t
r
o
p
e
r
l
a
u
n
n
a
0
1
0
2
www.starbulk.com
2010
annual report
Stock Listing
Star Bulk Carriers Corp.’s common stock is listed on the NASDAQ Global Select Market and trades under the
symbol “SBLK.”
Corporate Office
Legal Counsel
40, Agiou Konstantinou Street,
2nd floor
Maroussi 151 24
Athens, Greece
Tel: + 30 210 6178400
Fax: +30 210 6178378
www.starbulk.com
Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane Plaza
New York, NY 10038
Tel.: +1-212-936-5100
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
Tel.: +1-212-574-1200
Independent Auditors
Deloitte Hadjiapavlou, Sofianos &
Cambanis S.A.
250-254 Kifissias Ave,
Halandri 152 32, Athens, Greece
Tel.: +30-210-678-1100
Investor Relations Contacts
Capital Link, Inc.
230 Park Avenue Suite 1536
New York, NY 10169
Tel: +1-212-661-7566
starbulk@capitallink.com
Company profile
Star Bulk is a global shipping company providing worldwide seaborne transportation solu-
tions in the dry bulk sector. Star Bulk’s vessels transport major bulks, which include iron ore,
coal and grain and minor bulks such as cement bauxite, fertilizers and steel products. Star
Bulk was incorporated in the Marshall Islands on December 13, 2006 and maintains execu-
tive offices in Athens, Greece. Its common stock trades on the Nasdaq Global Market under
the symbol “SBLK”. Currently, Star Bulk has an operating fleet of eleven dry bulk carriers
and definitive agreements to build two Capesize vessels. The total fleet consists of thirteen
vessels, five Capesize, and eight Supramax dry bulk vessels with a combined cargo carrying
capacity of 1,287,686 deadweight tons. The average age of our current operating fleet is
approximately 11 years.
Key Company TaKeaways
solid Fleet Growth
• 12.9% compounded annual fleet growth with 18% annual growth in carry-
ing capacity since 2007.
• Fleet expansion by two newbuilding Capesize vessels delivered in 2011.
solid Financial position (approximate figures as of March 31st, 2011)
• Cash position - $35 million.
• As of March 31st, 2011, have secured approximately $170 million of gross
contracted revenue (includes 2 newbulding Capesize vessels that have not
been delivered as of March 31, 2011) with quality and diversified counterpar-
ties. 73% of fleet operating days in 2011, 24% in 2012 and 18% in 2013.
• Remaining debt repayments for 2011 is $26 million, $32 million for 2012
and $31 million for 2013.
• Zero interest rate swap exposure.
• Lowered operating expenses 26% from FY 2010 compared to FY 2009.
i
Consistent Dividend payer
• Declared and paid eight consecutive quarterly dividends of $0.05 per share
(reinstated 2Q 2009).
• Since inception, the company paid a dividend for 12 out of 14 operating
quarters totaling $1.56 per share.
Debt Repayment
$m
70
60
50
40
30
20
10
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
Competitive strengths
l High quality modern fleet
l Efficiency, transparency,
flexibility
l Diverse and high quality
charterers
l Strong time charter
revenue coverage
l In-house commercial
and technical management
l Strong balance sheet
and liquidity profile
l Experienced and dedicated
executive team
l Attractive dividend yield
ii
Financial highlights
Selected Income Statement Highlights
Voyage Revenues
Voyage Expenses
Vessel Operating Expenses
General & Administrative Expenses
Drydocking Expenses
Gain / (Loss) on derivative instruments
Vessel Impairment losses
Other Items
EBITDA
Depreciation
Interest Costs
Interest Income
Net Income
Adjusted EBITDA
Adjusted Net Income
Weighted Average Number of shares (diluted)
Adjusted EPS
Selected Cash Flow Statement Highlights
Net Cash provided by Operating Activities
Net Cash used in Investing Activities
Net Cash provided by Financing Activities
Net cash flow
Cash and Cash equivalents at year end
Loan Repayments
Selected Balance Sheet Highlights
Current Assets
Fixed Assets
Restricted Cash
Other Non Current Assets
Current portion of long-term debt
Other current liabilities
Long term debt
Other non current liabilities
Total Stockholders’ equity
Selected Operational Highlights
Average Number of Vessels
Average Age of operational fleet (years)
Total Ownership days
Total Available days
Total Voyage days
Fleet Utilization
Average Daily Results
TCE rate
Vessel Operating Expenses
Management Fees
General and Administrative Expenses
Total Vessel Operating Expenses
2008
$238,883
–$3,504
–$26,198
–$12,424
–$7,881
$251
–$3,646
$8,344
$193,825
–$51,050
–$10,238
$1,201
$133,738
$120,673
$60,586
54,447,985
$1.11
2009
$142,351
–$15,374
–$30,168
–$8,742
–$6,122
–$2,154
–$75,208
$4,408
$8,991
–$58,298
–$9,914
$806
–$58,415
$80,386
$12,980
60,873,421
$0.21
2010
$121,042
–$16,839
–$22,349
–$15,404
–$6,576
–$2,083
–$34,947
$24,353
$47,197
–$46,937
–$5,916
$525
–$5,131
$89,453
$37,125
61,489,162
$0.60
$110,747
–$423,305
$323,048
$10,490
$29,475
–$21,000
$42,273
$821,284
$14,496
$15,809
$49,250
$8,037
$247,250
$26,699
$560,140
$65,877
–$1,430
–$53,780
$10,667
$40,142
–$49,250
$60,828
$668,698
$38,273
$1,195
$59,675
$11,417
$187,575
$2,717
$499,257
10.76
9.7
3,933
3,712
3,618
97.47%
$42,799
$6,661
$348
$3,159
$10,168
11.97
10.0
4,370
4,240
4,117
97.10%
$29,450
$6,903
$176
$2,000
$9,079
$87,949
–$60,151
–$55,116
–$27,318
$12,824
–$68,421
$23,918
$654,290
$25,570
$1,022
$33,785
$9,450
$171,044
$719
$488,252
10.81
10.4
3,945
3,847
3,829
99.53%
$26,859
$5,665
$42
$3,905
$9,612
iii
Letter from the Chairman
Dear Fellow Shareholders,
Athens, May 2011
As Chairman of the Board of Star Bulk and the
Company’s largest shareholder, I would like to ex-
press my appreciation towards Star Bulk’s manage-
ment and their performance for delivering solid
financial results during a volatile and challenging
year. I have been active in the dry bulk shipping
industry for more than 30 years and have experienced and successfully man-
aged through more than 3 major historic cycles in the industry. Thus, I can
understand the difficulties of the industry and value the management’s efforts
to achieve these solid financial results during this fiscal year.
Following Mr. Tsirigakis departure from our company, our Board elected Mr.
Spyros Capralos as our new CEO. Mr. Capralos is a very prominent personality
both in Greece and internationally, with extensive banking, and more impor-
tantly, capital market background having served as the CEO of the Athens Stock
Exchange and as the Chairman of the Federation of European Stock Exchanges
among many other important positions. I feel we have chosen a solid person
in this position and I believe that the timing was very crucial as I expect a pe-
riod of challenge and opportunity to arise in the dry bulk horizon. Challenge
because of a heavy orderbook of vessels coming forth and opportunity because
the essence of shipping is investing at times when asset prices are low.
To turn challenge to opportunity one needs to have a strong team put
together and therefore I intend to support him wholeheartedly. My intention
is to align my family’s private interests further with the interests of the public
company and contribute my 33 years’ experience in the sector to assist this
company to rise from a challenging period stronger in every possible respect.
We remain committed to the enhancement of shareholder value. In this
respect we will not spare any effort based on our experience, our expertise,
our well established industry contacts, our goodwill and our creativity. Our
business strategy continues to be relatively conservative targeting balanced
fleet growth through accretive and timely acquisitions.
Sincerely,
petros pappas
Chairman of the BoD
iv
Letter from the Ceo
Dear Fellow Shareholders,
Athens, May 2011
Despite the volatile dry bulk markets, 2010 was a
solid financial year for Star Bulk Carriers and we
were able to achieve a number of goals that we be-
lieve are important development steps for Star Bulk’s
future. In this perspective, our cost efficient in-house
management continues to produce tangible results
as we realized a 26% decrease in our vessel operating expenses for the year
ended December 31, 2010 versus the same period in 2009, while we achieved
a 99.5% fleet utilization. The operating cost reductions implemented by our
company have played a key role in our improved financial and operating perfor-
mance during this challenging market environment. Our net loss of ($0.08) per
share for the year 2010 was severely affected by the non-cash impairment loss
from the sale of the Star Beta, which amounted to $34.7 million. Excluding this
item Star Bulk’s 2010 Earnings per Share amounted to $0.48.
We are also pleased to continue to have the support of our senior lend-
ers, as we center our attention on our growth plans with the addition of
four Capesize vessels to our fleet in 2011 that will increase significantly our
fleet’s carrying capacity. In early 2010 we announced the purchase of two new
building Capesize vessels, Star Borealis and Star Polaris, scheduled for delivery
in the fourth quarter 2011. In the second quarter 2011 we announced the
purchase of two more Capesize vessels, Star Big and Star Mega, scheduled for
delivery in the third quarter 2011. Following the delivery of these four vessels,
we will increase the size of our fleet from 11 to 15 vessels. Since the Company
became operational in 2007, we have acquired six Capesize vessels -including
two newbuildings- and five Supramax vessels while selling three of our oldest
vessels. We realized the greatest portion of our successful fleet growth and
renewal program organically, supported by our strong cash generation.
Overall, we seek to secure mid-to-long term employment for our vessels with
first class counterparties. This strategy locks in stable and visible cash flows
and enables us to continue with our fleet expansion plans while rewarding our
shareholders with a regular dividend. In this context, we have secured 84% of
our 2011 fleet operating days under fixed employment and three of the afore-
mentioned Capesize acquisitions have long term time charters that will further
enhance our revenue visibility and improve our financial results going forward.
v
We expect to secure employment for the second new building vessel prior to
its delivery. Since our company’s inception, we have paid quarterly dividends in
twelve out of fourteen operational quarters with the exceptions being at the
peak of the financial crisis. I would like to take the opportunity to add that we
concluded cash claim settlements related to two vessels. The events bring clo-
sure to cumbersome legal cases and the amount collected, represents a major
portion of the quantum of the claim originally pursued. Further, the proceeds
strengthen our balance sheet providing us with additional liquidity, enabling us
to pursue our strategic and growth endeavors.
Historically, weak markets present an excellent opportunity for strong com-
panies that have the ability to take advantage of low asset values. The dry bulk
market since 2001, supported by China entering the world trade organization
has witnessed record freight rates as demand for dry bulk vessels reached an
all time high. This also led to record ordering of newbuildings which are being
delivered in the market today that have applied pressure on freight rates. While
we remain cautious about the effect of an oversupply in the dry bulk sector as
well as the softer freight rates, we believe that the long term fundamentals of
our business are positive, as shipping is a critical link in the global economy
and trade. As owners and operators with a long term approach, we seek to
develop our company and enhance shareholder value, making use of the ad-
vantages the capital markets offer to public companies. Given our company’s
quality fleet, sound finances and strong time charter coverage, we have every
reason to believe that we will navigate safely through any future challenges,
taking advantage of the opportunities that are bound to arise.
In closing, on behalf of our management and Board of Directors, I would
like to thank all those who have supported Star Bulk Carriers since our incep-
tion. I would like to extend our thanks to our employees including the opera-
tional and technical managers of our fleet, crew members, valued customers,
bankers, lawyers and advisors. I would also like to thank our loyal sharehold-
ers and reassure them we will continue to work on delivering strong results
and maximize long term shareholder value.
Sincerely,
spyros Capralos
Chief Executive Officer & President
vi
Fleet employment
(Fleet employment as of 31 March 2011)
Current fleet (11 vessels)
VESSEl
dwt
Charterer
built
2011
2012
2013
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
StAR AuRORA
171,199
1999
StAR SIgMA
184,403
1991
StAR YPSIlOn
150,940
1991
StAR COSMO
52,247
2005
StAR DEltA
52,434
2000
StAR EPSIlOn
52,402
2001
StAR gAMMA
53,098
2002
StAR KAPPA
52,055
2001
StAR OMICROn
2005
53,489
StAR tHEtA
52,425
2003
StAR ZEtA
52,994
2003
Pacific Bulk Carrier
2014
ReDeLiveRy DaTes
earlier
Latest
Capesize
Capesize
supramax
supramax
noTes
–
–
–
–
–
newbuildings (2 vessels)
StAR BOREAlIS
2011
180,000
StAR POlARIS
180,000
2011 SPOT
Acquisitions (2 vessels)
BIg FISH
168,431
1996
major mining
company
MEgAlODOn
170,631
1994
major mining
company
Time charter coverage (15 vessels)
76%
35%
29%
2021
2015
2014
vii
Board of Directors and officers
petros pappas
Chairman
spyros Capralos
Chief Executive Officer
President
George syllantavos
Chief Financial Officer
Secretary
Koert erhardt
Director
peter espig
Director
milena pappas
Director
Tom søfteland
Director
akis Tsirigakis
Director
viii
[_]
[X]
[_]
[_]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12 (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from ___________ to
Commission file number
STAR BULK CARRIERS CORP.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant's name into English)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
7, Fragoklisias Street, 2nd floor, Maroussi 151 25, Athens, Greece
(Address of principal executive offices)
Spyros Capralos, 011 30 210 617 8400, scapralos@starbulk.com,
c/o Star Bulk Carriers Corp., 7, Fragoklisias Street, 2nd floor
Maroussi 151 25, Athens, Greece
(Name, telephone, email and/or facsimile number and
address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Common Stock, par value $0.01 per share
Name of exchange on which registered
NASDAQ Global Select Market
Securities registered or to be registered pursuant to Section 12(g) of the Act: None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the
period covered by the annual report: As of December 31, 2010, there were 63,410,360 shares of common stock of the
registrant outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[_] Yes
[X] No
If this report is an annual report or transition report, indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[_] Yes
[X] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes
[_] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[_] Yes
[_] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer [ ]
Accelerated filer [X]
Non-accelerated filer [ ]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included
in this filing:
[X] US GAAP
[_] International Financial Reporting
Standards as issued by the
International Accounting Standards
Board
[_] Other
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow.
[_] Item 17 or [_] Item 18.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
[ ] Yes
[X] No
FORWARD-LOOKING STATEMENTS
Star Bulk Carriers Corp. and its wholly owned subsidiaries, or the Company, desires to take advantage of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in
connection with this safe harbor legislation. This document and any other written or oral statements made by us or on our
behalf may include forward-looking statements, which reflect our current views with respect to future events and financial
performance. The words "believe," "anticipate," "intends," "estimate," "forecast," "project," "plan," "potential," "may,"
"should," "expect" and similar expressions identify forward-looking statements.
The forward-looking statements in this document are based upon various assumptions, many of which are based, in
turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data
contained in our records and other data available from third parties. Although we believe that these assumptions were
reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which
are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.
In addition, important factors that, in our view, could cause actual results to differ materially from those discussed in
the forward-looking statements include; (i) the strength of world economies; (ii) fluctuations in currencies and interest rates; (iii)
general market conditions, including fluctuations in charterhire rates and vessel values; (iv) changes in demand in the drybulk
shipping industry, including the market for our vessels; (v) changes in the Company's operating expenses, including bunker
prices, drydocking and insurance costs; (vi) changes in governmental rules and regulations or actions taken by regulatory
authorities; (vii) potential liability from pending or future litigation; (viii) general domestic and international political conditions;
(ix) potential disruption of shipping routes due to accidents or political events; (x) the availability of financing and refinancing,
(xi) vessel breakdowns and instances of off-hire, and (xii) other important factors described from time to time in the reports filed
by the Company with the Securities and Exchange Commission, or the Commission. The information set forth herein speaks
only as of the date hereof, and the Company disclaims any intention or obligation to update any forward-looking statements as
a result of developments occurring after the date hereof.
TABLE OF CONTENTS
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other than Equity Securities
PART I
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrants Certifying Accountant
Item 16G. Corporate Governance
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
1
1
1
1
24
39
40
59
66
68
70
71
81
83
83
83
83
83
87
87
87
87
87
87
88
88
88
88
89
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
Throughout this report, the "Company," "Star Bulk," "we," "us" and "our" all refer to Star Bulk Carriers Corp. and its
wholly owned subsidiaries. We use the term deadweight ton, or dwt, in describing the size of vessels. Dwt, expressed in metric
tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry.
We operate drybulk vessels of two sizes: Capesize, which are vessels with carrying capacities of more than 85,000 dwt, and
Supramax, which are vessels with carrying capacities of between 45,000 and 60,000 dwt. Unless otherwise indicated, all
references to "Dollars" and "$" in this report are to U.S. Dollars.
Financial data presented herein include the accounts of the Company and of Star Maritime Acquisition Corp., or Star
Maritime.
Star Maritime was organized under the laws of the State of Delaware on May 13, 2005 as a blank check company
formed to acquire, through a merger, capital stock exchange, asset acquisition or similar business combination, one or more
assets or target businesses in the shipping industry. Star Maritime's common stock and warrants started trading on the
American Stock Exchange under the symbols, SEA and SEA.WS, respectively, on December 21, 2005. Star Bulk was
incorporated in the Republic of the Marshall Islands on December 13, 2006 as a wholly-owned subsidiary of Star Maritime.
On November 27, 2007, Star Maritime obtained shareholder approval for the acquisition of the initial fleet of eight
drybulk carriers and for effecting a redomiciliation merger whereby Star Maritime merged with and into its wholly owned
subsidiary at the time Star Bulk with Star Bulk as the surviving entity, or the Redomiciliation Merger. The Redomiciliation
Merger was completed on November 30, 2007 as a result of which each outstanding share of Star Maritime common stock was
converted into the right to receive one share of Star Bulk common stock and each outstanding warrant of Star Maritime was
assumed by Star Bulk with the same terms and restrictions except that each became exercisable for common stock of Star Bulk.
We commenced operations on December 3, 2007, which is the date we took delivery of our first vessel. During the period from
Star Maritime's inception on May 13, 2005 to December 3, 2007, we were a development stage enterprise.
Our common stock is listed on the Nasdaq Global Select Market under the symbol "SBLK." All of our warrants expired
worthless and ceased trading on the Nasdaq Global Select Market on March 15, 2010.
A. Selected Consolidated Financial Data
The table below summarizes our recent financial information. The historical information was derived from the audited
consolidated financial statements of Star Maritime and its subsidiaries for the fiscal year ended December 31, 2006. The
information of Star Bulk and its wholly owned subsidiaries for the fiscal years ended December 31, 2007 includes the results for
Star Maritime from January 1, 2007 to November 30, 2007, which is the date that the Redomiciliation Merger was completed. We
refer you to the notes to our consolidated financial statements for a discussion of the basis on which our consolidated financial
statements are presented. The information provided below should be read in conjunction with "Item 5. Operating and Financial
Review and Prospects" and the consolidated financial statements, related notes and other financial information included herein.
1
1
The historical results included below and elsewhere in this document are not necessarily indicative of the future
performance of Star Bulk.
3.A.(i) CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of U.S. Dollars, except
per share and share data)
Year Ended December 31,
2006
2007
2008
2009
2010
Voyage revenues
-
3,633
238,883
142,351
121,042
Voyage expenses
Vessel operating expenses
Management fees
Drydocking expenses
Depreciation
Vessel impairment loss
(Gain)/loss on derivative instruments
(Gain) on time charter agreement termination
Other operating income
Loss on bad debts
Loss on time charter agreement termination
General and administrative expenses
Operating (loss)/ income
Interest and Finance costs
Interest and other income
Income/ (loss) before taxes
Income taxes
Net Income/(loss)
Earnings/(loss) per share, basic
Earnings/(loss) per share, diluted
Weighted average number of shares
outstanding, basic
Weighted average number of shares
outstanding, diluted
-
-
-
-
1
-
-
-
-
-
-
1,210
(1,211)
-
4,396
3,185
(207)
2,978
0.10
0.10
43
622
23
-
745
-
-
-
-
-
-
7,756
(5,556)
(45)
9,021
3,420
(9)
3,411
0.11
0.09
3,504
26,198
1,367
7,881
51,050
3,646
(251)
(9.711)
-
-
-
12,424
142,775
(10,238)
1,201
133,738
-
133,738
2.55
2.46
15,374
30,168
771
6,122
58,298
75,208
2,154
(16,219)
-
-
11,040
8,742
(49,307)
(9,914)
806
(58,415)
-
(58,415)
(0.96)
(0.96)
16,839
22,349
164
6,576
46,937
34,947
2,083
-
(26,648)
2,131
-
15,404
260
(5,916)
525
(5,131)
-
(5,131)
(0.08)
(0.08)
29,026,924
30,065,923
52,477,947
60,873,421 61,489,162
29,029,924
36,817,616
54,447,985
60,873,421
61,489,162
3.A. (ii) CONSOLIDATED BALANCE SHEET AND OTHER FINANCIAL DATA
(In thousands of Dollars,
except per share and share data)
Cash and cash equivalents
Investments in Trust Account
Total assets
Current liabilities
Common stock
Stockholders' equity
Total liabilities and stockholders' equity
Year Ended December 31,
2006
2007
2008
2009
2010
18,985
-
403,742
3,057
425
375,378
403,742
29,475
-
891,376
57,287
584
560,140
891,376
40,142
-
760,641
71,092
611
499,257
760,641
12,824
-
703,250
43,235
634
488,252
703,250
2,118
192,915
195,186
6,973
3
123,533
195,186
2
2
OTHER FINANCIAL DATA
Dividends declared and paid ($0.98 $0.10 and
$0.20 per share, respectively)
Net cash provided by operating activities
Net cash (used in)/ provided by investing
activities
Net cash (used in)/ provided financing activities
FLEET DATA
Average number of vessels (1)
Total ownership days for fleet (2)
Total available days for fleet (3)
Total voyage days for fleet (4)
Fleet utilization (5)
AVERAGE DAILY RESULTS (In Dollars)
Time charter equivalent (6)
Vessel operating expenses
Management fees
General and administrative expenses
Total vessel operating expenses
-
1,699
-
370
52,614
110,747
(4)
(170)
12,963
3,534
(423,305)
323,048
6,185
65,877
(1,430)
(53,780)
11.97
4,370
4,240
4,117
10.76
3,933
3,712
3,618
98%
97%
42,799
6,661
348
3,159
10,168
29,450
6,903
176
2,000
9,079
12,385
87,949
(60,151)
(55,116)
10.81
3,945
3,847
3,829
99%
26,859
5,665
41
3,904
9,610
-
-
-
-
-
-
-
-
-
-
0.21
75
71
69
93%
31,203
-
-
-
-
(1) Average number of vessels is the number of vessels that comprised our fleet for the relevant period, as measured by the
sum of the number of days each vessel was a part of our fleet during the period divided by the number of calendar days in
that period.
(2) Ownership days are the total calendar days each vessel in the fleet was owned by us for the relevant period.
(3) Available days for the fleet are the ownership days after subtracting for off-hire days as a result of major repairs dry-
docking or special or intermediate surveys.
(4) Voyage days are the total days the vessels were in our possession for the relevant period after subtracting all off-hire days
incurred for any reason (including off-hire for dry-docking, major repairs, special or intermediate surveys or transfer of
ownership).
(5) Fleet utilization is calculated by dividing voyage days by available days for the relevant period.
(6) Represents the weighted average time charter equivalent, or TCE, of our entire fleet. TCE rate is a measure of the average
daily revenue performance of a vessel on a per voyage basis. Our method of calculating TCE rate is determined by dividing
voyage revenues (net of voyage expenses and amortization of fair value of above/below market acquired time charter
agreements) by voyage days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs
that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract, as
well as commissions. TCE rate is a standard shipping industry performance measure used primarily to compare period-to-
period changes in a shipping company's performance despite changes in the mix of charter types (i.e., spot charters, time
charters and bareboat charters) under which the vessels may be employed between the periods. We included under the
heading "Average Daily Results" TCE revenues, a non-GAAP measure, as we believe it provides additional meaningful
information in conjunction with voyage revenues, the most directly comparable GAAP measure, because it assists our
management in making decisions regarding the deployment and use of our vessels and in evaluating their financial
performance. Our calculation of TCE may not be comparable to that reported by other companies. For further information
concerning our calculation of TCE rate and of reconciliation of TCE rate to voyage revenue, please see Item 5. "Operating
and Financial Review and Prospects – Operating Results."
B. Capitalization and Indebtedness
Not Applicable.
3
3
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk factors
Some of the following risks relate principally to the industry in which we operate and our business in general. Other
risks relate principally to the securities market and ownership of our common stock. The occurrence of any of the events
described in this section could significantly and negatively affect our business, financial condition, operating results or cash
available for dividends or the trading price of our common stock.
Industry Specific Risk Factors
Any renewal of the recent worldwide economic downturn could have a material adverse effect on our revenue, profitability
and financial position.
In recent years, operating businesses in the global economy have faced tightening credit, weakening demand for
goods and services, deteriorating international liquidity conditions, and declining markets. At times, lower demand for drybulk
cargoes as well as diminished trade credit available for the delivery of such cargoes have led to decreased demand for drybulk
vessels, creating downward pressure on charter rates. Although vessel values have stabilized over the past few months,
general market volatility has resulted from uncertainty about sovereign debt and fears of countries such as Greece and Portugal
defaulting on their governments' financial obligations. In addition, continued hostilities in the Middle East, recent tensions in
North Africa and the occurrence or threat of terrorist attacks against the United States or other countries could adversely affect
the economies of the United States and those of other countries. If the current global economic environment persists or
worsens, we may be negatively affected in the following ways:
·
·
we may not be able to employ our vessels at charter rates as favorable to us as historical rates or operate our vessels
profitably; and
the market value of our vessels could decrease, which may cause us to recognize losses if any of our vessels are sold
or if their values are impaired.
The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations,
cash flows and financial condition.
Charterhire rates for drybulk carriers are volatile and may further decrease in the future, which would adversely affect our
earnings and ability to pay dividends.
We currently own and operate a fleet of 13 vessels consisting of five Capesize drybulk carriers, including two Capesize
newbuildings that are currently being constructed at Hanjin Heavy Industries, and eight Supramax drybulk carriers with an
average age of 10.6 years and a combined cargo carrying capacity of approximately 1,287,686 dwt. The drybulk shipping
industry is cyclical with attendant volatility in charterhire rates and profitability. The degree of charterhire rate volatility among
different types of drybulk carriers varies widely. The Baltic Dry Index, or the BDI, which is published daily by the Baltic
Exchange Limited, or the Baltic Exchange, a London-based membership organization that provides daily shipping market
information to the global investing community, is an average of selected ship brokers' assessments of time charter rates paid by
a customer to hire a drybulk vessel to transport drybulk cargoes by sea. The BDI has long been viewed as the main benchmark
to monitor the movements of the drybulk vessel charter market and the performance of the entire drybulk shipping market. The
BDI declined from a high of 11,793 in May 2008 to a low of 663 in December 2008, which represents a decline of 94%. The BDI
fell over 70% during the month of October, 2008, alone. During 2009, the BDI remained volatile, reaching a low of 772 on
January 5, 2009 and a high of 4,661 on November 19, 2009. The BDI decreased to 2,571 on February 12, 2010 primarily due to
uncertainty in the freight markets. The BDI staged a modest recovery based on strong demand for commodities from Asia and a
recovering global market, but it has since declined primarily due to increases in vessel supply. As of March 11, 2011, the index
was at 1,562. This downturn in drybulk charter rates and their volatility, which has resulted from the economic dislocation
worldwide and the disruption of the credit markets, has had and may continue to have a number of adverse consequences for
drybulk shipping, including, among other things:
4
4
·
·
·
·
·
an absence of financing for vessels;
no active second-hand market for the sale of vessels;
extremely low charter rates, particularly for vessels employed in the spot market;
widespread loan covenant defaults in the drybulk shipping industry; and
declaration of bankruptcy by some operators and shipowners as well as charterers.
The occurrence of one or more of these events could adversely affect our business, results of operations, cash flows,
financial condition and ability to pay dividends. The drybulk charter market may not recover and the market could decline
further.
If the drybulk shipping market remains depressed in the future our earnings and available cash flow may decrease. Our
ability to re-charter our vessels on the expiration or termination of their current time charters and the charter rates payable under
any renewal or replacement charters will depend upon, among other things, economic conditions in the drybulk shipping
market.
An over-supply of drybulk carrier capacity may prolong or further depress the current low charter rates and, in turn,
adversely affect our profitability.
Fluctuations in charter rates and vessel values result from changes in the supply and demand for drybulk cargoes
carried internationally at sea, including coal, iron, ore, grains and minerals. The market supply of drybulk carriers has been
increasing, and the number of drybulk carriers on order was recently at near historic highs. These newbuildings were delivered
in significant numbers starting at the beginning of 2006 and continued to be delivered in significant numbers through 2010.
While vessel supply will continue to be affected by the delivery of new vessels and the removal of vessels from the global fleet,
either through scrapping or accidental losses, an over-supply of drybulk carrier capacity, particularly in conjunction with the
currently low level of demand, could exacerbate the recent decrease in charter rates or prolong the period during which low
charter rates prevail. If the current low charter rate environment persists, or a further reduction occurs, during a period when the
current charters for our drybulk carriers expire or are terminated, we may only be able to recharter those vessels at reduced rates
or we may not be able to charter our vessels at all. The charters for seven of our vessels expire in 2011.
The factors affecting the supply and demand for vessel capacity are outside of our control, and the nature, timing and
degree of changes in industry conditions are unpredictable.
The factors that influence demand for vessel capacity include:
·
·
·
·
demand for and production of drybulk products;
global and regional economic and political conditions;
the distance drybulk cargo is to be moved by sea; and
changes in seaborne and other transportation patterns.
The factors that influence the supply of vessel capacity include:
·
the number of new building deliveries;
5
5
·
·
·
·
port and canal congestion;
the scrapping of older vessels;
vessel casualties; and
the number of vessels that are out of service.
In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and
laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other
operating costs, costs associated with classification society surveys, normal maintenance and insurance coverage, the
efficiency and age profile of the existing fleet in the market and government and industry regulation of maritime transportation
practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for
shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of
changes in industry conditions.
We anticipate that the future demand for our drybulk carriers will be dependent upon continued economic growth in
the world's economies, including China and India, seasonal and regional changes in demand, changes in the capacity of the
global drybulk carrier fleet and the sources and supply of drybulk cargo to be transported by sea. The capacity of the global
drybulk carrier fleet seems likely to increase and economic growth may not continue. Adverse economic, political, social or
other developments could also have a material adverse effect on our business and operating results.
An economic slowdown in the Asia Pacific region could exacerbate the effect of recent slowdowns in the economies of the
United States and the European Union and may have a material adverse effect on our business, financial condition and
results of operations.
We anticipate a significant number of the port calls made by our vessels will continue to involve the loading or
discharging of drybulk commodities in ports in the Asia Pacific region. As a result, any negative changes in economic
conditions in any Asia Pacific country, particularly in China, may exacerbate the effect of recent slowdowns in the economies of
the United States and the European Union and may have a material adverse effect on our business, financial condition and
results of operations, as well as our future prospects. Before the global economic financial crisis that began in 2008, China had
one of the world's fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on
shipping demand. While the growth rate of China's gross domestic product increased to approximately 10.3% for the year ended
December 31, 2010, as compared to approximately 9.1% for the year ended December 31, 2009, the Chinese GDP growth rate
remains below pre-2008 levels. China has recently imposed measures to restrain lending, which may further contribute to a
slowdown in its economic growth. It is possible that China and other countries in the Asia Pacific region will continue to
experience slowed or even negative economic growth in the near future. Moreover, the current economic slowdown in the
economies of the United States, the European Union and other Asian countries may further adversely affect economic growth
in China and elsewhere. Our business, financial condition and results of operations, ability to pay dividends as well as our
future prospects, will likely be materially and adversely affected by a further economic downturn in any of these countries.
The recent earthquake and tsunami in Japan may have an adverse affect on our business, results of operations, financial
condition and ability to pay dividends.
Japan is one of the world's leading importers of oil and dry bulk commodities. The earthquake and tsunami that occurred in
Japan on March 11, 2011 have caused an estimated $180 billion of damage and has threatened to send the Japanese economy
into a recession. As of the date of this annual report, the extent to which the earthquake and tsunami will affect the
international shipping industry is unclear. With the third largest economy in the world, a prolonged recovery period with a
relatively stagnant Japanese economy could decrease oil and dry bulk imports to that country. This, in turn, could have a
material adverse effect on our business and results of operations.
6
6
Sharp declines in the spot drybulk charter market may affect our earnings and cash flows from the vessels we operate in the
spot market.
We currently employ two of our vessels in the spot market. During 2010, we did not have any revenues derived from
the spot market. Vessels trading in the spot market are exposed to increased risk of declining charter rates and freight rate
volatility compared to vessels employed on time charters. Since mid-August 2008, the spot day rates in the drybulk charter
market have declined significantly, and drybulk vessel values have also declined both as a result of a slowdown in the
availability of global credit and the significant deterioration in charter rates. Charter rates and vessel values have been affected
in part by the lack of availability of credit to finance both vessel purchases and purchases of commodities carried by sea,
resulting in a decline in cargo shipments, and the excess supply of iron ore in China which resulted in falling iron ore prices and
increased stockpiles in Chinese ports. Charter rates may remain at depressed levels for some time which will adversely affect our
revenue and profitability.
The market values of our vessels have declined and may further decline, which could limit the amount of funds that we can
borrow or trigger certain financial covenants under our current or future credit facilities and/or we may incur a loss if we
sell vessels following a decline in their market value.
The fair market values of our vessels have generally experienced high volatility and have declined significantly. The
market prices for secondhand Capesize and Supramax drybulk carriers have decreased sharply from their historically high
levels. The fair market value of our vessels may continue to fluctuate (i.e., increase and decrease) depending on a number of
factors including:
·
·
·
·
·
·
·
·
prevailing level of charter rates;
general economic and market conditions affecting the shipping industry;
types and sizes of vessels;
supply and demand for vessels;
other modes of transportation;
cost of newbuildings;
governmental or other regulations; and
technological advances.
In addition, as vessels grow older, they generally decline in value. If the fair market value of our vessels declines
further, we may not be in compliance with certain provisions of our amended term loans and we may not be able to refinance our
debt or obtain additional financing. In addition, if we sell one or more of our vessels at a time when vessel prices have fallen, the
vessel or vessels would be classified as assets held for sale, and would result in a loss and a reduction in earnings.
Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China
Sea and in the Gulf of Aden off the coast of Somalia. Over the last several years, the frequency of piracy incidents has increased
significantly, particularly in the Gulf of Aden off the coast of Somalia and towards the Mozambique Canal in the North Indian
Ocean. For example, in April 2010, the M/V Samho Dream, a tanker vessel not affiliated with us, was captured by pirates in the
Indian Ocean off the Somali coast while carrying crude oil estimated to be worth $170.0 million. The vessel was in waters not
normally known to be high risk seas for pirate attacks and was only released in November 2010 reportedly following a ransom
payment in an undisclosed amount. On January 15, 2011, the M/V Samho Jewelry, a tanker vessel not affiliated with us, was
captured by pirates off the coast of Oman and was released following military action on January 21, 2011. According to industry
sources as of March 14, 2011 there were approximately 25 vessels and 577 hostages being held by pirates off the coast of
Somalia and the average amount of time that vessels and hostages are being detained by pirates is increasing.
7
7
If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as "war
risk" zones, as the Gulf of Aden temporarily was in May 2008, or Joint War Committee (JWC) "war and strikes" listed areas,
premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to
obtain. Crew costs, including those due to employing onboard security guards, could increase in such circumstances. In
addition, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may
dispute this and withhold charter hire until the vessel is released. A charterer may also claim that a vessel seized by pirates was
not "on-hire" for a certain number of days and it is therefore entitled to cancel the charter party, a claim that we would
dispute. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on
us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of
insurance for our vessels, could have a material adverse impact on our business, financial condition, results of operations and
cash flows.
In response to piracy incidents since 2008, particularly in the Gulf of Aden off the coast of Somalia, following
consultation with regulatory authorities, we may station guards on some of our vessels in some instances. While our use of
guards is intended to deter and prevent the hijacking of our vessels, it may also increase our risk of liability for death or injury
to persons or damage to personal property. While we believe we will generally have adequate insurance in place to cover such
liability, if we do not, it could adversely impact our business, financial condition, results of operations and cash flows.
Disruptions in world financial markets and the resulting governmental action in the United States and in other parts of the
world could have a material adverse impact on our results of operations, financial condition and cash flows, and could
cause the market price of our common stock to further decline.
In 2008 and 2009 the United States and other parts of the world exhibited deteriorating economic trends and were in a
recession. For example, the credit markets in the United States experienced significant contraction, de-leveraging and reduced
liquidity, and the United States federal government and state governments have implemented and are continuing to implement a
broad variety of governmental action and/or new regulation of the financial markets. Securities and futures markets and the
credit markets are subject to comprehensive statutes, regulations and other requirements. The Commission, other regulators,
self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies, and
may effect changes in law or interpretations of existing laws.
During 2008 and 2009 and recently, a number of financial institutions experienced serious financial difficulties and, in
some cases, have entered bankruptcy proceedings or are in regulatory enforcement actions. These difficulties have resulted, in
part, from declining markets for assets held by such institutions, particularly the reduction in the value of their mortgage and
asset-backed securities portfolios. These difficulties have been compounded by a general decline in the willingness by banks
and other financial institutions to extend credit. In addition, these difficulties may adversely affect the financial institutions that
provide our credit facilities and may impair their ability to continue to perform under their financing obligations to us, which
could have an impact on our ability to fund current and future obligations, including our ability to take delivery of our
newbuildings. As of March 21, 2011, we had total outstanding indebtedness of $217.7 million and the ability to draw down an
additional $48.6 million under our existing credit facilities.
We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking
and securities markets around the world, among other factors. Major market disruptions and the current adverse changes in
market conditions and regulatory climate in the United States and worldwide may adversely affect our business or impair our
ability to borrow amounts under our credit facilities or any future financial arrangements. We cannot predict how long the
current market conditions will last. However, these recent and developing economic and governmental factors, together with the
concurrent decline in charter rates and vessel values, may have a material adverse effect on our results of operations, financial
condition or cash flows, have caused the trading price of our common shares on the Nasdaq Global Select Market to decline
precipitously and could cause the price of our common shares to continue to decline or impair our ability to make distributions
to our shareholders.
8
8
Charter rates are subject to seasonal fluctuations and market volatility, which may adversely affect our financial condition
and ability to pay dividends.
We charter all of our vessels on medium- to long-term time charters with an average remaining term of approximately
1.9 years, other than the Star Cosmo and Star Omicron that are currently employed in the spot market. Demand for vessel
capacity has historically exhibited seasonal variations and, as a result, fluctuations in charter rates. This seasonality may result
in quarter-to-quarter volatility in our operating results for vessels trading in the spot market. The drybulk sector is typically
stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern
hemisphere. As a result, our revenues from our drybulk carriers may be weaker during the fiscal quarters ended June 30 and
September 30, and, conversely, our revenues from our drybulk carriers may be stronger in fiscal quarters ended December 31
and March 31. Seasonality in the sector in which we operate could materially affect our operating results and cash available for
dividends in the future.
Rising fuel prices may adversely affect our profits.
Fuel is a significant, if not the largest, expense in our shipping operations when vessels are not under period charter.
Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates
based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the
Organization of the Petroleum Exporting Countries (OPEC) and other oil and gas producers, war and unrest in oil producing
countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more
expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of
transportation, such as truck or rail.
We are subject to international safety regulations and the failure to comply with these regulations may subject us to
increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in,
certain ports.
Our business and the operation of our vessels are materially affected by government regulation in the form of
international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels
operate, as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often
revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on
the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit
our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations.
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates, and
financial assurances with respect to our operations.
The operation of our vessels is affected by the requirements set forth in the United Nations' International Maritime
Organization's International Management Code for the Safe Operation of Ships and Pollution Prevention, or ISM Code. The ISM
Code requires shipowners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management
System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures
for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner or bareboat charterer to
comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance
coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. If we are subject to
increased liability for noncompliance or if our insurance coverage is adversely impacted as a result of noncompliance, we may
have less cash available for distribution to our stockholders as dividends. If any of our vessels are denied access to, or are
detained in, certain ports, this may decrease our revenues.
9
9
We operate our vessels worldwide and as a result, our vessels are exposed to international risks which may reduce revenue
or increase expenses.
The international shipping industry is an inherently risky business involving global operations. Our vessels are at a
risk of damage or loss because of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss and
bad weather. In addition, changing economic, regulatory and political conditions in some countries, including political and
military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and
boycotts. These sorts of events could interfere with shipping routes and result in market disruptions which may reduce our
revenue or increase our expenses.
If our vessels call on ports located in countries that are subject to restrictions imposed by the U.S. or other governments, that
could adversely affect our reputation and the market for our common stock.
From time to time on charterers' instructions, our vessels may call on ports located in countries subject to sanctions
and embargoes imposed by the United States government and countries identified by the U.S. government as state sponsors of
terrorism. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same
covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or
strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act
("CISADA"), which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA expands the
application of the prohibitions to non-U.S. companies, such as our company, and introduces limits on the ability of companies
and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined
petroleum or petroleum products. Although we believe that we are in compliance with all applicable sanctions and embargo laws
and regulations, and intend to maintain such compliance, we may not be in compliance in the future, particularly as the scope of
certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other
penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our
company. Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we
do business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable
sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations
could in turn negatively affect our reputation. Investor perception of the value of our common stock may also be adversely
affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding
countries.
Political instability, terrorist attacks and international hostilities can affect the seaborne transportation industry, which
could adversely affect our business.
We conduct most of our operations outside of the United States, and our business, results of operations, cash flows,
financial condition and ability to pay dividends if reinstated in the future may be adversely affected by changing economic,
political and government conditions in the countries and regions where our vessels are employed or registered. Moreover, we
operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including the
current political instability in Egypt, terrorist or other attacks, war or international hostilities. Terrorist attacks such as those in
New York on September 11, 2001, in London on July 7, 2005, and in Mumbai on November 26, 2008, and the continuing response
of the United States and others to these attacks, as well as the threat of future terrorist attacks around the world, continues to
cause uncertainty in the world's financial markets and may affect our business, operating results and financial condition.
Continuing conflicts and recent developments in the Middle East and North Africa, and the presence of U.S. and other armed
forces in Iraq and Afghanistan may lead to additional acts of terrorism and armed conflict around the world, which may
contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our
ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in
attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf
region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of
Aden off the coast of Somalia. These uncertainties could also adversely affect our ability to obtain additional financing on
terms acceptable to us or at all.
In the past, political conflicts have also resulted in attacks on vessels, such as the attack on the Limburg in October
2002, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of
terrorism and piracy have also affected vessels trading in regions such as the South China Sea. Any of these occurrences could
have a material adverse impact on our business, financial condition, results of operations and ability to pay dividends.
10
10
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related procedures in countries of
origin and destination. Inspection procedures may result in the seizure of contents of our vessels, delays in the loading,
offloading or delivery and the levying of customs duties, fines or other penalties against us.
