annual
report
2014
COMPANY PROFILE
Star Bulk is a global shipping company providing worldwide seaborne transportation solutions in the dry bulk sector. Star Bulk’s
vessels transport major bulks, which include iron ore, coal and grain and minor bulks which include bauxite, fertilizers and steel
products. Star Bulk was incorporated in the Marshall Islands on December 13, 2006 and maintains executive offices in Athens,
Greece. Its common stock trades on the Nasdaq Global Select Market under the symbol “SBLK”.
On a fully delivered basis, Star Bulk will have a fleet of 96 vessels, with an aggregate capacity of 11.2 million dwt, consisting
of Newcastlemax, Capesize, Post Panamax, Kamsarmax, Panamax, Ultramax, Supramax and Handymax vessels with carrying
capacities between 45,500 dwt and 209,000 dwt.
Our fleet currently includes 70 operating vessels and 26 newbuilding vessels under construction at shipyards in Japan and China.
All of the newbuilding vessels are expected to be delivered during 2015 and 2016.
i
FLEET PROFILE
VESSEL NAME
VESSEL TYPE
SIZE (DWT)
YARD BUILT
COUNTRY YEAR BUILT
On The Water (OTW) Fleet
1 Gargantua
2 Leviathan
3 Peloreus
4 Indomitable
5 Deep Blue
6 Obelix
7 Christine (tbr Star Martha)
8 Sandra (tbr Star Pauline)
9 Pantagruel
10 Star Borealis
11 Star Polaris
12 Star Angie
13 Big Fish
14 Kymopolia
15 Big Bang
16 Star Aurora
17 Star Mega
Newcastlemax
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
18 Lowlands Beilun (tbr Star Despoina)
Capesize
Capesize
Capesize
209,529
182,476
182,511
182,496
182,000
181,433
180,274
180,274
180,181
179,678
179,600
177,931
177,643
176,990
174,109
171,199
170,631
170,162
164,218
164,218
NACKS
JMU
JMU
JMU
JMU
Imabari
Koyo dock
Koyo dock
Imabari
Hanjin Subic
Hanjin Subic
SWS
Mitsui
Namura
SWS
Koyo dock
Mitsubishi HI
Halla
CSBC
CSBC
19 Star Eleonora
20 Star Monisha
21 Amami
22 Madredeus
23 Star Sirius
24 Star Vega
25 Star Angelina
26 Star Gwyneth
27 Star Kamila
28 Pendulum
29 Star Maria
30 Star Markella
31 Star Danai
32 Star Georgia
33 Star Sophia
34 Star Mariella
35 Star Moira
Post Panamax
98,681
Tsuneishi Zhoushan
Post Panamax
98,681
Tsuneishi Zhoushan
Post Panamax
98,681
Tsuneishi Zhoushan
Post Panamax
98,681
Tsuneishi Zhoushan
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
82,981
82,790
82,769
82,619
82,598
82,594
82,574
82,298
82,269
82,266
82,257
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
China
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Philippines
Philippines
China
Japan
Japan
China
Japan
Japan
S. Korea
Taiwan
Taiwan
China
China
China
China
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
2015
2014
2014
2015
2015
2011
2010
2008
2004
2011
2011
2007
2004
2006
2007
2000
1994
1999
2001
2001
2011
2011
2011
2011
2006
2006
2005
2006
2007
2007
2006
2006
2007
2006
2006
ii
VESSEL NAME
VESSEL TYPE
SIZE (DWT)
YARD BUILT
COUNTRY YEAR BUILT
36 Star Nina
37 Star Renee
38 Star Nasia
39 Star Laura
40 Star Jennifer
41 Star Helena
42 Mercurial Virgo
43 Magnum Opus
44 Tsu Ebisu
45 Star Iris
46 Star Aline
47 Star Emily
48 Star Christianna
49 Star Natalie
50 Star Nicole
51 Star Vanessa
52 Star Claudia
53 Laura
54 Idee Fixe
55 Roberta
56 Star Challenger
57 Star Fighter
58 Honey Badger
59 Wolverine
60 Maiden Voyage
61 Strange Attractor
62 Star Omicron
63 Star Gamma
64 Star Zeta
65 Star Delta
66 Star Theta
67 Star Epsilon
68 Star Cosmo
69 Star Kappa
70 Star Michele
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Panamax
Panamax
Panamax
Panamax
Panamax
Panamax
Panamax
Panamax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Supramax
Supramax
Supramax
Supramax
Supramax
Supramax
Supramax
Supramax
Supramax
Supramax
Handymax
82,224
82,221
82,220
82,209
82,209
82,187
81,545
81,022
81,001
76,466
76,429
76,417
74,577
73,798
73,751
72,493
71,662
64,000
63,458
63,426
61,462
61,455
61,297
61,297
58,722
55,742
53,489
53,098
52,994
52,434
52,425
52,402
52,246
52,055
45,588
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Tsuneishi
Longxue
JMU
JMU
Tsuneishi
Tsuneishi
Tsuneishi
Sasebo
Sumitomo
Sumitomo
Imabari
Hitachi
Jiangsu New YZJ
Jiangsu New YZJ
Jiangsu New YZJ
Iwagi Zosen
Iwagi Zosen
NACKS
NACKS
Kawasaki
Mitsui
Imabari
Oshima
Oshima
Tsuneishi
Japan
Japan
Japan
Japan
Japan
Japan
China
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
China
China
China
Japan
Japan
China
China
Japan
Japan
Japan
Japan
Japan
Japan
Tsuneishi Cebu
Tsuneishi Cebu
Philippines
Philippines
Dayang
Sanoyas
Tsuneishi
China
Japan
Japan
70 Total operating dwt:
7,220,313
2006
2006
2006
2006
2006
2006
2013
2014
2014
2004
2004
2004
1998
1998
1997
1999
1997
2015
2015
2015
2012
2013
2015
2015
2012
2006
2005
2002
2003
2000
2003
2001
2005
2001
1998
iii
Newbuildings (NBs) Fleet
VESSEL NAME
VESSEL TYPE
SIZE (DWT)
YARD BUILT
COUNTRY YEAR BUILT
1 HN NE 167 (tbn Goliath)
2 HN NE 184 (tbn Maharaj)
Newcastlemax
Newcastlemax
3 HN NE 198 (tbn Star Poseidon)
Newcastlemax
4 HN 1359 (tbn Star Marisa)
5 HN 1372 (tbn Star Libra)
6 HN 1360 (tbn Star Ariadne)
7 HN 1342 (tbn Star Gemini)
8 HN 1371 (tbn Star Virgo)
Newcastlemax
Newcastlemax
Newcastlemax
Newcastlemax
Newcastlemax
9 HN 1361 (tbn Star Magnanimus)
Newcastlemax
Newcastlemax
Newcastlemax
Capesize
Capesize
Capesize
Capesize
Capesize
Capesize
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
10 HN 1343 (tbn Star Leo)
11 HN 1363 (tbn Star Chaucer)
12 HN 5055 (tbn Behemoth)
13 HN 5056 (tbn Megalodon)
14 HN 1312 (tbn Bruno Marks)
15 HN 1313 (tbn Jenmark)
16 HN 1338 (tbn Star Aries)
17 HN 1339 (tbn Star Taurus)
18 HN 1064 (tbn Kaley)
19 HN 1080 (tbn Kennadi)
20 HN 1081 (tbn Mackenzie)
21 HN 1082 (tbn Night Owl)
22 HN 1083 (tbn Early Bird)
23 HN NE 196 (tbn Star Antares)
24 HN NE 197 (tbn Star Lutas)
25 HN 5040 (tbn Star Aquarius)
26 HN 5043 (tbn Star Pisces)
26 Newbuildings fleet
96 Total fully delivered dwt:
209,000
209,000
209,000
208,000
208,000
208,000
208,000
208,000
208,000
208,000
208,000
182,000
182,000
180,000
180,000
180,000
180,000
NACKS
NACKS
NACKS
SWS
SWS
SWS
SWS
SWS
SWS
SWS
SWS
JMU
JMU
SWS
SWS
SWS
SWS
64,000 Jiangsu New YZJ
64,000 Jiangsu New YZJ
