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As filed with the Securities and Exchange Commission on August 10, 2007

Registration No. 333-[    •    ]



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


OSG America L.P.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  4400
(Primary Standard Industrial
Classification Code Number)
  11-3812936
(I.R.S. Employer
Identification Number)

Two Harbour Place
302 Knights Run Avenue
Suite 1200
Tampa, FL 33602
(813) 209-0600

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)


Copies to:

John T. Gaffney
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
(212) 474-1122
  William J. Cooper
Andrews Kurth LLP
1350 I Street, N.W.
Suite 1100
Washington, D.C. 20005
(202) 662-3044

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.


        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.    o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, 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 post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, 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 post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

        If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.    o


CALCULATION OF REGISTRATION FEE


Title of Each Class of
Securities to be Registered

  Proposed Maximum Aggregate
Offering Price(1)(2)

  Amount of
Registration Fee


Common units representing limited partner interests   $181,125,000.00   $5,560.55

(1)
Includes common units issuable upon exercise of the underwriters' over-allotment option.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).


        The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.




The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED August 10, 2007

PROSPECTUS

7,500,000 Common Units
Representing Limited Partner Interests

OSG America L.P.

$            per common unit


        We are a Delaware limited partnership recently formed by Overseas Shipholding Group, Inc. (OSG). This is the initial public offering of our common units. We expect the initial public offering price to be between $                      and $                      per common unit. Holders of common units are entitled to receive distributions of available cash in the amount of $0.35 per quarter, or $1.40 on an annualized basis, before any distributions are paid to the holders of our subordinated units. We will only make these distributions if, after establishment of cash reserves and payment of fees and expenses, we have sufficient cash from operations. We intend to apply to list the common units on the New York Stock Exchange under the symbol "        ".


        Investing in our common units involves risks that are described in the "Risk Factors" section beginning on page 16 of the prospectus.

        These risks include:

We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units, after the establishment of cash reserves and payment of fees and expenses.

We must make substantial capital expenditures to maintain the operating capacity of our fleet, which will reduce our cash available for distribution.

We depend on OSG and its affiliates to assist us in operating and expanding our business.

Decreases in U.S. refining capacity, particularly in the Gulf Coast region, could adversely affect our ability to grow our fleet, revenues and profitability.

OSG and its affiliates may engage in competition with us.

Our general partner and its affiliates, own a controlling interest in us and have conflicts of interest and limited fiduciary duties, which may permit them to place their interests ahead of yours.

Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.

You will experience immediate and substantial dilution of $10.77 per common unit.

Our partnership agreement currently limits the ownership of our partnership interests by individuals or entities that are not U.S. citizens. This restriction could limit the liquidity of our common units.

You may be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.
 
  Per Common Unit
  Total
Public Offering Price   $     $  
Underwriting Discount   $     $  
Proceeds to OSG America L.P. (before expenses)   $     $  

        We have granted the underwriters a 30-day option to purchase up to an additional 1,125,000 common units from us at the public offering price, less the underwriting discount, to cover over-allotments, if any.

        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 underwriters expect to deliver the common units on or about                        , 2007.

Citi UBS Investment Bank

Merrill Lynch & Co.

                   , 2007



TABLE OF CONTENTS

Summary   1
  OSG America L.P.   1
  Risk Factors   5
  The Transactions   5
  Management of OSG America L.P.   7
  Principal Executive Offices and Internet Address; SEC Filing Requirements   8
  Summary of Conflicts of Interest and Fiduciary Duties   8
  The Offering   9
  Summary Historical and Pro Forma Financial and Operating Data   13
Risk Factors   16
Use of Proceeds   43
Capitalization   44
Dilution   45
Our Cash Distribution Policy and Restrictions on Distributions   46
How We Make Cash Distributions   58
Selected Historical and Pro Forma Financial and Operating Data   71
Management's Discussion and Analysis of Financial Condition and Results of Operations   74
The Jones Act Product Carrier and Barge Industry   90
Business   101
Management   123
Security Ownership of Certain Beneficial Owners and Management   126
Certain Relationships and Related Party Transactions   127
Conflicts of Interest and Fiduciary Duties   134
Description of the Common Units   142
The Partnership Agreement   144
Units Eligible for Future Sale   159
Material Tax Consequences   160
Underwriting   174
Legal Matters   177
Experts   177
Expenses Related to This Offering   178
Where You Can Find More Information   178
Industry and Market Data   178
Forward-Looking Statements   179
INDEX TO FINANCIAL STATEMENTS   F-1
APPENDIX A Form of First Amended and Restated Agreement of Limited Partnership of OSG America L.P.   A-1
APPENDIX B Application for Transfer of Common Units   B-1
APPENDIX C Glossary of Terms   C-1

        You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely upon it. We are not, and the underwriters 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 as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

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SUMMARY

        This summary highlights information contained elsewhere in this prospectus. Unless we otherwise specify, all information and data in this prospectus about our business and fleet refer to the business and fleet that will be contributed to us upon the completion of this offering. You should read the entire prospectus carefully, including the historical and pro forma financial statements and the notes to those financial statements. The information presented in this prospectus assumes, unless otherwise noted, that the underwriters' over-allotment option is not exercised. You should read "Risk Factors" for information about important factors that you should consider before buying the common units.

        References in this prospectus to "OSG America L.P.," "we," "our," "us," or similar terms when used in a historical context refer to the assets of Overseas Shipholding Group, Inc. and its vessel-owning subsidiaries that are being contributed to OSG America L.P. in connection with this offering. When used in the present tense or prospectively, those terms refer, depending on the context, to OSG America L.P. or any one or more of its subsidiaries, or to all such entities. References in this prospectus to "OSG" refer, depending upon the context, to Overseas Shipholding Group, Inc. or to any one or more of its subsidiaries, including OSG Ship Management, Inc. and OSG Bulk Ships, Inc., or to Overseas Shipholding Group, Inc. and any one or more of its subsidiaries. OSG Ship Management, Inc. (an affiliate of our general partner) will manage the commercial and technical operation of our fleet pursuant to service agreements. References in this prospectus to "our general partner" refer to OSG America LLC. We include a glossary of some of the terms used in this prospectus in Appendix C. Unless otherwise indicated, all references to "dollars" and "$" in this prospectus are to, and amounts are presented in, U.S. Dollars.


OSG America L.P.

        We are the largest operator, based on barrel-carrying capacity, of U.S. flag product carriers and barges transporting refined petroleum products. We were recently formed by Overseas Shipholding Group, Inc. (NYSE: OSG), a market leader in providing global energy transportation services. We plan to use the expertise, customer base and reputation of OSG to expand our marine transportation service. Following this offering, our initial fleet of product carriers and barges will consist of ten product carriers, seven articulated tug barges (ATBs) and one conventional tug-barge unit (CTB), with an aggregate carrying capacity of approximately 4.9 million barrels. Alaska Tanker Company, LLC (ATC), a joint venture in which we have a 37.5% ownership interest, transports crude oil from Alaska to the continental United States using a fleet of five crude-oil tankers with an aggregate carrying capacity of 6.3 million barrels. Upon the completion of this offering, OSG will own a 77.2% interest in us, including a 2% interest through our general partner, which OSG owns and controls.

        The majority of our vessels transport refined petroleum products in the U.S. "coastwise" trade over three major trade routes:

    from refineries located on the Gulf Coast to Florida, other lower Atlantic states and the West Coast;

    from refineries located on the East Coast to New England; and

    from refineries located on the West Coast to Southern California and Oregon.

        The Gulf Coast to Florida trade route is the most important of these trade routes due to the absence of pipelines that service Florida and Florida's growing demand for refined petroleum products. We also provide lightering services on the East Coast by transporting crude oil from large crude-oil tankers to refineries in the Delaware River Basin.

        Our market is protected from direct foreign competition by the Merchant Marine Act of 1920 (the Jones Act), which mandates that all vessels transporting cargo between U.S. ports must be built in the United States without subsidy, registered under the U.S. flag, manned by U.S. crews and owned and

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operated by U.S. organized companies that are controlled and at least 75% owned by U.S. citizens. Charter rates for Jones Act vessels have historically been more stable than those of similar vessels operating in the international shipping markets. We currently operate 16 of our 18 vessels in the U.S.-coastwise trade in accordance with the Jones Act and all of our future scheduled newbuild deliveries will qualify to operate under the Jones Act.

        OSG has assigned to us its agreements to bareboat charter four newbuild product carriers from subsidiaries of Aker American Shipping, Inc. (Aker) upon their delivery from the shipyard between late 2007 and early 2009. These four product carriers have already been time chartered to customers for periods ranging from 3-7 years. We also have the opportunity to increase the size of our fleet through the exercise of options granted to us by OSG to:

    purchase up to six newbuild ATBs, scheduled for delivery from Bender Shipbuilding & Repair Co., Inc. (Bender) between early 2008 and late 2010; and

    acquire the right to bareboat charter up to six newbuild product carriers from Aker, scheduled for delivery between 2009 and 2011.

        The options to purchase the ATBs and the rights to bareboat charter the newbuild product carriers from Aker will be exercisable prior to the first anniversary of the delivery of each vessel. The exercise of any of the options will be subject to the negotiation of a purchase price.

        The following chart details the potential growth of our fleet and its aggregate carrying capacity.

 
  At IPO
  Scheduled
Deliveries

  After Scheduled
Deliveries

  Optional
Product
Carriers and
Barges

  Phase-out
  Total
 
  Vessels(1)
  Capacity
(barrels)

  2007-2009
  Vessels
  Capacity
(barrels)

  2008-2011
  72011-
2013

  Vessels
  Capacity
(barrels)

 
   
  (in
thousands)

   
   
  (in
thousands)

   
   
   
  (in
thousands)

Product Carriers   10   3,140   4   14   4,436   6   (4 ) 16   5,056
ATBs(2)   7   1,618     8   1,790   6     14   3,701
CTBs(2)   1   172     0         0  
   
 
 
 
 
 
 
 
 
Total Fleet   18   4,930   4   22   6,226   12   (4 ) 30   8,757
   
 
 
 
 
 
 
 
 

(1)
Does not include the five crude-oil tankers operated by ATC.

(2)
Bender is constructing for us two 8,000 horsepower tugs, each with its own ATB coupler system, that are scheduled for delivery in 2008 and 2009. The first tug will allow us to replace the only conventional tug in our fleet and allow us, after minor modifications to the barge, to convert our only CTB into an ATB. We will be responsible for all remaining payments due under the shipbuilding contracts, which we expect will be approximately $25 million.

        For 2006, approximately 73% of our pro forma revenues were from fixed-rate contracts, which includes time-charters, contracts of Affreightment (COAs), and Consecutive Voyage Charters (CVCs), and the remaining 27% of our pro forma revenues were from single voyage contracts. While the time charters for our initial fleet of 18 product carriers and barges range between one and seven years and currently have an average of 1.7 years before they expire, many of our customers are seeking longer-term contracts. Time charters on the four newbuild product carriers that will be delivered to us between late 2007 and early 2009 have an average term of 4 years. We believe that our strong customer relationships provide a foundation for stable revenue and long term growth of our business.

Our Relationship with OSG

        One of our key strengths is our relationship with OSG, one of the world's leading energy transportation companies. OSG has been a publicly-listed company since 1969 and reported over $1 billion in revenues in 2006, primarily from the ocean transportation of crude oil and refined petroleum products. As of March 31, 2007, OSG owned or operated a fleet of 104 vessels, aggregating

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12.0 million deadweight tons (dwt). OSG has granted us options to purchase up to six newbuild ATBs and to bareboat charter up to six newbuild Jones Act product carriers that are scheduled for delivery between 2008 and 2011. We intend to use the long-standing relationships between OSG and a number of leading integrated oil companies and independent refiners to arrange longer-term time charters for our product carriers and barges.


Business Opportunities

        We believe that the following factors create opportunities for us to execute successfully our business plan and grow our business:

    Growing Reliance on Waterborne Transportation Due to Increasing U.S. Refinery Capacity. According to the Energy Information Administration of the U.S. Department of Energy (EIA), incremental expansions at Gulf Coast refineries are expected to increase production capacity by approximately 1.6 million barrels per day (bpd) by 2016, from their production capacity of approximately 8.1 million bpd in 2006. This represents an overall increase in daily Gulf Coast refining capacity of approximately 20%. According to Wilson Gillette, approximately 30% of all petroleum products refined in the United States in 2006 were transported by water and we believe that 30% of the incremental refined petroleum products resulting from incremental refinery capacity expansions in the Gulf Coast will be transported by water. See "The Jones Act Product Carrier and Barge Industry—Introduction." We also believe that the opportunities we have to increase the size of our fleet will give us the ability to increase our market share of these incremental waterborne movements.

    Limited Supply of Jones Act Vessels. Assuming that older single hull vessels are not retrofitted with double hulls, the provisions of OPA 90 are expected to reduce the current supply of Jones Act vessels by approximately 37% by 2015, based on deadweight tonnage. See "The Jones Act Product Carrier and Barge Industry—Jones Act Product Carrier and Barge Fleet." Based upon barrel-carrying capacity, approximately 72% of our current fleet is double-hulled. We believe this will, combined with the double-hulled newbuild ATBs and product carriers that we have options to purchase and bareboat charter, give us a significant competitive advantage.

    New Demand for Jones Act Vessels in Deepwater Gulf of Mexico. According to the EIA, deepwater Gulf of Mexico crude oil production is expected to increase from approximately 840,000 bpd in 2005 to approximately 2,000,000 bpd by 2015. We believe that this forecast growth in crude-oil production will create demand for vessels to carry crude oil from offshore oil fields to coastal refineries because pipelines may not be economically or technically feasible. If we exercise one or more of our options to purchase ATBs from OSG and bareboat charter product carriers from Aker, we may have the opportunity to develop a Jones Act shuttle business in the Gulf of Mexico.


Our Competitive Strengths

        We believe that we are well positioned to execute our business strategies successfully because of the following competitive strengths:

    Number One Market Position. We are the leading transporter of refined petroleum products in the United States Jones Act trade and the largest provider, based on barrel-carrying capacity, of waterborne transportation services for refined petroleum products from Gulf Coast refineries to Florida. According to Wilson Gillette, this trade route represented approximately 51% of the total U.S. coastwise petroleum product transportation demand in 2006. We expect demand for waterborne transportation of refined petroleum products on this trade route to continue to grow in line with higher-than-average population increases in Florida. According to the Bureau of Economic Analysis of the U.S. Department of Commerce and the U.S. Census Bureau, the

3


      average GDP growth from 2000 to 2006 for Florida was 4.4% compared to the United States average of 2.5% and the population of Florida grew 13.2% between April 2000 and July 2006, compared to the United States growth rate over the same period of 6.4%. Because Florida has no interstate refined product pipelines or refineries and so long as none are built, waterborne transportation will continue to be the principal means of transporting refined petroleum products into the state.

    Stable and Growing Cash Flows from Medium to Long-Term Charters. Of our 17 product carriers and barges currently in service, nine are performing under term contracts with durations of two to seven years. Of the remainder, four are employed under COAs or time charters with optional renewal features with charterers that have employed these vessels for periods of two years or more. The average remaining life of our term contracts is approximately 1.8 years. We have only one product carrier and one ATB currently trading on the spot market. In addition, our four newbuild product carriers to be delivered by Aker between late 2007 and early 2009 are fixed on time charters commencing on delivery with an average length of four years, each with options to extend for up to an additional five years on average. As the supply of Jones Act vessels decreases due to OPA 90, we expect more customers to seek longer-term charters to secure shipping capacity.

    Visible Growth Opportunities. Our initial fleet will consist of 18 vessels with an aggregate carrying capacity of 4.9 million barrels. Upon their delivery, we will bareboat charter-in four newbuild product carriers between late 2007 and early 2009, at which time we expect to have a fleet of 22 vessels with an aggregate carrying capacity of 6.2 million barrels. If we exercise all six of our options to purchase newbuild ATBs from OSG and all six of our options to bareboat charter newbuild product carriers from Aker between 2008 and 2011, our carrying capacity will increase to 8.8 million barrels. We also believe that employing a fleet of owned and bareboat chartered vessels provides us operational and financial flexibility, because the chartered vessels require less capital than owned vessels.

    Large, Versatile Fleet of Double-Hull Vessels. Of the 18 vessels in our initial fleet, 13 are double-hulled and one ATB is being retrofitted with a double hull. After delivery of the four newbuild product carriers from Aker, and assuming we exercise all six of our options with OSG to purchase ATBs to be constructed by Bender and all six of our options with OSG to bareboat charter newbuild product carriers from Aker, our fleet will be the largest, and among the youngest, in the Jones Act trade. Newer vessels are more fuel-efficient, cost-effective and environmentally-sound than older vessels. We believe that employing a fleet consisting primarily of new double-hulled product carriers and ATBs allows us effectively to meet the requirements of various customers in a number of different markets.

    Strong Long-term Relationships with High Quality Customers. Through our predecessor, we have established long-term relationships with our customers by working closely with them to meet or exceed their expectations for service, safety and environmental compliance. The majority of our shipping revenues comes from large integrated oil companies and independent refiners such as Chevron Corporation, Sunoco, Inc., Marathon Oil Corporation, Valero Energy Corporation and Tesoro Corporation. We believe that our track record and performance have made us the provider of choice with them.


Our Business Strategies

        Our primary business objective is to continue to grow our distributable cash flow per unit by executing the following strategies:

    Increase Market Share. We operate the largest fleet of U.S. flag product carriers and barges, based on barrel-carrying capacity, transporting refined petroleum products. Our bareboat charter

4


      of four newbuild product carriers from Aker and, assuming we exercise all of our options with OSG to bareboat charter six newbuild product carriers from Aker and to purchase six newbuild ATBs to be constructed by Bender, will further strengthen our leading position in the Jones Act trade. We will continue to evaluate strategic acquisitions in order to meet the demand for U.S. flag vessels in a manner that will increase our distributable cash flow.

    Capitalize on Relationship with OSG. We intend to use OSG's customer relationships with leading integrated oil companies and independent refiners to arrange longer-term time charters.

    Generate Stable Cash Flows With High-Quality Charterers. Our customers are predominantly leading integrated oil companies and independent refiners. We believe that entering into medium to long-term charters with these customers will provide us with relatively stable cash flows.

    Expand into Related Segments. We believe that our high-quality Jones Act vessels, our reputation for dependable service and our relationship with OSG will enable us expand into new segments, such as shuttle tankers in the Gulf of Mexico. In addition, three of the six newbuild ATBs that we have options to purchase from OSG are already chartered to Sunoco for lightering business in the Delaware Bay.

    Emphasize Safety. We have an excellent vessel safety record and reputation for customer service and support. We believe that by maintaining a high standard for operational safety and environmental compliance, we will be able to maintain our leading market position.

    Maintain Financial Strength and Flexibility. We intend to maintain financial strength and flexibility so as to enable us to pursue acquisition opportunities as they arise. We will have access to approximately $200 million under our new credit facility for working capital and acquisitions, of which we anticipate approximately $149.2 million will be undrawn at completion of this offering.


Risk Factors

        An investment in our common units involves risks associated with our business, our partnership structure and the tax characteristics of our common units. Please read carefully these and other risks described under "Risk Factors" beginning on page 16 of this prospectus.


The Transactions

General

        We are a Delaware limited partnership formed on May 14, 2007 by OSG to expand its marine transportation service for refined petroleum products transported between ports in the United States and crude oil transported from foreign flag product carriers to refineries located in and around Delaware Bay.

        At or prior to completing this offering, we will enter into the following transactions to transfer to us the 18 vessels making up our initial fleet and to grant us options to purchase up to six newbuild ATBs from OSG and to acquire from OSG the right to bareboat charter up to six newbuild product carriers from Aker, as further described in this prospectus, and to effect the public offering of our common units:

    We will enter into a contribution agreement with OSG, pursuant to which OSG will contribute to us all of the outstanding membership interests of the subsidiaries that own or operate the 18 vessels in our initial fleet and the subsidiaries that have committed to bareboat charter four newbuild product carriers from certain subsidiaries of Aker;

5


    We will issue to OSG 8,596,500 common units and 16,096,500 subordinated units, representing a 75.2% limited partner interest in us;

    We will issue to our general partner, OSG America LLC, a wholly-owned subsidiary of OSG, a 2% general partner interest in us and all of our incentive distribution rights, which will entitle our general partner to increasing percentages of the cash we distribute in excess of $0.4025 per unit per quarter;

    We will issue 7,500,000 of our common units to the public, representing a 22.8% limited partner interest in us, and will use the net proceeds as described under "Use of Proceeds;"

    We will pay OSG approximately $136.5 million in cash with the net proceeds from this offering; and

    We will borrow $50.8 million under a new credit facility to repay $50.0 million of the long-term related party debt from OSG and $0.8 million of related expenses.

        In addition, at or prior to completing this offering, we will enter into the following agreements:

    A management agreement with OSG Ship Management, Inc. (OSGM), pursuant to which OSGM will agree to provide commercial and technical management services to us;

    An administrative services agreement with OSGM, pursuant to which OSGM will agree to provide administrative services to us;

    An omnibus agreement with OSG, our general partner and others, setting forth, among other things:

when we and OSG may compete with each other;

certain rights of first offer on Jones Act product carriers and barges;

the grant to us of options to purchase the membership interests of one or more subsidiaries of OSG that have entered into shipbuilding contracts with Bender for six newbuild ATBs;

the grant to us of options to acquire the membership interests of one or more subsidiaries of OSG that have entered into agreements to bareboat charter from subsidiaries of Aker six newbuild product carriers, upon delivery of those vessels; and

A $200 million revolving credit facility.

        For further details on our agreements with OSG and OSGM, including the consideration paid under those agreements, please read "Certain Relationships and Related Party Transactions."

Holding Company Structure

        As is typical of publicly traded limited partnerships, we are a holding entity and will conduct our operations and business through subsidiaries in order to maximize operational flexibility.

6


Organizational Structure after the Transactions

        The following diagram depicts our organizational structure after giving effect to the transactions:

Public Common Units   22.8 %
OSG Common Units   26.2 %
OSG Subordinated Units   49.0 %
General Partner Interest   2.0 %
   
 
    100.0 %
   
 

GRAPHIC


Management of OSG America L.P.

        Our general partner, OSG America LLC, will manage our operations and activities. The executive officers and four of the directors of OSG America LLC also serve as executive officers or directors of OSG. For more information about these individuals, please read "Management—Directors, Executive Officers and Key Employees."

        Unlike shareholders in a publicly-traded corporation, our unitholders will not be entitled to elect our general partner or its directors.

        Our general partner will not receive any management fee or other compensation in return for its management of our business. However, it will be entitled to be reimbursed for all direct and indirect expenses incurred on our behalf and also be entitled to distributions on its general partner interest and, if specified requirements are met, based upon its incentive distribution rights. Please read "Certain Relationships and Related Party Transactions" and "Management—Reimbursement of Expenses of Our General Partner."

        We will enter into a management agreement with OSGM relating to the provision of commercial and technical management services and an administrative services agreement relating to the provision of administrative services. Please read "Certain Relationships and Related Party Transactions—Management Agreement" and "Certain Relationships and Related Party Transactions—Administrative Services Agreement."

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Principal Executive Offices and Internet Address; SEC Filing Requirements

        Our principal executive offices are located at Two Harbour Place, 302 Knights Run Avenue, Suite 1200, Tampa, Florida 33602 and our phone number is 813-209-0600. Our website is located at http://www.osgamerica.com. We expect to make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through our website as soon as reasonably practicable after those reports and other information are electronically filed with, or furnished to, the SEC. Information on our website or any other website, including OSG's website, is not incorporated by reference into this prospectus and does not constitute a part of this prospectus. Please see "Where You Can Find More Information" for an explanation of our reporting requirements.


Summary of Conflicts of Interest and Fiduciary Duties

        OSG America LLC, our general partner, has a legal duty to manage us in a manner beneficial to our unitholders. This legal duty is commonly referred to as a "fiduciary" duty. However, because OSG America LLC is owned by OSG, the officers and directors of OSG America LLC also have fiduciary duties to manage the business of OSG America LLC in a manner beneficial to OSG. In addition:

    the executive officers and four of the directors of OSG America LLC also serve as executive officers or directors of OSG;

    OSG and its other affiliates may engage in competition with us; and

    we and certain of our operating subsidiaries have entered into arrangements, and may enter into additional arrangements, with OSG and its subsidiaries, including OSGM, relating to the acquisition of additional vessels, the provision of certain services and other matters.

        Please read "Management—Directors, Executive Officers and Key Employees" and "Certain Relationships and Related Party Transactions."

        As a result of these relationships, conflicts of interest may arise between us and our unitholders, on the one hand, and OSG and its other affiliates, including our general partner, on the other hand. For a more detailed description of the conflicts of interest and fiduciary duties of our general partner, please read "Conflicts of Interest and Fiduciary Duties."

        In addition, our partnership agreement contains provisions that reduce the standards of conduct to which our general partner would otherwise be held under Delaware law. For example, our partnership agreement limits the liability and reduces the fiduciary duties of our general partner to our unitholders and restricts the remedies available to unitholders. By purchasing a common unit, you are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner, all as set forth in the partnership agreement. Please read "Conflicts of Interest and Fiduciary Duties" for a description of the fiduciary duties that would otherwise be imposed on our general partner under Delaware law, the material modifications of those duties contained in our partnership agreement and certain legal rights and remedies available to our unitholders under Delaware law.

        For a description of our other relationships with our affiliates, please read "Certain Relationships and Related Party Transactions."

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The Offering

Common units offered to the public   7,500,000 common units.

 

 

8,625,000 common units if the underwriters exercise their over-allotment option in full.

Units outstanding after this offering

 

16,096,500 common units and 16,096,500 subordinated units, each representing a 49% limited partner interest in us.

Use of proceeds

 

We intend to use the net proceeds of this offering to pay approximately $136.5 million in cash to OSG.

 

 

The net proceeds from any exercise of the underwriters' over-allotment option will be used to redeem from OSG a number of common units equal to the number of common units issued upon exercise of the over-allotment option, at a price per common unit equal to the proceeds per common unit before expenses, but after underwriting discounts, commissions and structuring fees.

Cash distributions

 

To the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner, we intend to make minimum quarterly distributions of $0.35 per common unit. In general, we will pay any quarterly cash distributions in the following manner:

 

 


 

first, 98% to the holders of common units and 2% to our general partner, until each common unit has received a minimum quarterly distribution of $0.35 plus any arrearages from prior quarters;

 

 


 

second, 98% to the holders of subordinated units and 2% to our general partner, until each subordinated unit has received a minimum quarterly distribution of $0.35; and

 

 


 

third, 98% to all unitholders, pro rata, and 2% to our general partner, until each unit has received an aggregate distribution of $0.4025.

 

 

If cash distributions exceed $0.4025 per unit in any quarter, our general partner will receive increasing percentages, up to 50% (including its 2% general partner interest), of the cash we distribute in excess of that amount. We refer to these distributions as "incentive distributions."

 

 

We must distribute all of our cash on hand at the end of each quarter, less reserves established by our general partner to provide for the proper conduct of our business, to comply with any applicable debt instruments and to provide funds for future distributions. We refer to this cash as "available cash," and its meaning is defined in our partnership agreement and in the glossary of terms attached as Appendix C. Depending upon the performance of our business, the amount of available cash may be greater than or less than the aggregate amount of the minimum quarterly distribution of $0.35 to be distributed on all units.
         

9



 

 

Our pro forma, as adjusted available cash from operating surplus generated during the year ended December 31, 2006 and the twelve months ended March 31, 2007, calculated assuming this offering and related transactions occurred on January 1, 2006 and April 1, 2006, respectively, would have been $31.7 million and $35.3 million, respectively. Our pro forma available cash to make distributions during the year ended December 31, 2006 and twelve months ended March 31, 2007 would have been sufficient to allow us to pay 100% of the minimum quarterly distribution of $0.35 per unit per quarter (or $1.40 per unit on an annualized basis) on our common units and 38% and 54%, respectively, of the minimum quarterly distribution on our subordinated units. Please read "Our Cash Distribution Policy and Restrictions on Distributions—Pro Forma and Forecasted Results of Operations and Cash Available for Distribution".

 

 

We have included a forecast of our cash available for distribution for the twelve months ending June 30, 2008 in "Our Cash Distribution Policy and Restrictions on Distributions—Pro Forma and Forecasted Results of Operations Cash Available for Distribution." We believe, based on our financial forecast and related assumptions, that we will have sufficient cash from operations, including working capital borrowings, to enable us to pay the full minimum quarterly distribution of $0.35 on all units for each quarter through June 30, 2008.

Subordinated units

 

OSG will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that in any quarter during the subordination period applicable to the subordinated units, each subordinated unit will be entitled to receive the minimum quarterly distribution of $0.35 only after the common units have received the minimum quarterly distribution and any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages. The subordination period will end when we have earned and paid at least $0.35 on each outstanding unit and the corresponding distribution on the 2% general partner interest for any three consecutive four quarter periods ending on or after September 30, 2010. The subordination period may also end prior to September 30, 2010 if the financial test for early conversion of subordinated units is met, as described below.

 

 

When the subordination period ends, all remaining subordinated units will convert into common units on a one-for-one basis and the common units will no longer be entitled to arrearages.

Early conversion of subordinated units

 

If we have earned and paid at least $2.10 (150% of the annualized minimum quarterly distribution) on each outstanding unit for any four quarter period ending on or before the date of determination, the subordinated units will convert into common units. Please read "How We Make Cash Distributions—Subordination Period."

General partner's right to reset the target distribution levels

 

Our general partner has the right, at a time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (50%) for each of the prior four consecutive quarters, to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two quarters immediately preceding the exercise of the reset election (we refer to this amount as the "reset minimum quarterly distribution") and the target distribution levels will be reset to correspondingly higher levels based on the same percentage increases above the reset minimum quarterly distribution amount as in our current target distribution levels.
         

10



 

 

In connection with resetting these target distribution levels, our general partner will be entitled to receive Class B units. The Class B units will be entitled to the same cash distributions per unit as our common units and will be convertible at any time into an equal number of common units. The number of Class B units to be issued will be equal to that number of common units whose aggregate quarterly cash distributions equaled the average of the distributions to our general partner on the incentive distribution rights in the prior two quarters. For a more detailed description of our general partner's right to reset the target distribution levels upon which the incentive distribution payments are based and the concurrent right of our general partner to receive Class B units in connection with this reset, please read "How We Make Cash Distributions—General Partner's Right to Reset Incentive Distribution Levels."

Issuance of additional units

 

We can issue an unlimited number of units that rank equal with or senior to the common units without the consent of our unitholders.

Limited voting rights

 

Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect our general partner or the directors of our general partner on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 662/3% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. As a result, you will initially be unable to remove our general partner without its consent because OSG will own sufficient units upon completion of this offering to prevent the removal of our general partner. Please read "The Partnership Agreement—Voting Rights."

Limited call right

 

If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner has the right, but not the obligation, to purchase all, but not less than all, of the remaining common units at a price equal to the greater of the average of the daily closing prices of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and the highest price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this call right.
         

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Estimated ratio of taxable income to distributions

 

We estimate that if you hold the common units you purchase in this offering through December 31, 2010, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be      % or less of the cash distributed to you for that period. For example, if you receive an annual distribution of $1.40 per unit, we estimate that your allocable federal taxable income per year will be no more than $        per unit. Please read "Material Tax Consequences—Tax Consequences of Unit Ownership—Ratio of Taxable Income to Distribution" for the basis of this estimate.

Exchange listing

 

We intend to apply to list the common units on the New York Stock Exchange under the symbol "    ".

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Summary Historical and Pro Forma Financial and Operating Data

        The following table presents summary:

    historical financial and operating data of our predecessors; and

    pro forma financial and operating data of OSG America L.P.

        The summary historical financial data has been prepared on the following basis:

    The historical financial data of OSG America Predecessor as of and for the years ended December 31, 2002 and 2003, and the balance sheet of OSG America Predecessor as of and for the year ended December 31, 2004, are derived from unaudited combined carve-out financial statements of OSG America Predecessor, which are not included in this prospectus.

    The historical financial data of OSG America Predecessor as of and for the years ended December 31, 2005 and 2006, and the related predecessor combined carve-out statements of operations, changes in stockholder's deficiency and cash flows for the three years ended December 31, 2006, are derived from audited combined carve-out financial statements of OSG America Predecessor, which are included elsewhere in this prospectus.

    The historical financial data of OSG America Predecessor as of and for the three months ended March 31, 2006 and 2007 are derived from unaudited combined carve-out financial statements of OSG America Predecessor, which, other than the unaudited combined balance sheet at March 31, 2006, are included elsewhere in this prospectus.

        The unaudited pro forma financial data of OSG America L.P. gives pro forma effect to:

    the acquisition of Maritrans Inc. by OSG on November 28, 2006;

    the completion of this offering and related transactions; and

    the use of the net proceeds of this offering as described in "Use of Proceeds."

        The pro forma financial data are derived from our unaudited pro forma combined financial statements. The pro forma income statement data for the year ended December 31, 2006 assumes that this offering and related transactions occurred on January 1, 2006. The pro forma balance sheet data as at March 31, 2007 assumes this offering and related transactions occurred at March 31, 2007. A more complete explanation of the pro forma data can be found in our unaudited pro forma combined financial statements included with this prospectus.

        The following table presents two financial measures that we use in our business, being net time charter equivalent revenues and EBITDA. These financial measures are not calculated or presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). We explain these measures below and reconcile them to their most directly comparable financial measures calculated and presented in accordance with U.S. GAAP in "—Non-U.S. GAAP Financial Measures" below.

        The following table should be read together with, and is qualified in its entirety by reference to, the historical and unaudited pro forma combined financial statements and the accompanying notes

13



included elsewhere in this prospectus. The table should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  Historical
  Pro Forma
 
 
  Year Ended December 31,
  Three Months Ended
March 31,

  Year Ended
December 31,

  Three
Months
Ended
March 31,

 
 
  2002
(unaudited)

  2003
(unaudited)

  2004(1)
  2005
  2006
  2006
  2007
  2006
  2007
 
 
  (in thousands, except per share data and operating data)

 
Income Statement Data:                                                        
Shipping Revenues   $ 22,952   $ 26,051   $ 31,799   $ 49,840   $ 88,852   $ 17,259   $ 49,734   $ 190,654   $ 49,734  

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Voyage expenses(2)     278     366     366     3,055     10,592     2,279     7,425     36,872     7,425  
  Vessel expenses(3)     10,184     10,571     12,077     19,550     34,430     5,781     17,293     72,549     17,293  
  Bareboat charter expenses                             1,166         1,166  
  Depreciation and amortization     5,798     6,303     10,811     14,553     21,592     4,416     10,997     43,537     10,997  
  General and administrative     1,544     1,920     3,542     4,246     7,942     1,709     4,873     16,799     5,123  
  Loss on charter termination                 2,486                      
   
 
 
 
 
 
 
 
 
 
Total operating expenses     17,804     19,160     26,796     43,890     74,556     14,185     41,754     169,757     42,004  
   
 
 
 
 
 
 
 
 
 

Income from vessel operations

 

 

5,148

 

 

6,891

 

 

5,003

 

 

5,950

 

 

14,296

 

 

3,074

 

 

7,980

 

 

20,897

 

 

7,730

 
Equity in income of affiliated companies     7,776     7,584     7,097     8,066     6,811     1,692     859     6,811     859  
   
 
 
 
 
 
 
 
 
 
Operating income     12,924     14,475     12,100     14,016     21,107     4,766     8,839     27,708     8,589  
Other income             2     1     9     9     (1 )   9     (1 )
Interest expense     (9,776 )   (8,304 )   (9,224 )   (10,685 )   (12,612 )   (2,944 )   (3,253 )   (9,800 )   (2,043 )
   
 
 
 
 
 
 
 
 
 
Income before federal income taxes     3,148     6,171     2,878     3,332     8,504     1,831     5,585     17,917     6,545  
(Provision) / credit for federal income taxes     (1,102 )   (2,160 )   (1,007 )   (1,325 )   (768 )   327     (1,382 )        
   
 
 
 
 
 
 
 
 
 
Net income   $ 2,046   $ 4,011   $ 1,871   $ 2,007   $ 7,736   $ 2,158   $ 4,203   $ 17,917   $ 6,545  
   
 
 
 
 
 
 
 
 
 
Net income per unit (basic and diluted)(4)                                             $ 0.55   $ 0.20  
                                             
 
 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Vessels(5)   $ 41,806   $ 37,071   $ 70,932   $ 132,160   $ 418,702       $ 421,170       $ 421,170  
Total assets   $ 54,502   $ 48,954   $ 85,521   $ 149,134   $ 610,957       $ 611,630       $ 612,430  
Total debt(6)   $ 196,392   $ 184,167   $ 219,766   $ 273,127   $ 661,129       $ 661,772       $ 140,193  
Stockholder's/partners' equity (deficiency)   $ (161,215 ) $ (157,204 ) $ (155,133 ) $ (152,226 ) $ (144,490 )     $ (140,287 )     $ 458,711  

Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net cash provided by (used in):                                                        
  Operating activities   $ 2,385   $ 12,379   $ 7,141   $ 19,800   $ 13,299   $ (1,327 ) $ 13,145          
  Investing activities   $ (3,239 ) $   $ (43,012 ) $ (74,116 ) $ (345,483 ) $ (3,165 ) $ (13,788 )        
  Financing activities   $ 689   $ (12,225 ) $ 35,799   $ 54,261   $ 332,399   $ 4,725   $ 643          

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Time Charter Equivalent Revenue   $ 22,674   $ 25,685   $ 31,433   $ 46,785   $ 78,260   $ 14,980   $ 42,309   $ 153,782   $ 42,309  
EBITDA   $ 18,722   $ 20,778   $ 22,913   $ 28,570   $ 42,708   $ 9,191   $ 19,835   $ 71,254   $ 19,585  
Capital Expenditures                                                        
  Expenditures for vessels and equipment   $ 3,239   $   $ 43,012   $ 74,116   $ 4,623   $ 3,165   $ 13,788          
  Expenditures for drydocking   $ 4,435   $   $ 2,739   $ 115   $ 5,835   $ 4,815   $ 14          

Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Total capacity days     730     730     1,232     1,662     2,501     540     1,491     5,840     1,491  
Revenue days     640     729     1,193     1,639     2,368     460     1,333     5,268     1,333  
Drydock days     89         37     4     108     77     130     500     130  
Repair days     1     1     2     19     25     3     28     72     28  

(1)
Only the predecessor combined carve-out statements of operations, changes in stockholder's deficiency and cash flows have been audited in respect of the year ended December 31, 2004. The balance sheet for the year ended December 31, 2004 is unaudited.

(2)
Voyage expenses are all expenses unique to a particular voyage, including commissions, port charges, cargo handling operations, canal dues and fuel.

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(3)
Vessel expenses consist of all expenses related to the operation of the vessels, including crewing, repairs and maintenance, insurance, stores, spares, lubricants and miscellaneous expenses.

(4)
Please read Note 6 of our unaudited pro forma combined financial statements included in this prospectus for a calculation of our pro forma net income per unit.

(5)
Vessels consist of (a) vessels, at cost, less accumulated depreciation, (b) vessels under capital leases, at cost, less accumulated depreciation, and (c) construction in progress.

(6)
Total debt includes long-term debt, capital lease obligations and advances from affiliates.

Non-U.S. GAAP Financial Measures

        Consistent with general practice in the shipping industry, we use time charter equivalent (TCE) revenues, which represents shipping revenues less voyage expenses, as a measure to compare revenues generated from voyage charters to revenues generated from time charters. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with shipping revenues, the most directly comparable U.S. GAAP measure, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance.

        The following table reconciles TCE revenues to shipping revenues.

 
  Historical
  Pro Forma
 
   
   
   
   
   
  Three Months Ended
March 31,

   
  Three
Months
Ended
March 31,
2007

 
  Year Ended December 31,
   
 
  Year Ended
December 31,
2006

 
  2002
  2003
  2004
  2005
  2006
  2006
  2007
Income Statement Data:                                                      
TCE revenues   $ 22,674   $ 25,685   $ 31,433   $ 46,785   $ 78,260   $ 14,980   $ 42,309   $ 153,782   $ 42,309
Voyage expenses     278     366     366     3,055     10,592     2,279     7,425     36,872     7,425
   
 
 
 
 
 
 
 
 
Shipping revenues   $ 22,952   $ 26,051   $ 31,799   $ 49,840   $ 88,852   $ 17,259   $ 49,734   $ 190,654   $ 49,734
   
 
 
 
 
 
 
 
 

        EBITDA represents net income plus interest expense, provision for income taxes, depreciation and amortization expense. EBITDA is presented to provide investors with meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods. EBITDA should not be considered a substitute for net income or cash flow from operating activities and other operations or cash flow statement data prepared in accordance with U.S. GAAP or as a measure of profitability or liquidity. While EBITDA is frequently used as a measure of operating results and performance, it is not necessarily comparable to other similar titled captions of other companies due to differences in methods of calculation.

        The following table reconciles net income to EBITDA.

 
  Historical
  Pro Forma
 
   
   
   
   
   
  Three Months Ended
March 31,

   
  Three
Months
Ended
March 31,
2007

 
  Year Ended December 31,
   
 
  Year Ended
December 31,
2006

 
  2002
  2003
  2004
  2005
  2006
  2006
  2007
Income Statement Data:                                                      
Net income   $ 2,046   $ 4,011   $ 1,871   $ 2,007   $ 7,736   $ 2,158   $ 4,203   $ 17,917   $ 6,545
Provision / (credit) for federal income taxes     1,102     2,160     1,007     1,325     768     (327 )   1,382        
Interest expense     9,776     8,304     9,224     10,685     12,612     2,944     3,253     9,800     2,043
Depreciation and amortization     5,798     6,303     10,811     14,553     21,592     4,416     10,997     43,537     10,997
   
 
 
 
 
 
 
 
 
EBITDA   $ 18,722   $ 20,778   $ 22,913   $ 28,570   $ 42,708   $ 9,191   $ 19,835   $ 71,254   $ 19,585
   
 
 
 
 
 
 
 
 

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RISK FACTORS

        Although many of our business risks are comparable to those of a corporation engaged in a similar business, limited partner interests are inherently different from capital stock of a corporation. You should carefully consider the following risk factors together with all of the other information included in this prospectus when evaluating an investment in our common units.