It is possible that changes to inspection procedures could impose additional financial and legal obligations on us.
Changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain
cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have
a material adverse effect on our business, financial condition and results of operations.
Maritime claimants could arrest one or more of 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 a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek to obtain
security for its claim 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 large sums of money to have the arrest or attachment lifted. In
addition, in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest both the
vessel which is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by
the same owner. Claimants could attempt to assert "sister ship" liability against one vessel in our fleet for claims relating to
another of our vessels.
Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings.
A 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, while 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 and reduce the amount of cash we
have available for distribution as dividends to our stockholders.
Company Specific Risk Factors
Substantial debt levels could limit our flexibility to obtain additional financing or pursue other business opportunities.
As of March 21, 2011, we had outstanding indebtedness of $217.7 million and we expect to incur additional
indebtedness as we continue to grow our fleet. Currently, we have additional borrowing capacity of $48.6 million under our
Credit Agricole Corporate and Investment Bank loan facility. This level of debt could have important consequences to us,
including the following:
·
·
we may not be able to obtain additional financing, if necessary, for working capital, capital expenditures,
acquisitions or other purposes or such financing may be unavailable on favorable terms;
we may need to use a substantial portion of our cash from operations to make principal and interest payments
on our debt, reducing the funds that would otherwise be available for operations, future business
opportunities and dividends to our shareholders;
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·
·
our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or
a downturn in our business or the economy generally; 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 financial and operating performance, which
will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are
beyond our control. If our operating income is not sufficient to service our current or future indebtedness, we will be forced to
take actions such as reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling
assets, restructuring or refinancing our debt or seeking additional equity capital. We may not be able to effect any of these
remedies on satisfactory terms, or at all. In addition, a lack of liquidity in the debt and equity markets could hinder our ability to
refinance our debt or obtain additional financing on favorable terms in the future. In addition, our loan agreements may impose
operation restrictions on us such as changing the management of our vessels. Please see "Item 5. Operating and Financial
Review and Prospects – Liquidity and Capital Resources – Senior Secured Credit Facilities."
We may be unable to comply with the covenants contained in our loan agreements, which would affect our ability to
conduct our business.
Our loan agreements for our borrowings, which are secured by liens on our vessels, contain various financial and other
covenants. Among those covenants are requirements that relate to our financial position, operating performance and liquidity.
For example, under certain provisions of our loan agreements we are required to maintain a ratio of the fair market value of our
vessels to the aggregate amounts outstanding of 120% for the first three years and 135% thereafter.
The market value of drybulk vessels is sensitive, among other things, to changes in the drybulk charter market, with
vessel values deteriorating in times when drybulk charter rates are falling and improving when charter rates are anticipated to
rise. The current decline in charter rates in the drybulk market coupled with the prevailing difficulty in obtaining financing for
vessel purchases have adversely affected drybulk vessel values, including the vessels in our fleet. As a result, we may not meet
certain minimum asset coverage covenants in our loan agreements.
In March and December 2009, we entered into agreements with each of our lenders to obtain waivers for certain
covenants including minimum asset coverage covenants contained in our loan agreements.
Under the terms of our waiver agreements, as amended, our dividend payments, share repurchases and investments
are subject to the prior written consent of our lenders. In addition, for the duration of the waiver periods the interest spread for
each of the above referenced loans will be adjusted to 2% per annum. Following the waiver period, the interest spread under
our $150.0 million and $35.0 million loan facilities will be adjusted to 1.5% and under our $120 million loan facility the interest
spread will be adjusted to that provided in the initial loan agreement. Please see "Item 5. Operating and Financial Review and
Prospects – Liquidity and Capital Resources – Senior Secured Credit Facilities."
If we are not in compliance with our covenants and we are not able to obtain additional covenant waivers or
modifications, our lenders could require us to post additional collateral, enhance our equity and liquidity, increase our interest
payments or pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet,
or they could accelerate our indebtedness, which would impair our ability to continue to conduct our business. If our
indebtedness is accelerated, we might not be able to refinance our debt or obtain additional financing and could lose our
vessels if our lenders foreclose their liens. In addition, if we find it necessary to sell our vessels at a time when vessel prices are
low, we will recognize losses and a reduction in our earnings, which could affect our ability to raise additional capital necessary
for us to comply with our loan agreements.
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Our lenders have imposed a restriction on our dividend payments under the terms of our waiver agreements.
As a result of restrictions imposed by our lenders, including the restriction on dividend payments under the terms of
our waiver agreements, we may not be able to pay dividends.
We previously paid regular dividends on a quarterly basis from our operating surplus, in amounts that allowed us to
retain a portion of our cash flows to fund vessel or fleet acquisitions, and for debt repayment and other corporate purposes, as
determined by our management and board of directors. Under the terms of our waiver agreements with our lenders, payment of
dividends and repurchases of our shares and warrants are subject to the prior written consent of our lenders.
With the consent of our lenders, (i) in February 2010, we declared a dividend of $0.05 per outstanding share of our
common stock for the three months ending December 31, 2009 that was paid on March 11, 2010 to shareholders of record as of
March 8, 2010, (ii) in May 2010, we declared a dividend of $0.05 per outstanding share of our common stock for the three months
ended March 31, 2010 that was paid on June 4, 2010 to shareholders of record on May 31, 2010, (iii) in August 2010, we declared
a dividend of $0.05 per outstanding share of our common stock for the three months ending June 30, 2010 that was paid on
August 30, 2010 to shareholders of record as of August 25, 2010, (iv) in November 2010, we declared a dividend of $0.05 per
outstanding share of our common stock for the three months ending September 30, 2010 that was paid on December 6, 2010 to
shareholders of record as of November 30, 2010, and (v) in February 2011, we declared a dividend of $0.05 per outstanding share
of our common stock for the three months ending December 31, 2010 that was paid on March 9, 2011 to shareholders of record
as of March 4, 2011.
In addition, the payment of any future dividends will be subject at all times to the discretion of our board of directors
and the consent of our lenders. The timing and amount of dividends will depend on our earnings, financial condition, cash
requirements and availability, fleet renewal and expansion, restrictions in our loan agreements, the provisions of Marshall
Islands law affecting the payment of dividends and other factors. Marshall Islands law generally prohibits the payment of
dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such
dividends, or if there is no surplus, dividends may be declared or paid out of net profits for the fiscal year.
We are dependent on medium- to long-term time charters in a volatile shipping industry and a decline in charterhire rates
would affect our results of operations and ability to pay dividends.
We charter all of our vessels on medium- to long-term time charters with an average remaining term of approximately
1.9 years, other than Star Cosmo and Star Omicron that are currently employed in the spot market. The time charter market is
highly competitive and spot market charterhire rates (which affect time charter rates) may fluctuate significantly based upon
available charters and the supply of, and demand for, seaborne shipping capacity. Our ability to re-charter our vessels on the
expiration or termination of their current time charters and the charter rates payable under any renewal or replacement charters
will depend upon, among other things, economic conditions in the drybulk shipping market. The drybulk carrier charter market
is volatile, and in the past, time charter and spot market charter rates for drybulk carriers have declined below operating costs of
vessels. If future charterhire rates are depressed, we may not be able to operate our vessels profitably or to pay dividends to
our shareholders.
Delays or defaults by the shipyards in the construction of our newbuildings could increase our expenses and diminish our
net income and cash flows
We currently have newbuilding contracts for the construction of a total of two Capesize drybulk vessels at Hanjin
Heavy Industries. These projects are subject to the risk of delay or defaults by the shipyards caused by, among other things,
unforeseen quality or engineering problems, work stoppages, weather interference, unanticipated cost increases, delays in
receipt of necessary equipment, and inability to obtain the requisite permits or approvals. In accordance with industry practice,
in the event the shipyards are unable or unwilling to deliver the vessels, we may not have substantial remedies. Failure to
construct or deliver the ships by the shipyards or any significant delays could increase our expenses and diminish our net
income and cash flows.
Default by our charterers may lead to decreased revenues and a reduction in earnings.
Consistent with drybulk shipping industry practice, we have not independently analyzed the creditworthiness of the
charterers. Our revenues may be dependent on the performance of our charterers and, as a result, defaults by our charterers may
materially adversely affect our revenues.
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We depend upon a few significant customers for a large part of our revenues and the loss of one or more of these customers
could adversely affect our financial performance.
We derive a significant part of our charterhire from a small number of customers, with 87% of our voyage revenues, as
presented in our statement of operations, for the fiscal year ended December 31, 2010 generated from six charterers. Currently,
nine of our vessels are employed under fixed rate period charters to seven customers. If one or more of these customers is
unable to perform under one or more charters with us and we are not able to find a replacement charter, or if a customer
exercises certain rights to terminate the charter, we could suffer a loss of revenues that could materially adversely affect our
business, financial condition, results of operations and cash available for distribution as dividends to our shareholders.
We could lose a customer or the benefits of a time charter if, among other things:
·
·
·
the customer fails to make charter payments because of its financial inability, disagreements with us or
otherwise;
the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the
vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of
off-hire, default under the charter; or
the customer terminates the charter because the vessel has been subject to seizure for more than a specified
number of days.
If we lose a key customer, we may be unable to obtain charters on comparable terms or may become subject to the
volatile spot market, which is highly competitive and subject to significant price fluctuations. One of our time charters on which
we deploy our vessels provide for charter rates that are significantly above current market rates, particularly spot market rates
that most directly reflect the current depressed levels of the drybulk charter market. If it were necessary to secure substitute
employment, in the spot market or on time charters, for any of these vessels due to the loss of a customer in these market
conditions, such employment would be at a significantly lower charter rate than currently generated by such vessel, or we may
be unable to secure a charter at all, in either case, resulting in a significant reduction in revenues. The loss of any of our
customers or time charters, 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 dividends.
The failure of our charterers to meet their obligations under our time charter agreements, on which we depend for
substantially all of our revenues, could cause us to suffer losses or otherwise adversely affect our business.
We charter all of our vessels on medium- to long-term time charters with an average remaining term of approximately
1.9 years, other than Star Cosmo and Star Omicron that are currently employed in the spot market. For the year ended
December 31, 2010, 87% of our voyage revenues-net of commissions were generated from six charterers. The ability and
willingness of each of our counterparties to perform its obligations under a time charter agreement with us will depend on a
number of factors that are beyond our control and may include, among other things, general economic conditions, the condition
of the drybulk shipping industry and the overall financial condition of the counterparties. Charterers are sensitive to the
commodity markets and may be impacted by market forces affecting commodities such as iron ore, coal, grain, and other minor
bulks. In addition, in these depressed market conditions, certain charterers, including some of our charterers, are renegotiating
the terms of the charters or defaulting on their obligations under the charters. The time charters for one of our vessels the Star
Zeta provide for charter rates that are significantly above market rates as of March 21, 2011. Should a counterparty fail to honor
its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new
charter arrangements we secure in the spot market or through a time charter would be at lower rates because of the currently
depressed drybulk carrier charter rate levels. The Star Epsilon and the Star Kappa were previously time chartered until 2014
Star Ypsilon until July 2011 and Star Gamma until November 2011. We withdrew the vessels from their charterers' service
because of the charterers' repudiatory breach of time charter agreements. Arbitration proceedings have commenced against the
vessels' charterers in London to pursue damages arising from such breach, which will include the loss of hire. In October 2010,
we settled our outstanding claims with respect to the Star Ypsilon. We have employed the vessels under new time charter
agreements at rates that are lower than we would have earned under the previous charter agreements. The Star Sigma was
previously fixed for a minimum of 36 months and a maximum of 41 months and following renegotiation with the charterer, we
agreed to amend the charter to provide for a minimum of 56 months and a maximum of 61 months at a lower rate. On February
18, 2011, we received a letter from Korea Line Corporation ("KLC"), the charterer of the Star Gamma, requesting an agreement
on adjustment of charter hire. Additionally, we were notified of the commencement of rehabilitation proceedings of KLC in
Korea and the related schedule for making claims against KLC in those proceedings. The charter with KLC has a term that ends
in December 2011. Currently, KLC owes us approximately $1.8 million in charterhire for the vessel. We have asserted liens in
respect of certain amounts due to KLC under sub-charters relating to the vessel and plan to vigorously pursue all amounts
owned to us by KLC under the charter, including any damages for the breach of that charter. If our charterers fail to meet their
obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses which could have a
material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay
dividends, if any, in the future. We refer you to Item 8. Financial Information – Legal Proceedings for a discussion of the
outstanding claims related to our vessels.
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We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet
their obligations could cause us to suffer losses or otherwise adversely affect our business.
We have entered into various contracts, including charterparties and contracts of affreightment, or COAs with our
customers, newbuilding contracts with shipyards and our credit facilities. We also enter into time charters and voyage charters
as a charterer. These agreements subject us to counterparty risks. The ability of each of our counterparties to perform its
obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among
other things, general economic conditions, the condition of the maritime industry, the overall financial condition of the
counterparty, charter rates received for specific types of vessels, and various expenses. We seek to minimize our counterparty
risk by doing business with well established customers and financial institutions. Should a counterparty fail to honor its
obligations under agreements with us, we could sustain significant losses which could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
Investment in derivative instruments such as freight forward agreements or other derivative instruments could result in
losses.
From time to time, we may take positions in derivative instruments including freight forward agreements, or FFAs and
other derivative instruments. Generally, FFAs and other derivative instruments may be used to hedge a vessel owner's exposure
to the charter market for a specified route and period of time. Upon settlement, if the contracted charter rate is less than the
average of the rates, as reported by an identified index, for the specified route and time period, the seller of the FFA is required
to pay the buyer an amount equal to the difference between the contracted rate and the settlement rate, multiplied by the
number of days in the specified period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is
required to pay the seller the settlement sum. If we take positions in FFAs or other derivative instruments we could suffer losses
in the settling or termination of the FFA or other derivative instruments. This could adversely affect our results of operation and
cash flow.
We may have difficulty managing our planned growth properly.
We intend to continue to expand our fleet. Our growth will depend on:
· locating and acquiring suitable vessels;
·
·
identifying and consummating acquisitions or joint ventures;
obtaining required financing;
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·
·
·
integrating any acquired vessels successfully with our existing operations;
enhancing our customer base; and
managing our expansion.
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations,
difficulty experienced in obtaining additional qualified personnel and managing relationships with customers and suppliers and
integrating newly acquired operations into existing infrastructures. We may not be successful in executing our growth plans
and may incur significant expenses and losses.
Increases in LIBOR could affect our profitability, earnings and cash flow.
Interest in most loan agreements in our industry has been based on published LIBOR rates. The London market for
Dollar loans between banks has recently been volatile, with the spread between published LIBOR and the lending rates actually
charged to banks in the London interbank market widening significantly at times. For the past two years LIBOR was at historical
lows. Because the interest rates borne by our outstanding indebtedness fluctuate with changes in LIBOR, an increase in LIBOR
would affect the amount of interest payable on our debt, which in turn, could have an adverse effect on our profitability,
earnings and cash flow.
In addition, in the waiver agreements with our lenders, we have agreed to replace published LIBOR as the base for the
interest calculation with their cost-of-funds rate. This could increase our lending costs significantly, which would have an
adverse effect on our profitability, earnings and cash flow.
In the highly competitive international drybulk shipping industry, we may not be able to compete for charters with new
entrants or established companies with greater resources which may adversely affect our results of operations.
We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition
arises primarily from other vessel owners, some of whom have substantially greater resources than us. Competition for the
transportation of drybulk cargoes can be intense and depends on price, location, size, age, condition and the acceptability of
the vessel and its managers to the charterers. Due in part to the highly fragmented market, competitors with greater resources
could operate larger fleets through consolidations or acquisitions and may be able to offer more favorable terms.
We may be unable to attract and retain key management personnel and other employees in the shipping industry, which
may negatively affect the effectiveness of our management and our results of operations.
Our success depends to a significant extent upon the abilities and efforts of our management team. As of March 21,
2011, we had thirty-one employees. Twenty-nine of our employees, through our wholly owned subsidiaries, Star Bulk
Management Inc., or Star Bulk Management, and Starbulk S.A, are engaged in the day to day management of the vessels in our
fleet. Our success depends upon our ability to retain key members of our management team and the ability of Star Bulk
Management to recruit and hire suitable employees. The loss of any members of our senior management team could adversely
affect our business prospects and financial condition. Difficulty in hiring and retaining personnel could adversely affect our
results of operations. We do not maintain "key-man" life insurance on any of our officers or employees of Star Bulk
Management and/or Starbulk S.A.
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We depend on officers who may engage in other business activities in the international shipping industry which may create
conflicts of interest.
Spyros Capralos, our Chief Executive Officer, President and a member of our board of directors, and George
Syllantavos, our Chief Financial Officer, Secretary and member of our board of directors participate in business activities not
associated with the Company. As a result, Mr. Capralos and Mr. Syllantavos may devote less time to the Company than if they
were not engaged in other business activities and may owe fiduciary duties to the shareholders of both the Company as well as
shareholders of other companies with which they may be affiliated, which may create conflicts of interest in matters involving or
affecting the Company and its customers. It is not certain that any of these conflicts of interest will be resolved in our favor.
In accordance with our code of ethics, which is located on our website at www.starbulk.com, all ongoing and future
transactions between us and any of its officers and directors or their respective affiliates, will be on terms believed by us to be
no less favorable than are available from unaffiliated third parties, and such transactions will require prior approval, in each
instance by a majority of our uninterested "independent" directors or the members of our board who do not have an interest in
the transaction, in either case who had access, at our expense, to its attorneys or independent legal counsel.
We may be unable to attract and retain qualified, skilled employees or crew necessary to operate our business.
Our success depends in large part on the ability of us to attract and retain highly skilled and qualified personnel. In
crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding
work. Competition to attract and retain qualified crew members is intense. If we are not able to obtain higher charter rates to
compensate for any crew cost increases, it could have a material adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividends. If we cannot hire, train and retain a sufficient number of qualified
employees, we may be unable to manage, maintain and grow our business, which could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels may call in ports where smugglers attempt to hide drugs and other contraband on vessels, with or without
the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of
our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims
or restrictions which could have an adverse effect on our business, financial condition, results of operations and cash flows.
As we expand our fleet, we will need to expand our operations and financial systems and hire new shoreside staff and
seafarers to staff our vessels; if we cannot expand these systems or recruit suitable employees, our performance may be
adversely affected.
Our operating and financial systems may not be adequate as we expand our fleet, and our attempts to implement those
systems may be ineffective. In addition, we rely on our wholly-owned subsidiaries, Star Bulk Management and Starbulk S.A., to
recruit shoreside administrative and management personnel and for crew management. Shoreside personnel are recruited by Star
Bulk Management and Starbulk S.A. through referrals from other shipping companies and traditional methods of securing
personnel, such as placing classified advertisements in shipping industry periodicals. Star Bulk Management has sub-
contracted crew management for Star Cosmo, which includes the recruitment of seafarers to Union Commercial Inc., or Union.
Star Bulk Management, Starbulk S.A. and its crewing agent may not be able to continue to hire suitable employees as Star Bulk
expands its fleet. If we are unable to operate our financial and operations systems effectively, recruit suitable employees or if
our unaffiliated crewing agent encounters business or financial difficulties, our performance may be materially adversely
affected.
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Labor interruptions could disrupt our business.
Star Bulk Management and Starbulk S.A. provide the crew for all of our vessels other than Star Cosmo, which are
manned by masters, officers and crews that are employed by our shipowning subsidiaries. If not resolved in a timely and cost-
effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out normally
and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost,
manner or feasibility of doing business.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties,
national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate
or are registered, which can significantly affect the ownership and operation of our vessels. These requirements include, but
are not limited to, the International Convention on Civil Liability for Oil Pollution Damage of 1969, the International Convention
for the Prevention of Pollution from Ships of 1975, the International Maritime Organization, or IMO, International Convention for
the Prevention of Marine Pollution of 1973, the IMO International Convention for the Safety of Life at Sea of 1974, the
International Convention on Load Lines of 1966, the U.S. Oil Pollution Act of 1990, or OPA, the U.S. Clean Air Act, U.S. Clean
Water Act and the U.S. Marine Transportation Security Act of 2002. Compliance with such laws, regulations and standards,
where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful
lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory
obligations, including, but not limited to, costs relating to air emissions, the management of ballast waters, maintenance and
inspection, elimination of tin-based paint, development and implementation of emergency procedures and insurance coverage
or other financial assurance of our ability to address pollution incidents. These costs could have a material adverse effect on
our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations
may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our
operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous
substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example,
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. An oil spill could result in significant liability, including fines, penalties and
criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-
party damages. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine
fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, such
insurance may not be sufficient to cover all such risks or any claims will not have a material adverse effect on our business,
results of operations, cash flows and financial condition and our ability to pay dividends, if any, in the future.
If our vessels fail to maintain their class certification and/or fail any annual survey, intermediate survey, dry-docking or
special survey, that vessel would be unable to carry cargo, thereby reducing our revenues and profitability and violating
certain covenants under our credit facilities.
The hull and machinery of every commercial drybulk vessel must be classed by a classification society authorized by
its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable
rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention, or SOLAS. All of our
vessels are certified as being "in class" by RINA a major classification society.
A vessel must undergo annual surveys, dry-dockings and special surveys. In lieu of a special survey, a vessel's
machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year
period. Every vessel is also required to be dry-docked every two to three years for inspection of the underwater parts of such
vessel.
If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, dry-docking or special
survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us
to be in violation of certain covenants in our credit facilities. Any such inability to carry cargo or be employed, or any such
violation of covenants, could have a material adverse impact on our financial condition and results of operations.
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Our vessels may suffer damage due to the inherent operational risks of the seaborne transportation industry and we may
experience unexpected drydocking costs, which may adversely affect our business and financial condition.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad
weather, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war,
terrorism, piracy and other circumstances or events. These hazards may result in death or injury to persons, loss of revenues or
property, environmental damage, higher insurance rates, damage to our customer relationships, delay or rerouting. If our
vessels suffer damage, they may need to be repaired at a drydocking facility. For example, the costs of drydock repairs are
unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss
of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease
our earnings. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently
located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking
facility that is not conveniently located to our vessels' positions. The loss of earnings while these vessels are forced to wait for
space or travel to more distant drydocking facilities would decrease our earnings.
The operation of drybulk carriers involves certain unique operational risks.
The operation of drybulk carriers has certain unique operational risks. With a drybulk carrier, the cargo itself and its
interaction with the ship can be a risk factor. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and react
badly to water exposure. In addition, drybulk carriers are often subjected to battering treatment during unloading operations
with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small bulldozers. This treatment may cause damage to
the drybulk carrier. Drybulk carriers damaged due to treatment during unloading procedures may be more susceptible to a
breach to the sea. Hull breaches in drybulk carriers may lead to the flooding of their holds. If a drybulk carrier suffers flooding in
its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the drybulk carrier's
bulkheads leading to the loss of the drybulk carrier.
If we are unable to adequately maintain or safeguard our vessels we may be unable to prevent these events. Any of
these circumstances or events could negatively impact our business, financial condition, results of operations and ability to pay
dividends if reinstated in the future. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable
vessel owner and operator.
Purchasing and operating secondhand vessels may result in increased operating costs and vessel off-hire, which could
adversely affect our earnings.
Our inspection of secondhand vessels prior to purchase does not provide us with the same knowledge about their
condition and cost of any required or anticipated repairs that we would have had if these vessels had been built for and
operated exclusively by us. We will not receive the benefit of warranties on secondhand vessels.
Typically, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels
are typically less fuel efficient and more costly to maintain than more recently constructed vessels. Cargo insurance rates
increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures
for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may
engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably
during the remainder of their useful lives.
We inspected all of our second hand vessels, which we acquired from both related and unrelated third parties,
considered the age and condition of the vessels in budgeting for their operating, insurance and maintenance costs, and if we
acquire additional secondhand vessels in the future, we may encounter higher operating and maintenance costs due to the age
and condition of those additional vessels.
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We may not have adequate insurance to compensate us for the loss of a vessel, which may have a material adverse effect on
our financial condition and results of operation.
We have procured hull and machinery insurance, protection and indemnity insurance, which includes environmental
damage and pollution insurance coverage and war risk insurance for our fleet. We do not maintain, for our vessels, insurance
against loss of hire, which covers business interruptions that result from the loss of use of a vessel. We may not be adequately
insured against all risks. We may not be able to obtain adequate insurance coverage for our fleet in the future. The insurers may
not pay particular claims. Our insurance policies may contain deductibles for which we will be responsible and limitations and
exclusions which may increase our costs or lower our revenue. Moreover, insurers may default on claims they are required to
pay. If our insurance is not enough to cover claims that may arise, the deficiency may have a material adverse effect on our
financial condition and results of operations.
We may be subject to calls because we obtain some of our insurance through protection and indemnity associations.
We may be subject to increased premium payments, or calls, in amounts based on our claim records and the claim
records of our fleet managers as well as the claim records of other members of the protection and indemnity associations
through which we receive insurance coverage for tort liability, including pollution-related liability. In addition, our protection
and indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls
could result in significant expense to us, which could have a material adverse effect on our business, results of operations, cash
flows and financial condition.
Because we generate all of our revenues in dollars but incur a significant portion of our expenses in other currencies,
exchange rate fluctuations could have an adverse impact on our results of operations.
We generate all of our revenues in dollars but we incur a portion of our expenses in currencies other than the dollar.
This difference could lead to fluctuations in net income due to changes in the value of the dollar relative to the other currencies,
in particular the Euro. Expenses incurred in foreign currencies against which the dollar falls in value can increase, decreasing our
revenues. Further declines in the value of the dollar could lead to higher expenses payable by us.
We are a holding company, and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our
financial obligations or to make dividend payments.
We are a holding company, and our subsidiaries, which are all directly and wholly owned by us, , conduct all of our
operations and own all of our operating assets. As a result, our ability to satisfy our financial obligations and to pay dividends
to our shareholders depends on the ability of our subsidiaries to generate profits available for distribution to us and, to the
extent that they are unable to generate profits, we may be unable to pay dividends to our shareholders.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law,
which may negatively affect the ability of public shareholders to protect their interests.
We are incorporated under the laws of the Republic of the Marshall Islands, and our corporate affairs are governed by
our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the
BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few
judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors
under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of
directors under statutes or judicial precedent in existence in certain United States jurisdictions. Shareholder rights may differ as
well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other
states with substantially similar legislative provisions, public shareholders may have more difficulty in protecting their interests
in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation
incorporated in a United States jurisdiction.
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All of our assets are located outside of the United States. Our business is operated primarily from our offices in
Athens, Greece. In addition, our directors and officers are non-residents of the United States, and all or a substantial portion of
the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for you to
bring an action against us or against these individuals in the United States if you believe that your rights have been infringed
under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Marshall Islands
and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or the assets of our directors
and officers. Although you may bring an original action against us, our officers and directors in the courts of the Marshall
Islands based on U.S. laws, and the courts of the Marshall Islands may impose civil liability, including monetary damages,
against us, our officers or directors for a cause of action arising under Marshall Islands law, it may be impracticable for you to
do so given the geographic location of the Marshall Islands.
There is a risk that we could be treated as a U.S. domestic corporation for U.S. federal income tax purposes after the merger
of Star Maritime with and into Star Bulk, with Star Bulk as the surviving corporation, or the Redomiciliation Merger,
which would adversely affect our earnings.
Section 7874(b) of the U.S. Internal Revenue Code of 1986, as amended, or the "Code", provides that, unless certain
requirements are satisfied, a corporation organized outside of the United States which acquires substantially all of the assets
(through a plan or a series of related transactions) of a corporation organized in the United States will be treated as a U.S.
domestic corporation for U.S. federal income tax purposes if shareholders of the U.S. corporation whose assets are being
acquired own at least 80% of the non-U.S. acquiring corporation after the acquisition. If Section 7874(b) of the Code were to
apply to Star Maritime and the Redomiciliation Merger, then, among other consequences, the Company, as the surviving entity
of the Redomiciliation Merger, would be subject to U.S. federal income tax as a U.S. domestic corporation on its worldwide
income after the Redomiciliation Merger. Upon completion of the Redomiciliation Merger and the concurrent issuance of stock
to TMT Co. Ltd., or "TMT", a shipping company headquartered in Taiwan, under the acquisition agreements, the shareholders
of Star Maritime owned less than 80% of the Company. Therefore, the Company believes that it should not be subject to
Section 7874(b) of the Code after the Redomiciliation Merger. Star Maritime obtained an opinion of its counsel, Seward & Kissel
LLP, or "Seward & Kissel", that Section 7874(b) of the Code should not apply to the Redomiciliation Merger. However, there is
no authority directly addressing the application of Section 7874(b) of the Code to a transaction such as the Redomiciliation
Merger where shares in a foreign corporation such as the Company are issued concurrently with (or shortly after) a merger. In
particular, since there is no authority directly applying the "series of related transactions" or "plan" provisions to the post-
acquisition stock ownership requirements of Section 7874(b) of the Code, the U.S. Internal Revenue Service, or the "IRS", may
not agree with Seward & Kissel's opinion on this matter. Moreover, Star Maritime has not sought a ruling from the IRS on this
point. Therefore, the IRS may seek to assert that we are subject to U.S. federal income tax on our worldwide income for taxable
years after the Redomiciliation Merger, although Seward & Kissel is of the opinion that such an assertion should not be
successful.
We may have to pay tax on U.S. source income, which would reduce our earnings.
Under the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as the Company
and its subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the
United States is characterized as U.S. source shipping income and such income is subject to a 4% U.S. federal income tax
without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the
regulations promulgated thereunder by the U.S. Department of the Treasury.
We expect that we will qualify for this statutory tax exemption and we have taken this position for U.S. federal income
tax return reporting purposes for 2010 and we intend to take this position for 2011. However, there are factual circumstances
beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to U.S. federal
income tax on our U.S. source shipping income. For instance, we would no longer qualify for exemption under Section 883 of the
Code for a particular taxable year if shareholders with a 5% or greater interest in our common stock owned, in the aggregate,
50% or more of our outstanding common stock for more than half the days during the taxable year. Due to the factual nature of
the issues involved, we can give no assurances with regard to our tax-exempt status or that of any of our subsidiaries.
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If we are not entitled to the exemption under Section 883 of the Code for any taxable year, we would be subject during
those years to a 4% U.S. federal income tax on our U.S. source shipping income. The imposition of this tax would have a
negative effect on our business and would result in decreased earnings.
The preferential tax rates applicable to "qualified dividend income" are temporary, and the enactment of proposed
legislation could affect whether dividends paid by us constitute "qualified dividend income" eligible for the preferential tax
rates.
Certain of our distributions may be treated as "qualified dividend income" eligible for preferential rates of U.S. federal
income tax to U.S. taxpayers. In the absence of legislation extending the term for these preferential tax rates, all dividends
received by such U.S. taxpayers in tax years beginning on January 1, 2013 or later will be subject to U.S. federal income tax at the
graduated tax rates applicable to ordinary income.
In addition, legislation has been proposed in the U.S. Congress that would, if enacted, deny the preferential rates of
U.S. federal income tax currently imposed on "qualified dividend income" with respect to dividends received from a non-U.S.
corporation if the non-U.S. corporation is created or organized under the laws of a jurisdiction that does not have a
comprehensive income tax system. Because the Marshall Islands imposes only limited taxes on entities organized under its laws,
it is likely that if this legislation were enacted, the preferential tax rates of U.S. federal income tax may no longer be applicable to
distributions received from us. As of the date hereof, it is not possible to predict with certainty whether this proposed
legislation will be enacted.
U.S. tax authorities could treat us as a "passive foreign investment company," which could have adverse U.S. federal
income tax consequences to U.S. shareholders.
We will be treated as a "passive foreign investment company," or "PFIC", for U.S. federal income tax purposes if either
(1) at least 75% of our gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the
average value of our assets produce, or are held for the production of, those types of "passive income," to which the Company
refers to as "passive assets." For purposes of these tests, "passive income" includes dividends, interest, and gains from the
sale or exchange of investment property, and rents and royalties other than rents and royalties which are received from
unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from
the performance of services does not constitute "passive income." U.S. shareholders of a PFIC may be subject to a
disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive
from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our method of operation, we take the position for U.S. federal income tax purposes that we have not been,
and are not currently, a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are
deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we take the
position that our income from our time chartering activities does not constitute "passive income," and the assets that we own
and operate in connection with the production of that income do not constitute "passive assets."
There is, however, no direct legal authority under the PFIC rules addressing our method of operation. In addition, we
have not received an opinion of counsel with respect to this issue. We believe there is substantial legal authority supporting
our position consisting of case law and IRS pronouncements concerning the characterization of income derived from these time
charters as services income for other tax purposes. However, we note that there is also authority which characterizes time
charter income as rental income rather than services income for other tax purposes. Accordingly, there is a risk that the IRS or a
court of law may not accept our position, and treat us as a PFIC. Moreover, we may constitute a PFIC for any future taxable year
if there were to be changes in the nature and extent of our operations.
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If the IRS or a court were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders may face
adverse U.S. federal income tax consequences. Under the PFIC rules, unless such U.S. shareholders make an election available
under the Code (which election could itself have adverse consequences), such U.S. shareholders would be subject to U.S.
federal income tax at the then highest income tax rates on ordinary income plus interest upon excess distributions and upon any
gain from the disposition of our common stock, as if the excess distribution or gain had been recognized ratably over the U.S.
shareholder's holding period of our common stock.
Risks Relating to Our Common Stock
There may be no continuing public market for you to resell our common stock.
Our common shares commenced trading on the Nasdaq Global Select Market in December 2007. There may be no
continuing active or liquid public market for our common shares. The price of our common stock may be volatile and may
fluctuate due to factors such as:
·
·
·
·
·
·
actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in
our industry;
mergers and strategic alliances in the drybulk shipping industry;
market conditions in the drybulk shipping industry and the general state of the securities markets;
changes in government regulation;
shortfalls in our operating results from levels forecast by securities analysts; and
announcements concerning us or our competitors.
You may not be able to sell your shares of our common stock in the future at the price that you paid for them or at all.
In addition, if the price of our common stock falls below $1.00, we may be involuntarily delisted from the Nasdaq Global Select
Market.
Certain stockholders hold registration rights, which may have an adverse effect on the market price of our common stock.
Initial stockholders of Star Maritime who purchased common stock and units in private transactions prior to Star
Maritime's initial public offering have certain registration rights which require us, under certain circumstances, to register the
resale of their shares. Pursuant to those registration rights, we have included in a universal shelf registration statement (File No.
333-156843), which was declared effective by the Commission on February 17, 2009, for the resale registration of 14,305,599
shares of common stock. The resale of these common shares in addition to the registration of other securities included in such
registration statement, may have an adverse effect on the market price of our common stock.
Future sales of our common stock could cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales
could occur, may depress the market price for our common stock. These sales could also impair our ability to raise additional
capital through the sale of our equity securities in the future.
As noted above, we have filed a universal shelf registration statement pursuant to which we may offer and sell
different types of securities and that includes the resale registration of an aggregate of 11,981,766 common shares. We may
issue additional shares of our common stock, warrants or other equity securities or securities convertible into our equity
securities in the future and our stockholders may elect to sell large numbers of shares held by them from time to time. Our
amended and restated articles of incorporation authorize us to issue 300,000,000 common shares with par value $0.01 per share.
As of December 31, 2010 and March 21, 2011, we had 63,410,360 shares outstanding. All of our warrants expired worthless and
ceased trading on the Nasdaq Global Select Market on March 15, 2010.
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Anti-takeover provisions in our organizational documents could make it difficult for our stockholders to replace or remove
our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which
could adversely affect the market price of our common stock.
Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our
stockholders to change the composition of our board of directors in any one year, preventing them from changing the
composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that
stockholders may consider favorable.
These provisions include:
·
·
·
·
authorizing our board of directors to issue "blank check" preferred stock without stockholder approval;
providing for a classified board of directors with staggered, three year terms;
prohibiting cumulative voting in the election of directors; and
authorizing the board to call a special meeting at any time.
The market price of our common shares has fluctuated widely and may fluctuate widely in the future.
The market price of our common shares has fluctuated widely since our common shares began trading in the Nasdaq
Global Select Market in December 2007, and may continue to do so as a result of many factors such as actual or anticipated
fluctuations in our quarterly and annual results and those of other public companies in our industry, mergers and strategic
alliances in the shipping industry, market conditions in the shipping industry, changes in government regulation, shortfalls in
our operating results from levels forecast by securities analysts, announcements concerning us or our competitors and the
general state of the securities market.
The market price of our common shares has dropped below $5.00 per share, and the last reported sale price on the
Nasdaq Global Select Market on March 29, 2011 was $2.43 per share. If the market price of our common shares remains below
$5.00 per share, under stock exchange rules, our shareholders will not be able to use such shares as collateral for borrowing in
margin accounts. This inability to continue to use our common shares as collateral may lead to sales of such shares creating
downward pressure on and increased volatility in the market price of our common shares.
The shipping industry has been highly unpredictable and volatile. The market for common shares in this industry may
be equally volatile. Therefore, we cannot assure you that you will be able to sell any of our common shares you may have
purchased at a price greater than or equal to its original purchase price.
Item 4. Information on the Company
A. History and development of the Company
We were incorporated in the Marshall Islands on December 13, 2006. Our executive offices are located at 7 Fragoklisias
Street, 2nd floor, Maroussi 151 25, Athens, Greece and our telephone number is 011 30 210 617 8400.
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Star Maritime Acquisition Corp., or Star Maritime, was organized under the laws of the State of Delaware on May 13,
2005 as a blank check company formed to acquire, through a merger, capital stock exchange, asset acquisition or similar
business combination, one or more assets or target businesses in the shipping industry. Following the formation of Star
Maritime, our officers and directors were the holders of 9,026,924 shares of common stock representing all of our then issued
and outstanding capital stock. On December 21, 2005, Star Maritime consummated its initial public offering of 18,867,500 units,
at a price of $10.00 per unit, each unit consisting of one share of Star Maritime common stock and one warrant to purchase one
share of Star Maritime common stock at an exercise price of $8.00 per share. In addition, Star Maritime completed during
December 2005 a private placement of an aggregate of 1,132,500 units each unit consisting of one share of common stock and
one warrant, to Mr. Tsirigakis, our former Chief Executive Officer and one of our directors, Mr. Syllantavos, our Chief Financial
Officer and one of our directors, Mr. Pappas our Chairman of the Board and Mr. Erhardt, one of our directors. The gross
proceeds of the private placement of $11.3 million were used to pay all fees and expenses of the initial public offering and as a
result, the entire gross proceeds of the initial public offering amounting to $188.7 million were deposited in a trust account
maintained by American Stock Transfer & Trust Company. Star Maritime's common stock and warrants started trading on the
American Stock Exchange under the symbols, SEA and SEA.WS, respectively on December 21, 2005.
On January 12, 2007, Star Maritime and Star Bulk entered into definitive agreements to acquire a fleet of eight drybulk
carriers with a combined cargo-carrying capacity of approximately 692,000 dwt. from certain subsidiaries of TMT. These eight
drybulk carriers are referred to as the initial fleet. The aggregate purchase price specified in the Master Agreement by and
among the Company, Star Maritime and TMT, or the Master Agreement, for the initial fleet was $224.5 million in cash and
12,537,645 shares of our common stock, which were issued on November 30, 2007. As additional consideration for eight vessels,
we agreed to issue 1,606,962 shares of our common stock to TMT in two installments as follows: (i) 803,481 additional shares of
our common stock, no more than 10 business days following the filing of our Annual Report on Form 20-F for the fiscal year
ended December 31, 2007, and (ii) 803,481 additional shares of our common stock, no more than 10 business days following the
filing of our Annual Report on Form 20-F for the fiscal year ended December 31, 2008. The shares in respect of the first
installment were issued to a nominee of TMT on July 17, 2008 and the shares in respect of the second installment were issued to
a nominee of TMT on April 28, 2009.
On November 2, 2007, the Commission declared effective our joint proxy/registration statement filed on Forms F-1/F-4
and on November 27, 2007 we obtained shareholder approval for the acquisition of the initial fleet and for effecting the
Redomiciliation Merger as a result of which Star Maritime merged into Star Bulk with Star Maritime merging out of existence and
Star Bulk being the surviving entity. Each share of Star Maritime common stock was exchanged for one share of Star Bulk
common stock and each warrant of Star Maritime was assumed by Star Bulk with the same terms and conditions except that
each became exercisable for common stock of Star Bulk. The Redomiciliation Merger became effective after stock markets
closed on November 30, 2007 and the common shares and warrants of Star Maritime ceased trading on the American Stock
Exchange under the symbols SEA and SEA.WS, respectively. Star Bulk shares and warrants started trading on the Nasdaq
Global Select Market on December 3, 2007 under the ticker symbols SBLK and SBLKW, respectively. Immediately following the
effective date of the Redomiciliation Merger, TMT and its affiliates owned 30.2% of our outstanding common stock. Mr. Nobu
Su, a former member of our board of directors, exercises voting and investment control over the securities held of record by F5
Capital, a Cayman Islands corporation, which is a nominee of TMT. F5 Capital filed a Schedule 13D/A on July 29, 2008 reporting
beneficial ownership of 7.0% of our outstanding common stock. All of our warrants expired worthless and ceased trading on
the Nasdaq Global Select Market on March 15, 2010.
We began our operations on December 3, 2007 with the delivery of our first vessel Star Epsilon. Three of the eight
vessels comprising our initial fleet were delivered to us by the end of December 2007. Additionally, on December 3, 2007, we
entered into an agreement to acquire an additional Supramax vessel, Star Kappa from TMT, which was not included in the
initial fleet and was delivered to us on December 14, 2007. In 2008, we took delivery of the remaining five vessels that we
purchased from TMT, plus an additional four vessels.
Vessel Acquisitions, Dispositions and Other Significant Transactions
Vessel Acquisitions
On January 22, 2008, we entered into an agreement to acquire Star Sigma, a 1991 built Capesize drybulk carrier with a
cargo carrying capacity of approximately 184,403 dwt for the aggregate purchase price of $82.6 million, which includes a
discount of $1.1 million related to the late delivery of the vessel to us by the sellers. We financed approximately $65.0 million of
the purchase price with borrowings under the Piraeus Bank term loan facility dated April 14, 2008, as amended. Star Sigma is
currently operating on a five-year time charter that commenced in March 2009 at a gross daily average charter rate of $38,000.
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On March 11, 2008, we entered into an agreement to acquire Star Omicron, a 2005 built Supramax drybulk carrier with a
cargo carry capacity of approximately 53,489 dwt for the aggregate purchase price of $72.0 million. We financed the purchase
price through a combination of the proceeds received from the exercise of our warrants, working capital and borrowings under
our Piraeus Bank term loan facility dated April 14, 2008, as amended. Following the delivery of this vessel to us in April 2008, it
commenced a three-year time charter at a daily hire rate of $43,000.
On May 22, 2008, we entered into an agreement to acquire Star Cosmo, a 2005 built Supramax drybulk carrier with a
cargo carry capacity of approximately 52,247 dwt for the aggregate purchase price of $70.2 million, which includes a $1.4 million
payment by us to the seller as additional compensation for the early delivery of the vessel to us. We financed the purchase
price through a combination of the proceeds received from the exercise of our warrants and borrowings under our Piraeus Bank
term loan facility dated July 1, 2008. We currently employ this vessel in the spot market.