64,000 Jiangsu New YZJ
64,000 Jiangsu New YZJ
64,000 Jiangsu New YZJ
NACKS
NACKS
JMU
JMU
61,000
61,000
60,000
60,000
3,937,000
11,157,313
China
China
China
China
China
China
China
China
China
China
China
Japan
Japan
China
China
China
China
China
China
China
China
China
China
China
Japan
Japan
2015
2015
2016
2015
2015
2016
2016
2016
2016
2016
2016
2015
2015
2015
2015
2015
2016
2015
2016
2016
2016
2016
2015
2015
2015
2015
iv
LETTER FROM THE CHAIRMAN
Dear Fellow Shareholders,
In the second half of 2014 the freight market has underperformed expectations. After a strong second half of 2013 and a very promising
start in the first half of 2014, freight rates have substantially decreased, reaching levels close to vessel operating expenses. This was caused
by a perfect storm of negative events such as high number of vessel deliveries, significant reduction in Chinese coal imports, relative
substitution of iron ore imports to China from Brazil and other places around the globe with Australian ones, as well as the implementation
of an export ban for unprocessed minerals and ores from Indonesia, resulting in a halt of bauxite and nickel ore exports to China.
This year marks a milestone in our efforts to establish Star Bulk as a leading dry bulk operator. Amidst the current adverse market
environment, we must consolidate our resources, strengths and abilities in order to reduce costs, improve operational performance
and expand our commercial presence and information reach. The merger with Oceanbulk and the acquisition of 34 vessels from Excel
Maritime, have established Star Bulk as the largest public dry bulk company, a position which will be further fortified with the delivery of
our 26 fuel efficient, “eco”-friendly newbuilding vessels in 2015 and 2016.
We have undergone this transformation process with utmost transparency and under the best corporate governance practices. Our board
of directors has been enlarged to include four additional members of multi - year experience, while it is worth noting that the majority
our board members are now nominated by institutional investors. I also welcome three new members in our management team, all with
sound knowledge and solid experience in the financial, capital markets, commercial and operational maritime arenas. I believe that these
additions will bring valuable expertise in steering Star Bulk towards calm waters.
Looking ahead, we stand by our positive view on the underlying long term
fundamentals of the dry bulk business. We expect the natural market
cleansing mechanism that has been set in full motion, to remove excess
tonnage supply and restore freight markets to healthier and sustainable
levels, especially as we look beyond the delivery horizon of the current vessel
orderbook. Following the recent two equity offerings, Star Bulk has the
balance sheet strength to endure this process, while upon completion of our
newbuilding program we will have a modern fleet of 96 high quality vessels
and be uniquely positioned to capitalize on a potential market recovery.
Last, but not least, I would like to express my gratitude to all the members of
Star’s team, management, onshore staff and seafarers, for their continuous
commitment and devotion to the Company. I would also like to thank our
shareholders who have renewed their confidence and support throughout
the past fifteen months and reassure them that we will work hard on
delivering strong results and maximizing long term shareholder value.
Sincerely,
Spyros Capralos
Chairman of the BoD
Athens, June 15th 2015
v
LETTER FROM THE CEO
Dear Fellow Shareholders,
I have been in shipping for 38 years, and the market we are facing today is worse than I have ever seen. Every bad market contains the
seeds of its own recovery, and in my experience, the deeper and more prolonged the downturn, the sharper and more sustained the
recovery. We at Star are all working toward creating the strongest possible company to take us through this downturn and into the
recovery, whenever that occurs.
2014 was a transformational year for Star Bulk. As a result of the Oceanbulk merger and the acquisition of the Excel fleet, Star Bulk is now
the largest public dry bulk company with a sailing fleet of 70 vessels and 26 newbuildings to be delivered in 2015 and 2016, with a total
cargo carrying capacity of 11.2 million dwt. We have focused on integrating these fleets and on enhancing the operational efficiency of
our ship management platform in order to be able to take advantage of economies of scale from managing a large fleet.
Commercially we continued to outperform the market for the fourth year in a row, as our average TCEs across all vessel sizes exceeded
the relevant adjusted Baltic Indices. We also formed a strategic alliance with a major listed iron ore miner for the employment of 3
Newcastlemax vessels for five years on an index linked voyage charter. Furthermore, we announced the formation of Capesize Chartering
Ltd., an information sharing platform with other prominent Capesize operators, to improve efficiency and utilization in Capesize trading.
Our cost containment initiatives have continued to bear fruit. Our average daily vessel operating expenses were reduced by 14% from
2013, resulting in a cumulative reduction of 31% from 2009, while at the same time our average daily Net Cash G&A expenses were
reduced by 36% since 2010. The focus on cost containment was not achieved at the expense of operational excellence, as 84% of the
vessels managed by Star Bulk have a 5 (out of maximum 5) star Rightship rating while, 16% have a 4-star rating.
We have secured debt commitments for 24 out of 26 of our newbuildings while we have strengthened our balance sheet with a total
amount of $425.0 million in two public share offerings, in which members of my family have participated as well. The amounts raised
cover in full the capital requirements of our newbuilding program and enhance our ability to withstand a potential prolongation of the
current weak freight market environment.