        If any of the following risks actually occur, 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, the trading price of our common units could decline and you could lose all or part of your investment.

Risks Inherent in Our Business

Following the establishment of cash reserves and payment of fees and expenses, including payments to our general partner, we may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units.

        Following the establishment of cash reserves and the payment of fees and expenses, including payments to our general partner, we may not have sufficient cash available each quarter to pay the minimum quarterly distribution of $0.35 per common unit. The amount of cash we can distribute on our common units principally depends upon the amount of cash we generate from our operations, which may fluctuate from quarter to quarter based on risks inherent in our business, including, among other things:

    the rates we obtain from charters for our vessels and equity income we may receive from affiliated companies;

    the level of our operating costs, such as the cost of crews and insurance;

    the level of crude oil refining activity in the United States, particularly in the Gulf Coast region;

    the number of unscheduled off-hire days for our vessels and the timing of, and the number of days required for, scheduled drydockings of our vessels;

    delays in the delivery of newbuilds and the resulting delay in receipt of revenue from those vessels;

    prevailing economic and political conditions; and

    the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business.

        The actual amount of cash we will have available for distribution will also depend on other factors, some of which are beyond our control, such as:

    the level of capital expenditures we make for maintaining our vessels, building new vessels, acquiring existing second-hand vessels and possibly retrofitting vessels to comply with the Oil Pollution Act of 1990 (OPA 90);

    our debt service requirements and restrictions on distributions contained in our revolving credit facility and our secured term loans;

    interest rate fluctuations;

    the cost of acquisitions, if any;

    fluctuations in our working capital needs;

    our ability to make working capital or other borrowings, including borrowings to pay distributions to unitholders; and

    the amount of any cash reserves, including reserves for future capital expenditures and other matters, established by our general partner in its discretion.

16


        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 assumptions underlying the forecast of cash available for distribution, which is included in "Our Cash Distribution Policy and Restrictions on Distributions—Pro Forma and Forecasted Results of Operations and Cash Available for Distribution" are inherently uncertain and subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

        Our estimate of cash available for distribution set forth in "Our Cash Distribution Policy and Restrictions on Distributions—Pro Forma and Forecasted Results of Operations and Cash Available for Distribution" includes our forecast of results of operations and cash available for distribution for the twelve months ending June 30, 2008. The forecast has been prepared by management. Neither our independent registered public accounting firm, nor any other independent accountants, have examined, compiled or performed any procedures with respect to the forecast, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the forecast. The assumptions underlying the forecast are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties, including the risks discussed in this section, that could cause actual results to differ materially from those forecasted. If we do not achieve the forecasted results, we may not be able to pay the full minimum quarterly distribution or any amount on the common units or subordinated units, in which event the market price of the common units may decline materially.

        The amount of available cash we need to pay the minimum quarterly distribution for four quarters on our common units, subordinated units and 2% general partner interest that will be outstanding immediately after this offering is approximately $46.0 million. For a forecast of our ability to pay the minimum quarterly distribution to unitholders for the twelve months ending June 30, 2008, please read "Our Cash Distribution Policy and Restrictions on Distributions."

We must make substantial capital expenditures to maintain the operating capacity of our fleet, which will reduce our cash available for distribution. In addition, our general partner is required to deduct estimated maintenance capital expenditures from operating surplus each quarter, which may result in less cash available to unitholders than if actual maintenance capital expenditures were deducted.

        We must make substantial capital expenditures to maintain the operating capacity of our fleet, which we estimate will average approximately $30.9 million per year based on the average remaining life of our existing vessels. These capital expenditures include expenditures for drydocking our vessels, modifying our vessels and acquiring new vessels to replace existing vessels as they reach the end of their useful lives. These expenditures could increase as a result of changes in:

    the cost of shipyard labor and materials;

    customer requirements to modify the vessels;

    increases in the size of our fleet or the cost of replacement vessels; and

    governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment.

        These capital expenditures will reduce the amount of cash available for distribution to our unit holders. In addition, our actual maintenance capital expenditures will vary significantly from quarter to quarter based on, among other things, the number of vessels drydocked during that quarter.

        Our partnership agreement requires our general partner to deduct estimated, rather than actual, maintenance capital expenditures from operating surplus each quarter to reduce fluctuations in

17



operating surplus. The amount of estimated maintenance 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 maintenance capital expenditures are higher than actual maintenance capital expenditures, the amount of cash available for distribution to unit holders will be lower than if actual maintenance capital expenditures were deducted from operating surplus. If our general partner underestimates the appropriate level of estimated maintenance capital expenditures, we may have less cash available for distribution in future periods when actual capital expenditures exceed our previous estimates.

Capital expenditures and other costs necessary to maintain our vessels tend to increase with the age of the vessel.

        Capital expenditures and other costs necessary to maintain our vessels tend to increase and become harder to estimate as a vessel becomes older. Accordingly, it is likely that the operating costs of our vessels will increase as they age. In the future, market conditions may not justify these expenditures or enable us to operate our older vessels profitably during the remainder of their economic lives. In addition, changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require us to make additional capital expenditures on these older vessels.

The capacity of our fleet will be reduced when four of our vessels are phased-out due to OPA 90. Delays or the failure in the delivery of newbuilds we have agreed to bareboat charter will result in the failure to replace this capacity and the reduction of our operating results. The cost of bringing certain of our vessels into compliance with OPA 90 will be significant and may cause us to reduce the amount of our cash distributions or prevent us from increasing the amount of our cash distributions.

        OPA 90 provides for the scheduled phase-out of all single-hull product carriers and barges carrying oil in U.S. waters. This law will force the retirement of these vessels unless they are retrofitted with a double hull. Our four single-hull product carriers are due to be phased-out according to the following schedule:

Vessel Name

  OPA 90 Retrofit/Phase-out Date
Overseas Philadelphia   May 2012
S/R Galena Bay   October 2012
Overseas Puget Sound   May 2013
Overseas New Orleans   June 2013

        The bareboat charters for Overseas Philadelphia and Overseas New Orleans expire in October 2011 and November 2011, respectively, at which time we plan to return these product carriers to their owner as they are poor candidates for retrofitting due to their size and single-hull configuration. Although S/R Galena Bay and Overseas Puget Sound are better candidates for retrofitting because they are larger and have double-bottom construction, we have not yet decided whether we will double-hull these vessels. We will base our final decision on the cost of shipyard work for retrofitting these vessels, market conditions, charter rates, the availability and cost of financing and other customary factors governing investment decisions. If it is not economical for us to retrofit these vessels, it will be necessary for us to take them out of service transporting petroleum-based products.

        Although we have agreed to bareboat charter newbuild product carriers from Aker American Shipping, Inc. (Aker), which could replace the four product carriers that may be retired due to OPA 90, there is no assurance that Aker will complete the construction of these vessels. In the event that Aker does not deliver any or all of these vessels, the capacity of our fleet will be reduced, which will adversely affect our operating results and the amount of cash available for distribution.

        In order to bring our only single-hulled ATB (OSG243) into compliance with OPA 90, it must be retrofitted with a double hull. We estimate that the cost will be approximately $30 million, of which

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approximately $11 million remains to be spent. If we decide to retrofit S/R Galena Bay and Overseas Puget Sound, the board of directors of our general partner, with approval by the conflicts committee, may elect to increase our estimated maintenance capital expenditures, which would reduce our operating surplus and our cash available for distribution.

We intend to finance the purchase of the newbuild ATBs for which we have options to purchase from OSG with a combination of debt and equity securities. Depending on how we finance the acquisition of these ATBs, our ability to make cash distributions may be diminished or our unitholders could suffer dilution of their holdings. In addition, if we expand the size of our fleet, we generally will be required to make significant installment payments for newbuild vessels prior to their delivery and generation of revenue.

        We intend to make substantial capital expenditures to increase the size of our fleet. We have options to purchase from OSG up to six newbuild ATBs to be constructed by Bender Shipbuilding & Repair Co., Inc. (Bender). The total delivered cost of a newbuild 347,000 barrel/12,000 horsepower ATB is approximately $90 million and the total delivered cost of a newbuild 299,000 barrel/12,000 horsepower ATB is approximately $100 million. The actual purchase price to be paid upon the exercise of these options will be subject to negotiation with OSG and the approval of our conflicts committee.

        OSG is currently incurring all costs for the construction and delivery of the six newbuild ATBs. Upon exercise of any of our six options, we could finance the purchase in whole or in part by issuing additional common units, which would dilute your ownership interest in us. Please read "—We may issue additional equity securities without your approval, which would dilute your ownership interest." We could also use cash from operations, incur borrowings or issue debt securities to fund these capital expenditures. Use of cash from operations will reduce cash available for distributions. Our ability to obtain bank financing or issue debt securities may be limited by our financial condition at the time of any such financing and adverse market conditions resulting from, among other things, general economic conditions, contingencies and uncertainties that are beyond our control. Even if we are successful in obtaining necessary funds, the terms of such financing could limit our ability to pay cash distributions. In addition, incurring additional debt may significantly increase our interest expense, which could have a material adverse effect on our ability to make cash distributions.

        If we purchase additional newbuilds, it is likely that we will be required to make installment payments prior to their delivery. We typically must pay approximately 5% 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 two and a half years for current orders). If we finance these acquisition costs by issuing debt or equity securities, we will increase the aggregate amount of interest (in the case of debt) or cash required to pay the minimum quarterly distributions (in the case of units) we must make prior to generating cash from the newbuilds.

        Our failure to obtain the funds for necessary future capital expenditures would limit our ability to continue to operate some of our vessels or construct or purchase new vessels.

Our ability to acquire additional newbuild product carriers may be limited.

        While we have a strategic relationship with Aker and its shipyard subsidiary, Aker Philadelphia Shipyard, Inc. (APSI) through our relationship with OSG, no assurance can be given that we or OSG will continue such relationship with Aker or APSI. If the relationship with Aker ends, our ability to acquire additional Jones Act compliant newbuild product carriers (other than the newbuild product carriers that have been agreed to be transferred to us and those that we have the option to acquire) on commercially attractive terms may be adversely affected because there is a limited number of U.S. shipyards that are capable of constructing product carriers. Such a result could have an adverse effect on our ability to grow our business.

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Our debt levels may limit our flexibility to obtain additional financing and to pursue other business opportunities.

        Upon the completion of this offering, we will have outstanding borrowings of $140.2 million. These include borrowings under our new $200 million revolving credit facility, of which we expect to have $50.8 million drawn as of the completion of this offering. In addition, we have four outstanding secured term loans in the aggregate amount of $54.4 million and outstanding capital lease obligations of $35.0 million. For more information regarding the terms of our new revolving credit facility, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital—Revolving Credit Facility" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital—Secured Term Loans." Our level of debt could have important consequences for us, including the following:

    our ability to obtain additional financing, if necessary, for capital expenditures, acquisitions or other purposes may be impaired or may not be available on favorable terms;

    we will need a substantial portion of our cash flow to make principal and interest payments on our debt, thereby reducing the funds that would otherwise be available for cash distributions; and

    our debt level may limit our flexibility in responding to changing business and economic conditions.

        Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will, in turn, 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 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 secured term loans and our new revolving credit facility will contain restrictive covenants, which may limit our business and financing activities.

        The covenants in our secured term loans and our new revolving credit facility and any future credit or loan agreement could adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, our new revolving credit facility requires the consent of our lenders or limits our ability to, among other things:

    incur or guarantee indebtedness;

    charge, pledge or encumber the vessels;

    change the flag, class, management or ownership of our vessels;

    change the commercial and technical management of our vessels;

    sell or change the beneficial ownership or control of our vessels; and

    subordinate our obligations thereunder to any general and administrative costs relating to the vessels.

        Our ability to comply with the covenants in our secured term loans and our new revolving credit facility may be affected by events beyond our control including economic, financial and industry conditions. If economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we breach any of the covenants, all or 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. For more information regarding our financing arrangements, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital."

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Decreases in U.S. refining activity, particularly in the Gulf Coast region, could adversely affect our ability to grow our fleet, revenues and profitability.

        The demand for our services is heavily influenced by the level of refinery capacity in the United States, particularly in the Gulf Coast region. Any decline in refining capacity on the Gulf Coast, even on a temporary basis, may significantly reduce the demand for waterborne movements of refined petroleum products. For example, following Hurricanes Katrina and Rita in 2005, movements of refined petroleum products from the Gulf Coast were significantly curtailed in 2005 and 2006, with repairs to hurricane–damaged Gulf Coast refineries being completed in late 2006. While the Energy Information Administration of the U.S. Department of Energy (EIA) has estimated that incremental capacity expansions will increase the capacity of Gulf Coast refineries by 1.6 million barrels per day (bpd) by 2016, it is possible that some or all of the proposed refinery expansions may be delayed or not completed. While we expect that these refinery expansions will increase demand for waterborne transportation of refined petroleum products and we intend to acquire additional product carriers and barges to meet this expected increase in demand if refining capacity is not expanded or decreases from current levels, demand for our vessels could decrease, which could affect our ability to grow our fleet, revenues and profitability.

Delays in deliveries of newbuild product carriers or in the double-hulling of our remaining single-hulled ATB will affect our ability to grow and could harm our operating results.

        We are scheduled to take delivery between late 2007 and early 2009 of four newbuild product carriers that we have agreed to bareboat charter from Aker. We also have options to purchase from OSG up to six newbuild ATBs, which are scheduled for delivery between mid 2008 and late 2010, and to acquire from OSG the right to bareboat charter from Aker up to six newbuild product carriers, which are scheduled for delivery between 2009 and 2011. If the delivery of these vessels is delayed or canceled, the expected revenues from these vessels will be delayed or eliminated.

        Delivery of any of our vessels could be delayed or canceled because of:

    in the case of the six ATBs that we have options to purchase, the failure by OSG to make construction payments on a timely basis or otherwise comply with its construction contracts with Bender;

    quality control or engineering problems;

    changes in governmental regulations or maritime self-regulatory organization standards;

    work stoppages or other labor disturbances at the shipyard;

    bankruptcy or other financial problems of the shipbuilder;

    weather interference or catastrophic event, such as a major hurricane or fire;

    the shipbuilder failing to deliver the vessels in accordance with our vessel specifications;

    our requests for changes to the original vessel specifications;

    shortages of or delays in the receipt of necessary construction materials, such as steel;

    our inability to finance the acquisition of any vessels; or

    our inability to obtain requisite permits or approvals.

Drydocking of our vessels may require substantial expenditures and may result in the vessels being off-hire for significant periods of time, which could affect our ability to make cash distributions.

        Each of our vessels undergoes scheduled and, on occasion, unscheduled shipyard maintenance. The U.S. Coast Guard requires our vessels to be drydocked for inspection and maintenance twice every five years. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage or for capital improvements. Because costs for drydocking our fleet are difficult to estimate

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and may be higher than we currently anticipate, we may not have sufficient available cash to pay the minimum quarterly distribution in full. In addition, vessels in drydock will not generate any income, which will reduce our revenue and cash available to make distributions on our units.

        In addition, the time when a vessel is out of service for maintenance is determined by a number of factors including regulatory deadlines, market conditions, shipyard availability and customer requirements. Because U.S. shipyards have limited availability for drydocking a vessel, they may not have the capacity to perform drydock maintenance on our vessels at the times required, particularly in the event of an unscheduled drydock due to accident. This may require us to have the work performed at an overseas shipyard and result in the vessel being off-hire for a longer period of time.

We have high levels of fixed costs that will be incurred regardless of our level of business activity.

        Our business has high fixed costs that continue even if our vessels are not in service. In addition, low utilization due to reduced demand or other causes or a significant decrease in charter rates could have a significant negative effect on our operating results and financial condition.

We may not be able to renew time charters when they expire or obtain new time charters.

        Of 13 product carriers and barges currently employed under time charters or other term contracts, the time of firm employment on five expires within the next 12 months. There can be no assurance that any of our existing time charters will be either be renewed or renewed at favorable rates.

An increase in the supply of Jones Act vessels without an increase in demand for such vessels could cause charter rates to decline, which could have a material adverse effect on our revenues and profitability.

        The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels. As of December 31, 2006, the Jones Act product carrier and barge order book consisted of firm orders for 34 vessels, or 40% of the existing fleet, with options granted for an additional four product carriers. In the year 2007 to date, firm orders for an additional five product carriers have been placed. No assurance can be given that the order book will not increase further in proportion to the existing fleet. If the number of newbuild vessels delivered exceeds the number of vessels being scrapped, capacity will increase. In addition, any retrofitting of existing product carriers and barges may result in additional capacity that the market will not be able to absorb at the anticipated demand levels. If supply increases and demand does not, the charter rates for our vessels could decline significantly.

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 is based upon the expansion of our fleet. Our ability to grow our fleet depends upon a number of factors, many of which we cannot control. These factors include our ability to:

    reach agreement with OSG on the fair value of the ATBs that we have the right to purchase or the product carriers that we have the right to bareboat charter;

    identify vessels or businesses for acquisition from third parties;

    consummate any such acquisitions;

    obtain required financing for acquisitions; and

    integrate any acquired vessels or businesses successfully with our existing operations.

        Any acquisition of a vessel or business may not be profitable and may not generate returns sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business, financial condition and operating results, including the risks that we may:

    fail to realize anticipated benefits (such as new customer relationships) or increase cash flow;

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    decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions;

    significantly increase our interest expense and indebtedness if we incur additional debt to finance acquisitions;

    incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired;

    incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; or

    distract management from its duties and responsibilities as it devotes substantial time and attention to the integration of the acquired businesses or vessels.

We have a limited operating history, which makes it more difficult accurately to 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.

        Because the vessels in our initial fleet were operated as part of OSG's fleet prior to our initial public offering, the vessels may have been operated in a different manner than they will be in the future and 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. This lack of information will increase the risk of your investment. You should also 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 have no history operating as a separate publicly-traded entity and will incur increased costs as a result of being a publicly-traded limited partnership.

        We have no history operating as a separate publicly traded entity. As a publicly-traded limited partnership, we will be required to comply with the SEC's reporting requirements and with corporate governance and related requirements of the Sarbanes-Oxley Act, the SEC and the New York Stock Exchange. We will incur significant legal, accounting, and other expenses to comply with these and other applicable regulations. We anticipate that our incremental general and administrative expenses as a publicly-traded limited partnership will be approximately $1 million annually and will include costs associated with annual reports to unitholders, tax return and Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent's fees, incremental director and officer liability insurance costs and director compensation.

We depend on OSG and its affiliates to assist us in operating and expanding our business.

        Pursuant to a management agreement between us and OSG's subsidiary, OSG Ship Management, Inc. (OSGM) will provide us with significant commercial and technical management services (including the commercial and technical management of our vessels, vessel maintenance, crewing, purchasing, insurance and shipyard supervision). Please read "Certain Relationships and Related Party Transactions—Management Agreement" for a description of this agreement. In addition, pursuant to an administrative services agreement between us and OSGM, OSGM will provide us with significant administrative, financial and other support services. Please read "Certain Relationships and Related Party Transactions—Administrative Services Agreement" for a description of this agreement.

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Our operational success and ability to execute our growth strategy will depend significantly upon the satisfactory performance by OSGM of these services and our business will be harmed if OSGM fails to perform these services satisfactorily, cancels either of these agreements or stops providing these services. We may also contract with OSG for the construction of newbuilds for our fleet and to arrange the construction-related financing.

        Our ability to enter into new charters and expand our customer relationships will depend largely on our ability to use advantageously our relationship with OSG and its reputation and relationships in the shipping industry, including with customers, shipyards and suppliers. If OSG suffers material damage to its reputation or relationships, it may harm our ability to:

    renew existing charters upon their expiration;

    obtain new charters;

    interact successfully with shipyards during periods when the services of shipyards are in high demand;

    obtain financing on commercially acceptable terms; or

    maintain satisfactory relationships with suppliers and other third parties.

Our growth depends on our ability to compete successfully against other shipping companies to expand relationships with existing customers and obtain new customers.

        While longer-term time charters have the potential to provide income at pre-determined rates over the duration of the charters, the competition for such charters is intense and obtaining such charters generally requires a lengthy and time consuming screening and bidding process that may extend for months. In addition to the quality, age and suitability of the vessel, longer-term time charters tend to be awarded based upon a variety of factors relating to the vessel operator, including the operator's:

    environmental, health and safety record;

    compliance with regulatory and industry standards;

    reputation for customer service and technical and operating expertise;

    shipping experience and quality of ship operations, including cost-effectiveness;

    ability to finance vessels at competitive rates and overall financial stability;

    relationships with shipyards and the ability to obtain suitable berths;

    construction management experience;

    willingness to accept operational risks pursuant to the charter; and

    competitiveness of the bid price.

We derive our revenues from certain major customers and the loss of any of these customers or time charters with any of them could result in a significant loss of revenues and cash flow.

        During the three years ended December 31 2006, our predecessor derived revenues from certain major customers, each one representing more than 10% of revenues. In 2006, revenues from four customers aggregated 62% of total revenues. At any given time in the future, the cash reserves of our customers may be diminished or exhausted and we cannot assure you that the customers will be able to make charter payments to us. If our customers are unable to make charter payments to us, our results of operations and financial condition will be materially adversely affected. In addition, we could lose a charterer or the benefits of a time charter because of disagreements with a customer or if a customer exercises specific limited rights to terminate a charter. The loss of any of our customers or time charter with them, 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 pay cash distributions.

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A decrease in the demand for our lightering services resulting from the deepening of the Delaware River or conditions affecting the Delaware Bay refineries could adversely affect our business and results of operations.

        We perform lightering services for inbound crude-oil tankers carrying crude oil up the Delaware River to refineries in the Delaware Bay. Legislation approved by Congress in 1992 authorized the Army Corps of Engineers to deepen the Delaware River between the river's mouth and the port of Philadelphia. For various reasons, including opposition from environmental groups and funding difficulties, the dredging project has not begun. If this project is funded, the required environmental permits are obtained and the refineries dredge their private channels, it would significantly reduce our lightering business by allowing arriving crude-oil tankers to proceed up the river with larger loads. In addition, our lightering business would be adversely affected if any of the Delaware Bay refineries ceased or scaled back its operations.

Certain potential customers will not use vessels older than a specified age, even if they have been recently rebuilt.

        All of our tug-barge units were originally constructed more than 25 years ago. While all of these tug-barge units were rebuilt and double-hulled since 1998 and are "in-class", some potential customers have stated that they will not charter vessels that are more than 20 years old, even if they have been rebuilt. Although there has been no material difference in time charter rates earned by a vessel of a specified age and a rebuilt vessel of the same age measured from the date of rebuilding, no assurance can be given that most customers will continue to view rebuilt vessels as comparable to newbuild vessels. If more customers differentiate between rebuilt and newbuild vessels, time charter rates for our rebuilt ATBs will likely be adversely affected.

The U.S. flag shipping industry is unpredictable, which may lead to lower charter hire rates and lower vessel values.

        The nature, timing and degree of changes in U.S. flag shipping industry conditions are unpredictable and may adversely affect the values of our vessels and may result in significant fluctuations in the amount of charter hire we earn, which could result in significant fluctuations in our quarterly results. Charter rates and vessels values may fluctuate over time due to changes in the demand for U.S. flag product carriers and barges.

        The factors that influence the demand for U.S. flag product carriers and barges include:

    the level of crude oil refining in the United States;

    the demand for refined petroleum products in the United States;

    environmental concerns and regulations;

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    new pipeline construction and expansions;

    weather; and

    competition from alternative sources of energy.

Decreased utilization of our vessels due to bad weather could have a material adverse effect on our operating results and financial condition.

        Unpredictable weather patterns tend to disrupt vessel scheduling and supplies of refined petroleum products and our vessels and their cargoes are at risk of being damaged or lost because of bad weather. In addition, adverse weather conditions can cause delays in the delivery of newbuilds and in transporting cargoes. Under our spot voyage charters, we bear the risk of delays due to weather conditions.

A decrease in the cost of importing refined petroleum products could cause demand for U.S. flag product carrier and barge capacity and charter rates to decline, which would decrease our revenues and our ability to pay cash distributions on our units.

        The demand for U.S. flag product carriers and barges is influenced by the cost of importing refined petroleum products. Historically, charter rates for vessels qualified to participate in the U.S. coastwise trade under the Jones Act have been higher than charter rates for foreign flag vessels. This is due to the higher construction and operating costs of U.S. flag vessels under the Jones Act requirements that such vessels must be built in the United States and manned by U.S. crews. This has made it less expensive for certain areas of the United States that are underserved by pipelines or which lack local refining capacity, such as in the Northeast, to import refined petroleum products carried aboard foreign flag vessels than to obtain them from U.S. refineries. If the cost of importing refined petroleum products decreases to the extent that it becomes less expensive to import refined petroleum products to other regions of the East Coast and the West Coast than producing such products in the United States and transporting them on U.S. flag vessels, demand for our product carriers and barges and the charter rates for them could decrease.

Our business would be adversely affected if we failed to comply with the Jones Act provisions on coastwise trade.

        We are subject to the Jones Act and other federal laws that restrict maritime cargo transportation between points in the United States only to vessels operating under the U.S. flag, built in the United States, at least 75% owned and operated by U.S. citizens and manned by U.S. crews. We are also responsible for monitoring the ownership of our common units and other partnership interests to ensure compliance with the Jones Act. If we do not comply with these restrictions, we would be prohibited from operating our vessels in the U.S. coastwise trade and, under certain circumstances, we would be deemed to have undertaken an unapproved foreign transfer resulting in severe penalties, including permanent loss of U.S. coastwise trading rights for our vessels, fines or forfeiture of vessels.

Our business would be adversely affected if the Jones Act provisions on coastwise trade were modified or repealed or if changes in international trade agreements were to occur.

        If the restrictions contained in the Jones Act were repealed or altered, the maritime transportation of cargo between U.S. ports could be opened to foreign-flag or foreign-built vessels. The Secretary of the Department of Homeland Security, or the Secretary, is vested with the authority and discretion to waive the coastwise laws if the Secretary deems that such action is necessary in the interest of national defense. On two occasions during 2005, the Secretary, at the direction of the President of the United States, issued limited waivers of the Jones Act for the transportation of refined petroleum products in

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response to the extraordinary circumstances created by Hurricanes Katrina and Rita and their effect on Gulf Coast refineries and petroleum product pipelines. Any waiver of the coastwise laws, whether in response to natural disasters or otherwise, could result in increased competition from foreign product carrier and barge operators, which could reduce our revenues and cash available for distribution.

        During the past several years, interest groups have lobbied Congress to repeal or modify the Jones Act in order to facilitate foreign-flag competition for trades and cargoes currently reserved for U.S. flag vessels under the Jones Act. Foreign-flag vessels generally have lower construction costs and generally operate at significantly lower costs than we do in U.S. markets, which would likely result in reduced charter rates. We believe that continued efforts will be made to modify or repeal the Jones Act. If these efforts are successful, foreign-flag vessels could be permitted to trade in the United States coastwise trade and significantly increase competition with our fleet, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

        Additionally, the Jones Act restrictions on the provision of maritime cabotage services are subject to certain exceptions under certain international trade agreements, including the General Agreement on Trade in Services and the North American Free Trade Agreement. If maritime cabotage services were included in the General Agreement on Trade in Services, the North American Free Trade Agreement or other international trade agreements, the transportation of maritime cargo between U.S. ports could be opened to foreign-flag or foreign-manufactured vessels.

We are subject to complex laws and regulations, including environmental regulations, that can adversely affect the cost, manner or feasibility of doing business.

        Increasingly stringent federal, state and local laws and regulations governing worker health and safety, insurance requirements and the manning, construction, operation and transfer of vessels significantly affect our operations. Many aspects of the marine transportation industry are subject to extensive governmental regulation by the U.S. Coast Guard, the Department of Transportation, the Department of Homeland Security, the Environmental Protection Agency, the National Transportation Safety Board, the U.S. Customs Service and the U.S. Maritime Administration, as well as regulation by private industry organizations, such as the American Bureau of Shipping. The U.S. Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards. The U.S. Coast Guard is authorized to inspect vessels at will.

        Our operations are also subject to federal, state, local and international laws and regulations that control the discharge of pollutants into the environment or otherwise relate to environmental protection. In order to maintain compliance with environmental laws and regulations, we incur, and expect to continue to incur, substantial costs in meeting maintenance and inspection requirements, developing and implementing emergency preparedness procedures and obtaining insurance coverage or other required evidence of financial ability sufficient to address pollution incidents. Environmental requirements can also:

    impair the economic value of our vessels;

    make our vessels less desirable to potential charterers;

    require a reduction in cargo capacity, ship modifications or operational changes or restrictions;

    lead to decreases in available insurance coverage for environmental matters; and

    result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports.

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        If we fail to comply with applicable environmental laws or regulations, such non-compliance could result in substantial civil or criminal fines or penalties and other sanctions, including in certain instances, seizure or detention of our vessels.

        In addition, some environmental laws impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability even if we are neither negligent nor at fault. Under OPA 90, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. In addition, an oil spill or other release of hazardous substances could result in significant liability, including fines, penalties, criminal liability and costs for natural resource damages under other federal and state laws, third party personal injury or property damage claims or other civil actions. The potential for oil spills or other releases could increase as we increase the size of our fleet. Most states bordering on a navigable waterway have also enacted legislation providing for potentially unlimited liability for the discharge of pollutants within their waters. For more information, please read "Business—Regulation."

        We believe that regulation of the shipping industry will continue to become more stringent and more expensive for us and our competitors. In addition, a serious marine incident occurring in U.S. waters that results in significant oil pollution could result in additional legislation or regulation. Future environmental requirements may be adopted that could limit our ability to operate or require us to incur substantial additional costs.

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:

    marine disasters;

    bad weather;

    mechanical failures;

    grounding, fire, explosions and collisions;

    human error; and

    war and terrorism.

        An accident involving any of our vessels could result in any of the following:

    death or injury to persons, loss of property or environmental damage;

    delays in the delivery of cargo;

    loss of revenues from or termination of charter contracts;

    governmental fines, penalties or restrictions on conducting business;

    higher insurance rates; and

    damage to our reputation and customer relationships.

Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.

        The operation of vessels that carry crude oil or refined petroleum products is inherently risky. Although we carry insurance to protect against most of the accident-related risks involved in the

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conduct of our business, risks may arise for which we are not adequately insured. For example, a catastrophic spill could exceed our insurance coverage and have a material adverse effect on our operations. Any particular claim may not be paid by our insurance and any claims covered by insurance would be subject to deductibles, the aggregate amount of which could be material. 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. Furthermore, even if insurance coverage is adequate to cover our losses, we may not be able to obtain a replacement ship in a timely manner in the event of a loss.

        In addition, we may not be able to procure adequate insurance coverage at commercially reasonable rates in the future. In the past, new and stricter environmental regulations have led to higher costs for insurance covering environmental damage or pollution and new regulations could lead to similar increases, or even make this type of insurance unavailable. Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult to obtain. The insurance that may be available to us in the future may be significantly more expensive than our existing coverage.

        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 the reserves of the association. We may be subject to calls or premiums in amounts based not only on our own claim records, but also the claim records of all other members of protection and indemnity associations through which we obtain insurance coverage for tort liability. Our payment of these calls could result in significant expenses.

Increased competition from pipelines could result in reduced profitability.

        We compete with pipelines that carry refined petroleum products. Long-haul transportation of refined petroleum products is generally less costly by pipeline than by vessel. The construction of new pipelines to carry refined petroleum products into the markets we serve, including pipeline segments that connect with existing pipelines, the expansion of existing pipelines and the conversion of pipelines that do not currently carry refined products, could adversely affect our ability to compete in particular locations. For example, although a previous proposal to build a refined petroleum products pipeline through the Gulf of Mexico from Mississippi to Tampa, Florida was abandoned in 2006, the construction of any such pipeline in the future could decrease demand for our product carriers and barges and cause our charter rates to decline.

An increase in the price of fuel may adversely affect our business and results of operations.

        The cost of fuel for our vessels is a significant component of our operating expenses and we have recently experienced significant increases in the cost of fuel used in our operations. While we have been able to pass a portion of these increases on to our customers pursuant to the terms of our charters, there can be no assurances that we will be able to pass on any future increases in fuel prices. If fuel prices continue to increase and we are not able to pass such increases on to our customers, our business, results of operations, financial condition and ability to make cash distributions may be adversely affected.

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Over time, vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a vessel, we may incur a loss.

        Vessel values for our fleet can fluctuate substantially over time due to a number of different factors, including:

    the prevailing and expected levels of charter rates in the Jones Act market;

    the age of our vessels;

    the capacity of U.S. pipelines;

    the capacity of U.S. refineries;

    the number of vessels in the Jones Act fleet;

    the efficiency of the Jones Act fleet; and

    the cost of retrofitting or modifying existing vessels as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards or otherwise.

        Our inability to dispose of a vessel at a certain value could result in a loss on its sale.

        Declining vessel values could adversely affect our liquidity by limiting our ability to raise cash by arranging debt secured by our vessels or refinancing such debt. Declining vessel values could also result in a breach of loan covenants or trigger events of default under relevant financing agreements that require us to maintain certain loan-to-value ratios. In such instances, if we are unable to pledge additional collateral to offset the decline in vessel values, our lenders could accelerate our debt and foreclose on our vessels pledged as collateral for the loans.

Maritime claimants could arrest our vessels, which could interrupt our cash flow.

        Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay whatever amount may be required to have the arrest lifted.

The U.S. government could requisition our vessels during a period of war or emergency without adequate compensation.

        The U.S. government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes its owner. Requisition for hire occurs when a government takes control of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels may negatively impact our revenues.

Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of our business.

        Terrorist attacks 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

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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 and petroleum production and distribution, which could in turn result in reduced demand for our services.

        In addition, oil and petroleum 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 petroleum to or from certain locations. Terrorist attacks, war or other events beyond our control that adversely affect the distribution, production or transportation of oil or petroleum to be shipped by us could entitle our customers to terminate the charters for our vessels, which would harm our cash flow and our business.

        Terrorist attacks, or the perception that oil and petroleum facilities and carriers are potential terrorist targets, could materially and adversely affect expansion of oil and petroleum infrastructure and the continued supply of oil and petroleum to the United States and other countries. Concern that oil and petroleum facilities may be targeted for attack by terrorists has contributed to significant community and environmental resistance to the construction of a number of oil and petroleum facilities, primarily in North America. If a terrorist incident involving an oil and petroleum facility or carrier did occur, the incident may adversely affect construction of additional oil and petroleum facilities in the United States and other countries or the temporary or permanent closing of various oil and petroleum facilities currently in operation.

        In addition, heightened awareness of security needs after the terrorist attacks of September 11, 2001 has caused the U.S. Coast Guard, the International Marine Organization and the states and local ports to adopt heightened security procedures relating to ports and vessels. Complying with these procedures, as well as the implementation of security plans for our vessels required by the Maritime Transportation Security Act of 2002, have increased our costs of security.

We depend on key personnel for the success of our business and some of those persons face conflicts in the allocation of their time to our business.

        We depend on the services of our senior management team and other key personnel. We may not be able to locate or employ on acceptable terms qualified replacements for senior management or key employees if their services were no longer available. We currently do not carry any key man insurance on any of our employees. In addition, we may not be able to hire crew personnel meeting our standards if we expand our fleet. As a result of the planned expansion of our fleet through the construction of new vessels, we may also need to hire additional key technical, support and other qualified personnel to ensure that construction is completed timely and on budget. If we are unsuccessful in attracting such personnel, it could have a material adverse effect on our business, results of operations and financial condition.

        In addition, our senior management and many of our other key personnel are not required to work full-time on our affairs and also work for affiliates of our general partner, including OSG. The affiliates of our general partner conduct substantial businesses and activities of their own in which we have no economic interest. As a result, these individuals may face conflicts regarding the allocation of their time between our business and OSG's business, resulting in these employees spending less time in managing our business and affairs than they do currently.

Risks Inherent in an Investment in Us

OSG and its affiliates may engage in competition with us.

        OSG and its affiliates may compete directly with us and have no obligation to present business opportunities to us before taking advantage of them. Pursuant to the omnibus agreement to be entered

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into between us and OSG in connection with the completion of this offering, OSG and its controlled affiliates (other than us, our general partner and our subsidiaries) will agree not to engage in or acquire or invest in any business that provides marine transportation or distribution services in connection with the transportation of crude oil and refined petroleum products by water between points in the United States to which the United States coastwise laws apply, to the extent such business generates qualifying income for federal income tax purposes. The omnibus agreement, however, contains significant exceptions that may allow OSG or any of its controlled affiliates to compete with us, which could harm our business. Please read "Certain Relationships and Related Party Transactions—Omnibus Agreement—Noncompetition."

Our ability to obtain business from the Military Sealift Command (MSC) or other U.S. government agencies may be adversely affected by a determination by the MSC that one of our affiliates is not presently responsible for a single contract.

        OSG Product Tankers LLC (Product Tankers), one of our affiliates, participated in a Request for Proposals issued by the MSC, an agency of the United States Department of the Navy, to time charter to the MSC two Jones Act compliant product carriers. On July 6, 2007, the MSC advised Product Tankers that the MSC could not find Product Tankers presently "responsible" under the Federal Acquisition Regulation and, therefore, ineligible to time charter the vessels to the MSC. The MSC based its decision on the December 2006 guilty plea by OSG, one of the ultimate parent corporations of Product Tankers and the parent of our general partner, to violations related to the handling of bilge water and oily mixtures from the engine rooms on certain of its international flag vessels. The MSC reached this decision notwithstanding an earlier decision by the United States Maritime Administration of the Department of Transportation (Mar Ad) on June 25, 2007 not to suspend or debar OSG from business with the U.S. government. The federal agencies, including the United States Department of Navy, had agreed that Mar Ad would serve as the lead agency in any administrative action regarding discretionary suspension or debarment of OSG from federal contracts under the Federal Acquisition Regulation. On July 25, 2007, Product Tankers filed a protest of the MSC's decision in the United States Court of Federal Claims, asserting that the MSC decision was arbitrary, capricious, and unsupported by the administrative record.

        We cannot give any assurance that the MSC decision will be overturned by the United States Court of Federal Claims. Although the MSC decision specifically addresses only the single contract, the decision is not overturned, the decision may have an adverse effect on our ability to obtain business from the U.S. government because of our affiliation with OSG. The only business we currently conduct with the U.S. government is the participation by two of our vessels in the Maritime Security Program (MSP), which is intended to support the operation of up to 60 U.S. flag vessels in the foreign commerce of the United States to make available a fleet of privately owned vessels to the Department of Defense during times of war or national emergency. Payments are made under the MSP to vessel operators, including us, to help offset the high cost of employing a U.S. crew. Mar Ad, the agency which decided not to suspend or debar OSG, administers the MSP. To date, the MSC decision has not had an adverse effect on our ability to obtain business from commercial customers.

We do not have 100% ownership of some of our assets and may need the consent of third parties to take certain actions, which may prevent us from operating or dealing with those assets as we deem them appropriate or necessary.

        We do not have 100% ownership of some of our assets, such as the product carriers we bareboat charter from Aker and our economic interests in Alaska Tanker Company, LLC. By not having complete ownership of these and other assets, we may need to obtain prior consent of third parties to certain commercial actions. If we are unable to obtain such consents on commercially reasonable and satisfactory terms, our ability to operate or deal with those assets may be adversely affected.

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Our general partner and its other affiliates own a controlling interest in us and have conflicts of interest and limited fiduciary duties, which may permit them to place their interests ahead of yours.

        Following this offering, OSG will own a 77.2% interest in us, including a 2% interest through our general partner, which OSG owns and controls. Although our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders, the directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to its owner, OSG. Furthermore, all of the officers of our general partner and four of the directors of our general partner are officers of OSG and its affiliates and, as such, they have fiduciary duties to OSG that may cause them to pursue business strategies that favor OSG or which otherwise are not in the best interests of us or our unitholders. Conflicts of interest may arise between OSG 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 our general partner's fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duties." These conflicts include, among others, the following:

    neither our partnership agreement nor any other agreement requires OSG or its affiliates (other than our general partner) to pursue a business strategy that favors us or utilizes our assets and OSG's officers and directors have a fiduciary duty to make decisions in the best interests of the stockholders of OSG, which may be contrary to our interests;

    the executive officers and four of the directors of our general partner also serve as executive officers of OSG;

    our general partner is allowed to take into account the interests of parties other than us, such as OSG, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;

    our general partner may make a determination to receive a quantity of our Class B units in exchange for resetting the target distribution levels related to its incentive distribution rights without the approval of the conflicts committee of our general partner or our unitholders. Please see "How We Make Cash Distributions—General Partner's Right to Reset Incentive Distribution Levels;"

    our general partner has limited its liability and reduced its fiduciary duties under Delaware law and has also restricted the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty and, as a result of purchasing common units, unitholders will be treated as agreeing to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner, all as set forth in our partnership agreement;

    our general partner determines the amount and timing of our cash reserves, asset purchases and sales, capital expenditures, borrowings and issuances of additional partnership securities, each of which can affect the amount of cash that is available for distribution to our unitholders;

    in some instances, our general partner may 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 owned by OSG, to make incentive distributions or to accelerate the expiration of the subordination period;

    our general partner determines which costs incurred by it and its affiliates are reimbursable by us;

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    our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us on terms that are fair and reasonable or from entering into additional contractual arrangements with any of these entities on our behalf;

    our general partner controls the enforcement of obligations owed to us by it and its affiliates;

    our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and

    our general partner may exercise its right to call and purchase our common units if it and its affiliates own more than 80% of our common units.