On June 3, 2008, we entered into an agreement to acquire Star Ypsilon, a 1991 built Capsize drybulk carrier with a cargo
carry capacity of approximately 150,940 dwt for the aggregate purchase price of $86.9 million, which includes a discount of $0.3
million related to the late delivery of the vessel to us by the sellers. We financed the purchase price through a combination of
the proceeds received from the exercise of our warrants and borrowings under our Piraeus Bank term loan facility dated April 14,
2008, as amended.
On February 18, 2010, we entered into an agreement to acquire from an unaffiliated third party, a 2000 built, 171,000
dwt., Capesize drybulk carrier Nord-Kraft (to be renamed Star Aurora) vessel for approximately $42.5 million. We financed the
purchase of this vessel with a combination of cash and borrowings under our Commerzbank AG term loan facility dated
September 3, 2010. In March 2010, we entered into a time charter agreement with Rio Tinto for the Star Aurora for a period of
approximately three years at a gross daily rate of $27,500, which commenced upon the delivery of the Star Aurora to us in
September 2010.
On March 24, 2010, we entered into an agreement with Hanjin Heavy Industries to build a 180,000 dwt Capesize vessel
for $53.6 million with a scheduled delivery in September 2011. We have also entered into a ten year time charter agreement for
this vessel with STX Panocean at a gross daily hire of $24,750.
On April 6, 2010, we entered into an agreement with Hanjin Heavy Industries to build an additional 180,000 dwt
Capesize vessel for $53.3 million with a scheduled delivery in November 2011. We plan to finance the construction of our two
newbuilding vessels with a combination of cash and borrowings under our Credit Agricole Corporate and Investment Bank term
loan facility dated January 20, 2011.
Vessel Dispositions
On April 24, 2008, we entered into an agreement to sell Star Iota for gross proceeds of $18.4 million less $1.8 million of
costs associated with the sale. We delivered this vessel to its purchasers on October 6, 2008.
On July 21, 2009, we entered into an agreement to sell the Star Alpha to an unaffiliated third party for gross proceeds
of approximately $19.9 million. We classified the Star Alpha as an asset held for sale during the third quarter 2009 and as a
result recorded an impairment loss of $75.2 million during the year ended December 31, 2009. We delivered the vessel to its new
owners on December 21, 2009.
On January 18, 2010, we entered into an agreement to sell the Star Beta to an unaffiliated third party for gross proceeds
of approximately $22.0 million. We classified the Star Beta as an asset held for sale during the first quarter 2010 and as a result
recorded an impairment loss of $34.9 million during the year ended December 31, 2010. We delivered the vessel to its new
owners on July 7, 2010.
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Other Significant Transactions
In March 2009 and December 2009, we entered into agreements with our lenders to obtain waivers for certain
covenants including minimum asset coverage covenants contained in our loan agreements. Please see "Item 5. Operating and
Financial Review and Prospects – Liquidity and Capital Resources – Senior Secured Credit Facilities."
On February 23, 2010, our board of directors adopted a new stock repurchase plan for up to $30.0 million to be used for
repurchasing the Company's common shares until December 31, 2011. All repurchased common shares shall be cancelled and
removed from the Company's share capital. We expect the plan to be effective when our lenders remove the relevant covenant
from our loan agreements. On March 15, 2010, our 5,916,150 outstanding warrants expired worthless and ceased trading on the
Nasdaq Global Select Market.
B. Business overview
Introduction
We are an international company providing worldwide transportation of drybulk commodities through our vessel-
owning subsidiaries for a broad range of customers of major and minor bulk cargoes including iron ore, coal, grain, cement and
fertilizer. We were incorporated in the Marshall Islands on December 13, 2006 as a wholly-owned subsidiary of Star Maritime
Acquisition Corp., or Star Maritime. We merged with Star Maritime on November 30, 2007 and commenced operations on
December 3, 2007, which was the date we took delivery of our first vessel.
Our Fleet
We own and operate a fleet of 13 vessels consisting of five Capesize drybulk carriers, including two Capesize
newbuildings that are currently being constructed at Hanjin Heavy Industries, and eight Supramax drybulk carriers with an
average age of 10.6years and a combined cargo carrying capacity of approximately 1,287,686 dwt. Our fleet carries a variety of
drybulk commodities including coal, iron ore, and grains, or major bulks, as well as bauxite, phosphate, fertilizers and steel
products, or minor bulks. We charter all of our vessels on medium- to long-term time charters with an average remaining term of
approximately 1.9 years, other than Star Cosmo and Star Omicron that are currently employed in the spot market.
The following table presents summary information concerning our fleet as of March 21, 2011:
Vessel Name
Star Gamma(1)
Star Delta
Star Epsilon
Star Zeta
Star Theta
Star Kappa
Star Sigma (2)
Star Omicron
Star Cosmo (4)
Year
Built
Daily Gross
Hire Rate
Type/
Minimum
Remaining Term
2002
2000
2001
2003
2003
2001
1991
2005
2005
$
$
$
$
$
$
$
$
$
Time charter/
0.3 year
Time charter/
0.7 year
Time charter/
0.7 year
Time charter/
0.1 year
Time charter/
0.6 year
Time charter/
0.5 year
Time charter/
2.6 years
17,000
14,000
16,100
42,500
19,000
14,500
38,000
Spot
Spot
Vessel
Type
Supramax
Supramax
Supramax
Supramax
Supramax
Supramax
Capesize
Supramax
Supramax
Size
(dwt.)
53,098
52,434
52,402
52,994
52,425
52,055
184,403
53,489
52,247
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Star Ypsilon
Star Aurora
Newbuildings
Capesize
Capesize
150,940
171,199
1991
2000
$
$
13,000
27,500
Time charter/
0.6 years
Time charter/
2.3 years
Hull PN-063 (tbr Star Borealis) (3)
Hull PN-064 (tbr Star Polaris) (3)
Capesize
Capesize
180,000
180,000
2011
2011
$
24,750
Time charter/
10 years
commencing upon
delivery which is
expected in
September 2011
Expected delivery in
November 2011
(1) On February 18, 2011 we received a letter from KLC, the charterer of the vessel Star Gamma, requesting an agreement on
adjustment of charter hire. Additionally, we were notified of the commencement of rehabilitation proceedings of KLC in
Korea and the related schedule for making claims against KLC in those proceedings. The charter with KLC has a term that
ends in December 2011. As of February 18, 2011, KLC owed us approximately $1.8 million in charterhire related to this
vessel. We have asserted liens in respect of certain amounts due to KLC under sub-charters relating to this vessel. On
March 10, 2011, we received a letter from KLC announcing the termination of the charterparty, effective immediately.
Following the termination, we immediately entered into a time charter contract commencing March 10, 2011 with STX Pan
Ocean for the vessel for a period of four to six months, at a gross daily rate of $17,000.
(2) On May 21, 2009, we amended the existing time charter agreement for the Star Sigma with the existing charterer, to a
minimum of 56 months and a maximum of 61 months, at a gross daily rate of $38,000. The new time charter agreement was
effective as of May 1, 2009 and replaced the existing charter dated March 6, 2008, which was for a minimum of 36 months
and a maximum of 41 months, at an average daily rate of $63,000. In addition, the amended time charter agreement includes
an index-based profit sharing arrangement effective as of March 1, 2012, pursuant to which the charterer is obligated to
pay us, in addition to the above daily rate, 50% of the amount by which the Baltic Capesize Index rate exceeds $49,000.
(3) On March 24, 2010 and April 6, 2010, we entered into two contracts with Hanjin Heavy Industries for the construction of
two Capesize vessels at an aggregate construction price of $106.9 million with scheduled deliveries in September and
November 2011, respectively.
(4) On March 24, 2011, we entered into a time charter contract with SK Shipping for the vessel Star Cosmo, for a period of
eleven to thirteen months, at a gross daily rate of $16,500. The new charter party is expected to commence on April 5,
2011.
We actively manage the deployment of our fleet on time charters, which generally can last up to several years. We
charter all of our vessels on medium- to long-term time charters with an average remaining term of approximately 1.9 years, other
than the Star Cosmo and Star Omicron that are currently employed in the spot market. Under time charters, the charterer pays
voyage expenses such as port, canal and fuel costs. We pay for vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, as well as for commissions. We are also
responsible for the drydocking costs relating to each vessel. Our vessels operate worldwide within the trading limits imposed
by our insurance terms and do not operate in areas where United States, European Union or United Nations sanctions have
been imposed.
Competition
Demand for drybulk carriers fluctuates in line with the main patterns of trade of the major drybulk cargoes and varies
according to changes in the supply and demand for these items. We compete with other owners of drybulk carriers in the
Capesize, and Supramax size sectors. Ownership of drybulk carriers is highly fragmented and is divided among approximately
1,500 independent drybulk carrier owners. We compete for charters on the basis of price, vessel location, size, age and
condition of the vessel, as well as on our reputation as an owner and operator.
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Our wholly owned subsidiary, Star Bulk Management arranges our charters (whether voyage charters, period time
charters, bareboat charters or pools) through the use of a worldwide network of shipbrokers, who negotiate the terms of the
charters based on market conditions. These shipbrokers advise Star Bulk Management on a continuous basis of the availability
of cargo for any particular vessel. There may be several shipbrokers involved in any one charter. The negotiation for a charter
typically begins prior to the completion of the previous charter in order to avoid any idle time. The terms of the charter are
based on industry standards.
Customers
As of December 31, 2010, our vessels were chartered as follows: Rio Tinto for Star Aurora, KLC for Star Gamma and
Star Cosmo, GMI for Star Delta and Star Omicron, Cargill for Star Theta and Star Kappa, Norden A/S for Star Zeta and Star
Epsilon, Pacific Bulk for Star Sigma, and Augustea for Star Ypsilon. For the year ended December 31, 2010, we derived 87% of
our voyage revenues from six of our customers. See " – Our Fleeet" above for information concerning the charter agreement
with KLC for the vessel Star Gamma.
Seasonality
Demand for vessel capacity has historically exhibited seasonal variations and, as a result, fluctuations in charter
rates. This seasonality may result in quarter-to-quarter volatility in our operating results for vessels trading in the spot
market. The drybulk sector is typically stronger in the fall and winter months in anticipation of increased consumption of coal
and other raw materials in the northern hemisphere. As a result, our revenues from our drybulk carriers may be weaker during
the fiscal quarters ended June 30 and September 30, and, conversely, our revenues from our drybulk carriers may be stronger in
fiscal quarters ended December 31 and March 31. Seasonality in the sector in which we operate could materially affect our
operating results and cash available for dividends in the future.
Management of the Fleet
As of December 31, 2010, we had thirty-one employees. Twenty-nine of our employees, through Star Bulk
Management and Starbulk S.A., were engaged in the day to day management of the vessels in our fleet. Star Bulk Management
and Starbulk S.A. perform operational and technical management services for the vessels in our fleet, including chartering,
marketing, capital expenditures, personnel, accounting, paying vessel taxes and maintaining insurance. Our Chief Executive
Officer and Chief Financial Officer are also the senior management of Star Bulk Management. Star Bulk Management employs
such number of additional shore-based executives and employees designed to ensure the efficient performance of its activities.
We reimburse and/or advance funds as necessary to Star Bulk Management and Starbulk S.A. in order for our
managers to conduct their activities and discharge their obligations, at cost. We also maintain working capital reserves as may
be agreed between us and Star Bulk Management from time to time.
Star Bulk Management is responsible for the management of the vessels. Star Bulk Management's responsibilities
include, inter alia, locating, purchasing, financing and selling vessels, deciding on capital expenditures for the vessels, paying
vessels' taxes, negotiating charters for the vessels, managing the mix of various types of charters, developing and managing the
relationships with charterers and the operational and technical managers of the vessels. Star Bulk Management subcontracts
certain vessel management services to Star Bulk S.A. and Union Commercial Inc.
Starbulk S.A., our wholly owned subsidiary, provides the technical and crew management of all of our vessels other
than Star Cosmo. Technical management includes maintenance, drydocking, repairs, insurance, regulatory and classification
society compliance, arranging for and managing crews, appointing technical consultants and providing technical support. Star
Bulk Management has entered into an agreement with Union Commercial Inc, or Union to provide the technical and crew
management for the Star Cosmo. Under that agreement, we pay a daily fee of $450, which is reviewed two months before the
beginning of each calendar year. The agreement continues indefinitely unless either party terminates the agreement upon two
months' written notice or a certain termination event occurs.
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Crewing
Star Bulk Management is responsible for recruiting, either directly or through a technical manager or a crew manager,
the senior officers and all other crew members for the vessels in our fleet. Star Bulk Management has the responsibility to
ensure that all seamen have the qualifications and licenses required to comply with international regulations and shipping
conventions, and that the vessels are manned by experienced and competent and trained personnel. Star Bulk Management is
also responsible for insuring that seafarers' wages and terms of employment conform to international standards or to general
collective bargaining agreements to allow unrestricted worldwide trading of the vessels. Since January 19, 2010, Star Bulk
Management and Starbulk S.A., our wholly owned subsidiaries, gradually started to provide in-house crewing management to
our vessels. As of March 21, 2011, Star Bulk Management and Starbulk S.A. provide the crewing management for all of our
vessels, other than the Star Cosmo.
The International Drybulk Shipping Industry
Drybulk cargo is cargo that is shipped in large quantities and can be easily stowed in a single hold with little risk of cargo
damage. In 2010, based on preliminary figures, Clarksons estimates that approximately 5.4 billion tons of drybulk cargo was
transported by sea.
The demand for drybulk carrier capacity is determined by the underlying demand for commodities transported in
drybulk carriers, which in turn is influenced by trends in the global economy. The demand for drybulk carriers is determined by
the volume and geographical distribution of seaborne dry bulk trade, which in turn is influenced by trends in the global
economy. During the 1980s and 1990s seaborne dry bulk trade increased by 1-2% per annum. However, between 2000 and 2010,
seaborne dry bulk trade increased at a compound annual growth rate of 4.0%. The global drybulk carrier fleet may be divided
into four categories based on a vessel's carrying capacity. These categories consist of:
·
·
·
·
Capesize vessels, which have carrying capacities of more than 85,000 dwt. These vessels generally operate
along long-haul iron ore and coal trade routes. There are relatively few ports around the world with the
infrastructure to accommodate vessels of this size.
Panamax vessels have a carrying capacity of between 60,000 and 85,000 dwt. These vessels carry coal, grains,
and, to a lesser extent, minor bulks, including steel products, forest products and fertilizers. Panamax vessels
are able to pass through the Panama Canal making them more versatile than larger vessels.
Handymax vessels have a carrying capacity of between 35,000 and 60,000 dwt. The subcategory of vessels
that have a carrying capacity of between 45,000 and 60,000 dwt are called Supramax. These vessels operate
along a large number of geographically dispersed global trade routes mainly carrying grains and minor bulks.
Vessels below 60,000 dwt are sometimes built with on-board cranes enabling them to load and discharge
cargo in countries and ports with limited infrastructure.
Handysize vessels have a carrying capacity of up to 35,000 dwt. These vessels carry exclusively minor bulk
cargo. Increasingly, these vessels have operated along regional trading routes. Handysize vessels are well
suited for small ports with length and draft restrictions that may lack the infrastructure for cargo loading and
unloading.
The supply of drybulk carriers is dependent on the delivery of new vessels and the removal of vessels from the global fleet,
either through scrapping or loss. As of March 1, 2011, the global drybulk carrier orderbook amounted to 269.7 million dwt, or
49.4% of the existing fleet at that time, with most vessels on the orderbook expected to be delivered within 48 months. The level
of scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions,
as well as operating, repair and survey costs. Drybulk carriers at or over 25 years old are considered to be scrapping candidate
vessels.
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Charterhire Rates
Charterhire rates paid for drybulk carriers are primarily a function of the underlying balance between vessel supply and
demand, although at times other factors may play a role. Furthermore, the pattern seen in charter rates is broadly mirrored across
the different charter types and between the different drybulk carrier categories. However, because demand for larger drybulk
carriers is affected by the volume and pattern of trade in a relatively small number of commodities, charterhire rates (and vessel
values) of larger ships tend to be more volatile than those for smaller vessels.
In the time charter market, rates vary depending on the length of the charter period and vessel specific factors such as
age, speed and fuel consumption. In the voyage charter market, rates are influenced by cargo size, commodity, port dues and
canal transit fees, as well as delivery and redelivery regions. In general, a larger cargo size is quoted at a lower rate per ton than
a smaller cargo size. Routes with costly ports or canals generally command higher rates than routes with low port dues and no
canals to transit.
Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port
within a region with ports where vessels load cargo also are generally quoted at lower rates, because such voyages generally
increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return
charter to a loading area.
Within the drybulk shipping industry, the charterhire rate references most likely to be monitored are the freight rate
indices issued by the Baltic Exchange. These references are based on actual charterhire rates under charter entered into by
market participants as well as daily assessments provided to the Baltic Exchange by a panel of major shipbrokers. The Baltic
Panamax Index is the index with the longest history. The Baltic Capesize Index and Baltic Handymax Index are of more recent
origin.
Charterhire rates have fallen sharply from the highs recorded in 2008. The BDI a daily average of charter rates in 26
shipping routes measured on a time charter and voyage basis and covering Supramax, Panamax, and Capesize drybulk carriers,
declined from a high of 11,793 in May 2008 to a low of 663 in December 2008, which represents a decline of 94%. The BDI fell
over 70% during the month of October, 2008, alone. During 2009, the BDI remained volatile, reaching a low of 772 on January 5,
2009 and a high of 4,661 on November 19, 2009. During 2010, the BDI ranged from a high of 4,209 in May 2010 to a low of 1,700
in July 2010. Following a short period of increase in the third quarter of 2010, the BDI fell to near July 2010 levels at the end of
2010. The BDI decreased further in 2011 to 1,262 as of March 1, 2011. This downturn in drybulk charter rates and their volatility,
which has resulted from the economic dislocation worldwide and the disruption of the credit markets, has had and may continue
to have a number of adverse consequences for drybulk shipping.
Vessel Prices
Newbuilding prices are determined by a number of factors, including the underlying balance between shipyard output
and capacity, raw material costs, freight markets and sometimes exchange rates. In the last few years high levels of new ordering
were recorded across all sectors of shipping. As a result, most of the major shipyards in Japan, South Korea and China had full
orderbooks until the end of 2010, although the downturn in freight rates and the lack of funding to the wider global financial
crisis will lead to some of these orders being cancelled or delayed.
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Newbuilding prices have increased significantly since 2003, due to tightness in shipyard capacity, high levels of new
ordering and stronger freight rates. However, with the sudden and steep decline in freight rates, after August 2008, secondhand
values and lack of new vessel ordering, started to decline. In the secondhand market, the steep increase in newbuilding prices
and the strength of the charter market have also affected values, to the extent that prices rose sharply in 2004/2005, before
dipping in the early part of 2006, only to rise thereafter to new highs in the first half of 2008. However, the sudden and sharp
downturn in freight rates since August 2008 has had a very negative impact on secondhand values. Since then secondhand
values have risen by more than 39%. Currently secondhand values are approximately 14% above the low reached during 2008
and remain well below the highs of 2008.
Environmental and Other Regulations in the Drybulk Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to
international conventions and treaties, national, state and local laws and regulations in force in the countries in which our
vessels may operate or are registered relating to safety and health and environmental protection including the storage,
handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of
contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements
entails significant expense, including vessel modifications and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections.
These entities include the local port authorities (applicable national authorities such as the United States Coast Guard, harbor
master or equivalent), classification societies; flag state administrations (countries of registry) and charterers, particularly
terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the
operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or
temporarily suspend the operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators
and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to the
stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize
operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and
international regulations. We believe that the operation of our vessels is in substantial compliance with applicable
environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations
necessary for the conduct of our operations. However, because such laws and regulations are frequently changed and may
impose increasingly stricter requirements, 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. In addition, a future serious marine incident that
causes significant adverse environmental impact, such as the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, could
result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution
by ships, or the IMO, has adopted the International Convention for the Prevention of Marine Pollution, 1973, as modified by the
related Protocol of 1978 relating thereto, which has been updated through various amendments, or the MARPOL Convention.
The MARPOL Convention establishes environmental standards relating to oil leakage or spilling, garbage management,
sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. The
IMO adopted regulations that set forth pollution prevention requirements applicable to drybulk carriers. These regulations have
been adopted by over 150 nations, including many of the jurisdictions in which our vessels operate.
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In September 1997, the IMO adopted Annex VI to the MARPOL Convention, Regulations for the Prevention of
Pollution from Ships, to address air pollution from ships. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen
oxide emissions from all commercial vessel exhausts and prohibits deliberate emissions of ozone depleting substances (such as
halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the shipboard incineration of specific
substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established
with more stringent controls on sulfur emissions. We believe that all our vessels are currently compliant in all material respects
with these regulations. Additional or new conventions, laws and regulations may be adopted that could require the installation
of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial
condition. In October 2008, the IMO adopted amendments to Annex VI regarding nitrogen oxide and sulfur oxide emissions
standards which are expected to enter into force on July 1, 2010. The amended Annex VI would reduce air pollution from vessels
by, among other things, (i) implementing a progressive reduction of sulfur oxide emissions from ships, with the global sulfur cap
reduced initially to 3.50% (from the current cap of 4.50%), effective from January 1, 2012, then progressively to 0.50%, effective
from January 1, 2020, subject to a feasibility review to be completed no later than 2018; and (ii) establishing new tiers of
stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. U.S. air emissions
standards are now equivalent to these amended Annex VI requirements, and once these amendments become effective, we may
incur costs to comply with these revised standards.
Safety Management System Requirements
IMO also adopted the International Convention for the Safety of Life at Sea, or SOLAS and the International
Convention on Load Lines, or the LL Convention, which impose a variety of standards that regulate the design and operational
features of ships. The IMO periodically revises the SOLAS and LL Convention standards. We believe that all our vessels are in
substantial compliance with SOLAS and LL Convention standards.
Under Chapter IX of SOLAS, the International Safety Management Code for the Safe Operation of Ships and for
Pollution Prevention, or ISM Code, our operations are also subject to environmental standards and requirements contained in
the ISM Code promulgated by the IMO. The ISM Code requires the party with operational control of a vessel to develop an
extensive safety management system that includes, among other things, the adoption of a safety and environmental protection
policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to
emergencies. We rely upon the safety management system that we and our technical manager have developed for compliance
with the ISM Code. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject such party to
increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or
detention in, certain ports. As of the date of this filing, each of our vessels is ISM code-certified.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This
certificate evidences compliance by a vessel's management with the ISM Code requirements for a safety management system.
No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued
by classification societies under the authority of each flag state, under the ISM Code. Both Starbulk S.A. and our appointed
ship managers have obtained documents of compliance for their offices and safety management certificates for all of our vessels
for which the certificates are required by the IMO. The document of compliance, or the DOC, and safety management certificate,
or the SMC, are renewed every five years but the DOC is subject to audit verification annually and the SMC at least every 2.5
years.
Pollution Control and Liability Requirements
IMO has negotiated international conventions that impose liability for oil pollution in international waters and the
territorial waters of the signatory to such conventions. For example, IMO adopted an International Convention for the Control
and Management of Ships' Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention's
implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009),
to be replaced in time with mandatory concentration limits. The BWM Convention will not become effective until 12 months
after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage
of the world's merchant shipping. To date there has not been sufficient adoption of this standard for it to take force. However,
the IMO's Marine Environment Protection Committee passed a resolution in March 2010 encouraging the ratification of the
Convention and calling upon those countries that have already ratified to encourage the installation of ballast water
management systems. If mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of
compliance could increase for ocean carriers. Although we do not believe that the costs of compliance with a mandatory mid-
ocean ballast exchange would be material, it is difficult to predict the overall impact of such a requirement on our operations.
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Although the United States is not a party to these conventions, many countries have ratified and follow the liability
plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969, as
amended in 2000, or the CLC. Under this convention and depending on whether the country in which the damage results is a
party to the 1992 Protocol to the CLC, a vessel's registered owner is strictly liable for pollution damage caused in the territorial
waters of a contracting state by discharge of persistent oil, subject to certain defenses. The limits on liability outlined in the
1992 Protocol use the International Monetary Fund currency unit of Special Drawing Rights, or SDR. Under an amendment to
the 1992 Protocol that became effective on November 1, 2003, for vessels between 5,000 and 140,000 gross tons (a unit of
measurement for the total enclosed spaces within a vessel), liability is limited to approximately $7.01 million (4.51 million SDR)
plus $980.44 (631 SDR) for each additional gross ton over 5,000. For vessels of over 140,000 gross tons, liability is limited to
$139.48 million (89.77 million SDR). As the convention calculates liability in terms of a basket of currencies, these figures are
based on currency exchange rates of 0.643590 SDR per U.S. dollar on February 3, 2010. The right to limit liability is forfeited
under the CLC where the spill is caused by the shipowner's actual fault and under the 1992 Protocol where the spill is caused by
the shipowner's intentional or reckless conduct. Vessels trading with states that are parties to these conventions must provide
evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various
legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that of
the convention. We believe that our protection and indemnity insurance will cover the liability under the plan adopted by the
IMO.
In March 2006, the IMO amended Annex I to MARPOL, including a new regulation relating to oil fuel tank protection,
which became effective August 1, 2007. The new regulation will apply to various ships delivered on or after August 1, 2010. It
includes requirements for the protected location of the fuel tanks, performance standards for accidental oil fuel outflow, a tank
capacity limit and certain other maintenance, inspection and engineering standards.
The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker
Convention, to impose strict liability on shipowners for pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention, which became effective on November 21, 2008, requires registered owners of
ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the
applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the
Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to non-ratifying states, liability for
spills or releases of oil carried as fuel in ship's bunkers typically is determined by the national or other domestic laws in the
jurisdiction where the events or damages occur.
IMO regulations also require owners and operators of vessels to adopt Ship Oil Pollution Emergency Plans. Periodic
training and drills for response personnel and for vessels and their crews are required.
Compliance Enforcement
The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility for the
implementation and enforcement of international maritime regulations for all ships granted the right to fly its flag. The "Shipping
Industry Guidelines on Flag State Performance" evaluates flag states based on factors such as sufficiency of infrastructure,
ratification of international maritime treaties, implementation and enforcement of international maritime regulations, supervision
of surveys, casualty investigations and participation at IMO meetings. All of our vessels are flagged in the Marshall
Islands. Marshall Islands flagged vessels have historically received a good assessment in the shipping industry. We recognize
the importance of a credible flag state and do not intend to use flags of convenience or flag states with poor performance
indicators.
Noncompliance with the ISM Code or other IMO regulations may subject the shipowner or bareboat charterer to
increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of
access to, or detention in, some ports. The U.S. Coast Guard and European Union authorities have indicated that vessels not in
compliance with the ISM Code by the applicable deadlines will be prohibited from trading in U.S. and European Union ports,
respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that
such certificate will be maintained.
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The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if
any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
The U.S. Oil Pollution Act of 1990 and Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection
and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States,
its territories and possessions or whose vessels operate in United States waters, which includes the United States' territorial sea
and its 200 nautical mile exclusive economic zone. The United States has also enacted the Comprehensive Environmental
Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances other than oil,
whether on land or at sea. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners, operators and bareboat charterers are "responsible parties" and are jointly, severally and
strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all
containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels.
OPA defines these other damages broadly to include:
·
·
·
·
·
·
natural resources damage and the costs of assessment thereof;
real and personal property damage;
net loss of taxes, royalties, rents, fees and other lost revenues;
lost profits or impairment of earning capacity due to property or natural resources damage;
net cost of public services necessitated by a spill response, such as protection from fire, safety or health
hazards; and
loss of subsistence use of natural resources.
Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability for non-tank vessels to the greater of
$1,000 per gross ton or $0.85 million per non-tank (e.g. drybulk) vessel that is over 3,000 gross tons (subject to periodic
adjustment for inflation). CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and
provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of $300 per gross
ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for
any other vessel. These OPA and CERCLA limits of liability do not apply if an incident was directly caused by violation of
applicable U.S. federal safety, construction or operating regulations or by a responsible party's gross negligence or willful
misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil
removal activities.
OPA and the U.S. Coast Guard also require owners and operators of vessels to establish and maintain with the U.S.
Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential liability under OPA and CERCLA.
Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety
bond, self-insurance or a guaranty. We plan to comply with the U.S. Coast Guard's financial responsibility regulations by
providing a certificate of responsibility evidencing sufficient self-insurance.
We currently maintain pollution liability coverage insurance in the amount of $1.0 billion per incident for each of our
vessels. If the damages from a catastrophic spill were to exceed our insurance coverage it could have an adverse effect on our
business and results of operation.
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OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents
occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In
some cases, states, which have enacted such legislation, have not yet issued implementing regulations defining vessels owners'
responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call.
We believe that we are in substantial compliance with all applicable existing state requirements. In addition, we intend to comply
with all future applicable state regulations in the ports where our vessels call.
Other Environmental Initiatives
The U.S. Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in U.S. navigable waters
unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized
discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements
the remedies available under OPA and CERCLA. In addition, most U.S. states that border a navigable waterway have enacted
environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of
oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.
The U.S. Environmental Protection Agency, or the EPA, regulates the discharge of ballast water and other substances
in U.S. waters under the CWA. Effective February 6, 2009, EPA regulations require vessels 79 feet in length or longer (other
than commercial fishing and recreational vessels) to comply with a Vessel General Permit authorizing ballast water discharges
and other discharges incidental to the operation of vessels. The Vessel General Permit imposes technology and water-quality
based effluent limits for certain types of discharges and establishes specific inspection, monitoring, recordkeeping and
reporting requirements to ensure the effluent limits are met. U.S. Coast Guard regulations adopted under the U.S. National
Invasive Species Act, or NISA, also impose mandatory ballast water management practices for all vessels equipped with ballast
water tanks entering or operating in U..S. waters, and the Coast Guard recently proposed new ballast water management
standards and practices, including limits regarding ballast water releases. Compliance with the EPA and the U.S. Coast Guard
regulations could require the installation of equipment on our vessels to treat ballast water before it is discharged or the
implementation of other port facility disposal arrangements or procedures at potentially substantial cost, and/or otherwise
restrict our vessels from entering U.S. waters.
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, 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. Our vessels that operate in such port areas with restricted
cargoes are equipped with vapor recovery systems that satisfy these requirements. The CAA also requires states to draft State
Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan
and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the
installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped
with vapor recovery systems that satisfy these existing requirements.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source
discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence
and the discharges individually or in the aggregate result in deterioration of the quality of water. Criminal liability for pollution
may result in substantial penalties or fines and increased civil liability claims.
Greenhouse Gas Regulation
The IMO is evaluating various mandatory measures to reduce greenhouse gas emissions from international shipping,
which may include market-based instruments or a carbon tax. Any passage of climate control legislation or other regulatory
initiatives by the IMO, EU, the U.S. or other countries where we operate that restrict emissions of greenhouse gases could
require us to make significant financial expenditures that we cannot predict with certainty at this time.
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Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel
security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002, or the MTSA came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of
certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in
December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The
new chapter became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities,
most of which are contained in the newly created International Ship and Port Facility Security Code, or the ISPS Code. The ISPS
Code is designed to protect ports and international shipping against terrorism. After July 1, 2004, to trade internationally, a
vessel must attain an International Ship Security Certificate from a recognized security organization approved by the vessel's
flag state. Among the various requirements are:
·
·
·
·
·
·
on-board installation of automatic identification systems to provide a means for the automatic transmission of
safety-related information from among similarly equipped ships and shore stations, including information on a
ship's identity, position, course, speed and navigational status;
on-board installation of ship security alert systems, which do not sound on the vessel but only alert the
authorities on shore;
the development of a ship security plan;
ship identification number to be permanently marked on a vessel's hull;
a continuous synopsis record kept onboard showing a vessel's history including the name of the ship and of
the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the
ship's identification number, the port at which the ship is registered and the name of the registered owner(s)
and their registered address; and
compliance with flag state security certification requirements, which are reviewed every five years and are
subject to intermediate verification every 2.5 years.
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt from MTSA
vessel security measures non-U.S. vessels that have on board, as of July 1, 2004, a valid International Ship Security Certificate
attesting to the vessel's compliance with SOLAS security requirements and the ISPS Code. Our managers intend to implement
the various security measures addressed by MTSA, SOLAS and the ISPS Code, and we intend that our fleet will comply with
applicable security requirements. We have implemented the various security measures addressed by the MTSA, SOLAS and
the ISPS Code.
Inspection by Classification Societies
Every oceangoing vessel must be "classed" by a classification society. The classification society certifies that the
vessel is "in class," signifying that the vessel has been built and maintained in accordance with the rules of the classification
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. In addition, where surveys are required by international conventions and corresponding
laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on
behalf of the authorities concerned.
The classification society also undertakes on request other surveys and checks that are required by regulations and
requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations
of the country concerned.
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For maintenance of the class certification, regular and extraordinary surveys of hull, machinery, including the electrical
plant, and any special equipment classed are required to be performed as follows:
Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the
electrical plant and where applicable for special equipment classed, at intervals of 12 months from the date of commencement of
the class period indicated in the certificate.
Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted
two and one-half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of
the second or third annual survey.
Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the ship's hull,
machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated by the character of
classification for the hull. At the special survey the vessel is thoroughly examined, including audio-gauging to determine the
thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society
would prescribe steel renewals. The classification society may grant a one-year grace period for completion of the special
survey. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel
experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period
was granted, a shipowner has the option of arranging with the classification society for the vessel's hull or machinery to be on a
continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. Upon a shipowner's
request, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of
class. This process is referred to as continuous class renewal.
All areas subject to survey as defined by the classification society are required to be surveyed at least once per class
period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years. Vessels under five years of age can waive drydocking in order to increase available days
and decrease capital expenditures, provided the vessel is inspected underwater.
Most vessels are also drydocked every 30 to 36 months for inspection of the underwater parts and for repairs related
to inspections. If any defects are found, the classification surveyor will issue a "recommendation" which must be rectified by
the shipowner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in class" by a
classification society which is a member of the International Association of Classification Societies. All our vessels are certified
as being "in class" by RINA a major classification society.. All new and secondhand vessels that we purchase must be certified
prior to their delivery under our standard purchase contracts and memorandum of agreement. If the vessel is not certified on the
date of closing, we have no obligation to take delivery of the vessel.
Risk of Loss and Liability Insurance
The operation of any drybulk vessel includes risks such as mechanical failure, hull damage, collision, property loss,
cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes.
In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental incidents, and
the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability
upon owners, operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil
pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in
the United States market.
We maintain hull and machinery insurance, war risks insurance, protection and indemnity cover, and freight,
demurrage and defense cover for our fleet in amounts that we believe to be prudent to cover normal risks in our operations.
However, we may not be able to achieve or maintain this level of coverage throughout a vessel's useful life. Furthermore, while
we believe that the insurance coverage that we will obtain is adequate, not all risks can be insured, and there can be no
guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at
reasonable rates.
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Hull & Machinery and War Risks Insurance
We maintain marine hull and machinery and war risks insurance, which includes the risk of actual or constructive total
loss, for all of our vessels. Our vessels are each covered up to at least fair market value with deductibles of $100,000—$150,000
per vessel per incident. We also maintain increased value coverage for most of our vessels. Under this increased value
coverage, in the event of total loss of a vessel, we will be able to recover the sum insured under the increased value policy in
addition to the sum insured under the hull and machinery policy. Increased value insurance also covers excess liabilities which
are not recoverable under our hull and machinery policy by reason of under insurance.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I
Associations, which insure liabilities to third parties in connection with our shipping activities. This includes third-party liability
and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to
cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other
substances and salvage, towing and other related costs, including wreck removal. Our P&I coverage is subject to and in
accordance with the rules of the P&I Association in which the vessel is entered. Protection and indemnity insurance is a form of
mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs." Our coverage is limited to
approximately $4.25 billion, except for pollution which is limited $1 billion and passenger and crew which is limited to $3 billion.
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The
fourteen P&I Associations that comprise the International Group insure approximately 90% of the world's commercial tonnage
and have entered into a pooling agreement to reinsure each association's liabilities. Each P&I Association has capped its
exposure to this pooling agreement at $4.25 billion. As a member of a P&I Association which is a member of the International
Group, we are subject to calls payable to the associations based on the group's claim records as well as the claim records of all
other members of the individual associations and members of the pool of P&I Associations comprising the International Group.
Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and
certificates with respect to our vessels. The kinds of permits, licenses and certificates required depend upon several factors,
including the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew and the age
of a vessel. We have been able to obtain all permits, licenses and certificates currently required to permit our vessels to operate.
Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or
increase the cost of us doing business.
C. Organizational structure
As of December 31, 2010, we are the sole owner of all of the outstanding shares of the subsidiaries listed in Note 1 of
our consolidated financial statements under Item 18. "Financial Statements."
D. Property, plant and equipment
We do not own any real property. Our interests in the vessels in our fleet are our only material properties. See Item 4.
"Information on the Company—Our Fleet."
Item 4A. Unresolved Staff Comments
None.
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Item 5. Operating and Financial Review and Prospects
Overview
The following management's discussion and analysis of financial condition and results of operations should be read in
conjunction with "Item 3. Key Information – Selected Financial Data", "Item 4. Information on the Company" and our historical
consolidated financial statements and accompanying notes included elsewhere in this report. This discussion contains forward-
looking statements that reflect our current views with respect to future events and financial performance. Our actual results may
differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth
in the section entitled "Risk Factors" and elsewhere in this report.
We are an international company providing worldwide transportation solutions in the drybulk sector through our
vessels-owning subsidiaries for a broad range of customers of major and minor bulk cargoes including iron ore, coal, grain,
cement, and fertilizer, along worldwide shipping routes.
A. Operating Results
Factors Affecting Our Results of Operations
We charter all of our vessels on medium- to long-term time charters with terms of approximately one to four years,
other than the Star Cosmo and Star Omicron that are currently employed in the spot market. Under our time charters, the
charterer typically pays us a fixed daily charterhire rate and bears all voyage expenses, including the cost of bunkers (fuel oil)
and port and canal charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of
crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes and other
miscellaneous expenses, and we also pay commissions to affiliated and unaffiliated ship brokers and to in-house brokers
associated with the charterer for the arrangement of the relevant charter.
On January 20, 2009, we entered into a COA with Vale or the First Vale COA. Under the terms of the First Vale COA,
we transported approximately 700,000 metric tons of iron ore between Brazil and China in four separate Capesize vessel
shipments. In November 2009, we chartered-in a Capesize vessel from a third party for a minimum of three months and a
maximum of five months at a gross daily rate of $50,000 to complete the fourth shipment under the First Vale COA. We
completed all shipments related to the First Vale COA during 2010. On July 14, 2009, we entered into a second COA with Vale,
or the Second Vale COA. Under the terms of the Second Vale COA, we expect to transport approximately 1,280 to 1,360 metric
tons of iron ore between Brazil and China in eight separate Capesize vessel shipments, four shipments of which are
complete. On April 13, 2010, we entered into an agreement with Augustea Atlantica SpA to perform the remaining first four
shipments under the Second Vale COA. COAs relate to the carriage of multiple cargoes over the same route and enables the
COA holder to nominate different ships to perform individual voyages. Essentially, it constitutes a number of voyage charters
to carry a specified amount of cargo during the term of the COA, which usually spans a number of years. All of the vessel's
operating, voyage and capital costs are borne by the ship owner. The freight rate is generally set on a per cargo ton
basis. Although the vessels in our fleet are primarily employed on medium- to long-term time charters ranging from one to five
years, we may employ these and additional vessels under COAs, bareboat charters, in the spot market or in drybulk carrier
pools in the future.
We believe that the important measures for analyzing trends in the results of operations consist of the following:
·
·
Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as
measured by the sum of the number of days each vessel was a part of our fleet during the period divided by
the number of calendar days in that period.
Ownership days are the total calendar days each vessel in the fleet was owned by us for the relevant period.
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·
·
·
Available days are the total calendar days the vessels were in possession for the relevant period after
subtracting for off-hire days relating to drydocking or special or intermediate surveys.
Voyage days are the total days the vessels were in our possession for the relevant period after subtracting all
off-hire days incurred for any reason (including off-hire for drydocking, major repairs, special or intermediate
surveys).
Fleet utilization is calculated by dividing voyage days by available days for the relevant period and takes
into account the dry-docking periods.
The following table reflects our voyage days, ownership days, fleet utilization and TCE rates for the periods indicated:
(TCE rates expressed in U.S. dollars)
Year Ended
December
31, 2009
Year Ended
December
31, 2010
Average number of vessels
Number of vessels in operation (as of the last day of the periods reported)
Average age of operational fleet (in years)
Ownership days
Available days
Voyage days for fleet
Fleet Utilization
Time charter equivalent rate
11.97
11
10.0
4,370
4,240
4,117
97%
29,450
$
$
10.81
11
10.4
3,945
3,847
3,829
99%
26,859
Time Charter Equivalent (TCE)
Time charter equivalent rate, or TCE rate, is a measure of the average daily revenue performance of a vessel on a per
voyage basis. Our method of calculating TCE rate is determined by dividing voyage revenues (net of voyage expenses and
amortization of fair value of above/below market acquired time charter agreements) by voyage days for the relevant time period.
Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise
be paid by the charterer under a time charter contract, as well as commissions. TCE rate is a standard shipping industry
performance measure used primarily to compare period-to-period changes in a shipping company's performance despite
changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be
employed between the periods because charterhire rates for vessels on voyage charters are generally not expressed in per-day
amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.. We included below TCE
revenues, a non-GAAP measure, as we believe it provides additional meaningful information in conjunction with voyage
revenues, the most directly comparable GAAP measure, because it assists our management in making decisions regarding the
deployment and use of our vessels and in evaluating their financial performance. Investors also consider TCE rate in order to
compare our Company's earnings performance with our peer group of companies. Our calculation of TCE may not be
comparable to that reported by other companies.
The following table reflects the calculation of our TCE rates and reconciliation of TCE revenue to voyage revenue as
reflected in the consolidated statement of operations:
(In thousands of Dollars)
Voyage revenues
Less:
Voyage expenses
Amortization of fair value of above/below market acquired time charter
agreements
Year Ended
December 31,
2008
Year Ended
December 31,
2009
Year Ended
December
31, 2010
238,883
142,351
121,042
(3,504)
(15,374)
(16,839)
(80,533)
(5,735)
(1,360)
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Time Charter equivalent revenues
Total voyage days for fleet
Time charter equivalent (TCE) rate (in Dollars)
Voyage Revenues
154,846
3,618
42,799
121,242
4,117
29,450
102,843
3,829
26,859
Voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days and the
amount of daily charterhire, or time charter equivalent, that our vessels earn under period charters, which, in turn, are affected
by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend
positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade
work, the age, condition and specifications of our vessels, levels of supply and demand in the seaborne transportation market
and other factors affecting spot market charter rates for vessels.