During the last quarter of 2014 and up to now freight markets have been very weak, as the Baltic Dry Index reached an all-time low of
509 units in February. There are encouraging signs of better freight markets in the future as, during the first five months of 2015, dry bulk
vessel scrapping reached a record of 17.0 million dwt, compared to 16.2 million dwt scrapped during the whole of 2014. In addition, the
dry bulk vessel orderbook currently stands at 19.4% of the sailing fleet, substantially reduced from previous years’ high levels, while so
far in 2015 we have witnessed negative fleet growth in the Capesize segment after many consecutive years of expansion.
I would like to express my gratitude to our shareholders and our board of directors for their confidence in our management team, as well
as faith in the future prospects of this company.
Sincerely,
Petros Pappas
Chief Executive Officer
Athens, June 15th 2015
vi
BOARD OF DIRECTORS
Spyros Capralos
Chairman
of the Board of Directors
Petros Pappas
CEO
Director
Mahesh Balakrishnan
Director
Jennifer Box
Director
Koert Erhardt
Director
Renee Kemp
Director
OFFICERS
Roger Schmitz
Director
Tom Søfteland
Director
Stelios Zavvos
Director
Hamish Norton
President
Christos Begleris
co – CFO
Simos Spyrou
co – CFO
Nicos Rescos
COO
Zenon Kleopas
Executive Vice President
Technical
vii
FLEET GROWTH
viii
FINANCIAL HIGHLIGHTS
(In thousands of U,S, Dollars,except per share and share data)
Selected Income Statement Highlights
Voyage revenues(1)
Management fee income
Total Revenues
Voyage expenses
Vessel operating expenses
Drydocking expenses
Management fees
General and administrative expenses
Loss / (gain) on derivative instruments, net
Vessel impairment loss
Equity in income of investee
Gain from bargain purchase
Other Items
Less Amortization of Time Charter adjustment
EBITDA
Depreciation
Interest and Finance costs
Interest and other income
Loss on debt extinguishment
Plus Amortization of Time Charter adjustment
Net (loss) / income
Adjusted EBITDA
Adjusted (loss) / income
Weighted average number of shares outstanding, diluted
(Loss) / earnings per share, diluted
Adjusted (loss)/ earnings per share, diluted
Selected Cash Flow Statement Highlights
Net cash provided by operating activities
Net cash (used in)/ provided by investing activities
Net cash (used in) / provided by financing activities
Net Cash Flow
Cash and Cash Equivalents at Year End
Restricted Cash (Short - Term & Long - Term )
Total Cash and Cash Equivalents at Year End
Loan prepayments and repayments
Selected Balance Sheet Highlights
Total Current Assets
Total Fixed Assets
Other Non Current Assets
Total Assets
Current Portion of Long - Term Debt
Other Current Liabilities
Long - Term Debt
8% 2019 Senior Notes
Other Non- Current Liabilities
Total Stockholders’ Equity
Total Liabilities & Shareholders 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
(1) Including amortization of time charter Adjustment
2010
$121,042
-
$121,042
($16,839)
($22,349)
($6,576)
($164)
($15,404)
($2,083)
($34,947)
-
-
$24,517
$1,360
$45,837
($46,937)
($5,916)
$525
-
$1,360
($5,131)
$89,453
$37,125
4,099,277
($1.25)
$9.06
$87,949
($60,151)
($55,116)
($27,318)
$12,824
$25,570
$38,394
($68,421)
$23,918
$654,290
$25,042
$703,250
$33,785
$9,450
$171,044
-
$719
$488,252
$703,250
10.8
10.0
3,945
3,847
3,829
99.5%
$26,859
$5,665
2011
$106,912
$153
$107,065
($22,429)
($25,247)
($3,096)
($54)
($12,455)
($390)
($62,020)
-
-
$4,081
($2,187)
($12,358)
($50,224)
($5,534)
$744
-
($2,187)
($69,559)
$53,972
($1,042)
4,736,485
($14.69)
($0.22)
$50,604
($122,337)
$73,981
$2,248
$15,072
$29,683
$44,755
($101,464)
$31,397
$638,532
$47,999
$717,928
$34,674
$17,480
$231,466
-
$95
$434,213
$717,928
12.3
10.6
4,475
4,377
4,336
99.1%
$19,989
$5,642
2012
$85,684
$478
$86,162
($19,598)
($27,832)
($5,663)
-
($9,320)
$41
($303,219)
-
-
$5,545
($6,369)
($267,515)
($33,045)
($7,838)
$246
-
($6,369)
($314,521)
$40,358
($279)
5,393,131
($58.32)
($0.05)
$18,999
$17,238
($46,609)
($10,372)
$12,950
$18,896
$31,846
($42,026)
$37,963
$291,207
$25,536
$354,706
$28,766
$13,684
$195,348
-
$162
$116,746
$354,706
14.2
10.8
5,192
4,879
4,699
96.6%
$15,419
$5,361
2013
$68,296
$1,598
$69,894
($7,549)
($27,087)
($3,519)
-
($9,910)
$91
-
-
-
$2,575
($6,352)
$30,847
($16,061)
($6,814)
$230
-
($6,352)
$1,850
$32,331
$9,686
14,116,389
$0.13
$0.69
$27,495
($107,618)
$111,971
$31,848
$53,548
$2,482
$56,030
($33,780)
$63,679
$394,606
$9,803
$468,088
$18,286
$11,448
$172,048
-
$200
$266,106
$468,088
13.3
9.6
4,868
4,763
4,651
97.6%
$14,427
$5,564
2014
$145,041
$2,346
$147,387
($42,341)
($53,096)
($5,363)
($158)
($32,723)
($799)
-
$106
$12,318
$9,694
($6,113)
$41,138
($37,150)
($9,575)
$629
($652)
($6,113)
($11,723)
$43,565
($3,183)
58,441,193
($0.20)
($0.05)
$12,819
($437,075)
$456,708
$32,452
$86,000
$13,972
$99,972
($173,986)
$134,430
$1,896,463
$31,191
$2,062,084
$96,485
$43,713
$715,308
$50,000
$2,276
$1,154,302
$2,062,084
28.9
9.4
10,541
10,413
8,948
85.9%
$12,161
$5,037
ix
x
PRINCIPAL REPAYMENT SCHEDULE OTW FLEET
xi
FLEET EMPLOYMENT
xii
INVESTMENT HIGHLIGHTS
Superior
Commercial
Operator
Fully Funded
NB Program
Low Cost
Highly Efficient
Operating Platform
Largest Public
Dry Bulk Company
Transparent
Corporate Structure
xiii
IMPORTANT DEVELOPMENTS
January 2014
Star Bulk takes delivery of its second Ultramax bulk carrier, M/V Star Fighter and reaches agreement for a new
credit facility.