        Please read "Certain Relationships and Related Party Transactions", "Conflicts of Interest and Fiduciary Duties" and "The Partnership Agreement."

Our partnership agreement limits our general partner's fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

        Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by Delaware law. For example, our partnership agreement:

    permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, which in certain cases permits our general partner to consider only the interests and factors that it desires. 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, OSG, and not by the board of directors of our general partner. Examples include the exercise of its right to receive a quantity of our Class B units in exchange for resetting the target distribution levels related to its incentive distribution rights, its call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation of the partnership;

    provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as general partner so long as it acted in "good faith," meaning it reasonably believed that the decision was in our best interests;

    generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner 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, as determined by our general partner in good faith, and that, in determining whether a transaction or resolution is "fair and reasonable," our general partner may consider the totality of the relationships among the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and

    provides that our general partner and its affiliates and their officers and directors will not be liable for monetary damages to us or our unitholders 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 those other persons acted in bad faith or engaged in fraud, willful misconduct or gross negligence.

        By purchasing a common unit, each unitholder will be bound by the provisions in the partnership agreement, including the provisions discussed above. Please read "Conflicts of Interest and Fiduciary Duties—Fiduciary Duties."

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Fees and cost reimbursements payable to our general partner and its affiliates will be substantial and will reduce our cash available for distribution to you.

        Prior to making any distribution on the common units, we will pay fees for services provided to us and certain of our subsidiaries by certain subsidiaries of OSG and we will reimburse our general partner and its affiliates for all expenses they incur on our behalf, which will be determined by our general partner. These fees and expenses will include all costs incurred by our general partner and its affiliates in providing certain commercial and technical management services and administrative, financial and other support services to us and certain of our subsidiaries, including services rendered to us pursuant to the agreements described below under "Certain Relationships and Related Party Transactions—Management Agreement" and Certain Relationships and Related Party Transactions—Administrative Services Agreement." The payment of fees to OSG and its subsidiaries and reimbursement of expenses to our general partner and its affiliates could adversely affect our ability to pay cash distributions to you.

Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.

        Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management's decisions regarding our business. Unitholders did not elect our general partner or its board of directors and will have no right to elect our general partner or its board of directors on an annual or any other continuing basis. The board of directors of our general partner is chosen by OSG.

        Furthermore, if unitholders are dissatisfied with the performance of our general partner, their ability to remove our general partner will be limited. The vote of the holders of at least 662/3% of all outstanding common and subordinated units voting together as a single class is required to remove our general partner. Following the completion of this offering, OSG will own a 77.2% interest in us, including a 2% interest through our general partner, which OSG owns and controls. Therefore, unitholders will be unable initially to remove our general partner without its consent because our general partner and its affiliates will, upon completion of this offering, own sufficient units to prevent its removal.

        Also, if our general partner is removed without "cause" during the subordination period and units held by our general partner and OSG are not voted in favor of that removal, all remaining subordinated units will automatically be converted into common units and any existing arrearages on the common units will be extinguished. The 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 certain distribution and performance targets had been achieved by us. "Cause" is narrowly defined in our partnership agreement 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 alleged poor management of the business, so the removal of our general partner because of the unitholders' dissatisfaction with our general partner's performance in managing our partnership will most likely result in the termination of the subordination period.

        As a result of these limitations in the rights of our unitholders, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

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Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

        Our partnership agreement restricts unitholders' voting rights by providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter. 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 ability of the unitholders to influence the manner or direction of management.

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, so long as the third party satisfies the citizenship requirements of the Jones Act. In addition, our partnership agreement does not restrict the ability of OSG or any subsequent member of our general partner from transferring all or a portion of its membership interests in our general partner to a third party as long as the citizenship requirements of the Jones Act are satisfied. In the event of any such transfer, the new member or members of our general partner would be in a position to replace the board of directors and officers of our general partner with their own designees and to control the decisions taken by the board of directors and officers.

You will experience immediate and substantial dilution of $10.77 per common unit.

        The assumed initial public offering price of $20.00 per common unit exceeds pro forma net tangible book value of $9.23 per common unit. Based on an assumed initial public offering price of $20.00 per unit, you will incur immediate and substantial dilution of $10.77 per common unit. This dilution is primarily the result of recording at their historical cost, and not their fair value, in accordance with accounting principles generally accepted in the United States, the assets contributed by our general partner and its affiliates. Please read "Dilution."

We may issue additional equity securities without your approval, which would dilute your ownership interests.

        Our general partner, without the approval of our unitholders, may cause us to issue an unlimited number of additional units or other equity securities, subject to any limitations imposed by the New York Stock Exchange. The issuance by us of additional common units or other equity securities may have the following effects:

    our unitholders' proportionate ownership interest in us will decrease;

    the amount of cash available to pay distributions on each unit may decrease;

    because a smaller percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

    the relative voting strength of each previously outstanding unit may be diminished; and

    the market price of the common units may decline.

Common units held by OSG eligible for future sale may have adverse effects on the price of our common units.

        After this offering of common units, OSG will hold 8,596,500 common units and 16,096,500 subordinated units, representing a 75.2% limited partner interest in us. OSG may, from time to time,

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sell all or a portion of its common units or subordinated units. Sales of substantial amounts of our common units or subordinated units, or the anticipation of such sales, could lower the market price of our common units and may make it more difficult for us to sell our equity securities in the future at a time and at a price that we deem appropriate.

We have a holding company structure in which our subsidiaries conduct our operations and own our operating assets, which may affect our ability to make distributions on our common units.

        We have a holding company structure and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than our membership interests in our subsidiaries. As a result, our ability to make distributions on our common units depends on the performance of our subsidiaries and their ability to distribute funds to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, applicable state partnership and limited liability company laws and other laws and regulations. If we are unable to obtain the funds necessary to make distributions on our common units, we may be required to adopt one or more alternatives, such as borrowing funds to make distributions on our common units. We cannot assure our unit holders that we would be able to borrow funds to make distributions on our common units.

Our partnership agreement currently limits the ownership of our partnership interests by individuals or entities that are not U.S. citizens. This restriction could limit the liquidity of our common units.

        In order to ensure compliance with Jones Act citizenship requirements, the board of directors of our general partner has adopted a requirement that at least 85% of the interests in our partnership must be held by U.S. citizens. This requirement may have an adverse impact on the liquidity or market value of our common units because holders will be unable to sell units to non-U.S. citizens. Any purported transfer of common units in violation of these provisions will be ineffective to transfer the common units or any voting, dividend or other rights associated with them.

In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to you.

        Our partnership agreement requires our general partner to deduct cash reserves from our operating surplus that it determines are necessary to fund our future operating expenditures. These reserves will affect the amount of cash available for distribution to our unitholders. Our general partner may establish reserves for distributions on the subordinated units, but only if those reserves will not prevent us from distributing the full minimum 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, our general partner is required to deduct estimated maintenance capital expenditures from operating surplus each quarter, which may result in less cash available to unitholders than if actual maintenance capital expenditures were deducted," our partnership agreement requires our general partner each quarter to deduct from operating surplus estimated maintenance capital expenditures, as opposed to actual expenditures, which could reduce the amount of available cash for distribution. The amount of estimated maintenance capital expenditures deducted from operating surplus is subject to review and change by our general partner at least once a year, provided that any change must be approved by the conflicts committee.

Our general partner has a limited call right that may require you to sell your common 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, our general partner will have the right, but not the obligation, to acquire all, but not less than all, of the

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common units held by unaffiliated persons at a price not less than their then-current market price as determined in accordance with our partnership agreement. Our general partner may assign this right to any of its affiliates or to us. As a result, you may be required to sell your common 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. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934. For additional information about the limited call right, please read "The Partnership Agreement—Limited Call Right."

        Immediately after the completion of this offering, OSG will own common units representing a 26.2% limited partner interest in us. At the end of the subordination period, assuming no additional issuances of common units, and conversion of our subordinated units into common units, OSG will own common units representing a 75.2% limited partner interest in us. Our general partner and its affiliates may own enough of our common units to enable our general partner to exercise its call right.

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 Delaware law, 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 other jurisdictions in which we do business. Please read "The Partnership Agreement—Limited Liability" 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 borrowing capacity 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 available for operating our business. For more information, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital—Revolving Credit Facility."

Restrictions in our debt agreements will limit our ability to pay distributions upon the occurrence of certain events.

        Our new revolving credit facility and our secured term loans limit our ability to pay distributions upon the occurrence of the following events, among others:

    failure to pay any principal, interest, fees, expenses or other amounts when due;

    failure to notify the lenders of any material oil spill or discharge of hazardous material, or of any action or claim related thereto;

    breach or lapse of any insurance with respect to the vessels; breach of certain financial covenants;

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    failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;

    default under other indebtedness;

    bankruptcy or insolvency events;

    failure of any representation or warranty to be materially correct;

    a change of control, as defiend in the applicable creit agreement.

        Any subsequent refinancing of our current debt or any new debt could have similar restrictions.

Increases in interest rates may cause the market price of our common 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 units. Any such increase in interest rates or reduction in demand for our common units resulting from other relatively more attractive investment opportunities may cause the trading price of our common 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. We may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware 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 Delaware law will be liable to the limited partnership for the distribution amount. Purchasers of units who become limited partners are liable for the obligations of the transferring limited partner to make contributions to the partnership that are known to the purchaser 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.

There is no existing market for our common units and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly and you could lose all or part of your investment.

        Prior to this offering, there has been no public market for our common units. Immediately after this offering, there will be only 7,500,000 publicly-traded common units. We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. You may not be able to resell your common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.

        The initial public offering price for the common units will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units may decline below the initial public offering price. The market price of our common units may also be influenced by many factors, some of which are beyond our control, including:

    our quarterly distributions;

    our quarterly or annual earnings or those of other companies in our industry;

    loss of a large customer or the loss of one or more of our vessels;

39


    announcements by us or our competitors of significant contracts or acquisitions;

    changes in accounting standards, policies, guidance, interpretations or principles;

    general economic conditions;

    the failure of securities analysts to cover our common units after this offering or changes in financial estimates by analysts;

    future sales of our common units; and

    the other factors described in these "Risk Factors."

Substantial future sales of our common units in the public market could cause the price of our common units to fall.

        We have granted registration rights to our general partner and its affiliates, including OSG, and their assignees. These registration rights continue for two years following any withdrawal or removal of our general partner. 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 our unitholders. Upon the completion of this offering, OSG and its affiliates will own 8,596,500 common units and 16,096,500 subordinated units. Following their registration and sale under the applicable registration statement, these securities would become freely tradable. By exercising their registration rights and selling a large number of common units or other securities, these unitholders could cause the price of our common units to decline.

Tax Risks

        In addition to the following risk factors, you should read "Material Tax Consequences" for a more complete discussion of expected material federal income tax consequences of owning and disposing of common units.

Our tax treatment depends on our status as a partnership for federal income tax purposes and not being subject to entity-level taxation by states. If the IRS was to treat us as a corporation or if we were to become subject to entity-level taxation for state tax purposes, then our cash available for distribution to you would be substantially reduced.

        The anticipated after-tax benefit of an investment in our common units depends largely on our being treated as a partnership for federal income tax purposes. We have not requested, and do not plan to request, a ruling from the IRS on this matter.

        If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%. Distributions to you would generally be taxed again as corporate distributions and no income, gains, losses, deductions or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. Treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to you, likely causing a substantial reduction in the value of the common units.

        Current law may change, causing us to be treated as a corporation for federal income tax purposes or otherwise subjecting us to entity-level taxation. For example, due to widespread state budget deficits in recent years, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income tax, franchise tax or other forms of taxation. If any state were to impose a tax upon us as an entity, the cash available for distribution to you would be reduced. Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a

40


manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, then the minimum quarterly distribution amount and the target distribution amounts will be adjusted to reflect the impact of that law on us.

If the IRS contests the federal income tax positions we take, the market for our common units may be adversely affected and the costs of any contest will be borne by our unitholders and our general partner.

        We have not requested any ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes. The IRS may adopt positions that differ from our counsel's conclusions expressed in this prospectus and it may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel's conclusions or the positions we take. A court may not agree with some or all of our counsel's conclusions or the positions we take. Any contest with the IRS may materially and adversely affect the market for our common units and the price at which they trade. In addition, the costs of any contest with the IRS will result in a reduction in cash available for distribution to our unitholders and our general partner and thus will be borne indirectly by our unitholders and our general partner.

You may be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

        You will be required to pay federal income taxes and, in some cases, state and local income taxes on your share of our taxable income, whether or not you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that results from your share of our taxable income.

        We anticipate that the first cash distribution you will receive from us will be based upon the period from the completion of this offering until December 31, 2007. We expect to pay that cash distribution in February 2008. You will, however, be required to include in income your allocable share of our income for the taxable period from completion of this offering until December 31, 2007, without regard to whether you receive corresponding cash distributions.

Tax gain or loss on the disposition of our common units could be different than expected.

        If you sell your common units, you will recognize gain or loss equal to the difference between the amount realized and your tax basis in those common units. Prior distributions to you in excess of the total net taxable income you were allocated for a common unit, which decreased your tax basis in that common unit, will, in effect, become taxable income to you if the common unit is sold at a price greater than your tax basis in that common unit, even if the price you receive is less than your original cost. A substantial portion of the amount realized, whether or not representing gain, may be ordinary income to you.

Tax-exempt entities and foreign persons face unique tax issues from owning common units that may result in adverse tax consequences to them.

        Investment in common units by tax-exempt entities, such as individual retirement accounts (IRAs) and non-U.S. persons, raises issues unique to them. For example, virtually all of our income allocated to organizations exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on their share of our taxable income.

41



We will treat each purchaser of units as having the same tax benefits without regard to the units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

        Because we cannot match transferors and transferees of common units, we will adopt depreciation and amortization positions that may not conform with all aspects of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns. Please read "Material Tax Consequences—Uniformity of Units" for a further discussion of the effect of the depreciation and amortization positions we will adopt.

You will likely be subject to state and local taxes and return filing requirements as a result of investing in our common units.

        In addition to federal income taxes, you will likely be subject to other taxes, such as state and local income taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property. You will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We will initially conduct business in Florida, which imposes a state income tax. We may own property or conduct business in other states or foreign countries in the future. It is your responsibility to file all of your federal, state and local tax returns. Our counsel has not rendered an opinion on the state and local tax consequences of an investment in our common units.

The sale or exchange of 50% or more of our capital and profits interests will result in the termination of our partnership for federal income tax purposes.

        We will be considered to have terminated our status as a partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a 12-month period. Our termination would, among other things, result in the closing of our taxable year for all unitholders and could result in a deferral of depreciation deductions allowable in computing our taxable income. Please read "Material Tax Consequences—Disposition of Common Units—Constructive Termination" for a discussion of the consequences of our termination for federal income tax purposes.

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USE OF PROCEEDS

        We expect to receive net proceeds of approximately $136.5 million from the sale of 7,500,000 common units offered by this prospectus, after deducting underwriting discounts, commissions and structuring fees and paying estimated offering expenses. We base this amount on an assumed initial public offering price of $20.00 per common unit. We will use the net proceeds from this offering to pay approximately $136.5 million in cash to OSG.

        If the underwriters exercise their over-allotment option, we will use the net proceeds from the exercise of the over-allotment option to redeem from OSG a number of common units equal to the number of common units issued upon the exercise of the over-allotment option, at a price per common unit equal to the proceeds per common unit before expenses, but after underwriting discounts, commissions and structuring fees.

43



CAPITALIZATION

        The following table shows:

    our historical capitalization as of March 31, 2007; and

    our pro forma capitalization as of March 31, 2007, adjusted to reflect the offering of the common units, the application of the net proceeds we receive in the offering in the manner described under "Use of Proceeds" on the preceding page and the related formation and contribution transactions. See "Summary—The Transactions."

        This table is derived from, and should be read together with, the historical combined financial statements of our predecessor and our pro forma combined financial statements and the accompanying notes. You should also read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of March 31, 2007
 
  Actual
  Pro Forma
 
  (in thousands)

Total cash and cash equivalents   $ 280   $ 280
   
 

Debt, including current portion:

 

 

 

 

 

 
  Long-term debt   $ 54,372   $ 54,372
  Long-term related party debt     572,379    
  Capital lease obligations     35,021     35,021
  Borrowings under credit facility         50,800
   
 
    Total debt   $ 661,772   $ 140,193
   
 

Equity/(deficit):

 

 

 

 

 

 
  Members' equity/(deficit)   $ (140,287 ) $
 
Held by public:

 

 

 

 

 

 
    Common units         136,500
 
Held by general partner and its affiliates:

 

 

 

 

 

 
    Common units         109,266
    Subordinated units         204,595
    General partner interest         8,350
   
 
  Total equity/(deficit)   $ (140,287 )   458,711
   
 
  Total capitalization   $ 521,485   $ 598,904
   
 

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DILUTION

        Dilution is the amount by which the offering price will exceed the net tangible book value per common unit after this offering. Assuming an initial public offering price of $20.00 per common unit, on a pro forma basis as of March 31, 2007, after giving effect to this offering of common units and the related formation and contribution transactions as described in "Use of Proceeds," our net tangible book value was $303.3 million, or $9.23 per common unit. Purchasers of common units in this offering will experience substantial and immediate dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.

Assumed initial public offering price per common unit       $ 20.00
  Pro forma net tangible book value per common unit before this offering(1)   11.96      
  Decrease in net tangible book value per common unit attributable to purchases in this offering   (2.73 )    
   
     
Less: Pro forma net tangible book value per common unit after this offering(2)         9.23
       
Immediate dilution in net tangible book value per common unit to purchasers in this offering       $ 10.77
       

(1)
Determined by dividing the total number of units (8,596,500 common units, 16,096,500 subordinated units and the 2% general partner interest represented by 657,000 general partner units) to be issued to our general partner and its affiliates for their contribution of assets and liabilities to us into the net tangible book value of the contributed assets and liabilities.

(2)
Determined by dividing the total number of units (16,096,500 common units, 16,096,500 subordinated units and the 2% general partner interest represented by 657,000 general partner units) to be outstanding after this offering into our pro forma net tangible book value, after giving effect to the application of the net proceeds of this offering.

        The following table sets forth the number of units that we will issue and the total consideration contributed to us by our general partner and its affiliates and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus.

 
  Units Acquired
  Total Consideration
 
 
  Number
  Percent
  Amount
  Percent
 
General partner and its affiliates(1)(2)   25,350,000   77.2 % $ 322,211,000   68.2 %
New investors   7,500,000   22.8 %   150,000,000   31.8 %
   
 
 
 
 
  Total   32,850,000   100.00 % $ 472,211,000   100.00 %
   
 
 
 
 

(1)
Upon the consummation of the transactions contemplated by this prospectus, our general partner and its affiliates will own an aggregate of 8,596,500 common units, 16,096,500 subordinated units and the 2% general partner interest represented by 657,000 general partner units.

(2)
The assets contributed by our general partner and its affiliates were recorded at book value in accordance with U.S. GAAP. Book value of the consideration provided by our general partner and its affiliates, as of March 31, 2007, was $322.2 million.

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OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

        You should read the following discussion of our cash distribution policy and restrictions on distributions in conjunction with specific assumptions included in this section. In addition, you should read "Forward-Looking Statements" and "Risk Factors" for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.

General

    Rationale for Our Cash Distribution Policy

        For a number of reasons, including our expectation that we will be able generally to finance any capital expenditures required for expansion from external financing sources, we believe that our investors are best served by us distributing all of our available cash (after deducting estimated maintenance capital expenditures and reserves), rather than retaining it. Our cash distribution policy is consistent with the terms of our partnership agreement, which requires distribution of all of our available cash on a quarterly basis (after deducting estimated maintenance capital expenditures and reserves).

    Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

        Our distribution policy may be changed at any time and is subject to certain restrictions, including:

    Our unitholders have no contractual or other legal right to receive distributions, other than their right arising out of our obligation under our partnership agreement to distribute available cash on a quarterly basis, which is subject to our general partner's broad discretion to establish reserves and other limitations.

    While our partnership agreement includes provisions requiring us to distribute all of our available cash, our partnership agreement may be amended. Although our partnership agreement may not be amended during the subordination period, with certain exceptions, 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 and any Class B units issued upon the reset of incentive distribution target levels, if any, voting as a class (including common units and Class B units held by OSG and its affiliates) after the subordination period has ended. Immediately following the completion of this offering, OSG will own outstanding common units representing a 26.2% limited partner interest in us and 100% of the outstanding subordinated units.

    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 the board of directors of our general partner, taking into consideration the terms of our partnership agreement.

    Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution if it would cause our liabilities to exceed the fair value of our assets.

    Our distribution policy will be affected by restrictions on distributions under our operating subsidiaries' secured term loans and revolving credit facility which will contain material financial tests and covenants that must be satisfied. These financial tests and covenants are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital—Our Secured Term Loans." Should our operating subsidiaries be unable to satisfy these tests and covenants, or if our operating subsidiaries are otherwise in default under the credit agreements, they would be prohibited from making cash distributions to

46


      us, which would materially hinder our ability to make cash distributions to you, notwithstanding our stated cash distribution policy.

    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 minimum quarterly distribution and the target distribution levels. We do not anticipate that we will make any distributions from capital surplus.

    Our Ability to Grow Depends upon Our and Our Operating Subsidiaries' Ability to Access Capital from External Sources for Expansion

        Because we distribute all of our available cash, we may not grow as fast as companies that reinvest their available cash. We expect that we will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion and investment capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow. To the extent we issue additional units to fund acquisitions or expansion or investment capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level which, in turn, may affect the available cash that we have to distribute on each unit. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional debt by us or our operating subsidiaries would result in increased interest expense which, in turn, may affect the available cash that we have to distribute to our unitholders.

    Initial Distribution Rate

        The amount of the minimum quarterly distribution is $0.35 per unit, or $1.40 per unit per year. The amount of available cash from operating surplus, which we also refer to as cash available for distribution, needed to pay the minimum quarterly distribution on all of the common units and subordinated units and the 2% general partner interest to be outstanding immediately after this offering for one quarter and for four quarters will be approximately:

 
  Number
of Units

  One
Quarter

  Four
Quarters

Common units   16,096,500   $ 5,633,775   $ 22,535,100
Subordinated units   16,096,500     5,633,775     22,535,100
2% general partner interest(1)   657,000     229,950     919,800
   
 
 
Total   32,850,000   $ 11,497,500   $ 45,990,000
   
 
 

(1)
The number of general partner units is determined by multiplying the total number of units deemed to be outstanding (i.e., the total number of common and subordinated units outstanding divided by 98%) by our general partner's 2% general partner interest.

        Upon completion of this offering, our general partner will adopt a policy pursuant to which we will pay an initial quarterly distribution of $0.35 per unit for each complete quarter. Beginning with the quarter ending December 31, 2007, we will distribute, within 45 days after the end of each quarter, all of our available cash to unitholders of record on the applicable record date. We will prorate the amount of our first distribution for the period from the completion of this offering through December 31, 2007 based on the actual length of the period.

        During the subordination period, before we make any quarterly distributions to subordinated unitholders, our common unitholders will be entitled to receive payment of the full minimum quarterly distribution plus any arrearages in distributions from prior quarters. Please read "How We Make Cash

47



Distributions—Subordination Period." The amount of the minimum quarterly distribution is $0.35 per unit, or $1.40 per unit per year. We cannot guarantee, however, that we will pay the minimum quarterly distribution or any amount on the common units in any quarter.

        Our general partner will be entitled to 2% of all distributions that we make prior to our liquidation. Our general partner's initial 2% interest in these distributions may be reduced if we issue additional units in the future (other than the issuance of common units upon exercise by the underwriters of their over-allotment option, the issuance of partnership securities issued in connection with a reset of the incentive distribution target levels relating to our general partner's incentive distribution rights or the issuance of partnership securities upon conversion of outstanding partnership securities) and our general partner does not contribute the amount of capital to us required to maintain its initial 2% general partner interest. Our general partner has the right, but not the obligation, to contribute the amount of capital to us required to maintain its current general partner interest.

        In the sections that follow, we present in detail the basis for our belief that we will be able to pay our minimum quarterly distribution on all of our common units and on all of our subordinated units for the twelve months ending June 30, 2008. We present a table consisting of:

    pro forma results of operations and cash available for distribution for the year ended December 31, 2006 and the twelve months ended March 31, 2007;

    forecasted results of operations and cash available for distribution for the twelve months ended June 30, 2008.

Pro Forma and Forecasted Results of Operations and Cash Available for Distribution

        We present below, to the best of our knowledge and belief, a forecast of the expected results of operations and cash flows for OSG America L.P. for the twelve months ending June 30, 2008.

        Our forecast reflects our judgment as of the date of this prospectus of conditions we expect to exist and the course of action we expect to take during the twelve months ending June 30, 2008. The assumptions disclosed in "—Summary of Significant Accounting Policies and Forecast Assumptions" below are those that we believe are significant to our forecasted results of operations. We believe that we have a reasonable objective basis for those assumptions listed and our actual results of operations will approximate those reflected in our forecast, but we can give no assurance that our forecasted results will be achieved. There are likely to be differences between our forecast and the actual results and those differences could be material. Our and our operating subsidiaries' operations are subject to numerous risks that are beyond our control. If the forecast is not achieved, we may not be able to pay cash distributions on our common units at the initial distribution rate stated in our cash distribution policy or at all.

        Our forecast of our results of operations is a forward-looking statement and should be read together with the historical combined financial statements of our predecessor and the accompanying notes included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The forecast has been prepared by, and is the responsibility of, the management of our general partner.

        Neither Ernst & Young LLP, our independent registered public accounting firm, nor any other independent registered public accounting firm, have compiled, examined or performed any procedures with respect to the forecasted financial information for the twelve months ending June 30, 2008 or pro forma information for the year ended December 31, 2006 and the twelve months ended March 31, 2007 contained herein, nor have they expressed any opinion or given any other form of assurance on such information or its achievability and they assume no responsibility for, and disclaim any association with, such forecasted and pro forma financial information. Ernst & Young LLP's reports included in this

48



prospectus relate to our and our predecessor's historical financial information. Those reports do not extend to the tables and the related forecasted and pro forma financial information contained in this section and should not be read to do so.

        When considering our financial forecast, you should keep in mind the risk factors and other cautionary statements under "Risk Factors" and elsewhere in this prospectus. Any of the risks discussed in this prospectus could cause our actual results of operations to vary significantly from the financial forecast.

        We are providing the financial forecast to supplement the historical combined financial statements of our predecessor and our pro forma combined financial statements to support our belief that we will have sufficient cash available to allow us to pay cash distributions on all of our outstanding common and subordinated units for each quarter in the twelve months ending June 30, 2008 at our stated initial distribution rate. Please read "—Summary of Significant Accounting Policies and Forecast Assumptions" for further information as to the assumptions we have made for the financial forecast.

        We do not undertake any obligation to release publicly the results of any future revisions we may make to the financial forecast or to update the financial forecast to reflect events or circumstances after the date of this prospectus. We caution you not to place undue reliance on this information.

49



OSG America L.P. Pro Forma and Forecasted Results of Operations and
Cash Available for Distribution (unaudited)

 
  Combined Pro Forma
  Forecast(1)
 
 
  Year Ended
December 31,
2006

  Twelve
Months Ended
March 31,
2007

  Twelve
Months Ending
June 30,
2008

 
 
  (In thousands, except per unit amounts)

 
Shipping Revenues:                    
Shipping revenues   $ 190,654   $ 197,419   $ 203,522  

Operating Expenses:

 

 

 

 

 

 

 

 

 

 
Voyage expenses     36,872     35,810      
Vessel operating expenses     72,549     73,739     76,072  
Bareboat charter expenses         1,166     23,140  
Depreciation and amortization     43,537     44,589     51,075  
General and administrative     16,799     18,426     20,000  
   
 
 
 
Total Operating Expenses     169,757     173,730     170,287  
   
 
 
 
Income from vessel operations     20,897     23,689     33,236  
Equity income from affiliated companies     6,811     5,978     5,278  
   
 
 
 
Operating income     27,708     29,667     38,513  
Other income     9          
Interest expense, other     (9,800 )   (9,243 )   (10,078 )
   
 
 
 
Income before federal income taxes     17,917     20,424     28,435  
Provision for federal income taxes              
   
 
 
 
Net Income     17,917     20,424     28,435  
Adjustments to reconcile net income to EBITDA:                    
Add:                    
  Depreciation and amortization     43,537     44,589     51,075  
  Interest expense     9,800     9,243     10,078  
   
 
 
 
EBITDA(2)     71,254     74,256     89,588  
  Adjustments for other non-cash items:                    
  Equity income from affiliated companies     (6,811 )   (5,978 )   (5,278 )
  Charter hire expense (DPO expense)         79     2,064  
   
 
 
 
      64,443     68,357     86,374  
 
Adjustments for cash items and maintenance capital expenditure reserves:

 

 

 

 

 

 

 

 

 

 
  Cash interest expense     (9,862 )   (8,916 )   (10,112 )
  Distributions of income from affiliated companies     8,066     6,811     5,206  
  Drydocking capital expenditure reserve(3)     (15,000 )   (15,000 )   (15,000 )
  Replacement capital expenditure reserve(3)     (15,908 )   (15,908 )   (15,908 )
   
 
 
 
Cash Available for Distribution   $ 31,739   $ 35,344   $ 50,560  
   
 
 
 
Expected distributions:                    
  Distributions per unit   $ 1.40   $ 1.40   $ 1.40  
  Distributions to our common unitholders(4)   $ 10,500   $ 10,500   $ 10,500  
  Distributions to OSG—common units(4)     12,035     12,035     12,035  
  Distributions to OSG—subordinated units     22,535     22,535     22,535  
  Distributions to OSG—general partner interest     920     920     920  
   
 
 
 
Total distributions(5)   $ 45,990   $ 45,990   $ 45,990  
   
 
 
 
Excess (shortfall)   $ (14,251 ) $ (10,646 ) $ 4,570  
   
 
 
 

(1)
The forecasted column is based on the assumptions set forth in "Pro Forma and Forecasted Results of Operations and Cash Available for Distribution—Summary of Significant Accounting Policies and Forecast Assumptions".

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(2)
EBITDA is a non-U.S. GAAP financial measure which we use because it is an important supplemental measure of performance. EBITDA means earnings before interest, taxes, depreciation and amortization. This measure is not calculated or presented in accordance with U.S. GAAP. We explain this measure below and reconcile it to its most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.


EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, to assess:

the financial and operating performance of assets without regard to financing methods, capital structure, income taxes or historical cost basis; and

the ability to generate cash sufficient to service debt, make distributions to our unitholders and undertake capital expenditures.


EBITDA should not be considered as an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, EBITDA may not be comparable to similarly titled measures of other companies.

(3)
Our partnership agreement requires an estimate of the maintenance capital expenditures necessary to maintain our asset base to be subtracted from operating surplus each quarter, as opposed to amounts actually spent. The board of directors of our general partner will approve the amount of our reserves for maintenance capital expenditures. Our initial annual estimated maintenance capital expenditures for purposes of calculating operating surplus will be $30.9 million per year, which is comprised of $15.0 million for drydocking costs for all of our vessels and $15.9 million for replacing our vessels at the end of their useful lives. The amount of estimated maintenance capital expenditures attributable to future drydocking expenses is based on the average annual anticipated drydocking over the remaining useful lives of our vessels. The actual cost of maintenance capital expenditures will depend on a number of factors, including prevailing market conditions, charter hire rates and the availability and cost of financing at the time of vessel replacement. We may elect to fund some or all maintenance capital expenditures through the issuance of additional common units, which may be dilutive to existing unitholders. Please read "Risk Factors—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, our general partner is required to deduct estimated maintenance capital expenditures from operating surplus each quarter, which may result in less cash available to unitholders than if actual maintenance capital expenditures were deducted."

(4)
Assumes the underwriters' over-allotment option is not exercised. The net proceeds from any exercise of the underwriters' over-allotment option will be used to redeem common units from OSG. The number of units redeemed would equal the number of units for which the underwriters exercised their over-allotment option.

(5)
Represents the amount required to fund distributions to our unitholders and our general partner for four quarters based upon our minimum quarterly distribution rate of $0.35 per unit.

Please read "Summary of Significant Accounting Policies and Forecast Assumptions."

Summary of Significant Accounting Policies and Forecast Assumptions

Basis of Presentation

        The financial forecast presents the forecasted results of operations of OSG America L.P. for the twelve months ending June 30, 2008. Upon the completion of this offering, we will issue common units and subordinated units representing limited partner interests to OSG and a 2% general partner interest in us and all of our incentive distribution rights to our general partner, OSG America LLC, a wholly-owned subsidiary of OSG. We will also issue common units, representing limited partner interests, to investors pursuant to this offering. The accompanying financial forecast is presented in accordance with the guidelines established by the American Institute of Certified Public Accountants.

        In constructing the unaudited pro forma combined results of operations for the year ended December 31, 2006 and for the twelve months ended March 31, 2007, we used the historical combined results of operations for OSG America Predecessor for those periods and adjusted such results of operations as described in "—Pro Forma and Forecasted Results of Operations" above.

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Summary of Significant Accounting Policies

        Organization.    We were formed on May 14, 2007 as a Delaware limited partnership by OSG. Our general partner is a wholly-owned subsidiary of OSG.

        Basis of Presentation and Description of Business.    The financial forecast includes the accounts of our wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation. Investments in affiliated companies in which we own a stake of 50% or less and in which we exercise significant influence are accounted for by the equity method.

        Cash and Cash Equivalents.    Interest-bearing deposits that are highly liquid investments and have a maturity of three months or less when purchased are included in cash and cash equivalents.

        Vessels.    Vessels are recorded at cost and are depreciated to estimated salvage value on a straight-line basis over a vessel's useful life, which we estimate to be 25 years for newbuilds and 20 years for rebuilt barges with the useful life of a married tug and barge being coterminus. The salvage value of product carriers and barges is equal to the product of its lightweight tonnage and an estimated scrap rate per ton. The salvage value of tugs is generally assumed to be $1.0 million. Financing, supervision and certain other costs are capitalized to vessels during the period that vessels are under construction.

        Deferred Drydock Expenditures.    Expenditures incurred during a drydocking are deferred and amortized on the straight-line basis over the period until the next scheduled drydocking, which is generally two and a half years on average. Expenditures for maintenance and repairs are expensed when incurred. Amortization of capitalized drydock expenditures and improvements is included in depreciation and amortization.

        Vessels under Capital Leases.    We charter in two vessels that we have accounted for as capital leases since 1989. Amortization of capital leases is computed by the straight-line method over 22 years representing the terms of the leases.

        Impairment of Long-Lived Assets.    The carrying amounts of long-lived assets held and used are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the asset's carrying amount. This assessment is made at the individual vessel level since separately identifiable cash flow information for each vessel is available. The amount of an impairment charge, if any, would be determined using discounted cash flows.

        Goodwill and Intangible Assets.    Goodwill and indefinite lived intangible assets acquired in a business combination are not amortized but are reviewed for impairment annually, or more frequently if impairment indicators arise. Intangible assets with estimable useful lives are amortized over their estimated useful lives. Our intangible assets, which consist primarily of long-term customer relationships acquired as part of the purchase of Maritrans Inc., are being amortized on a straight line basis over 20 years.

        Revenue and Expense Recognition.    Revenues from time charters are accounted for as operating leases and are thus recognized ratably over the rental periods of such charters as service is performed. Voyage revenues and expenses are recognized ratably over the estimated length of each voyage and, therefore, are allocated between reporting periods based on the relative transit time in each period. The impact of recognizing voyage expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis from a method of recognizing such costs as incurred. We do

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not begin recognizing voyage revenue until a charter has been agreed to by both us and the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.

        Under voyage charters, expenses such as fuel, port charges, canal tolls and cargo handling operations are paid by us whereas, under time and bareboat charters, such voyage costs are paid by our customers.

        Deferred Finance Charges.    Finance charges incurred in the arrangement of debt are deferred and amortized to interest expense on the straight-line basis over the life of the related debt.

        Use of Estimates.    The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

        Newly issued Accounting Standards.    In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements (FAS 157)." The standard provides guidance for using fair value to measure assets and liabilities in accordance with U.S. GAAP and expands disclosures about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. FAS 157 applies whenever other standards require or permit assets or liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Early adoption is permitted. We believe that the adoption of FAS 157 will not have a material effect on our earnings or financial position.

        Acquisition of Maritrans.    On November 28, 2006, OSG acquired the stock of Maritrans Inc., an owner and operator of a fleet of product carriers and barges, certain of which now form part of the fleet of OSG America Predecessor. The operating results of the Maritrans Entities have been included in the historical financial statements since November 29, 2006. The pro forma results have been adjusted to reflect the operations of the Maritrans Entities from the first day of the period presented.

Summary of Significant Forecast Assumptions

        Vessel Deliveries.    The forecast assumes the following changes in our fleet:

    delivery of Overseas Los Angeles from Aker American Shipping, Inc. (Aker) in December 2007;

    delivery of the barge OSG 243 from the shipyard performing the retrofitting and lengthening of that barge in January 2008 and entering service with the tug OSG Independence as an ATB;

    delivery of Overseas New York from Aker in May 2008; and

    the option to acquire the ATB OSG 350/OSG Vision in February 2008 is not exercised.

        Time Charter Equivalent Revenues.    Consistent with general practice in the shipping industry, we use time charter equivalent (TCE) revenues (which represents shipping revenues less voyage expenses) as a measure to compare revenues generated from voyage charters to revenues generated from time charters, which assists us in making operating decisions about the deployment of our vessels and their financial performance. Under time charters, the charterer typically pays the voyage expenses, whereas under voyage charter contracts and contracts of affreightment, the shipowner typically pays the voyage expenses. In evaluating whether to time charter or voyage charter our vessels to customers, we must estimate voyage expenses to arrive at the estimated time charter equivalent revenue for voyage charter opportunities. As a result, although shipping revenues from different types of contracts may vary, the TCE revenues are comparable across the different types of contracts. TCE revenues, a non-U.S. GAAP financial measure, provide additional meaningful information in conjunction with shipping revenues, the

53



most directly comparable U.S. GAAP financial measure, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. TCE revenues are also widely used by investors and analysts in the shipping industry for comparing financial performance of different companies in the shipping industry to industry averages.

        Forecasted TCE revenues for the twelve months ending June 30, 2008 is approximately $49.7 million greater than the pro forma results for the year ended December 31, 2006, primarily as a result of the operation of four new product carriers delivered or to be delivered by Aker after December 31, 2006, which increased TCE revenue by $42.2 million, and the operation of barge OSG242 during the forecast period, which increased TCE revenue by $11.2 million because the barge was out of service for retrofitting during the majority of 2006. This increase was partially offset by the loss of revenue caused by the removal from operation of barge OSG243, which went into the yard for retrofitting beginning in April 2007.

        Forecasted TCE revenues for the twelve months ending June 30, 2008 is approximately $41.9 million greater than the pro forma results for the twelve months ended March 31, 2007, primarily as a result of the operation of three new product carriers delivered or to be delivered by Aker after March 31, 2007, which increased TCE revenue by $26.1 million and the operation of barge OSG242, which was out of service for retrofitting during the twelve months ended March 31, 2007. This increase is partially offset by the loss of revenue caused by the retrofitting of barge OSG243, which we forecast will be out of service for approximately half the forecast period.

        The forecast is based upon estimated average daily hire rates and the total number of days our vessels are expected to be on-hire and earning revenue during the twelve months ending June 30, 2008. In making this determination, we have assumed that levels of off-hire time for owned or bareboat chartered vessels will be similar to levels of off-hire time for 2006 and the first three months of 2007 and that vessels performing contracts of affreightment will be utilized at levels similar to those for 2006 and the first three months of 2007. These assumptions include expected off-hire due to scheduled drydockings. Among other things, the amount of actual off-hire time depends upon the time a vessel spends in a drydock for repairs, maintenance or inspection, waiting time, time lost due to equipment breakdowns or delays due to accidents, crewing strikes, certain vessel detentions or similar problems as well as failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

        The average daily TCE rate is equal to the shipping revenues earned by a vessel during a given period, divided by the total number of days the vessel is not off-hire. For periods when a vessel is available for employment but not employed under a time charter, contract of affreightment, or consecutive voyage contract we have applied a forecasted spot market rate.

        The following table outlines our assumptions on forecasted time charter rates, spot market rates, and vessel operating dates for the twelve months ending June 30, 2008:

 
  Fixed Days
  Fixed
Daily TCE Rate

  Spot Days
  Spot Daily
TCE Rate

ATB   1,995   $ 30,400   532   $ 31,100
Old Product Carrier   1,225   $ 37,800   538   $ 39,500
New Product Carrier   953   $ 43,000      
MSP Product Carrier         663   $ 26,500

        Vessel Operating Expenses.    Forecasted vessel operating expenses for the twelve months ending June 30, 2008 are approximately $3.5 million greater than the pro forma results for the year ended December 31, 2006 due to an increase in the number of vessels in operation. This was partially offset by the elimination of one-time costs incurred in 2006 in association with the reflagging of the Overseas Luxmar and Overseas Maremar to the U.S. flag from the Marshall Islands.