Vessels operating on time charters for a certain period of time provide more predictable cash flows over that period of
time, but can yield lower profit margins than vessels operating in the spot charter market during periods characterized by
favorable market conditions. Vessels operating in the spot charter market generate revenues that are less predictable but may
enable us to capture increased profit margins during periods of improvements in charter rates although we would be exposed to
the risk of declining vessel rates, which may have a materially adverse impact on our financial performance. If we employ
vessels on period time charters, future spot market rates may be higher or lower than the rates at which we have employed our
vessels on period time charters.
Vessel Voyage Expenses
Voyage expenses include hire paid for chartered-in vessels, port and canal charges, fuel (bunker) expenses and
brokerage commissions payable to related and third parties.
Our voyage expenses primarily consist of hire paid for chartered-in vessels and commissions paid for the chartering of
our vessels.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance and vessel registry, expenses
relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, regulatory fees, technical
management fees and other miscellaneous expenses. Other factors beyond our control, some of which may affect the shipping
industry in general, including, for instance, developments relating to market prices for crew wages, bunkers and insurance, may
also cause these expenses to increase. Technical vessel managers established an operating expense budget for each vessel and
perform the day-to-day management of the vessels. Star Bulk Management monitors the performance of each of the technical
vessel managers by comparing actual vessel operating expenses with the operating expense budget for each vessel. We are
responsible for the costs of any deviations from the budgeted amounts.
Depreciation
We depreciate our vessels on a straight-line basis over their estimated useful lives determined to be 25 years from the
date of their initial delivery from the shipyard. Depreciation is based on cost less the estimated residual value.
Vessel Management
Our vessels operate worldwide within the trading limits imposed by our insurance terms and do not operate in areas
where United States, European Union or United Nations sanctions have been imposed.
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We reimburse and/or advance funds as necessary to Star Bulk Management and Starbulk S.A. in order for them to
conduct their activities and discharge their obligations, at cost. We also maintain working capital reserves as may be agreed
between us and Star Bulk Management and Starbulk S.A. from time to time.
Star Bulk Management our wholly owned subsidiary is responsible for the management of the vessels. Star Bulk
Management's responsibilities include, inter alia, locating, purchasing, financing and selling vessels, deciding on capital
expenditures for the vessels, paying vessels' taxes, negotiating charters for the vessels, managing the mix of various types of
charters, developing and managing the relationships with charterers and the operational and technical managers of the vessels.
Star Bulk Management subcontracts certain vessel management services to Star Bulk S.A. and Union Commercial Inc.
Starbulk S.A., our wholly owned subsidiary provides the technical and crew management of all of our vessels other
than Star Cosmo. Technical management includes maintenance, drydocking, repairs, insurance, regulatory and classification
society compliance, arranging for and managing crews, appointing technical consultants and providing technical support. Star
Bulk Management has entered into an agreement with Union Commercial Inc, or Union to provide the technical and crew
management for the Star Cosmo. Under that agreement, we pay a daily fee of $450, which is reviewed two months before the
beginning of each calendar year. The agreement continues indefinitely unless either party terminates the agreement upon two
months' written notice or a certain termination event occurs.
Please see Item 4. "Information on the Company – History and development of the Company – Management of the
Fleet" for a discussion of our management fees.
General and Administrative Expenses
We incur general and administrative expenses, including our onshore personnel related expenses, legal and accounting
expenses.
Interest and Finance Costs
We defer financing fees and expenses incurred upon entering into our credit facility and amortize them to interest and
financing costs over the term of the underlying obligation using the effective interest method.
Interest income
We earn interest income on our cash deposits with our lenders.
Inflation
Inflation does not have a material effect on our expenses given current economic conditions. In the event that
significant global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and
financing costs.
Foreign Exchange Fluctuations
Please see Item 11. "Quantitative and Qualitative Disclosures about Market Risk."
Special or Intermediate Survey and Drydocking Costs
We utilize the direct expense method, under which we expense all drydocking costs as incurred.
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Lack of Historical Operating Data for Vessels before Their Acquisition by Us
Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and
examinations of classification society records, there is no historical financial due diligence process when we acquire vessels.
Accordingly, we do not obtain the historical operating data for the vessels from the sellers because that information is not
material to our decision to make vessel acquisitions, nor do we believe it would be helpful to potential investors in our stock in
assessing our business or profitability. Most vessels are sold under a standardized agreement, which, among other things,
provides the buyer with the right to inspect the vessel and the vessel's classification society records. The standard agreement
does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery
of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts
related to the vessel. In addition, the technical management agreement between the seller's technical manager and the seller is
automatically terminated and the vessel's trading certificates are revoked by its flag state following a change in ownership.
Consistent with shipping industry practice, we treat the acquisition of a vessel (whether acquired with or without
charter) as the acquisition of an asset rather than a business, which we believe to be in accordance with applicable US GAAP
and Commission rules. Where a vessel has been under a voyage charter, the vessel is delivered to the buyer free of charter, and
it is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of
the vessel in the hands of the buyer. All of the vessels in our current fleet have been acquired with time charters attached, with
the exception of the Star Beta, the Star Sigma, the Star Aurora and the Star Omicron. In most cases, when a vessel is under
time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer's consent and the
buyer entering into a separate direct agreement (called a "novation agreement") with the charterer to assume the charter. The
purchase of a vessel itself does not transfer the charter because it is a separate service agreement between the vessel owner
and the charterer.
Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we allocate the
purchase price of acquired tangible and intangible assets based on their relative fair values. Where we have assumed an
existing charter obligation or entered into a time charter with the existing charterer in connection with the purchase of a vessel
with the time charter agreement at charter rates that are less than market charter rates, we record a liability, based on the
difference between the assumed charter agreement rate and the market charter rate for an equivalent charter agreement.
Conversely, where we assume an existing charter obligation or enter into a time charter with the existing charterer in connection
with the purchase of a vessel with the charter agreement at charter rates that are above prevailing market charter rates, we
record an asset, based on the difference between the market charter rate and the assumed contracted charter rate for an
equivalent vessel. This determination is made at the time the vessel is delivered to us, and such assets and liabilities are
amortized to revenue over the remaining period of the charter.
When we purchase a vessel and assume or renegotiate a related time charter, we must take the following steps before
the vessel will be ready to commence operations:
obtain the charterer's consent to us as the new owner;
obtain the charterer's consent to a new technical manager;
in some cases, obtain the charterer's consent to a new flag for the vessel;
arrange for a new crew for the vessel, and where the vessel is on charter, in some cases, the crew must be
approved by the charterer;
replace all hired equipment on board, such as gas cylinders and communication equipment;
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
register the vessel under a flag state and perform the related inspections in order to obtain new trading
certificates from the flag state;
implement a new planned maintenance program for the vessel; and
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·
·
·
·
·
·
·
·
44
·
ensure that the new technical manager obtains new certificates for compliance with the safety and vessel
security regulations of the flag state.
The following discussion is intended to help you understand how acquisitions of vessels affect our business and
results of operations.
Our business is comprised of the following main elements:
·
·
employment and operation of our drybulk vessels; and
management of the financial, general and administrative elements involved in the conduct of our business and
ownership of our drybulk vessels.
The employment and operation of our vessels require the following main components:
·
·
·
·
·
·
·
·
·
·
·
·
·
vessel maintenance and repair;
crew selection and training;
vessel spares and stores supply;
contingency response planning;
onboard safety procedures auditing;
accounting;
vessel insurance arrangement;
vessel chartering;
vessel security training and security response plans (ISPS);
obtain ISM certification and audit for each vessel within the six months of taking over a vessel;
vessel hire management;
vessel surveying; and
vessel performance monitoring.
The management of financial, general and administrative elements involved in the conduct of our business and
ownership of our vessels requires the following main components:
·
·
·
·
management of our financial resources, including banking relationships (i.e., administration of bank loans and
bank accounts);
management of our accounting system and records and financial reporting;
administration of the legal and regulatory requirements affecting our business and assets; and
management of the relationships with our service providers and customers.
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The principal factors that affect our profitability, cash flows and shareholders' return on investment include:
·
·
·
·
·
rates and periods of charterhire;
levels of vessel operating expenses;
depreciation and amortization expenses;
financing costs; and
fluctuations in foreign exchange rates.
Critical Accounting Policies
We make certain estimates and judgments in connection with the preparation of our consolidated financial statements,
which are prepared in accordance with accounting principles generally accepted in the United States, or US GAAP, that affect
the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at
the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or
conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in
materially different results under different assumptions and conditions. We have described below what it believes will be the
most critical accounting policies that involve a high degree of judgment and the methods of their application.
Impairment of long-lived assets. We follow guidance related to Impairment or Disposal of Long-lived Assets, which
addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard requires that
long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate of
undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying
amount, we should evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value. In
this respect, management regularly reviews the carrying amount of the vessels on vessel by vessel basis when events and
circumstances indicate that the carrying amount of the vessels might not be recoverable. As of December 31, 2008, 2009 and
2010, we performed an impairment review of our vessels due to the global economic downturn and the prevailing conditions in
the shipping industry. We compared undiscounted cash flows to the carrying values for our vessels to determine if the assets
were impaired. Our management's subjective judgment is required in making assumptions that are used in forecasting future
operating results used in this method. Such judgment is based on historical trends as well as future expectations regarding
future charter rates, vessel operating expenses and fleet utilization that were applied over the remaining useful life of the
vessel. Expected expenditures for scheduled vessels' maintenance and vessels' operating expenses are based on historical data
and adjusted annually for inflation. The Company has assumed no change in the remaining useful life of the current
fleet. These estimates are consistent with the plans and forecasts used by management to conduct our business. As a result of
this analysis, no assets were considered to be impaired, and we did not recognize any impairment charge for our vessels other
than Star Iota which was classified as held for sale during the year ended December 31, 2008 Star Alpha during the year ended
December 31, 2009 and Star Beta during the year ended December 31, 2010.
Vessel Acquisitions. Vessels are stated at cost, which consists of the purchase price and any material expenses
incurred upon acquisition, such as initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel
for its initial voyage. Financing costs incurred during the construction period of the vessels are also capitalized and included in
the vessels' cost. Otherwise these amounts are charged to expense as incurred.
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The aggregate purchase price paid for the eight vessels in our initial fleet from certain subsidiaries of TMT consisted
of cash and our common shares. The stock consideration was measured based on the fair market value of the shares at the time
each vessel was delivered. The additional stock consideration of 1,606,962 common shares was measured when TMT's
performance under the Master Agreement was complete when it delivered the last of the eight vessels in our initial fleet on
March 7, 2008. The aggregate purchase price, which consisted of cash and stock consideration, was allocated to the acquired
vessels based on the relative fair values of the vessels on their respective dates of delivery to us.
Depreciation. The cost of each of our vessels is depreciated beginning when the vessel is ready for its intended use,
on a straight-line basis over the vessel's remaining economic useful life, after considering the estimated residual value.
Management estimates the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard. When
regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the
date such regulations are adopted. Depreciation expense is calculated based on cost less the estimated residual scrap value. We
estimate scrap value by taking the cost of steel times the weight of the ship noted in lightweight ton, or lwt. There was no
change in this estimate during the years ending December 31, 2008, 2009 and 2010 and we believe there will be no change in the
near future.
Fair value of above/below market acquired time charter: We record all identified tangible and intangible assets
associated with the acquisition of a vessel or liabilities at their relative fair value. Fair value of above or below market acquired
time charters is determined by comparing existing charter rates in the acquired time charter agreements with the market rates for
equivalent time charter agreements prevailing at the time the foregoing vessels are delivered. The present values representing
the fair value of the above or below market acquired time charters are recorded as an intangible asset or liability,
respectively. Such intangible asset or liability is recognized ratably as an adjustment to revenues over the remaining term of the
assumed time charter.
As a result of downturn in the shipping industry during the fourth quarter of 2008, we revised our original assumptions
of the latest available redelivery dates used in determining the term of its below and above market acquired time charter
agreements. Under the guidance related to Accounting Changes and Error Corrections this revision was treated as a change in
accounting estimate and was accounted for prospectively beginning October 1, 2008. The unamortized balance of below market
acquired time charter agreements was amortized on an accelerated basis assuming the earliest redelivery dates of vessels under
existing time charter agreements. This change had a positive impact on revenue of $13.0 million for the year ended December 31,
2008.
Due to early time charter terminations the remaining unamortized balances of the intangible assets and liabilities
associated with such below or above market acquired time charters where recognized as "Gain on time charter agreement
termination" or "Loss on time charter agreement termination" in the consolidated statements of operations for years ended
December 31, 2008 and 2009. Refer to note 7 of our consolidated financial statements.
Equity incentive plan awards. Stock-based compensation represents vested and non-vested restricted shares granted
to employees and directors, for their services as directors, and is included in "General and administrative expenses" in the
consolidated statements of operations. These shares are measured at their fair value equal to the market value of our common
stock on the grant date. The shares that do not contain any future service vesting conditions are considered vested shares and
a total fair value of such shares is expensed on the grant date. The shares that contain a time-based service vesting conditions
are considered non-vested shares on the grant date and a total fair value of such shares is recognized using the accelerated
method.
We currently assume that all non-vested shares will vest. We do not include estimated forfeitures in determining the
total stock-based compensation expense because we estimate the forfeitures of non-vested shares to be immaterial and we did
not have forfeitures in the past. We will, however, re-evaluate the reasonableness of our assumption at each reporting period.
We pay dividends on all non-vested shares regardless of whether they have has vested and there is an obligation of the
employee to return the dividend when employment ceases. The retained dividends on restricted share grantee awards that are
expected to vest were charged to retained earnings.
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Results of Operations
Year ended December 31, 2010 compared to the year ended December 31, 2009
Voyage Revenues: Voyage revenues for the years ended December 31, 2010 and 2009, were approximately $121.0
million and $142.4 million, respectively. This decrease is mainly due to lower average TCE rates, a non-US GAAP measure
representing time charter equivalent daily cash rates earned from chartering of our vessels, during the year ended December
2010 as compared to the year ended December 31, 2009. During the year ended December 31, 2010, we earned $26,859 TCE rate
per day as compared to $29,450 TCE rate per day for the year ended December 31, 2009 due to the decrease in prevailing charter
rates at which a number of our vessels were chartered. Charterhire rates were volatile in 2009 and 2010 and continue to be
volatile. During 2009, the BDI remained volatile, reaching a low of 772 on January 5, 2009 and a high of 4,661 on November 19,
2009. The BDI decreased to 2,571 on February 12, 2010 primarily due to uncertainty in the freight markets. The BDI experienced a
modest recovery again in 2010 based on strong demand for commodities from Asia and a recovering global market. During 2010,
the BDI went from a high on May 26, 2010 of 4,209 and fell to a low of 1,700 on July 15, 2010. At December 31, 2010, the index
was 1,773. This decrease is primarily due to increases in vessel supply. Furthermore the average number of vessels operated
decreased from 12.0 in 2009 to 10.8 in 2010. In addition, we recorded lower revenue of $4.3 million associated with the
amortization of fair value of below market acquired time charters, attached to vessels acquired, over the remaining period of the
time charters.
Voyage Expenses: For the years ended December 31, 2010 and 2009, voyage expenses, were approximately $16.8
million and $15.4 million, respectively. Consistent with drybulk industry practice, we paid broker commissions ranging from 0%
to 2.50% of the total daily charterhire rate of each charter to ship brokers associated with the charter, depending on the number
of brokers involved with arranging the charter. Voyage expenses also consist of hire paid for chartered-in vessels, port, canal
and fuel costs. There was an increase of $1.4 million in voyage expenses in 2010 as compared to 2009. The increase is mainly
due to higher charter-in vessels expenses during 2010 amounting to $11.2 million as compared to $6.7 million for the year 2009.
All other voyage expenses such as bunkers, port expenses and commissions were lower in 2010 amounting to $5.6 million in
aggregate as compared to $8.7 million in 2009.
Vessel Operating Expenses: For the years ended December 31, 2010 and 2009, our vessel operating expenses were
approximately $22.3 million and $30.2 million, respectively. Vessel operating expenses include crew wages and related costs, the
cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and
other miscellaneous expenses. The decrease is mainly due to more cost efficient in-house management which was fully
implemented during the year ended December 31, 2010 and the decrease in the number of vessels that operated during the year
ended December 31, 2010, compared to the same period of 2009.
Drydocking Expenses: For the year ended December 31, 2010 and 2009, our drydocking expenses were $6.6 million and
$6.1 million, respectively. Four vessels underwent their periodic drydocking survey during both years ended December 31, 2010
and 2009.
Depreciation: We depreciate our vessels based on a straight line basis over the expected useful life of each vessel,
which is 25 years from the date of their initial delivery from the shipyard. Depreciation is based on the cost of the vessel less its
estimated residual value, which is estimated at $200 per lwt, at the date of the vessel's acquisition. Secondhand vessels are
depreciated from the date of their acquisition through their remaining estimated useful life. For the years ended December 31,
2010 and 2009, we recorded vessel depreciation charges of approximately $46.9 million and $58.3 million, respectively. The
decrease was primarily due to the operation of a smaller fleet.
Vessel Impairment Loss: On January 18, 2010, we agreed to sell the Star Beta, a vessel from our initial fleet, to a third
party for a contracted sales price of $22.0 million. We delivered this vessel to its purchasers on July 7, 2010. Star Beta was
classified as asset held for sale during the first quarter of 2010 which resulted in an impairment loss of $34.9 million as the vessel
was recorded at the lower of its carrying amount or fair value less cost to sell.
On July 21, 2009, we agreed to sell the Star Alpha, a vessel from our initial fleet, to a third party for a contracted sale
price of $19.9 million. We delivered this vessel to its purchasers on December 21, 2009. Star Alpha was classified as asset held
for sale during the third quarter of 2009 which resulted in an impairment loss of $75.2 million as the vessel was recorded at the
lower of its carrying amount or fair value less cost to sell.
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Gain/loss on derivative: During the years ended December 31, 2010 and 2009, the change in fair market value and the
settlements of our FFAs and bunker swaps resulted in a loss of $2.1 million and a loss of $2.2 million, respectively.
Gain on time charter agreement termination: During the year ended December 31, 2010, we did not record any gain
on time charter agreement termination. However, during the year ended December 31, 2009:
i)
ii)
Star Alpha, which was on time charter at a gross daily charter rate of $47,500 per day for the period from
January 9, 2008 until March 18, 2009, and was redelivered to us by its charterers approximately two months
prior to the earliest redelivery date per the time charter agreement. Under the accounting provisions
applicable to intangible assets, we recognized a gain on a time charter agreement termination of $10.1 million,
which relates to the unamortized fair value of below market acquired time charter on the vessel redelivery date.
Star Theta was also redelivered to us by its charterers on March 15, 2009, approximately twenty-nine days
prior to the earliest redelivery date per the time charter agreement. We recognized a gain on time charter
agreement termination amounting to $0.8 million. In addition, we received $0.3 million from its charterers
relating to the early termination of this charter party, which was also recorded as a gain on time charter
termination in the consolidated statements of operations for the year ended December 31, 2009.
Loss on time charter agreement termination: During the year ended December 31, 2010 we did not record any loss on
time charter agreement termination. However, during the year ended December 31, 2009:
i)
ii)
The vessel Star Kappa, which was on time charter at an average gross daily charter rate of $25,500 per day for
the period from April 12, 2009 until July 12, 2014, was redelivered to us by its charterers prior to the earliest
redelivery date per the time charter agreement. We recognized the loss on time charter agreement termination
of $0.9, which relates to the unamortized fair value of above-market acquired time charter on the vessel
redelivery date.
The vessel Star Ypsilon, which was on time charter at an average gross daily charter rate of $91,932 per day
for the period from September 18, 2008 until July 4, 2011, was redelivered to us by its charterers prior to the
earliest redelivery date per the time charter agreement. We recognized the loss on time charter agreement
termination of $10.1 million, which relates to the unamortized fair value of above-market acquired time charter
on the vessel redelivery date. In addition, we recognized a gain amounting to $5.0 million which represents the
deferred revenue from the terminated time charter contract.
Other Operating income: During the fourth quarter of 2010, we recognized a gain of $21.6 million from a claim
settlement related to the early termination of the time charter of the vessel Star Ypsilon that occurred in July 2009 and $5 million
from our sale of a 45% interest in the future proceeds related to the settlement of several commercial claims.
Loss on bad debts: The amount of $2.1 million is related to unpaid hire from a charterer of the vessel Star Alpha that
was written off during the year 2010.
General and Administrative Expenses: For the years ended December 31, 2010 and 2009, we incurred general and
administrative expenses of approximately $15.4 million and $8.7 million, respectively. This increase is mainly due to higher
professional fees and increased stock-based compensation expenses. For the year ended December 31, 2010, our general and
administrative expenses include the salaries and other related costs of the executive officers and other employees ($3.7 million),
rents, legal, accounting costs and consultancy fees, regulatory compliance costs and other miscellaneous expenses ($5.2
million) and costs related to non-vested stock grants under the equity incentive plan ($6.5 million). For the year ended
December 31, 2009, our general and administrative expenses include the salaries and other related costs of the executive officers
and other employees ($3.3 million), our office renovation costs and rents, legal, accounting costs and consultancy fees,
regulatory compliance costs ($3.6 million) and costs related to non-vested stock grants under the equity incentive plan ($1.8
million).
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Interest Expenses and Finance Costs: For the year ended December 31, 2010 and 2009, our interest and finance costs
under our term loan facilities totaled approximately $5.9 million and $9.9 million, respectively. This decrease is mainly due to
lower weighted average interest rates in 2010 amounting to 2.66% as compared to 3.33% for 2009, as well as due to lower
average loan balances outstanding in 2010 amounting to $220.1 million as compared to $273.1 million for 2009.
Interest Income: For the years ended December 31, 2010 and 2009, interest income was $0.5 million and $0.8 million,
respectively.
Year ended December 31, 2009 compared to the year ended December 31, 2008
Voyage Revenues: Voyage revenues for the years ended December 31, 2009 and 2008 were approximately $142.4 million
and $238.9 million, respectively. This decrease is mainly due to the decreased amortization of fair value of below/above market
acquired time charters to $5.7 million for the year ended December 31, 2009 compared to $80.5 million for the year ended
December 31, 2008. Although the average number of vessels was increased to 11.97 vessels for the year ended December 31,
2009 as compared to 10.76 vessels for the year ended December 31, 2008, lower charter rates earned for most of our vessels
during 2009 resulted in a decrease in the average TCE rate, a non US GAAP measure, which was $29,450 per day during the year
ended December 31, 2009 as compared to $42,799 per day for the year ended December 31, 2008. For further information
concerning our calculation of TCE rate, please see Item 5. "Operating and Financial Review and Prospects - Operating Results."
Voyage Expenses: For the years ended December 31, 2009 and 2008, voyage expenses, which mainly consisted of
commissions payable to brokers for the year 2008, were approximately $15.4 million and $3.5 million, respectively. Consistent
with drybulk industry practice, we paid broker commissions ranging from 0% to 2.50% of the total daily charterhire rate of each
charter to ship brokers associated with the charterers, depending on the number of brokers involved with arranging the charter.
Voyage expenses also consist of hire paid for chartered-in vessels, port, canal and fuel costs. There was an increase of $11.9
million in voyage expenses in 2009 as compared to 2008. The increase is mainly due to the fact that on September 13, 2009 we
chartered-in the vessel Star Beta from its charterer to serve the third shipment under the COA with Vale and on November 6,
2009 we also chartered-in a third party vessel to serve the fourth shipment under the same COA.
Vessel Operating Expenses: For the years ended December 31, 2009 and 2008, our vessel operating expenses were approximately
$30.2 million and $26.2 million, respectively. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses
relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. The increase in
operating expenses during the year ended December 31, 2009, was primarily due to the operation of a larger fleet, higher initial storing and
spares purchasing as a matter of necessity for shortages identified following the change of management of our vessels.
Drydocking Expenses: For the year ended December 31, 2009 and 2008, our drydocking expenses were $6.1 million and
$7.9 million. During the years ended December 31, 2009 and 2008, four and five vessels, respectively, underwent their periodic
drydocking survey. In 2008 one vessel underwent unscheduled repairs.
Depreciation: For years ended December 31, 2009 and 2008, we recorded vessel depreciation charges of approximately
$58.3 million and $51.1 million, respectively. The increase was primarily due to the operation of a larger fleet.
Vessel Impairment Loss: On July 21, 2009, we agreed to sell the Star Alpha, a vessel from our initial fleet, to a third
party for a contracted sale price of $19.9 million. We delivered this vessel to its purchasers on December 21, 2009. Star Alpha
was classified as asset held for sale during the third quarter of 2009 which resulted in an impairment loss of $75.2 million as the
vessel was recorded at the lower of its carrying amount or fair value less cost to sell.
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On April 24, 2008, we entered into an agreement to sell the Star Iota for gross proceeds of $18.4 million less $1.8 million
of costs associated with the sale. We delivered this vessel to its purchasers on October 6, 2008. The Star Iota was classified as
a vessel held for sale during the first quarter of 2008 which resulted in an impairment loss of $3.6 million as the vessel was
recorded at the lower of its carrying amount or fair value less cost to sell.
Gain/loss on derivative: Effective December 2008, we entered into several FFAs on the Capesize and Panamax
index. We also entered into bunkers swap agreements during the fourth quarter of 2009. During the years ended December 31,
2009 and 2008, both the change in fair market value and the settlements of our FFAs and bunker swaps resulted in a loss of $2.2
million and a gain of $0.25 million, respectively.
Gain on time charter agreement termination: Star Alpha, which was on time charter at a gross daily charter rate of
$47,500 per day for the period from January 9, 2008 until March 18, 2009, and was redelivered to us by its charterers
approximately two month prior to the earliest redelivery date per the time charter agreement. Under the accounting provisions
applicable to intangible assets, we recognized a gain on a time charter agreement termination of $10.1 million, which relates to
the unamortized fair value of below market acquired time charter on the vessel redelivery date.
Star Theta was also redelivered to us by its charterers on March 15, 2009, approximately twenty-nine days prior to the
earliest redelivery date per the time charter agreement. We recognized a gain on time charter agreement termination amounting
to $0.8 million. In addition, we received $0.3 million from its charterers relating to the early termination of this charter party,
which was also recorded as a gain on time charter termination in the consolidated statements of operations for the year ended
December 31, 2009.
The Star Sigma, which was on time charter to a Japanese charterer at a gross daily charter rate of $100,000 per day from
April 2008 until March 2009 (earliest redelivery), was redelivered to us earlier, in mid-November 2008, pursuant to an agreement
whereby the charterer agreed to pay the contracted rate less $8,000 per day, which is the approximate operating cost for the
vessel, from the date of the actual redelivery in November 2008 through March 1, 2009. This amount net of commissions was
approximately $9.7 million, which was collected and recorded as a gain on time charter termination in the consolidated
statements of operations for the year ended December 31, 2008.
Loss on time charter agreement termination: The vessel Star Kappa, which was on time charter at an average gross
daily charter rate of $25,500 per day for the period from April 12, 2009 until July 12, 2014, was redelivered to us by its charterers
prior to the earliest redelivery date per the time charter agreement. We have recognized the loss on time charter agreement
termination of $0.9, which relates to the unamortized fair value of above-market acquired time charter on the vessel redelivery
date.
The vessel Star Ypsilon, which was on time charter at an average gross daily charter rate of $91,932 per day for the
period from September 18, 2008 until July 4, 2011, was redelivered to us by its charterers prior to the earliest redelivery date per
the time charter agreement. We have recognized the loss on time charter agreement termination of $10.1 million, which relates to
the unamortized fair value of above-market acquired time charter on a vessel redelivery date. In addition, we recognized a gain
amounting to $5.0 million which represents the deferred revenue from the terminated time charter contract.
General and Administrative Expenses: For the years ended December 31, 2009 and 2008, we incurred general and
administrative expenses of approximately $8.7 million and $12.4 million, respectively. For the year ended December 31, 2009, our
general and administrative expenses include the salaries and other related costs of the executive officers and other employees
($3.3 million), our office renovation costs and rents, legal, accounting costs and consultancy fees, regulatory compliance costs
($3.6 million related to professional fees) and costs related to non-vested stock grants under the equity incentive plan ($1.8
million). Furthermore, for the year ended December 31, 2008, our general and administrative expenses include the salaries and
other related costs of the executive officers and other employees ($2.9 million), our office renovation costs and rents, legal,
accounting costs and consultancy fees, regulatory compliance costs ($3.8 million related to professional fees) and costs related
to non-vested stock grants under the equity incentive plan ($4.0 million).
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Interest Expenses and Finance Costs: For the year ended December 31, 2009 and 2008, our interest and finance costs
under our term loan facilities totaled approximately $9.9 million and $10.2 million, respectively. Although the weighted average
interest decreased in 2009 to 3.33% from 4.39% for 2008, the average loan outstanding increased in 2009 to $273.1 million as
compared to $217.1 million for 2008.
Interest Income: For the years ended December 31, 2009 and 2008, interest income was $0.8 million and $1.2 million,
respectively.
B. Liquidity and Capital Resources
Our principal source of funds has been equity provided by our shareholders, long-term borrowing, and operating cash
flow. Our principal use of funds has been capital expenditures to establish and grow our fleet, maintain the quality of our
drybulk carriers, comply with international shipping standards and environmental laws and regulations, fund working capital
requirements, make interest and principal repayments on outstanding loan facilities, and pay dividends.
Our short-term liquidity requirements relate to servicing our debt, payment of operating costs, funding working capital
requirements and maintaining cash reserves against fluctuations in operating cash flows and paying cash dividends when
permissible. Sources of short-term liquidity include our revenues earned from our charters.
We believe that our current cash balance, our operating cash flows and our undrawn amounts under our Credit Agricole
Corporate and Investment Bank Loan Facility dated January 20, 2010 will be sufficient to meet our 2011 liquidity needs despite
that the drybulk charter market declined sharply beginning in the third quarter of 2008 and has remained at depressed levels
throughout 2009, 2010 and 2011 to date. Our results of operations have been and may in the future be adversely affected if
market conditions do not improve.
Our medium- and long-term liquidity requirements include funding the equity portion of any possible investments in
additional vessels and repayment of long-term debt balances. Sources of funding for our medium- and long-term liquidity
requirements include new loans or equity issuance or vessel sales. As of December 31, 2010, we had outstanding borrowings of
$204.8 million. As of March 21, 2011, we had outstanding borrowings of $217.7 million under our loan facilities. Under our
current credit facilities, $48.6 million is still undrawn which is the maximum available amount under our current loan facilities. We
expect to drawdown this amount during 2011. If the current conditions in the credit market continue, we may not be able to
refinance our existing credit facilities or secure new credit facilities at all or on terms agreeable to us.
We may fund possible growth through our cash balances, operating cash flows, additional long-term borrowing and
the issuance of new equity. Our practice has been to acquire drybulk carriers using a combination of funds from operations and
bank debt secured by mortgages on our drybulk carriers. Our business is capital-intensive and its future success will depend on
our ability to maintain a high-quality fleet through the acquisition of newer drybulk carriers and the selective sale of older
drybulk carriers. These acquisitions will be principally subject to management's expectation of future market conditions as well
as our ability to acquire drybulk carriers on favorable terms. As of December 31, 2010, we had no capital committments to
acquire vessels but had capital commitments of $64.1 million related to the construction of our two newbuildings. We intend to
finance the construction of these two newbuildings with a combination of cash and borrowings under our Credit Agricole
Corporate and Investment Bank term loan facility dated January 20, 2011.
As of December 31, 2010, we had cash and cash equivalents of approximately $12.8 million excluding $25.6 million of
restricted cash due to minimum liquidity covenants and cash collateral requirements contained in our amended loan agreements.
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Cash Flows
For the year ended December 31, 2010, cash and cash equivalents decreased to $12.8 million compared to $40.1 million
for the year ended December 31, 2009, which is primarily due to increased capital expenditures in 2010 compared to 2009. Our
working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. Our working
capital deficit was $19.3 million for the year ended December 31, 2010, compared to a working capital deficit of $10.3 million for
the year ended December 31, 2009. Our working capital deficit primarily increased due to the significant decrease of both cash
and cash equivalents and short term restricted cash by $34.1 million. This decrease during 2010 is mainly from the payment of
the equity portion related to our newbuildings which amounted to $42.8 million and the equity portion related to the acquisition
of the second hand vessel Star Aurora which amounted to $18.0 million. In addition, short term loan payable also decreased
from $59.7 million as at December 31, 2009 to $33.8 million as at December 31, 2010.
If our working capital deficit continues to exist, lenders may be unwilling to provide future financing or will provide
future financing at significantly increased interest rates, which will negatively affect our earnings, liquidity and capital position.
For the year ended December 31, 2010, current and non-current restricted cash decreased to $25.6 million compared to
$38.3 million as of December 31, 2009. For further information please see Item 5. "Operating and Financial Review and Prospects
– Senior Secured Credit Facilities". We believe that our current cash balance and our operating cash flow will be sufficient to
meet our current liquidity needs.
Year ended December 31, 2010 compared to year ended December 31, 2009
Net Cash Provided By Operating Activities
Net cash provided by operating activities for the year ended December 31, 2010 and 2009, was $87.9 million and $65.9
million, respectively. Cash flows generated by the operation of our fleet increased mainly due to $21.6 million in cash collected
in connection with the settlement of the Star Ypsilon claim in 2010 and our sale of a 45% interest in the future proceeds related
to the settlement of several commercial claims for $5 million. Furthermore, vessels operating expenses decreased by
approximately 26% for the year ended December 31, 2010 mainly due to more efficient in-house management and the operation
of a smaller fleet. This was offset by the operation of a lower average number of vessels of 10.8 for the year ended December 31,
2010 compared to 12.0 for the year ended December 31, 2009 and lower average TCE rates, (a non-US GAAP measure
representing TCE daily cash rates earned from chartering our vessels) as a result of the decline in the drybulk vessel shipping
industry. During the year ended December 31, 2010, we earned $26,859 TCE rate per day as compared to $29,450 TCE rate per
day for the year ended December 31, 2009.
Net Cash Used In Investing Activities
Net cash used in investing activities for the year ended December 31, 2010 and 2009 was $60.2 million and $1.4 million,
respectively. Net cash used in investing activities for the year ended December 31, 2010, was primarily due to increased to
vessel costs mainly related to the acquisition of the Star Aurora amounting to $44.1 million plus installments related to our two
newbuildings amounting to $43.5 million in aggregate and offset by a net decrease in restricted cash amounting to $7.0 million
and by the proceeds from the sale of Star Beta amounting to $20.3 million. Net cash used in investing activities for the year
ended December 31, 2009, was primarily a result of the proceeds from the sale of vessel Star Alpha amounting to $19.1 million
offset by an increase in restricted cash of $20.5 million relating to the waivers obtained for existing loan agreements.
Net Cash Used In Financing Activities
Net cash used in financing activities for the year ended December 31, 2010 and 2009 was $55.1 million and $53.8 million
respectively. For the year ended December 31, 2010, net cash used in financing activities consisted of loan installment payments
amounting to $68.4 million, cash dividend payments of $12.4 million and financing fees amounting to $0.3 million offset by
proceeds from new loans related to the acquisition of Star Aurora amounting to $26.0 million. For the year ended December 31,
2009, net cash used in financing activities consisted of loan installment payments amounting to $49.3 million and cash dividend
payments of $6.2 million, offset by cash provided from our directors' dividend reinvestment of $1.9 million.
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Year ended December 31, 2009 compared to year ended December 31, 2008
Net Cash Provided By Operating Activities
Net cash provided by operating activities for the year ended December 31, 2009 and 2008 was $65.9 million and $110.7
million, respectively. The decrease in cash provided by operating activities was primarily due to a decrease in cash flows
generated by the operation of our fleet despite an increase in the average number of vessels to 11.97 for the year ended
December 31, 2009 from 10.76 for the year ended December 31, 2008 due to lower average TCE rates as a result of the decline in
the drybulk vessel shipping industry. During the year ended December 31, 2009, we earned $29,450 TCE rate per day as
compared to $42,799 TCE rate per day for the year ended December 31, 2008 mainly due to lower charter rates for most of our
vessels as imposed by the market. In accordance with the terms of the charter parties for the vessels operating under time
charters, hire is received approximately 15 days in advance, whereas freight voyages are settled during or at the end of the
voyage. Collection terms have not changed compared to prior years. Furthermore, vessel operating expenses increased by
approximately 15% for the year ended December 31, 2009 mostly due to operation of a larger fleet. In addition, during the year
ended December 31, 2008, we collected approximately $9.7 million in charter agreement termination fees from a charterer due to
early vessel redelivery.
Net Cash Used In Investing Activities
Net cash used in investing activities for the years ended December 31, 2009 and 2008 was $1.4 million and $423.3
million, respectively. Net cash used in investing activities for the year ended December 31, 2009 was primarily a result of the
proceeds from sale of vessel Star Alpha amounting to $19.1 million offset by an increase in restricted cash of $20.5 million
relating to the waivers obtained for existing loan agreements. For the year ended December 31, 2008 the cash used in investing
activities related mainly to the payment of the cash consideration of $413.5 million for our initial fleet and additional vessels,
$14.4 million related to the purchase price allocated to the above-market time charters and 12.0 million related to an increase in
restricted cash, which was offset by $16.6 million which represented proceeds from the sale of the Star Iota.
Net Cash Provided By/ Used In Financing Activities
Net cash used in financing activities for the year ended December 31, 2009 was $53.8 million as compared to $323.0
million of net cash provided by financing activities for the year ended December 31, 2008. For the year ended December 31, 2009,
net cash used in financing activities consisted of loan installment payments amounting to $49.3 million and cash dividend
payments of $6.2 million, offset by cash provided from our directors' dividend reinvestment of $1.9 million. For the year ended
December 31, 2008 net cash provided by financing activities consisted of the drawdown of $317.5 million related to our loan
facilities and the proceeds from exercise of warrants of $94.2 million mainly offset by $52.6 million of cash dividends paid, $21.0
million of repayments under our loan agreements and payments of $13.4 million in connection with our repurchase of common
stock and warrants.
Senior Secured Credit Facilities
As of December 31, 2010, we had total indebtedness of $204.8 million.
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Commerzbank AG Loan Facility dated December 27, 2007, as amended
On December 27, 2007, we entered into a loan agreement with Commerzbank AG, Commerzbank, in the amount of up to
$120.0 million to partially finance the acquisition of the secondhand vessels the Star Gamma, the Star Delta, the Star Epsilon,
the Star Zeta, and the Star Theta, which also provide the security for this loan agreement. Under the terms of this loan facility,
the repayment of $120.0 million is over a nine year term and divided into two tranches. The first tranche of up to $50.0 million is
repayable in twenty-eight consecutive quarterly installments commencing twenty-seven months after the initial borrowings but
no later than March 31, 2010 as follows: (i) the first four installments amount to $2.25 million each, (ii) the next thirteen
installments amount to $1.0 million each (iii) the remaining eleven installments amount to $1.3 million each and a final balloon
payment of $13.7 million is payable together with the last installment. The second tranche of up to $70.0 million is repayable in
twenty-eight consecutive quarterly installments commencing twenty-seven months after draw down but no later than March 31,
2010 as follows: (i) the first four installments amount to $4.0 million each (ii) the remaining twenty-four installments amount to
$1.75 million each and a final balloon payment of $12.0 million is payable together with the last installment. The loan bears
interest at LIBOR plus a margin at a minimum of 0.8% per annum to a maximum of 1.25% per annum depending on whether the
aggregate drawdown ranges from 60% up to 75% of the aggregate market value of the 'initial fleet'.
This loan contains financial covenants, including requirements to maintain (i) a minimum liquidity of $10.0 million or
$1.0 million per vessel, whichever is greater (ii) a market value adjusted equity ratio of not less than 25%, as defined therein and
(iii) an aggregate market value of the vessels pledged as security under this loan agreement of not less than (a) 125% of the then
outstanding borrowings for the first three years and (b) 135% of the then outstanding borrowings thereafter.
On June 10, 2009, we entered into a supplemental agreement with Commerzbank. Under the terms of this agreement
during the waiver period from December 31, 2008 to January 31, 2010, the required loan to value ratio, which is the ratio of
outstanding indebtedness to the aggregate market value of the collateral vessels, was amended to 90% from 80% including the
value of the additional security that will be provided by us pursuant to the waiver. In connection with this waiver, as further
security for this facility, we agreed to provide a first preferred mortgage on the Star Alpha and a pledge account containing $6.0
million. During the waiver period LIBOR will be adjusted to the cost of funds, the interest spread was increased to 2%, and the
payment of dividend and the repurchase of our common shares and warrants are subject to the prior written consent of the
lenders.
On January 27, 2010, we entered into a second supplemental agreement with Commerzbank (we were committed to this
agreement as of December 24, 2009). Under the terms of this agreement during the waiver period from February 1, 2010 to June
30, 2010 and from July 1, 2010 to January 31, 2011 the security cover was amended to 111% and 118%, respectively and
135% thereafter. Pursuant to the waiver agreement (i) the bank consented to the sale of the Star Alpha; (ii) we are permitted to
pay dividends not exceeding $0.05 per share in each quarter; (iii) the minimum liquidity requirement was reduced from $1.0
million to $0.7 million per vessel (total minimum liquidity of $7.2 million); and (iv) the amount deposited in the pledged account
was increased by $1.3 million from $6.0 million to $7.3 million. The interest spread was also maintained to 2.00% per annum for
the duration of the waiver period. After the waiver period the minimum liquidity will increase from $0.7 million to $1.0 million for
each vessel in our fleet and the pledged amount of $7.3 million will be released.
We were in compliance with the financial covenants in the supplemental agreements as of December 31, 2010.
As of March 21, 2011, the Company had outstanding borrowings of $92.3 million which is the maximum amount of
borrowings permitted under this loan facility.
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Piraeus Bank A.E. Loan Facility dated April 14, 2008, as amended
On April 14, 2008, we entered into a loan agreement with Piraeus Bank A.E., or Piraeus Bank, as agent, which was
subsequently amended on April 17, 2008 and September 18, 2008. Under the amended terms, the agreement provides for a term
loan of $150.0 million to partially finance the acquisition of the Star Omicron, the Star Sigma and the Star Ypsilon. This loan
agreement is secured by the Star Omicron, the Star Beta, and the Star Sigma. Under the terms of this term loan facility, the
repayment period is six years, beginning three months after our first draw down and is divided into twenty-four consecutive
quarterly installments as follows: (i) the first installment amounts to $7.0 million, (ii) the second through fifth installments
amount to $10.5 million each, (iii) the sixth to eighth installments amount to $8.8 million each, (iv) the ninth through fourteenth
installments amount to $4.4 million each, (v) the fifteenth through twenty-fourth installments amount to $2.7 million each, and a
final balloon payment in the amount of $21.2 million is payable together with the last installment. The loan bears interest at
LIBOR plus a margin of 1.3% per annum. This loan agreement contains financial covenants, including requirements to maintain
(i) a minimum liquidity of $0.5 million per vessel, (ii) total indebtedness over the market value of all vessels owned not greater
than 0.6:1, (iii) the interest coverage ratio not less than 2:1 and (iv) an aggregate market value of the vessels pledged as security
under this loan agreement of not less than (a) 125% of the then outstanding borrowings for the first three years and (b) 135% of
the then outstanding borrowings thereafter.