Star Bulk announces the acquisition of two modern Post-Panamax vessels with employment contracts and
agreement for a new secured credit facility.
February 2014
Star Bulk takes delivery of its first Post-Panamax bulk carrier, M/V Star Vega.
Star bulk charters two fuel efficient newbuilding Newcastlemax vessels under ten year bareboat charters with
purchase obligation.
March 2014
Star Bulk takes delivery of its second Post-Panamax bulk carrier, M/V Star Sirius.
June 2014
July 2014
Star Bulk announces the acquisition of strategic minority stake in Interchart Shipping Inc.
Star Bulk and Oceanbulk agree to create the largest U.S. listed dry bulk company.
Star Bulk completes merger with Oceanbulk, with 95.6% shareholder approval, creating the largest U.S. listed
dry bulk company.
Star Bulk announces the delivery of its first eco, fuel- efficient Capesize vessel, M/V Peloreus.
August 2014
Star Bulk agrees to buy 34 dry bulk vessels from Excel Maritime Carriers Ltd.
September 2014 Star Bulk announces the delivery of its second eco, fuel- efficient Capesize vessel, M/V Leviathan.
October 2014
Star Bulk announces the collection of $8.016 million from the sale of its claim against Pan Ocean.
Star Bulk announces the issuance of $50 million 8% senior unsecured notes, due in 2019.
December 2014 Star Bulk announces long term strategic commercial partnership with a leading publicly-traded mining company.
Star Bulk announces the sale of a Handymax vessel, Star Kim.
January 2015
Star Bulk announces the upsizing and pricing of a primary public offering of 49,000,418 common shares.
Star Bulk announces the sale for demolition of a Panamax vessel, M/V Star Julia.
February 2015
Star Bulk announces the sale for demolition of a Panamax vessel, M/V Star Tatianna.
Star Bulk joins forces with another four dry bulk shipowning companies to create a strong chartering entity,
Capesize Chartering Ltd.
March 2015
Star Bulk takes delivery of two eco, fuel efficient Ultramax vessels, M/V Honey Badger and M/V Wolverine.
April 2015
May 2015
June 2015
Star Bulk announces completion of the delivery of the 34 dry bulk vessels from Excel Maritime Carriers Ltd.
Star Bulk announces the upsizing and pricing of a primary public offering of 56,250,000 common shares.
Star Bulk announces the sale of a Capesize vessel, M/V Star Big.
xiv
xv
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(cid:134)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12 (G) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:95)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2014
OR
(cid:134)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to __________
OR
(cid:134)
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
Commission file number 001-33869
STAR BULK CARRIERS CORP.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
c/o Star Bulk Management Inc., 40 Agiou Konstantinou Str., Maroussi 15124, Athens, Greece
(Address of principal executive offices)
Petros Pappas, 011 30 210 617 8400, mgt@starbulk.com,
c/o Star Bulk Management Inc., 40 Agiou Konstantinou Str.
Maroussi 15124, 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 Shares, par value $0.01 per share
8.00% Senior Notes due 2019
Name of exchange on which registered
Nasdaq Global Select Market
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, 2014, there were 109,426,236 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.
(cid:134) Yes (cid:95) 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.
(cid:134) Yes (cid:95) 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.
(cid:95) Yes (cid:134) 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). (cid:95) Yes (cid:134) No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer (cid:134) Accelerated filer (cid:95) Non-accelerated filer (cid:134)
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP (cid:95)
International Financial Reporting Standards as issued by the International Accounting Standards
Other (cid:134)
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.
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).
(cid:134) Yes (cid:95) No
(cid:134) Item 17 or (cid:134) Item 18.
Board (cid:134)
FORWARD-LOOKING STATEMENTS
Star Bulk Carriers Corp. and its wholly owned subsidiaries (the “Company”) desire to take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection with this
safe harbor legislation. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking
statements in order to encourage companies to provide prospective information about their business. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other
statements, which are other than statements of historical facts.
This document includes “forward-looking statements,” as defined by U.S. federal securities laws, with respect to our financial
condition, results of operations and business and our expectations or beliefs concerning future events. Words such as, but not limited
to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “projects,” “likely,” “would,” “could” and similar
expressions or phrases may identify forward-looking statements.
All forward-looking statements involve risks and uncertainties. The occurrence of the events described, and the achievement of
the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ
materially from expected results.
In addition, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-
looking statements include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general dry bulk shipping market conditions, including fluctuations in charterhire rates and vessel values;
the strength of world economies;
the stability of Europe and the Euro;
fluctuations in interest rates and foreign exchange rates;
changes in demand in the dry bulk shipping industry, including the market for our vessels;
changes in our operating expenses, including bunker prices, dry docking and insurance costs;
changes in governmental rules and regulations or actions taken by regulatory authorities;
potential liability from pending or future litigation;
general domestic and international political conditions;
potential disruption of shipping routes due to accidents or political events;
the availability of financing and refinancing;
our ability to meet requirements for additional capital and financing to complete our newbuilding program and grow our
business;
vessel breakdowns and instances of off-hire;
risks associated with vessel construction;
potential exposure or loss from investment in derivative instruments;
potential conflicts of interest involving our Chief Executive Officer, his family and other members of our senior
management;
our ability to complete acquisition transactions as planned; and
other important factors described in “Risk Factors”.
We have based these statements on assumptions and analyses formed by applying our experience and perception of historical
trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. All future
written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any
obligation, except as required by law, to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in
this prospectus might not occur.
See the sections entitled “Risk Factors” of this Annual Report on Form 20-F for the year ended December 31, 2014 for a more
complete discussion of these risks and uncertainties and for other risks and uncertainties. These factors and the other risk factors
described in this prospectus are not necessarily all of the important factors that could cause actual results or developments to differ
materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm
our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if
substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such forward-looking statements.
i
TABLE OF CONTENTS
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
Identity of Directors, Senior Management and Advisers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offer Statistics and Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Key Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information on the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating and Financial Review and Prospects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Senior Management and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Major Shareholders and Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Offer and Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Securities Other than Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II.
Defaults, Dividend Arrearages and Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Material Modifications to the Rights of Security Holders and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Item 16A. Audit Committee Financial Expert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16B.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16C.
Exemptions from the Listing Standards for Audit Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16D.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16E.
Change in Registrants Certifying Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16F.