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        Forecasted vessel operating expenses for the twelve months ending June 30, 2008 are approximately $2.3 million greater than the pro forma results for the twelve months ended March 31, 2007 due to an increase in the number of vessels in operation. This was partially offset by the elimination of one-time costs incurred in 2006 in association with the reflagging of the Overseas Luxmar and Overseas Maremar to the U.S. flag from the Marshall Islands.

        Some of the more significant vessel operating expenses include crewing and other labor related costs, repairs and maintenance and insurance costs. All of the seafarers employed on our vessels are employees of OSG Ship Management, Inc. (OSGM), a subsidiary of OSG, and our operating subsidiaries will enter into services agreements with OSGM under which it will provide crewing and other vessel operation and administrative services. Please read "Certain Relationships and Related Party Transactions—Management Agreement" and "Certain Relationships and Related Party Transactions—Administrative Services Agreement." Labor and related costs for purposes of this forecast are based upon estimated payments under these services agreements, historical experience and contractual unionized wage rates. Insurance costs are estimated based upon anticipated premiums.

        Average daily operating expenses are equal to vessel operating expenses divided by calendar days the vessels are operating during a given period.

 
  Forecasted
Operating Days

  Daily
OPEX

ATB   2,744   $ 8,000
Old Product Carrier   1,830   $ 16,900
New Product Carrier   990   $ 15,000
MSP Product Carrier   722   $ 11,300

        Bareboat Charter Expenses.    Bareboat charter expenses include profit sharing expense and deferred principal obligation expense (DPO expense) arising from the Aker bareboat charters (see "Business—Bareboat Charters from Aker of Our Newbuilds"). Our forecast for the twelve months ending June 30, 2008 assumes that the Overseas Los Angeles and Overseas New York are delivered by Aker in accordance with the currently scheduled delivery dates and immediately commence the bareboat charters under which they are contracted.

        Forecasted bareboat charter hire expense for the twelve months ending June 30, 2008 is approximately $23.1 million greater than the pro forma results for the year ended December 31, 2006 because of the delivery or scheduled delivery of four new Aker-built product carriers in the period after December 31, 2006.

        Forecasted charter hire expense for the twelve months ending June 30, 2008 is approximately $22.0 million greater than the pro forma results for the twelve months ended March 31, 2007 because of the delivery or scheduled delivery of three new Aker-built product carriers in the period after March 31, 2007 and the operation of the first Aker-built product carrier for a full 12 months during the forecast period as compared to two months during the period ended March 31, 2007.

        Depreciation and Amortization.    Depreciation and amortization consists of depreciation on vessels, amortization of capital expenditures and intangibles and deferred drydocking expense. Forecasted depreciation and amortization for the twelve months ending June 30, 2008 is approximately $7.5 million and $6.5 million greater than the pro forma results for the year ended December 31, 2006 and for the twelve months ended March 31, 2007, respectively, primarily as a result of increased depreciation on vessels resulting from newbuilding deliveries, increased amortization of new capital expenditures and increased deferred drydocking expense. The vessels acquired by our predecessors were accounted for at fair value and deferred drydock was eliminated on the acquisition date. The increase in deferred drydocking expense arises when each such vessel performs its first drydock after its acquisition.

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        Our forecast for depreciation expense assumes no vessels are purchased or sold during the twelve months ending June 30, 2008, except the delivery of the barge OSG 243 after it has been retrofitted with a double hull and lengthened on its scheduled completion date in January 2008. Depreciation is calculated on a straight-line basis over a vessel's useful life, which we estimate to be 25 years for newbuilds and 20 years for rebuilt barges with the useful life of a married tug and barge being coterminus.

        General and Administrative Expenses.    Forecasted general and administrative expenses for the twelve months ending June 30, 2008 are approximately $3.2 million greater than the pro forma results for the year ended December 31, 2006, primarily as a result of a forecasted increase in shoreside staff compensation levels and an increase in headcount in anticipation of the delivery of our newbuild vessels, reimbursements to our general partner and payments to certain subsidiaries of OSG for administrative and certain other services to be provided to us and our operating subsidiaries under services agreements to be entered into upon the completion of this offering. Forecasted general and administrative expenses for the twelve months ending June 30, 2008 are approximately $1.6 million greater than the pro forma results for the twelve months ended March 31, 2007, primarily as a result of forecasted increases in total shoreside staff compensation, reimbursements to our general partner and payments to certain subsidiaries of OSG for administrative and certain other services.

        Equity Income from Affiliated Companies.    Equity income from affiliated companies consists solely of income generated by our investment in Alaska Tanker Company, LLC (ATC) (see "Business—Our Investment in Alaska Tanker Company, LLC"). Forecasted equity income for the twelve months ending June 30, 2008 is approximately $1.5 million and $0.7 million less than the pro forma results for the year ended December 31, 2006 and the twelve months ended March 31, 2007, respectively, primarily as a result of a reduction in the number of vessels managed by ATC.

        Interest Expense.    Forecasted interest expense for the twelve months ending June 30, 2008 is approximately $0.3 million and $0.8 million greater than the pro forma results for the year ended December 31, 2006 and the twelve months ended March 31, 2007, respectively, primarily as a result of a higher outstanding average debt balance under revolving credit facilities and a projected increase in the floating interest rate on revolving credit facilities during the twelve months ending June 30, 2008. This forecasted increase is partially offset by a lower outstanding average debt balance under fixed rate term loans and capital leases during the twelve months ending June 30, 2008. Our forecast for the twelve months ending June 30, 2008 assumes an average revolving credit facility balance outstanding of $65.6 million with an estimated weighted-average interest rate of 6.11% per annum, which rate is upon an estimated LIBOR rate of 5.36% plus applicable margins. Our forecast for the twelve months ending June 30, 2008 assumes an average outstanding term loan and capital lease balance of $81.7 million with an estimated weighted-average interest rate of 7.43% per annum.

        Drydocking and Replacement Reserve.    Forecasted initial annual maintenance capital expenditures for our fleet are $30.9 million per year, which includes $15.0 million for drydocking costs and $15.9 million, including financing costs, for replacing our product carriers, tugs and barges at the end of their useful lives.

        Regulatory, Industry and Economic Factors.    Our forecast for the twelve months ending June 30, 2008 is based on the following assumptions related to regulatory, industry and economic factors:

    no material non-performance or credit-related defaults by suppliers, customers or vendors;

    no new regulations or any interpretation of existing regulations that, in either case, would be materially adverse to our business;

    no material accidents, weather-related incidents, unscheduled downtime or similar unanticipated events;

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    no major adverse change in the markets in which we operate resulting from production disruptions, reduced demand for oil or significant changes in the market prices of oil;

    no material changes to market, regulatory and overall economic conditions; and

    an annual inflation rate of 2.5% generally applied to our costs.

Pro Forma and Forecasted Cash Available for Distribution

        If we had completed the transactions contemplated in this prospectus on January 1, 2006 and April 1, 2006 as a publicly-traded partnership, our pro forma cash available to make distributions during the year ended December 31, 2006 and the twelve months ended March 31, 2007 would have been sufficient to allow us to pay 100% of the minimum quarterly distribution of $0.35 per unit per quarter (or $1.40 per unit on an annualized basis) on our common units and 38% and 54%, respectively, of the minimum quarterly distribution on our subordinated units during those respective periods.

        The above table illustrates, on a pro forma basis, for the year ended December 31, 2006 and the twelve months ended March 31, 2007, the amount of cash available for distribution that would have been available for distributions to our unitholders, assuming that this offering and the related transactions had been consummated on January 1, 2006 and April 1, 2006, respectively.

        The table above also sets forth our calculation of forecasted cash available for distribution to our unitholders and general partner based on the Pro Forma and Forecasted Results of Operations set forth above. Based on the financial forecast and related assumptions, we forecast that our cash available for distribution generated during the twelve months ending June 30, 2008 will be approximately $50.6 million. This amount would be sufficient to pay 100% of the minimum quarterly distribution of $0.35 per unit on all of our common units and subordinated units for the four quarters ending June 30, 2008.

        You should read "Summary of Significant Forecast Assumptions" included as part of the financial forecast for a discussion of the material assumptions underlying our forecast of EBITDA that is included in the table below. Our forecast is based on those material assumptions and reflects our judgment of conditions we expect to exist and the course of action we expect to take. The assumptions disclosed in our financial forecast are those that we believe are material to determining the forecasted EBITDA. If our estimate is not achieved, we may not be able to pay distributions on the common units at the initial distribution rate of $0.35 per unit per quarter ($1.40 per unit on an annualized basis). Our financial forecast and the forecast of cash available for distribution have been prepared by our management. Our independent registered public accounting firm has not examined, compiled, or otherwise applied procedures to our financial forecast and the forecast of cash available for distribution and, accordingly, do not express an opinion or any other form of assurance on it.

        EBITDA should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance calculated in accordance with U.S. GAAP.

        When considering our forecast of cash available for distribution for the twelve months ending June 30, 2008, you should keep in mind the risk factors and other cautionary statements under the heading "Risk Factors" and elsewhere in this prospectus. Any of these factors or the other risks discussed in this prospectus could cause our financial condition and combined results of operations to vary significantly from those set forth in the financial forecast and the forecast of cash available for distribution set forth above.

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HOW WE MAKE CASH DISTRIBUTIONS

Distributions of Available Cash

    General

        Within approximately 45 days after the end of each quarter, beginning with the quarter ending December 31, 2007, we will distribute all of our available cash (as defined below) to unitholders of record on the applicable record date. We will adjust the minimum quarterly distribution for the period from the completion of this offering through December 31, 2007 based on the actual length of that period.

    Definition of Available Cash

        We define available cash in the glossary located in Appendix C. Generally, it means, for each fiscal quarter, all cash on hand at the end of the quarter:

    less the amount of cash reserves established by our general partner to:

provide for the proper conduct of our business (including reserves for future capital expenditures and for our anticipated credit needs);

comply with applicable law, any of our debt instruments or other agreements; and

provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters;

plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter for which the determination is made. Working capital borrowings are generally borrowings that will be made under our revolving credit facility and in all cases are used solely for working capital purposes or to pay distributions to unitholders and with the intent to repay such borrowings within 12 months.

    Intent to Distribute the Minimum Quarterly Distribution

        To the extent we have sufficient cash on hand after we establish cash reserves and pay fees and expenses, we intend to distribute to the holders of our common and subordinated units on a quarterly basis at least the minimum quarterly distribution of $0.35 per unit, or $1.40 per unit per year. The amount of available cash from operating surplus needed to pay the minimum quarterly distribution for one quarter on all units outstanding immediately after completion of this offering and the related distribution on the 2% general partner interest is approximately $11.5 million. There is no guarantee that we will pay the minimum quarterly distribution on our common and subordinated units in any quarter and 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 our credit agreement. Please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital—Our Secured Term Loans" for a discussion of the restrictions to be included in our credit agreements that may restrict our ability to make distributions.

    General Partner Interest and Incentive Distribution Rights

        Initially, our general partner will be entitled to 2% of all quarterly distributions since inception that we make prior to our liquidation. This general partner interest will be represented by 657,000 general partner units. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its current general partner interest. Our general partner's initial 2% interest in these distributions may be reduced if we issue additional units in the

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future and our general partner does not contribute a proportionate amount of capital to us to maintain its 2% general partner interest.

        Our general partner also currently holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 50%, of the cash we distribute from operating surplus (as defined below) in excess of $0.525 per unit per quarter. The maximum distribution of 50% includes distributions paid to our general partner in respect of its 2% general partner interest and assumes that our general partner maintains its general partner interest at 2%. The maximum distribution of 50% does not include any distributions that our general partner may receive on common or subordinated units that it owns. Please see "—General Partner Interest" and "—Incentive Distribution Rights" for additional information.

Operating Surplus and Capital Surplus

    General

        All cash distributed to unitholders will be characterized as either "operating surplus" or "capital surplus." We treat distributions of available cash from operating surplus differently than distributions of available cash from capital surplus.

    Definition of Operating Surplus

        We define operating surplus in the glossary located in Appendix C. For any period it generally means:

    an amount equal to two times the amount needed for any one quarter for us to pay a distribution on all our units (including general partner units) and the incentive distribution rights at the same per-unit amount as was distributed in the immediately preceding quarter; plus

    all of our cash receipts after the completion of this offering, excluding cash from (1) borrowings, other than working capital borrowings, (2) sales of equity and debt securities, (3) sales or other dispositions of assets outside the ordinary course of business, (4) capital contributions or (5) corporate reorganizations or restructurings; plus

    working capital borrowings made after the end of a quarter, but before the date of determination of operating surplus for the quarter; plus

    interest paid on debt incurred and cash distributions paid on equity securities issued, in each case, to finance all or any portion of the construction, replacement or improvement of a capital asset such as vessels during the period from such financing until the earlier to occur of the date the capital asset is put into service or the date that it is abandoned or disposed of; plus

    interest paid on debt incurred and cash distributions paid on equity securities issued, in each case, to pay the construction period interest on debt incurred or to pay construction period distributions on equity issued, to finance the construction projects described in the immediately preceding bullet; less

    all of our operating expenditures after the completion of this offering and the repayment of working capital borrowings, but not (1) the repayment of other borrowings, (2) actual maintenance capital expenditures or expansion capital expenditures or investment capital expenditures, (3) transaction expenses and taxes related to interim capital transactions or (4) distributions; less

    estimated maintenance capital expenditures and the amount of cash reserves established by our general partner to provide funds for future operating expenditures.

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        If a working capital borrowing, which increases operating surplus, is not repaid during the twelve-month period following the borrowing, it will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowing is in fact repaid, it will not be treated as a reduction in operating surplus because operating surplus will have been previously reduced by the deemed repayment.

        As described above, operating surplus includes an amount equal to two times the amount needed for any one quarter for us to pay a distribution on all units (including general partner units) and the incentive distribution rights at the same per-unit amount as was distributed in the immediately preceding quarter. This amount, which initially equals approximately $23.0 million, does not reflect actual cash on hand available to pay distributions to unitholders. Rather, it is a provision that will enable us, if we choose, to distribute as operating surplus up to this amount of cash we receive in the future from non-operating sources, such as asset sales, issuances of securities and long-term borrowings, that would otherwise be distributed as capital surplus. In addition, the effect of including, as described above, certain cash distributions on equity securities or interest payments on debt in operating surplus would be to increase operating surplus by the amount of any such cash distributions or interest payments. As a result, we may also distribute as operating surplus up to the amount of any such cash distributions or interest payments of cash we receive from non-operating sources.

    Capital Expenditures

        For purposes of determining operating surplus, maintenance capital expenditures are those capital expenditures required to maintain over the long term the operating capacity of, or the revenue generated by, our capital assets and expansion capital expenditures are those capital expenditures that increase the operating capacity of, or the revenue generated by, our capital assets. To the extent, however, that capital expenditures for acquiring a new vessel increase the revenues or the operating capacity of our fleet, those capital expenditures would be classified as expansion capital expenditures.

        Investment capital expenditures are those capital expenditures that are neither maintenance capital expenditures nor expansion capital expenditures. Investment capital expenditures will largely consist of capital expenditures made for investment purposes.

        Examples of investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investment purposes.

        Examples of maintenance capital expenditures include capital expenditures associated with drydocking a vessel or acquiring a new vessel to the extent such expenditures are incurred to maintain the operating capacity of, or the revenue generated by, our fleet. Maintenance capital expenditures will also include interest (and related fees) on debt incurred and distributions on equity issued to finance the construction of a replacement vessel and paid during the construction period, which we define as the period beginning on the date that we enter into a binding construction contract and ending on the earlier of the date that the replacement vessel commences commercial service or the date that the replacement vessel is abandoned or disposed. Debt incurred to pay or equity issued to fund construction period interest payments, and distributions on such equity, will also be considered maintenance capital expenditures.

        Because our maintenance capital expenditures can be very large and vary significantly in timing, the amount of our actual maintenance capital expenditures may differ substantially from period to period. This could cause similar fluctuations in the amounts of operating surplus, adjusted operating surplus and available cash for distribution to our unitholders if we subtracted actual maintenance capital expenditures from operating surplus each quarter. Accordingly, to eliminate the effect on operating surplus of these fluctuations, our partnership agreement will require that an amount equal to

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an estimate of the average quarterly maintenance capital expenditures necessary to maintain the operating capacity of, or the revenue generated by, our capital assets over the long term to be subtracted from operating surplus each quarter, as opposed to the actual amounts spent. The amount of estimated maintenance capital expenditures deducted from operating surplus is subject to review and change by the board of directors of our general partner at least once a year, provided that any change must be approved by our conflicts committee. The estimate will be made at least annually and whenever an event occurs that is likely to result in a material adjustment to the amount of our maintenance capital expenditures, such as a major acquisition or the introduction of new governmental regulations that will affect our fleet. For purposes of calculating operating surplus, any adjustment to this estimate will be prospective only. For a discussion of the amounts we have allocated toward estimated maintenance capital expenditures, please read "Our Cash Distribution Policy and Restrictions on Distributions."

        Our use of estimated maintenance capital expenditures in calculating operating surplus will have the following effects:

    it will reduce the risk that actual maintenance capital expenditures in any one quarter will be large enough to make the operating surplus less than the amount required to make the minimum quarterly distribution to be paid on all the units for that quarter and subsequent quarters;

    it will reduce the need for us to borrow under our working capital facility to pay distributions; and

    it will reduce the likelihood that a large maintenance capital expenditure in a period will prevent our general partner's affiliates from being able to convert some or all of their subordinated units into common units because the estimate will spread the expected expense over several periods, mitigating the effect of the actual payment of the expenditure on any single period.

    Definition of Capital Surplus

        We define capital surplus in the glossary located in Appendix C. Generally it will be generated only by:

    borrowings other than working capital borrowings;

    sales of debt and equity securities; and

    sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or non-current assets sold as part of normal retirements or replacements of assets.

    Characterization of Cash Distributions

        We will treat all available cash distributed as coming from our operating surplus until the sum of all available cash distributed since we began operations equals the operating surplus as of the most recent date of determination of available cash. We will treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus. As described above, operating surplus includes an amount up to two times the amount needed for any one quarter for us to pay a distribution on all of our units (including the general partner units) and the incentive distribution rights at the same per-unit amount as was distributed in the immediately preceding quarter. This amount, which initially equals approximately $23.0 million, does not reflect actual cash on hand available to pay distributions to our unitholders. Rather, it is a provision that will enable us, if we choose, to distribute as operating surplus up to this amount of cash we receive in the future from non-operating sources such as asset

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sales, issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus. We do not anticipate making any distributions from capital surplus.

Subordination Period

    General

        During the subordination period, which we define below and in the glossary located in Appendix C, 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 $0.35 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 from operating surplus for distribution to the holders of the common units.

    Definition of Subordination Period

        We define the subordination period in the glossary located in Appendix C. Except as described below under "Early Termination of Subordination Period," the subordination period will extend until the first day of any quarter, beginning after September 30, 2010, that each of the following tests are met:

    distributions of available cash from operating surplus on each of the outstanding common units, subordinated units and general partner units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;

    the "adjusted operating surplus" (as defined below) 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, subordinated units and general partner units during those periods on a fully diluted basis; and

    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 September 30, 2010.

    Early Termination of Subordination Period

        The subordination period will be automatically terminated and the subordinated units will convert into common units on a one-for-one basis if the following tests are met:

    distributions of available cash from operating surplus on each of the outstanding common units, subordinated units and general partner units equaled or exceeded $2.10 (150% of the annualized minimum quarterly distribution) for any four-quarter period immediately preceding the date of determination; and

    the "adjusted operating surplus" (as defined below) generated during any four-quarter period immediately preceding the date of determination equaled or exceeded the sum of a distribution of $2.10 per common unit (150% of the annualized minimum quarterly distribution) on all of the outstanding common and subordinated units on a fully diluted basis; and

    there are no arrearages in payment of the minimum quarterly distribution on the common units.

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        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 capital expenditures used in the determination of operating surplus was materially incorrect, based on circumstances prevailing at the time of the original determination of that estimate.

    Definition of Adjusted Operating Surplus

        We define adjusted operating surplus in the glossary located in Appendix C. For any period it generally means:

    operating surplus generated for that period; less

    any net increase in working capital borrowings for that period; less

    any net reduction in cash reserves for operating expenditures for that period not relating to an operating expenditure made for that period; plus

    any net decrease in working capital borrowings for that period; plus

    any net increase in cash reserves for operating expenditures for that period required by any debt instrument for the repayment of principal, interest or premium.

        Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net increases in working capital borrowings and net draw downs of reserves of cash generated in prior periods.

    Effect of Expiration of the Subordination Period

        Upon expiration of the subordination period, each outstanding subordinated unit will convert into one common unit and after such conversion, 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:

    the subordination period will end and each subordinated unit will immediately convert into one common unit;

    any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished irrevocably; and

    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:

    first, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;

    second, 98% to the common unitholders, pro rata, and 2% 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;

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    third, 98% to the subordinated unitholders, pro rata, and 2% to our general partner, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and

    thereafter, in the manner described in "—Incentive Distribution Rights" below.

        The preceding paragraph is based on the assumption that our general partner maintains its 2% general partner interest and that we do not issue additional classes of equity securities.

Distributions of Available Cash from Operating Surplus after the Subordination Period

        We will make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:

    first, 98% to all unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and

    thereafter, in the manner described in "—Incentive Distribution Rights" below.

        The preceding paragraph is based on the assumption that our general partner maintains its 2% general partner interest and that we do not issue additional classes of equity securities.

General Partner Interest

        Our partnership agreement provides that our general partner initially will be entitled to 2% of all distributions that we make prior to our liquidation. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its 2% general partner interest if we issue additional units. Our general partner's 2% interest, and the percentage of our cash distributions to which it is entitled, will be proportionately reduced if we issue additional units in the future (other than the issuance of partnership securities issued in connection with a reset of the incentive distribution target levels relating to our general partner's incentive distribution rights or the issuance of partnership securities upon conversion of outstanding partnership securities) and our general partner does not contribute a proportionate amount of capital to us in order to maintain its 2% general partner interest. Our general partner will be entitled to make a capital contribution in order to maintain its 2% general partner interest in the form of the contribution to us of common units based on the current market value of the contributed common units.

Incentive Distribution Rights

        Incentive distribution rights are the right to receive an increasing percentage of quarterly distributions of available cash from operating surplus 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. 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 all or 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, is generally required for a transfer of the incentive distribution rights to a third party prior to June 30, 2017. Please read "The Partnership Agreement—Transfer of Incentive Distribution Rights." Any transfer by our general partner of the incentive distribution rights would not change the percentage allocations of quarterly distributions for those rights.

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        If for any quarter we have distributed available cash from operating surplus:

    to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and

    on outstanding common units in an amount equal to any cumulative arrearages in payment of the minimum quarterly distribution;

then, we will distribute any additional available cash from operating surplus for that quarter between the unitholders and our general partner in the following manner:

    first, 98% to all unitholders, pro rata, and 2% to our general partner, until each unitholder receives a total of $0.4025 per unit for that quarter (the "first target distribution");

    second, 85% to all unitholders, pro rata, and 15% to our general partner, until each unitholder receives a total of $0.4375 per unit for that quarter (the "second target distribution");

    third, 75% to all unitholders, pro rata, and 25% to our general partner, until each unitholder receives a total of $0.525 per unit for that quarter (the "third target distribution"); and

    thereafter, 50% to all unitholders, pro rata, and 50% to our general partner.

        In each case, the amount of the first target distribution, the second target distribution and the third target distribution set forth above is exclusive of any distributions to common unitholders made to eliminate any cumulative arrearages in payment of the minimum quarterly distribution. The percentage interests set forth above assume that our general partner maintains its 2% general partner interest and has not transferred the incentive distribution rights and we do not issue additional classes of equity securities.

Percentage Allocations of Available Cash from Operating Surplus

        The following table illustrates the percentage allocations of the additional available cash from operating surplus for our 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 distributed from operating surplus up to and including the corresponding amount in the column "Total Quarterly Distribution Target Amount," until available cash distributed from operating surplus 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 include its 2% general partner interest and assume our general partner has contributed any capital necessary to maintain its 2% general partner interest and has not transferred the incentive distribution rights.

 
   
  Marginal Percentage Interest in Distributions
 
  Total Quarterly
Distribution
Target Amount

  Unitholders
  General Partner
Minimum Quarterly Distribution   $0.35   98%   2%
First Target Distribution   up to $0.4025   98%   2%
Second Target Distribution   above $0.4025 up to $0.4375   85%   15%
Third Target Distribution   above $0.4375 up to $0.525   75%   25%
Thereafter   above $0.525   50%   50%

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General Partner's Right to Reset Incentive Distribution Levels

        Our general partner, as the holder of our incentive distribution rights, has the right under our partnership agreement to elect to relinquish the right to receive incentive distribution payments based on the initial cash target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and cash target distribution levels upon which the incentive distribution payments to our general partner would be set. Our general partner's right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our general partner are based may be exercised without approval of our unitholders or the conflicts committee of our general partner. The right may be exercised at any time when there are no subordinated units outstanding and we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distribution for each of the prior four consecutive quarters and the amount of each such distribution did not exceed adjusted operating surplus for such quarter. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum quarterly distribution amount and the target distribution levels prior to the reset such that our general partner will not receive any incentive distributions under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made to our general partner.

        In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding relinquishment by our general partner of incentive distribution payments based on the target cash distributions prior to the reset, our general partner will be entitled to receive a number of newly issued Class B units based on a predetermined formula described below that takes into account the "cash parity" value of the average cash distributions related to the incentive distribution rights received by our general partner for the two quarters prior to the reset event as compared to the average cash distributions per common unit during this period.

        The number of Class B units that our general partner would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to (x) the average amount of cash distributions received by our general partner in respect of its incentive distribution rights during the two consecutive quarters ended immediately prior to the date of such reset election, divided by (y) the average of the amount of cash distributed per common unit during each of these two quarters. Each Class B unit will be convertible into one common unit at the election of the holder of the Class B unit at any time following the first anniversary of the issuance of these Class B units. We will also issue an additional amount of general partner units in order to maintain our general partner's ownership interest in us relative to the issuance of the Class B units.

        Following a reset election by our general partner, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two quarters immediately preceding the reset election (such amount is referred to as the "reset minimum quarterly distribution") and the target distribution levels will be reset to be correspondingly higher such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:

    first, 98% to all unitholders, pro rata, and 2% to our general partner, until each unitholder receives an amount equal to 115% of the reset minimum quarter distribution for that quarter;

    second, 85% to all unitholders, pro rata, and 15% to our general partner, until each unitholder receives an amount per unit equal to 125% of the reset minimum quarterly distribution for that quarter;

66


    third, 75% to all unitholders, pro rata, and 25% to our general partner, until each unitholder receives an amount per unit equal to 150% of the reset minimum quarterly distribution for that quarter; and

    thereafter, 50% to all unitholders, pro rata, and 50% to our general partner.

        The following table illustrates the percentage allocation of available cash from operating surplus between the unitholders and our general partner at various levels of cash distribution levels pursuant to the cash distribution provision of our partnership agreement in effect at the completion of this offering, as well as following a hypothetical reset of the minimum quarterly distribution and target distribution levels based on the assumption that the average quarterly cash distribution amount per common unit during the two quarters immediately preceding the reset election was $0.6000.

 
   
  Marginal Percentage Interest in Distributions
   
 
  Quarterly Distribution
per Unit
Prior to Reset

  Unitholders
  General Partner
  Quarterly Distribution per Unit
following Hypothetical Reset

Minimum Quarterly Distribution   $0.35   98%   2%   $0.6000
First Target Distribution   up to $0.4025   98%   2%   above $0.6000 up to $0.6900(1)
Second Target Distribution   above $0.4025 up to $0.4375   85%   15%   above $0.6900(1) up to $0.7500(2)
Third Target Distribution   above $0.4375 up to $0.525   75%   25%   above $0.7500(2) up to $0.9000(3)
Thereafter   above $0.525   50%   50%   above $0.9000(3)

(1)
This amount is 115% of the hypothetical reset minimum quarterly distribution.
(2)
This amount is 125% of the hypothetical reset minimum quarterly distribution.
(3)
This amount is 150% of the hypothetical reset minimum quarterly distribution.

        The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner, including in respect of incentive distribution rights, based on an average of the amounts distributed for a quarter for the two quarters immediately prior to the reset. The table assumes that there are 32,193,000 common units and 657,000 general partner units outstanding and that the average distribution to each common unit is $0.6000 for the two quarters prior to the reset. The assumed number of outstanding units the conversion of all subordinated units into common units and no additional unit issuances.

 
   
   
  General Partner Cash Distribution
Prior to Reset

   
 
   
  Common Unitholders Cash Distribution Prior to Reset
   
 
  Quarterly Distribution per
Unit Prior to Reset

  Class B
Units

  2% General
Partner
Interest

  Incentive
Distribution Rights

  Total
  Total
Distributions

Minimum Quarterly Distribution   $0.35   $ 11,267,550   $   $ 229,950   $   $ 229,950   $ 11,497,500
First Target Distribution   up to $0.4025     1,690,133         34,492         34,492     1,724,625
Second Target Distribution   above $0.4025 up to $0.4375     1,126,755         22,995     175,844     198,839     1,325,594
Third Target Distribution   above $0.4375 up to $0.525     2,816,887         57,488     881,475     938,963     3,755,850
Thereafter   above $0.525     2,414,475         49,275     2,365,200     2,414,475     4,828,950
       
 
 
 
 
 
        $ 19,315,800   $   $ 394,200   $ 3,422,519   $ 3,816,719   $ 23,132,519
       
 
 
 
 
 

        The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner with respect to the quarter in which the reset occurs. The table reflects that as a result of the reset there are 32,193,100 common units, 5,704,199 Class B units and 773,412 general partner units outstanding and that the average distribution to each

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common unit is $0.6000. The number of Class B units was calculated by dividing (x) the $3,422,519 received by our general partner in respect of its incentive distribution rights as the average of the amounts received by our general partner in respect of its incentive distribution rights for the two quarters prior to the reset as shown in the table above by (y) the $0.6000 of available cash from operating surplus distributed to each common unit as the average distributed per common unit for the two quarters prior to the reset.

 
   
   
  General Partner Cash Distribution
Prior to Reset

   
 
  Quarterly Distribution per Unit Prior to Reset
  Common Unitholders Cash Distributions Prior to Reset
  Class B
Units

  2%
General
Partner
Interest

  Incentive Distribution Rights
  Total
  Total
Distributions

Minimum Quarterly Distribution   $0.6000   $ 19,315,800   $ 3,422,519   $ 394,200   $   $ 3,816,719   $ 23,132,159
First Target Distribution(1)   above $0.6000 up to $0.6900                        
Second Target Distribution(2)   above $0.6900 up to $0.7500                        
Third Target Distribution(3)   above $0.7500 up to $0.9000                        
Thereafter   above $0.9000                        
       
 
 
 
 
 
        $ 19,315,800   $ 3,422,519   $ 394,200   $   $ 3,816,719   $ 23,132,519
       
 
 
 
 
 

(1)
This amount is 115% of the hypothetical reset minimum quarterly distribution.
(2)
This amount is 125% of the hypothetical reset minimum quarterly distribution.
(3)
This amount is 150% of the hypothetical reset minimum quarterly distribution.

        Our general partner will be entitled to cause the minimum quarterly distribution amount and the target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive distributions for the prior four consecutive quarters based on the highest level of incentive distributions that it is entitled to receive under our partnership agreement.

Distributions from Capital Surplus

    How Distributions from Capital Surplus Will Be Made

        We will make distributions of available cash from capital surplus, if any, in the following manner:

    first, 98% to all unitholders, pro rata, and 2% to our general partner, until we distribute for each common unit that was issued in this offering an amount of available cash from capital surplus equal to the initial public offering price;

    second, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each common unit an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and

    thereafter, we will make all distributions of available cash from capital surplus as if they were from operating surplus.

        The preceding paragraph is based on the assumption that our general partner maintains its 2% general partner interest and that we do not issue additional classes of equity securities.

    Effect of a Distribution from Capital Surplus

        Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from this offering, which is a return of capital. Each time a distribution of capital surplus is

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made, the minimum quarterly distribution and the target distribution levels will be reduced in the proportion that the distribution bore to the fair market value of the common units prior to the announcement of the distribution. Because distributions of capital surplus will reduce the minimum quarterly distribution, after any of these distributions it may be easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution of capital surplus before the minimum quarterly distribution is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.

        Once we reduce the minimum quarterly distribution and the target distribution levels to zero, we will make all future distributions from operating surplus, with 50% being paid to the holders of units and 50% to our general partner. The percentage interests shown for our general partner include its 2% general partner interest and assume our general partner maintains its 2% general partner interest and has not transferred the incentive distribution rights.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

        In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our units into fewer units or subdivide our units into a greater number of units we will proportionately adjust:

    the minimum quarterly distribution;

    the target distribution levels; and

    the initial unit price.

        For example, if a two-for-one split of the common and subordinated units should occur, the minimum quarterly distribution, the target distribution levels and the initial unit price would each be reduced to 50% of its initial level. If we combine our common units into a lesser number of units or subdivide our common units into a greater number of units, we will combine our subordinated units or subdivide our subordinated units using the same ratio applied to the common units. We will not make any adjustment as a result of the issuance of additional units for cash or property.

        In addition, if legislation is enacted or if existing law is modified or interpreted by a governmental taxing authority so that we become taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, we will reduce the minimum quarterly distribution and the target distribution levels for each quarter by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter and the denominator of which is the sum of available cash for that quarter plus our general partner's estimate of our aggregate liability for the quarter for such income taxes payable by reason of such legislation or interpretation. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be accounted for in subsequent quarters.

Distributions of Cash upon Liquidation

        If we dissolve in accordance with our partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation and apply the proceeds of liquidation in the manner set forth below.

        If, as of the date three trading days prior to the announcement of the proposed liquidation, the average closing price of our common units for the preceding 20 trading days (or the current market price) is greater than the sum of:

    any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; plus

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    the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation),

        then the proceeds of the liquidation will be applied as follows:

    first, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to the current market price of our common units;

    second, 98% to the subordinated unitholders, pro rata, and 2% to our general partner, until we distribute for each subordinated unit an amount equal to the current market price of our common units; and

    thereafter, 50% to all unitholders, pro rata, 48% to holders of incentive distribution rights and 2% to our general partner.

        If, as of the date three trading days prior to the announcement of the proposed liquidation, the current market price of our common units is equal to or less than the sum of:

    any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; plus

    the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation),

        then the proceeds of the liquidation will be applied as follows:

    first, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation);

    second, 98% to the common unitholders, pro rata, and 2% 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;

    third, 98% to the subordinated unitholders and 2% to our general partner, until we distribute for each outstanding subordinated unit an amount equal to the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation); and

    thereafter, 50% to all unitholders, pro rata, 48% to holders of incentive distribution rights and 2% to our general partner.

The immediately preceding two paragraphs are based on the assumption that our general partner maintains its 2% general partner interest and that we do not issue additional classes of equity securities.

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SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

        The following table presents summary:

    historical financial and operating data of our predecessors; and

    pro forma financial and operating data of OSG America L.P.

        The summary historical financial data has been prepared on the following basis:

    The historical financial data of OSG America Predecessor as of and for the year ended December 31, 2002 and 2003, and the balance sheet of OSG America Predecessor as of and for the year ended December 31, 2004, are derived from unaudited combined carve-out financial statements of OSG America Predecessor, which are not included in this prospectus.

    The historical financial data of OSG America Predecessor as of and for the year ended December 31, 2005 and 2006, and the related predecessor combined carve-out statements of operations, changes in stockholder's deficiency and cash flows for the three years ended December 31, 2006, are derived from audited combined carve-out financial statements of OSG America Predecessor, which are included elsewhere in this prospectus.

    The historical financial data of OSG America Predecessor as of and for the three months ended March 31, 2006 and 2007 are derived from unaudited combined carve-out financial statements of OSG America Predecessor, which, other than the unaudited combined balance sheet at March 31, 2006, are included elsewhere in this prospectus.

        The unaudited pro forma financial data of OSG America L.P. gives pro forma effect to:

    the acquisition of Maritrans Inc.;

    the completion of this offering; and

    the use of the net proceeds of this offering as described in "Use of Proceeds."

        The pro forma financial data are derived from our unaudited pro forma combined financial statements. The pro forma income statement data for the year ended December 31, 2006 assumes that this offering and related transactions occurred on January 1, 2006. The pro forma balance sheet data as at March 31, 2007 assumes this offering and related transactions occurred at March 31, 2007. A more complete explanation of the pro forma data can be found in our unaudited pro forma combined financial statements included with this prospectus.

        The following table presents two financial measures that we use in our business, being net time charter equivalent revenues and EBITDA. These financial measures are not calculated or presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). We explain these measures below and reconcile them to their most directly comparable financial measures calculated and presented in accordance with U.S. GAAP in "—Non-U.S. GAAP Financial Measures" below.

        The following table should be read together with, and is qualified in its entirety by reference to, the historical and unaudited pro forma combined financial statements and the accompanying notes

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included elsewhere in this prospectus. The table should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  Historical
  Pro Forma
 
 
  Year Ended December 31,
  Three Months Ended March 31,
  Year Ended December 31,
  Three Months Ended March 31,
 
 
  2002
(unaudited)

  2003
(unaudited)

  2004(1)
  2005
  2006
  2006
  2007
  2006
  2007
 
 
  (in thousands, except per share data and operating data)

 
Income Statement Data:                                                        
Shipping Revenues   $ 22,952   $ 26,051   $ 31,799   $ 49,840   $ 88,852   $ 17,259   $ 49,734   $ 190,654   $ 49,734  

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Voyage expenses(2)     278     366     366     3,055     10,592     2,279     7,425     36,872     7,425  
  Vessel expenses(3)     10,184     10,571     12,077     19,550     34,430     5,781     17,293     72,549     17,293  
  Bareboat charter expenses                             1,166         1,166  
  Depreciation and amortization     5,798     6,303     10,811     14,553     21,592     4,416     10,997     43,537     10,997  
  General and administrative     1,544     1,920     3,542     4,246     7,942     1,709     4,873     16,799     5,123  
  Loss on charter termination                 2,486                      
   
 
 
 
 
 
 
 
 
 
Total operating expenses     17,804     19,160     26,796     43,890     74,556     14,185     41,754     169,757     42,004  
   
 
 
 
 
 
 
 
 
 

Income from vessel operations

 

 

5,148

 

 

6,891

 

 

5,003

 

 

5,950

 

 

14,296

 

 

3,074

 

 

7,980

 

 

20,897

 

 

7,730

 
Equity in income of affiliated companies     7,776     7,584     7,097     8,066     6,811     1,692     859     6,811     859  
   
 
 
 
 
 
 
 
 
 
Operating income     12,924     14,475     12,100     14,016     21,107     4,766     8,839     27,708     8,589  
Other income             2     1     9     9     (1 )   9     (1 )
Interest expense     (9,776 )   (8,304 )   (9,224 )   (10,685 )   (12,612 )   (2,944 )   (3,253 )   (9,800 )   (2,043 )
   
 
 
 
 
 
 
 
 
 
Income before federal income taxes     3,148     6,171     2,878     3,332     8,504     1,831     5,585     17,917     6,545  
(Provision) / credit for federal income taxes     (1,102 )   (2,160 )   (1,007 )   (1,325 )   (768 )   327     (1,382 )        
   
 
 
 
 
 
 
 
 
 
Net income   $ 2,046   $ 4,011   $ 1,871   $ 2,007   $ 7,736   $ 2,158   $ 4,203   $ 17,917   $ 6,545  
   
 
 
 
 
 
 
 
 
 
Net income per unit (basic and diluted)(4)                                             $ 0.55   $ 0.20  
                                             
 
 

B
alance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Vessels(5)   $ 41,806   $ 37,071   $ 70,932   $ 132,160   $ 418,702       $ 421,170         $ 421,170  
Total assets   $ 54,502   $ 48,954   $ 85,521   $ 149,134   $ 610,957       $ 611,630         $ 612,430  
Total debt(6)   $ 196,392   $ 184,167   $ 219,766   $ 273,127   $ 661,129       $ 661,772         $ 140,193  
Stockholder's/partners' equity (deficiency)   $ (161,215 ) $ (157,204 ) $ (155,133 ) $ (152,226 ) $ (144,490 )     $ (140,287 )       $ 458,711  

Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net cash provided by (used in):                                                        
  Operating activities   $ 2,385   $ 12,379   $ 7,141   $ 19,800   $ 13,299   $ (1,327 ) $ 13,145          
  Investing activities   $ (3,239 ) $   $ (43,012 ) $ (74,116 ) $ (345,483 ) $ (3,165 ) $ (13,788 )        
  Financing activities   $ 689   $ (12,225 ) $ 35,799   $ 54,261   $ 332,399   $ 4,725   $ 643          

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Time Charter Equivalent Revenue   $ 22,674   $ 25,685   $ 31,433   $ 46,785   $ 78,260   $ 14,980   $ 42,309   $ 153,782   $ 42,309  
EBITDA   $ 18,722   $ 20,778   $ 22,913   $ 28,570   $ 42,708   $ 9,191   $ 19,835   $ 71,254   $ 19,585  
Capital Expenditures                                                        
  Expenditures for vessels and equipment   $ 3,239   $   $ 43,012   $ 74,116   $ 4,623   $ 3,165   $ 13,788          
  Expenditures for drydocking   $ 4,435   $   $ 2,739   $ 115   $ 5,835   $ 4,815   $ 14          

Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Total capacity days     730     730     1,232     1,662     2,501     540     1,491     5,840     1,491  
Revenue days     640     729     1,193     1,639     2,368     460     1,333     5,268     1,333  
Drydock days     89         37     4     108     77     130     500     130  
Repair days     1     1     2     19     25     3     28     72     28  

(1)
Only the predecessor combined carve-out statements of operations, changes in stockholder's deficiency and cash flows have been audited in respect of the year ended December 31, 2004. The balance sheet for the year ended December 31, 2004 is unaudited.