On May 7, 2009, we entered into an agreement with Piraeus Bank to obtain waivers for certain covenants on the
following terms: during the waiver period from December 31, 2008 to February 28, 2010, the required security cover ratio, which
is the ratio of the aggregate market value of the collateral vessels and the outstanding loan amount, will be waived and for the
period ended February 28, 2011, the minimum security cover requirement will be reduced to 110% from 125% of the outstanding
loan amount. The lenders also waived the required 60% corporate leverage ratio, which is the ratio of our total indebtedness net
of any unencumbered cash divided by the market value of our vessels, through February 28, 2010. In connection with this
waiver, as further security for this facility we agreed to provide (i) first preferred mortgages on and first priority assignments of
all earnings and insurances of the Star Kappa and the Star Ypsilon; (ii) corporate guarantees from each of the collateral vessel
owning limited liability companies; (iii) a subordination of the technical and commercial manager's rights to payment; and (iv) a
pledge account containing $9.0 million.
In addition, during the waiver period the interest spread was increased to 2% per annum and thereafter will be adjusted
to 1.5% per annum until the margin review date of the facility, and the payment of dividend and the repurchase of our common
shares and warrants are subject to the prior written consent of the lenders.
In July 2010 Piraeus Bank consented to the sale of vessel Star Beta. Consequently the first priority mortgage was
released and we prepaid $7.0 million in July 2010. The facility is payable beginning on September 1, 2010, in seventeen
consecutive quarterly installments: (i) the first installment in the amount of $8.1 million (ii) the second to seventh installments
amount to $4.0 million each and (ii) the final ten installments in the amount of $2.5 million each plus a balloon payment of $19.4
million is payable together with the last installment.
We were in compliance with the financial covenants in the amended waiver agreements as of December 31, 2010.
As of March 21, 2011, we had outstanding borrowings of $60.3 million which is the maximum amount of borrowings
permitted under this loan facility.
Piraeus Bank A.E. Loan Facility dated July 1, 2008
On July 1, 2008, we entered into a loan agreement with Piraeus Bank, as lender, in the amount of $35.0 to partially
finance the acquisition of the Star Cosmo, which also provides the security for this loan agreement. Under the terms of this term
loan facility, the repayment of $35.0 million is over six years and begins three months following the full drawn down of the loan
amount, which was July 1, 2008, and is divided into twenty-four consecutive quarterly installments as follows: (i) the first
through fourth installments amount to $1.5 million each, (ii) the fifth through eighth installments amount to $1.250 million each,
(iii) the ninth to twelfth installments amount to $0.875 million each, (iv) the thirteenth through twenty-fourth installments amount
to $0.5 million each and a final balloon payment of $14.5 is payable together with the last installment. The loan bears interest at
LIBOR plus a margin of 1.325% per annum.
The loan agreement contains financial covenants, including requirements to maintain (i) a minimum liquidity of $0.5
million per vessel, (ii) the total indebtedness of the borrower over the market value of all vessels owned shall not be greater than
0.6:1, (iii) the interest coverage ratio shall not be less than 2:1 and (iv) an aggregate market value of the vessels pledged as
security under this loan agreement not less than (a) 125% of the then outstanding borrowings for the first three years and (b)
135% of the then outstanding borrowings thereafter.
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On May 25, 2009, we entered into an amending and restating agreement with Piraeus Bank. Under the terms of this
agreement it was agreed during the waiver period from December 31, 2008 to February 28, 2010, the required security cover ratio
will be waived. After the end of the waiver period, for the period from February 28, 2010 to February 28, 2011 the minimum
security cover requirement will be reduced to 110% from 125% of the outstanding loan amount. The lender will also waive the
required 60% corporate leverage ratio through February 28, 2010. In connection with this waiver, as further security for this
facility we agreed to provide (i) second preferred mortgages on and second priority assignments of all earnings and insurances
of the Star Alpha; (ii) a corporate guarantee from Star Alpha's vessel owning limited liability company; (iii) a subordination of
the technical and commercial managers rights to payment; and (iv) a pledge account containing $5.0 million. This facility is
repayable beginning on April 2, 2009, in 22 consecutive quarterly installments: (i) the first two installments in the amount of $2.0
million each; (ii) the third installment in the amount of $1.75 million; (iii) the fourth installment in the amount of $1.25 million; (iv)
the fifth through tenth installment in the amount of $875,000 each; and (v) the final 12 installments in the amount of $500,000
each plus a balloon payment of $13.75 million payable with the final installment.
In addition, during the waiver period the interest spread was increased to 2% per annum and thereafter will be adjusted
to 1.5% per annum until the margin review date of the facility, and the payment of dividend and the repurchase of our common
shares and warrants are subject to the prior written consent of the lenders. In December 2009, Piraeus Bank released the second
priority mortgage on the Star Alpha and consented to its sale.
On September 29, 2010 the loan was further amended. Under the terms of this agreement the security cover shall be at
all times 125% of the outstanding loan amount. In addition, this lender released to us $5.0 million that was previously pledged,
after we prepaid $2.0 million on October 1, 2010. The facility is payable beginning on October 1, 2010, in sixteen consecutive
quarterly installments: (i) the first four installments in the amount of $0.8 million each; and (ii) the final twelve installments in the
amount of $0.5 million each plus a balloon payment of $12.6 million is payable together with the last installment. In addition, the
interest spread was adjusted to 3% per annum applicable for the period from August 1, 2010 to December 31, 2011, and
thereafter shall be adjusted to 2.5% per annum until the final maturity date of the facility.
We were in compliance with the financial covenants in the amended waiver agreements as of December 31, 2010.
As of March 21, 2011, we had outstanding borrowings of $19.7 million, which is the maximum amount of borrowings
permitted under this loan facility.
Commerzbank AG Loan Facility dated September 3, 2010
On September 3, 2010 we entered into a loan agreement with Commerzbank AG in the amount of up to $26.0 million with
a term of six years to partially finance the acquisition cost of the secondhand vessel, Star Aurora which was provided as
security for this loan agreement. The loan is payable in twenty-four consecutive quarterly installments of $950,000 commencing
three months after the drawdown, and a final balloon payment of $3.2 million payable together with the last installment. The loan
bears interest at LIBOR plus a margin of 2.6%.
The loan contains financial covenants, including requirements to maintain (i) a minimum liquidity of $10.0 million or
$1.0 million per vessel, whichever is greater (ii) the market value adjusted equity ratio shall not be less than 25%, as defined
therein and (iii) a minimum liquidity of $650,000 for this vessel that will increase to $1.0 million when cash pledged due to the
Commerzbank waiver dated December 24, 2009 is released (iii) an aggregate market value of the vessel pledged as security under
this loan agreement not less than 135% at all times.
As of March 21, 2011, we had outstanding borrowings of $24.1 million, which is the maximum amount of borrowings
permitted under this loan facility.
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Credit Agricole Corporate and Investment Bank Loan Facility dated January 20, 2011
On January 20, 2011, we entered into a term loan agreement with Credit Agricole Corporate and Investment Bank for up
to $70.0 million to partially finance the construction costs of Hull PN-063 and Hull PN-064 which have also been provided as
security for this loan agreement. The loan will be drawn in three advances per hull, as follows: upon completion of the keel
laying, the launching and the delivery of each hull. The loan is for a term of seven years and is payable beginning three months
after the delivery of each vessel and is divided into twenty eight consecutive quarterly installments per vessel of $513,000 each
and a final balloon payment of $20.65 million which is payable together with the last installment. The loan bears interest at
LIBOR plus a margin of 2.7% per annum.
The loan agreement contains financial covenants, including requirements to maintain (i) a minimum liquidity of $10.0
million or $500,000 per fleet vessel, whichever is greater (ii) the total indebtedness of the borrower over the market value of all
vessels owned shall not be greater than 0.7:1, (iii) the minimum asset cover ratio shall not be less than (a)120% during the first
two years from delivery of each vessel and (b) 125% of the then outstanding borrowings thereafter.
As of March 21, 2011, we had outstanding borrowings of $21.4 million and $48.6 million of available borrowing capacity
under this facility.
Dividend Payments
Under the terms of our waiver agreements with our lenders, payment of dividends and the repurchasing of our common
shares is subject to the prior written consent of our lenders. Please see "Item 5. Operating and Financial Review and Prospects
– Liquidity and Capital Resources – Senior Secured Credit Facilities."
With the consent of our lenders, (i) in February 2010, we declared a dividend of $0.05 per outstanding share of our
common stock for the three months ending December 31, 2009 that was paid on March 12, 2010 to shareholders of record as of
March 8, 2010, (ii) in May 2010, we declared a dividend of $0.05 per outstanding share of our common stock for the three months
ended March 31, 2010 that was paid on June 4, 2010 to shareholders of record on May 31, 2010, (iii) in August 2010, we declared
a dividend of $0.05 per outstanding share of our common stock for the three months ending June 30, 2010 that was paid on
August 30, 2010 to shareholders of record as of August 25, 2010, (iv) in November 2010, we declared a dividend of $0.05 per
outstanding share of our common stock for the three months ending September 30, 2010 that was paid on December 3, 2010 to
shareholders of record as of November 30, 2010, and (v) in February 2011, we declared a dividend of $0.05 per outstanding share
of our common stock for the three months ending December 31, 2010 that was paid on March 9, 2011 to shareholders of record
as of March 4, 2011.
C. Research and Development, Patents and Licenses
Not Applicable.
D. Trend Information
Please see Item 5.A, "Operating Results - Factors Affecting Our Results of Operations."
E. Off-balance Sheet Arrangements
As of the date of this annual report, we do not have any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
The following table presents our contractual obligations as of December 31, 2010:
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In thousands of Dollars
Payments due by period
Obligations
Total
Less than 1 year
1-3 years
3-5 years
Principal Loan
Payments(1)
Interest payments (1) (2)
Operating lease
obligation(3)
Newbuildings
Total
274,829
28,607
2,436
64,128
370,000
34,298
5,941
211
64,128
104,578
62,808
11,223
455
-
74,486
80,686
6,971
500
-
88,157
More than 5
years (After
January 1,
2016)
97,037
4,472
1,270
-
102,779
(1) Based on our outstanding indebtedness as of December 31, 2010 including the term loan with Credit Agricole Corporate
and Investment Bank, which we agreed to enter in December 2010. We have assumed that the maximum available amount
will be drawn down under all of our credit facilities for purposes of this calculation.
(2)
(3)
Based on an estimated interest rate of 2.66% which is the weighted average interest rate on all our outstanding
indebtedness for the year ended December 31, 2010.
In April 2008, we entered into a twelve-year operating lease for our new office facilities which will expire in April 2020. For
the first year our monthly lease payments are $21,300 (€14,500). In December 2010, the operating lease was amended. The
new agreement provides for an approximate 12% decrease in the monthly lease. Our monthly payments are adjusted
annually according to the inflation rate (which is estimated at 3%) plus 2% as provided per the lease agreement.
G. Safe Harbor
See section "forward looking statements" at the beginning of this annual report.
Item 6. Directors, Senior Management and Employees
A. Directors, Senior Management and Employees
Set forth below are the names, ages and positions of our directors, executive officers and key employees. The board of
directors is elected annually on a staggered basis, and each director elected holds office until his successor shall have been
duly elected and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office.
Officers are elected from time to time by vote of our board of directors and hold office until a successor is elected.
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Messrs Tsirigakis and Syllantavos were re-elected as Class C directors at the 2010 annual general meeting in November
2010. In accordance with the Company's Amended and Restated Articles of Incorporation and Amended and Restated Bylaws,
on February 1, 2011, the Board decided to increase the number of its directors from seven (7) to eight (8) and appointed Mr.
Spyros Capralos, our Chief Executive Officer and President to fill the vacancy created by the increase in the size of the Board
until his successor is duly elected and qualified at our 2011 annual general meeting.
Name
Spyros Capralos
George Syllantavos
Petros Pappas
Prokopios (Akis) Tsirigakis
Tom Søfteland
Peter Espig
Koert Erhardt
Milena Pappas
Age
55
47
57
55
49
44
53
27
Position
Chief Executive Officer, President and Director
Chief Financial Officer, Secretary and Class C Director
Chairman and Class A Director
Class C Director
Class A Director
Class B Director
Class B Director
Class B Director
Spyros Capralos serves and has served since February 7, 2011 as our Chief Executive Officer, President and director.
From October 2004 to October 2010, Mr. Capralos served as Chairman of the Athens Exchange and Chief Executive Officer of
the Hellenic Exchanges Group and was the President of the Federation of European Securities Exchanges. He was formerly Vice
Chairman of the National Bank of Greece, Vice Chairman of Bulgarian Post Bank, Managing Director of the Bank of Athens and
has a ten year banking experience with Bankers Trust Company (now Deutsche Bank) in Paris, New York, Athens, Milan,
London. He is the current President of the Hellenic Olympic Committee and served as Secretary General of the Athens 2004
Olympics Games and Executive Director and Deputy Chief Operating Officer of the Organizing Committee for the Athens 2004
Olympic Games. He studied Economics at the University of Athens and earned his Master Degree in Business Administration
from INSEAD University in France.
George Syllantavos serves and has served since our inception as our Chief Financial Officer, Secretary and director.
He served as Star Maritime's Chief Financial Officer, Secretary and a member of its board of directors since its inception. From
May 1999 to December 2007, he was the President and General Manager of Vortex Ltd., an aviation consulting firm specializing
in strategic and fleet planning. From January 1998 to April 1999, he served as a financial advisor to Hellenic Telecommunications
Organization S.A., where, on behalf of the Chief Executive Officer, he coordinated and led the company's listing on the New
York Stock Exchange (NYSE:OTE) and where he had responsibilities for the strategic planning and implementation of multiple
acquisitions of fixed-line telecommunications companies, including RomTelecom. Mr. Syllantavos served as a financial and
strategic advisor to both the Greek Ministry of Industry & Energy (from June 1995 to May 1996) and the Greek Ministry of
Health (from May 1996 to January 1998), where, in 1997 and 1998, he helped structure the equivalent of a US$700 million bond
issuance for the payment of outstanding debts to the supplier of the Greek National Health System. Mr. Syllantavos has a B.Sc.
in Industrial Engineering from Roosevelt University and an MBA in Operations Management, International Finance and
Transportation Management from Northwestern University (Kellogg).
Petros Pappas serves and has served since our inception as our non executive Chairman of the board of directors. He
served as a member of Star Maritime's board of directors since its inception. Throughout his career as a principal and manager in
the shipping industry, Mr. Pappas has been involved in over 120 vessel acquisitions and disposals. In 1989, he founded
Oceanbulk Maritime S.A., a dry cargo shipping company that has operated managed vessels aggregating as much as 1.6 million
deadweight tons of cargo capacity. He also founded the Oceanbulk Group of affiliated companies, which are involved in the
service sectors of the shipping industry. The Oceanbulk Group is comprised of Oceanbulk Maritime S.A., Interchart Shipping
Inc., Oceanbulk Shipping and Trading S.A., Oceanbulk S&P, Combine Marine Inc., More Maritime Agencies Inc., and Sentinel
Marine Services Inc. Additionally, Mr. Pappas ranked among the top 25 Greek ship owners (by number of ocean going vessels)
as evaluated by the U.S. Department of Commerce's 2004 report on the Greek shipping industry. Mr. Pappas has been a Director
of the UK Defense Club, a leading insurance provider of legal defense services in the shipping industry worldwide, since
January 2002, and is a member of the Union of Greek Shipowners (UGS). Mr. Pappas received his B.A. in Economics and his
MBA from The University of Michigan, Ann Arbor.
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Prokopios (Akis) Tsirigakis serves and has served since our inception as one of our directors. He served as Star
Bulk's Chief Executive Officer and President from its inception to February 7, 2011. He also served as Star Maritime's Chairman
of the Board, Chief Executive Officer and President since its inception. Mr. Tsirigakis is experienced in ship management, ship
ownership and overseeing new shipbuilding projects. Since November 2003, he has been the Joint Managing Director of
Oceanbulk Maritime S.A., a dry cargo shipping company that has operated and managed vessels aggregating as much as 1.6
million deadweight tons of cargo capacity and which is part of the Oceanbulk Group of affiliated companies involved in the
service sectors of the shipping industry. Since November 1998, Mr. Tsirigakis has been the Managing Director of Combine
Marine Inc., a company which he founded that provides ship management services to third parties and which is part of the
Oceanbulk Group. From 1991 to 1998, Mr. Tsirigakis was the Vice-President and Technical Director of Konkar Shipping
Agencies S.A. of Athens, after having served as Konkar's Technical Director from 1984 to 1991, which at the time managed 16
drybulk carriers, multi-purpose vessels and tanker/combination carriers. From 1982 to 1984, Mr. Tsirigakis was the Technical
Manager of Konkar's affiliate, Arkon Shipping Agencies Inc. of New York, a part of the Archirodon Construction Group. He is a
member of the Technical Committee (CASTEC) of Intercargo, the International Association of Dry Cargo Shipowners, and of the
Technical Committees of Classification Societies. Mr. Tsirigakis received his Masters and B.Sc. in Naval Architecture from The
University of Michigan, Ann Arbor and has three years of seagoing experience. Mr. Tsirigakis formerly served on the board of
directors of Dryships Inc., a company listed on the Nasdaq Global Select Market which provides international seaborne
transportation services carrying various dry-bulk cargoes.
Tom Søfteland serves and has served since our inception as a member of our board of directors. He served as a
member of Star Maritime's board of directors since its inception. Since October 1996, he has been the Chief Executive Officer of
Capital Partners A.S. of Bergen, Norway, a financial services firm that he founded and which specializes in shipping and asset
finance. From 1990 to October 1996, he held various positions at Industry & Skips Banken, ASA, a bank specializing in
shipping, most recently as its Deputy Chief Executive Officer. Mr. Søfteland received his B.Sc. in Economics from the
Norwegian School of Business and Administration (NHH).
Peter Espig serves and has served since November 2007 as a member of our board of directors. Mr. Espig is
experienced in the analysis of investment opportunities, raising capital, deal sourcing and financial structuring. In August 2006,
he founded and currently serves as CEO of Advance Capital Japan, a private equity and consulting firm focused on raising
capital for mid-sized companies and pre-IPO investment and consulting. From 2005 to 2006, Mr. Espig served as Vice-President
of the Principal Finance and Securitization Group and Asia Special Situations Group for Goldman Sachs Japan where he was
responsible for sourcing and analyzing investment opportunities, balance sheet restructuring and IPO and exit preparations for
various corporate and real estate investments. Prior to joining Goldman Sachs, Mr. Espig served from 2004 to 2005 as Vice-
President of the New York private equity firm, Olympus Capital, where he participated in corporate restructurings, investment
analysis and financing negotiations for both domestic and international investments. From 2003 to 2004, Mr. Espig worked as a
leveraged finance, special situations banker for Shinsei bank where he participated in leverage buyouts and debt restructurings.
In 1989, Mr. Espig received his B.A. from the University of British Columbia and in 2003, Mr. Espig received his MBA from
Columbia Business School where he was honored as a Chazen Society International Scholar.
Koert Erhardt serves and has served since our inception as a member of our board of directors. He served as a
member of Star Maritime's board of directors since its inception. From September 2004 to December 2004, he served as the Chief
Executive Officer and a member of the board of directors of CC Maritime S.A.M., an affiliate of the Coeclerici Group, an
international conglomerate whose businesses include shipping and transoceanic transportation of drybulk materials. From 1998
to September 2004, he served as General Manager of Coeclerici Armatori S.p.A. and Coeclerici Logistics S.p.A., affiliates of the
Coeclerici Group, where he created a shipping pool that commercially managed over 130 vessels with a carrying volume of 72
million tons and developed the use of Freight Forward Agreement trading as a hedging mechanism to the pool's exposure and
positions. From 1994 to 1998, he served as the General Manager of Bulkitalia, a prominent shipping concern which at the time
owned and operated over 40 vessels. From 1990 to 1994, Mr. Erhardt served in various positions with Bulk Italia. From 1988 to
1990, he was the Managing Director and Chief Operating Officer of Nedlloyd Drybulk, the drybulk arm of the Nedlloyd Group,
an international conglomerate whose interests include container ship liner services, tankers, oil drilling rigs, pipe laying vessels
and ship brokering. Mr. Erhardt received his Diploma in Maritime Economics and Logistics from Hogere Havenen
Vervoersschool (now Erasmus University), Rotterdam, and received his MBA International Executive Program at INSEAD,
Fontainebleau, France. Mr. Erhardt has also studied at the London School of Foreign Trade.
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Milena Pappas has serves and has served since October 1, 2009 as a member of our board of directors. Milena
Pappas is the daughter of the Chairman of the Board, Mr. Petros Pappas. Since 2008, Ms. Pappas has served as a chartering
broker. Ms. Pappas also serves as a consultant in the commercial department of Interchart Shipping Inc., a company affiliated
with the Oceanbulk Group, a group of companies founded by Mr. Petros Pappas. From 2006 until the end of 2007, Ms. Pappas
worked for Oceanbulk Maritime S.A., a company affiliated with the Oceanbulk Group, in its financial and analyst
departments. From 2004 to 2005, she served as a trainee with both Merrill Lynch in its private wealth department and with the
CoeClerici Group in its risk management department. In 2004, while at Merrill Lynch, she assisted in the foundation of the
"Women's Milestones" program. In 2005, Ms. Pappas received a bachelor of arts degree from Cornell University, N.Y. and in
2007 she received a master of science (MSc) in Shipping, Trade and Finance from Cass University, London.
B. Compensation of Directors and Senior Management
For the year ended December 31, 2010, Prokopios Tsirigakis, our former Chief Executive Officer and President, and
George Syllantavos, our Chief Financial Officer and Secretary, received aggregate compensation from the Company in the
amount of $516,891 and $357,110, respectively. Mr. Tsirigakis was succeeded as Chief Executive Officer and President by Mr.
Spyros Capralos as of February 7, 2011. Non-employee directors of Star Bulk receive an annual cash retainer of $15,000, plus a
fee of $1,000 for each board and committee meeting attended, including meetings attended telephonically. The chairman of the
audit committee receives an additional $7,500 per year and each chairman of our other standing committees will receive an
additional $5,000 per year. In addition, each director is reimbursed for out-of-pocket expenses in connection with attending
meetings of the board of directors or committees. We do not have a retirement plan for our officers or directors. During the third
quarter of 2010 two of our non-executive directors received an amount of $30,000 each for participating in a special
committee. The table below summarizes the fees of the board of directors for the year ended December 31, 2010.
In Dollars
Prokopios Tsirigakis
George Syllantavos
Petros Pappas
Tom Softeland
Peter Espig
Koert Erhardt
Milena Pappas
Equity Incentive Plan
-
5,000
23,000
67,500
53,000
35,000
23,000
206,500
On February 23, 2010, we adopted an equity incentive plan, which we refer to as the 2010 Equity Incentive Plan, under
which officers, key employees, directors and consultants of the Company and its subsidiaries will be eligible to receive options
to acquire shares of common stock, stock appreciation rights, restricted stock and other stock-based or stock-denominated
awards. We reserved a total of 2,000,000 shares of common stock for issuance under the plan, subject to adjustment for changes
in capitalization as provided in the plan. The purpose of the 2010 Equity Incentive Plan is to encourage ownership of shares by,
and to assist us in attracting, retaining and providing incentives to, its officers, key employees, directors and consultants
whose contributions to us are or will be important to our success and to align the interests of such persons with our
stockholders. The various types of incentive awards that may be issued under the 2010 Equity Incentive Plan will enable us to
respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business. The
plan is administered by our compensation committee, or such other committee of our board of directors as may be designated
by the board to administer the plan. The plan permits grants of options to purchase common stock, stock appreciation rights,
restricted stock, restricted stock units and unrestricted stock.
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Under the terms of the plan, stock options and stock appreciation rights granted under the plan will have an exercise
price per common share equal to the fair market value of a common share on the date of grant, unless otherwise determined by
the plan administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of
grant. Options and stock appreciation rights are exercisable at times and under conditions as determined by the plan
administrator, but in no event will they be exercisable later than ten years from the date of grant.
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting and
forfeiture provisions and other terms and conditions as determined by the plan administrator. Upon the vesting of a restricted
stock unit, the award recipient will be paid an amount equal to the number of restricted stock units that then vest multiplied by
the fair market value of a common share on the date of vesting, which payment may be paid in the form of cash or common
shares or a combination of both, as determined by the plan administrator. The plan administrator may grant dividend
equivalents with respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization or
other extraordinary event. In the event of a "change in control" (as defined in the plan), unless otherwise provided by the plan
administrator in an award agreement, awards then outstanding shall become fully vested and exercisable in full.
The Board may amend or terminate the plan and may amend outstanding awards, provided that no such amendment or
termination may be made that would materially impair any rights, or materially increase any obligations, of a grantee under an
outstanding award. Stockholder approval of plan amendments may be required in certain definitive, pre-determined
circumstances if required by applicable rules of a national securities exchange or the Commission. Unless terminated earlier by
the board of directors, the plan will expire ten years from the date on which the plan was adopted by the board of directors.
In 2007, we adopted the 2007 Equity Incentive Plan and reserved for issuance 2,000,000 shares of our common stock
under that plan. The terms and conditions of the 2007 Equity Incentive Plan are substantially similar to those of the 2010 Equity
Incentive Plan. All of the shares that were reserved for issuance under the 2007 Equity Incentive Plan were issued and those
grants remain in full force and effect.
Pursuant to the 2007 and 2010 Equity Incentive Plans, we have issued the following securities:
·
·
·
·
On December 3, 2007, 90,000 restricted non-vested common shares to Prokopios (Akis) Tsirigakis, our former
President and Chief Executive Officer, subject to applicable vesting of 30,000 common shares on each of July
1, 2008, 2009 and 2010;
On December 3, 2007, 75,000 restricted non-vested common shares to George Syllantavos, our Chief Financial
Officer and Secretary, subject to applicable vesting of 25,000 common shares on each of July 1, 2008, 2009 and
2010;
On March 31, 2008, 150,000 restricted non-vested common shares to Peter Espig, our Director, subject to
applicable vesting of 75,000 common shares on each of April 1, 2008 and 2009;
On December 5, 2008, an aggregate of 130,000 restricted non-vested common shares to all of our employees
and an aggregate of 940,000 non-vested restricted common shares to the members of our board of
directors. All of these shares vested on January 31, 2009;
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·
·
·
On February 4, 2010, an aggregate of 115,600 restricted non-vested common shares to all of our employees
subject to applicable vesting of 69,360 common shares on June 30, 2010 and 46,240 common shares on June
30, 2011; and
On February 24, 2010, an aggregate of 980,000 restricted non-vested common shares to the members of our
board of directors subject to applicable vesting of 490,000 common shares on each of June 30 and September
30, 2010.
.On October 20, 2010, an aggregate of 1,070,000 restricted non-vested common shares to the members of our
board of directors and 140,000 restricted non-vested common shares to all of our employees. All of these
shares vested on December 31, 2010
As of March 21, 2011, 309,400 shares of our common stock were available for issuance under the 2010 Equity Incentive
Plan.
C. Board Practices
Our board of directors is divided into three classes with only one class of directors being elected in each year and
following the initial term for each such class, each class will serve a three-year term. The initial term of our board of directors is
as follows:
·
·
·
The term of the Company's Class A directors expires in 2011;
The term of Class B directors expires in 2012; and
The term of Class C directors expires in 2013.
Employment and Consultancy Agreements
In 2007, Star Bulk Management entered into an employment agreement, as amended, with Mr. Prokopios Tsirigakis, our
former President and Chief Executive Officer, for work performed for Star Bulk. In 2007, Star Bulk also entered into a separate
consulting agreement with a company owned and controlled by Mr. Tsirigakis for work performed for by him outside of
Greece. Each of these agreements had a term of three years. Under the employment agreement Mr. Tsirigakis received an
annual base salary of €80,000, that was subject to increase based on annual review by the compensation committee of our board
of directors. Under the consulting agreement, the company controlled by Mr. Tsirigakis received an annual consulting fee of
€370,000, a discretionary bonus and additional incentive compensation as determined annually by the compensation committee
of our board of directors and a monthly car allowance in the amount of €1,500, all of which were in addition to any grant of
shares as part of the annual incentive compensation program.
On February 7, 2011, Mr. Tsirigakis was succeeded by Mr. Spyros Capralos as our President and Chief Executive
Officer. Pursuant to the agreements, Mr. Tsirigakis received a payment from us upon this succession and is prohibited for a
period of three months after the end of his employment from participating in business activities with publicly traded companies
in competition with us.
Star Bulk Management has entered into employment agreements with Mr. Spyros Capralos in February 2011 and Mr.
George Syllantavos in 2007 for work performed for Star Bulk. Star Bulk has also entered into separate consulting agreements
with companies owned and controlled by Mr. Capralos in February 2011 and Mr. Syllantavos in 2007, respectively, for work
performed for by them outside of Greece. Each of these agreements has a term of three years unless terminated earlier or
renewed in accordance with the terms of such agreements. Under their employment agreements, Messrs. Capralos and
Syllantavos will each receive an annual base salary which is subject to increase based on annual review by the compensation
committee of our board of directors. Under the consulting agreements, each company controlled by Messrs. Capralos and
Syllantavos is entitled to receive an annual consulting fee. Messrs. Capralos and Syllantavos will also receive additional
incentive compensation as determined annually by the compensation committee of our board of directors, In accordance with
the terms and subject to the conditions of their respective consultancy agreements. Under the terms of our consultancy
agreement with a company controlled by Mr. Capralos, he is entitled to receive a minimum incentive award of 140,000 common
shares, subject to the terms and conditions of the consultancy agreement.
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Pursuant to the agreements, Messrs. Capralos and Syllantavos may engage in other business activities with
companies in the international shipping industry provided that such companies are not publicly traded drybulk shipping
companies. Messrs. Capralos and Syllantavos will be prohibited for a period of three months after the termination of their
employment from participating in business activities with publicly traded companies in competition with Star Bulk unless they
obtain Star Bulk's prior written consent.
Messrs. Capralos and Syllantavos are also entitled to receive benefits under each of their consultancy agreements with
Star Bulk, including, receipt of annual bonuses and discretionary bonuses to be determined by our board of directors in its sole
discretion, stock options and other equity grants pursuant to the our equity incentive plan and a monthly car allowance.
Messrs. Capralos and Syllantavos are entitled to severance payments upon the termination of their respective
positions. In the event they are terminated without cause, Messrs. Capralos and Syllantavos will each receive under their
respective employment and consultancy agreements all accrued and unpaid salary through the date of termination, an amount
equal to two times their annual salary plus the average of their annual incentive awards for each of the three years preceding the
year of the termination and a pro rata bonus for the year in which the termination occurs. Mr. Tsirigakis, our former Chief
Executive Officer and President received a severance payment from us when he was succeeded by Mr. Capralos as of February
7, 2011 pursuant to the terms of his employment and consultancy agreements with the Company.
Officers of Star Bulk will be eligible to receive discretionary bonus awards and/or awards under Star Bulk's equity
incentive plan in such amounts, if any, as determined by the board of directors of Star Bulk, in its sole discretion. In making
such determinations, Star Bulk's board of directors will consider the then prevailing operations and financial condition of Star
Bulk, including any contingencies that are then known, as well as the amount of compensation paid to similarly situated officers
of other companies in the seaborne transportation industry.
Committees of the Board of Directors
Our audit committee is responsible for, among other things, (i) reviewing our accounting controls, (ii) making
recommendations to the board of directors with respect to the engagement of our outside auditors and (iii) reviewing all related
party transactions for potential conflicts of interest and all those related party transactions and subject to approval by our audit
committee. Our compensation committee, which is comprised of three directors, two of which are independent, is responsible
for, among other things, recommending to the board of directors our senior executive officers' compensation and benefits. Our
nominating and corporate governance committee, which is comprised of two independent directors, is responsible for, among
other things, recommending to the board of directors nominees for director and directors for appointment to board committees
and advising the board with regard to corporate governance practices. Shareholders may also nominate directors in accordance
with procedures set forth in our amended and restated bylaws.
The members of the audit, compensation and nominating and corporate governance committees are Mr. Tom
Softeland, who also serves as the chairman of our audit committee, Mr. Koert Erhardt who also acts as the chairman of our
nominating and corporate governance committee, and Mr. George Syllantavos who serves only on the compensation committee
and acts as its chairman.
D. Employees
As of December 31, 2010 and March 21, 2011, we had 31 employees, including our Chief Executive Officer and Chief
Financial Officer, of which 29 employees, were engaged in the day to day management of the vessels in our fleet.
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As of December 31, 2009 and 2008, we had 31 and 22 employees, respectively, including our Chief Executive Officer
and Chief Financial Officer, of which 29 and 20 employees, respectively, were engaged in the day to day management of the
vessels in our fleet.
E. Share Ownership
With respect to the total amount of common stock owned by all of our officers and directors, individually and as a
group, see Item 7 "Major Shareholders and Related Party Transactions."
Item 7. Major Shareholders and Related Party Transactions
A. MAJOR SHAREHOLDERS
The following table presents certain information as of March 29, 2011 regarding the ownership of our shares of
common stock with respect to each shareholder, who we know to beneficially own more than five percent of our outstanding
shares of common stock, and our directors.
Beneficial Owner
Petros Pappas
Giovine Capital Group LLC (2)
F5 Capital (3)
Prokopios Tsirigakis
George Syllantavos
Koert Erhardt
Tom Softeland
Peter Espig
Milena Pappas
Shares of common stock
Amount (1)
Percentage
(1)
8,472,094
7,660,227
3,803,481
2,000,999
972,515
783,471
435,135
333,452
170,000
13.4%
12.1%
6.0%
3.3%
1.5%
1.2%
*%
*%
*%
(1)
(2)
(3)
Percentage amounts based on 63,410,360 shares of our common stock outstanding as of March 29, 2011.
Information derived from the Schedule 13G/A of Giovine Capital Group LLC which was filed with the Commission on
January 7, 2011.
Information derived from the Schedule 13D/A of F5 Capital which was filed with the Commission on July 29,
2008. According to such filing, Mr. Nobu Su, a former member of our board of directors, exercises voting and investment
control over the securities held of record by F5 Capital, a Cayman Islands corporation, which is the nominee of TMT.
*
Less than 1%
Our major shareholders have the same voting rights as our other shareholders. No corporation or foreign government
owns more than 50% of our outstanding shares of common stock. We are not aware of any arrangements, the operation of
which may at a subsequent date result in a change in control of Star Bulk.
B. Related Party Transactions
Oceanbulk Maritime, S.A., a related party, has paid for certain expenses on behalf of Star Maritime. Star Bulk's director
Mr. Petros Pappas is also the Honorary Chairman of Oceanbulk, a ship management company of drybulk vessels. Star Bulk's
former Chief Executive Officer, Mr. Prokopios (Akis) Tsirigakis, as well as its officer Mr. Christos Anagnostou had been
employees of Oceanbulk until November 30, 2007. We also paid to Oceanbulk a brokerage commission in the amount of
$660,000 in connection with the sale of Star Beta in 2010. As of December 31, 2010 we did not had an outstanding receivable
balance with Oceanbulk Maritime, S.A.
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Interchart Shipping Inc. or Interchart, a company affiliated with Oceanbulk, a company controlled by our Chairman,
acts as a chartering broker for all of the Company's vessels except for the vessel Star Kappa. As of December 31, 2010 Star
Bulk had an outstanding liability of $454,396 to Interchart. During the year ended December 31,2010the brokerage commission of
1.25% on charter revenue paid to Interchart amounted $1,539,898 and is included in "Voyage expenses" in the consolidated
statements of operations.
On July 10, 2007, we entered into separate employment agreements with each of Mr. Tsirigakis and Mr. Syllantavos to
employ them as our Chief Executive Officer and President, and our Chief Financial Officer and Secretary, respectively. Each of
these agreements has a term of three years unless terminated earlier in accordance with their respective terms. Each of these
agreements provides for an annual salary and additional incentive compensation as determined annually by the compensation
committee of our board of directors. The aggregate related expenses for 2010 were $199,500 and are included in general and
administrative expenses in the consolidated statement of operations.
On October 3, 2007, we also entered into separate consulting agreements with companies owned and controlled by our
Chief Executive Officer and Chief Financial Officer respectively. Each of these agreements has a term of three years unless
terminated earlier in accordance with the terms of such agreements. Under the consulting agreements, each company controlled
by Messrs. Tsirigakis and Syllantavos received an annual consulting fee Messrs. Tsirigakis and Syllantavos received incentive
compensation as determined annually by the compensation committee of our board of directors. The aggregate related
expenses for 2010 were $874,001 and are included in general and administrative expenses in the consolidated statement of
operations.
On February 2, 2011, we entered into an agreement with Mr. Tsirigakis relating to his employment with the Company.
On February 7, 2011, Mr. Tsirigakis was succeeded by Mr. Spyros Capralos as our Chief Executive Officer and President. Mr.
Tsirigakis received a severance payment from the Company pursuant to the terms and subject to the conditions of his
employment and consultancy agreements with the Company.
On February 28, 2011, we entered into an employment agreement with Mr. Capralos to employ him as our Chief
Executive Officer and President. This agreement has a term of three years unless terminated earlier in accordance with its terms.
Under the employment agreement, Mr. Capralos is entitled to receive an annual salary and additional incentive compensation as
determined annually by the compensation committee of our board of directors.
On February 28, 2011, we also entered into a separate consulting agreement with a company owned and controlled by
Mr. Capralos. This agreement has a term of three years unless terminated earlier in accordance with its terms. Under the
consulting agreement, the company controlled by Mr. Capralos is entitled to receive an annual consulting fee. Mr. Capralos will
also receive additional incentive compensation as determined by the compensation committee of our board of directors.
Messrs. Capralos and Syllantavos are also subject to non-competition and non-solicitation covenants during the terms
of their employment and consultancy agreements and for a period of three months following termination for any reason. The
expenses related to these agreements will be included in general and administrative expenses in the consolidated statement of
operations.
All ongoing and future transactions between us and any of our officers and directors or their respective affiliates,
including loans by our officers and directors, if any, will be on terms believed by us to be no less favorable than are available
from unaffiliated third parties, and such transactions or loans, including any forgiveness of loans, will require prior approval, in
each instance by a majority of our uninterested "independent" directors or the members of our board who do not have an
interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel.
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C. Interests of Experts and Counsel
Not Applicable.
Item 8. Financial Information
A. Consolidated statements and other financial information.
See Item 18. "Financial Statements."
Legal Proceedings
In 2011, all arbitration proceedings between the charterers of the Star Alpha and us and between the charterers and
third parties have been discontinued pursuant to a settlement agreement with the charterers and the sub-charterers. Each party
has been released from the proceedings and claims have been waived. An amount of $2.1 million under "Loss on bad debts" in
our consolidated statements of operations is associated with a write-off of this charterer's balance.
We commenced an arbitration proceeding as complainant against Oldendorff Gmbh & Co. KG of Germany, or
Oldendorff, seeking damages resulting from Oldendorff's repudiation of a charter relating to the Star Beta. The Star Beta had
been time chartered by a subsidiary of the Company to Industrial Carriers Inc. of Ukraine, or ICI. Under that time charter, ICI
was obligated to pay a gross daily charterhire rate of $106,500 until February 2010. In January 2008, ICI sub-chartered the vessel
to Oldendorff for one year at a gross daily charterhire rate of $130,000 until February 2009. In October 2008, ICI assigned its
rights and obligations under the sub-charter to one of our subsidiaries in exchange for ICI being released from the remaining
term of the ICI charter. Oldendorff notified us that it considers the assignment of the sub-charter to be an effective repudiation
of the sub-charter by ICI. ICI subsequently filed an application for protection from its creditors in a Greek insolvency
proceeding which was dismissed. ICI 's appeal was also dismissed. In August 2010, we arrested the ship Sophie Oldendorff in
South Africa on an associate ship basis, as security for the above claims and security was provided. We believe that the
assignment was valid and that Oldendorff has erroneously repudiated the sub-charter. An arbitration hearing has been
scheduled for April 2011.
Vinyl Navigation Inc., which is acting for and on behalf of the Company, commenced arbitration proceedings against
TMT Bulk Corp., or TMT Bulk, for repudiatory breach of the charterparty due to the nonpayment of charterhire related to the
Star Ypsilon. Vinyl Navigation Inc. pursued an award for such nonpayment of charterhire and an award for the loss of
charterhire for the remaining period of the charterparty. During 2010, we received an aggregate of $24.30 million for full and final
settlement of this claim.
During the fourth quarter of 2009 we commenced an arbitration proceeding against Ishaar Overseas FZE of Dubai, or
Ishaar, for repudiatory breach of the charterparty due to the nonpayment of charterhire related to the Star Epsilon. The
Company has commenced an arbitration proceeding against Ishhar for repudiatory breach of the charterparty due to the
nonpayment of charterhire related to the Star Kappa. Both the Company and Ishaar have appointed arbitrators and the
Company has filed claim submissions against the charterers Ishaar. In the fourth quarter of 2010, we commenced additional
arbitration proceedings against the parent company of Ishhar, Bhatia International Limited ("Bhatia"), on the grounds that
Ishhar acted as an agent for the undisclosed principal Bhatia. In December 2010 we arrested the vessel Harkripa in South Africa
on an associate ship basis as security for the claim of Star Epsilon and the vessel remains arrested. A hearing to set aside the
arrest order filed by Fleetmar, the registered owners of the vessel Harkripa, is scheduled for March 29, 2011.
During third quarter of 2010 we commenced arbitration proceedings with Dieulemar over a dispute with the charterers
of the Star Beta. The dispute concerns (i) breach of the charterparty by Dieulemar and resulting damages incurred by us due to
the late delivery of such vessel, which was delivered after the applicable redelivery date under that charterparty, and (ii) such
charterers' allegations that the vessel's performance did not meet the requirements set forth in the charterparty. The arbitration
proceedings are developing and security has been provided.
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On February 18, 2011, we received a letter from KLC, the charterer of the Star Gamma, notifying us of the
commencement of rehabilitation proceedings of KLC in Korea and the related schedule for making claims against KLC in those
proceedings. The receivers for KLC terminated the charterparty on March 9, 2011. The charter with KLC had an initial term that
ends in December 2011. Currently, KLC owes us approximately $1.8 million in charterhire. We have asserted liens against KLC
in respect of certain amounts due to KLC under sub-charters relating to the Star Gamma. Letters setting out our claims for due
hire and damages have been sent to the Seoul Court handling the rehabilitation proceedings of KLC. The disposition of the
claims for the due amounts will determined by the Korea Court at a future date.
On September 29, 2010 we agreed with a third party to sell a 45% interest in the future proceeds related to the
settlement of certain of the commercial claims for $5 million which is included under "Other operating income" in the
accompanying consolidated statements of operations. This amount was collected in October 2010.