Item 16G. Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16H. Mine Safety Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III.
Item 17.
Item 18.
Item 19.
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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F-1
ii
Item 1.
Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2.
Offer Statistics and Expected Timetable
PART I.
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 (“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 own, operate,
have under construction and provide vessel management services to dry bulk vessels of eight sizes:
1.
2.
3.
4.
5.
6.
7.
8.
Newcastlemax, which are vessels with carrying capacities of between 200,000 dwt and 210,000 dwt;
Capesize, which are vessels with carrying capacities of between 100,000 dwt and 200,000 dwt;
Post Panamax, which are vessels with carrying capacities of between 90,000 dwt and 100,000 dwt;
Kamsarmax, which are vessels with carrying capacities of between 80,000 dwt and 90,000 dwt;
Panamax, which are vessels with carrying capacities of between 65,000 and 80,000 dwt;
Ultramax, which are vessels with carrying capacities of between 60,000 and 65,000 dwt;
Supramax, which are vessels with carrying capacities of between 50,000 and 60,000 dwt; and
Handymax, which are vessels with carrying capacities of between 40,000 and 50,000 dwt.
Unless otherwise indicated, all references to “Dollars” and “$” in this report are to U.S. Dollars and all references to “Euro” and “(cid:31)”
in this report are to Euros.
On July 11, 2014, pursuant to an Agreement and Plan of Merger (as amended from time to time, the “Merger Agreement”),
dated as of June 16, 2014, among Star Bulk, two of our merger subsidiaries, Oaktree OBC Holdings LLC (the “Oaktree Holdco”),
Millennia Limited Liability Company (the “Pappas Holdco”), Oaktree Dry Bulk Holdings LLC (the “Oaktree Seller”) and Millennia
Holdings LLC (the “Pappas Seller” and, together with the Oaktree Seller, the “Sellers”), the parties thereto completed a transaction
that resulted in a merger (the “Merger”) of the Oaktree Holdco and the Pappas Holdco into our two merger subsidiaries.
The Oaktree Holdco and the Pappas Holdco were the equity holders of Oceanbulk Shipping LLC (“Oceanbulk Shipping”)
and Oceanbulk Carriers LLC (“Oceanbulk Carriers” and, together with Oceanbulk Shipping, “Oceanbulk”). Oceanbulk owned and
operated a fleet of 12 dry bulk carrier vessels and owned contracts for the construction of 25 newbuilding dry bulk fuel-efficient Eco-
type vessels (seven of which, Peloreus, Leviathan, Honey Badger, Wolverine, Idee Fixe, Roberta and Gargantua have been delivered
to us) at shipyards in Japan and China. The consideration paid by us in the Merger to the Sellers was 48,395,766 common shares.
The Merger Agreement also provided for the acquisition (the “Heron Transaction”) by us of two Kamsarmax vessels (the
“Heron Vessels”), from Heron Ventures Ltd. (“Heron”), a limited liability company incorporated in Malta. We issued 2,115,706 of
our common shares into escrow as consideration for the Heron Vessels. In January 2015, the common shares were released from
escrow to the Sellers under the Merger Agreement, following the transfer of the Heron Vessels to us in December 2014. In addition to
the issued shares, in November 2014, we entered into a loan agreement with CiT Finance LLC for $25.3 million, to finance the cash
consideration related to the acquisition of the Heron Vessels.
In addition, concurrently with the Merger, we completed a transaction (the “Pappas Transaction”), in which we acquired all
of the issued and outstanding shares of Dioriga Shipping Co. and Positive Shipping Company (collectively, the “Pappas Companies”),
which were entities owned and controlled by affiliates of the family of Mr. Petros Pappas, our Chief Executive Officer. The Pappas
Companies owned and operated a dry bulk carrier vessel (the Tsu Ebisu) and had a contract for the construction of a newbuilding dry
bulk carrier vessel, Indomitable (ex-HN 5016), which was delivered to us in January 2015. The consideration paid by us in the Pappas
Transaction was 3,592,728 common shares.
We refer to the Merger, the Heron Transaction and the Pappas Transaction collectively as the “July 2014 Transactions”.
In connection with the July 2014 Transactions, we increased the number of directors constituting our board of directors to
nine and, following the resignation of Ms. Milena-Maria Pappas as a director, appointed Mr. Rajath Shourie, Ms. Emily Stephens, Ms.
Renée Kemp and Mr. Stelios Zavvos as additional directors.
1
In connection with the July 2014 Transactions, Mr. Petros Pappas became our Chief Executive Officer, Mr. Hamish Norton
became our President, Mr. Christos Begleris became our Co-Chief Financial Officer, Mr. Nicos Rescos became our Chief Operating
Officer and Ms. Sophia Damigou became our Co-General Counsel. Mr. Spyros Capralos resigned as our Chief Executive Officer but
will remain with us as our Chairman, and Mr. Zenon Kleopas (our former Chief Operating Officer) will continue as our Executive
Vice President—Technical Operations.
In connection with the July 2014 Transactions, we entered into a shareholders agreement with Oaktree and a shareholders
agreement with Mr. Petros Pappas and his children, Ms. Milena-Maria Pappas (our former director) and Mr. Alexandros Pappas, and
entities affiliated to them (“Pappas Shareholders”) (see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party
Transactions.”). We also entered into an Amended and Restated Registration Rights Agreement among us, the Oaktree Seller, the
Pappas Shareholders, the Pappas Seller, Monarch and certain affiliates thereof (the “Registration Rights Agreement”). For more
information regarding the terms of the Registration Rights Agreement, see “Item 7. Major Shareholders and Related Party
Transactions—B. Related Party Transactions.”
On August 19, 2014, we entered into definitive agreements with Excel Maritime Carriers Ltd. (“Excel”) pursuant to which
we acquired 34 operating dry bulk vessels, consisting of six Capesize vessels, 14 Kamsarmax vessels, 12 Panamax vessels and two
Handymax vessels (the “Excel Vessels”). In the case of three Excel Vessels (Christine (tbr Star Martha), Sandra (tbr Star Pauline)
and Lowlands Beilun (tbr Star Despoina)) which were transferred subject to existing charters, we received the outstanding equity
interests of the vessel-owning subsidiaries that own those Excel Vessels (although all other assets and liabilities of such vessel-owning
subsidiaries remained with Excel). The transfers of the Excel Vessels were completed on a vessel-by-vessel basis, in general upon
reaching port after their voyages and cargoes were discharged. We refer to the foregoing transactions, together, as the “Excel
Transactions”. The total consideration for the Excel Transactions was 29,917,312 common shares (the “Excel Vessel Share
Consideration”) and $288.4 million in cash. On August 28, 2014, the Registration Rights Agreement was amended in conjunction with
the Excel Transactions. For more information regarding the terms of this amendment to the Registration Rights Agreement, see “Item
7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.”