(2)
Voyage expenses are all expenses unique to a particular voyage, including commissions, port charges, cargo handling operations, canal dues and fuel.

(3)
Vessel expenses consist of all expenses related to the operation of the vessels, including crewing, repairs and maintenance, insurance, stores, spares, lubricants and miscellaneous expenses.

(4)
Please read Note 6 of our unaudited pro forma combined financial statements included in this prospectus for a calculation of our pro forma net income per unit.

(5)
Vessels consist of (a) vessels, at cost, less accumulated depreciation, (b) vessels under capital leases, at cost, less accumulated depreciation, and (c) construction in progress.

(6)
Total debt includes long-term debt, capital lease obligations and advances from affiliates.

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Non-U.S. GAAP Financial Measures

        Consistent with general practice in the shipping industry, we use time charter equivalent (TCE) revenues, which represents shipping revenues less voyage expenses, as a measure to compare revenues generated from voyage charters to revenues generated from time charters. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with shipping revenues, the most directly comparable U.S. GAAP measure, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance.

        The following table reconciles TCE revenues to shipping revenues.

 
  Historical
  Pro Forma
 
   
   
   
   
   
  Three Months Ended March 31,
   
  Three Months Ended March 31, 2007
 
  Year Ended December 31,
   
 
  Year Ended December 31, 2006
 
  2002
  2003
  2004
  2005
  2006
  2006
  2007
Income Statement Data:                                                      
TCE revenues   $ 22,674   $ 25,685   $ 31,433   $ 46,785   $ 78,260   $ 14,980   $ 42,309   $ 153,782   $ 42,309
Voyage expenses     278     366     366     3,055     10,592     2,279     7,425     36,872     7,425
   
 
 
 
 
 
 
 
 
Shipping revenues   $ 22,952   $ 26,051   $ 31,799   $ 49,840   $ 88,852   $ 17,259   $ 49,734   $ 190,654   $ 49,734
   
 
 
 
 
 
 
 
 

        EBITDA represents net income plus interest expense, provision for income taxes, depreciation and amortization expense. EBITDA is presented to provide investors with meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods. EBITDA should not be considered a substitute for net income or cash flow from operating activities and other operations or cash flow statement data prepared in accordance with U.S. GAAP or as a measure of profitability or liquidity. While EBITDA is frequently used as a measure of operating results and performance, it is not necessarily comparable to other similar titled captions of other companies due to differences in methods of calculation.

        The following table reconciles net income to EBITDA.

 
  Historical
  Pro Forma
 
   
   
   
   
   
  Three Months Ended March 31,
   
   
 
  Year Ended December 31,
   
   
 
  Year Ended
December 31,
2006

  Three Months Ended March 31,
2007

 
  2002
  2003
  2004
  2005
  2006
  2006
  2007
Income Statement Data:                                                      
Net income   $ 2,046   $ 4,011   $ 1,871   $ 2,007   $ 7,736   $ 2,158   $ 4,203   $ 17,917   $ 6,545
Provision / (credit) for federal income taxes     1,102     2,160     1,007     1,325     768     (327 )   1,382        
Interest expense     9,776     8,304     9,224     10,685     12,612     2,944     3,253     9,800     2,043
Depreciation and amortization     5,798     6,303     10,811     14,553     21,592     4,416     10,997     43,537     10,997
   
 
 
 
 
 
 
 
 
EBITDA   $ 18,722   $ 20,778   $ 22,913   $ 28,570   $ 42,708   $ 9,191   $ 19,835   $ 71,254   $ 19,585
   
 
 
 
 
 
 
 
 

73



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion of our financial condition and results of operations in conjunction with the combined audited financial statements and related notes of our Predecessor and the unaudited pro forma combined financial statements and related notes of OSG America L.P. included elsewhere in this prospectus. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following information. The financial statements have been prepared in accordance with U.S. GAAP and are presented in U.S. Dollars unless otherwise indicated.

        This discussion contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those described under the caption "Risk Factors" and elsewhere in this prospectus. Please read "Forward-Looking Statements" for further information.

Overview

        We are the largest operator, based on barrel-carrying capacity, of U.S. flag product carriers and barges transporting refined petroleum products. We were recently formed by Overseas Shipholding Group, Inc. (OSG) (NYSE:OSG), a market leader in providing global energy transportation services. We plan to use the expertise, customer base and reputation of OSG to expand our marine transportation service.

        Upon completion of this offering, OSG will contribute to us entities owning or operating a fleet of ten product carriers, seven articulated tug barges (ATBs) and one conventional tug-barge unit (CTB), with an aggregate carrying capacity of approximately 4.9 million barrels. OSG will also contribute to us a 37.5% ownership interest in Alaska Tanker Company, LLC (ATC), a joint venture that transports crude oil from Alaska to the continental United States and which employs a fleet of five crude-oil tankers with an aggregate carrying capacity of 6.3 million barrels. Upon the completion of this offering, OSG will own a 77.2% interest in us, including a 2% interest through our general partner, which OSG owns and controls.

        Upon the completion of this offering, our membership interests in our operating subsidiaries will represent our only cash-generating assets.

        Our market is protected from direct foreign competition by the Merchant Marine Act of 1920 (Jones Act), which mandates that all vessels transporting cargo between U.S. ports must be built in the United States without subsidy, registered under the U.S. flag, manned by U.S. crews and owned and operated by U.S. organized companies that are controlled and at least 75% owned by U.S. citizens. 16 of the 18 vessels comprising our initial fleet are operated in the U.S. coastwise trade in accordance with the Jones Act and all of our future scheduled newbuild deliveries will qualify to operate under the Jones Act.

        The historical results discussed below and the financial statements and related notes of what we refer to as "OSG America Predecessor" or "the Predecessor" included elsewhere in this prospectus are the results of the entities to be contributed to us. References in this Management's Discussion and Analysis of Financial Condition and Results of Operations to OSG America L.P., "us", "we", "our" or similar terms when used in a historical context refer to OSG America Predecessor and when used in the present tense or prospectively refers to OSG America L.P. or any one or more of its subsidiaries, or to all such entities.

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Overview—OSG America Predecessor

        For the three months ended March 31, 2007 and the years ended December 31, 2006, 2005 and 2004, the combined financial statements presented herein have been carved out of the consolidated financial statements of OSG. Our financial position, results of operations and cash flows reflected in our combined financial statements are not indicative of those that would have been achieved had we operated as an independent stand-alone entity for all periods presented or of future results.

        As of March 31, 2007, OSG America Predecessor's U.S. flag fleet consisted of nine product carriers, seven double-hulled ATBs and one conventional tug barge unit, aggregating 633,043 deadweight tons (dwt).

        To the extent that assets, liabilities, revenues and expenses relate to the Predecessor, they have been identified and carved out of OSG for inclusion in our combined financial statements. OSG's other assets, liabilities, revenues and expenses that do not relate to the vessel interests are not included in our combined financial statements. In addition, the preparation of our combined carve-out financial statements required the allocation of certain expenses where these items were not identifiable as related to OSG America Predecessor.

        General and administrative expenses, consisting primarily of salaries and other employee related costs, office rent, legal and professional fees and travel and entertainment expenses were allocated based on the total number of vessels (weighted by operating days) in the respective fleets of OSG America Predecessor and OSG for each of the periods presented. Management believes that the allocation of general and administrative expenses was based on a reasonable method.

        All of the companies included in the OSG America Predecessor combined carve-out financial statements have been included in the OSG consolidated group for U.S. income tax purposes for periods through December 31, 2006. The Predecessor financial statements have been prepared on the basis that OSG was responsible for all taxes related to periods prior to January 1, 2002. The provisions/(credits) for income taxes in the Predecessor's combined financial statements have been determined on a separate-return basis for all periods presented.

Acquisition of Maritrans Inc.

        On November 28, 2006, OSG acquired Maritrans Inc. (Maritrans), a leading U.S. flag crude oil and petroleum product shipping company that owned and operated one of the largest fleets of double-hulled vessels serving the East Coast and Gulf Coast trades. The operating results of certain wholly-owned subsidiaries of Maritrans, which we refer to collectively as the "Maritrans Entities", which were carved out of the consolidated financial statements of Maritrans, have been included in the Predecessor's combined financial statements commencing November 29, 2006. The Maritrans Entities' fleet consisted of seven ATBs, one of which was in the process of being double-hulled, one CTB and two product carriers, all operating under the U.S. flag.

Future Business

        We have entered into agreements with OSG Ship Management, Inc. (OSGM) for the provision of technical and commercial management of our vessels and for administrative and accounting services.

        In June 2005, OSG signed agreements for the bareboat charter of ten Jones Act product carriers to be constructed by Aker Philadelphia Shipyard, Inc. (APSI), a subsidiary of Aker American Shipping, Inc. (Aker). In February 2007, OSG agreed in principle to bareboat charter up to six additional Jones Act product carriers scheduled for delivery between 2010 and 2011. In August 2007, this agreement was amended to two vessels. The bareboat charters on six of these 12 vessels have been assigned to OSG America Predecessor. Upon completion of construction, APSI will transfer the vessels to leasing subsidiaries of American Shipping Corporation, an affiliate of APSI, which will bareboat

75



charter the first six vessels to us and the subsequent six vessels to OSG. We have committed to bareboat charter these vessels for initial terms of either five or seven years, and we have extension options for the lives of these vessels. Two of these vessels, the Overseas Houston and Overseas Long Beach, have already been delivered from the shipyard, in February and June 2007, respectively. The remaining four vessels that we are committed to bareboat charter are scheduled to be delivered from the shipyard between late 2007 and early 2009.

        We have options to purchase from OSG up to six newbuild ATBs, scheduled for delivery from Bender Shipping & Repair Co., Inc. (Bender) between early 2008 and late 2010. We also have options to acquire from OSG the right to bareboat charter up to six of the remaining newbuild product carriers to be constructed by APSI, scheduled for delivery between 2009 and 2011.

Factors Affecting Our Historical Results

        We generate revenue by charging our customers for transportation of bulk petroleum products utilizing our vessels. We provide services to our customers pursuant to maritime contracts on either a fixed term or spot market basis. The vessels that are on fixed term contract are dedicated to specific customers for an agreed period of time (time charters) or for transportation of a certain volume of product (contracts of affreightment and consecutive voyage charters). Vessels that operate in the spot market are chartered to our customers for single voyages at current market rates. We use the following four basic forms of maritime contract in providing services to our customers:

    Time Charters. Time charters are typically used by customers who want the exclusive use of a particular vessel for a set period of time, often for one or more years. We generate revenue under time charters by charging the customer a daily rate for use of the vessel. We pay expenses related to a vessel's operation and maintenance as well as the cost of the crew, stores and spares. Unlike the other types of maritime contracts described below, all voyage costs, such as port charges and fuel, are directly passed through to the customer under time charters.

    Contracts of Affreightment. Contracts of Affreightment (COAs) obligate us to transport certain volumes of product between specified points for a certain period of time, with no designation of the specific vessel to be used. COAs give us greater flexibility in timing and scheduling our vessels, since no specific vessel designation is required. When choosing the vessel to perform the services, we take into account positioning and product carrying capacity.

    Consecutive Voyage Charters. Consecutive Voyage Charters (CVCs) are contracts whereby a customer agrees to use a particular vessel for a certain period of time to transport volumes of product between specified points, at a rate that is determined on a delivered-barrel basis. We bear the risk of delays under CVCs.

    Spot Voyage Charter. Spot Voyage Charters (SVCs) are single voyage charters that are contracted based on the current market rate. Spot voyage rates are more volatile than term rates for time charters and COAs. The charter revenue is based on a lump-sum fee to transport product from a load port to a discharge port. We bear the risk of waiting time and weather delays under SVCs.

        The main variable in voyage cost under the above contractual relationships comes from changes in fuel prices. Our COAs and CVCs contain provisions that take into account the effect of changes in fuel prices, which allows us to protect our margin.

    Charter Rates

        The market for U.S. flag product carriers and barges is characterized by stable demand, tight supply and high barriers to entry. Product carriers and barges operating in the market transport crude oil to refineries and refined petroleum products, such as gasoline and jet fuel, from refineries to

76


distribution terminals, power plants and industrial users. Daily charter rates for product carriers and barges transporting refined petroleum products have been increasing over the past five years due to the rising consumption of refined petroleum products and the decreasing supply of Jones Act product carriers as a result of the impact of the Oil Pollution Act of 1990 (OPA 90).

    Demand for Jones Act Product Carriers and Barges

        Demand for Jones Act product carriers and barges is determined primarily by refinery capacity in the United States. Factors influencing demand for Jones Act product carriers and barges include:

    demand for refined petroleum products;

    U.S. refining capacity, especially along the Gulf Coast; and

    the availability of transportation alternatives, such as pipelines, trucks, and rail transport.

    Jones Act Product Carrier and Barge Fleet

        As of December 31, 2006, 84 Jones Act product carriers and barges each having deadweight tonnage greater than 16,000 dwt were employed in the U.S. coastwise transportation of refined petroleum products. This number excludes 15 crude-oil tankers that exclusively transport Alaska North Slope crude oil from Valdez, Alaska to refineries located on the West Coast.

Factors Affecting Our Future Results

        You should consider the following factors when evaluating our historical performance and assessing our future prospects:

    Non-interest bearing advances by OSG. A substantial portion of OSG America Predecessor's funding was provided through non-interest bearing advances from OSG, which has resulted in a significant benefit to the historical results from operations presented elsewhere in this prospectus. We expect that we will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund our future acquisitions and capital expenditures. The incurrence of additional debt by us or our operating subsidiaries would result in increased interest expense, which in turn may affect the available cash that we have to distribute to our unitholders.

    Taxation implications for partnership. We do not expect to be a taxable entity and will, therefore, not incur federal income taxes based on the "Qualifying Income Exception" that exists with respect to publicly-traded partnerships of which 90% or more of the gross income for every taxable year consists of "qualifying income." Instead, each unitholder will be required to take into account its share of items of income, gain, loss and deduction of the partnership in computing its federal income tax liability, regardless of whether we make cash distributions to that unitholder. If, however, we fail to meet the Qualifying Income Exception, we would be treated as a corporation for federal income tax purposes and our net income would be taxed to us at corporate rates. Accordingly, taxation as a corporation would result in a material reduction in a unitholder's cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the units.

    The size of our fleet continues to change. Our historical results of operations reflect changes in the size and composition of our fleet due to the acquisition by OSG of Maritrans on November 28, 2006. In addition, two Jones Act product carriers were acquired in April 2004, two other product carriers were acquired in September/October of 2005 and two newbuild product carriers constructed by APSI were delivered in February and June 2007, respectively.

77


        In addition to the factors discussed above, the following factors should also be considered when assessing our future prospects:

    our ability to attract and retain experienced, qualified and skilled crewmembers and our reliance on unionized labor;

    competition that could affect our market share and revenues and changes in demand for lightering services;

    the risks inherent in marine transportation;

    the cost and availability of insurance coverage;

    delays or cost overruns in constructing new vessels, double-hulling existing vessels and scheduled shipyard maintenance;

    environmental and regulatory conditions;

    our reliance on a limited number of customers for revenue;

    the continuation of federal law restricting U.S. point-to-point maritime shipping to U.S. vessels; and

    possible increases in capital expenditures required to operate and maintain vessels due to government regulations.

Critical Accounting Policies

        Our combined carve-out financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), which require us to make estimates in the application of our accounting policies based on the best assumptions, judgments and opinions of management. The following is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application. For a complete description of all of our material accounting policies, see Note A to our combined financial statements included elsewhere in this prospectus.

    Carve-out of the Financial Statements of OSG

        Our combined carve-out financial statements include the accounts of certain wholly-owned subsidiaries of OSG. These combined carve-out financial statements have been prepared to reflect the financial position, results of operations and cash flows of OSG America Predecessor, which owns and operates the vessels to be acquired by us.

        Our combined carve-out financial statements have been prepared in accordance with U.S. GAAP. The assets, liabilities, results of operations and cash flows contained in our combined carve-out financial statements were carved out of the consolidated financial statements of OSG using specific identification. In the preparation of these Predecessor combined carve-out financial statements, general and administrative expenses, which were not identifiable as relating to specific vessels, were allocated based on the Predecessor's proportionate share of OSG's total ship-operating days for each of the periods presented. All of the companies included in the Predecessor combined carve-out financial statements were included in the OSG consolidated group for U.S. income tax purposes for periods through December 31, 2006. The Predecessor combined carve-out financial statements have been prepared on the basis that OSG was responsible for all taxes related to periods prior to January 1, 2002. The provisions for income taxes in the Predecessor's combined carve-out financial statements have been determined on a separate-return basis for all periods presented. Management believes these allocations reasonably present the financial position, results of operations and cash flows of OSG America Predecessor. However, the Predecessor combined carve-out statements of financial position,

78



operations and cash flow may not be indicative of those that would have been realized had OSG America Predecessor operated as an independent stand-alone entity for the periods presented. Had OSG America Predecessor operated as an independent stand-alone entity, its results could have differed significantly from those presented herein.

    Revenue Recognition

        The Predecessor generates a portion of its shipping revenues from voyage charters. Two methods are used in the shipping industry to account for voyage charter revenue: (1) recognition of revenue ratably over the estimated length of each voyage, and (2) recognition of revenue following completion of a voyage. Recognition of voyage revenues ratably over the estimated length of each voyage is the most prevalent method of accounting for voyage revenues and is the method used by the Predecessor. Under each method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis. In applying the ratable revenue recognition method, management believes that the discharge-to-discharge basis of calculating voyages more accurately estimates voyage results than the load-to-load basis. Since, at the time of discharge, management generally knows the next load port and the expected discharge port, the discharge-to-discharge calculation of voyage revenues can be estimated with a greater degree of accuracy. The Predecessor does not begin recognizing voyage revenue until a charter has been agreed to by both the Predecessor and the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.

        Revenues from time charters are accounted for as operating leases and are thus recognized by the Predecessor ratably over the rental periods of such charters. The Predecessor does not recognize time charter revenues for vessels during periods that those vessels are off hire.

    Vessel Lives and Impairment

        The carrying value of each of our vessels represents its original cost at the time it was delivered or purchased, less depreciation calculated using an estimated useful life of 25 years from the date that such vessel was originally delivered from the shipyard, or, in the case of the Predecessor's double-hulled ATBs, 20 years from the date the Predecessor's ATBs were double-hulled. Use of a 25-year life has become standard in the shipping industry. The actual life of a vessel may be different. If the economic lives assigned to the vessels prove to be too long because of new regulations or other future events, higher depreciation expense and impairment losses could result in future periods related to a reduction in the useful lives of any affected vessels.

        The carrying values of our vessels may not represent their fair market value at any point in time, since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Historically, both charter rates and vessel values tend to be cyclical. The Predecessor records impairment losses only when events occur that cause the Predecessor to believe that future cash flows for any individual vessel will be less than its carrying value. The carrying amounts of vessels held and used by the Predecessor are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular vessel may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition is less than the vessel's carrying amount. This assessment is made at the individual vessel level, since separately identifiable cash flow information for each vessel is available.

        In developing estimates of future cash flows, the Predecessor must make assumptions about future charter rates, ship operating expenses and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends, as well as future expectations. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective.

79



        There have been no impairment indicators during the periods presented.

    Drydocking

        Within the shipping industry, there are two methods that are used to account for drydockings: (1) capitalize drydocking costs as incurred (deferral method) and amortize such costs over the period to the next scheduled drydocking, and (2) expense drydocking costs as incurred. Since drydocking cycles typically extend over two and a half years or longer, management believes that the deferral method better matches revenues and expenses than the expense-as-incurred method.

    Goodwill and Intangibles

        We allocate the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired. The remaining amount is classified as goodwill. Our future operating performance will be affected by the amortization of intangible assets and potential impairment charges related to goodwill. Accordingly, the allocation of purchase price to intangible assets and goodwill may significantly affect our future operating results. Goodwill and indefinite lived assets are not amortized, but are reviewed for impairment annually or more frequently if impairment indicators arise.

        The allocation of the purchase price of acquired companies to intangible assets and goodwill requires management to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows. In addition, the process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and will require significant judgment at many points during the analysis. The estimates and assumptions regarding expected cash flows and the discount rate also require considerable judgment and are based upon existing contracts, historical experience, financial forecasts and industry trends and conditions. In the fourth quarter of 2007, we will complete our annual impairment testing of goodwill. If actual results are not consistent with assumptions and estimates we have made, we may be exposed to a goodwill impairment charge.

        Amortization expense of intangible assets for the three months ended March 31, 2007 was $1,151,000 and for the year ended December 31, 2006 was $389,000. If actual results are not consistent with our estimates used to value our intangible assets, we may be exposed to an impairment charge and a decrease in the annual amortization expense of our intangible assets.

    Newly Issued Accounting Standards

        In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (FAS 157). This standard provides guidance for using fair value to measure assets and liabilities in accordance with U.S. GAAP and expands disclosures about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. FAS 157 applies whenever other standards require or permit assets or liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Early adoption of the standard is permitted. We believe that the adoption of FAS 157 will not have a material effect on our earnings or financial position.

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Income from Vessel Operations

        The following table reconciles time charter equivalent (TCE) revenues to shipping revenues, as reported in the combined statements of operations:

 
  Three months ended March 31,
  Year ended December 31,
 
  2007
  2006
  2006
  2005
  2004
 
  (In thousands)

TCE revenues   $ 42,309   $ 14,980   $ 78,260   $ 46,785   $ 31,433
Voyage expenses     7,425     2,279     10,592     3,055     366
   
 
 
 
 
Shipping revenues   $ 49,734   $ 17,259   $ 88,852   $ 49,840   $ 31,799
   
 
 
 
 

        Consistent with general practice in the shipping industry, we use TCE revenues, which represents shipping revenues less voyage expenses, as a measure to compare revenues generated from voyage charters to revenues generated from time charters. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with shipping revenues, the most directly comparable U.S. GAAP measure, because it assists management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance.

        Participation in the spot market contributes to fluctuations in our revenue, cash flow and net income, but affords us greater opportunity to increase income from vessel operations when charter rates rise.

        During the three months ended March 31, 2007, TCE revenues increased $27,329,000, or 182%, to $42,309,000 from $14,980,000 for the three months ended March 31, 2006. This increase in TCE revenues resulted principally from an increase of 873 revenue days in the first quarter of 2007. These additional days were attributable primarily to the acquisition of Maritrans, which contributed an additional 768 revenue days during the three months ended March 31, 2007. Additionally, the Overseas New Orleans and the Overseas Puget Sound were available for service for the full quarter in 2007, compared with only 103 days during the first quarter of 2006 when both vessels drydocked. At the time of the Maritrans acquisition, the ATB OSG242 was in a shipyard being double-hulled, which was completed during February 2007. During March 2007, a second ATB was taken out of service and entered a shipyard to be doubled hulled, which work is expected to be completed during the fourth quarter of 2007.

        During the year ended December 31, 2006, TCE revenues increased $31,475,000, or 67%, to $78,260,000 from $46,785,000 from the year ended December 31, 2005. This increase in TCE revenues resulted principally from an increase in the average rate earned of $4,500 per day and an increase of 729 revenue days. The additional revenue days were attributable to the inclusion of the Overseas Maremar and Overseas Luxmar for the full year in 2006, compared with only 202 days during 2005 (see below). Additionally, the acquisition of Maritrans contributed an additional 278 revenue days in 2006. The above increases were, however, offset by an increase number of drydock and repair days, which increased to 101 days in 2006 from 23 days in 2005.

        During the year ended December 31, 2005, TCE revenues increased by $15,352,000, or 49%, to $46,785,000 from $31,433,000 for the year ended December 31, 2004. This increase in TCE revenues resulted principally from an increase of $2,200 per day in the average rate earned and an increase of 446 revenue days. The increase in revenue days was attributable to the inclusion of the Overseas Puget Sound and S/R Galena Bay, which were acquired in April 2004, being available for the full year in 2005 and the inclusion of the Overseas Maremar and the Overseas Luxmar, which joined the fleet at the time they were reflagged under the U.S. flag in September and October 2005, respectively.

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Vessel Expenses

        Vessel expenses increased by $11,512,000 to $17,293,000 during the three months ended March 31, 2007 from $5,781,000 for the three months ended March 31, 2006. The increase in expenses was principally a result of the inclusion of the Maritrans fleet, which added $7,981,000 to vessel expenses in the 2007 period. In addition, the Overseas Houston, which was delivered from the shipyard in February 2007, operated for 51 days during the first quarter of 2007 and the charter on the S/R Galena Bay was converted from a bareboat charter to a time charter subsequent to March 31, 2006.

        Vessel expenses increased by $14,880,000 to $34,430,000 for the year ended December 31, 2006 from $19,550,000 for the year ended December 31, 2005. The increase in expenses was principally a result of the inclusion of the Overseas Maremar and the Overseas Luxmar for the full year, compared with only 202 days in 2005, together with the conversion of the bareboat charter in respect of the S/R Galena Bay to a time charter in July 2006. In addition, the inclusion of the Maritrans fleet from November 29, 2006 added $2,448,000 to vessel expenses in 2006.

        Vessel expenses increased by $7,473,000 to $19,550,000 for the year ended December 31, 2005 from $12,077,000 for the year ended December 31, 2004. The increase in expenses was principally a result of operating days increasing by 430 days due to the purchase and inclusion of the vessels described above. In addition, during the year ended December 31, 2004, the Overseas Puget Sound and S/R Galena Bay were bareboat chartered-out for 429 days, during which period we were not responsible for the vessel expenses. During the year ended December 31, 2005, only the S/R Galena Bay was bareboat chartered-out.

Bareboat Charter Expenses

        The Overseas Houston, the first of six bareboat chartered-in product carriers that are being constructed by Aker, was delivered from the shipyard in February 2007 and operated for 51 days during the three months ended March 31, 2007.

Depreciation and Amortization

        Depreciation and amortization increased by $6,581,000 to $10,997,000 for the three months ended March 31, 2007 from $4,416,000 for the three months ended March 31, 2006. This increase was primarily due to an increase in the operating fleet as a result of the acquisition of Maritrans. Depreciation and amortization for the three months ended March 31, 2007 includes $1,151,000 related to the amortization of intangibles resulting from the acquisition of Maritrans.

        Depreciation and amortization increased by $7,039,000 to $21,592,000 for the year ended December 31, 2006 from $14,553,000 for the year ended December 31, 2005. This increase was primarily due to an increase in the operating fleet as a result of the acquisition of Maritrans and the inclusion of the Overseas Maremar and the Overseas Luxmar for the full year.

        Depreciation and amortization increased by $3,742,000 to $14,553,000 for the year ended December 31, 2005 from $10,811,000 for the year ended December 31, 2004. This increase was primarily due to the inclusion of the Overseas Maremar and the Overseas Luxmar from September and October 2005, respectively. The charge for the year ended December 31, 2005 also included a full year of depreciation on the two Handysize product carriers, Overseas Puget Sound and S/R Galena Bay, which were acquired in April 2004.

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General and Administrative Expenses

        General and administrative expenses were allocated based on OSG America Predecessor's proportionate share of OSG's total ship-operating (calendar) days for each of the periods presented. Our ship-operating days were 1,491 days for the three months ended March 31, 2007, 540 days for the three months ended March 31, 2006, 2,501 days for the year ended December 31, 2006, 1,662 days for the year ended December 31, 2005 and 1,232 days for the year ended December 31, 2004. Management believes these allocations reasonably present the financial position, results of operations and cash flows of OSG America Predecessor for the periods presented.

        Management estimates that on a stand-alone basis, general and administrative expenses will be approximately $20 million per year, which includes legal fees, fees of independent auditors and advisors, directors and officers insurance, rent and miscellaneous fees and expenses.

Equity in Income of Affiliated Companies

        Upon completion of this offering, OSG will contribute to us a 37.5% interest in ATC, a joint venture that operates U.S. flag crude-oil tankers transporting crude oil for BP from Alaska to the continental United States. The Predecessor accounts for its 37.5% interest in ATC according to the equity method. Each member in ATC is entitled to receive its respective share of any incentive charter hire payable by BP to ATC when predetermined performance standards have been met. On a quarterly basis, OSG America Predecessor recognizes its share of the estimated incentive charter hire that has been deemed earned through the reporting date that is not reversible subsequent thereto. ATC fully distributes its net income for each year by making a distribution in the first quarter of the following year.

        Equity in income of affiliated companies decreased by $833,000 to $859,000 for the three months ended March 31, 2007, from $1,692,000 for the three months ended March 31, 2006. This decrease was attributable to a decrease in the incentive hire earned by ATC in the first quarter of 2007 compared with the comparable period of the prior year.

        Equity in income of affiliated companies decreased by $1,255,000 to $6,811,000 for the year ended December 31, 2006, from $8,066,000 for the year ended December 31, 2005. This decrease was attributable to a reduction in the number of vessels operated by ATC.

        Equity in income of affiliated companies increased by $969,000 to $8,066,000 for the year ended December 31, 2005, from $7,097,000 for the year ended December 31, 2004. This increase was attributable to an increase in the number of vessels operated by ATC.

Interest Expense, other

        Interest expense on third party obligations increased marginally by $107,000 to $1,152,000 for the three months ended March 31, 2007, from $1,045,000 for the three months ended March 31, 2006. As a result of the acquisition of Maritrans, the Predecessor assumed $55,616,000 of secured term loans. The net interest expense incurred in the three months ended March 31, 2007 with respect to these term loans amounted to $251,000. Interest expense for the three months ended March 31, 2007 is net of $555,000 capitalized in connection with vessel construction.

        Interest expense on third party obligations decreased by $435,000 to $4,077,000 for the year ended December 31, 2006 from $4,512,000 for the year ended December 31, 2005. This decrease was principally a result of a decrease in the principal amount outstanding under the two capital leases as a result of the regular monthly payments made. Interest expense for the year ended December 31, 2006 is net of $167,000 that was capitalized in connection with vessel construction.

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        Interest expense on third party obligations decreased by $475,000 to $4,512,000 for the year ended December 31, 2005 from $4,987,000 for the year ended December 31, 2004. This decrease was principally a result of a decrease in the principal amount outstanding under the two capital leases as a result of the regular monthly payments made.

EBITDA

        EBITDA represents net income plus interest expense, provision for income taxes, depreciation and amortization expense. EBITDA is presented to provide investors with meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods. EBITDA should not be considered as a substitute for net income, cash flow from operating activities and other operations or cash flow statement data prepared in accordance with U.S. GAAP or as a measure of profitability or liquidity. While EBITDA is frequently used as a measure of operating results and performance, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation.

        The following table reconciles net income, as reflected in our combined statements of operations, to EBITDA (in thousands):

 
  Three Months ended
March 31,

  Year ended December 31,
 
  2007
  2006
  2006
  2005
  2004
 
  (In thousands)

Net income   $ 4,203   $ 2,158   $ 7,736   $ 2,007   $ 1,871
Provision / (credit) for federal income taxes     1,382     (327 )   768     1,325     1,007
Interest expense     3,253     2,944     12,612     10,685     9,224
Depreciation and amortization     10,997     4,416     21,592     14,553     10,811
   
 
 
 
 
EBITDA   $ 19,835   $ 9,191   $ 42,708   $ 28,570   $ 22,913
   
 
 
 
 

Effects of Inflation

        We do not believe that inflation has had, or is likely in the foreseeable future to have, a significant impact on vessel expenses, drydocking expenses and general and administrative expenses.

Liquidity and Sources of Capital

        We operate in a capital intensive industry. Our liquidity requirements relate to our operating expenses, including payments under our management and administrative services agreements, drydocking expenditures, payments of interest and principal under our secured credit facility and lease obligations. Our long-term liquidity needs primarily relate to capital expenditures for the purchase or construction of vessels. We expect to finance the acquisition or construction of our vessels with the net proceeds of this offering, borrowings under a secured credit facility and through the issuance of debt and equity securities to OSG.

        Our combined financial statements represent the operations of our vessels by OSG prior to our acquisition of those vessels. The acquisition of the Maritrans vessels by OSG and their operations were funded by loans from OSG. As a result, our combined financial statements are not indicative of the financial position, results of operations or cash flows we would have achieved had we operated as an independent stand-alone entity during these periods or of future results.

        The Predecessor had working capital of $705,000 at March 31, 2007 compared with a working capital deficiency of $5,059,000 at December 31, 2006, $15,700,000 at December 31, 2005 and $7,571,000 at December 31, 2004. The treasury functions of OSG are managed centrally. Accordingly,

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cash received by the Predecessor (principally charter hire) was swept from our accounts to OSG for investment purposes, with a corresponding reduction in the advances from affiliated companies. Cash required by the Predecessor (principally vessel operating expenses, voyage expenses and debt amortization) was transferred from OSG with a corresponding increase in the advances from affiliated companies. We had total debt outstanding of $661,772,000 as at March 31, 2007, including $572,379,000 due to OSG, compared with $661,129,000 as at December 31, 2006, including $569,186,000 due to OSG, and $273,127,000 as at December 31, 2005, including $230,861,000 due to OSG. Advances payable to OSG do not have fixed repayment dates. Available net cash provided by operating activities was used to repay certain of the amounts advanced by OSG.

    Cash Flows

        The following table summarizes our cash flows provided by/(used in) operating and investing for the periods presented:

 
  Three months ended
March 31,

  Year ended
December 31,

 
 
  2007
  2006
  2006
  2005
  2004
 
 
  (In thousands)

 
Net cash flow provided by/(used in) operating activities   $ 13,145   $ (1,327 ) $ 13,299   $ 19,800   $ 7,141  
Net cash flow (used in) investing activities     (13,788 )   (3,165 )   (345,483 )   (74,116 )   (43,012 )
Net cash flow provided by financing activities     643     4,725     332,399     54,261     35,799  

        Operating cash flows.    Net cash flow from operating activities depends upon the timing and amount of drydocking expenditures, repairs and maintenance activity, vessel additions and dispositions, changes in interest rates, fluctuations in working capital balances and spot market freight rates. The number of vessel drydockings tends to vary from year to year. For more information on our expected drydocking expenditures, please read "—Ongoing capital expenditures" below.

        Investing cash flows.    Net cash used in investing activities for the three months ended March 31, 2007 related primarily to costs that were incurred double-hulling two barges. During 2006, investing activities related primarily to the acquisition by OSG of the Maritrans Entities on November 28, 2006 for $340,860,000. During 2005, investing activities consisted of the acquisition of two Handysize product carriers for $74,116,000. In 2004, another two Handysize product carriers were purchased for $43,012,000.

        Financing cash flows.    Net financing cash outflow generally represents the amount of cash flow generated from operations less the amount used for investing activities. The investment in the Maritrans Entities and the four vessels acquired during 2004 and 2005 were financed primarily through advances from OSG in the form of non-interest bearing advances. Loans and advances payable to OSG do not have fixed repayment dates.

        The agreements impose certain operating restrictions and establish minimum financial covenants for OSG America Predecessor. The Predecessor was in compliance with the financial covenants contained in the secured loan agreements as of March 31, 2007. Our failure to comply with any of the covenants in the agreements could result in a default, which would permit lenders to accelerate the maturity of the debt and to foreclose upon collateral securing the debt. Under those circumstances, we might not have sufficient funds or other resources to satisfy our remaining obligations.

    Ongoing Capital Expenditures

        Marine transportation of crude oil and refined petroleum products is a capital-intensive business, which requires significant investment to maintain an efficient fleet and stay in regulatory compliance.

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        For purposes of determining operating surplus, maintenance capital expenditures are those capital expenditures required to maintain over the long term the current operating capacity of our fleet or the revenue generated by our capital assets. Expansion capital expenditures are those capital expenditures that increase the operating capacity of our fleet or the revenue generated by our capital assets.

        Over the three years following the date of this offering, we estimate that we will spend an average of approximately $19.3 million per year for drydocking and classification society surveys. We drydock our vessels twice in every five-year period and, as our fleet matures and expands, our drydocking expenses will likely increase. Ongoing costs for compliance with environmental regulations are primarily included as part of our drydocking and classification society survey costs or are a component of our operating expenses. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage. Periodically, we also incur expenditures to acquire or construct additional product carriers and barges and/or to upgrade or double hull vessels in order to comply with statutory regulations. We are not aware of any regulatory changes or environmental liabilities that will have a material impact on our current or future operations.

        We believe that our cash flow from charters-out will be sufficient to cover the interest and principal payments under our debt agreements, amounts due under the administrative services and management agreements, other general and administrative expenses and other working capital requirements for the short and medium term. To the extent we pursue other vessel acquisitions, we expect to finance any such commitments from existing long-term credit facilities and additional long-term debt as required. The amounts of working capital and cash generated from operations that may, in the future, be utilized to finance vessel commitments are dependent on the rates at which we can charter our vessels. Such charter rates are volatile.

        Because we distribute all of our available cash, we may not grow as fast as companies that reinvest their available cash. We expect that we will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level, which in turn may affect the available cash that we have to distribute on each unit. Our partnership agreement does not limit our ability to issue additional units, including units ranking senior to the common units being offered under this prospectus. The incurrence of additional debt by us or our operating subsidiaries would result in increased interest expense, which in turn may also affect the available cash that we have to distribute to our unitholders.

        The amount of available cash from operating surplus needed to pay the minimum quarterly distribution for one quarter on all units outstanding immediately after this offering and the related distribution on the 2% general partner interest is approximately $11.5 million. There is no guarantee that we will pay the minimum quarterly distribution on our common and subordinated units in any quarter and we will be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default exists, under our credit agreement.

        Our pro forma available cash to make distributions during the year ended December 31, 2006 and the twelve months ended March 31, 2007 would have been sufficient to allow us to pay 100% of the minimum quarterly distribution of $0.35 per unit per quarter (or $1.40 per unit on an annualized basis) on our common units and 38% and 54%, respectively, of the minimum quarterly distribution on our subordinated units during those respective periods.

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    Aggregate Contractual Obligations

        Following the completion of this offering and the transactions described in this prospectus, we expect our long term contractual obligations to be as follows, assuming the completion of this offering on March 31, 2007:

 
  2007
  2008
  2009
  2010
  2011
  Beyond
2011

  Total
 
  (In thousands)

Long-term debt(1)   $ 7,863   $ 10,478   $ 8,807   $ 8,807   $ 8,830   $ 95,021   $ 139,806
Obligations under capital leases(2)     6,461     9,692     9,692     9,692     8,102         43,639
Operating lease obligations (chartered-in vessels)(3)     12,874     33,111     48,676     48,275     47,696     154,678     345,310
Construction installments(4)     23,030     15,700     2,355                 41,085
   
 
 
 
 
 
 
Total   $ 50,228   $ 68,981   $ 69,530   $ 66,774   $ 64,628   $ 249,699   $ 569,840
   
 
 
 
 
 
 

(1)
Amounts shown include contractual interest obligations on $50.8 million of debt under our credit facility expected to be outstanding upon completion of this offering. The interest obligations have been estimated using an interest rate of 6.0% per annum.

(2)
Amounts shown include contractual interest obligations.

(3)
As of March 31, 2007 we had charter-in commitments for six vessels on leases that are, or will be, accounted for as operating leases. These leases provide us with various renewal options.

(4)
Represents remaining shipyard commitments and excludes capitalized interest and other construction costs. Includes payments in respect of two ATBs to be contributed by OSG to our fleet.

Revolving Credit Facility

        In connection with the closing of this offering, we expect to enter into a new $200 million revolving credit facility.

        We anticipate that we will be able to prepay all loans under the revolving credit facility at any time without premium or penalty (other than customary LIBOR breakage costs).

        We expect that our new revolving credit facility will prevent us from declaring dividends or distributions if any event of default, as defined in our new revolving credit agreement, occurs or would result from such declaration. In addition, we anticipate that our new revolving credit agreement will contain covenants requiring us to adhere to certain financial covenants and limiting the ability of our operating company and its subsidiaries to, among other things:

    incur or guarantee indebtedness;

    change ownership or structure, including consolidations, liquidations and dissolutions;

    make distributions or repurchase or redeem units;

    make certain negative pledges and grant certain liens;

    sell, transfer, assign or convey assets;

    make certain loans and investments;

    enter into a new line of business;

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    transact business with affiliates;

    enter into agreements restricting loans or distributions made by our operating company's subsidiaries to us or our operating company; or

    participate in certain hedging and derivative activities.

        We anticipate that each of the following will be an event of default under the new revolving credit facility:

    failure to pay any principal, interest, fees, expenses or other amounts when due;

    failure to notify the lenders of any oil spill or discharge of hazardous material, or of any action or claim related thereto;

    breach or lapse of any insurance with respect to the vessels;

    breach of certain financial covenants;

    failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;

    default under other indebtedness of our operating company, our general partner or any of our subsidiaries above specified amounts;

    bankruptcy or insolvency events involving us, our general partner or any of our subsidiaries;

    failure of any representation or warranty to be materially correct;

    a change of control, as defined in the applicable agreement;

    a material adverse effect, as defined in the applicable agreement, occurs relating to us or our business; and

    judgments against us, our general partner or any of our subsidiaries in excess of certain allowances.

    Our Secured Term Loans

        At March 31, 2007, we had $54.4 million in total outstanding under our secured term loans, which are secured by mortgages on some of our fixed assets. The current portion of this debt at March 31, 2007 was $4.3 million.