We have not been involved in any legal proceedings which we believe may have, or have had, a significant effect on
our business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or
threatened which we believe may have a significant effect on our business, financial position, results of operations or liquidity.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal
injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary
deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
Dividend Policy
Under the terms of our waiver agreements with our lenders, payment of dividends and repurchases of our shares are
subject to the prior written consent of our lenders. Please see "– Senior Secured Credit Facilities." We previously paid regular
dividends on a quarterly basis from our operating surplus, in amounts that allowed us to retain a portion of our cash flows to
fund vessel or fleet acquisitions, and for debt repayment and other corporate purposes, as determined by our management and
board of directors. The declaration and payment of dividends will be subject at all times to the discretion of our board of
directors. The timing and amount of dividends will depend on our earnings, financial condition, cash requirements and
availability, fleet renewal and expansion, restrictions in our loan agreements, the provisions of Marshall Islands law affecting
the payment of dividends and other factors. Marshall Islands law generally prohibits the payment of dividends other than from
surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividends, or if there is no
surplus, dividends may be declared or paid out of net profits for the fiscal year in which the dividend is declared and for the
preceding fiscal year.
We believe that, under current law, our dividend payments from earnings and profits would constitute "qualified
dividend income" and as such will generally be subject to a 15% United States federal income tax rate with respect to non-
corporate individual stockholders. Distributions in excess of our earnings and profits will be treated first as a non-taxable return
of capital to the extent of a United States stockholder's tax basis in its common stock on a Dollar-for-Dollar basis and thereafter
as capital gain. Please see Item 10 "Additional Information—Taxation" for additional information relating to the tax treatment of
our dividend payments.
Under the terms of our waiver agreements with our lenders, payment of dividends and the repurchasing of our common
shares is subject to the prior written consent of our lenders. Please see "Item 5. Operating and Financial Review and Prospects
– Liquidity and Capital Resources – Senior Secured Credit Facilities."
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With the consent of our lenders, (i) in February 2010, we declared a dividend of $0.05 per outstanding share of our
common stock for the three months ending December 31, 2009 that was paid on March 12, 2010 to shareholders of record as of
March 8, 2010, (ii) in May 2010, we declared a dividend of $0.05 per outstanding share of our common stock for the three months
ending March 31, 2010 that was paid on June 4, 2010 to shareholders of record on May 31, 2010, (iii) in August 2010, we
declared a dividend of $0.05 per outstanding share of our common stock for the three months ending June 30, 2010 that was
paid on August 30, 2010 to shareholders of record as of August 25, 2010, (iv) in November 2010, we declared a dividend of $0.05
per outstanding share of our common stock for the three months ending September 30, 2010 that was paid on December 3, 2010
to shareholders of record as of November 30, 2010 and (v) in February 2011, we declared a dividend of $0.05 per outstanding
share of our common stock for the three months ending December 31, 2010 that was paid on March 10, 2010 to shareholders of
record as of March 4, 2011.
B. Significant Changes.
There have been no significant changes since the date of the annual consolidated financial statements included in this
annual report.
Item 9. The Offer and Listing
A. Offer and Listing Details
The Company's common stock is traded on the Nasdaq Global Select Market under the symbol "SBLK." The following
table sets forth, for the five most recent fiscal years, the high and low prices for the common stock on the Nasdaq Global Select
Market.
COMMON STOCK
Fiscal year ended December 31,
2010
2009
2008
2007
2006
High
Low
$
$
$
$
$
$
3.20
$
5.37
$
14.34
14.05
$
10.16 $
2.24
1.21
1.80
9.86
9.45
The following table sets forth, for each full financial quarter for the two most recent fiscal years, the high and low prices of the
common stock on the Nasdaq Global Select Market.
Fiscal year ended December31, 2010
1st Quarter ended March 31, 2010
2nd Quarter ended June 30, 2010
3rd Quarter ended September 30, 2010
4th Quarter ended December 31, 2010
Fiscal year ended December 31, 2009
1st Quarter ended March 31, 2009
2nd Quarter ended June 30, 2009
3rd Quarter ended September 30, 2009
4th Quarter ended December 31, 2009
High
Low
3.20 $
2.99 $
2.94 $
3.17 $
High
Low
3.34
5.37
3.97
3.65
$
$
$
$
2.53
2.42
2.24
2.67
1.21
2.29
3.18
2.69
$
$
$
$
$
$
$
$
The following table sets forth, for the most recent six months, the high and low prices for the common stock on the Nasdaq
Global Select Market.
March 2011*
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
*Through March 28, 2011
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High
Low
2.59
2.60
2.79
3.07
3.17
2.92
2.91
2.36
2.40
2.59
2.67
2.80
2.77
2.84
Item 10. Additional Information
A. Share Capital
Not Applicable.
B. Memorandum and Articles of Association
Directors
Our directors are elected by a majority of the votes cast by stockholders entitled to vote in an election. Our amended
and restated articles of incorporation provide that cumulative voting shall not be used to elect directors. Our board of directors
must consist of at least three members. The exact number of directors is fixed by a vote of at least 66 2/3% of the entire board.
Our amended and restated articles of incorporation provide for a staggered board of directors whereby directors shall be
divided into three classes: Class A, Class B and Class C which shall be as nearly equal in number as possible. Shareholders,
acting as at a duly constituted meeting, or by unanimous written consent of all shareholders, initially designated directors as
Class A, Class B or Class C with only one class of directors being elected in each year and following the initial term for each
such class, each class will serve a three-year term. The initial term of our board of directors is as follows: (i) the term of the
Company's Class A directors expires in 2011; (ii) the term of Class B directors expires in 2012; and (iii) the term of Class C
directors expires in 2010. Each director serves his respective term of office until his successor has been elected and qualified,
except in the event of his death, resignation, removal or the earlier termination of his term of office. Our board of directors has
the authority to fix the amounts which shall be payable to the members of the board of directors for attendance at any meeting
or for services rendered to us.
On November 23, 2009 at our annual meeting of shareholders, our shareholders voted to approve an amendment to our
Amended and Restated Articles of Incorporation as set forth below that would grant the Chairman of our Board of Directors a
tie- breaking vote in the event the Board vote is evenly split or deadlocked on a matter presented for vote. The BCA did not
provide for granting the Chairman a tie-breaking vote where, as in the Company's case, there is only one class of shares
outstanding. The Board deferred authorizing the necessary actions to effect such amendment to our Amended and Restated
Articles of Incorporation until such time as the BCA has been amended to permit such amendment. The BCA was subsequently
amended to permit such amendment. Accordingly, we intend to file Third Amended and Restated Articles of Incorporation
which shall include the following provision:
"To the fullest extent permitted by law, the Chairman of the Corporation's Board of Directors shall be entitled, in his or
her sole discretion, to cast an additional vote in any situation where the votes of directors (including the first vote of the
Chairman and abstentions, if any) are evenly split on a matter, including, without limitation, if such even split results from:
(a) a vote of the entire membership of the Board of Directors;
(b) a vote of the Directors constituting a quorum at a meeting of the Board of Directors, or
(c) a vote of Directors actually voting at a meeting of the Board of Directors."
The form of Third Amended and Restated Articles of Incorporation is field as Exhibit 1.1 to this Annual Report on Form 20-F.
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Stockholder Meetings
Under our amended and restated bylaws, annual stockholder meetings will be held at a time and place selected by our
board of directors. The meetings may be held in or outside of the Marshall Islands. Special meetings may be called by the board
of directors, chairman of the board or by the president. Our board of directors may set a record date between 10 and 60 days
before the date of any meeting to determine the stockholders that will be eligible to receive notice and vote at the meeting.
Dissenters' Rights of Appraisal and Payment
Under the BCA, our stockholders have the right to dissent from various corporate actions, including any merger or
consolidation, sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of
the fair value of their shares. In the event of any further amendment of our amended and restated articles of incorporation, a
stockholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in
respect of those shares. The dissenting stockholder must follow the procedures set forth in the BCA to receive payment. In the
event that we and any dissenting stockholder fail to agree on a price for the shares, the BCA procedures involve, among other
things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any
jurisdiction in which the Company's shares are primarily traded on a local or national securities exchange.
Stockholders' Derivative Actions
Under the BCA, any of our stockholders may bring an action in our name to procure a judgment in our favor, also
known as a derivative action, provided that the stockholder bringing the action is a holder of common stock both at the time the
derivative action is commenced and at the time of the transaction to which the action relates.
Indemnification of Officers and Directors
Our amended and restated bylaws includes a provision that entitles any our directors or officers to be indemnified by
us upon the same terms, under the same conditions and to the same extent as authorized by the BCA if he acted in good faith
and in a manner reasonably believed to be in and not opposed to our best interests, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
We are also authorized to carry directors' and officers' insurance as a protection against any liability asserted against
our directors and officers acting in their capacity as directors and officers regardless of whether we would have the power to
indemnify such director or officer against such liability bylaw or under the provisions of our bylaws. We believe that these
indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.
The indemnification provisions in our amended and restated bylaws may discourage stockholders from bringing a
lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood
of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and
our stockholders. There is currently no pending material litigation or proceeding involving any of our directors, officers or
employees for which indemnification is sought.
Anti-takeover Provisions of our Charter Documents
Several provisions of our amended and restated articles of incorporation and bylaws may have anti-takeover effects.
These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and
enhance the ability of our board of directors to maximize stockholder value in connection with any unsolicited offer to acquire
us. However, these anti -takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the
merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise, that a stockholder may consider
in its best interest and (2) the removal of incumbent officers and directors.
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Blank Check Preferred Stock
Under the terms of our amended and restated articles of incorporation, our board of directors has authority, without
any further vote or action by our stockholders, to issue up to 25.0 million shares of blank check preferred stock. Our board of
directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of our
company or the removal of our management.
Classified Board of Directors
Our amended and restated articles of incorporation provide for a board of directors serving staggered, three-year
terms. Approximately one-third of our board of directors will be elected each year. The classified board provision could
discourage a third party from making a tender offer for our shares or attempting to obtain control of our company. It could also
delay stockholders who do not agree with the policies of the board of directors from removing a majority of the board of
directors for two years.
Election and Removal of Directors
Our amended and restated articles of incorporation prohibit cumulative voting in the election of directors. Our articles
of incorporation also require shareholders to give advance written notice of nominations for the election of directors. Our
articles of incorporation further provide that our directors may be removed only for cause and only upon affirmative vote of the
holders of at least 70% of the outstanding voting shares of the Company. These provisions may discourage, delay or prevent
the removal of incumbent officers and directors.
Limited Actions by Stockholders
Our bylaws provide that if a quorum is present, and except as otherwise expressly provided by law, the affirmative vote
of a majority of the shares of stock represented at the meeting shall be the act of the shareholders. Shareholders may act by way
of written consent in accordance with the provisions of Section 67 of the BCA.
Advance Notice Requirements for Shareholder Proposals and Director Nominations
Our amended and restated articles of incorporation provide that shareholders seeking to nominate candidates for
election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal
in writing to the corporate secretary. Generally, to be timely, a shareholder's notice must be received at our principal executive
offices not less than 120 days nor more than 180 days prior to the one year anniversary of the preceding year's annual meeting.
Our articles of incorporation also specify requirements as to the form and content of a shareholder's notice. These provisions
may impede shareholders' ability to bring matters before an annual meeting of shareholders or make nominations for directors at
an annual meeting of shareholders.
C. Material Contracts
We have entered into four credit facilities with Commerzbank A.G., Credit Agricole Corporate and Investment Bank and
Piraeus Bank, as agent and as lender. For a discussion of our term loan facilities, please see the section of this annual report
entitled "Operating and Financial Review and Prospects – Liquidity and Capital Resources – Senior Secured Credit
Facilities." We have no other material contracts, other than contracts entered into in the ordinary course of business, to which
the Company or any member of the group is a party.
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D. Exchange Controls
Under Marshall Islands and Greek law, there are currently no restrictions on the export or import of capital, including
foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident
holders of our common stock.
E. Taxation
The following is a discussion of the material Marshall Islands and U.S. federal income tax regimes relevant to an
investment decision with respect to our common stock.
U.S. Taxation
The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended, or the
"Code", existing and proposed regulations promulgated thereunder by the U.S. Department of the Treasury, or the "Treasury
Regulations," administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report, and all of
which are subject to change, possibly with retroactive effect.
Tax Classification of the Company
Star Maritime was a Delaware corporation which merged into the Company pursuant to the Redomiciliation Merger as
more specifically described above.
Section 7874(b) of the Code, or "Section 7874(b)," provides that a corporation organized outside the United States,
such as the Company, which acquires (pursuant to a "plan" or a "series of related transactions") substantially all of the assets
of a corporation organized in the United States, such as Star Maritime, will be treated as a U.S. domestic corporation for U.S.
federal income tax purposes if shareholders of the U.S. corporation whose assets are being acquired own at least 80% of the
non-U.S. acquiring corporation after the acquisition. If Section 7874(b) were to apply to Star Maritime and the Redomiciliation
Merger, then the Company, as the surviving entity of the Redomiciliation Merger, would be subject to U.S. federal income tax as
a U.S. domestic corporation on its worldwide income after the Redomiciliation Merger. In addition, as a U.S. domestic
corporation, any dividends paid by us to a Non-U.S. Holder, as defined below, would be subject to a U.S. federal income tax
withholding at the rate of 30% or such lower rate as provided by an applicable U.S. income tax treaty.
After the completion of the Redomiciliation Merger, the shareholders of Star Maritime owned less than 80% of the
Company. Star Maritime received an opinion of its counsel, Seward & Kissel LLP or "Seward & Kissel", that Star Bulk should
not be subject to Section 7874(b) after the Redomiciliation Merger. Based on the structure of the Redomiciliation Merger, the
Company believes that it is not subject to U.S. federal income tax as a U.S. domestic corporation on its worldwide income for
taxable years after the Redomiciliation Merger. However, there is no authority directly addressing the application of Section
7874(b) to a transaction such as the Redomiciliation Merger where shares in a foreign corporation, such as the Company, are
issued concurrently with (or shortly after) a merger. In particular, since there is no authority directly applying the "series of
related transactions" or "plan" provisions to the post-acquisition stock ownership requirements of Section 7874(b), there is no
assurance that the IRS or a court will agree with Seward & Kissel's opinion on this matter. Moreover, Star Maritime has not
sought a ruling from the IRS on this point. Therefore, there is no assurance that the IRS would not seek to assert that the
Company is subject to U.S. federal income tax on its worldwide income after the Redomiciliation Merger, although the Company
believes that such an assertion should not be successful.
The remainder of this discussion assumes that the Company will not be treated as a U.S. domestic corporation for any
taxable year.
Taxation of the Company's Shipping Income
We anticipate that we will derive substantially all of our gross income from the use and operation of vessels in
international commerce and that this income will principally consist of freights from the transportation of cargoes (including
COAs), hire or lease from time or voyage charters and the performance of services directly related thereto, which we refer to
collectively as "shipping income."
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Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the
United States will be considered to be 50% derived from sources within the United States. Shipping income attributable to
transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the
United States. We are not permitted by law to engage in transportation that gives rise to 100% U.S. source shipping income.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from
sources outside the United States. Shipping income derived entirely from sources outside the United States will not be subject
to U.S. federal income tax.
Based upon our anticipated shipping operations, our vessels will operate in various parts of the world, including to or
from U.S. ports. Unless exempt from U.S. federal income tax under Section 883 of the Code, we will be subject to U.S. federal
income tax, in the manner discussed below, to the extent our shipping income is considered derived from sources within the
United States.
Application of Section 883 of the Code
Under the relevant provisions of Section 883 of the Code and the Treasury Regulations promulgated thereunder, we
will be exempt from U.S. federal income tax on our U.S. source shipping income if:
(i)
we are organized in a "qualified foreign country," which is one that grants an equivalent exemption from tax
to corporations organized in the United States in respect of each category of shipping income for which
exemption is being claimed under Section 883 of the Code, and which we refer to as the "Country of
Organization Requirement"; and
(ii)
we can satisfy any one of the following two (2) stock ownership requirements:
(a)
(b)
more than 50% of our stock, in terms of value, is beneficially owned by individuals who are
residents of a "qualified foreign country," which the Company refers to as the "50% Ownership
Test"; or
our stock is "primarily and regularly" traded on an "established securities market" located in the
United States or in a "qualified foreign country," which we refer to as the "Publicly-Traded Test".
The IRS has recognized the Marshall Islands, our country of incorporation and the country of incorporation of our
ship-owning subsidiaries, as "qualified foreign countries." Accordingly, we satisfy the Country of Organization Requirement.
Therefore, our eligibility for exemption under Section 883 of the Code is wholly dependent upon being able to satisfy
one of the stock ownership requirements.
The Treasury Regulations provide that stock of a foreign corporation will be considered to be "primarily traded" on an
"established securities market" if the number of shares of each class of stock that are traded during any taxable year on all
"established securities markets" in that country exceeds the number of shares in each such class that are traded during that
year on "established securities markets" in any other single country. Our common stock is "primarily traded" on the Nasdaq
Global Select Market.
Under the Treasury Regulations, our common stock will be considered to be "regularly traded" on an "established
securities market" if one or more classes of our common stock representing more than 50% of our outstanding shares, by total
combined voting power of all classes of stock entitled to vote and total value, is listed on the market, which we refer to as the
"listing requirement." Since our common stock is listed on the Nasdaq Global Select Market, we will satisfy the listing
requirement.
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The Treasury Regulations further require that with respect to each class of common stock relied upon to meet the
listing requirement: (i) such class of the common stock is traded on the market, other than in minimal quantities, on at least 60
days during the taxable year or 1/6 of the days in a short taxable year, which we refer to as the "trading frequency test;" and (ii)
the aggregate number of shares of such class of common stock traded on such market is at least 10% of the average number of
shares of such class of common stock outstanding during such year, or as appropriately adjusted in the case of a short taxable
year, which we refer to as the "trading volume test." We believe that our common stock will satisfy the trading frequency and
volume tests. Even if this were not the case, the Treasury Regulations provide that the trading frequency and volume tests will
be deemed satisfied by a class of stock if, as we expect to be the case with our common stock, such class of stock is traded on
an "established securities market" in the United States and such class of stock is regularly quoted by dealers making a market in
such stock.
Notwithstanding the foregoing, our common stock would not be considered to be "regularly traded" on an
"established securities market" if 50% or more of the outstanding shares of our common stock is owned, actually or
constructively under specified stock attribution rules, on more than half the days during the taxable year by persons who each
own 5% or more of our common stock, which we refer to as the "5% Override Rule."
For purposes of determining the persons who own 5% or more of our common stock, or "5% Stockholders," the
Treasury Regulations permit us to rely on Schedule 13G and Schedule 13D filings with the U.S. Securities and Exchange
Commission, or the "SEC," to identify persons who have a 5% or greater beneficial interest in our common stock. The Treasury
Regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as
amended, will not be treated as a 5% Stockholder for such purposes.
In the event the 5% Override Rule is triggered, the Treasury Regulations provide that the 5% Override Rule will
nevertheless not apply if we can establish, in accordance with specified ownership certification procedures, that within the
group of 5% Stockholders there are sufficient "qualified shareholders" for purposes of Section 883 of the Code to preclude
"non-qualified shareholders" in such group from owning actually or constructively 50% or more of our common stock for more
than half the number of days during the taxable year.
For the 2010 taxable year, we were not subject to the 5% Override Rule and, therefore, we believe that we satisfied the
Publicly-Traded Test. Accordingly, we believe that we were exempt from U.S. federal income tax on our U.S. source shipping
income for the 2010 taxable year, and we intend to take this position on our 2010 U.S. federal income tax return. However, there
is no assurance that we will continue to qualify for the benefits of Section 883 of the Code for any future taxable year.
Taxation in Absence of Exemption under Section 883 of the Code
To the extent the benefits of Section 883 of the Code are unavailable with respect to any item of U.S. source shipping
income, our U.S. source shipping income, to the extend not considered to be "effectively connected" with a U.S. trade or
business, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions,
or the "4% gross basis tax regime." Since under the sourcing rules described above, no more than 50% of our shipping income
would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on our shipping
income would never exceed 2% under the 4% gross basis tax regime.
Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to U.S. federal
income tax with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United
States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United
States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United
States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
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U.S. Federal Income Taxation of Holders of Common Stock
The following is a discussion of the material U.S. federal income tax consequences applicable to a U.S. Holder and a
Non-U.S. Holder, each as defined below, of the ownership and disposition of our common stock. This discussion does not
purport to deal with the tax consequences of owning common stock to all categories of investors, some of which, such as
dealers in securities, investors whose functional currency is not the U.S. Dollar and investors that own, actually or under
applicable constructive ownership rules, 10% or more of our common stock, may be subject to special rules. This discussion
deals only with holders who own our common stock as a capital asset. Holders of our common stock are encouraged to consult
their own tax advisors concerning the overall tax consequences arising in their particular situation under U.S. federal, state, local
or foreign law of the ownership of our common stock.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of our common stock that is a U.S. citizen or resident,
U.S. corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income
taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the
administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
If a partnership holds our common stock, the U.S. federal income tax treatment of a partner will generally depend upon
the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common
stock, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of "passive foreign investment companies" below, any distributions made by us with respect
to our common stock to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified
dividend income," as described in more detail below, to the extent of our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a
nontaxable return of capital to the extent of the U.S. Holder's tax basis in its common stock on a Dollar-for-Dollar basis and
thereafter as capital gain. Because we are not a U.S. corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our
common stock will generally be treated as "passive category income" or, in the case of certain types of U.S. Holders, "general
category income" for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate, which we refer to as a "U.S.
Individual Holder," will generally be treated as "qualified dividend income" that is taxable to such U.S. Individual Holders at
preferential tax rates (through 2012) provided that (1) the common stock is readily tradable on an established securities market in
the United States (such as the Nasdaq Global Select Market, on which our common stock is listed); (2) we are not a "passive
foreign investment company" for the taxable year during which the dividend is paid or the immediately preceding taxable year
(which we do not believe we are, have been or will be); (3) the U.S. Individual Holder has owned the common stock for more
than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend; and (4)
certain other conditions are met. There is no assurance that any dividends paid on our common stock will be eligible for these
preferential rates in the hands of a U.S. Individual Holder. Legislation has been previously introduced in the U.S. Congress
which, if enacted in its present form, would preclude our dividends from qualifying for such preferential rates prospectively from
the date of its enactment. Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary
income to a U.S. Individual Holder.
Special rules may apply to any "extraordinary dividend," generally, a dividend in an amount which is equal to or in
excess of 10% of a stockholder's adjusted basis (or fair market value in certain circumstances) in our common stock. If we pay an
"extraordinary dividend" on our common stock that is treated as "qualified dividend income," then any loss derived by a U.S.
Holder from the sale or exchange of such common stock will be treated as long-term capital loss to the extent of such dividend.
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Sale, Exchange or other Disposition of Common Stock
Assuming we do not constitute a "passive foreign investment company", or "PFIC", for any taxable year, a U.S. Holder
generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common stock in an amount equal
to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S.
Holder's tax basis in such common stock. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder's
holding period in such common stock is greater than one year at the time of the sale, exchange or other disposition. Otherwise,
such capital gain or loss will be treated as short-term capital gain or loss. Such capital gain or loss will generally be treated as
U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S. Individual Holder's ability to deduct capital
losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a
"passive foreign investment company" for U.S. federal income tax purposes. In general, we will be treated as a passive PFIC
with respect to a U.S. Holder if, for any taxable year in which such U.S. Holder held our common stock, either:
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at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest,
capital gains and rents derived other than in the active conduct of a rental business); or
at least 50% of the average value of our assets during such taxable year produce, or are held for the
production of, passive income, which we refer to as "passive assets."
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share
of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the
subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute "passive income" unless we were treated
under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that we are, nor do we expect to become, a
PFIC with respect to any taxable year. Although there is no legal authority directly on point, and we are not relying upon an
opinion of counsel on this issue, our belief is based principally on the position that, for purposes of determining whether we are
a PFIC, the gross income we derive, or are deemed to derive from the time chartering and voyage chartering activities of our
wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should
not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in connection with the
production of such income, in particular, the tankers, should not constitute passive assets for purposes of determining whether
we are a PFIC. We believe there is substantial legal authority supporting our position consisting of case law and IRS
pronouncements concerning the characterization of income derived from time charters and voyage charters as services income
for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than
services income for other tax purposes. Accordingly, in the absence of any legal authority specifically relating to the statutory
provisions governing PFICs, the IRS or a court could disagree with our position. In addition, although we intend to conduct our
affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of
our operations will not change in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject
to different taxation rules depending on whether the U.S. Holder makes an election to treat us as a "qualified electing fund,"
which election we refer to as a "QEF election." As an alternative to making a QEF election, a U.S. Holder could make a "mark-to-
market" election with respect to our common stock, as discussed below.
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Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an "Electing Holder," the Electing Holder
must report each year for U.S. federal income tax purposes its pro rata share of our ordinary earnings and net capital gain, if any,
for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions
were received by the Electing Holder from us. The Electing Holder's adjusted tax basis in the common stock would be increased
to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits previously taxed would result in a
corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing
Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common stock. A U.S.
Holder would make a QEF election with respect to any taxable year that our company is a PFIC by filing IRS Form 8621 with its
U.S. federal income tax return. If we became aware that we were to be treated as a PFIC for any taxable year, we intend to provide
each U.S. Holder with all necessary information in order to make the QEF election described above.
Taxation of U.S. Holders Making a "Mark-to-Market" Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate, our common stock is treated
as "marketable stock," a U.S. Holder could make a "mark-to-market" election with respect to our common stock, provided the
U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If
that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the
fair market value of the common stock at the end of the taxable year over such U.S. Holder's adjusted tax basis in the common
stock. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted tax
basis in the common stock over its fair market value at the end of the taxable year, but only to the extent of the net amount
previously included in income as a result of the mark-to-market election. A U.S. Holder's tax basis in its common stock would be
adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common
stock would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common
stock would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously
included by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election
or a "mark-to-market" election for that year, whom we refer to as a "Non-Electing Holder," would be subject to special rules with
respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our common
stock in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three
preceding taxable years, or, if shorter, the Non-Electing Holder's holding period in the common stock), and (2) any gain realized
on the sale, exchange or other disposition of our common stock. Under these special rules:
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the excess distribution or gain would be allocated ratably over the Non-Electing Holders' holding period in the
common stock;
the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed
as ordinary income; and
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in
effect for the applicable class of taxpayer for that taxable year, and an interest charge for the deemed tax
deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable
year.
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79
These penalties would not apply to a pension or profit sharing trust or other tax-exempt organization that did not
borrow funds or otherwise utilize leverage in connection with its acquisition of our common stock. If a Non-Electing Holder who
is an individual dies while owning our common stock, such Non-Electing Holder's successor generally would not receive a step-
up in tax basis with respect to such common stock.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common stock (other than a foreign partnership) that is not a U.S. Holder is referred to herein
as a "Non-U.S. Holder."
Dividends on Common Stock
Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on dividends received from us
with respect to our common stock, unless that income is "effectively connected" with a trade or business conducted by the
Non-U.S. Holder in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to
those dividends, that income is subject to U.S. federal income tax only if attributable to a permanent establishment maintained
by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Stock
Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the
sale, exchange or other disposition of our common stock, unless:
·
·
the gain is "effectively connected" with a trade or business conducted by the Non-U.S. Holder in the United
States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to that gain,
that gain is subject to U.S. federal income tax only if it is attributable to a permanent establishment maintained
by the Non-U.S. Holder in the United States; or
the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the
taxable year of disposition and other conditions are met.
If a Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, income from the
common stock, including dividends and gain from the sale, exchange or other disposition of the common stock, that is
"effectively connected" with the conduct of that trade or business will generally be subject to U.S. federal income tax in the
same manner as discussed in the previous section relating to the U.S. federal income taxation of U.S. Holders. In addition, if you
are a corporate Non-U.S. Holder, your earnings and profits that are attributable to the "effectively connected" income, subject
to certain adjustments, may be subject to an additional "branch profits" tax at a rate of 30%, or at a lower rate as may be
specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States will be subject to
information reporting requirements. Such payments will also be subject to "backup withholding" if you are a non-corporate U.S.
Holder and you:
·
·
fail to provide an accurate taxpayer identification number;
are notified by the IRS that you have failed to report all interest or dividends required to be shown on your
U.S. federal income tax returns; or
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80
·
in certain circumstances, fail to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from information reporting and "backup withholding"
by certifying their status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.
If a stockholder sells its common stock to or through a U.S. office of a broker, the payment of the proceeds is subject
to both U.S. "backup withholding" and information reporting unless you certify, under penalties of perjury, that you are a non-
U.S. person or you otherwise establish an exemption. If a stockholder sells its common stock through a non-U.S. office of a non-
U.S. broker and the sales proceeds are paid outside the United States, then information reporting and "backup withholding"
generally will not apply to that payment. However, U.S. information reporting requirements, but not "backup withholding", will
apply to a payment of sales proceeds, even if that payment is made outside the United States, if a stockholder sells its common
stock through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States.
"Backup withholding" is not an additional tax. Rather, a taxpayer generally may obtain a refund of any amounts
withheld under "backup withholding" rules that exceed the taxpayer's U.S. federal income tax liability by filing a refund claim
with the IRS.
Marshall Islands Tax Consequences
We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income
or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our
stockholders.
F. Dividends and paying agents
Not Applicable.
G. Statement by experts
Not Applicable.
H. Documents on display
We file reports and other information with the Commission. These materials, including this annual report and the
accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F
Street, N.E., Washington, D.C. 20549, or from the Commission's website http://www.sec.gov. You may obtain information on the
operation of the public reference room by calling 1 (800) SEC-0330 and you may obtain copies at prescribed rates.
I. Subsidiary information
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Interest Rates
The international drybulk industry is a capital intensive industry, requiring significant amounts of investment. Much of
this investment is provided in the form of long-term debt. Our debt contains interest rates that fluctuate with LIBOR. During the
waiver period, LIBOR is adjusted to the cost of funds. Increasing interest rates could adversely impact future earnings.
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81
Our interest expense for the year ended December 31, 2010 was $5.6 million (including deferred finances fees). Our
estimated interest expense for the year ending December 31, 2011is expected to be $5.9 million (including deferred finance
fees). Our interest expense estimate is based on the amount of our outstanding borrowings under our term loan facilities as of
December 31, 2010 and the new loan facility signed in January 2011, and the weighted average interest rate of our term loan
facilities for the year ended December 31, 2010, which amounted to 2.66%. Our interest expense is affected by changes in the
general level of interest rates. As an indication of the extent of our sensitivity to interest rate changes, an increase of 100 basis
points will increase our interest expense for the year ending December 31, 2011 by $2.3 million assuming the same debt profile
throughout the year.
The following table sets forth the sensitivity of loans in millions of Dollars to a 100 basis points increase in LIBOR
during the next five years:
For the year
ending
December 31,
Estimated amount
of interest expense
Estimated amount
of interest expense after an
increase of 100 basis points
2011
2012
2013
2014
2015
5.9
6.0
5.2
4.1
2.9
8.2
8.3
7.2
5.6
4.0
Currency and Exchange Rates
Sensitivity
2.3
2.3
2.0
1.5
1.1
We generate all of our revenues in Dollars and operating expenses in currencies other than the Dollar are
approximately 32% of total operation expenses. Further, 68% of our general and administrative expenses, excluding expenses of
$6.5 million relating to the amortization of stock based compensation recognized in connection with the restricted shares issued
to directors and employees, including consulting fees, salaries and traveling expenses were incurred in Euros. For accounting
purposes, expenses incurred in Euros are converted into Dollars at the exchange rate prevailing on the date of each transaction.
Because a significant portion of our expenses are incurred in currencies other than the Dollar, our expenses may from time to
time increase relative to our revenues as a result of fluctuations in exchange rates, particularly between the Dollar and the Euro,
which could affect the amount of net income that we report in future periods. As of December 31, 2010, the effect of a 1%
adverse movement in Dollar/Euro exchange rates would have resulted in an increase of $60,624 and $58,469 in our general and
administrative expense and our operating expenses, respectively. While we historically have not mitigated the risk associated
with exchange rate fluctuations through the use of financial derivatives, we may determine to employ such instruments from
time to time in the future in order to minimize this risk. The use of financial derivatives, including foreign exchange forward
agreements, would involve certain risks, including the risk that losses on a hedged position could exceed the nominal amount
invested in the instrument and the risk that the counterparty to the derivative transaction may be unable or unwilling to satisfy
its contractual obligations, which could have an adverse effect on our results.
Forward Freight Agreements
From time to time, we may take positions in derivative instruments including freight forward agreements, or FFAs.
Generally, FFAs and other derivative instruments may be used to hedge a vessel owner's exposure to the charter market for a
specified route and period of time. Upon settlement, if the contracted charter rate is less than the average of the rates, as
reported by an identified index, for the specified route and time period, the seller of the FFA is required to pay the buyer an
amount equal to the difference between the contracted rate and the settlement rate, multiplied by the number of days in the
specified period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the
settlement sum. If we take positions in FFAs or other derivative instruments we could suffer losses in the settling or termination
of the FFA. This could adversely affect our results of operation and cash flow.
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During the years ended December 31, 2010 and 2009, we entered into a limited number of FFAs on the Capesize and
Panamax indexes. The FFAs are intended to serve as an approximate hedge for our vessels trading in the spot market for 2009,
2010, effectively locking-in the approximate amount of revenue that we expect to receive from such vessels for the relevant
periods. Our FFAs do not qualify as cash flow hedges for accounting purposes and therefore gains or losses are recognized in
the accompanying consolidated statements of operations. As all of our FFAs are settled on a daily basis through London
Clearing House (LCH), the fair value of these instruments as of December 31, 2010 was $0. During the years ended December
31, 2010 and 2009, the loss from FFAs amounted to $2.1 million and $2.4 million, respectively. As of December 31, 2010, we had
no open positions on FFAs.
Bunker swap agreements
Bunker swaps are agreements between two parties to exchange cash flows at a fixed price on bunkers, where volume,
time period and price are agreed in advance. Our bunker swaps are traded as a derivative on the over-the-counter (OTC) market.
During 2009 and 2010, we entered into several bunker swaps contracts up to December 31, 2011. As of December 31, 2010, we
had no open positions on bunkers swaps.
During the year ended December 31, 2010 and 2009 loss/gain from bunker swaps amounted to $0.005 million (loss) and
$0.3 million (gain).
Item 12. Description of Securities Other than Equity Securities
A. Debt securities
Not Applicable.
B. Warrants and rights
Not Applicable.
C. Other securities
Not Applicable.
D. American depository shares
Not Applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
(a) Disclosure Controls and Procedures
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As of December 31, 2010, our management (with the participation of our chief executive officer and chief financial
officer) conducted an evaluation pursuant to Rule 13a-15(b) and 15d-15 promulgated under the U.S. Securities Exchange Act of
1934, as amended (the "Exchange Act"), of the effectiveness of the design and operation of our disclosure controls and
procedures. Our management, including our chief executive and chief financial officer, recognize that any controls and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the
objectives of the disclosure controls and procedures are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
partnership have been detected. Further, in the design and evaluation of our disclosure controls and procedures our
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur
and not be detected.
However, based on this evaluation, our chief executive officer and chief financial officer concluded that as of
December 31, 2010, our disclosure controls and procedures, which include, without limitation, controls and procedures designed
to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated
and communicated to the management, including our chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure, were effective to provide reasonable assurance that information required to be
disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange Commission.
(b) Management's Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended. Our internal control over
financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and
carried out by our board of directors, management, and other personnel, to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of our consolidated financial statements for external reporting purposes
in accordance with US GAAP. Our internal control over financial reporting includes policies and procedures that:
·
·
·
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and
dispositions of assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
consolidated financial statements in accordance with US GAAP, and that receipts and expenditures are being
made only in accordance with authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company's assets that could have a material effect on the consolidated financial
statements.
Management has conducted an assessment of the effectiveness of the Company's internal control over financial
reporting based on the framework established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO").
Based on this assessment, management has determined that our internal control over financial reporting as of
December 31, 2010 is effective.
(c) Attestation Report of the Registered Public Accounting Firm
Deloitte, Hadjipavlou Sofianos & Cambanis S.A., our independent registered public accounting firm, as auditors of the
consolidated financial statements of the Company for the year ended December 31, 2010, has also audited the effectiveness of
our internal control over financial reporting as stated in their audit report which is included below.
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84
(d) Changes in Internal Control over Financial Reporting
There were no other changes in our internal controls over financial reporting that occurred during the period covered
by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Inherent Limitations on Effectiveness of Controls
Management, including our Chief Executive Officer and the Chief Financial Officer, does not expect that our disclosure
controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will
be met. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Star Bulk Carriers Corp.
Majuro, Republic of the Marshall Islands
We have audited the internal control over financial reporting of Star Bulk Carriers Corp. and subsidiaries (the "Company") as of
December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board
of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements as of and for the year ended December 31, 2010 of the Company and our report dated
March 29, 2011 expressed an unqualified opinion on those financial statements.
/s/ Deloitte.
Hadjipavlou, Sofianos & Cambanis S.A.
Athens, Greece
March 29, 2011
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Item 16A. Audit Committee Financial Expert
The Board of Directors of the Company has determined that Mr. Softeland, whose biographical details are included in
Item 6. "Directors and Senior Management," a member of our Audit Committee qualifies as a financial expert and is considered
to be independent according to the Commission rules.
Item 16B. Code of Ethics
The Company has adopted a code of ethics that applies to its directors, officers and employees. A copy of our code of
ethics is posted in the "Investor Relations" section of the Star Bulk Carriers Corp. website, and may be viewed at
http://www.starbulk.com. Shareholders may be direct their requests to the attention of Investor Relations, Star Bulk Carriers
Corp., 7, Fragoklisias Street, 2nd floor, Maroussi 151 25, Athens, Greece.
Item 16C. Principal Accountant Fees and Services
Deloitte, Hadjipavlou, Sofianos & Cambanis S.A., Certified Auditors Accountants S.A, or Deloitte, have audited our
annual consolidated financial statements acting as our Independent Registered Public Accounting Firm for the fiscal years
ended December 31, 2007, 2008, 2009 and 2010.
The table below sets forth the total fees for the services performed by Deloitte in 2008, 2009 and 2010, and breaks these
amounts by category of services.
(In thousands of Dollars)
Audit fees
Audit-related fees
Tax fees
All other fees
Total fees
2009
2010
738
-
-
-
738
411
83
-
-
494
The Audit Committee is responsible for the appointment, replacement, compensation, evaluation and oversight of the
work of the independent auditors. As part of this responsibility, the Audit Committee pre-approves the audit and non-audit
services performed by the independent auditors in order to assure that they do not impair the auditor's independence from the
Company. The Audit Committee has adopted a policy which sets forth the procedures and the conditions pursuant to which
services proposed to be performed by the independent auditors may be pre-approved.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not Applicable.
Item 16F. Change in Registrants Certifying Accountant
Not Applicable.
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Item 16G. Corporate Governance
As a foreign private issuer, we are permitted to follow home country practices in lieu of certain Nasdaq corporate
governance requirements. We have certified to Nasdaq that our corporate governance practices are in compliance with, and are
not prohibited by, the laws of the Republic of the Marshall Islands. We are exempt from many of Nasdaq's corporate
governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a
listing agreement, notification of material non-compliance with Nasdaq corporate governance practices and the establishment
and composition of an audit committee and a formal written audit committee charter. The practices we follow in lieu of Nasdaq's
corporate governance requirements are as follows:
·
·
·
·
Our board of directors is comprised of directors a majority of whom are independent; however, we cannot
assure you that in the future we will have a majority of independent directors. Our board of directors does
not hold annual meetings at which only independent directors are present.
Consistent with Marshall Islands law requirements, in lieu of obtaining an independent review of related party
transactions for conflicts of interests, our amended and restated bylaws require any director who has a
potential conflict of interest to identify and declare the nature of the conflict to the board of directors at the
next meeting of the board of directors. Our code of ethics and amended and restated bylaws additionally
provide that related party transactions must be approved by a majority of the independent and disinterested
directors. If the votes of such independent and disinterested directors are insufficient to constitute an act of
the Board then the related party transaction may be approved by a unanimous vote of the disinterested
directors.
In lieu of obtaining shareholder approval prior to the issuance of designated securities, we plan to obtain the
approval of our board of directors for such share issuances.
In lieu of an audit committee comprised of a minimum of three directors all of which are independent and a
compensation committee comprised solely of independent directors, our audit committee consists of two
independent directors and our compensation committee consists of an executive director and two
independent directors.
As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to
Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law and as provided in our
amended and restated bylaws, we will notify our shareholders of meetings between 15 and 60 days before the meeting. This
notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our
amended and restated bylaws provide that shareholders must give between 150 and 180 days advance notice to properly
introduce any business at a meeting of the shareholders.
Other than as noted above, we are in full compliance with applicable Nasdaq corporate governance standard
requirements for U.S. domestic issuers.
PART III
Item 17. Financial Statements
See Item 18. "Financial Statements."
Item 18. Financial Statements
The following consolidated financial statements, beginning on page F-1, together with the report of Deloitte thereon,
are filed as a part of this report.
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Item 19.
Exhibits
Number
Description of Exhibition
1.1
1.2
2.1
2.2
2.3
2.4
2.5
2.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
8.1
12.1
12.2
13.1
13.2
Form of Third Amended and Restated Articles of Incorporation of Star Bulk Carriers Corp.
Amended and Restated bylaws of the Company (1)
Form of Share Certificate (2)
Form of Warrant Certificate (3)
Form of 2007 Equity Incentive Plan (4)
2010 Equity Incentive Plan
Form of Warrant Agreement between American Stock Transfer & Trust Company and the Registrant (5)
Registration Rights Agreement (6)
Management Agreement with Combine Marine Inc. (7)
Master Agreement, as amended (8)
Supplemental Agreement (9)
Loan Agreement with Commerzbank AG dated December 27, 2007 (10)
First Supplemental Agreement with Commerzbank AG dated June 10, 2009
Second Supplemental Agreement with Commerzbank AG dated January 27, 2010
Loan Agreement with Piraeus Bank A.E. dated April 14, 2008 (11)
Amendment No. 1 to Loan Agreement with Piraeus Bank A.E. dated April 17, 2008 (12)
Amendment No. 2. to Loan Agreement with Piraeus Bank A.E. dated September 18, 2008 (13)
First Supplemental Agreement with Piraeus Bank A.E. dated May 7, 2009
Loan Agreement with Piraeus Bank A.E. dated July 1, 2008 (14)
Amending and Restating Agreement with Piraeus Bank A.E. dated May 25, 2009
First Supplemental Agreement with Piraeus Bank A.E. dated September 29, 2010
Waiver Agreement with Commerzbank AG dated March 12, 2009 (15)
Waiver Agreement with Piraeus Bank A.E., as Agent, dated March 10, 2009 (16)
Waiver Agreement with Piraeus Bank A.E. dated March 10, 2009 (17)
Amendment No. 1 to the Waiver Agreement with Commerzbank AG dated December 11, 2009 (18)
Loan Agreement with Commerzbank AG dated September 3, 2010
Loan Agreement with Credit Agricole Corporate and Investment Bank dated January 20, 2011
Subsidiaries of the Company
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended
Certification of the Principal Executive Officer pursuant to 18 USC Section 1350, as adopted, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Certification of the Principal Financial Officer pursuant to 18 USC Section 1350, as adopted, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
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89
Consent of Independent Registered Public Accounting Firm (Deloitte)
Incorporated by reference to Exhibit 3.1 of the Company's Joint Proxy/Registration Statement (File No. 333-141296),
which was filed with the Commission on March 14, 2007.