We refer to the July 2014 Transactions and the Excel Transactions collectively, as the “Transactions”.
In connection with the Transactions, we entered into, amended or assumed a number of credit facilities. See “Item 5.
Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Senior Secured Credit Facilities”.
On November 6, 2014, we issued $50.0 million aggregate principal amount of 8.00% Senior Notes due 2019 (the “2019
Notes”). The 2019 Notes mature in November 2019 and are senior, unsecured obligations of Star Bulk Carriers Corp. See “Item 5.
Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – 2019 Notes Offering”.
On January 14, 2015, we completed a primary underwritten public offering of 49,000,418 of our common shares, at a price of
$5.00 per share (the “2015 Equity Offering”). The aggregate proceeds to us, net of underwriters’ commissions, were approximately
$242.2 million, which we intend to use for our newbuilding program and general corporate purposes. Four of our significant
shareholders, Oaktree Capital Management L.P. (“Oaktree”), Angelo, Gordon & Co. (“Angelo, Gordon”), Monarch Alternative
Capital LP (“Monarch), and affiliates of the family of Mr. Petros Pappas, our Chief Executive Officer, purchased a total of 37,250,418
of the common shares in the 2015 Equity Offering. See “Item 5. Operating and Financial Review and Prospects – B. Liquidity and
Capital Resources – 2015 Equity Offering.”
Oaktree
Oaktree is our largest shareholder. Oaktree Capital Management, L.P., together with its affiliates, is a leader among global
investment managers specializing in alternative investments, with $90.8 billion in assets under management as of December 31, 2014.
The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt
(including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Headquartered in
Los Angeles, the firm has over 900 employees and offices in 17 cities across 12 countries. See “Item 7 “Major Shareholders and
Related Party Transactions” for a discussion on the various limitations on the transfer and voting of our common shares by Oaktree.
A.
Selected Consolidated Financial Data
The table below summarizes our recent financial information. 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.
Following the 15-for-1 reverse stock split effected on October 15, 2012, pursuant to which every fifteen common shares
issued and outstanding were converted into one common share, all share and per share amounts disclosed throughout this Annual
report, in the table below and in our consolidated financial statements have been retroactively updated to reflect this change in capital
structure. Please see “Item 4. Information on the Company—History and Development of the Company”.
2
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)
Voyage revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management fee income . . . . . . . . . . . . . . . . . . . . . . .
Voyage expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessel operating expenses . . . . . . . . . . . . . . . . . . . . . .
Dry docking expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessels’ impairment loss . . . . . . . . . . . . . . . . . . . . . . .
Gain on time charter agreement termination . . . . . .
Other operational loss . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operational gain . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of vessel . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from bargain purchase . . . . . . . . . . . . . . . . . . . .
2010
2011
2012
2013
2014
121,042
-
121,042
16,839
22,349
6,576
46,937
164
15,404
2,131
34,947
-
-
(26,648)
-
-
118,699
106,912
153
107,065
22,429
25,247
3,096
50,224
54
12,455
3,139
62,020
(2,010)
4,050
(9,260)
-
-
171,444
85,684
478
86,162
19,598
27,832
5,663
33,045
-
9,320
-
303,219
(6,454)
1,226
(3,507)
3,190
-
393,132
68,296
1,598
69,894
7,549
27,087
3,519
16,061
-
9,910
-
-
-
1,125
(3,787)
87
-
61,551
145,041
2,346
147,387
42,341
53,096
5,363
37,150
158
32,723
215
-
-
94
(10,003)
-
(12,318)
148,819
Operating (loss) / income . . . . . . . . . . . . . . . . . . . . . . .
2,343
(64,379)
(306,970)
8,343
(1,432)
Interest and finance costs . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . .
(Loss) / gain on derivative instruments, net . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . .
Total other expenses, net . . . . . . . . . . . . . . . . . . . . . . .
(5,916)
525
(2,083)
-
(7,474)
(5,227)
744
(390)
(307)
(5,180)
(7,838)
246
41
-
(7,551)
(6,814)
230
91
-
(6,493)
(9,575)
629
(799)
(652)
(10,397)
Income/ (Loss) Before Equity in Income of
Investee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,131)
(69,559)
(314,521)
1,850
(11,829)
Equity in income of investee . . . . . . . . . . . . . . . . . . . .
-
-
-
-
106
(Loss) / income before taxes . . . . . . . . . . . . . . . . . . . .
(5,131)
(69,559)
(314,521)
1,850
(11,723)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (Loss) / income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) / earnings per share, basic . . . . . . . . . . . . . . . .
(Loss) / earnings per share, diluted . . . . . . . . . . . . . .
Weighted average number of shares outstanding,
basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares outstanding,
diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-
(5,131)
(1.25)
(1.25)
-
(69,559)
-
(314,521)
(14.69)
(14.69)
(58.32)
(58.32)
-
1,850
0.13
0.13
-
(11,723)
(0.20)
(0.20)
4,099,277
4,736,485
5,393,131
14,051,344
58,441,193
4,099,277
4,736,485
5,393,131
14,116,389
58,441,193
3
3.A.(ii) CONSOLIDATED BALANCE SHEET AND OTHER FINANCIAL DATA
(In thousands of U.S. Dollars, except per share data)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances for vessels under construction and vessel
acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessels and other fixed assets, net . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities, including current portion of long-term
debt and Excel Vessel Bridge Facility . . . . . . . . . . . . . . . . .
Total long-term debt including Excel Vessel Bridge
Facility, excluding current portion . . . . . . . . . . . . . . . . . . . .
8% 2019 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . .
OTHER FINANCIAL DATA
Dividends declared and paid ($3.0, $3.0, $0.68, $0.0 and
$0.0 per share, respectively) . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . .
Net cash (used in)/ provided by investing activities . . . . . . .
Net cash (used in) / provided by 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 U.S. Dollars)
Time charter equivalent (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessel operating expenses (7) . . . . . . . . . . . . . . . . . . . . . . . . .
Management fees (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses (9) . . . . . . . . . . . . . . . .