        Our secured term loans consist of (1) a 5-year term loan with Lombard US Equipment Financing Corp. bearing interest at an average fixed rate of 5.14% (Term Loan A), (2) a 9.5-year term loan with Fifth Third Bank bearing interest at an average fixed rate of 5.98% (Term Loan B) and (3) a 9.5-year term loan with PNC Leasing bearing interest at an average fixed rate of 5.53% (Term Loan C). Principal payments on Term Loan A are required on a quarterly basis. Principal payments on Term Loan B and C are required on a monthly basis. We have granted first preferred ship mortgages and a first security interest in some of our vessels and other collateral to these lenders as a guarantee of the loan agreements. The loan agreements require us to maintain our properties in a specific manner, maintain specified insurance on our properties and business, and abide by other covenants, which are customary with respect to such borrowings. The loan agreements also require us to meet certain financial covenants. If we fail to comply with any of the covenants contained in these loan agreements, these lenders may call the entire balance outstanding on the loan agreements immediately due and payable, foreclose on the collateral and exercise other remedies under the loan agreements. We were in compliance with all such covenants at March 31, 2007.

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        In June 2004, we entered into an additional $29.5 million term loan with Fifth Third Bank (Term Loan D). Term Loan D has a 9.5-year amortization and a 55% balloon payment at the end of the term and accrues interest at a fixed rate of 6.28%. Principal payments on Term Loan D are required on a monthly basis. We have granted first preferred ship mortgages and a first security interest in the M214 and its married tugboat, the Honour, to secure Term Loan D. Term Loan D requires us to maintain the collateral in a specific manner, maintain specified insurance on our properties and business, and abide by other covenants which are customary with respect to such borrowings. If we fail to comply with any of the covenants contained in Term Loan D, Fifth Third Bank may foreclose on the collateral or call the entire balance outstanding on Term Loan D immediately due and payable. We were in compliance with all applicable covenants at March 31, 2007.

        As of March 31, 2007, we had the following amounts outstanding under our secured term loans:

    $2.8 million under Term Loan A maturing in 2008;

    $19.6 million under Term Loan B maturing in 2013;

    $5.5 million under Term Loan C maturing in 2013; and

    $26.5 million under Term Loan D maturing in 2013.

Risk Management

        The Predecessor was exposed, and we also expect to be exposed, to market risk from changes in interest rates, which could impact our results of operations and financial condition. We will manage this exposure through our regular operating and financing activities.

        The shipping industry's functional currency is the U.S. dollar. All of our revenues and most of our operating costs are in U.S. dollars.

Off Balance Sheet Arrangements

        We do not currently have any liabilities, contingent or otherwise, that we consider to be off balance sheet arrangements.

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THE JONES ACT PRODUCT CARRIER AND BARGE INDUSTRY

        The information and data in this section relating to the U.S. coastwise maritime transportation industry have been provided by Wilson Gillette & Co. (Wilson Gillette), a petroleum logistics specialist providing research and statistics to the U.S. flag shipping industry. Wilson Gillette based its analysis on information drawn from published and private industry sectors, including Wilson Gillette's databases, the Energy Information Administration of the U.S. Department of Energy (EIA) and the Maritime Administration of the U.S. Department of Transportation (Mar Ad). Data is taken from the most recently available published sources, which revise data and forecasts from time to time.

        Wilson Gillette has advised us that (1) some industry data included in this discussion is based on estimates or subjective judgments in circumstances where data from actual market transactions either does not exist or is not publicly-available, (2) published information of other maritime data collection experts may differ from this data, and (3) while Wilson Gillette has taken reasonable care in the compilation of the industry statistical data and believe them to be correct, data collection is subject to limited audit and validation procedures.

Introduction

        We are the largest, based on barrel-carrying capacity, operator of Jones Act product carriers and barges transporting refined petroleum products, which, as an industry, transports petroleum products on the internal lakes and rivers and in the coastal waters of the United States using vessels such as product carriers and barges. Jones Act product carriers and barges transport crude oil to refineries and transport refined petroleum products such as gasoline from refineries to distribution terminals, where it is loaded onto tanker trucks for local delivery to retailers. Jones Act shipping is a vital component of the nation's energy distribution system.

        The Jones Act, which is also known as the Merchant Marine Act of 1920, refers to a set of federal statutes that restricts foreign competition in the U.S. marine transportation industry. Under the Jones Act, any vessels engaged in trade between U.S. ports, including movements of Alaskan crude oil, must be:

    registered under the U.S. flag;

    built in the United States without subsidy;

    manned by U.S. crews; and

    owned and operated by U.S. organized companies that are controlled and at least 75% owned by U.S. citizens.

        Accordingly, only Jones Act product carriers and barges can transport crude oil, refined petroleum products and chemicals between ports in the continental U.S. (including through the Panama Canal) or between mainland ports and Puerto Rico, Alaska and Hawaii.

        Other government programs and legislation benefiting the U.S. flag product carrier and barge industry include:

    The Maritime Security Program (MSP), administered by the Maritime Administration of Department of Transportation, the purpose of which is to support the operation of up to 60 U.S. flag vessels in foreign commerce so that a fleet of active, commercially viable, privately owned vessels is available to the Department of Defense during time of war or national emergency.

    The Cargo Preference Act of 1904, which requires cargoes for the U.S. military to be carried exclusively on U.S. flag vessels.

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        The Jones Act, MSP and the Cargo Preference Act are supported by the federal government in the interest of national defense.

        Demand for Jones Act product carriers and barges is expected to grow because of proposed expansions to Gulf Coast refineries, which are expected to increase output by 1.6 million barrels per day (bpd) by 2016. At the same time, many Jones Act product carriers and barges face regulatory obsolescence due to the Oil Pollution Act of 1990 (OPA 90), which mandates the phase-out of all single hull vessels by 2015.

        Waterborne transportation is the most important mode of transportation for refined petroleum products after pipelines. Rail cars and trucks are only cost-effective for moving refined petroleum products over short distances.


Petroleum Product Transportation by Mode and Location:
2006 estimated

         GRAPHIC

    Source: U.S. Department of Transportation Bureau of Transportation Statistics

Types of Product Carriers and Barges

        The Jones Act product carrier and barge fleet includes product carriers, integrated tug barges (ITBs), articulated tug barges (ATBs), and conventional tug-barge units (CTBs).

        Jones Act product carriers are generally larger, faster and more capable of operating at their maximum operating capabilities in a wider range of adverse weather conditions compared with other

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vessel types, but are more expensive to build and crew. By way of example, the following table provides a comparison of costs under recently announced newbuilding contracts:

Vessel Type

  Owner
  Cost
Product Carrier (331,000 barrels)   US Shipping   $ 111 million
Large ATB (290,000 barrels/12,000 hp tug)   OSG   $ 88 million
Mid-Size ATB (185,000 barrels/9,600 hp tug)   Crowley   $ 60 million

        ITBs are comparable to product carriers in size and speed, but are less costly to crew. No ITBs have been built in the United States since the mid 1980s.

        Product carriers require 21 crew members and can travel at between 13.5 to 15.0 knots. ITBs require 16 crew members and can travel at up to 13 knots. Large ATBs require 9 to 11 crew members and can travel at between 10 to 13 knots depending on the horsepower (hp) of the tug, which can range from 6,000 to 12,000 hp. CTBs require up to 8 crew members and travel at up to 8 knots. On longer voyages, the speed advantage of product carriers can result in customers paying less in transportation costs per barrel than they would pay for slower tank barges with lower crew costs.

        On certain voyages, product carriers and barges are required to pass through a bridge opening or narrow waterway, which limits the size of the vessels that may be used. Accordingly, product carriers, ITBs and large ATBs (i.e., product carriers and barges above 16,000 dwt) tend to provide long-haul transportation to deep-water ports. Smaller ATBs and CTBs ranging between 10,000 dwt and 16,000 dwt tend to provide short-haul transportation, such as within the Northeast coastal market. Still smaller barges and push boats provide river transportation, primarily on the Mississippi river and its tributaries.

Product Carriers

        A product carrier is a self-propelled vessel designed for deep-sea trade. Crude-oil tankers are designed to move large volumes of crude oil and are generally larger and less sophisticated than product carriers, which have special tank coatings, cargo segregations and piping systems that permit the simultaneous transportation of multiple grades of refined petroleum products.

        Jones Act crude-oil tankers are used to transport Alaskan crude oil from Alaska to the West Coast. According to Mar Ad, there were 15 Jones Act crude-oil tankers with approximately 17 million barrels of aggregate carrying capacity as of December 31, 2006. Three of these crude-oil tankers do not have double hulls and therefore must be removed from service by 2010 or retrofitted with a double hull due to OPA 90 regulations.

        Jones Act product carriers are used to move refined petroleum products from Gulf Coast refineries to East Coast distribution terminals and from West Coast refineries located near Seattle, Washington and Los Angeles and San Francisco, California to distribution terminals located in Oregon and Southern California. According to Mar Ad, there were 38 Jones Act product carriers and seven Jones Act ITBs as of December 31, 2006, aggregating approximately 13 million barrels of carrying capacity. 25 of these vessels, or 58% in terms of barrel-carrying capacity, do not have double hulls and therefore must be removed from service or retrofitted with a double hull due to OPA 90 regulations.

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        The following is a diagram of an Aker-built product carrier having an overall length of 601 feet, 12 cargo tanks and six segregations, which allows for the simultaneous transportation of six different refined petroleum cargoes aggregating 324,000 barrels at 98% capacity.

GRAPHIC

Articulated Tug Barges (ATBs)

        An ATB is designed for coastal trade. ATBs consist of a tug and barge that are connected by a system that mechanically locks the front of the tug to the back of the barge through a hinged connection, eliminating the need for the cumbersome wires and cables used by CTBs. The hinged connection allows ATBs to out perform CTBs in terms of operational sustainability in adverse weather conditions. Unlike an ITB, the tug of an ATB can be disconnected from its barge to allow the tug to push or tow other barges.

        Large-size Jones Act ATBs (i.e., over 30,000 dwt or approximately 210,000 barrels) are typically used to move refined petroleum products from Gulf Coast refineries to Florida and the South Atlantic states. Mid-size ATBs are used on the West Coast and smaller ATBs and CTBs (i.e., below 16,000 dwt or approximately 112,000 barrels) are commonly employed in the short-haul markets such as the Northeast and intra Gulf Coast because of the small cargo lots and discharge terminals.

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        The following is a diagram of a Bender-built ATB with a 12,000 hp tug, having an overall length of 700 feet with 12 cargo tanks aggregating 347,000 barrels at 98% capacity.

GRAPHIC

Jones Act Trade

        Jones Act product carriers and barges serve a vital role in the transportation of crude oil and refined petroleum products in the United States. Jones Act crude-oil tankers are used to transport Alaskan crude oil from Valdez, Alaska to refineries located on the West Coast near Seattle, Washington and Los Angeles and San Francisco, California. Product carriers and barges are used to transport refined petroleum products from these West Coast refineries to the major consuming areas of Southern California and Portland, Oregon. The majority of the use of Jones Act product carriers and tank barges involves the transportation of refined petroleum products from refineries located along the Gulf Coast to Florida and to other South Atlantic states. Additionally, refined petroleum products are transported within the Northeast market from refineries located along the Delaware River in Delaware, New Jersey and Pennsylvania to terminals located in New York, Connecticut and Rhode Island, generally using tank barges below 16,000 dwt (approximately 112,000 barrels).

        For planning purposes, the U.S. Department of Energy divides the United States into the following five regions:

    East Coast;

    Midwest;

    Gulf Coast;

    Rocky Mountains; and

    West Coast.

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        The following map illustrates the key Jones Act trade routes for refined petroleum products and the amount of product, measured in bpd, transported along these key trade routes during 2006.


Jones Act Trade Routes for Refined Petroleum Products: 2006
(in thousands of bpd)

         GRAPHIC

    Source: Wilson Gillette

    Gulf Coast to East Coast

        The most important trade route in the Jones Act trade of refined petroleum products is from the Gulf Coast to Florida. This is because Florida has no refineries and there are no interstate pipelines connecting Florida to refineries in other regions. In 2006, the Gulf Coast to Florida trade route accounted for approximately 51% of all Jones Act movements of refined petroleum products.

        Waterborne movements of refined petroleum products from the Gulf Coast to Florida totaled approximately 600,000 bpd or 77% of total Florida demand in 2002, 640,000 bpd or 70% of total Florida demand in 2003, 700,000 bpd or 74% of total Florida demand in 2004, 670,000 bpd or 67% of total Florida demand in 2005 and 630,000 bpd or 63% of total Florida demand in 2006. Damage caused to the Gulf Coast refineries by Hurricanes Katrina and Rita in 2005 significantly curtailed movements of refined petroleum products from the Gulf Coast to Florida in 2005 and 2006, with the shortfall being replaced with imports. Movements of refined petroleum products are to Florida rebounded in 2007 because repairs to hurricane-damaged Gulf Coast refineries were completed.

        Beyond 2007, waterborne movements of refined petroleum products to Florida are forecast to increase at more than the U.S. average demand growth rate for refined petroleum products, which is 1.2% per annum. This is due to Florida's higher-than-average population growth. In addition, a proposal by Colonial Pipeline to build a petroleum pipeline through the Gulf of Mexico from Mississippi to Tampa was abandoned in 2006 after facing opposition from the Florida government as a result of concerns about the pipeline's environmental and economic impact, including its economic impact on the shipping industry in the Port of Tampa, local shipyards and other businesses.

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    Intra West Coast

        Movements of refined petroleum products in the intra West Coast trade occur because refineries in Southern California lack sufficient capacity to meet local demand. Refineries in Puget Sound and San Francisco supply 325,000 bpd of refined petroleum products to distribution terminals in Los Angeles and San Diego, California. In addition, 85,000 bpd of refined petroleum products are shipped by water to Oregon. Altogether, the intra West Coast trade accounts for 23% of all Jones Act movements of refined petroleum products.

        With no plans for refinery expansion, Southern California will continue to lack sufficient refinery capacity to meet local demand. In Puget Sound and San Francisco, refinery capacity is expected to increase at a rate of 1% per year, which will lead to an increase in waterborne movements of refined petroleum products from these refineries to Southern California.

    Intra East Coast

        New England has no refineries. Waterborne shipments from New York Harbor and the Delaware River supply 35% of New England's refined petroleum products, with the remainder covered by imports. Waterborne shipments from the Middle Atlantic region ranged between 330,000 bpd and 380,000 bpd between 2002 and 2006. Increased demand for refined petroleum products in New England will principally be met by additional imports supplied from Europe and Canada.

    Crude-Oil Lightering in Delaware Bay

        Refineries in the Delaware River Valley rely on lightering of large crude-oil tankers due to draft limitations in the Delaware River. Very Large Crude Carriers and Suezmax tankers off-load enough cargo to reduce their draft before proceeding up the river to the refineries.

        Lightering services performed in the Delaware Bay are subject to Jones Act requirements and regulations imposed by the Delaware Department of Natural Resources and Environmental Control. Jones Act lightering is currently performed by three dedicated vessels and amounted to 264,000 bpd in 2002, 273,000 bpd in 2003, 273,000 bpd in 2004, 281,000 bpd in 2005 and 245,000 bpd in 2006. The reduction in lightering volumes in 2006 was due to political turmoil in Nigeria, which resulted in product carriers carrying less than full cargoes of Nigerian crude oil. Lightering volumes are expected to rebound in 2007 as crude oil from other sources is delivered to East Coast refineries.

        The demand for lightering services in Delaware Bay is expected to remain constant because there are no major refinery expansions planned and a proposal to dredge the Delaware River remains opposed by environmental groups.

    Alaska to West Coast

        Crude oil from Alaska is transported by water to refineries located on the West Coast. The key producers of Alaskan crude oil are BP p.l.c., ConocoPhillips Company and ExxonMobil Corporation. Waterborne movements of crude oil from Alaska have declined over time as crude oil production has declined. Waterborne movements of Alaskan crude oil to West Coast refineries have decreased from approximately 900,000 bpd in 2002 to about 700,000 bpd in 2006. Alaskan crude oil production is likely to decline further unless new areas are opened to exploration and production.

Charter Rates

        Time charter rates for Jones Act product carriers and barges have increased over the past five years due to rising consumption of refined petroleum products (especially in the South Atlantic states and the West Coast) and the decreasing supply of Jones Act product carriers and barges caused by

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OPA 90. The following chart shows time charter rates from 2002 to 2006 for product carriers and ITBs transporting refined petroleum products in the U.S. coastwise trade:


Average Daily Time Charter Rates
for US Flag Tankers & ITBs 2002-2006

GRAPHIC

Source: Wilson Gillette

Demand for Jones Act Product Carriers and Barges

        Demand for ocean-going Jones Act product carriers and barges is determined by the following:

    Demand for refined petroleum products;

    U.S. coastal refining capacity; and

    Availability of transportation alternatives such as pipelines, trucks and rail.

Demand for Refined Petroleum Products

        Consumption of refined petroleum products has increased from 19.8 million bpd in 2002 to 20.6 million bpd in 2006, an increase of 800,000 bpd representing an annual growth rate of approximately 0.7%.

        Approximately 75% of the increase in refined petroleum products consumption between 2002 and 2006 occurred along the coastal regions of the United States. Consumption growth was highest in Florida, which accounted for approximately 22% of the 800,000 bpd increase in U.S. demand for refined petroleum products. The second highest growth region was the other South Atlantic states, which accounted for approximately 20%, followed by the West Coast, which accounted for approximately 17%.

        Demand for refined petroleum products is expected to continue growing more rapidly along these coastal regions due to their higher rates of economic and population growth.

        The EIA estimates that U.S. demand for refined petroleum products between 2006 and 2016 will increase by 2.5 million bpd to 23.1 million bpd.

Refining Capacity

        At December 31, 2006, total U.S. refining capacity was estimated at approximately 17.4 million bpd. Coastal refining capacity (Gulf Coast—8.3 million bpd; West Coast—3.2 million bpd; and East

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Coast—1.7 million bpd) accounted for approximately 75% of total U.S. refining capacity, with the Midwest and the Rocky Mountain regions accounting for the remaining 25%. Because the Gulf Coast produces 45% more refined petroleum products than it consumes, it is able to supply refined petroleum products to other regions of the United States.

        Refining capacity is forecast to grow in all areas of the United States between 2007 and 2020. During this period the EIA expects the average annual refining capacity in the East Coast, Midwest, Gulf Coast, Rocky Mountain and West Coast regions to increase by 0.5%, 0.4%, 1.5%, 1.5% and 1.0%, respectively. In all regions except the Gulf Coast, increases in refining capacity go towards satisfying local demand.

        Gulf Coast refining capacity is forecast to increase by approximately 1.6 million bpd by 2016. The increase in Gulf Coast refining capacity includes a 325,000 bpd expansion by Motiva Enterprises LLC at its Port Arthur, Texas refinery, a 180,000 bpd expansion by Marathon Oil Corporation at its Garyville, Louisiana refinery and approximately 575,000 bpd of refinery expansions at other Gulf Coast refineries.

        Refining capacity in the Midwest is forecast to increase by approximately 500,000 bpd by 2015. The increase in Midwest refining capacity includes the 100,000 bpd expansion at ConocoPhillips Company's Wood River, Illinois refinery and smaller increases in refining capacity at refineries owed by Frontier Oil Corporation, Valero Energy Corporation, BP p.l.c., and Sunoco, Inc. Movements of refined petroleum products from Gulf Coast refineries to the Midwest are expected to remain at current levels because Midwest demand will be satisfied by increases in local refining capacity used to process heavy Canadian crude oil.

        The principal destination for surplus refined petroleum products produced in the Gulf Coast is expected to continue to be the East Coast, with approximately 70% moving by pipeline and 30% moving by product carriers and barges.

Transportation Alternatives

        Pipelines are the most cost-effective means of transporting refined petroleum products for long-haul movements and product carriers and barges are the second most cost-effective means. Rail cars and trucks are only cost-effective for moving refined petroleum products over short distances, but are necessary to deliver those products from terminals to retail stations.

        Pipelines move the majority (58%) of refined petroleum products based on ton-miles. The biggest pipeline systems run from the Gulf Coast to the East Coast and Midwest. Smaller pipelines run from the Gulf Coast to Arizona. These pipeline systems move 3.4 million bpd of refined petroleum products from the Gulf Coast to other regions.

        Two major pipeline systems (Colonial and Plantation) transport refined petroleum products to the East Coast. The largest system is the Colonial Pipeline, which transverses 5,500 miles from Houston, Texas to New York Harbor, connecting refineries in Texas, Louisiana, Mississippi and Alabama to over two hundred distribution terminals located along the route, including in the west-central portions of Georgia, South Carolina, North Carolina, Virginia, Delaware and New Jersey. The Plantation Pipeline stretches 3,100 miles to connect refineries in Louisiana and Mississippi with over one hundred distribution terminals located along the route, including in the west-central portions of Georgia, South Carolina, North Carolina and Virginia. Together these two systems transport 2.5 million bpd of refined petroleum products from the Gulf Coast to the East Coast.

        A combination of pipeline systems (Explorer, TEPPCO, Centennial, Phillips and Citgo) transport 810,000 bpd of refined products from the Gulf Coast to the Midwest.

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        Two smaller pipeline systems (Longhorn and Kinder Morgan) transport 125,000 bpd of refined products from Texas to Arizona.

        With the exception of the pipelines to the Midwest, existing pipeline systems are at or near full capacity. Pipelines from the Gulf Coast refineries to Midwest distribution terminals have excess capacity as a result of increased capacity at Midwest refineries, which is being driven by increased supplies of lower cost heavy Canadian crude oil.

        Starting in 2011, we expect pipeline capacity to increase between the Gulf Coast and Atlanta and between the Gulf Coast and Arizona to distribute increased production from Gulf Coast refineries due to proposed capacity expansions. We expect that approximately 70% of the additional output resulting from Gulf Coast refinery expansions will be transported by pipelines and that the remaining 30% will be transported by product carriers.

Supply of Jones Act Vessels

        The existing fleet of Jones Act product carriers and barges is, on average, older than the international fleet. Many of the Jones Act vessels were built in the early 1980s. The high price of constructing new vessels in the United States, combined with the low charter rates that existed before 2000, discouraged owners from building replacement vessels.

        The large number of newbuild product carriers and barges on order is primarily based upon the expected phase-out before 2015 of a large percentage of the product carrier and barge fleet due to the requirements of OPA 90, but constrained by the high cost of newbuilds and the limited capacity of U.S. shipyards. Operators with limited financial resources may be unable to replace or retrofit their vessels to comply with OPA 90 requirements. These factors could contribute to a more limited supply of Jones Act product carriers and barges, especially beyond 2012 and 2013, when mandated phase-outs peak.

        In order to receive U.S. Coast Guard permission to trade, all Jones Act product carriers and barges must be certified as "in-class". Because the costs of maintaining product carriers and barges in-class rise as the age of the vessel increases, owners of product carriers and barges often conclude that it is more economical to scrap a vessel that has reached its anticipated useful life than to spend the funds required to keep it in-class. However, if an owner cannot afford a new replacement vessel or the charter rate environment is particularly strong, owners are more likely to seek ways to continue trading a vessel. When scrapping cannot be avoided, ATBs and CTBs are frequently chosen instead of product carriers, because of their lower construction costs.

        The level of scrapping activity is primarily based upon OPA 90 regulations, which mandate the retirement of all single-hulled vessels before 2015.

Jones Act Product Carrier and Barge Fleet

        According to Wilson Gillette, there were 84 Jones Act product carriers and barges larger than 16,000 dwt (i.e. larger than 112,000 barrels) operating in the coastwise trade as of January 1, 2007. This excludes 15 Jones Act crude-oil tankers engaged exclusively in the transportation of Alaskan crude oil.

        As a result of OPA 90, 25 out of the 84 Jones Act product carriers and barges must be phased-out of service or retrofitted with double hulls between 2008 and 2015. The 25 vessels to be phased out represent approximately 30% of the current coastwise fleet.

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        The majority of phase-outs will take place in 2011 and 2012, as can be seen in following chart:

GRAPHIC

While there is a forecast surplus of Jones Act product carriers and barges versus demand between 2008 and 2010, many of the larger integrated oil companies and independent oil refiners have indicated a preference for chartering double-hull product carriers and barges for the U.S. coastwise movement of refined petroleum products. Demand for Jones Act product carriers and barges will exceed supply after 2012, when phase-outs peak and incremental refining capacity comes online in the Gulf Coast.

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BUSINESS

OSG America L.P.

        We are the largest operator, based on barrel-carrying capacity, of U.S. flag product carriers and barges transporting refined petroleum products. We were recently formed by Overseas Shipholding Group, Inc. (NYSE: OSG), a market leader in providing global energy transportation services. We plan to use the expertise, customer base and reputation of OSG to expand our marine transportation service. Following this offering, our initial fleet of product carriers and barges will consist of ten product carriers, seven articulated tug barges (ATBs) and one conventional tug-barge unit (CTB), with an aggregate carrying capacity of approximately 4.9 million barrels. Alaska Tanker Company, LLC (ATC), a joint venture in which we have a 37.5% ownership interest, transports crude oil from Alaska to the continental United States using a fleet of five crude-oil tankers with an aggregate carrying capacity of 6.3 million barrels. Upon the completion of this offering, OSG will own a 77.2% interest in us, including a 2% interest through our general partner, which OSG owns and controls.

        The majority of our vessels transport refined petroleum products in the U.S. "coastwise" trade over three major trade routes:

    from refineries located on the Gulf Coast to Florida, other lower Atlantic states and the West Coast;

    from refineries located on the East Coast to New England; and

    from refineries located on the West Coast to Southern California and Oregon.

        The Gulf Coast to Florida trade route is the most important of these trade routes due to the absence of pipelines that service Florida and Florida's growing demand for refined petroleum products. We also provide lightering services on the East Coast by transporting crude oil from large crude-oil tankers to refineries in the Delaware River Basin.

        Our market is protected from direct foreign competition by the Merchant Marine Act of 1920 (the Jones Act), which mandates that all vessels transporting cargo between U.S. ports must be built in the United States without subsidy, registered under the U.S. flag, manned by U.S. crews and owned and operated by U.S.-organized companies that are controlled and at least 75% owned by U.S. citizens. Charter rates for Jones Act vessels have historically been more stable than those of similar vessels operating in the international shipping markets. We currently operate 16 of our 18 vessels in the U.S. coastwise trade in accordance with the Jones Act and all of our future scheduled newbuild deliveries will qualify to operate under the Jones Act.

        OSG has assigned to us its agreements to bareboat charter four newbuild product carriers from subsidiaries of Aker American Shipping, Inc. (Aker) upon their delivery from the shipyard between late 2007 and early 2009. These four product carriers have already been time chartered to customers for periods ranging from 3-7 years. We also have the opportunity to increase the size of our fleet through the exercise of options granted to us by OSG to:

    purchase up to six newbuild ATBs, scheduled for delivery from Bender Shipbuilding & Repair Co., Inc. (Bender) between early 2008 and late 2010; and

    acquire the right to bareboat charter up to six newbuild product carriers from Aker, scheduled for delivery between 2009 and 2011.

        The options to purchase the ATBs and the rights to bareboat charter the newbuild product carriers from Aker will be exercisable prior to the first anniversary of the delivery of each vessel. The exercise of any of the options will be subject to the negotiation of a purchase price.

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        The following chart details the potential growth of our fleet and its aggregate carrying capacity.

 
   
   
   
  After Scheduled Deliveries
   
   
   
   
 
  At IPO
   
  Optional
Product
Carriers
and Barges
2008–2011

   
  Total
 
  Vessels(1)
  Capacity
(barrels)

  Scheduled
Deliveries
2007–2009

  Vessels
  Capacity
(barrels)

  Phase-out
2011–2013

  Vessels
  Capacity
(barrels)

 
   
  (in thousands)

   
   
  (in thousands)

   
   
   
  (in thousands)

Product Carriers   10   3,140   4   14   4,436   6   (4 ) 16   5,056
ATBs(2)   7   1,618     8   1,790   6     14   3,701
CTBs(2)   1   172     0         0  
   
 
 
 
 
 
 
 
 
Total Fleet   18   4,930   4   22   6,226   12   (4 ) 30   8,757
   
 
 
 
 
 
 
 
 

(1)
Does not include the five crude-oil tankers operated by ATC.

(2)
Bender is constructing for us two 8,000 horsepower tugs, each with its own ATB coupler system, that are scheduled for delivery in 2008 and 2009. The first tug will allow us to replace the only conventional tug in our fleet and allow us, after minor modifications to the barge, to convert our only CTB into an ATB. We will be responsible for all remaining payments due under the shipbuilding contracts, which we expect will be approximately $25 million.

        For 2006, approximately 73% of our pro forma revenues were from fixed-rate contracts, which includes time-charters, Contracts of Affreightment (COAs), and Consecutive Voyage Charters (CVCs), and the remaining 27% of our pro forma revenues were from single voyage contracts. While the time charters for our initial fleet of 18 product carriers and barges range between one and seven years and currently have an average of 1.7 years before they expire, many of our customers are seeking longer-term contracts. Time charters on the four newbuild product carriers that will be delivered to us between late 2007 and early 2009 have an average term of 4 years. We believe that our strong customer relationships provide a foundation for stable revenue and long term growth of our business.

Our Relationship with OSG

        One of our key strengths is our relationship with OSG, one of the world's leading energy transportation companies. OSG has been a publicly-listed company since 1969 and reported over $1 billion in revenues in 2006, primarily from the ocean transportation of crude oil and refined petroleum products. As of March 31, 2007, OSG owned or operated a fleet of 104 vessels, aggregating 12.0 million deadweight tons (dwt). OSG has granted us options to purchase up to six newbuild ATBs and to bareboat charter up to six newbuild Jones Act product carriers that are scheduled for delivery between 2008 and 2011. We intend to use the long-standing relationships between OSG and a number of leading integrated oil companies and independent refiners to arrange longer-term time charters for our product carriers and barges.

Industry Trends

        We believe the following industry trends are causing charter rates to rise and customers to seek longer-term charters:

    Demand for product carriers and barges continues to be strong as a result of rising consumption of refined petroleum products in the United States. The Energy Information Administration of the U.S. Department of Energy (EIA) projects that demand for refined petroleum products in the United States will increase between 2006 and 2015 at a compounded annual growth rate of 1.1%. Waterborne transportation is the second largest component in the distribution system for refined petroleum products. Although pipelines are the largest component in this system, they do not reach all markets, many currently lack spare capacity to meet increased demand and they are not capable of transporting all types of refined petroleum products.

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    The major coastal refineries in the United States continue to implement plans for capacity expansions, which are expected to be online by 2010, to increase the output of those refineries by over one million barrels per day. As this output increases, the demand for both pipeline and waterborne transportation will increase.

    Demand for Jones Act product carriers and barges continues to grow as a result of the retirement of vessels caused by the requirements of OPA 90 and the leading integrated oil companies and independent oil refineries are increasingly entering into longer-term charters to ensure they have adequate shipping capacity.

    We believe that the high cost of constructing new Jones Act product carriers and barges will continue to limit the supply of new vessels, providing significant advantages to owners that have the financial resources to order new vessels.

Business Opportunities

        We believe that the following factors create opportunities for us to execute successfully our business plan and grow our business:

    Growing Reliance on Waterborne Transportation Due to Increasing U.S. Refinery Capacity. According to the EIA, incremental expansions at Gulf Coast refineries are expected to increase production capacity by approximately 1.6 million barrels per day (bpd) by 2016, from their production capacity of approximately 8.1 million bpd in 2006. This represents an overall increase in daily Gulf Coast refining capacity of approximately 20%. According to Wilson Gillette, approximately 30% of all petroleum products refined in the United States in 2006 were transported by water and we believe that 30% of the incremental refined petroleum products resulting from incremental refinery capacity expansions in the Gulf Coast will be transported by water. See "The Jones Act Product Carrier and Barge Industry—Introduction." We also believe that the opportunities we have to increase the size of our fleet will give us the ability to increase our market share of these incremental waterborne movements.

    Limited Supply of Jones Act Vessels. Assuming that older single hull vessels are not retrofitted with double hulls, the provisions of OPA 90 are expected to reduce the current supply of Jones Act vessels by approximately 37% by 2015, based on deadweight tonnage. See "The Jones Act Product Carrier and Barge Industry—Jones Act Product Carrier and Barge Fleet." Based upon barrel-carrying capacity, approximately 72% of our current fleet is double-hulled. We believe this will, combined with the double-hulled newbuild ATBs and product carriers that we have options to purchase and bareboat charter, give us a significant competitive advantage.

    New Demand for Jones Act Vessels in Deepwater Gulf of Mexico. According to the EIA, deepwater Gulf of Mexico crude oil production is expected to increase from approximately 840,000 bpd in 2005 to approximately 2,000,000 bpd by 2015. We believe that this forecast growth in crude-oil production will create demand for vessels to carry crude oil from offshore oil fields to coastal refineries because pipelines may not be economically or technically feasible. If we exercise one or more of our options to purchase ATBs from OSG and bareboat charter product carriers from Aker, we may have the opportunity to develop a Jones Act shuttle business in the Gulf of Mexico.

Our Competitive Strengths

        We believe that we are well positioned to execute our business strategies successfully because of the following competitive strengths:

    Number One Market Position. We are the leading transporter of refined petroleum products in the United States Jones Act trade and the largest provider, based on barrel-carrying capacity, of

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      waterborne transportation services for refined petroleum products from Gulf Coast refineries to Florida. According to Wilson Gillette, this trade route represented approximately 51% of the total U.S. coastwise petroleum product transportation demand in 2006. We expect demand for waterborne transportation of refined petroleum products on this trade route to continue to grow in line with higher-than-average population increases in Florida. According to the Bureau of Economic Analysis of the U.S. Department of Commerce and the U.S. Census Bureau, the average GDP growth from 2000 to 2006 for Florida was 4.4% compared to the United States average of 2.5% and the population of Florida grew 13.2% between April 2000 and July 2006, compared to the United States growth rate over the same period of 6.4%. Because Florida has no interstate refined product pipelines or refineries and so long as none are built, waterborne transportation will continue to be the principal means of transporting refined petroleum products into the state.

    Stable and Growing Cash Flows from Medium to Long-Term Charters. Of our 17 product carriers and barges currently in service, nine are performing under term contracts with durations of two to seven years. Of the remainder, four are employed under COAs or time charters with optional renewal features with charterers that have employed these vessels for periods of two years or more. The average remaining life of our term contracts is approximately 1.8 years. We have only one product carrier and one ATB currently trading on the spot market. In addition, our four newbuild product carriers to be delivered by Aker between late 2007 and early 2009 are fixed on time charters commencing on delivery with an average length of four years, each with options to extend for up to an additional five years on average. As the supply of Jones Act vessels decreases due to OPA 90, we expect more customers to seek longer-term charters to secure shipping capacity.

    Visible Growth Opportunities. Our initial fleet will consist of 18 vessels with an aggregate carrying capacity of 4.9 million barrels. Upon their delivery, we will bareboat charter-in four newbuild product carriers between late 2007 and early 2009, at which time we expect to have a fleet of 22 vessels with an aggregate carrying capacity of 6.2 million barrels. If we exercise all six of our options to purchase newbuild ATBs from OSG and all six of our options to bareboat charter newbuild product carriers from Aker between 2008 and 2011, our carrying capacity will increase to 8.8 million barrels. We also believe that employing a fleet of owned and bareboat chartered vessels provides us operational and financial flexibility because the chartered vessels require less capital than owned vessels.

    Large, Versatile Fleet of Double-Hull Vessels. Of the 18 vessels in our initial fleet, 13 are double-hulled and one ATB is being retrofitted with a double hull. After delivery of the four newbuild product carriers from Aker, and assuming we exercise all six of our options with OSG to purchase ATBs to be constructed by Bender and all six of our options with OSG to bareboat charter newbuild product carriers from Aker, our fleet will be the largest, and among the youngest, in the Jones Act trade. Newer vessels are more fuel-efficient, cost-effective and environmentally-sound than older vessels. We believe that employing a fleet consisting primarily of new double-hulled product carriers and ATBs allows us effectively to meet the requirements of various customers in a number of different markets.

    Strong Long-term Relationships with High Quality Customers. Through our predecessor, we have established long-term relationships with our customers by working closely with them to meet or exceed their expectations for service, safety and environmental compliance. The majority of our shipping revenues comes from large integrated oil companies and independent refiners such as Chevron Corporation, Sunoco, Inc., Marathon Oil Corporation, Valero Energy Corporation and Tesoro Corporation. We believe that our track record and performance have made us the provider of choice with them.

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Our Business Strategies

        Our primary business objective is to continue to grow our distributable cash flow per unit by executing the following strategies:

    Increase Market Share. We operate the largest fleet of U.S. flag product carriers and barges, based on barrel-carrying capacity, transporting refined petroleum products. Our bareboat charter of four newbuild product carriers from Aker and, assuming we exercise all of our options with OSG to bareboat charter six newbuild product carriers from Aker and to purchase six newbuild ATBs to be constructed by Bender, will further strengthen our leading position in the Jones Act trade. We will continue to evaluate strategic acquisitions in order to meet the demand for U.S. flag vessels in a manner that will increase our distributable cash flow.

    Capitalize on Relationship with OSG. We intend to use OSG's customer relationships with leading integrated oil companies and independent refiners to arrange longer-term time charters.

    Generate Stable Cash Flows With High-Quality Charterers. Our customers are predominantly leading integrated oil companies and independent refiners. We believe that entering into medium to long-term charters with these customers will provide us with relatively stable cash flows.

    Expand into Related Segments. We believe that our high-quality Jones Act vessels, our reputation for dependable service and our relationship with OSG will enable us expand into new segments, such as shuttle tankers in the Gulf of Mexico. In addition, three of the six newbuild ATBs that we have options to purchase from OSG are already chartered to Sunoco for lightering business in the Delaware Bay.

    Emphasize Safety. We have an excellent vessel safety record and reputation for customer service and support. We believe that by maintaining a high standard for operational safety and environmental compliance, we will be able to maintain our leading market position.

    Maintain Financial Strength and Flexibility. We intend to maintain financial strength and flexibility so as to enable us to pursue acquisition opportunities as they arise. We will have access to approximately $200 million under our new credit facility for working capital and acquisitions, of which we anticipate approximately $149.2 million will be undrawn at completion of this offering.

Our Customers and Contracts

        The following table sets forth our top three customers and their respective percentages of our pro forma revenues for the year ended December 31, 2006:

Customer

  % of Total 2006 Pro Forma Revenue
   
   
 
Chevron   17.3 %        
Sunoco   10.2 %        
Marathon   10.1 %        

        Chevron, Sunoco and Marathon have each been doing business with us or our predecessor for more than 25 years and we also enjoy long relationships with many of our other customers.

        We transport crude oil and refined petroleum products for the leading integrated oil companies and independent refiners in accordance with the terms and conditions of a variety of maritime contracts, including fixed rate time charters, contracts of affreightment, consecutive-voyage charters and spot rate voyage charters. For 2006, approximately 73% of our pro forma revenues were from fixed rate contracts and the remaining 27% were from spot rate voyage charters. We allocate our contracts

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between fixed and spot in an effort to balance stable cash flows with the opportunity to maximize our earnings.

        We use the following four basic forms of maritime contract in performing services for our customers:

    Time Charters. Time charters are typically used by customers who want the exclusive use of a particular vessel for a set period of time, often for one or more years. We generate revenue under time charters by charging the customer a daily rate for use of the vessel. We pay expenses related to a vessel's operation and maintenance as well as the cost of the crew, stores and spares. Unlike the other types of maritime contracts described below, all voyage costs, such as port charges and fuel, are directly passed through to the customer under time charters.

    Contracts of Affreightment. Contracts of Affreightment (COAs) obligate us to transport certain volumes of product between specified points for a certain period of time, often with no designation of the specific vessel to be used. COAs give us greater flexibility in timing and scheduling our vessels, since no specific vessel designation is usually required. When choosing the vessel to perform the services, we take into account positioning and product carrying capacity.

    Consecutive Voyage Charters. Consecutive Voyage Charters (CVCs) are contracts whereby a customer agrees to use a particular vessel for a certain period of time to transport volumes of product between specified points, at a rate that is determined on a delivered-barrel basis. We bear the risk of delays under CVCs.

    Spot Voyage Charters. Spot Voyage Charters (SVCs) are single voyage charters that are contracted based on the current market rate. Spot voyage rates are more volatile than term rates for time charters and COAs. The charter revenue is based on a lump-sum fee to transport product from a load port to a discharge port. We bear the risk of waiting time and weather delays under SVCs.

Our COAs and CVCs contain clauses that take into account the effect of changes in fuel prices, which allows us to protect our margin against such changes.

Our Competition

        We face competition from other providers of transportation services who may be able to supply our customers with such services on a more competitive basis. We believe our competitors can be divided into the following categories:

    Jones Act Product Carriers and Barges. Our most direct competitors are the other operators of Jones Act product carriers and barges. Because of the restrictions imposed by the Jones Act, a finite number of vessels are currently eligible to engage in U.S. coastwise petroleum transport. We believe that more Jones Act tonnage will be retired due to OPA 90 than will be added in the period after 2010.

    Refined Product Pipelines. Existing refined product pipelines are the low cost provider of long-haul transportation of refined petroleum products. Other than the Colonial Pipeline system, which originates in Texas and terminates at New York Harbor, and the Plantation Pipeline, which originates in Louisiana and terminates in Washington, D.C., there are no pipelines carrying refined petroleum products to the major storage and distribution facilities we currently serve. We believe that high capital costs, tariff regulation and environmental opposition make it unlikely that a new refined product pipeline system will be built in the markets in which we operate in the near future and that it would take in excess of five years to obtain the necessary permits and complete construction of any new pipeline system.

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Our Fleet

        Our fleet consists of 18 U.S. flag product carriers and barges composed of ten product carriers, seven ATBs and one CTB with an aggregate carrying capacity of approximately 4.9 million barrels.