Incorporated by reference to Exhibit 4.1 of the Company's Joint Proxy/Registration Statement (File No. 333-141296),
which was filed with the Commission on March 14, 2007.
Incorporated by reference to Exhibit 4.3 of Star Maritime's Registration Statement (File No. 333-125662), which was
filed with the Commission on October 26, 2005.
Incorporated by reference to Exhibit 10.2 of the Company's Joint Proxy/Registration Statement (File No. 333-
141296), which was filed with the Commission on March 14, 2007.
Incorporated by reference to Exhibit 4.4 of Star Maritime's Registration Statement (File No. 333-125662), which was
filed with the Commission on June 9, 2005.
Incorporated by reference to Exhibit 10.13 of Star Maritime's Registration Statement (File No. 333-125662), which
was filed with the Commission on June 9, 2005.
Incorporated by reference to Exhibit 10.16 of the Company's Joint Proxy/Registration Statement (File No. 333-
141296), which was filed with the Commission on May 24, 2007.
Incorporated by reference to Exhibit 10.19 of the Company's Joint Proxy/Registration Statement (File No. 333-
141296), which was filed with the Commission on October 12, 2007.
Incorporated by reference to Exhibit 10.11 of the Company's Joint Proxy/Registration Statement (File No. 333-
141296), which was filed with the Commission on March 14, 2007.
Incorporated by reference to Exhibit 4.5 of the Company's Annual Report for the year ended December 31, 2007
(File No. 001-33869), which was filed with the Commission on June 30, 2008.
Incorporated by reference to Exhibit 4.6 of the Company's Annual Report for the year ended December 31, 2007
(File No. 001-33869), which was filed with the Commission on June 30, 2008.
Incorporated by reference to Exhibit 4.7 of the Company's Annual Report for the year ended December 31, 2007
(File No. 001-33869), which was filed with the Commission on June 30, 2008.
Incorporated by reference to Exhibit 10.24 of the Company's Registration Statement on Form F-3 (File No. 333-
153304), which was filed with the Commission on October 10, 2008.
Incorporated by reference to Exhibit 10.23 of the Company's Registration Statement on Form F-3 (File No. 333-
153304), which was filed with the Commission on September 2, 2008.
Incorporated by reference to Exhibit 4.10 of the Company's Annual Report for the year ended December 31, 2008
(File No. 001-33869), which was filed with the Commission on April 16, 2009.
Incorporated by reference to Exhibit 4.11 of the Company's Annual Report for the year ended December 31, 2008
(File No. 001-33869), which was filed with the Commission on April 16, 2009.
Incorporated by reference to Exhibit 4.12 of the Company's Annual Report for the year ended December 31, 2008
(File No. 001-33869), which was filed with the Commission on April 16, 2009.
Incorporated by reference to Exhibit 4.13 of the Company's Annual Report for the year ended December 31, 2009
(File No. 001-33869), which was filed with the Commission on March 23, 2010.
90
15.1
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
90
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused
and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Date March 30, 2011
Star Bulk Carriers Corp.
(Registrant)
By:
Name:
Title:
/s/ Spyros Capralos
Spyros Capralos
President and Chief Executive Officer
91
91
STAR BULK CARRIERS CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (Deloitte. Hadjipavlou, Sofianos & Cambanis
S.A.)
Consolidated Balance Sheets as of December 31, 2009 and 2010
Consolidated Statements of Operations for the years ended December 31, 2008, 2009 and 2010
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2008, 2009 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Star Bulk Carriers Corp.
Majuro, Republic of the Marshall Islands
We have audited the accompanying consolidated balance sheets of Star Bulk Carriers Corp. and subsidiaries (the "Company")
as of December 31, 2009 and 2010, and the related consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2010. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Star Bulk
Carriers Corp. and subsidiaries as of December 31, 2009 and 2010, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in
the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 29, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte.
Hadjipavlou, Sofianos & Cambanis S.A.
Athens, Greece
March 29, 2011
F-2
F-2
STAR BULK CARRIERS CORP.
Consolidated Balance Sheets
December 31, 2009 and 2010
(Expressed in thousands of U.S. dollars)
ASSETS
Current Assets
Cash and cash equivalents
Restricted cash (Note 2h)
Trade accounts receivable
Inventories (Note 4)
Due from related parties (Note 3)
Due from managers
Derivative instruments (Note 16)
Accrued income
Prepaid expenses and other receivables
Total Current Assets
FIXED ASSETS
Advances for vessels under construction (Note 5)
Vessels and other fixed assets, net (Note 6)
Total Fixed Assets
OTHER NON-CURRENT ASSETS
Deferred finance charges
Derivative instruments (Note 16)
Restricted cash (Note 2h)
TOTAL ASSETS
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt (Note 8)
Accounts payable
Due to related parties (Note 3)
Due to managers
Accrued liabilities (Note 12)
Deferred revenue
Total Current Liabilities
NON CURRENT LIABILITIES
Long term debt (Note 8)
Fair value of below market acquired time charter (Note 7)
Deferred revenue
Other non-current liability
TOTAL LIABILITIES
Commitments & Contingencies (Note 14)
Stockholders' Equity
Preferred Stock; $0.01 par value authorized 25,000,000 shares; none issued or outstanding at
December 31, 2009 and 2010 (Note 9)
Common Stock, $0.01 par value, 300,000,000 and 300,000,000 shares authorized at December 31, 2009
and 2010, respectively; 61,104,760 and 63,410,360 shares issued and outstanding at December 31,
2009 and 2010, respectively (Note 9)
Additional paid in capital (Note 9)
Retained earnings/ (Accumulated deficit)
Total Stockholders' Equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these consolidated financial statements
F-3
F-3
2009
2010
$
40,142 $
8,353
5,449
982
2,507
147
128
-
3,120
60,828
12,824
1,550
4,652
1,094
-
75
-
397
3,326
23,918
-
668,698
668,698
43,473
610,817
654,290
1,041
154
29,920
1,022
-
24,020
$760,641 $703,250
$
59,675 $
3,977
336
-
2,293
4,811
71,092
33,785
3,233
603
55
1,865
3,694
43,235
187,575
1,812
847
58
261,384
171,044
452
203
64
214,998
-
-
-
-
634
611
489,770
483,282
(2,152)
15,364
499,257
488,252
$760,641 $703,250
STAR BULK CARRIERS CORP
Consolidated Statements of Operations
For the years ended December 31, 2008, 2009 and 2010
(Expressed in thousands of U.S. dollars except for share and per share data)
Year
ended Year ended Year ended
December
31,
2010
December
31,
2009
December
31,
2008
REVENUES:
Voyage revenues
$
238,883 $
142,351 $
121,042
EXPENSES/(INCOME):
Voyage expenses (Note 15)
Vessel operating expenses (Note 15)
Management fees
Management fees-related party
Drydocking expenses
Depreciation (Note 6)
Vessel impairment loss (Note 6)
(Gain)/Loss on derivative instruments (Note 16)
Gain on time charter agreement termination (Note 7)
Loss on time charter agreement termination (Note 7)
Other operating income (Note 14)
Loss on bad debts
General and administrative expenses
Operating (loss)/profit
OTHER INCOME/(EXPENSES):
Interest and finance costs (Note 8)
Interest and other income
Total other income/(expense), net
3,504
26,198
975
392
7,881
51,050
3,646
(251)
(9,711)
-
-
-
12,424
96,108
142,775
15,374
30,168
771
-
6,122
58,298
75,208
2,154
(16,219)
11,040
-
-
8,742
191,658
(49,307)
16,839
22,349
164
-
6,576
46,937
34,947
2,083
-
-
(26,648)
2,131
15,404
120,782
260
(10,238)
1,201
(9,037)
(9,914)
806
(9,108)
(5,916)
525
(5,391)
Net income /(loss)
$
133,738 $
(58,415) $
(5,131)
Earnings/(loss) per share, basic (Note 10)
Earnings/(loss) per share, diluted (Note 10)
$
$
2.55 $
2.46 $
(0.96) $
(0.96) $
(0.08)
(0.08)
Weighted average number of shares outstanding, basic (Note 10)
Weighted average number of shares outstanding, diluted (Note 10)
52,477,947 60,873,421 61,489,162
54,447,985 60,873,421 61,489,162
The accompanying notes are an integral part of these consolidated financial statements
F-4
F-4
STAR BULK CARRIERS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the years ended December 31, 2008, 2009 and 2010
(Expressed in thousands of U.S. dollars except for share and per share data)
Additional
Common Stock Paid-in
Total
stockholders'
Par
# of Shares
Value Capital
Retained
earnings/
(Accumulated
deficit)
Equity
BALANCE, January 1, 2008
$42,516,433 $ 425 $
368,454 $
6,499 $
375,378
Net income for the year ended December 31, 2008
Warrants exercised
Warrants and common stock buyback
Issuance of common stock to TMT
Issuance of common stock to stockholders
Issuance of vested and non-vested shares and amortization of
stock based compensation
Dividends declared and paid ($0.98 per share)
BALANCE, December 31, 2008
- $
$
- $
11,769,486 118
(12)
(1,247,000)
8
803,481
42
4,255,002
- $
94,037
(13,437)
18,938
7,617
315,000
-
3
-
$58,412,402 $ 584 $
3,983
-
479,592 $
Net loss for the year ended December 31, 2009
Issuance of common stock to TMT
Issuance of common stock
Issuance of vested and non-vested shares and amortization of
stock based compensation
Dividends declared and paid ($0.10 per share)
$
- $
803,481
818,877
- $
8
8
1,070,000
-
11
-
- $
(8)
1,877
1,821
-
133,738 $
-
-
-
(7,659)
-
(52,614)
79,964 $
(58,415) $
-
-
-
(6,185)
133,738
94,155
(13,449)
18,946
-
3,986
(52,614)
560,140
(58,415)
-
1,885
1,832
(6,185)
BALANCE, December 31, 2009
$61,104,760 $ 611 $
483,282 $
15,364 $
499,257
Net loss for the year ended December 31, 2010
Issuance of vested and non-vested shares and amortization of
stock based compensation
Dividends declared and paid ($0.20 per share)
$
- $
- $
- $
(5,131) $
(5,131)
2,305,600
-
23
-
6,488
-
-
(12,385)
6,511
(12,385)
BALANCE, December 31, 2010
$63,410,360 $ 634 $
489,770 $
(2,152) $
488,252
The accompanying notes are an integral part of these consolidated financial statements
F-5
F-5
STAR BULK CARRIERS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2008, 2009 and 2010
(Expressed in thousands of U.S. dollars)
Cash Flows from Operating Activities:
Net income/(loss)
$
133,738
$
(58,415) $
(5,131)
Adjustments to reconcile net income /(loss) to net cash provided by operating activities:
Year
ended
Year
ended
December
31,
2008
December
31,
2009
Year
ended
December
31,
2010
Depreciation
Amortization of fair value of above market acquired time charter
Amortization of fair value of below market acquired time charter
Amortization of deferred finance charges
Loss on time charter agreement termination
Vessel impairment loss
Stock- based compensation
Change in fair value of derivatives
Other non-cash charges
Loss on bad debts
Changes in operating assets and liabilities:
(Increase)/Decrease in:
Restricted cash for forward freight and bunkers agreements
Trade accounts receivable
Inventories
Accrued income
Prepaid expenses and other receivables
Deposit on forward freight agreements
Due from related parties
Due from managers
Increase/(Decrease) in:
Accounts payable
Due to related parties
Accrued liabilities
Due to managers
Deferred revenue
Net Cash provided by Operating Activities
Cash Flows from Investing Activities:
Advances for newbuildings
Additions to vessel cost and other fixed assets
Cash paid for above market acquired time charter
Cash proceeds from vessel sale
Insurance proceeds
Decrease in restricted cash
Increase in restricted cash
Net cash used in Investing Activities
Cash Flows from Financing Activities:
Proceeds from bank loans
Loan repayment
Repurchase of shares and warrants
Proceeds from exercise of warrants
Proceeds from dividend reinvestment
Financing fees paid
Cash dividend
Net cash provided by/(used in) Financing Activities
F-6
51,050
2,221
(82,754)
234
-
3,646
3,986
(251)
53
-
(2,486)
(3,379)
(678)
-
(462)
(2,514)
(465)
(1,897)
864
(324)
2,455
-
7,710
110,747
-
(413,457)
(14,417)
16,579
-
-
(12,010)
(423,305)
317,500
(21,000)
(13,449)
94,236
-
(1,625)
(52,614)
323,048
58,298
3,108
(8,843)
350
121
75,208
1,832
(31)
5
-
(3,267)
(2,070)
294
-
(2,440)
2,514
(2,042)
1,870
2,946
180
(773)
-
(2,968)
65,877
-
(49)
-
19,129
-
-
(20,510)
(1,430)
-
(49,250)
-
-
1,885
(230)
(6,185)
(53,780)
46,937
-
(1,360)
329
-
34,692
6,511
282
5
2,131
5,753
(1,334)
(112)
(397)
(326)
-
2,507
72
(744)
267
(427)
55
(1,761)
87,949
(43,473)
(44,090)
-
20,342
120
7,600
(650)
(60,151)
26,000
(68,421)
-
-
-
(310)
(12,385)
(55,116)
F-6
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of the year
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest
Non-cash items:
Issue of common stock at fair value for delivery of vessels
Fair value of below market acquired time charters
Issuance of common stock to stockholders (non-cash stock dividend)
10,490
18,985
10,667
29,475
(27,318)
40,142
$
29,475
$ 40,142
$ 12,824
9,378
9,206
5,489
18,946
79,021
7,659
-
-
-
-
-
-
The accompanying notes are an integral part of these consolidated financial statements
F-7
F-7
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
1. Basis of Presentation and General Information:
On November 30, 2007, Star Maritime Acquisition Corp. ("Star Maritime") incorporated in the state of Delaware, merged into its
wholly-owned subsidiary at the time, Star Bulk Carriers Corp. ("Star Bulk") a company incorporated in Marshall Islands, with Star
Bulk being the surviving entity (collectively, the "Company," "we" or "us"). This merger is referred to as "Redomiciliation
Merger" or the "Merger".
The accompanying consolidated financial statements as of and for the years ended December 31, 2008, 2009 and 2010 include
the accounts of Star Bulk and its wholly owned subsidiaries.
Star Bulk was incorporated on December 13, 2006 under the laws of the Marshall Islands and is the sole owner of all of the
outstanding shares of Star Bulk Management Inc. and the ship-owning subsidiaries as set forth below.
Star Maritime was organized on May 13, 2005 as a blank check company formed to acquire, through a merger, capital stock
exchange, asset acquisition or similar business combination, one or more assets or target businesses in the shipping
industry. On December 21, 2005, Star Maritime consummated its initial public offering of 18,867,500 units, at a price of $10.00 per
unit, each unit consisting of one share of Star Maritime common stock and one warrant to purchase one share of Star Maritime
common stock at an exercise price of $8.00 per share. In addition, during December 2005 the Company completed a private
placement of an aggregate of 1,132,500 units, each unit consisting of one share of common stock and one warrant. The entire
gross proceeds of the initial public offering amounting to $188,675 were deposited in a trust account.
On January 12, 2007, Star Maritime and Star Bulk entered into definitive agreements (the "Master Agreement") to acquire a fleet
of eight drybulk carriers (the "Transaction") from certain subsidiaries of TMT Co. Ltd. ("TMT"), a shipping company
headquartered in Taiwan. These eight drybulk carriers are referred to as the "initial fleet", or "initial vessels". The aggregate
purchase price specified in the Master Agreement for the initial fleet was $224,500 in cash and 12,537,645 shares of common
stock of Star Bulk, issued on November 30, 2007. The Company also agreed to issue to TMT an additional stock consideration
of 1,606,962 common shares of Star Bulk in 2008 and 2009. On July 17, 2008 the Company issued 803,481 shares out of
additional stock consideration of 1,606,962 of common stock of StarBulk to TMT. On April 28, 2009 the remaining 803,481
shares of Star Bulk's common stock were issued to TMT.
F-8
F-8
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
1. Basis of Presentation and General Information-(continued):
On November 27, 2007 the Company obtained shareholder approval for the acquisition of the initial fleet and for effecting the
Redomiciliation Merger, which became effective on November 30, 2007. The shares of Star Maritime were exchanged on one-for-
one basis with shares of Star Bulk and Star Bulk assumed the outstanding warrants of Star Maritime. Subsequently, Star
Maritime shares ceased trading on American Stock Exchange (Amex).
Star Bulk shares and warrants started trading on the NASDAQ Global Select Market on December 3, 2007 under the ticker
symbols SBLK and SBLKW, respectively. Immediately following the effective date of the Redomiciliation Merger, TMT and its
affiliates owned 30.2% of Star Bulk's outstanding common stock.
The Company began operations on December 3, 2007 with the delivery of its first vessel Star Epsilon.
F-9
F-9
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
1. Basis of Presentation and General Information-(continued):
Below is the list of the Company's wholly owned ship-owning subsidiaries as of December 31, 2010:
Wholly Owned
Subsidiaries
Star Bulk Management Inc.
Starbulk S.A.
Vessel
Name
-
-
DWT
-
-
Date
Delivered to Star Bulk
-
-
Year
Built
-
-
Vessels in operation at
December 31, 2010
Star Epsilon LLC
Star Theta LLC
Star Kappa LLC
Star Zeta LLC
Star Delta LLC
Star Gamma LLC
Lamda LLC
Star Omicron LLC
Star Cosmo LLC
Star Ypsilon LLC
Star Aurora LLC
Star Iota LLC
Star Alpha LLC
Star Beta LLC
Star Epsilon (ex G Duckling)*
Star Theta (ex J Duckling)*
Star Kappa (ex E Duckling)
Star Zeta (ex I Duckling)*
Star Delta (ex F Duckling)*
Star Gamma (ex C Duckling)*
Star Sigma
Star Omicron
Star Cosmo
Star Ypsilon
Star Aurora
Vessels disposed**
Star Iota*
Star Alpha (ex A Duckling)*
Star Beta (ex B Duckling)*
52,402 December 3, 2007
52,425 December 6, 2007
52,055 December 14, 2007
52,994 January 2, 2008
52,434 January 2, 2008
53,098 January 4, 2008
184,403 April 15, 2008
53,489 April 17, 2008
52,247 July 1, 2008
150,940 September 18, 2008
171,199 September 8, 2010
78,585 March 7, 2008
175,075 January 9, 2008
174,691 December 28, 2007
* Initial fleet or initial vessels
** For vessels disposed refer to Note 6
Below is the list of the Company's vessels under construction.
New-buildings
Hull PN-063 (tbr Star Borealis)
Hull PN-064 (tbr Star Polaris)
Type
Capesize
Capesize
DWT
Expected Delivery date
180,000 September 2011
180,000 November 2011
F-10
2001
2003
2001
2003
2000
2002
1991
2005
2005
1991
2000
1983
1992
1993
F-10
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
1. Basis of Presentation and General Information-(continued):
Charterers individually accounting for more than 10% of the Company's voyage revenues during the years ended December 31,
2008, 2009 and 2010 are as follows:
Charterer
A
B
C
D
E
F
G
H
I
J
2008
2009
2010
-
19%
10%
-
-
-
-
-
-
-
12%
-
-
20%
12%
11%
10%
-
-
-
-
-
-
21%
17%
13%
-
10%
14%
12%
2. Significant Accounting Policies:
a) Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S. GAAP"), which include the accounts of Star
Bulk and its wholly owned subsidiaries referred to in Note 1 above. All inter-company accounts and transactions have been
eliminated in consolidation.
b) Use of estimates: The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the accompanying consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
c) Other Comprehensive Income: The Company follows guidance related to Reporting Comprehensive Income, which requires
separate presentation of certain transactions, which are recorded directly as components of stockholders' equity. The Company
has no such transactions which affect comprehensive income and, accordingly, comprehensive income equals net income /
(loss) for all periods presented.
F-11
F-11
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
d) Concentration of Credit Risk: Financial instruments, which potentially subject the Company to significant concentrations
of credit risk, consist principally of cash and cash equivalents, restricted cash, trade accounts receivable and derivative
contracts (bunker swaps and forward freight agreements). The Company's policy is to place cash and cash equivalents,
restricted cash with financial institutions evaluated as being creditworthy and are exposed to minimal interest rate and credit
risk. The Company may be exposed to credit risk in the event of non-performance by counter parties to derivative instruments;
however, the Company a) in over-the-counter transactions limits its exposure by diversifying among counter parties with high
credit ratings, and b) all of the Company's Forward Freight Agreements ("FFAs"). are settled on a daily basis through London
Clearing House (LCH). The Company, consistent with drybulk shipping industry practice, has not independently analyzed the
creditworthiness of the charterers and generally does not require collateral for its trade accounts receivable.
e) Income taxes: Star Bulk is not liable for any income tax on its income derived from shipping operations because the
countries in which the subsidiaries ship-owning companies and the management company are incorporated do not levy tax on
income, but rather a tonnage tax on vessels.
f) Foreign Currency Translation: The functional currency of the Company is the U.S. Dollar since the Company's vessels
operate in international shipping markets, and therefore primarily transact business in U.S. Dollars. The Company's books of
accounts are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars
using the exchange rates in effect at the time of the transactions. At the consolidated balance sheet dates, monetary assets and
liabilities, which are denominated in other currencies, are translated into U.S. Dollars at the year-end exchange rates. Resulting
gains or losses are included in Interest and other income in the accompanying consolidated statements of operations.
F-12
F-12
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
g) Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits and certificates of
deposit with an original maturity of three months or less to be cash equivalents.
h) Restricted Cash: Restricted cash represents minimum cash deposits or cash collateral deposits required to be maintained
with certain banks under the Company's borrowing arrangements or in relation to bank guarantees issued on behalf of the
Company. Restricted cash also consists of the restricted portion of both FFAs and bunker swaps base and margin collaterals
with London Clearing House (LCH) and Marfin Bank, respectively. In the event that the obligation relating to such deposits is
expected to be terminated within the next twelve months, these deposits are classified as current assets; otherwise they are
classified as non-current assets.
i) Trade accounts receivable: The amount shown as trade accounts receivable, at each balance sheet date, includes estimated
recoveries from each voyage or time charter. At each balance sheet date, the Company provides for doubtful accounts on the
basis of specific identified doubtful receivables. At December 31, 2009 and 2010, no provision for doubtful debts was
considered necessary.
j) Inventories: Inventories consist of consumable lubricants, which are stated at the lower of cost or market value. Cost is
determined by the first in, first out method.
F-13
F-13
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
k) Vessels, Net: Vessels are stated at cost, which consists of the purchase price and any material expenses incurred upon
acquisition, such as (initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for her initial
voyage). Otherwise these amounts are charged to expense as incurred.
The aggregate purchase price paid for the eight vessels in the initial fleet from certain subsidiaries of TMT consisted of cash
and common shares of Star Bulk. The stock consideration was measured based on the fair market value of the Company's shares
at the time each vessel was delivered. The additional stock consideration of 1,606,962 common shares (Note 1) was measured
when performance by TMT was complete upon delivery of the last vessel of the initial fleet on March 7, 2008. The aggregate
purchase price consisting of cash and stock consideration was allocated to the acquired vessels based on vessel relative fair
values on their respective dates of delivery to Star Bulk.
The cost of each of the Company's vessels is depreciated beginning when the vessel is ready for its intended use, on a straight-
line basis over the vessel's remaining economic useful life, after considering the estimated residual value (vessel's residual value
is equal to the product of its lightweight tonnage and estimated scrap rate per ton). Management estimates the useful life of the
Company's vessels to be 25 years from the date of initial delivery from the shipyard. When regulations place limitations over
the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations are
adopted.
l) Advances for vessels under construction: Advances made to shipyards during construction periods are classified as
"Advances for vessels under construction" until the date of delivery and acceptance of the vessel, at which date they are
reclassified to " Vessels and other fixed assets, net ". Advances for vessels under construction also include supervision costs,
amounts paid under engineering contracts, capitalized interest and other expenses directly related to the construction of the
vessel. Financing costs incurred during the construction period of the vessels are also capitalized and included in the vessels'
cost.
m) Fair value of above/below market acquired time charter: The Company records all identified tangible and intangible
assets associated with the acquisition of a vessel or liabilities at fair value. Fair value of above or below market acquired time
charters is determined by comparing existing charter rates in the acquired time charter agreements with the market rates for
equivalent time charter agreements prevailing at the time the foregoing vessels are delivered. The present values representing
the fair value of the above or below market acquired time charters are recorded as an intangible asset or liability, respectively.
Such intangible asset or liability is recognized ratably as an adjustment to revenues over the remaining term of the assumed time
charter.
F-14
F-14
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
n) Impairment of Long-Lived Assets: The Company follows guidance related to Impairment or Disposal of Long-lived Assets
which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard requires
that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate
of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its
carrying amount, the Company should evaluate the asset for an impairment loss. Measurement of the impairment loss is based
on the fair value. In this respect, management regularly reviews the carrying amount of the vessels on vessel by vessel basis
when events and circumstances indicate that the carrying amount of the vessels might not be recoverable.
At December 31, 2009 and 2010, the Company performed an impairment review of the Company's vessels due to the global
economic downturn and the prevailing conditions in the shipping industry. The Company compared undiscounted cash flows
to the carrying values for the Company's vessels to determine if the assets were impaired. Significant management judgment is
required in forecasting future operating results, used in this method. These estimates are consistent with the plans and
forecasts used by management to conduct its business. As a result of this analysis, no assets were considered to be impaired
and the Company has not recognized any impairment charge for its vessels, for the years ended December 31, 2008, 2009 and
2010, other than vessels classified as held for sale during the years ended December 31, 2009 and 2010 (Note 6).
F-15
F-15
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
o) Vessels held for sale: It is the Company's policy to dispose of vessels when suitable opportunities occur and not necessarily
to keep them until the end of their useful life. The Company classifies vessels as being held for sale when: management has
committed to a plan to sell the vessels; the vessels are available for immediate sale in its present condition; an active program to
locate a buyer and other actions required to complete the plan to sell the vessels have been initiated; the sale of the vessels is
probable, and transfer of the asset is expected to qualify for recognition as a completed sale within one year; the vessels are
being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete
the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Vessels classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These
vessels are not depreciated once they meet the criteria to be classified as held for sale.
p) Financing Costs: Fees paid to lenders or required to be paid to third parties on the lender's behalf for obtaining loans are
recorded as deferred charges. Deferred charges are expensed as interest and finance costs using the effective interest rate
method over the duration of the respective loan facility.
q) Pension and retirement benefit obligations—crew: The ship-owning subsidiaries included in the consolidated financial
statements employ the crew on board under short-term contracts (usually up to eight months) and, accordingly, are not liable
for any pension or post-retirement benefits.
F-16
F-16
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
r) Pension and retirement benefit obligations—administrative personnel: Administrative employees are covered by state-
sponsored pension funds. Both employees and the Company are required to contribute a portion of the employees' gross salary
to the fund. The related expense is recorded under "General and administrative expenses" in the accompanying consolidated
statements of operations. Upon retirement, the state-sponsored pension funds are responsible for paying the employees
retirement benefits without recourse to the Company.
s) Stock incentive plan awards: Share-based compensation represents vested and non-vested shares granted to employees
and to directors, for their services as directors, and is included in "General and administrative expenses" in the consolidated
statements of operations. These shares are measured at their fair value equal to the market value of the Company's common
stock on the grant date. The shares that do not contain any future service vesting conditions are considered vested shares and
the total fair value of such shares is expensed on the grant date. Guidance related to Stock Compensation describes two
generally accepted methods of recognizing expense for non-vested share awards with a graded vesting schedule for financial
reporting purposes: 1) the ''accelerated method'', which treats an award with multiple vesting dates as multiple awards and
results in a front-loading of the costs of the award and 2) the ''straight-line method'' which treats such awards as a single award
and results in recognition of the cost ratably over the entire vesting period. The shares that contain a time-based service
vesting condition are considered non-vested shares on the grant date and a total fair value of such shares is recognized using
the accelarated method.
t) Dry-docking and special survey expenses: Dry-docking and special survey expenses are expensed when incurred.
F-17
F-17
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
u) Accounting for Revenue and Related Expenses: The Company generates its revenues from charterers for the charterhire of
its vessels. Vessels are chartered mainly using time charters, where a contract is entered into for the use of a vessel for a
specific period of time and a specified daily charterhire rate. Under time charters, voyage costs, such as fuel and port charges
are borne and paid by the charterer. Company's time charters agreements are classified as operating leases. Revenues under
operating lease arrangements are recognized when a charter agreement exists, charter rate is fixed and determinable, the vessel is
made available to the lessee, and collection of the related revenue is reasonably assured. Revenues are recognized ratably on a
straight line basis over the period of the respective charter agreement in accordance with guidance related to Leases.
Voyage charter agreements are charterhires, where a contract is made in the spot market for the use of a vessel for a specific
voyage at a specified charter rate. Revenue from voyage charter agreements is recognized on a pro-rata basis over the duration
of the voyage. Under voyage charter agreements, all voyage costs are borne and paid by the Company. Demurrage income,
which is included in voyage revenues, represents payments by the charterer to the vessel owner when loading or discharging
time exceeds the stipulated time in the voyage charter and is recognized when arrangement exists, services have been
performed, the amount is fixed or determinable and collection is reasonably assured.
Deferred revenue includes cash received prior to the consolidated balance sheet date and is related to revenue earned after
such date. The portion of the deferred revenue that will be earned within the next twelve months is classified as current liability
and the remaining as long term liability.
Vessel operating expenses include crew wages and related costs, the cost of insurance and vessel registry, expenses relating to
repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, regulatory fees, technical management fees
and other miscellaneous expenses. Furthermore, payments in advance for services are recorded as prepaid expenses.
Brokerage commissions are paid by the Company. Brokerage commissions are recognized over the related charter period and
included in voyage expenses. Voyage expenses and vessel operating expenses are expensed as incurred.
F-18
F-18
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
v) Fair value of financial instruments: On January 1, 2008, the Company adopted guidance related to Fair Value
Measurements & Disclosures for financial assets and liabilities and any other assets and liabilities carried at fair value and are
measured on recurring basis. This pronouncement defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The Company has provided additional fair value disclosures in Note 16.
w) Earnings per Common Share: Earnings per share are computed in accordance with guidance related to Earnings per
Share. Basic earnings or loss per share are calculated by dividing net income or loss available to common shareholders by the
basic weighted average number of common shares outstanding during the period. Diluted income per share reflects the
potential dilution assuming common shares were issued for the exercise of outstanding in-the-money warrants and non-vested
shares and assuming the hypothetical proceeds, including proceeds from warrant exercise and average unrecognized stock-
based compensation cost, thereof were used to purchase common shares at the average market price during the period such
warrants and non-vested shares were outstanding (Note 10).
x) Segment Reporting: The Company reports financial information and evaluates its operations by total charter revenues and
not by the type of vessel, length of vessel employment, customer or type of charter. As a result, management, including the
chief operating decision makers, reviews operating results solely by revenue per day and operating results of the fleet, and
thus, the Company has determined that it operates under one reportable segment. Furthermore, when the Company charters a
vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information
is impracticable.
F-19
F-19
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
2. Significant Accounting Policies – (continued):
y) Recent Accounting Pronouncements: There are no recent accounting pronouncements that their adoption would have a
material effect on the Company's consolidated financial statements in the current year or expected to have an impact on future
years.
3. Transactions with Related Parties
Transactions and balances with related parties are analyzed as follows:
Balance Sheet
Assets
Oceanbulk Maritime, S.A.(c)
Total assets
Liabilities
Interchart Shipping Inc. (d)
Management and Directors (e)
Total Liabilities
December
31, 2009
December
31, 2010
$
$
$
$
2,507 $
2,507 $
190 $
146
336 $
-
-
454
149
603
F-20
F-20
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
3. Transactions with Related Parties-(continued):
Statement of operations
Year ended December 31,
2009
2010
2008
Revenues-TMT (a)
Voyage expenses-Combine (b)
Operating expenses-Combine (b)
Management fees-Combine (b)
General and Administrative-Combine (b)
Revenues Vinyl (c )
Commission on sale of vessel-Oceabulk (c)
Voyage expenses-Interchart (d)
Executive directors consultancy fees (e)
Non-executive directors compensation
$
13,009 $
95
1,440
434
67
11,611
99
396
969
149
309 $
-
-
-
-
16,508
184
1,472
917
126
-
-
-
-
-
-
660
1,540
874
206
(a) TMT Co. Ltd.: Under the Master Agreement (Note 1) the Company issued to TMT 12,537,645 shares of Star Bulk's
common stock representing the stock consideration portion of the aggregate purchase price of initial vessels and agreed to
issue to TMT the additional stock consideration of 1,606,962 common shares of Star Bulk in 2008 and 2009. On July 17, 2008
The Company issued 803,481 of the additional consideration of 1,606,962 shares of common stock of Star Bulk to TMT.On April
28, 2009 the remaining 803,481 shares of Star Bulk's common stock were issued to TMT.
F-21
F-21
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
3. Transactions with Related Parties-(continued):
(a) TMT Co. Ltd-(continued):
Under the Master Agreement, as of December 31, 2007, Star Bulk took delivery of three vessels from the initial fleet as indicated
in Note 1. In addition, in December 2007, Star Bulk took delivery of the M/V Star Kappa from TMT, which was not part of
the initial fleet for a cash consideration of $72,000. During the year ended December 31, 2008, Star Bulk had taken delivery of the
remaining five vessels from the initial fleet as indicated in Note 1.
Star Gamma LLC, a wholly-owned subsidiary of Star Bulk, entered into a time charter agreement dated, February 23, 2007, with
TMT for the Star Gamma. The charter rate for the Star Gamma was $28.5 per day for a term of one year. Star Iota LLC, a wholly-
owned subsidiary of Star Bulk, entered into a time charter agreement, dated February 26, 2007, with TMT for the Star Iota. The
charter rate for the Star Iota was $18 per day for a term of one year. For the years ended December 31, 2008 and 2009, the
Company earned $13,009 and $309, respectively net revenue under the time charter party agreements with TMT which is
included in "Voyage revenues" in the accompanying consolidated statements of operations.
TMT is a company controlled by Mr. Nobu Su, a former director of the Company. During the second quarter of 2008, Mr. Nobu
Su's beneficial ownership decreased to 7%, and on October 20, 2008, he resigned from the board of directors of Star Bulk with
immediate effect. As a result TMT ceased to be a related party to Star Bulk.
F-22
F-22
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
3. Transactions with Related Parties-(continued):
(b) Combine Marine S.A. or ("Combine"): Under an agreement dated May 4, 2007, Star Bulk appointed Combine, a company
affiliated with Mr. Tsirigakis, Mr. Pappas and Mr. Christos Anagnostou, as interim manager of the vessels in the initial fleet.
Under the agreement, Combine provided interim technical management and associated services, including legal services, to the
vessels starting with their delivery to Star Bulk, and also provided such services and shore personnel prior to and during vessel
delivery to Star Bulk in exchange for a flat fee of $10 per vessel prior to delivery and at a daily fee of $450 U.S. dollars per vessel
after vessel's delivery and during the term of the agreement. Combine was entitled to be reimbursed by Star Bulk for out-of-
pocket expenses incurred by Combine while managing the vessels and was obligated to provide Star Bulk with the full benefit of
all discounts and rebates available to Combine. The term of the agreement was for one year from the date of delivery of each
vessel. As of December 31, 2009 and 2010, none of Star Bulk's vessels were managed by Combine.
During the year ended December 31, 2008 Combine Marine S.A. charged $2,036 for operational and technical management
services.
(c) Oceanbulk Maritime, S.A., or Oceanbulk: Star Bulk's director Mr. Petros Pappas is also the Honorary Chairman of
Oceanbulk Maritime S.A, a ship management company of drybulk vessels and a related party.
On June 3, 2008, we entered into an agreement with Vinyl Navigation a company affiliated with Oceanbulk Maritime, S.A., a
company founded by Star Bulk's Chairman, Mr. Petros Pappas, to acquire the Star Ypsilon, a Capesize drybulk carrier for the
purchase price of $87,180, which was the same price that Vinyl Navigation had paid when it acquired the vessel from an
unrelated third party. The Company eventually paid $86,940 due to the late delivery of the vessel. Star Ypsilon was delivered to
the Company on September 18, 2008. No commissions were charged to us on the purchase or the chartering of the Star Ypsilon.
F-23
F-23
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
3. Transactions with Related Parties-(continued):
Oceanbulk Maritime, S.A., or Oceanbulk -(continued):
The Company acquired the Star Ypsilon with an existing above market time charter at an average daily hire rate of $91.9, and we
recorded the fair market value of time charter acquired at $14,417 (Note 7) which during 2009 was amortized as a decrease to
revenues until the early termination of the time charter agreement. Vinyl Navigation had a back-to back charter agreement with
TMT, a company controlled by a former director of the Company, Mr. Nobu Su, on the same terms as Star Bulk's charter
agreement with Vinyl Navigation.
On July 17, 2009, TMT repudiated the time charter agreement relating to Star Ypsilon. Arbitration proceedings commenced on
July 27, 2009 against TMT seeking damages resulting from TMT's repudiation of this time charter. A settlement was reached
during October 2010 (Note 14iii) For the years ended December 31, 2008 and 2009, the Company earned $11,611 and $ 16,508,
respectively for net revenue under the time charter party agreements with Vinyl and included in "Voyage revenues" in the
accompanying consolidated statements of operations. The Company also paid to Oceanbulk a brokerage commission
amounting to $99 regarding the sale of vessel Star Iota during the year ended December 31, 2008, $184 regarding the sale of
vessel Star Alpha during the year ended December 31, 2009 and $660 regarding the sale of vessel Star Beta during the year
ended December 31, 2010 (Note 6). As of December 31, 2009 and 2010, Star Bulk had an outstanding receivable balance of $2,507
and $0, respectively resulting from chartering and brokerage activities with Oceanbulk.
(d) Interchart Shipping Inc. or Interchart: Interchart –a company affiliated to Oceanbulk- acting as a chartering broker of all
Company's vessels. As of December 31, 2009 and 2010 Star Bulk had an outstanding liability of $190 and $454, respectively to
Interchart. During the years ended December 31, 2008, 2009 and 2010 the brokerage commission of 1.25% on charter revenue
paid to Interchart amounted $396, $1,472 and $1,540, respectively and is included in "Voyage expenses" in the accompanying
consolidated statements of operations.
F-24
F-24
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
3. Transactions with Related Parties-(continued):
(e) Management and Directors Fees: On October 3, 2007, Star Bulk has entered into separate consulting agreements with
companies owned and controlled by the Chief Executive Officer and the Chief Financial Officer, for the services provided by the
Chief Executive Officer and the Chief Financial Officer, respectively. Each of these agreements has a term of three years unless
terminated earlier in accordance with the terms of such agreements and during 2010 were automatically renewed for the
successive year. Under the consulting agreements, each company controlled by the Chief Executive Officer and the Chief
Financial Officer receive an annual consulting fee of €370 (approx. $492) and €250 (approx. $333) respectively.
Additionally, the Chief Executive Officer and the Chief Financial Officer are entitled to receive benefits under each of their
consultancy agreements with Star Bulk, amongst others each is entitled to receive an annual discretionary bonus, to be
determined by Star Bulk's board of directors in its sole discretion. The related expenses for the years ended December 31, 2008,
2009 and 2010 were $969, $917 and $874, respectively and are included under "General and administrative expenses" in the
accompanying consolidated statements of operations.
As of December 31, 2009 and December 31, 2010, Star Bulk had an outstanding payable balance of $146 and $149, respectively
with its Management and Directors, representing unpaid fees.
F-25
F-25
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
4. Inventories:
The amounts shown in the accompanying consolidated balance sheets are comprised of lubricants remaining on board the
vessels and amounted to $982 and $1,094 as of December 31, 2009 and 2010, respectively.
5. Advances for Vessels under Construction:
On March 24 and April 6, 2010 the Company signed two contracts with the shipbuilder Hanjin to build two Capesize vessels at a
price of $106,880 in aggregate with expected delivery in September and November 2011, respectively.
During the year ended December 31, 2010 the Company paid advances to the shipbuilder amounting to $21,432 and $21,320 for
the PN-063 (tbr Star Borealis) and PN-064 (tbr Star Polaris), respectively, and capitalized interest and other expenses of $644 and
$77, respectively.
6. Vessels and other fixed assets:
The amount shown in the accompanying consolidated balance sheets are analyzed as follows:
Cost
Vessels
Other fixed assets
Total cost
Accumulated depreciation
Vessels and other fixed assets, net
2009
2010
$
$
$
760,474
556
761,030
(92,332)
$
668,698
736,831
575
737,406
(126,589)
610,817
The impact of cash and stock consideration on the financial statements for the vessels acquired in 2008 and 2010 and sold
during 2008, 2009 and 2010 is analyzed as follows:
F-26
F-26
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
6. Vessels and other fixed assets-(continued):
Vessels acquisition for the year ended December 31, 2008
During the first quarter of 2008, Star Bulk took delivery of the remaining five vessels from initial fleet (Note 1) and paid the
remaining cash consideration of $115,515 to TMT and $181 of capitalizable costs. The additional stock consideration of
1,606,962 common shares (Note 1) was determined to be $18,946 and was measured based on the Company's share price on
March 7, 2008 when performance by TMT was complete upon delivery of the last initial vessel, Star Iota.
In addition to the initial vessels, during the year ended December 31, 2008 the Company acquired four additional vessels: Star
Sigma, Star Omicron, Star Cosmo and Star Ypsilon (Note 3) and related time charter agreements (Note 7) for a cash purchase
price of $311,783 in aggregate.
Vessels acquisition for the year ended December 31, 2010
On February 18, 2010, the Company entered into a Memorandum of Agreement for the acquisition of the vessel Star Aurora for
a contracted purchase price of $42,500. The vessel was delivered to the Company on September 8, 2010. The Company also
capitalized an amount of $1,400 to vessel cost for the early delivery of the vessel, as per the Memorandum of Agreement terms,
plus an amount of $139 as other capitalized expenses.
Vessel disposed during the year ended December 31, 2008
On April 24, 2008, the Company entered into an agreement to sell the Star Iota, a vessel from initial fleet for gross proceeds of
$18,350 less costs to sell of $1,771. The Company delivered this vessel to its purchasers on October 6, 2008. Star Iota was
classified as vessel held for sale during the first quarter of 2008 resulting in $3,646 of impairment loss to record vessel at a lower
of its carrying amount or fair value less cost to sell and is included under "Vessel impairment loss" in the accompanying
consolidated statements of operations for the year ended December 31, 2008.
F-27
F-27
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
6. Vessels and other fixed assets-(continued):
Vessel disposed during the year ended December 31, 2009
On July 21, 2009, the Company entered into a Memorandum of Agreement to sell the Star Alpha, a vessel from the initial fleet, to
a third party for a contracted sales price of $19,850 less costs to sell of $721. The vessel was delivered to its new owners on
December 21, 2009. Star Alpha was classified as asset held for sale during the third quarter of 2009 and recorded at the lower of
its carrying amount or fair value less costs to sell. The resulting impairment loss of $75,208 is included under "Vessel
impairment loss" in the accompanying consolidated statements of operations for the year ended December 31, 2009.