2010
2011
2012
2013
2014
12,824
15,072
12,950
53,548
86,000
43,473
610,817
703,250
-
638,532
717,928
-
291,207
354,706
67,932
326,674
468,088
454,612
1,441,851
2,062,084
43,235
52,154
42,450
29,734
140,198
171,044
-
42
488,252
703,250
231,466
-
54
434,213
717,928
195,348
-
54
116,746
354,706
172,048
-
291
266,106
468,088
715,308
50,000
1,094
1,154,302
2,062,084
12,385
87,949
(60,151)
(55,116)
14,391
50,604
(122,337)
73,981
3,631
18,999
17,238
(46,609)
-
27,495
(107,618)
111,971
-
12,819
(437,075)
456,708
10.81
3,945
3,847
3,829
12.26
4,475
4,377
4,336
14.19
5,192
4,879
4,699
13.34
4,868
4,763
4,651
28.88
10,541
10,413
8,948
99%
99%
96%
98%
86%
26,859
5,665
41
3,904
19,989
5,642
12
2,783
15,419
5,361
-
1,795
14,427
5,564
-
2,036
12,161
5,037
15
3,104
(1) 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 all vessels
were part of our fleet during the period divided by the number of calendar days in that period.
(2) Ownership days are the total number of calendar days all vessels in our fleet were owned by us for the relevant period.
(3) Available days for the fleet are equal to the ownership days minus off-hire days as a result of major repairs, dry docking or special or intermediate surveys.
(4) Voyage days are equal to the total number of days the vessels were in our possession for the relevant period minus 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) Time charter equivalent rate (the “TCE rate”) represents the weighted average per day TCE rates 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 or 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 report TCE revenues, a non-GAAP measure, since our management believes 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 – A. Operating Results.”
(7) Average per day operating expenses per vessel are calculated by dividing vessel operating expenses by ownership days.
(8) Average per day management fees per vessel are calculated by dividing vessel management fees by ownership days.
(9) Average per day general and administrative expenses per vessel are calculated by dividing general and administrative expenses by total ownership days for fleet.
4
B.
Capitalization and Indebtedness
Not Applicable.
C.
Reasons for the Offer and Use of Proceeds
Not Applicable.
D.
Risk factors
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.
Risks Related to Our Industry
Charterhire rates for dry bulk vessels are volatile and have declined significantly since their historic highs and may remain at
low levels or further decrease in the future, which may adversely affect our earnings, revenue and profitability and our ability
to comply with our loan covenants.
The dry bulk shipping industry is cyclical with high volatility in charterhire rates and profitability. The degree of charterhire
rate volatility among different types of dry bulk vessels has varied widely; however, the continued downturn in the dry bulk charter
market has severely affected the entire dry bulk shipping industry and charterhire rates for dry bulk vessels have declined significantly
from historically high levels. In the past, time charter and spot market charter rates for dry bulk carriers have declined below operating
costs of vessels. The BDI, a daily average of charter rates for key dry bulk routes published by the Baltic Exchange Limited, which
has long been viewed as the main benchmark to monitor the movements of the dry bulk vessel charter market and the performance of
the entire dry bulk shipping market, declined 94% in 2008 from a peak of 11,793 in May 2008 to a low of 663 in December 2008 and
has remained volatile since then. The BDI recorded a record low of 647 in February 2012. The BDI then increased from these low
levels, reaching 2,337 in December 2013. Subsequently, due to downward volatility, the BDI fluctuated in a range between 698 and
2,337 from December 2013 through December 2014. The BDI has ranged from 509 to 771 from January until March 2015, and the
dry bulk market remains volatile.
Fluctuations in charter rates result from changes in the supply of and demand for vessel capacity and changes in the supply of
and demand for the major commodities carried by water internationally. Because the factors affecting the supply of and demand for
vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are
also unpredictable. Since we charter our vessels principally in the spot market, we are exposed to the cyclicality and volatility of the
spot market. Spot market charterhire rates may fluctuate significantly based upon available charters and the supply of and demand for
seaborne shipping capacity, and we may be unable to keep our vessels fully employed in these short-term markets. Alternatively,
charter rates available in the spot market may be insufficient to enable our vessels to operate profitably. A significant decrease in
charter rates would also affect asset values and adversely affect our profitability, cash flows and our ability to pay dividends, if any.
Factors that influence the demand for dry bulk vessel capacity include:
•
•
•
•
•
•
•
•
•
•
•
supply of and demand for energy resources, commodities, consumer and industrial products;
changes in the exploration or production of energy resources, commodities, consumer and industrial products;
the location of regional and global exploration, production and manufacturing facilities;
the location of consuming regions for energy resources, commodities, consumer and industrial products;
the globalization of production and manufacturing;
global and regional economic and political conditions, including armed conflicts and terrorist activities, embargoes and
strikes;
natural disasters;
disruptions and developments in international trade;
changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
environmental and other regulatory developments;
currency exchange rates; and
5
• weather.
Factors that influence the supply of dry bulk vessel capacity include:
•
•
•
•
•
•
•
the number of newbuilding orders and deliveries including slippage in deliveries;
number of shipyards and ability of shipyards to deliver vessels;
port and canal congestion;
the scrapping rate of vessels;
speed of vessel operation;
vessel casualties; and
the number of vessels that are out of service, namely those that are laid-up, dry docked, awaiting repairs or otherwise not
available for hire.
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 costs, insurance coverage costs, the efficiency and age profile of
the existing dry bulk 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 dry bulk vessels will be dependent upon economic growth in the world’s
economies, including China and India, seasonal and regional changes in demand, changes in the capacity of the global dry bulk fleet,
including vessel scrapping and ordering rates of newbuildings, and the sources and supply of dry bulk cargo to be transported by sea.
Given the number of new dry bulk carriers currently on order with the shipyards, the capacity of global dry bulk carrier fleet seems
likely to increase and there can be no assurance as to the timing or extent of future economic growth. Adverse economic, political,
social or other developments could have a material adverse effect on our business and operating results.
Global economic conditions may continue to negatively impact the dry bulk shipping industry.
In the current global economy, operating businesses have recently faced tightening credit, weakening demand for goods and
services, weak international liquidity conditions, and declining markets. Lower demand for dry bulk cargoes as well as diminished
trade credit available for the delivery of such cargoes have led to decreased demand for dry bulk carriers, creating downward pressure
on charter rates and vessel values. The relatively weak global economic conditions have and may continue to have a number of
adverse consequences for dry bulk and other shipping sectors, including, among other things:
•
•
•
low charter rates, particularly for vessels employed on short-term time charters or in the spot market;
decreases in the market value of dry bulk vessels and limited secondhand market for the sale of vessels;
limited financing for vessels;
• widespread loan covenant defaults; and
•
declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.
• The occurrence of one or more of these events could have a material adverse effect on our business, results of operations,
cash flows and financial condition.