        We have:

    agreements to bareboat charter four newbuild product carriers from subsidiaries of Aker upon their delivery from the shipyard between late 2007 and early 2009;

    options to purchase from OSG up to six newbuild ATBs, upon their delivery from Bender between early 2008 and late 2010; and

    options to acquire from OSG the right to bareboat charter up to six newbuild product carriers from Aker, upon their delivery from the shipyard between 2009 and 2011.

        If we purchase and bareboat charter all of these newbuild vessels, and after adjusting for the phase out of the four single-hull vessels, our fleet will increase from 18 to 30 product carriers and barges and our aggregate carrying capacity will increase from 4.9 million to 8.8 million barrels. We believe that employing a fleet consisting of product carriers and ATBs allows us effectively to meet the requirements of various customers in a number of different markets.

    Initial Fleet at Time of This Offering

        Of the 18 U.S. flag vessels in our initial fleet, 16 operate in the Jones Act trade and two product carriers operate in the international market and participate in the Maritime Security Program (see "—Maritime Security Program"). These two product carriers are not eligible to operate in the Jones Act trade because they were not built in the United States.

        The majority of our initial fleet is double-hulled in terms of barrel-carrying capacity and meets the requirements of OPA 90.

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        The following table sets forth information concerning our initial fleet of ten product carriers, seven ATBs and one CTB:

 
   
  Cargo Capacity
   
   
   
 
Vessel Name

  Year Built /
Rebuilt

  Owned /
Bareboat-In
Expiration

   
  Charter-Out
Expiration

 
  DWT
  Barrels(1)
  Charterer(2)
 
Single-hulled Product Carriers                          
  Overseas Puget Sound   1983   50,860   356,000   Owned   Tesoro TC   Feb 2008(3 )
  Overseas New Orleans   1983   42,954   306,000   Oct 2011   CITGO TC   Jan 2008  
  S/R Galena Bay   1982   50,920   356,000   Owned   SeaRiver TC   Nov 2009  
  Overseas Philadelphia   1982   42,702   306,000   Nov 2011   Morgan Stanley TC   Jan 2008  

Double-hulled Product Carriers

 

 

 

 

 

 

 

 

 

 

 

 

 
  Overseas Diligence   1977   39,948   269,000   Owned   SVC    
  Overseas Integrity   1975   39,948   269,000   Owned   Sunoco COA   June 2008  
  Overseas Maremar   1998   47,225   315,000   Owned   SVC/COA   Jan 2008  
  Overseas Luxmar   1998   45,999   315,000   Owned   SVC/COA   Jan 2008  
  Overseas Houston   2007   46,000   324,000   Feb 2014(3)   Shell TC   Mar 2010(3 )
  Overseas Long Beach   2007   46,000   324,000   Jul 2014(3)   BP TC   Jul 2014(3 )

Double-hulled ATBs (Barge / Tug)

 

 

 

 

 

 

 

 

 

 

 

 

 
  M 209 / Enterprise   1980 / 2005   25,321   206,000   Owned   Marathon TC   Nov 2008  
  M 214 / Honour   1977 / 2004   25,860   207,000   Owned   Marathon TC   Nov 2008  
  M 254 / Intrepid   1970 / 2002   31,483   250,000   Owned   Valero TC   Aug 2010  
  M 252 / Navigator   1972 / 2002   31,069   250,000   Owned   Chevron CVC   May 2009  
  M 244 / Seafarer(5)   1971 / 2001   29,042   236,000   Owned   Chevron CVC   May 2009  
  OSG 242 / OSG Columbia   1981 / 2007   30,392   234,299   Owned   SVC    
  OSG 243 / OSG Independence(6)   1982 / Being
Retrofitted
  30,392   234,299   Owned   Being Retrofitted   N/A  

Double-hulled CTBs (Barge / Tug)

 

 

 

 

 

 

 

 

 

 

 

 

 
  M 192 / Freedom(7)   1979 / 1998   22,017   172,000   Owned   Sunoco TC   Aug 2008 (3)

(1)
Barrels at 98% capacity.

(2)
TC: Time Charter, COA: Contract of Affreightment, CVC: Consecutive Voyage Charter, SVC: Spot Voyage Charter.

(3)
Charter-Out expiration dates refer to end of the firm charter period. Charterer has option to extend for varying additional periods.

(4)
Bareboat-In expiration date shown is the expiration date of initial bareboat charter period (end of minimum commitment period). The term of each bareboat charter may be extended at our option for varying periods up to the entire useful life of the vessel.

(5)
Upon delivery of our new 8,000 horsepower tug Hull 8016, we plan to sell Seafarer.

(6)
This ATB is currently undergoing expansion and conversion to double-hull configuration and is scheduled to re-enter service in January 2008.

(7)
Upon delivery of our new 8,000 horsepower tug Hull 8015, we plan to sell Freedom.

    Newbuilds

        In connection with this offering OSG will contribute to us, without any further obligation to OSG, the membership interests in subsidiaries that have entered into bareboat charters for four Jones Act product carriers to be constructed by Aker Philadelphia Shipyard, Inc. (APSI), a subsidiary of Aker, and scheduled for delivery between late 2007 and early 2009, and subsidiaries that have entered into shipbuilding contracts with Bender for the construction of two tugs. With respect to the four product

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carriers we are committed to bareboat charter from Aker, we are only required to pay charter hire once the product carriers have been delivered. Please read "—Bareboat Charters from Aker of Our Newbuilds." With respect to the tugs we are committed to purchase, we will be responsible for all remaining payments due under the shipbuilding contracts, which we expect will be approximately $25 million.

        The following table sets forth information concerning the four newbuild product carriers under construction by Aker that we have agreed to bareboat charter from subsidiaries of Aker and two tugs under construction by Bender that we have agreed to acquire, which will replace two older tugs currently included in our initial fleet shown above.

 
   
  Cargo Capacity
   
   
   
Vessel Name

  Expected
Delivery Date

  Owned /
Bareboat-In
Expiration

   
  Charter-Out
Expiration

  DWT
  Barrels
  Charterer(1)
Double-hulled Product Carriers                        
  Overseas Los Angeles   2007   46,000   324,000   Nov 2014(2)   BP TC   Oct 2014(3)
  Overseas New York   2008   46,000   324,000   Apr 2015(2)   Shell TC   Apr 2011(3)
  Overseas Texas City   2008   46,000   324,000   Sep 2015(2)   BP TC   Sep 2011(3)
  Overseas Boston   2009   46,000   324,000   Jan 2014(2)   Tesoro TC   Jan 2012(3)

8,000 Horsepower Tugs

 

 

 

 

 

 

 

 

 

 

 

 
  Hull 8015   2008                    
  Hull 8016   2009                    

(1)
TC: Time Charter, COA: Contract of Affreightment, CVC: Consecutive Voyage Charter, SVC: Spot Voyage Charter.

(2)
Bareboat-In expiration date shown is the expiration date of initial bareboat charter period (end of minimum commitment period). The term of each bareboat charter may be extended at our option for varying periods up to the entire useful life of the vessel.

(3)
Charter-Out expiration dates refer to end of the firm charter period. Charterer has option to extend for varying additional periods.

    Optional Vessels

        Pursuant to our omnibus agreement with OSG, we have options to purchase up to six newbuild ATBs scheduled for delivery from Bender between early 2008 and late 2010 and to acquire from OSG the right to bareboat charter up to six newbuild product carriers from Aker, scheduled for delivery between 2009 and 2011. Please read "Certain Relationships and Related Party Transactions—Omnibus Agreement—Options to Acquire Additional Jones Act Product Carriers and Barges." The following

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table sets forth information concerning the six newbuild ATBs for which we have options to purchase and six newbuild product carriers for which we have options to bareboat charter:

 
  Cargo Capacity
   
   
   
   
Vessel Name

  Scheduled
Delivery

  Owned/
Bareboat-In
Expiration

   
  Charter-Out
Expiration

  DWT
  Barrels
  Charterer(1)
On Order                        
Double-hulled Product Carriers                        
  Overseas Nikiski   46,000   324,000   2009   May 2014(2)   Tesoro TC   May 2017(3)
  Overseas Tampa   46,000   324,000   2009   Sep 2014(2)    
  Overseas Port Arthur   46,000   324,000   2010   Jan 2015(2)   Tesoro TC   Jan 2013(3)
  Overseas Jacksonville   46,000   324,000   2010   May 2015(2)   Tesoro TC   May 2013(3)
  Aker Hull 015   46,000   324,000   2010   Nov 2020    
  Aker Hull 016   46,000   324,000   2011   Mar 2021    

Double-hulled ATBs (Barge / Tug)

 

 

 

 

 

 

 

 

 

 

 

 
  OSG 350 / OSG Vision   55,000   347,000   2008   Owned   Sunoco COA   Feb 2018
  OSG 351 / OSG Quest   55,000   347,000   2008   Owned   Sunoco COA   Feb 2018
  OSG 352 / OSG Horizon   55,000   347,000   2009   Owned   Sunoco COA   Feb 2018
  Bender Hull 8130 / 8131   48,000   290,000   2009   Owned    
  Bender Hull 8140 / 8141   48,000   290,000   2010   Owned    
  Bender Hull 8150 / 8151   48,000   290,000   2010   Owned    

(1)
TC: Time Charter, COA: Contract of Affreightment, CVC: Consecutive Voyage Charter, SVC: Spot Voyage Charter.

(2)
Bareboat-In expiration date shown is the expiration date of initial bareboat charter period (end of minimum commitment period). The term of each bareboat charter may be extended at our option for varying periods for up to the entire useful life of the vessel.

(3)
Charter-Out expiration dates refer to end of the term charter period. Charterer has option to extend for varying additional periods.

Bareboat Charters from Aker of Our Newbuilds

    General

        We believe that employing a fleet of both owned and bareboat chartered vessels provides us operational and financial flexibility. Our vessels that are bareboat chartered provide us with several advantages including:

    they do not require any initial capital investment and the bareboat hire payments commence only when the vessels have been delivered to us, thus allowing us to maintain a more conservative capital structure and to generate higher returns on capital for our unitholders;

    they provide us with significant choices and flexibility through our unlimited options to extend the term of the charter;

    they allow us to control the size of our fleet to optimize utilization of our vessels;

    they provide us the opportunity to upgrade our fleet, as more technologically advanced vessels are constructed.

        In June 2005, OSG entered into bareboat charters for ten Jones Act product carriers to be constructed by APSI and scheduled for delivery between 2007 and 2010. In February 2007, OSG agreed in principle to bareboat charter up to six additional Jones Act product carriers scheduled for delivery between 2010 and 2011.

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        Upon completion of construction, APSI will transfer the vessels to leasing subsidiaries of American Shipping Corporation, an affiliate of APSI, that will bareboat charter the first six vessels to us and the subsequent six vessels to OSG. We have options to acquire from OSG the right to bareboat charter up to all six of these latter vessels.

    Terms of the Bareboat Charters

        Under these bareboat charters, we are required to pay charter hire on a "hell-or-high-water" basis. This means that, except in the case of an "Event of Loss" as defined in the bareboat charter, we will be required to pay the agreed bareboat charter hire whether or not the vessel is available to us for charter to our customers. In addition, we will be responsible for the cost of all operating costs, including the cost of repairs, maintenance, drydocking, spares, stores, hull and machinery insurance, war risk insurance and protection and indemnity insurance coverage for each vessel for the benefit of the owner and its lenders.

        For the vessels that we are committed to bareboat charter, we have the right to extend the initial five or seven year terms of the bareboat charters an unlimited number of times for periods of one, three or five years upon 12 months' advance notice, provided, however, that our right to a one-year extension may only be exercised once.

        The bareboat charter rate for each option period is subject to increase based upon the increase, if any, in the interest rate payable by Aker for its financing for the vessels above a stated amount.

    Profit Sharing

        We have time chartered out the vessels we have bareboat chartered-in from Aker to an entity owned by us and Aker. Pursuant to the ownership structure of the jointly-owned entity, we and Aker share profits earned by the Aker vessels after payment of bareboat charter hire. This profit-sharing arrangement may require us to make additional payments to Aker, calculated on a calendar year basis, based upon our operating profits of each individual vessel.

    Pooling Agreement

        We are party to a pooling agreement with OSG and Aker under which the revenues from all Jones Act product carriers operated by OSG and us within the pool are allocated among pool members according to a formula that gives effect to each vessel's carrying capacity, speed and fuel consumption. The pooling arrangement was established to eliminate any conflict of interest that might arise from OSG commercially managing vessels from which it earns all the profit and vessels from which it shares the profit, such as the vessels bareboat chartered from Aker. Because we bareboat charter the vessels owned by Aker, we are subject to this pooling agreement.

    Aker's Debt and Deferred Principal Obligation

        Under the bareboat charters for the first ten vessels to be delivered from Aker, the bareboat charterer has the right to help Aker improve the terms of its debt financing for the vessels, including without limitation, by reducing the interest rate or extending the principal amortization schedule and, if successful, to reap the benefit through a reduced bareboat charter rate during the initial five or seven year term. If the bareboat charterer exercises an option to extend the term of the bareboat charter, the bareboat charterer has the right to help Aker again improve the terms of its debt financing for the vessels and, if successful, to reap the benefit through a reduced bareboat charter rate.

        To the extent that a longer principal amortization schedule results in an increased amount of debt outstanding at the end of the initial five or seven year terms, a Deferred Principal Obligation (DPO) is created in the form of an interest-bearing obligation to be amortized in equal quarterly installments

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over the remaining useful life of the vessel and added to the bareboat charter hire paid. Additional profit sharing earned by Aker will reduce the DPO dollar for dollar during the term (both initial and optional periods) of the bareboat charters. If the charterer fails to renew the bareboat charter, the remaining DPO becomes payable upon redelivery of the vessel.

Maritime Security Program (MSP)

        The Maritime Administration of the Department of Transportation administers the Maritime Security Program (MSP), which is intended to support the operation of up to 60 U.S. flag vessels in the foreign commerce of the United States to make available a fleet of active, commercially viable, privately owned vessels to the Department of Defense during times of war or national emergency.

        Payments are made under the MSP to vessel operators, including OSG and us, to help offset the high cost of employing a U.S. crew. These payments equal $2.6 million per ship per year for 2007 and 2008, $2.9 million per ship per year for 2009 through 2011 and $3.1 million per ship per year for 2012 through 2015.

        We own and operate two foreign-built product carriers, the Overseas Maremar and Overseas Luxmar, that are entered in the MSP. These two product carriers are not eligible to operate in the Jones Act trade because they were not built in the United States.

Management of Ship Operations, Administration and Safety

        OSG provides to us, through its subsidiary OSG Ship Management, Inc. (OSGM), expertise that allows for the safe, efficient and cost-effective operation for our vessels. Pursuant to a management agreement and an administrative services agreement to be entered into with OSGM in connection with the completion of this offering, we will have access to:

    Human resources, financial and other administrative functions, including:

    bookkeeping, audit and accounting services;

    administrative and clerical services;

    banking and financial services; and

    client and investor relations services.

    Technical and commercial management services including:

    commercial management of our vessels;

    vessel maintenance and crewing;

    purchasing and insurance; and

    shipyard supervision.

        For more information on the management and administrative services agreements we have with OSGM, please read "Certain Relationships and Related Party Transactions—Management Agreement" and "Certain Relationships and Related Party Transactions—Administrative Services Agreement."

Our Investment in Alaska Tanker Company, LLC

        We own a 37.5% interest in Alaska Tanker Company, LLC (ATC). ATC is a joint venture that was formed in 1999 by OSG, Keystone Shipping Company and BP Shipping USA to consolidate the management of BP's Alaskan crude oil shipping operations. As a result, ATC has the exclusive right to transport all of BP's Alaskan oil and natural gas. ATC currently operates five crude-oil tankers that transport Alaskan crude oil for BP from the Trans Alaska Pipeline terminus in Valdez, Alaska to a

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number of refineries on the West Coast. Four of these vessels are 185,000 dwt "Alaska Class" tankers, which were purpose-built for the Alaska crude trade by NASSCO between 2004 and 2006. These four vessels have double-hulls and redundant propulsion and steering systems. ATC is time chartering these four vessels to BP until 2023. The fifth vessel is a double-hulled crude-oil tanker of 125,000 dwt that was built in 1979 and is subject to a time charter to BP expiring at the end of 2011.

        The time charter revenue ATC receives under each time charter is equal to the sum of:

    the bareboat hire it pays to the vessel owner;

    the actual vessel operating costs it incurs;

    full reimbursement of actual overhead expenses as allocated on a per-vessel basis; and

    incentive hire for the achievement of certain operational and safety benchmarks.

        The incentive hire earned by ATC effectively constitutes its net income and is distributed to its members, based upon their ownership interest in ATC, once a year in the first quarter of the subsequent year. The dividend paid to members in respect of the year ended December 31, 2006, was $18,159,823.

Fleet Maintenance

        OSGM will manage our fleet, which is required to comply with U.S. Coast Guard and American Bureau of Shipping (ABS) regulations and rules. The U.S. Coast Guard is responsible for flag-state control and has established minimum inspection and repair guidelines for U.S. flag vessels. We drydock our vessels twice every five years. Prior to each drydock, we develop an extensive repair and capital improvement plan and the vessel's shoreside management and crew are charged with executing the plan during the drydock. The U.S. Coast Guard and ABS complete standard inspections during each drydocking to insure that the vessel meets all regulatory requirements prior to issuing new certificates.

        OSGM uses a computerized preventative maintenance program that is based on original equipment manufacturer and industry-accepted standards to develop maintenance plans for our vessels based on input from the vessel crew and shoreside management. Our vessel crews perform regularly scheduled condition assessments and inspections which are documented and transmitted to shoreside staff to be used in developing maintenance schedules for our vessels. Work orders for vessel maintenance are generated, tracked and documented. The vessel captain and shoreside staff are responsible for ensuring that the vessel is properly maintained.

        OSGM is an ISO 9002 certified company that maintains a very extensive maintenance program based on manufacturers' recommendations, condition monitoring and inspection. The ISO process provides the necessary feedback to assure that corrective actions are taken when system weaknesses are found. OSGM's computerized maintenance system assures appropriate tracking of all maintenance requirements. These processes, combined with an experienced shore and ship staff, provide a solid foundation for long term vessel operations conducted in accordance with the highest standards.

        For main engine and generator maintenance, manufacturers' recommendations provide the basis of all inspections and repairs. In certain circumstances, the time periods recommended by the manufacturer may be extended to reflect more closely the actual performance of an engine. During each inspection of an engine, critical measurements are taken to determine the need for parts replacements and only manufacturer recommended spares are used. The engine governors are also overhauled on a schedule to reduce the likelihood of failure.

        Fuel analysis, vibration monitoring, lubrication oil testing and infrared inspection are the core components of our condition monitoring program. Each of these components provides information about the condition of each piece of machinery and allows intelligent maintenance decisions to be made to help to assure machinery reliability.

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        Structural integrity and maintenance is accomplished by annual inspection of all tanks by vessel personnel while the vessel is operating. This is supplemented by inspections using structural and coating specialists employed by OSGM when the vessel is drydocked. These inspections are used for long range planning purposes to assure that all tank coatings are properly maintained to prevent excessive corrosion. If anodes are required, they are considered an integral part of our ballast tank coating systems and are monitored and maintained to minimize coating failure.

        To assure that the maintenance requirements as outlined above are properly implemented, formal reporting and tracking procedures (which are part of OSGM's computerized maintenance system) provide the shore staff with the necessary information to make informed decisions and assure compliance with this program. This system, combined with vessel visitations by our superintendents to confirm that our systems are being properly implemented, provides us with the assurance that the vessel can be maintained at a high state of operational readiness for many years.

Safety

    General

        OSGM is responsible for managing our health and safety programs. OSGM is committed to operating our vessels in a manner that protects the safety and health of our employees, the general public and the environment. Its primary goal is to minimize the number of safety and health related accidents involving our vessels and considerable effort is devoted to avoiding personal injuries and reducing occupational health hazards and preventing accidents that may cause damage to our personnel, equipment or the environment. OSGM is committed to reducing harmful emissions from our vessels and to the safe management of waste generated by cargo residues and tank cleaning.

        OSGM's policy is to follow all applicable laws and regulations and actively participate with government, trade organizations and the public in creating responsible laws, regulations and standards to safeguard the workplace, the community and the environment. OSGM identifies areas that may require special training, including new initiatives that are evolving within the industry. Its Marine Personnel department is responsible for all training, whether conducted in-house or at an independent training facility.

    Vessel Characteristics

        All of our vessels are subject to U.S. Coast Guard inspection and classification by the ABS. In addition, air quality regulations require our vessels to be fitted to prevent the release of any fumes or vapors into the atmosphere. Each of our product carriers and barges that transports refined petroleum products has been outfitted with a vapor recovery system that connects the cargo tanks to the shore terminal via pipe and hose to return to the plant the vapors generated while loading. Our product carriers and barges have alarms that indicate when the tank is full (98% of capacity) in order to alert the operator of the risk of overfilling one or more tanks.

    Safety Management Systems

        OSGM has developed and implemented a Safety Management System (SMS) for our entire fleet that incorporates the requirements of the International Safety Management (ISM) system and the American Waterways Operators Responsible Carrier Program. The SMS is designed to be a framework for continuously improving our operational and safety performance by incorporating industry best practices in the areas of management and administration and equipment and inspection. The program is designed to complement and expand on existing governmental regulations requiring, in many instances, that our safety and training standards exceed those required by federal law or regulation.

        All of our vessels are currently certified under the standards of the ISM system. The ISM standards were promulgated by the International Maritime Organization (IMO) several years ago and have been adopted through treaty by many IMO member countries, including the United States.

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Major Oil Company Vetting Process

        Shipping, especially the carriage of crude oil and refined petroleum product carriers and barges operating in the Jones Act trade, has been, and will remain heavily regulated by the federal government, the IMO and classification societies such as ABS. Furthermore, concerns for the environment and public image have led the major oil companies to develop and implement a strict due diligence process when selecting their commercial shipping partners to ensure risk exposure is managed using pre-defined acceptance criteria. The vetting process has therefore evolved into a sophisticated and comprehensive assessment of both the vessel and the vessel operator.

        While numerous factors are considered and evaluated prior to a commercial decision, major oil companies through their association, Oil Companies International Marine Forum (OCIMF), have developed and implemented two basic tools: a Ship Inspection Report Program (SIRE) and the Tanker Management & Self Assessment (TMSA) Program.

        The SIRE ship inspection process is based upon a thorough vessel inspection performed by accredited OCIMF inspectors, resulting in a report being generated and available for viewing by all OCIMF members. The report is an important element of the ship evaluation undertaken by any major oil company when a commercial need exists.

        The TMSA Program, a recent addition to the risk assessment tools used by major oil companies, is composed of a set of key performance indicators against which a tanker management company must self assess their compliance and submit the results to the major oil companies for their evaluation. The tanker management company is expected to develop a comprehensive plan for full compliance with both the key performance indicators and the best practices identified in the TMSA Program. Major oil companies will then use the submitted results as a baseline when performing management audits to determine if the tanker management company is in fact operating in accordance with expectations.

        Based upon commercial needs, there are three levels of assessment used by the major oil companies: (1) terminal use, which will clear a vessel to call at one of the major oil company's terminals; (2) voyage charter, which will clear the vessel for a single voyage; and (3) term charter, which will clear the vessel for use for an extended period of time. The depth, complexity and difficulty of each of these levels of assessment vary.

        While for the terminal use and voyage charter relationships a ship inspection and the operator's TMSA will be sufficient for the major oil company's assessment, a term charter relationship might also require a thorough office audit. The major oil company will then review SIRE reports and TMSA submissions, as well as the vessel's status with the U.S. Coast Guard and the ABS.

        OSG and OSGM have undergone and successfully completed numerous audits by major international oil companies in the past and we are well positioned to be a carrier of choice in the Jones Act trade.

Classification, Inspection and Certification

        In accordance with standard industry practice, all of our vessels have been certified as being "in-class" by ABS. ABS is one of several internationally recognized classification societies that inspect vessels at regularly scheduled intervals to ensure compliance with structural standards and certain applicable safety regulations. Most insurance underwriters require an "in-class" certification by a classification society before they will extend coverage to a coastwise vessel. The classification society certifies that the pertinent vessel has been built and maintained in accordance with the rules of the society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. Inspections are conducted on our vessels by a surveyor of the classification society in three types of surveys of varying frequency and thoroughness: (1) annual surveys, (2) an intermediate survey every two to three years, and (3) a special

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survey every four to five years. As part of the intermediate survey, a vessel may be required to be drydocked every 24 to 30 months for inspection of its underwater parts and for any necessary repair work related to such inspection.

        Our vessels are also inspected at periodic intervals by the U.S. Coast Guard to ensure compliance with federal safety and security regulations. All of our vessels carry Certificates of Inspection issued by the U.S. Coast Guard.

        Our vessels and shoreside operations are also inspected and audited periodically by our customers, in some cases as a precondition to chartering our vessels. We maintain all necessary approvals required for our vessels to operate in their normal U.S. coastwise trade. We believe that the high quality of our vessels, our crews and our shoreside staff are advantages when competing against other vessel operators.

Insurance and Risk Management

        We believe that OSGM has arranged for adequate insurance coverage to protect against the accident-related risks involved in the conduct of our business and risks of liability for environmental damage and pollution, consistent with industry practice. We cannot assure you, however, that all risks are adequately insured against, that any particular claims will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.

        Our hull and machinery insurance covers risks of actual or constructive loss from collision, fire, grounding, engine breakdown and other casualties up to an agreed value per vessel. Our war-risks insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks. Our commercial loss-of-hire insurance policy covers us for loss of revenue during extended vessel off-hire periods due to casualties covered by our hull and machinery coverage. We believe that this type of coverage reduces our exposure to large drops in revenue due to catastrophic events.

        Our protection and indemnity insurance covers third-party liabilities and other related expenses from, among other things, injury or death of crew, passengers and other third parties, claims arising from collisions, damage to cargo, damage to third-party property, asbestos exposure and pollution arising from oil or other substances. Our current protection and indemnity insurance coverage for pollution is $1 billion per incident and is provided by the UK Club and GARD, each of which is a member of the International Group of P&I Clubs. The protection and indemnity mutual assurance associations that comprise the International Group of P&I Clubs insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Each protection and indemnity association has capped its exposure to this pooling agreement at approximately $5.45 billion per non-pollution incident. As a member of the UK Club and GARD, we are subject to periodic assessments payable to the associations based on our claims record, as well as the claims record of all other members of the individual associations and members of the UK Club and GARD.

Regulation

        Our operations are subject to significant international, federal, state and local regulation, the principal provisions of which are described below.

    Coastwise Laws

        Our operations are conducted in the U.S. domestic trade and governed by the coastwise laws of the United States, which we refer to in this prospectus as the Jones Act. The Jones Act restricts marine transportation between points in the United States to vessels built in and documented under the laws

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of the United States (U.S. flag) and owned and manned by U.S. citizens. Generally, an entity is deemed a U.S. citizen for these purposes so long as:

    it is organized under the laws of the United States or of a state;

    its chief executive officer, by whatever title, its chairman of its board of directors and all persons authorized to act in the absence or disability of such persons are U.S. citizens;

    no more than a minority of the number of its directors (or equivalent persons) necessary to constitute a quorum are non-U.S. citizens;

    at least 75% of the stock or equity interest and voting power in the entity is beneficially owned by U.S. citizens free of any trust, fiduciary arrangement or other agreement, arrangement or understanding whereby voting power may be exercised directly or indirectly by non-U.S. citizens; and

    in the case of a limited partnership, the general partner meets U.S. citizenship requirements for U.S. coastwise trade.

        Because we could lose our privilege of operating our vessels in the Jones Act trade if non-U.S. citizens were to own or control in excess of 25% of our outstanding partnership interests, our partnership agreement restricts foreign ownership and control of our partnership interests to not more than a fixed percentage (currently 15%), which is ten percentage points less than the percentage that would prevent us from being a U.S. citizen for purposes of the Jones Act.

        There have been repeated efforts to repeal or significantly change the Jones Act. In addition, the U.S. government recently granted limited short-term waivers to the Jones Act following Hurricanes Katrina and Rita, which allowed foreign vessels to operate in the Jones Act trade. Although we believe it is unlikely that the Jones Act will be substantially modified or repealed, there can be no assurance that Congress will not substantially modify or repeal such laws.

    Environmental

        Government environmental regulation significantly affects the ownership and operation of our vessels. Our vessels are subject to international conventions, federal, state and local laws and regulations relating to safety and health and environmental protection, including the generation, storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials. We have incurred, and will continue to incur, substantial costs to meet environmental requirements. Although we believe that we are in substantial compliance with applicable safety and health and environmental laws and regulations, we cannot predict the ultimate cost of complying with these requirements or the impact of these requirements on the resale value or useful lives of our vessels. The recent trend in environmental legislation is toward more stringent requirements and we believe this trend will continue. In addition, a future serious marine incident occurring in U.S. or international waters that results in significant oil pollution or otherwise causes significant environmental impact could result in additional legislation or regulation.

        Various governmental and quasi-governmental agencies require us to obtain permits, licenses and certificates for the operation of our vessels. While we believe that we have all permits, licenses and certificates necessary for the conduct of our operations, frequently changing and increasingly stringent requirements, future non-compliance or failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels.

        We maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our crews and officers, care for the environment and compliance with U.S. regulations. Our vessels are subject to both scheduled and unscheduled inspections by a variety of governmental and private entities, each of which may have unique requirements. These

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entities include the local port authorities (U.S. Coast Guard or other port authorities), classification societies and charterers, particularly terminal operators and oil companies.

        We manage our exposure to losses from potential discharges of pollutants through the use of well maintained, managed and equipped vessels, a comprehensive safety and environmental program, including a maritime compliance program, and our insurance program. Moreover, we believe we will be able to accommodate reasonably foreseeable environmental regulatory changes. However, the risks of substantial costs, liabilities and penalties are inherent in marine operations, including potential criminal prosecution and civil penalties for discharge of pollutants. As a result, there can be no assurance that any new regulations or requirements or any discharge of pollutants by us will not have a material adverse effect on us.

        The Oil Pollution Act of 1990.    The Oil Pollution Act of 1990 (OPA 90) established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA 90 affects all vessels trading in U.S. waters, including the exclusive economic zone extending 200 miles seaward. OPA 90 sets forth various technical and operating requirements for vessels operating in U.S. waters. In general, all newly-built or converted vessels carrying crude oil and petroleum-based products in U.S. waters must be built with double hulls. Existing single-hulled, double-sided or double-bottomed vessels must be phased out of service by 2015 based on their tonnage and age. Our double-hull ATBs were successfully rebuilt to comply with OPA 90 using OSG's patented double-hulling process. The majority of our current fleet is double-hulled in terms of barrel-carrying capacity. Our four non-double hull product carriers are due to be phased out under OPA 90 according to the following schedule:

Vessel Name

  OPA 90 Retrofit/Phase-Out Date
Overseas Philadelphia   May, 2012
S/R Galena Bay   October, 2012
Overseas Puget Sound   May, 2013
Overseas New Orleans   June, 2013

        Our bareboat charters for Overseas New Orleans and Overseas Philadelphia expire in October 2011 and November 2011, respectively, at which time we plan to return these product carriers to their owner because they are poor candidates for retrofitting due to their size and single-hull configuration. While the remaining two vessels, Overseas Puget Soundand S/R Galena Bay, are better candidates for retrofitting because they are larger and have double-bottoms, we have not decided whether to double-hull these vessels. We will base our final decision on the cost of shipyard work for retrofitting these vessels, market conditions, charter rates, the availability and cost of financing and other customary factors governing investment decisions.

        Under OPA 90, owners or operators of vessels operating in U.S. waters must file vessel spill response plans with the U.S. Coast Guard and operate in compliance with these plans. These vessel response plans must, among other things:

    address a "worst case" scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources;

    describe crew training and drills; and

    identify a qualified individual with specific authority and responsibility to implement removal actions in the event of an oil spill.

        Our vessel response plans have been accepted by the U.S. Coast Guard and all of our vessel crew members and spill management team personnel have been trained to comply with these guidelines. In addition, we conduct regular oil-spill response drills in accordance with the guidelines set out in OPA 90. We believe that all of our vessels are in substantial compliance with OPA 90.

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        Environmental Spill and Release Liability.    OPA 90 and various state laws have substantially increased the statutory liability of owners and operators of vessels for the discharge or substantial threat of a discharge of petroleum and the resulting damages, both as to the limits of liability and the scope of damages. OPA 90 imposes joint and several strict liability on responsible parties, including owners, operators and bareboat charterers, for all containment and clean-up costs and other damages arising from spills attributable to their vessels. A complete defense is available only when the responsible party establishes that it exercised due care and took precautions against foreseeable acts or omissions of third parties and when the spill is caused solely by an act of God, act of war (including civil war and insurrection) or a third party other than an employee or agent or party in a contractual relationship with the responsible party. These limited defenses may be lost if the responsible party fails to report the incident or reasonably cooperate with the appropriate authorities or refuses to comply with an order concerning clean-up activities. Even if the spill is caused solely by a third party, the owner or operator must pay removal costs and damage claims and then seek reimbursement from the third party or the trust fund established under OPA 90. Finally, in certain circumstances involving oil spills from vessels, OPA 90 and other environmental laws may impose criminal liability on personnel and the corporate entity.

        OPA 90 previously limited the liability of each responsible party for a product carrier or barge that is over 3,000 gross tons to the greater of $1,200 per gross ton or $10 million per discharge. However, amendments to OPA 90 signed into law on July 11, 2006 increased these limits on the liability of responsible parties to the greater of $1,900 per gross ton or $16 million per double-hull product carrier or barge that is over 3,000 gross tons. This limit does not apply where the spill is caused by gross negligence or willful misconduct of, or a violation of an applicable federal safety, construction or operating regulation by, a responsible party or its agent or employee or a person acting pursuant to a contractual relationship with the responsible party. The right to limitation will also be lost if the responsible party fails to report an oil spill, fails to cooperate with governmental authorities in spill removal efforts or fails to comply with a governmental spill removal order.

        In addition to removal costs, OPA 90 provides for recovery of damages, including:

    natural resource damages and related assessment costs;

    real and personal property damages;

    net loss of taxes, royalties, rents, fees and other lost revenues;

    net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards;

    loss of profits or impairment of earning capacity due to the injury, destruction or loss of real property, personal property and natural resources; and

    loss of subsistence use of natural resources.

        OPA 90 imposes financial responsibility requirements for petroleum product carriers and barges operating in U.S. waters and requires owners and operators of such vessels to establish and maintain with the U.S. Coast Guard evidence of their financial responsibility sufficient to meet their potential liabilities, as discussed below. Under the regulations, we may satisfy these requirements through evidence of insurance, a surety bond, a guarantee, letter of credit, qualification as a self-insurer or other evidence of financial responsibility. We have received certificates of financial responsibility from the U.S. Coast Guard for all of our vessels subject to this requirement.

        OPA 90 expressly provides that individual states are entitled to enforce their own pollution liability laws, even if imposing greater liability than OPA 90. There is no uniform liability scheme among the states. Some states have schemes similar to OPA 90 for limiting liability to various amounts, while some rely on common law fault-based remedies and others impose strict and/or unlimited liability on an

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owner or operator. Virtually all coastal states have enacted their own pollution prevention, liability and response laws, whether statutory or through court decisions, with many providing for some form of unlimited liability. We believe that the liability provisions of OPA 90 and similar state laws have greatly expanded potential liability in the event of an oil spill, even when the vessel owner or operator is not at fault. Some states have also established their own requirements for financial responsibility.

        We are also subject to potential liability arising under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which applies to the discharge of hazardous substances (other than petroleum), whether on land or at sea. Specifically, CERCLA provides for liability of owners and operators of vessels for cleanup and removal of hazardous substances and provides for additional penalties in connection with environmental damage. Liability under CERCLA for releases of hazardous substances from vessels is limited to the greater of $300 per gross ton or $5 million per discharge unless attributable to willful misconduct or neglect, a violation of applicable standards or rules or upon failure to provide reasonable cooperation and assistance, in which case liability is unlimited. CERCLA liability for releases from facilities other than vessels is generally unlimited.

        We are required by the U.S. Coast Guard to show proof of insurance, surety bond, guarantee, letter of credit, self insurance or other evidence of financial responsibility to pay damages under OPA 90 and CERCLA in the amount of $1,500 per gross ton for vessels, consisting of the sum of the previous OPA 90 liability limit of $1,200 per gross ton and the CERCLA liability limit of $300 per gross ton. We have satisfied these requirements and obtained a U.S. Coast Guard certificate of financial responsibility for all of our vessels. The U.S. Coast Guard has indicated, however, that it intends to propose a rule that will increase the amount of required evidence of financial responsibility to $2,200 per gross ton, to reflect the increase in liability limits under OPA 90, as described above. In addition, OPA 90 and CERCLA each preserve the right to recover damages under other existing laws, including maritime tort law.

        Water Discharges.    The federal Water Pollution Control Act, also referred to as the Clean Water Act, prohibits the discharge of oil or hazardous substances in U.S. navigable waters without a permit 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 relating to such discharges and complements the remedies available under the more recent OPA 90 and CERCLA, discussed above. The Environmental Protection Agency (EPA) historically 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 vessel discharges by that date. The EPA has appealed this decision. However, if the exemption is ultimately repealed, we would be subject to Clean Water Act permit requirements that could include ballast water treatment obligations, which would increase the cost of our operations. For example, this could require the installation of costly 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.

        Solid Waste.    Our operations occasionally generate and require the transportation, treatment and disposal of both hazardous and non-hazardous solid wastes that are subject to the requirements of the federal Resource Conservation and Recovery Act (RCRA) and comparable state and local requirements. In August 1998, the EPA added four petroleum refining wastes to the list of RCRA hazardous wastes. In addition, in the course of our vessel operations, we engage contractors to remove and dispose of waste material, including tank residue. In the event that such waste is found to be "hazardous" under either RCRA or the Clean Water Act and is disposed of in violation of applicable

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law, we could be found jointly and severally liable for the cleanup costs and any resulting damages. Finally, the EPA does not currently classify "used oil" as "hazardous waste," provided certain recycling standards are met. However, some states in which we pick up or deliver cargo have classified "used oil" as "hazardous" under state laws patterned after RCRA. The cost of managing wastes generated by vessel operations has increased in recent years under stricter state and federal standards. Additionally, from time to time we arrange for the disposal of hazardous waste or hazardous substances at offsite disposal facilities. If such materials are improperly disposed of by third parties, we might still be liable for clean up costs under CERCLA or the equivalent state laws.

        Air Emissions.    The Clean Air Act of 1970 (CAA) as amended, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Each of our product carriers and barges operating in the transport of clean oil has been outfitted with a vapor recovery system that satisfies these requirements. In addition, in December 1999 the EPA issued a final rule regarding emissions standards for marine diesel engines. The final rule applies emissions standards to new engines beginning with the 2004 model year. In the preamble to the final rule, the EPA noted that it may revisit the application of emissions standards to rebuilt or remanufactured engines if the industry does not take steps to introduce new pollution control technologies. Finally, the EPA recently entered into a settlement that will expand this rulemaking to include certain large diesel engines not previously addressed in the final rule. Adoption of such standards could require modifications to some existing marine diesel engines and may require us to incur material capital expenditures.

        Lightering activities in Delaware are subject to Title V of the CAA. We are the only marine operator with a Title V permit to engage in lightering operations in Delaware. The State of Delaware is in non-compliance with EPA requirements for volatile organic compounds (VOCs) and we are the State of Delaware's largest single source of VOCs. The Delaware Department of Natural Resources and Environment Control (DNREC) is currently engaged in rulemaking to address emissions of VOCs from lightering operations and OSGM is working closely with DNREC to craft regulations that reduce emissions. In cooperation with DNREC, we have engaged in a pilot project involving vapor balancing between our product carrier Overseas Integrity and a "ship to be lightered." In addition, we continue to evaluate other vapor reduction techniques and OSG has incorporated vapor reduction technologies in the design of three new ATBs that we have the option to purchase.

        The CAA also requires states to draft State Implementation Plans (SIPs) designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Where states fail to present approvable SIPs or SIP revisions by certain statutory deadlines, the federal government is required to draft a Federal Implementation Plan. Several SIPs regulate emissions resulting from barge loading and degassing operations by requiring the installation of vapor control equipment. As stated above, our vessels are already equipped with vapor control systems that satisfy these requirements. Although a risk exists that new regulations could require significant capital expenditures and otherwise increase our costs, we believe, based upon the regulations that have been proposed to date, that no material capital expenditures beyond those currently contemplated and no material increase in costs are likely to be required as a result of the SIPs program.

        In addition, in September 1997 the IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships to address air pollution from ships. Annex VI was ratified in May 2004 and became effective in May 2005. Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from vessel exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. We believe that all of our vessels are currently compliant in all material respects with these requirements. Annex VI also includes a global cap on the sulphur content of fuel oil and allows for special areas to be established with more stringent controls on sulphur emissions.

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    Workplace Injury Liability

        The Supreme Court has ruled that application of state workers' compensation statutes to maritime workers is unconstitutional. Injuries to maritime workers are therefore covered by the Jones Act, a separate statute that regulates the U.S. coastwise trade. The Jones Act permits seamen to sue their employers for job-related injuries. In addition, seamen may sue for work-related injuries under the maritime law doctrine of unseaworthiness. Because we are not generally protected by the limits imposed by state workers' compensation statutes, we potentially have greater exposure for claims made by these employees as compared to employers whose employees are covered by state workers' compensation laws.

    Occupational Safety and Health Regulations

        Our vessel operations are subject to occupational safety and health regulations issued by the U.S. Coast Guard. These regulations currently require us to perform monitoring, medical testing and recordkeeping with respect to personnel engaged in the handling of the various cargoes transported by our vessels. We believe we are currently in compliance in all material respects with such occupational safety and health requirements.

