|
August
29, 2008
|
||
|
Robert
P. Curt
|
||||
|
/s/ ABEL
RASTERHOFF
|
Director
|
August
29, 2008
|
||
|
Abel
Rasterhoff
|
||||
|
/s/ EVANGELOS G.
BAIRACTARIS
|
Director
and Secretary
|
August
29, 2008
|
||
|
Evangelos
G. Bairactaris
|
SIGNATURE
OF AUTHORIZED REPRESENTATIVE OF THE REGISTRANT
Pursuant to the Securities Act of 1933,
as amended, the undersigned, a duly authorized representative of Capital Product
Partners L.P. in the United States, has signed the Registration Statement in the
City of Newark, State of Delaware on the 29th day of August, 2008.
|
PUGLISI
& ASSOCIATES
|
|||||
|
By:
|
/s/ DONALD J.
PUGLISI
|
||||
| Name: |
DONALD
J. PUGLISI
|
||||
| Title: |
Managing
Director
|
||||