Vessel disposed during the year ended December 31, 2010
On January 18, 2010, the Company entered into a Memorandum of Agreement for the sale of Star Beta to a third party for a
contracted sales price of $22,000. The vessel Star Beta was classified as asset held for sale during the first quarter of 2010 and
was recorded at the lower of its carrying amount or fair value less cost to sell. The resulting impairment loss of $34,947 for the
year ended December 31, 2010, is included under "Vessel impairment loss" in the accompanying consolidated statements of
operations. The vessel was delivered to its new owners on July 7, 2010.
F-28
F-28
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
7. Fair value of acquired time charters:
The fair value of the time charters acquired at below/above fair market charter rates on the acquisition of the vessels is
summarized below. These amounts are amortized on a straight-line basis to the end of each charter period.
Fair value
of acquired
time
charter
Vessel
Amortization
2008
Balance
December
31, 2008
Amortization
2009
Balance
December
31, 2009
Amortization
2010
Balance
December
31, 2010
$
Fair value of below market acquired time charter
Star Epsilon
12,469 $
Star Theta
8,745
Star Alpha
34,462
Star Delta
12,011
Star Gamma
11,649
Star Zeta
2,735
Star Cosmo
683
82,754 $
14,375 $
12,397
46,966
13,815
11,649
2,735
3,856
105,793 $
Total
$
Fair value of above market acquired time charter
Star Kappa
Star Ypsilon
1,980
14,417
16,397 $
746
1,475
2,221 $
Total
$
1,017 $
3,076
12,504
1,804
-
-
3,173
21,574 $
1,206
12,942
14,148 $
1,017 $
3,076
12,504
1,804
-
-
1,361
19,762 $
1,206
12,942
14,148 $
- $
-
-
-
-
-
1,812
1,812 $
-
-
- $
- $
-
-
-
-
-
1,360
1,360 $
-
-
- $
-
-
-
-
-
-
452
452
-
-
-
As a result of downturn in the shipping industry during the fourth quarter of 2008 the Company revised its original assumptions
of the latest available redelivery dates used in determining the term of its below and above market acquired time charter
agreements. Under the provision of guidance related to Accounting Changes and Error Corrections this revision was treated as
a change in accounting estimate and was accounted for prospectively beginning October 1, 2008. The unamortized balance of
below market acquired time charter agreements was amortized on an accelerated basis assuming the earliest redelivery dates of
vessels under existing time charter agreements. This change had a positive impact on revenue of $13,018 ($0.25 and $0.24 per
basic and diluted share) for the year ended December 31, 2008.
F-29
F-29
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
7. Fair value of acquired time charters-(continued):
Gain/Loss on time charter agreement termination
For the year ended December 31, 2008
The vessel Star Sigma, which was on time charter to a charterer at a gross daily charter rate of $100,000 per day from April 2008
until March 2009, was redelivered to us earlier pursuant to an agreement whereby the charterer agreed to pay the contracted rate
less $8,000 per day, which is the approximate operating cost for the vessel, from the date of the actual redelivery in November
2008 through March 1, 2009. The total amount received (net of commissions) for the year ended December 31, 2008 was $9,711.
For the year ended December 31, 2009
The vessel Star Alpha, which was on time charter at a gross daily charter rate of $47,500 per day for the period from January 9,
2008 until March 18, 2009, was redelivered on January 16, 2009 to the Company by its charterers approximately two months prior
to the earliest redelivery date per the time charter agreement. The Company, under the accounting provisions applicable to
intangible assets, has recognized a gain on a time charter agreement termination of $10,077, which relates to the write-off of the
unamortized fair value of below market acquired time charter on a vessel redelivery date.
The vessel Star Theta was also redelivered to the Company by its charterers on March 15, 2009, approximately twenty-nine days
prior to the earliest redelivery date per the time charter agreement. The Company has recognized a gain on time charter
agreement termination amounting to $842 which relates to the write-off of the unamortized fair value of below market acquired
time charter on a vessel redelivery date. In addition, the Company received $260 from its charterers relating to the early
termination of this charter party, which was also recorded as a gain on time charter termination.
The vessel Star Kappa, which was on time charter at an average gross daily charter rate of $25,500 per day for the period from
April 12, 2009 until July 12, 2014, was redelivered on October 23, 2009 to the Company by its charterers prior to the earliest
redelivery date per the time charter agreement. The Company has recognized a loss on time charter agreement termination of
$903, which relates to the write-off of the unamortized fair value of above-market acquired time charter on a vessel redelivery
date.
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STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
7. Fair value of acquired time charters-(continued):
The vessel Star Ypsilon, which was on time charter at an average gross daily charter rate of $91,932 per day for the period from
September 18, 2008 until July 4, 2011, was redelivered on July 17, 2009 to the Company by its charterers prior to the earliest
redelivery date per the time charter agreement. The Company has recognized the loss on time charter agreement termination of
$10,137, which relates to the unamortized fair value of above-market acquired time charter on a vessel redelivery date. In
addition, the Company recognized a gain amounting to $5,040, which represents the deferred revenue from the terminated time
charter contract.
All amounts presented above are included under "Gain on time charter agreement termination" or "Loss on time charter
agreement termination" in the accompanying consolidated statements of operations for years ended December 31, 2008 and
2009.
Amortization expenses related to the vessel Star Cosmo for the year ending December 31, 2011 will be $452.
F-31
F-31
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
8. Long-term Debt:
a) On December 27, 2007 the Company entered into a loan agreement with Commerzbank AG in the amount of up to
$120,000 in order to partially finance the acquisition cost of the second hand vessels, Star Gamma, Star Delta, Star
Epsilon, Star Zeta, and Star Theta, which also provide the security for this loan agreement. Under the terms of this
loan facility, the repayment of $120,000 is over a nine year term and divided into two tranches. The first of up to $50,000
is repayable in twenty-eight consecutive quarterly installments commencing twenty-seven months after the initial
borrowings but no later than March 31, 2010: (i) the first four installments amount to $2,250 each, (ii) the next thirteen
installments amount to $1,000 each (iii) the remaining eleven installments amount to $1,300 each and a final balloon
payment of $13,700 is payable together with the last installment. The second tranche of up to $70,000 is repayable in
twenty-eight consecutive quarterly installments commencing twenty-seven months after draw down but no later than
March 31, 2010: (i) the first four installments amount to $4,000 each (ii) the remaining twenty-four installments amount
to $1,750 each and a final balloon payment of $12,000 is payable together with the last installment. The loan bears
interest at LIBOR plus a margin at a minimum of 0.8% per annum "p.a." to a maximum of 1.25% p.a. depending on
whether the aggregate drawdown ranges from 60% up to 75% of the aggregate market value of the 'initial fleet'.
The loan contains financial covenants, including requirements to maintain (i) a minimum liquidity of $10,000 or $1,000
per vessel, whichever is greater (ii) the market value adjusted equity ratio shall not be less than 25%, as defined therein
and (iii) an aggregate market value of the vessels pledged as security under this loan agreement not less than (a) 125%
of the then outstanding borrowings for the first three years and (b) 135% of the then outstanding borrowings
thereafter.
On June 10, 2009, the Company entered into a supplemental agreement with Commerzbank. Under the terms of this
agreement during the waiver period from December 31, 2008 to January 31, 2010, the security cover requirement was
reduced to 111%. As further security for this facility, the Company shall provide a first preferred mortgage on the
vessel Star Alpha and shall pledge an amount of $6,000 to the lenders. Furthermore, the interest spread was increased
to 2.00% p.a. for the duration of the waiver period. More than if the asset cover percentage is less than 60%, between
60% to 70%, between 70% to 75% and more than 75%, the interest spread should be 0.8%, 0.9%, 1% and 1.25%
respectively. In addition, during the waiver period, payments of dividend, share repurchases and investments are
subject to the prior written consent of the lenders.
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STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
8. Long-term Debt-(continued):
On December 24, 2009, the Company entered into a second supplemental agreement with Commerzbank. Under the
terms of this agreement during the waiver period from February 1, 2010 to June 30, 2010 and from July 1, 2010 to
January 31, 2011 the security cover shall be at least 111% and 118%, respectively whether at all times thereafter 135%.
Furthermore, the bank consented to: i) the sale of Star Alpha, ii) the payment of dividends not exceeding $0.05 per
share in each quarter iii) the reduction of minimum liquidity from $1,000 to $650 per fleet vessel, iv) the increase of the
pledged deposit by $1,250 from $6,000 to $7,250 plus a minimum liquidity of $7,150. The interest spread was also
maintained to 2.00% p.a. for the duration of the waiver period. Based on the same agreement after the waver period the
minimum liquidity will be increased from $650 to $1,000 per fleet vessel.
As of December 31, 2009 and 2010 the Company had outstanding borrowings of $120,000 and $95,000, respectively.
b) On April 14, 2008, the Company entered into a loan agreement with Piraeus Bank A.E., acting as an agent, which was
subsequently amended on April 17, 2008 and September 18, 2008. Under the amended terms, the agreement provides
for a term loan of $150,000 to partially finance the acquisition of the Star Omicron, the Star Sigma and Star
Ypsilon. This loan agreement is secured by the vessels Star Omicron, the Star Beta, and the Star Sigma. Under the
terms of this term loan facility, the repayment of $150,000 is over six years and begins three months after the
Company's first draw down amount and is divided into twenty-four consecutive quarterly installments: (i) the first
installment amounts to $7,000, (ii) the second through fifth installments amount to $10,500 each, (iii) the sixth to eighth
installments amount to $8,800 each, (iv) the ninth through fourteenth installments amount to $4,400 each, (v) the
fifteenth through twenty-fourth installments amount to $2,700 each, and a final balloon payment in the amount of
$21,200 is payable together with the last installment. The loan bears interest at LIBOR plus a margin of 1.3% p.a. This
loan agreement with Piraeus Bank A.E. contain financial covenants, including requirements to maintain (i) a minimum
liquidity of $500 per vessel, (ii) the total indebtedness of the borrower over the market value of all vessels owned shall
not be greater than 0.6:1, (iii) the interest coverage ratio shall not be less than 2:1 and (iv) an aggregate market value of
the vessels pledged as security under this loan agreement should not be less than (a) 125% of the then outstanding
borrowings for the first three years and (b) 135% of the then outstanding borrowings thereafter.
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STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
8. Long-term Debt-(continued):
On May 9, 2009, the Company entered into a supplemental agreement with Piraeus Bank. Under the terms of this
agreement during the waiver period from December 31, 2008 to February 28, 2010, the required security cover covenant
of 125% shall be waived. After the end of the waiver period, for the period from March 1, 2010 to February 28, 2011 the
required security cover shall be reduced to 110% from 125% of the outstanding loan amount. The lenders shall waive
the 60% corporate leverage ratio, which is the ratio of the Company's total indebtedness net of any unencumbered
cash balances over the market value of all vessels owned by the Company, through February 28, 2010. As further
security for this facility, the Company shall provide (i) first priority mortgages on and first priority assignments of all
earnings and insurances of the vessels Star Kappa and Star Ypsilon; (ii) corporate guarantees from each of the
collateral vessel owning limited liability companies; (iii) a subordination of the technical and commercial manager's
rights to payment; (iv) and a pledge amount of $9,000 to the lenders. Furthermore, the interest spread was increased to
2% p.a. applicable for the period from January 1, 2009 to December 31, 2010, and thereafter shall be adjusted to 1.5%
per annum until the margin review date of the facility. In addition, during the waiver period, payments of dividend are
subject to the prior written consent of the lenders. In July 2010 Piraeus Bank consented to the sale of vessel Star Beta.
Consequently the first priority mortgage was released. In addition the Company prepaid of an amount of $6,975 in July
2010 and the facility was repayable beginning on September 1, 2010, in seventeen consecutive quarterly installments:
(i) the first one installment in the amount of $8,064 (ii) the second to seventh installments amount to $4,032 each and (ii)
the final ten installments in the amount of $2,474 each plus a balloon payment of $19,427 is payable together with the
last installment.
As of December 31, 2009, and 2010 the Company had outstanding borrowings of $101,000 and $64,329, respectively.
c) On July 1, 2008, the Company entered into a loan agreement with Piraeus Bank A.E., acting as an agent, in the amount
of $35,000 to partially finance the acquisition of the Star Cosmo, which also provides the security for this loan
agreement. The full amount of the loan was drawn down, on the same date. Under the terms of this term loan facility,
the repayment of $35,000 is over six years and begins three months after the Company drew down the full amount but
no later than July 30, 2008 and is divided into twenty-four consecutive quarterly installments: (i) the first through
fourth installments amounts to $1,500 each, (ii) the fifth through eighth installments amount to $1,250 each, (iii) the
ninth to twelfth installments amount to $875 each, (iv) the
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F-34
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
8. Long-term Debt-(continued):
thirteenth through twenty-fourth installments amount to $500 each and a final balloon payment of $14,500 is payable
together with the last installment. The loan bears interest at LIBOR plus a margin of 1.325% p.a.
The loan agreement contains financial covenants, including requirements to maintain (i) a minimum liquidity of $500 per
vessel, (ii) the total indebtedness of the borrower over the market value of all vessels owned shall not be greater than
0.6:1, (iii) the interest coverage ratio shall not be less than 2:1 and (iv) an aggregate market value of the vessels pledged
as security under this loan agreement not less than (a) 125% of the then outstanding borrowings for the first three
years and (b) 135% of the then outstanding borrowings thereafter.
On May 25, 2009, the Company entered into an amending and restating agreement with Piraeus Bank. Under the terms
of this agreement during the waiver period from December 31, 2008 to February 28, 2010, the required security cover
covenant of 125% shall be waived. After the end of the waiver period, for the period from February 28, 2010 to
February 28, 2011 the required security cover shall be reduced to 110% from 125% of the outstanding loan amount. The
lender shall waive the 60% corporate leverage ratio, which is the ratio of the Company's total indebtedness net of any
unencumbered cash balances over the market value of all vessels owned by the Company, through February 28, 2010.
Also, during the waiver period, no dividend payments are made without the prior written consent of the lenders.
As further security for this facility the Company will provide (i) second priority mortgage on and second priority
assignment of all earnings and insurances of the Star Alpha; (ii) a corporate guarantee from Star Alpha's vessel owning
limited liability company; (iii) a subordination of the technical and commercial managers rights to payment and iv) a
minimum liquidity of $500 per vessel and v) a pledged deposit of $5,000. This facility was repayable beginning on April
2, 2009, in twenty-two consecutive quarterly installments: (i) the first two installments in the amount of $2,000 each; (ii)
the third installment in the amount of $1,750; (iii) the fourth installment in the amount of $1,250; (iv) the fifth through
tenth installment in the amount of $875 each; and (v) the final twelve installments in the amount of $500 each plus a
balloon payment of $13,750 is payable together with the last installment. In addition, the interest spread was adjusted
to 2% p.a. applicable for the period from March 1, 2009 to February 28, 2010, and thereafter shall be adjusted to 1.5%
p.a. until the final maturity date of the facility. In December 2009 Piraeus Bank consented to the sale of vessel Star
Alpha. Consequently the second priority mortgage was released.
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STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
8. Long-term Debt-(continued):
On September 29, 2010 the loan was further amended. Under the terms of this agreement the security cover shall be at
all times 125%. Furthermore, the bank released to the Company an amount of $5,000 that was previously pledged, after
the Company prepaid of an amount of $2,000 on October 1, 2010. In addition the facility was repayable beginning on
October 1, 2010, in sixteen consecutive quarterly installments: (i) the first four installments in the amount of $800 each;
and (ii) the final twelve installments in the amount of $457 each plus a balloon payment of $12,566 is payable together
with the last installment. In addition, the interest spread was adjusted to 3% p.a. applicable for the period from
August 1, 2010 to December 31, 2011, and thereafter shall be adjusted to 2.5% p.a. until the final maturity date of the
facility.
As of December 31, 2009 and 2010, the Company had outstanding borrowings of $26,250 and $20,450, respectively.
d) On September 3, 2010 the Company entered into a loan agreement with Commerzbank AG in the amount of up to
$26,000 in order to partially finance the acquisition cost of the second hand vessel, Star Aurora, which is also provided
as security for this loan agreement. Under the terms of this loan facility, the repayment of $26,000 is over a six year
period. The loan is repayable in twenty-four consecutive quarterly installments of $950 each, commencing three
months after the drawdown, and a final balloon payment of $3,200 payable together with the last installment. The loan
bears interest at LIBOR plus a margin of 2.6% p.a.
The loan contains financial covenants, including requirements to maintain (i) a minimum liquidity of $10,000 or $1,000
per vessel, whichever is greater (ii) the market value adjusted equity ratio shall not be less than 25%, as defined therein
and (iii) a minimum liquidity of $650 for this vessel that will increase to $1,000 when cash pledged due to waiver dated
December 24, 2009 shall be released (iii) an aggregate market value of the vessel pledged as security under this loan
agreement not less than 135% at all times.
As of December 31, 2010, the Company had outstanding borrowings of $25,050.
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F-36
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
8. Long-term Debt-(continued):
e)
In December 2010, the Company committed into a loan agreement with Credit Agricole Corporate and Investment Bank
for a term loan up to $70,000 to partially finance the construction cost of the Hull PN-063 and Hull PN-064, which have
been provided as security for this loan agreement. The loan will be drawn in three advances per hull, and each
advance will be drawn upon completion of the keel laying the launching and the delivery of each hull. Under the terms
of this term loan facility, the repayment of $70,000 is over seven years and begins three months after the delivery of
each vessel and is divided into twenty eight consecutive quarterly installments, per vessel, amounting to $513 each
and a final balloon payment, per vessel, in the amount of $20,650 is payable together with the last installment. The loan
bears interest at LIBOR plus a margin of 2.7% p.a.
This loan agreement with Credit Agricole Corporate and Investment Bank contain financial covenants, including
requirements to maintain (i) a minimum liquidity of $10,000 or $500 per fleet vessel, whichever is greater (ii) the total
indebtedness of the borrower over the market value of all vessels owned shall not be greater than 0.7:1, (iii) the
minimum asset cover ratio shall not be less than (a) 120% during the first two years from delivery of each vessel and
(b) 125% of the then outstanding borrowings thereafter.
As of December 31, 2010, the Company had no outstanding borrowings related to this loan.
The weighted average interest rate (including the margin) as of December 31, 2008, 2009 and 2010 was 3.63%, 2.65%
and 2.73%, respectively.
The Company was not in breach of any financial covenants as of December 31, 2010.
F-37
F-37
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
8. Long-term Debt-(continued):
The principal payments required to be made after December 31, 2010, are as follows:
Years
2011
2012
2013
2014
2015
2016 and thereafter
Total
Amount
33,785
$
28,083
26,525
56,486
16,000
43,950
$204,829
Interest expense for the years ended December 31, 2008, 2009 and 2010 amounting to $9,655, $9,217, and $5,317
respectively, amortization of deferred finance fees amounting to $234, $350 and $329, respectively, and other finance fees
amounting to $349, $347 and $270, respectively, are included under "Interest and finance costs" in the accompanying
consolidated statements of operations.
9. Preferred, Common stock and Additional paid in capital:
As of December 31, 2008 and 2009 the Company had common stock and warrants outstanding, whereas as of December 31, 2010
the Company had only common stock outstanding.
Preferred Stock: Star Bulk is authorized to issue up to 25,000,000 shares of preferred stock, $0.01 par value with such
designations, as voting, and other rights and preferences, as determined by the Board of Directors. As of December 31, 2009
and 2010 the Company had not issued any preferred stock.
Common Stock: Star Bulk was authorized to issue 100,000,000 shares of common stock, par value $0.01. On November 23, 2009
at the Company's annual meeting of shareholders, the Company's shareholders voted to approve an amendment to the
Amended and Restated Articles of Incorporation increasing the number of common shares that the Company was authorized to
issue from 100,000,000 registered common shares, par value $0.01 per share, to 300,000,000 registered common shares, par value
$0.01 per share.
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F-38
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated
9. Preferred, Common stock and Additional paid in capital-(continued):
Each outstanding share of Star Bulk common stock entitles the holder to one vote on all matters submitted to a vote of
shareholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of shares of
common stock are entitled to receive ratably all dividends, if any, declared by Star Bulk's board of directors out of funds legally
available for dividends. Holders of common stock do not have conversion, redemption or preemptive rights to subscribe to any
of Star Bulk's securities. All outstanding shares of common stock are fully paid and non-assessable. The rights, preferences and
privileges of holders of common stock are subject to the rights of the holders of any shares of preferred stock which Star Bulk
may issue in the future.
On July 17, 2008 the Company issued 803,481 shares out of additional stock consideration of 1,606,962 of common stock of Star
Bulk to TMT. The remaining 803,481 shares of Star Bulk's common stock were issued to TMT on April 28, 2009 (Note 1). The
additional stock consideration of 1,606,962 common shares (Note 1) was determined to be $18,946 and was measured based on
the Company's share price on March 7, 2008 when performance by TMT was complete upon delivery of the last initial vessel,
Star Iota (Note 6).
Warrants:
Each warrant entitles the registered holder to purchase one share of common stock at a price of $8.00 per share, subject to
adjustment as discussed below. The warrants were to expire on December 16, 2009. In November 2009, the Company decided to
extend the expiration date of its 5,916,150 outstanding warrants up to March 15, 2010. On March 15, 2010, the 5,916,150
outstanding warrants expired and ceased trading on the Nasdaq Global Market.
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F-39
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
9. Preferred, Common stock and Additional paid in capital-(continued):
Warrant holders exercised their right to purchase shares of the Company's common stock. During the year ended December 31,
2008, the Company received a total of $94,155 representing 11,769,486 warrants respectively, at $8.00 per warrant
exercised. Following the exercise of 11,769,486 warrants in 2008 5,916,150 warrants remained outstanding as of December 31,
2008. During the year ended December 31, 2009 and 2010 no warrants were exercised.
Share and Warrant re-purchase plan: Following the consummation of the Redomiciliation Merger, in 2008 the Company
announced a repurchase plan of common shares and warrants of up to an aggregate value of $50,000. As at December 31, 2008,
1,247,000 of common shares and 1,362,500 of warrants were repurchased. The Company paid $7,976 for the shares and $5,473
for the above mentioned warrants. Under the terms of the waiver agreements (Note 8) with the Company's lenders, any share
and warrant repurchases are subject to their prior written consent.
On February 23, 2010 the Company's Board of Directors adopted a new stock repurchase plan for up to $30,000 to be used for
repurchasing the Company's common shares until December 31, 2011. All repurchased shares will be cancelled and removed
from the Company's share capital. This stock repurchase plan is expected to be effective when Company's lenders remove the
relevant covenant from the Company's loan agreements.
During the years ended December 31, 2009 and 2010 there were no warrants or shares repurchased.
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F-40
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
9. Preferred, Common stock and Additional paid in capital-(continued):
Declaration of dividends:. On November 17, 2008, the Company declared a cash dividend ($0.18 per share), amounting to $9,800,
and stock dividends (4,255,002 shares issued) on Star Bulk's common stock totaling $0.36 equivalent per common share for the
quarter ended September 30, 2008. This cash dividend was paid and shares were issued on December 5, 2008 to stockholders of
record on November 28, 2008. The number of newly issued shares was based on the volume weighted average price of Star
Bulk's shares on the Nasdaq Global Market during the five trading days before the ex-dividend date or November 25, 2008. The
stock dividend issue of 4,255,002 shares was valued at $7,659, fair value based on the date shares were issued, on December 5,
2008. This equity value was deducted from the retained earnings and included in the additional paid in capital and common
stock as indicated in the Consolidated Statements of Shareholders Equity. On January 20, 2009, management and the directors
reinvested the cash portion of their dividend for the quarter ended September 30, 2008, declared on November 17, 2008, and
amounting to $1,886, into 818,877 newly-issued shares in a private placement.
The Company received written consent from each of its lenders for the declaration and payment of these four dividends.
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F-41
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
10. Earnings/Losses per Share:
The Company calculates basic and diluted earnings/loss per share as follows:
Year ended Year ended Year ended
December 31, December 31, December 31,
2009
2010
2008
Income/Loss:
Net income / (loss)
Basic earnings / (loss) per share:
Weighted average common shares outstanding, basic
Basic earnings / (loss) per share
Effect of dilutive securities:
Dillutive effect of Warrants and non-vested shares
Weighted average common shares outstanding, diluted
Diluted earnings / (loss) per share
$
133,738 $
(58,415) $
(5,131)
52,477,947 $
2.55
60,873,421
(0.96) $
61,489,162
(0.08)
1,970,038
54,447,985
2.46 $
-
60,873,421
(0.96) $
-
61,489,162
(0.08)
$
$
During the year ended December 31, 2008 11,769,486 (Note 9) warrants were exercised. As of December 31, 2008 and 2009,
a total of 5,916,150 warrants were outstanding, respectively for both years, at an exercise price of $8 per warrant. The exercise
price of warrants was below the average market price of the Company's shares during the year ended December 31,
2008. Consequently, the Company's warrants were dilutive and included in the computation of the diluted weighted average
common shares outstanding based on the treasury stock method. The weighted average diluted common shares outstanding
for the year ended December 31, 2008 includes the effect of 1,255,000 of non-vested shares, as their effect was dilutive. The
weighted average diluted common shares outstanding for the years ended December 31, 2009 and 2010 are not included in the
diluted earnings per share calculation because their effect would be anti-dilutive (Note 11) .
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F-42
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
11. Equity Incentive Plan:
On February 8, 2007 the Company's Board of Directors adopted a resolution approving the terms and provisions of the
Company's Equity Incentive Plan (2007 Plan). The Plan is designed to provide certain key persons, whose initiative and efforts
are deemed to be important to the successful conduct of the business of the Company with incentives to enter into and remain
in the service of the Company, acquire a propriety interest in the success of the Company, maximize their performance and
enhance the long-term performance of the Company.
Under the 2007 Plan, officers, key employees, directors and consultants of Star Bulk and its subsidiaries will be eligible to
receive options to acquire shares of common stock, stock appreciation rights, restricted stock and other stock-based or stock-
denominated awards. Star Bulk has reserved a total of 2,000,000 shares of common stock for issuance under the plan, subject to
adjustment for changes in capitalization as provided in the 2007 Plan.
On February 23, 2010, the Company's Board of Directors approved the Company's new Equity Incentive Plan (the 2010 Plan).
The Company has reserved a total of 2,000,000 shares of common stock for issuance under the 2010 plan, subject to adjustment
for changes in capitalization as provided in the 2010 Plan. All provisions of the 2010 Plan are similar with the 2007 Plan
provisions.
Pursuant to Company's 2010 and 2007 Equity Incentive Plans, the Company issued the following securities:
i) On December 3, 2007, the Company granted to Mr. Tsirigakis, Chief Executive Officer, and Mr. Syllantavos, Chief Financial
Officer, 90,000 and 75,000 non-vested shares of Star Bulk common stock, respectively. The fair value of each share was $15.34,
which is equal to the market value of the Company's common stock on the grant date. The shares vest in three equal
installments on July 1, 2008, 2009 and 2010. All 165,000 shares granted under this Plan were issued during 2008.
ii) On March 31, 2008, the Company concluded an agreement with Company's Director Mr. P. Espig. Under this agreement,
which is part of Company's Equity incentive plan, Mr. Espig received 150,000 non-vested shares of Star Bulk common stock.
The fair value of each share was $11.39 which is equal to the market value of the Company's common stock on the grant
date. The shares vested in two equal installments on April 1, 2008 and 2009. All 150,000 shares granted under this Plan were
issued during 2008.
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F-43
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
11. Equity Incentive Plan-(continued):
iii) On December 5, 2008, pursuant to the terms of 2007 Plan the Company authorized the issuance of an aggregate of 130,000
non-vested common shares to all of our employees and an aggregate of 940,000 non-vested common shares to the members of
board of directors. The fair value of each share was $1.80 which is equal to the market value of the Company's common stock
on the grant date. These shares were issued on January 20, 2009 and vested on January 31, 2009.
iv) On February 4, 2010, an aggregate of 115,600 non-vested common shares to all Company's employees subject to applicable
vesting of 69,360 common shares on June 30, 2010 and 46,240 common shares on June 30, 2011. The fair value of each share was
$2.66 which is equal to the market value of the Company's common stock on the grant date.
v) On February 24, 2010, an aggregate of 980,000 non-vested common shares to the members of Company's Board of Directors
subject to applicable vesting of 490,000 common shares on each of June 30 and September 30, 2010. The fair value of each share
was $2.75 which is equal to the market value of the Company's common stock on the grant date.
vi) On October 20, 2010, pursuant to the terms of 2010 Plan the Company authorized the issuance of an aggregate of 140,000
non-vested common shares to all of the Company's employees and an aggregate of 1,070,000 non-vested common shares to the
members of board of directors. The fair value of each share was $2.80 which is equal to the market value of the Company's
common stock on the grant date. These shares vested on December 31, 2010.
All non-vested shares are conditional upon the grantee's continued service as an employee of the Company, or as a director
until the applicable vesting date. The grantee does not have the right to vote such non-vested shares until they vest or
exercise any right as a shareholder of these shares, however, the non-vested shares pay dividends as declared. For the years
ended December 31, 2008, 2009, and 2010 the Company paid dividends on non-vested shares which amounted to $206, $6 and
$89, respectively.
The Company estimates the forfeitures of non-vested shares to be immaterial.
F-44
F-44
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
11. Equity Incentive Plan-(continued):
For the years ended December 31, 2008, 2009 and 2010, stock based compensation was $3,986, $1,832 and $6,511 respectively
and is included under "General and administrative expenses" in the accompanying consolidated statement of operations.
A summary of the status of the Company's non-vested shares as of December 31, 2010, and movement during the year ended
December 31, 2010, is presented below.
Unvested as at January 1, 2010
Granted
Vested
Unvested as at December 31, 2010
Weighted
Average
Grant Date
Fair Value
15.34
2.77
3.07
2.66
Number of
shares
55,000 $
2,305,600
(2,314,360)
46,240 $
As of December 31, 2010, there was $43 of total unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of
0.5 years. The total fair value of shares vested during the years ended December 31, 2008, 2009 and 2010 was $1,484, $2,732 and
$6,113, respectively.
F-45
F-45
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
12. Accrued liabilities
The amounts shown in the accompanying consolidated balance sheets are analysed as follows:
Audit fees
Legal fees
Other professional fees
Operating and voyage expenses
General and administrative expenses
Loan interest and financing fees
Totals:
13. Income Taxes:
a) Taxation on Marshall Islands registered companies
2009
2010
321
127
187
1,324
8
326
2,293
$
$
220
163
88
638
6
750
1,865
$
$
Under the laws of the countries of the companies' incorporation and/or vessels' registration, the companies are not subject to
tax on international shipping income. However, they are subject to registration and tonnage taxes, which have been included
under "Vessel operating expenses" in the accompanying statements of operations.
b) Taxation on US source income – shipping income
The Company believes that it and its subsidiaries are exempt from U.S. federal income tax at 4% on U.S. source shipping income,
as each vessel-operating subsidiary is organized in a foreign country that grants an equivalent exemption to corporations
organized in the United States and the Company's stock is primarily and regularly traded on an established securities market in
the United States, as defined by the Internal Revenue Code (IRS) of the United States. Under IRS regulations, a Company's
stock will be considered to be regularly traded on an established securities market if (i) one or more classes of its stock
representing 50% or more of its outstanding shares, by voting power and value, is listed on the market and is traded on the
market, other than in minimal quantities, on at least 60 days during the taxable year; and (ii) the aggregate number of shares of
stock traded during the taxable year is at least 10% of the average number of shares of the stock outstanding during the taxable
year.
.
F-46
F-46
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
14. Commitments and Contingencies:
Legal proceedings
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the
ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and
other claims with suppliers relating to the operations of the Company's vessels.
i)
The Company commenced an arbitration proceeding as claimant against Oldendorff Gmbh & Co. KG of Germany
("Oldendorff"), seeking damages resulting from Oldendorff's repudiation of a charter party relating to the vessel
Star Beta. The vessel Star Beta had been time chartered by a subsidiary of the Company to Industrial Carriers Inc.
of Marshall Islands ("ICI"). Under that time charter, ICI was obligated to pay a gross daily charter hire rate of
$106,500 until February 2010. In January 2008, ICI sub-chartered the vessel to Oldendorff for one year at a gross
daily charter hire rate of $130,000 until February 2009. In October 2008, ICI assigned its rights and obligations
under the sub-charter to one of our subsidiaries in exchange for ICI being released from the remaining term of the
ICI charter. According to press reports, ICI subsequently filed an application for protection from its creditors in a
Greek insolvency proceeding which was dismissed.
In January 2009, the Company made a written submission to its appointed arbitrator asserting claims against
Oldendorff and alleged damages in the amount of approximately $14,709. The Company believes that the
assignment was valid and that Oldendorff has erroneously repudiated the sub-charterer. The arbitration
proceedings are still continuing.
F-47
F-47
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
14. Commitments and Contingencies-(continued):
ii)
iii)
iv)
Arbitration proceedings have commenced pursuant to disputes that have arisen with the charterers of the vessel
Star Alpha. The disputes relate to vessel performance characteristics and hire. Star Bulk is seeking damages for
repudiations of the charter party due to early redelivery of the vessel as well as unpaid hire of $ 2,096, while the
charterers are seeking contingent damages resulting from the vessel's off-hire. Claim, counterclaim and defense
submissions have been filed by parties with the arbitration panel. Arbitration proceedings, before a common
panel, are also running between third parties that sub-chartered the vessel. In the first quarter of 2009 the vessel
underwent unscheduled repairs which resulted in a 25 day off-hire period. Following the completion of the repairs,
the vessel Star Alpha was redelivered to the Company by its charterers approximately one month prior to the
earliest redelivery date allowed under the time charter agreement. There is an agreement in principle that the
arbitration proceedings with the charterer of the vessel and the sub-charterers will be discontinued and each party
will be released from the proceedings and claims will be waived. An amount of $2,096 under "Loss on bad debts"
in the accompanying condensed consolidated statements of operations is associated with a write-off of this
Charterer's balance.
Arbitration proceedings against TMT seeking damages resulting from TMT's repudiation of the charter party of
the vessel Star Ypsilon due to the nonpayment of charterhire of $ 2,606 related to this vessel were terminated
during 2010. During the months June and July 2010 the Company received the amount of $2,082 million for unpaid
charter hire, bunkers and interest. A final settlement was reached during October 2010 in which the Company
received the amount of $22,222, which is included under "Other operating income" in the accompanying
consolidated statements of operations, as settlement for the unrealized revenues due to the early termination of
the time charter of the vessel that occurred in July 2009.
The Company commenced arbitration proceedings against Ishhar Overseas that was the previous charterer of the
vessels Star Epsilon and Star Kappa. The Company is seeking damages for repudiations of the charter parties due
to early redelivery of the vessel as well as unpaid hire of $ 1,949. The Company will pursue an interim award for
such nonpayment of charterhire and an award for the loss of charterhire for the remaining period of the
charterparties. Claim submissions have been filed and the arbitration proceedings are continuing.
F-48
F-48
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
14. Commitments and Contingencies-(continued):
v)
During July 2010 a dispute arose between the Company and Deuilemar that was the charterer of the vessel Star Beta,
for due hire and damages for the late redelivery of the vessel amounting to $1,732 which is included under "Trade
Accounts Receivable" in accompanying consolidated balance sheets, while the charterers have a counterclaim for
the vessel's performance. Arbitration proceedings are to commence.
On September 29, 2010 the Company agreed with a third party to sell a 45% interest in the future proceeds related to the
settlement of certain of the commercial claims for $5 million which is included under "Other operating income" in the
accompanying consolidated statements of operations. This amount was collected in October 2010.
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and
is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent
liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated
financial statements. Up to $1 billion of the liabilities associated with the individual vessels' actions, mainly for sea pollution,
are covered by the Protection and Indemnity (P&I) Club Insurance.
F-49
F-49
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
Future minimum contractual charter revenue
Future minimum contractual charter revenue, based on vessels committed to noncancelable, time charter contracts net of
address commission as of December 31, 2010 will be:
$
Years ending December 31, Amount*
65,471
32,132
25,558
9,034
9,034
52,000
$ 193,229
2011
2012
2013
2014
2015
2016 and thereafter
Total
*These amounts do not include any assumed off–hire.
Contractual Obligations
The Company's contractual obligations as of December 2010 amount to $64,128 in aggregate, payable to the shipbuilder Hanjin
during the year 2011 in respect to the construction of PN-063 (tbr Star Borealis) and PN-064 (tbr Star Polaris) (Note 5).
F-50
F-50
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
15. Voyage and Vessel Operating Expenses:
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
Voyage expenses
Port charges
Bunkers
Commissions paid – third parties
Commissions paid – related parties
Chartered-in vessel expenses
Miscellaneous
Total voyage expenses
Vessel operating expenses
Crew wages and related costs
Insurances
Maintenance, Repairs, Spares and Stores
Lubricants
Tonnage taxes
Upgrading expenses
Miscellaneous
Total vessel operating expenses
16. Fair value disclosures:
2008
2009
2010
$
$
$
$
660
571
1,824
396
-
53
3,504
10,350
2,225
6,037
2,147
120
4,580
739
26,198
$
$
$
$
1,940
3,637
1,460
1,472
6,732
133
15,374
13,342
2,198
9,671
2,456
123
1,526
852
30,168
$
$
$
$
1,047
1,544
1,180
1,540
11,180
348
16,839
12,348
2,195
4,729
1,925
116
301
735
22,349
The guidance related to Fair Value Measurements requires that assets and liabilities carried at fair value should be classified and
disclosed in one of the following three categories based on the inputs used to determine its fair value:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
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F-51
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
16. Fair value disclosures-(continued):
The Company trades in the FFAs and bunker swap markets with an objective to utilize those instruments as economic hedge
instruments that are highly effective in reducing the risk on specific vessels trading in the spot market and to take advantage of
short term fluctuations in the market prices. FFAs and bunker swap trading do not qualify for cash flow hedges for accounting
purposes, therefore resulting gains or losses are recognized under "Gain/loss on derivative instruments" in the accompanying
consolidated statements of operations.
Dry bulk shipping FFAs generally have the following characteristics: they cover periods from several days and months to one
year; they can be based on time charter rates or freight rates on specific quoted routes; they are executed between two
parties. All Company's FFA's are cleared transactions.
As all of the Company's FFAs are settled on a daily basis through the London Clearing House (LCH), the fair value of these
instruments as of December 31, 2009 and 2010 was $0. There is also a margin maintenance requirement based on marking the
contract to market.
Bunker swaps are agreements between two parties to exchange cash flows at a fixed price on bunkers, where volume, time
period and price are agreed in advance. The Company's swaps are traded as a derivative on the over-the-counter (OTC) market.
During 2009 and 2010, the Company entered into several bunker swap contracts up to December 31, 2011. As of December 31,
2010 the Company had no open positions on bunkers swaps.
As of December 31, 2009 and 2010 the cash margin requirement for future trades (of both FFAs and Bunkers swaps) was $5,753
and $0 and is classified as short-term restricted cash in the accompanying consolidated balance sheets.
As of December 31, 2009, fair value of the Company's investments in bunkers swaps contracts are determined through Level 2
of the fair value hierarchy as defined in the related guidance and are derived principally from or corroborated by observable
market data and other items that allow value to be determined.
F-52
F-52
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
16. Fair value disclosures-(continued):
For the years ended December 31, 2008, 2009 and 2010 gain/losses recognized on FFA and bunker swap contracts are included
under "Gain/ (loss) on derivative instruments" in the accompanying consolidated statements of operations and are analysed as
follows:
Year ended December 31,
2010
2008
2009
FFAs
Bunker swaps
$
$
251 $
-
251 $
(2,436) $
282
(2,154) $
(2,078)
(5)
(2,083)
As of December 31, 2009 no fair value measurements for assets or liabilities under Level 1 and 3 were recognized in the
Company's consolidated financial statements.
Description
Total December 31,
2009
Fair Value Measurements Using
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets
Bunker swaps Current
Non-current
128
154
-
-
128
154
-
-
As of December 31, 2010 no fair value measurements for assets or liabilities under Level 1, 2 and 3 were recognized in the
Company's consolidated financial statements.
The carrying value of cash and cash equivalents, trade accounts receivable, accounts payable and current accrued liabilities
approximates their fair value due to the short term nature of these financial instruments. The fair values of long-term variable
rate bank loans approximate the recorded values, due to their variable interest rate.
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F-53
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2009 and 2010
(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)
17. Subsequent Events:
·
·
·
·
·
·
On January 20, 2011 the Company entered into a loan agreement with Credit Agricole Corporate and Investment Bank
in the amount of up to $70,000 in order to partially finance the construction cost of the Hull PN-063 (tbr Star Borealis)
and the Hull PN-064 (tbr Star Polaris). The Company was committed into this loan in December 2010 (Note 8e).
On January 21, 2011 an amount of $10,700 was drawn down in order to partially finance the construction cost of the
Hull PN-063 (tbr Star Borealis)
On February 7, 2011 Mr. Spyros Capralos was appointed as the Company's President and Chief Executive Officer, to
succeed Mr. Akis Tsirigakis. Mr. Tsirigakis will continue to serve as a director of the Company
On February 8, 2011 an amount of $10,660 was drawn down in order to partially finance the construction cost of the
Hull PN-064 (tbr Star Polaris).
On February 18, 2011 the Company received a letter from Korea Line Corporation ("KLC"), the charterer of the vessel
Star Gamma requesting an agreement to adjust the charter hire. Additionally, the Company was notified of the
commencement of rehabilitation proceedings of KLC in Korea and the related schedule for making claims against KLC
in those proceedings. The receivers for KLC terminated the charterparty on March 9, 2011. The charter with KLC had a
term that ends in December 2011. As of March 29, 2011 KLC owes the Company an amount of approximately $1.8
million in charterhire. The Company has asserted liens in respect of certain amounts due to KLC under sub-charters
relating to the vessel. Letters setting out our claims for due hire and damages have been sent to the Seoul Court
handling the rehabilitation proceedings of KLC. The disposition of the claims for the due amounts will be determined
by the Korea Court at a future date.
On February 18, 2011, the Company declared cash dividends on its common stock amounting to $0.05 per share,
payable on March 10, 2011.
SK 25767 0002 1183687
F-54
F-54
Stock Listing
Star Bulk Carriers Corp.’s common stock is listed on the NASDAQ Global Select Market and trades under the
symbol “SBLK.”
Corporate Office
Legal Counsel
40, Agiou Konstantinou Street,
2nd floor
Maroussi 151 24
Athens, Greece
Tel: + 30 210 6178400
Fax: +30 210 6178378
www.starbulk.com
Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane Plaza
New York, NY 10038
Tel.: +1-212-936-5100
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
Tel.: +1-212-574-1200
Independent Auditors
Deloitte Hadjiapavlou, Sofianos &
Cambanis S.A.
250-254 Kifissias Ave,
Halandri 152 32, Athens, Greece
Tel.: +30-210-678-1100
Investor Relations Contacts
Capital Link, Inc.
230 Park Avenue Suite 1536
New York, NY 10169
Tel: +1-212-661-7566
starbulk@capitallink.com
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annual report