    Security

        In 2002, Congress passed the Maritime Transportation Security Act of 2002 (MTS Act) which, together with the IMO's recent security proposals (collectively known as The International Ship and Port Security Code), requires specific security plans for our vessels and more rigorous crew identification requirements. We have implemented vessel security plans and procedures for each of our vessels pursuant to rules implementing the MTS Act issued by the U.S. Coast Guard. The U.S. Coast Guard has performed security audits on our entire fleet and each vessel was found to be in compliance with our security plans. The U.S. Coast Guard issued security certificates for each of our vessels, including our tugboats, even though the tugboats are not required to be certified under current regulations.

    Vessel Condition

        Our vessels are subject to periodic inspection and survey by, and the shipyard maintenance requirements of, the U.S. Coast Guard, ABS, or both. We believe we are currently in compliance in all material respects with the environmental and other laws and regulations, including health and safety requirements, to which our operations are subject. We are unaware of any pending or threatened litigation or other judicial, administrative or arbitration proceedings against us occasioned by any alleged non-compliance with such laws or regulations. The risks of substantial costs, liabilities and penalties are, however, inherent in marine operations, and there can be no assurance that significant costs, liabilities or penalties will not be incurred by or imposed on us in the future.

Properties

        Other than our vessels, we do not have any material property.

Legal Proceedings

        We are party to routine, marine related claims, lawsuits and labor arbitrations arising in the ordinary course of our business. The claims made in connection with our marine operations are covered by insurance, subject to applicable policy deductibles that are not material as to any type of insurance coverage. We provide on a current basis for amounts we expect to pay.

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MANAGEMENT

Management of OSG America L.P.

        Overseas America LLC, our general partner, will manage our operations and activities. Unitholders will not be entitled to elect the directors of our general partner or directly or indirectly participate in our management or operation.

        Our general partner owes a fiduciary duty to our unitholders. Our general partner will be liable, as general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are expressly nonrecourse to it. Whenever possible, our general partner intends to cause us to incur indebtedness or other obligations that are nonrecourse to it.

        At least three members of the board of directors of our general partner will serve on a conflicts committee to review specific matters that the board believes may involve conflicts of interest. The conflicts committee will determine if the resolution of the conflict of interest is fair and reasonable to us. The members of the conflicts committee may not be officers or employees of our general partner or directors, officers or employees of its affiliates and must meet the independence standards established by the New York Stock Exchange (NYSE) to serve on an audit committee of a board of directors and certain other requirements. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners and not to be a breach by our general partner of any duties it may owe us or our unitholders. Our initial conflicts committee will be comprised of the members of our audit committee and will be appointed prior to the completion of this offering. For additional information about the conflicts committee, please read "Conflicts of Interest and Fiduciary Duties—Conflicts of Interest."

        In addition, our general partner will have an audit committee of at least three independent directors. The audit committee will, among other things, review our external financial reporting, engage our external auditors and oversee our internal audit activities and procedures and the adequacy of our internal accounting controls. Our general partner will also have a corporate governance committee, which will oversee corporate governance matters, director compensation and the compensation plan described below.

        The NYSE does not require a listed limited partnership like us to have a majority of independent directors on the board of directors of our general partner or to establish a compensation committee or a nominating/corporate governance committee. However, we intend to establish and maintain a corporate governance committee.

        In compliance with the rules of the NYSE, the members of the board of directors of our general partner named below will appoint one independent member at the time of listing of our common units on the NYSE, one independent member within three months of that listing and one additional independent member within 12 months of that listing. The three newly appointed members will serve as the initial members of the conflict, audit and corporate governance committees.

        The directors of our general partner oversee our operations. The day-to-day affairs of our business are managed by the officers of our general partner and key employees of certain of our operating subsidiaries. Employees of OSG Ship Management, Inc. (OSGM), a subsidiary of OSG, will provide assistance to us and our operating subsidiaries pursuant to services agreements. Please read "Certain Relationships and Related Party Transactions—Management Agreement" and "Certain Relationships and Related Party Transactions—Administrative Services Agreement."

        The President and Chief Executive Officer of our general partner, Jonathan P. Whitworth, will allocate his time between managing our business and affairs and the business and affairs of OSG. Mr. Whitworth is a Senior Vice President of OSG. The amount of time Mr. Whitworth will allocate between our business and the businesses of OSG will vary from time to time depending on various

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circumstances and needs of the businesses, such as the relative levels of strategic activities of the businesses.

        Please read "Certain Relationships and Related Party Transactions—Omnibus Agreement—Noncompetition."

        Officers of our general partner and those individuals providing services to us or our subsidiaries may face a conflict regarding the allocation of their time between our business and the other business interests of OSG. Our general partner intends to seek to cause its officers to devote as much time to the management of our business and affairs as is necessary for the proper conduct of our business and affairs.

Directors, Executive Officers and Key Employees

        The following table provides information about the directors and executive officers of our general partner. Directors are elected for one-year terms.

Name

  Age
  Position

Morten Arntzen   51   Chairman of the Board
Jonathan P. Whitworth   40   President, Chief Executive Officer and Director
Myles R. Itkin   59   Chief Financial Officer and Director
Robert E. Johnston   59   Director

        The business address of each of our directors and executive officers listed above is Two Harbour Place, 302 Knights Run Avenue, Suite 1200, Tampa, Florida 33602.

        Biographical information with respect to each of the directors and executive officers of our general partner is set forth below.

        Morten Arntzen is Chairman of the Board of Directors of our general partner and has served as President and Chief Executive Officer of OSG since January 2004. Prior to joining OSG, Mr. Arntzen was employed in various capacities by American Marine Advisors, Inc. (AMA), a U.S. based merchant banking firm specializing in the maritime industry, from 1997 to 2004, most recently serving as Chief Executive Officer. Prior to joining AMA, Mr. Arntzen ran the Global Transportation Group at Chase Manhattan Bank and held the same position at Chemical Bank before its merger with Chase. Mr. Arntzen set up and ran the Global Shipping Group for Manufacturing Hanover Trust Co. before its merger with Chemical Bank. Mr. Arntzen holds a Bachelor's degree from Ohio Wesleyan University and a Masters of International Affairs from Columbia University.

        Jonathan P. Whitworth is President, Chief Executive Officer and a Director of our general partner and has served as Senior Vice President and Head of U.S. Flag Strategic Business Unit of OSG since November 2006, which he joined in connection with OSG's acquisition of Maritrans Inc. Prior to joining OSG, Mr. Whitworth served as President and Chief Executive Officer of Maritrans Inc. from May 2004. Prior to joining Maritrans Inc., Mr. Whitworth served from 2000 to May 2004 as Managing Director of Teekay Shipping (USA), Inc., with responsibility for business development, customer relations and sales for North and South America. Mr. Whitworth holds a Chief Officer's license from the U.S. Coast Guard and sailed on U.S. flag tankers in the international trade before starting his shoreside career. Mr. Whitworth holds a Bachelor's degree from Texas A&M University at Galveston and an MBA from the University of North Texas.

        Myles R. Itkin is Chief Financial Officer of our general partner and has served as Executive Vice President, Chief Financial Officer and Treasurer of OSG, with the exception of a promotion from Senior Vice President to Executive Vice President in 2006, since 1995. Prior to joining OSG in 1995, Mr. Itkin was employed by Alliance Capital Management L.P. as Senior Vice President of Finance.

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Prior to that, he was Vice President of Finance at Northwest Airlines, Inc. Mr. Itkin is a member of the board of directors of the U.K. P&I Club and Danaos Corporation. Mr Itkin holds a Bachelor's degree from Cornell University and an MBA from New York University.

        Robert E. Johnston is a director of our general partner and has served since September 2005 as Head of Shipping Operations of OSG, with responsibility for all technical management of OSG's international flag and U.S. flag fleets. Prior to that, Capt. Johnston served as Senior Vice President and Chief Commercial Officer of OSG since October 1998. Capt. Johnston served in a number of shoreside positions in OSG's U.S. flag operations department from 1976 to 1998, including Vice President of U.S. Operations, with responsibility for the operation of OSG's U.S. flag fleet. Capt. Johnston sailed as a licensed officer, including as Master, aboard a number of OSG's U.S. flag vessels from 1969 to 1976. Capt. Johnston holds a Bachelor of Science degree in Marine Transportation from the State University of New York's Maritime College and is a graduate of the executive program at Dartmouth University's Tuck Business School.

Reimbursement of Expenses of Our General Partner

        Our general partner will not receive any management fee or other compensation for managing our operations and activities. Our general partner and its other affiliates will be reimbursed for expenses incurred on our behalf. These expenses include all expenses necessary or appropriate for the conduct of our business and allocable to us, as determined by our general partner.

Executive Compensation

        We and our general partner were formed in May 2007. Our general partner has neither paid any compensation to its directors or officers nor accrued any obligations with respect to management incentive or retirement benefits for its directors and officers prior to this offering. Because our Chairman, Mr. Arntzen, our President and Chief Executive Officer, Mr. Whitworth, and our Chief Financial Officer, Mr. Itkin, are employees of OSG, their compensation will be set and paid by OSG and we will reimburse OSG for the time they spend on partnership matters. Officers and employees of our general partner or its affiliates may participate in employee benefit plans and arrangements sponsored by OSG, our general partner or their affiliates, including plans that may be established in the future.

Compensation of Directors

        Officers of our general partner or OSG who also serve as directors of our general partner will not receive additional compensation for their service as directors. Our general partner anticipates that each non-management director will receive compensation for attending meetings of the board of directors, as well as committee meetings. We expect non-management directors will receive a director fee of $30,000 per year. In addition, each director will be reimbursed for out-of-pocket expenses in connection with attending meetings of the board of directors or committees. Each director will be fully indemnified by us for actions associated with being a director.

Long-Term Incentive Plan

        We do not expect to adopt a long term plan for employees and directors of our general partner in the immediate future.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth the beneficial ownership of units of OSG America Partners L.P. that will be issued upon the consummation of this offering and the related transactions and held by beneficial owners of 5% or more of the units and by all directors and the executive officers of our general partner as a group.

Name of Beneficial Owner

  Common
Units

  % of
Common
Units

  Subordinated
Units

  % of
Subordinated
Units

  % of
Total
Common and
Subordinated
Units

 
Overseas Shipholding Group, Inc.(1)(2)   8,596,500   53.4   16,096,500   100.0   76.7 %

All executive officers and directors as a group (4 persons)(3)

 

*

 

*

 


 


 

*

 

*
Less than 1%

(1)
Excludes the 2% general partner interest held by our general partner, a wholly-owned subsidiary of OSG.

(2)
If the underwriters exercise their over-allotment option in full OSG's percentage of common units to be beneficially-owned will decrease to 46.4% and its percentage of total common and subordinated units to be beneficially-owned will decrease to 73.2%.

(3)
Excludes units owned by OSG, on the board of which serves a director of our general partner, Morten Arntzen. In addition Jonathan P. Whitworth, our general partner's Chief Executive Officer, President and a Director, is OSG's Senior Vice President and Head of U.S. Flag Strategic Business Unit, Myles R. Itkin, our general partner's Chief Financial Officer and a Director, is OSG's Executive Vice President, Chief Financial Officer and Treasurer and Robert E. Johnston, a Director of our general partner, is Head of Shipping Operations of OSG.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

        After completion of this offering, OSG, the owner of our general partner, will own 8,596,500 common units and 16,096,500 subordinated units, representing a 75.2% limited partner interest in us (assuming no exercise of the underwriters' over-allotment option). In addition, our general partner, a wholly owned subsidiary of OSG, will own a 2% general partner interest in us and all of the incentive distribution rights.

Distributions and Payments to our General Partner and Its Affiliates

        The following table summarizes the distributions and payments to be made by us to our general partner and its affiliates in connection with our formation, ongoing operation and any liquidation. These distributions and payments were determined by and among affiliated entities and, consequently, are not the result of arms'-length negotiations.


        Formation Stage

 

 

 

 

The consideration received by our general partner and its affiliates for the contribution to us of the capital stock of subsidiaries that own or operate vessels

 






 

8,596,500 common units;
16,096,500 subordinated units;
2% general partner interest in us;
the incentive distribution rights; and
approximately $136.5 million in cash (assuming no exercise of the underwriters' over-allotment option).

 

 

Please read "Summary—The Transactions" for further information about our formation and assets contributed to us in connection with the completion of this offering.

 

 

The common units and subordinated units owned by OSG after giving effect to this offering represent a 75.2% limited partner interest in us, assuming no exercise of the underwriters' over-allotment option, which gives it the ability to control the outcome of unitholder votes on certain matters. For more information, please read "The Partnership Agreement—Voting Rights" and "The Partnership Agreement—Amendment of the Partnership Agreement."

        Operational Stage

 

 

 

 

Distributions of available cash to our
general partner and its affiliates

 


We will generally make cash distributions 98% to unitholders (including OSG, the owner of our general partner and the holder of 8,596,500 common units and 16,096,500 subordinated units) and will make the remaining 2% to our general partner.

 

 

In addition, if distributions exceed the minimum quarterly distribution and other higher target levels, our general partner, as the holder of the incentive distribution rights, will be entitled to increasing percentages of the distributions, up to 50% of the distributions above the highest target level. Please read "How We Make Cash Distributions—Incentive Distribution Rights" for more information regarding the incentive distribution rights.
         

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Assuming we have sufficient available cash to pay the full minimum quarterly distribution on all of our outstanding units for four quarters, but no distributions in excess of the full minimum quarterly distribution, our general partner would receive an annual distribution of approximately $0.9 million on its 2% general partner interest and OSG would receive an annual distribution of approximately $34.6 million on its common units and subordinated units.

Payments to our general partner and
its affiliates

 


Our general partner will not receive a management fee or other compensation for the management of our partnership. Our general partner and its other affiliates will be entitled to reimbursement for all direct and indirect expenses they incur on our behalf. In addition, we and certain of our operating subsidiaries will (and any of our future operating subsidiaries may) pay fees to certain subsidiaries of OSG for strategic consulting, advisory, ship management, technical and administrative services. Our general partner will determine the amount of these reimbursable expenses and will negotiate these fees. Please read "—Omnibus Agreement" and "—Administrative Services Agreement" and "—Management Agreement."

Withdrawal or removal of our general
partner

 


If our general partner withdraws or is removed, its general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests. Please read "The Partnership Agreement—Withdrawal or Removal of our General Partner."

        Liquidation Stage

 

 

 

 

Liquidation

 

Upon our liquidation, the partners, including our general partner, will be entitled to receive liquidating distributions as described in "The Partnership Agreement—Liquidation and Distribution of Proceeds."

Agreements Governing the Transactions

        We, our general partner, our operating companies and other parties have entered into, or will enter into, various documents and agreements that will effect the transactions relating to our formation and this offering, including the vesting of assets in, and the assumption of liabilities by, us and our subsidiaries and the application of the proceeds of this offering. These agreements will not be the result of arms'-length negotiations and they, or any of the transactions that they provide for, may not be effected on terms as favorable to us as could have been obtained from unaffiliated third parties. All of the transaction expenses incurred in connection with these transactions, including the expenses associated with vesting assets in our subsidiaries, will be paid from the proceeds of this offering.

Omnibus Agreement

        Upon the completion of this offering, we will enter into an omnibus agreement with OSG and our general partner. The following discussion describes provisions of the omnibus agreement.

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    Noncompetition

        Under the omnibus agreement, OSG will agree, and will cause its controlled affiliates (other than us, our general partner and our subsidiaries) to agree, not to engage in or acquire or invest in any business that provides marine transportation, distribution and logistics services in connection with the transportation of crude oil and refined petroleum products by water between points in the United States to which the U.S. coastwise laws apply, to the extent such business generates qualifying income for federal income tax purposes. This restriction will not prevent OSG or any of its controlled affiliates (other than us and our subsidiaries) from:

    engaging in, or acquiring or investing in any business with the approval of the conflicts committee of our general partner;

    continuing any business conducted by OSG or any of its subsidiaries at the completion of this offering;

    owning, operating or chartering any Jones Act product carriers and barges acquired as part of a business or package of assets if the fair market value of the Jones Act product carriers and barges, as determined in good faith by the board of directors of OSG, represents less than a majority of the fair value of the total assets or business acquired, as determined in good faith by the board of directors of OSG. However, if at any time OSG completes such an acquisition, it must offer to transfer such Jones Act product carriers and barges and related charters to us, subject to negotiation of a purchase price;

    owning, operating or chartering any Jones Act product carriers and barges that relate to a bid or award for a proposed Jones Act project that OSG or any of its subsidiaries has submitted or hereafter submits or receives. However, at least 180 days prior to the scheduled delivery date of any such Jones Act product carrier and/or barge, OSG must offer to transfer such Jones Act product carrier and/or barge and related charters to us, subject to negotiation of a purchase price;

    owning, operating or chartering Jones Act product carriers and barges subject to the offers to us described in the immediately preceding three paragraphs pending our general partner's determination whether to accept such offers and pending the closing of any offers we accept;

    acquiring, operating or chartering Jones Act product carriers and barges and related charters if our general partner has previously advised OSG that the board of directors of our general partner has elected, with the approval of its conflicts committee, not to cause us or our subsidiaries to acquire or operate such Jones Act product carriers and barges and related charters;

    providing ship management services for Jones Act product carriers and barges; or

    acquiring up to a 9.9% equity ownership, voting or profit participation interest in any publicly-traded company that engages in, acquires or invests in any business that owns, operates or charters Jones Act product carriers and barges.

        If OSG or any of its controlled affiliates (other than us or our subsidiaries) owns, operates or charters Jones Act product carriers and barges pursuant to any of the exceptions described above, it may not subsequently expand that portion of its business other than pursuant to those exceptions.

        If OSG or its affiliates no longer control our general partner or there is a change of control of OSG, our general partner or OSG, respectively, may terminate the noncompetition provisions of the omnibus agreement.

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    Options to Acquire Additional Jones Act Product Carriers and Barges

        Under the omnibus agreement, OSG will grant to us options to purchase up to six newbuild articulated tug barges (ATBs) scheduled for delivery from Bender between early 2008 and late 2010 and to acquire from OSG the right to bareboat charter up to six newbuild product carriers from Aker, scheduled for delivery between 2009 and 2011. The options with respect to the purchase of ATBs and the rights to bareboat charter newbuild product carriers will be exercisable prior to the first anniversary of the delivery of each vessel. The exercise of any of the options will be subject to the negotiation of a purchase price. The exercise of the options may also be conditioned on obtaining various third party consents.

        The purchase price would be determined according to a process in which, within 45 days of our notification that we wish to exercise the option, OSG would propose to our general partner the terms on which it would be willing to transfer the relevant vessel(s) to us. Within 45 days after receiving OSG's proposed terms, we would propose a cash purchase price for the vessel(s). If we and OSG cannot agree on a purchase price after negotiating in good faith for 60 days, OSG would have the right to seek an alternative purchaser willing to pay at least 105% of the purchase price we proposed. If an alternative transaction on such terms has not been consummated within six months, we would have the right to purchase the vessel(s) at the price we originally proposed.

        To fund the exercise of an option, we would be required to use cash from operations, incur borrowings or raise capital through the sale of debt or additional equity securities. 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. 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 minimum quarterly distribution to unitholders.

    Rights of First Offer on Jones Act Vessels

        Under the omnibus agreement, we will grant to OSG a right of first offer on any proposed sale, transfer or other disposition of any of our Jones Act product carriers and barges owned, operated or chartered by us or any of our subsidiaries. Likewise, OSG will agree to grant a similar right of first offer to us for any Jones Act product carriers and barges it or its subsidiaries (other than us or our subsidiaries) might own from time to time. These rights of first offer will not apply to a sale, transfer or other disposition of vessels between any affiliated subsidiaries, or pursuant to the terms of any charter or other agreement with a charter party.

        Prior to engaging in any negotiation regarding any vessel disposition we or OSG, as the case may be, will deliver a written notice to the other party setting forth the material terms and conditions of the proposed transaction. During the 60-day period after the delivery of such notice, we and OSG will negotiate in good faith to reach an agreement on the transaction. If we do not reach an agreement within such 60-day period, we or OSG, as the case may be, will be able within the next 180 days to sell, transfer or dispose of the vessel to a third party (or to agree in writing to undertake such transaction with a third party) on terms generally no less favorable to us or OSG, as the case may be, than those offered pursuant to the written notice.

        If OSG or its affiliates no longer control our general partner or there is a change of control of OSG, our general partner or OSG, respectively, may terminate these rights of first offer provisions of the omnibus agreement.

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    Indemnification

        Under the omnibus agreement, OSG will indemnify us after the completion of this offering for a period of five years against certain environmental and toxic tort liabilities to the extent arising prior to the completion date of this offering and relating to our assets and liabilities as of the completion of this offering. Liabilities resulting from a change in law after the completion of this offering are excluded from the environmental indemnity. There is an aggregate cap of $10 million on the amount of indemnity coverage provided by OSG for these environmental and toxic tort liabilities. No claim may be made unless the aggregate dollar amount of all claims exceeds $500,000, in which case OSG is liable for claims only to the extent such aggregate amount exceeds $500,000.

        OSG will also indemnify us for liabilities related to certain:

    defects in title to the assets contributed to us and any failure to obtain, prior to the completion of this offering, certain consents and permits necessary to conduct our business, which liabilities arise within three years after the completion of this offering; and

    income tax liabilities attributable to the operation of the assets contributed to us prior to the time that they were contributed.

    Amendments

        The omnibus agreement may not be amended without the prior approval of the conflicts committee of the board of directors of our general partner if the proposed amendment will, in the reasonable discretion of our general partner, adversely affect holders of our common units.

Management Agreement

        At the completion of this offering, we will enter into a management agreement with OSG Ship Management, Inc. (OSGM), pursuant to which OSGM will provide certain commercial and technical management services to us in respect of the vessels in our initial fleet. In the event that we purchase or bareboat charter additional vessels, OSGM will also extend the commercial and technical management services provided pursuant to the management agreement to those additional vessels. These services will be provided in a commercially reasonable manner in accordance with customary ship management practice and under our direction. OSGM will provide these services to us directly but may subcontract for certain of these services with other entities, including other OSG subsidiaries.

        The management services will include, among other things:

    the commercial and technical management of the vessel: managing day-to-day vessel operations including negotiating and executing charters and other contracts with respect to employment of the vessels, monitoring payments thereunder, ensuring regulatory compliance, arranging for the vetting of vessels, providing competent personnel to supervise the maintenance and general efficiency of the vessels, arranging and supervising drydockings, repairs, alterations and the upkeep of the vessels to the required standards, arranging the supply of necessary stores, spares, water, lubricating oils and greases, procuring and arranging for port entrance and clearance, appointing counsel and negotiating the settlement of all claims in connection with the operation of each vessel, appointing adjusters and surveyors and technical consultants as necessary, issuing voyage instructions and providing technical support,

    vessel maintenance and crewing: including supervising the maintenance and general efficiency of vessels, and ensuring the vessels are in seaworthy and good operating condition, selecting and

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      engaging qualified officers and crew, arranging for all training, transportation, board and lodging of the crew and negotiating the settlement and payment of all wages,

    purchasing and insurance: purchasing stores, supplies and parts for vessels and arranging insurance for vessels (including marine hull and machinery insurance, protection and indemnity insurance and war risk and oil pollution insurance).

        We will pay a reasonable, arm's length fee to OSGM for such services that will include reimbursement of the reasonable cost of any direct and indirect expenses it incurs in providing such services.

        Under the management agreement, neither we nor OSGM will be liable for failure to perform any of our or its obligations, respectively, under the management agreement by reason of any cause beyond our or its reasonable control.

        In addition, OSGM will have no liability for any loss arising in the course of the performance of the commercial and technical management services under the management agreement unless and to the extent that such loss is proved to have resulted solely from the gross negligence or willful default of OSGM or its employees, agents or subcontractors, in which case (except where such loss resulted from OSGM's intentional personal act or omission, or recklessly and with knowledge that such loss would probably result) OSGM's liability will be limited for each incident or series of related incidents.

        We have also agreed, under the management agreement, to indemnify OSGM and its employees, agents and subcontractors against all actions which may be brought against them in connection with their performance of the management agreement and against and in respect of all costs and expenses they may suffer or incur due to defending or settling such action, provided however that such indemnity excludes any or all losses which may be caused by or due to the gross negligence or willful default of OSGM or its employees, agents or subcontractors.

Administrative Services Agreement

        At the completion of this offering, we will enter into an administrative services agreement with OSGM, pursuant to which OSGM will provide certain administrative management services to us, unless the provision of those services by OSGM would materially interfere with OSG's operations.

        The administrative services will include:

    bookkeeping, audit and accounting services: assistance with the maintenance of our corporate books and records, assistance with the preparation of our tax returns and arranging for the provision of audit and accounting services;

    legal and insurance services: arranging for the provision of legal, insurance and other professional services and maintaining our existence and good standing in necessary jurisdictions;

    administrative and clerical services: assistance with office space, arranging meetings for our common unitholders pursuant to the partnership agreement, arranging the provision of IT services, providing all administrative services required for subsequent debt and equity financings and attending to all other administrative matters necessary to ensure the professional management of our business;

    banking and financial services: providing cash management including assistance with preparation of budgets, overseeing banking services and bank accounts, arranging for the deposit of funds, negotiating loan and credit terms with lenders and monitoring and maintaining compliance therewith;

    advisory services: assistance in complying with United States and other relevant securities laws;

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    client and investor relations: arranging for the provision of, advisory, clerical and investor relations services to assist and support us in our communications with our common unitholders; and

    integration services: integration of any acquired businesses.

        We will reimburse OSGM for reasonable costs and expenses incurred in connection with the provision of these services within 15 days after OSGM submits to us an invoice for such costs and expenses, together with any supporting detail that may be reasonably required.

        Under the administrative services agreement, we have agreed to indemnify OSGM and its employees against all actions which may be brought against them under the administrative services agreement including, without limitation, all actions brought under the environmental laws of any jurisdiction, and against and in respect of all costs and expenses they may suffer or incur due to defending or settling such actions; provided, however, that such indemnity excludes any or all losses which may be caused by or due to the fraud, gross negligence or willful misconduct of OSGM or its employees or agents.

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CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

Conflicts of Interest

        Conflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its affiliates, including OSG, on the one hand, and us and our unaffiliated limited partners, on the other hand. The directors and officers of our general partner, OSG America LLC, have certain fiduciary duties to manage our general partner in a manner beneficial to its owner, OSG. At the same time, our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders. OSG has the authority to appoint our general partner's directors, who in turn appoint our general partner's officers. The Chief Executive Officer and Chief Financial Officer of our general partner and all of its non-independent directors also serve as executive officers or directors of OSG.

        Whenever a conflict arises between our general partner or its affiliates, on the one hand, and us or any other partner, on the other hand, our general partner will resolve that conflict. Our partnership agreement contains provisions that modify and limit our general partner's fiduciary duties to the unitholders under Delaware law. Our partnership agreement also restricts the remedies available to unitholders for actions taken by our general partner that, in their absence, might otherwise constitute breaches of fiduciary duties.

        Our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or the unitholders if the resolution of the conflict is:

    approved by the conflicts committee, although our general partner is not obligated to seek such approval;

    approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner or any of its affiliates, although our general partner is not obligated to seek such approval;

    on terms no less favorable to us than those generally being provided to or available from unrelated third parties, although our general partner is not required to obtain confirmation to such effect from an independent third party; or

    "fair and reasonable" to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us.

        Our general partner may, but is not required to, seek the approval of such resolution from the conflicts committee of the board of directors of our general partner or from the common unitholders. If our general partner does not seek approval from the conflicts committee and the board of directors of our general partner determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the third and fourth bullet points above, it will be presumed that, in making its decision, the board of directors, including the board members affected by the conflict, acted in good faith and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the resolution of a conflict is specifically provided for in our partnership agreement, our general partner or the conflicts committee may consider any factors it determines in good faith to be appropriate when resolving a conflict. When our partnership agreement requires someone to act in good faith, it requires that person reasonably to believe that he is acting in the best interests of the partnership, unless the context otherwise requires. Please read "Management—Management of OSG America L.P." for information about the composition and formation of the conflicts committee of the board of directors of our general partner.

        Conflicts of interest could arise in the situations described below, among others.

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    Actions taken by our general partner may affect the amount of cash available for distribution to unitholders or accelerate the right to convert subordinated units.

        The amount of cash that is available for distribution to unitholders is affected by decisions of our general partner regarding such matters as:

    the amount and timing of asset purchases and sales;

    cash expenditures;

    borrowings;

    the issuance of additional units; and

    the creation, reduction or increase of reserves in any quarter.

        In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our general partner to our unitholders, including borrowings that have the purpose or effect of:

    enabling our general partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or

    shortening the subordination period.

        For example, in the event we have not generated sufficient cash from our operations to pay the minimum quarterly distribution on our common units and our subordinated units, our partnership agreement permits us to borrow funds, which would enable us to make this distribution on all outstanding units. Please read "How We Make Cash Distributions—Subordination Period."

        Our partnership agreement provides that we and our subsidiaries may borrow funds from our general partner and its affiliates. Our general partner and its affiliates may not borrow funds from us, our operating company or our or its respective operating subsidiaries.

    Neither our partnership agreement nor any other agreement requires OSG to pursue a business strategy that favors us or utilizes our assets or dictates what markets to pursue or grow. OSG's directors and officers have a fiduciary duty to make these decisions in the best interests of the stockholders of OSG, which may be contrary to our interests.

        Because the directors and officers of our general partner are also directors and officers of OSG, such directors and officers have fiduciary duties to OSG that may cause them to pursue business strategies that favor OSG or which otherwise are not in the best interests of us or our unitholders.

    Our general partner is allowed to take into account the interests of parties other than us, such as OSG, in resolving conflicts of interest.

        Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by Delaware fiduciary duty law. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires and it has no duty or obligation to give any consideration to any interest of or factors affecting us, our affiliates or any unitholder. Decisions made by our general partner in its individual capacity will be made by its sole owner, OSG, and not by the board of directors of our general partner. Examples include the exercise of its right to make a determination to receive Class B units in exchange for resetting the target distribution levels related to its incentive distribution rights, its limited call right, its voting rights with respect to the units it owns, its registration rights and its determination whether to consent to any merger or consolidation of the partnership.

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    We do not have any officers and rely solely on officers of OSG America LLC.

        Affiliates of our general partner, OSG America LLC, conduct businesses and activities of their own in which we have no economic interest. If these separate activities are significantly greater than our activities, there could be material competition for the time and effort of the officers who provide services to OSG America LLC and its affiliates. The officers of OSG America LLC are not required to work full-time on our affairs, but only to devote certain amounts of time to the affairs of OSG America LLC or its affiliates and we reimburse their employer for the services they render to OSG America LLC and its subsidiaries. None of the officers of our general partner are employees of our general partner. Our Chief Executive Officer, Chief Financial Officer and President are also executive officers of OSG.

    We will reimburse our general partner and its affiliates for expenses.

        We will reimburse our general partner and its affiliates for costs incurred in managing and operating us, including costs incurred in rendering corporate staff and support services to us. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in good faith. Please read "Certain Relationships and Related Party Transactions" and "Management—Reimbursement of Expenses of Our General Partner."

    Our general partner intends to limit its liability regarding our obligations.

        Our general partner intends to limit its liability under contractual arrangements so that the other party to such arrangements has recourse only to our assets and not against our general partner or its assets, or any affiliate of our general partner or its assets. Our partnership agreement provides that any action taken by our general partner to limit its or our liability is not a breach of our general partner's fiduciary duties, even if we could have obtained terms that are more favorable without the limitation on liability.

    Common unitholders will have no right to enforce obligations of our general partner and its affiliates under agreements with us.

        Any agreements between us, on the one hand, and our general partner and its affiliates, on the other, will not grant to the unitholders, separate and apart from us, the right to enforce the obligations of our general partner and its affiliates in our favor.

    Contracts between us, on the one hand, and our general partner and its affiliates, on the other, will not be the result of arms'-length negotiations.

        Neither our partnership agreement nor any of the other agreements, contracts and arrangements between us and our general partner and its affiliates are, or will be the result of, arms'-length negotiations. Our partnership agreement generally provides that any affiliated transaction, such as an agreement, contract or arrangement between us and our general partner and its affiliates, must be:

    on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or

    "fair and reasonable" to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us.

        Our general partner may also enter into additional contractual arrangements with any of its affiliates on our behalf. However, there is no obligation for our general partner and its affiliates to enter into any contracts of this kind and our general partner will determine, in good faith, the terms of any of these transactions.

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    Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval.

        Under our partnership agreement, our general partner has full power and authority to do all things (other than those things that require unitholder approval or for which our general partner has sought conflicts committee approval) on such terms as it determines to be necessary or appropriate to conduct our business, including, but not limited to, the following:

    the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into securities of the partnership and the incurring of any other obligations;

    the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over our business or assets;

    the negotiation, execution and performance of any contracts, conveyances or other instruments;

    the distribution of our cash;

    the selection and dismissal of employees and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

    the maintenance of insurance for our benefit and the benefit of our partners;

    the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any other limited or general partnerships, joint ventures, corporations, limited liability companies or other relationships;

    the control of any matters affecting our rights and obligations, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense and the settlement of claims and litigation;

    the indemnification of any person against liabilities and contingencies to the extent permitted by law;

    the purchase, sale or other acquisition or disposition of our securities, or the issuance of additional options, rights, warrants and appreciation rights relating to our securities;

    the mortgage, pledge, encumbrance, hypothecation or exchange of any or all of our assets; and

    the entering into of agreements with any of its affiliates to render services to us, our subsidiaries or to itself in the discharge of its duties as our general partner.

        Please read "The Partnership Agreement—Voting Rights" for information regarding the voting rights of unitholders.

    Common units are subject to our general partner's limited call right.

        Our general partner may exercise its right to call and purchase common units as provided in the partnership agreement or assign this right to one of its affiliates or to us. Our general partner may use its discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. As a result, a common unitholder may have common units purchased from the unitholder at an undesirable time or price. Please read "The Partnership Agreement—Limited Call Right."

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    Our general partner decides whether to retain separate counsel, accountants, or others to perform services for us.

        The attorneys, independent accountants and others who perform services for us have been retained by our general partner. Attorneys, independent accountants and others who perform services for us are selected by our general partner or the conflicts committee and may perform services for our general partner and its affiliates. We may retain separate counsel for ourselves or the holders of common units in the event of a conflict of interest between our general partner and its affiliates, on the one hand, and us or the holders of common units, on the other, depending on the nature of the conflict. We do not intend to do so in most cases.

    Our general partner's affiliates, including OSG, may compete with us.

        Our partnership agreement provides that our general partner will be restricted from engaging in any business activities other than acting as our general partner and those activities incidental to its ownership of interests in us. In addition, OSG will agree, and will cause its affiliates to agree, for so long as OSG controls our partnership, not to engage in the business described above under the caption "Certain Relationships and Related Party Transactions—Omnibus Agreement—Noncompetition." Except as provided in our partnership agreement and the omnibus agreement, affiliates of our general partner are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us.

    Our general partner may elect to cause us to issue Class B units and general partner units to it in connection with a resetting of the target distribution levels related to our general partner's incentive distribution rights, without the approval of the conflicts committee of our general partner or our unitholders. This could result in lower distributions to our common unitholders.

        Our general partner has the right, at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48%) for each of the prior four consecutive quarters, to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two quarters immediately preceding the reset election (we refer to this amount as the "reset minimum quarterly distribution") and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution amount.

        In connection with resetting these target distribution levels, our general partner will be entitled to receive a number of Class B units and general partner units. The Class B units will be entitled to the same cash distributions per unit as our common units and will be convertible into an equal number of common units. The number of Class B units to be issued will be equal to the number of units whose aggregate quarterly cash distributions equaled the average of the distributions to our general partner on the incentive distribution rights in the prior two quarters. The number of general partner units to be issued will be an amount that will maintain our general partner's ownership interest immediately prior to the reset election. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or may be expected to experience, declines in the cash distributions it receives related to its incentive distribution rights and may therefore desire to be issued our Class B units rather than retain the right to receive incentive distributions based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise received had we not issued new Class B units and general partner units to our general partner in connection with

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resetting the target distribution levels related to our general partner's incentive distribution rights. Please see "How We Make Cash Distributions—General Partner's Right to Reset Incentive Distribution Levels."

Fiduciary Duties

        Our general partner is accountable to us and our unitholders as a fiduciary. Fiduciary duties owed by our general partner to unitholders are prescribed by law and the partnership agreement. The Delaware Revised Uniform Limited Partnership Act (the Delaware Act) provides that Delaware limited partnerships may, in their partnership agreements, modify, restrict or expand the fiduciary duties otherwise owed by our general partner to the limited partners and the partnership.

        Our partnership agreement contains various provisions restricting the fiduciary duties that might otherwise be owed by our general partner. We have adopted these provisions to allow our general partner or its affiliates to engage in transactions with us that would otherwise be prohibited by state-law fiduciary duty standards and to take into account the interests of other parties in addition to our interests when resolving conflicts of interest. We believe this is appropriate and necessary because the board of directors of our general partner has fiduciary duties to manage our general partner in a manner beneficial to its owner, OSG, as well as to you. These modifications to fiduciary standards enable the general partner to take into consideration all parties involved in the proposed action, so long as the resolution is fair and reasonable to us. These modifications also enable our general partner to attract and retain experienced and capable directors. These modifications are detrimental to our common unitholders because they restrict the rights and remedies available to unitholders for actions that, without those limitations, might constitute breaches of fiduciary duty, as described below, and permit our general partner to take into account the interests of third parties in addition to our interests when resolving conflicts.

        The following is a summary of:

    the fiduciary duties imposed on our general partner by the Delaware Act;

    material modifications of these duties contained in our partnership agreement; and

    certain rights and remedies of unitholders contained in the Delaware Act.

Delaware law fiduciary duty standards   Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act honestly and in good faith for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Delaware limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.

Partnership agreement modified standards

 

Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise issues as to compliance with fiduciary duties under Delaware law. For example, our partnership agreement provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in "good faith" (as defined in the partnership agreement) and will not be subject to any other standard under applicable law. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our general partner would otherwise be held.
         

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Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of directors of our general partner must be:

 

 


 

on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or

 

 


 

"fair and reasonable" to us, taking into account the totality of the relationships among the parties involved (including other transactions that may be particularly favorable or advantageous to us).

 

 

If our general partner does not seek approval from the conflicts committee and the board of directors of our general partner determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, it will be presumed that, in making its decision, the board of directors acted in good faith and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held.

 

 

In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that our general partner or its officers and directors acted in bad faith or engaged in fraud, willful misconduct or gross negligence.

Rights and remedies of unitholders

 

The provisions of the Delaware Act favor the principles of freedom of contract and enforceability of partnership agreements and allow the partnership agreement to contain terms governing the rights of the unitholders. The rights of our unitholders, including voting and approval rights and the ability of the partnership to issue additional units, are governed by the terms of our partnership agreement. Please read "The Partnership Agreement."

 

 

As to remedies of unitholders, the Delaware Act provides that all suits with respect to the business of a limited partnership shall be prosecuted by and against the general partners only, except in those cases where limited partners are severally liable.

        In order to become one of our limited partners, a common unitholder is required to agree to be bound by the provisions in the partnership agreement, including the provisions discussed above. This is

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in accordance with the policy of the Delaware Act favoring freedom of contract and the enforceability of partnership agreements. By purchasing a common unit offered by this prospectus, that common unitholder will be deemed to have agreed to be bound by the terms of our partnership agreement. The failure of a limited partner or assignee to sign a partnership agreement does not render the partnership agreement unenforceable against that person.

        Under our partnership agreement, we must indemnify our general partner and its officers and directors to the fullest extent permitted by law, against liabilities, costs and expenses incurred by our general partner or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud, willful misconduct or gross negligence. We also must provide this indemnification for criminal proceedings when our general partner or these other persons acted with no reasonable cause to believe that their conduct was unlawful. Thus, our general partner could be indemnified for its negligent acts if it met the requirements set forth above. To the extent that these provisions purport to include indemnification for liabilities arising under the Securities Act, in the opinion of the Securities and Exchange Commission such indemnification is contrary to public policy and therefore unenforceable. Please read "The Partnership Agreement—Indemnification."

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DESCRIPTION OF THE COMMON UNITS

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 and our general partner in and to partnership distributions, please read this section and "How We Make Cash Distributions." For a description of the rights and privileges of limited partners under our partnership agreement, including voting rights, please read "The Partnership Agreement."

Transfer Agent and Registrar

    Duties

        We pay all fees charged by the transfer agent for transfers of common units, except the following, which must be paid by unitholders:

    surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;

    special charges for services requested by a holder of a common unit; and

    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 act as the transfer agent and registrar until a successor is appointed.

Restrictions on Foreign Ownership

        For a discussion of restrictions on the ownership of partnership interests by persons other than U.S. citizens, please read "The Partnership Agreement—Foreign Ownership."

Transfer of Common Units

        Upon transfer of common units in accordance with our partnership agreement, each transferee of common units automatically 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. Our general partner will cause any transfers to be recorded on our books and records on a no less than quarterly basis. Each transferee automatically shall be deemed to:

    represent that the transferee has the capacity, power and authority to become bound by our partnership agreement;

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    agree to be bound by the terms and conditions of, and to have executed, our partnership agreement; and

    give the consents, covenants, representations and approvals contained in our partnership agreement, such as the approval of all transactions and agreements that we are entering into in connection with our formation and this offering, including representations and covenants about the transferee's citizenship for Jones Act and tax withholding purposes.

        We are entitled to 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 secu