The current state of global financial markets and current economic conditions may adversely impact our ability to obtain
financing or refinance our existing and future credit facilities on acceptable terms, which may hinder or prevent us from
operating or expanding our business.
Global financial markets and economic conditions have been, and continue to be, volatile. These issues, along with
significant write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions, have
made, and will likely continue to make, it difficult to obtain additional financing. The current state of global financial markets and
current economic conditions might adversely impact our ability to issue additional equity at prices that will not be dilutive to our
existing shareholders or preclude us from issuing equity at all.
Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically,
the cost of obtaining money from the credit markets has increased as many lenders have increased interest rates, enacted tighter
lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to
6
provide funding to borrowers. Due to these factors, we cannot be certain that financing will be available to the extent required, or that
we will be able to refinance our existing and future credit facilities, on acceptable terms or at all. If financing or refinancing is not
available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we
may be unable to enhance our existing business, complete the acquisition of our newbuildings and additional vessel acquisitions or
otherwise take advantage of business opportunities as they arise.
Many of our vessels will soon be exposed to the volatilities of the dry bulk charter markets.
Dry bulk charter markets experienced significant continued weakness in 2013 and 2014. As of April 6, 2015, we had 59
vessels employed in the spot market, under short-term time charters or voyage charters and nine vessels on medium to long-term time
charters scheduled to expire from August 2015 until August 2016. The time charter market is highly competitive and spot and short-
term trip charter market charterhire rates (which affect time charter rates) may fluctuate significantly based upon the supply of, and
demand for, seaborne dry bulk 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 dry bulk shipping market. The dry bulk carrier charter market is volatile, and in the past, time charter and spot market
charter rates for dry bulk carriers have declined below operating costs of vessels. If we are required to charter these vessels at a time
when demand and charter rates are very low, we may not be able to secure time charter or spot market employment for our vessels at
all or at reduced and potentially unprofitable rates. As a result, our business, financial condition, results of operations and cash flows,
as well as our ability to pay dividends, if any, in the future, and compliance with covenants in our credit facilities, may be affected.
The instability of the euro or the inability of countries to refinance their debts could have a material adverse effect on our
revenue, profitability and financial position.
As a result of the credit crisis in Europe, in particular in Greece, Italy, Ireland, Portugal and Spain, the European Commission
created the European Financial Stability Facility (the “EFSF”), and the European Financial Stability Mechanism (the “EFSM”), to
provide funding to Eurozone countries in financial difficulties that seek such support. In March 2011, the European Council agreed on
the need for Eurozone countries to establish a permanent stability mechanism, the European Stability Mechanism, which was
established on September 27, 2012 to assume the role of the EFSF and the EFSM in providing external financial assistance to
Eurozone countries. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability
to meet future financial obligations and the overall stability of the euro. An extended period of adverse developments in the outlook
for European countries could reduce the overall demand for dry bulk cargoes and for our services. These potential developments, or
market perceptions concerning these and related issues, could affect our financial position, results of operations and cash flow.
If economic conditions throughout the world do not improve, it may negatively affect our results of operations, financial
condition and cash flows, and may adversely affect the market price of our common shares.
Negative trends in the global economy that emerged in 2008 continue to adversely affect global economic conditions. In
addition, the world economy is currently facing a number of new challenges, recent turmoil and hostilities in various regions,
including Syria, Iraq, North Korea, North Africa and Ukraine. The weakness in the global economy has caused, and may continue to
cause, a decrease in worldwide demand for certain goods and, thus, shipping. Continuing economic instability could have a material
adverse effect on our ability to implement our business strategy.
The United States, the European Union and other parts of the world have recently been or are currently in a recession and
continue to exhibit weak economic trends. The credit markets in the United States and Europe have experienced significant
contraction, deleveraging and reduced liquidity, and the U.S. federal and state governments and European authorities have
implemented and are considering a broad variety of governmental action and/or new regulation of the financial markets and may
implement additional regulations in the future. Securities and futures markets and the credit markets are subject to comprehensive
statutes, regulations and other requirements. The SEC, 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.
Global financial markets and economic conditions have been, and continue to be volatile. Credit markets and the debt and equity
capital markets have been distressed and the uncertainty surrounding the future of the global credit markets has resulted in reduced
access to credit worldwide.
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 credit facilities or any future financial arrangements. The recent and developing economic and governmental
factors, together with possible further declines in charter rates and vessel values, may have a material adverse effect on our results of
operations, financial condition or cash flows, or the trading price of our common shares.
Continued economic slowdown in the Asia Pacific region, particularly in China, may exacerbate the effect on us, as we
anticipate a significant number of the port calls made by our vessels will continue to involve the loading or discharging of dry bulk
commodities in ports in the Asia Pacific region. Before the global economic financial crisis that began in 2008, China had one of the
world’s fastest growing economies in terms of GDP, which had a significant impact on shipping demand. The growth rate of China’s
7
GDP is estimated to have decreased to approximately 7.4% for the year ended December 31, 2014, which is China’s lowest growth
rate for the past five years, and continues to remain below pre-2008 levels. China has recently imposed measures to restrain lending,
which may further contribute to a slowdown in its economic growth, while it has announced plans to gradually transition from an
investment led growth model to a consumption driven economic growth model, which could lead to smaller demand for iron ore and
other commodities. This transition may take place over the span of a number of years, and there can be no assurance as to the time
frame for such a transformation or that any such transformation will occur at all. 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, if
any, as well as our future prospects, will likely be materially and adversely affected by a further economic downturn in any of these
countries.
Changes in the economic and political environment in China and policies adopted by the government to regulate its economy
may have a material adverse effect on our business, financial condition and results of operations.
The Chinese economy differs from the economies of western countries in such respects as structure, government
involvement, level of development, growth rate, capital reinvestment, allocation of resources, bank regulation, currency and monetary
policy, rate of inflation and balance of payments position. Prior to 1978, the Chinese economy was a “planned economy.” Since 1978,
increasing emphasis has been placed on the utilization of market forces in the development of the Chinese economy. Annual and five
year State Plans are adopted by the Chinese government in connection with the development of the economy. Although state-owned
enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese government is reducing the
level of direct control that it exercises over the economy through State Plans and other measures. There is an increasing level of
freedom and autonomy in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to
a “market economy” and enterprise reform. Limited price reforms were undertaken with the result that prices for certain commodities
are principally determined by market forces. In addition, economic reforms may include reforms to the banking and credit sector and
may produce a shift away from the export-driven growth model that has characterized the Chinese economy over the past few
decades. Many of the reforms are unprecedented or experimental and may be subject to revision, change or abolition based upon the
outcome of such experiments. The level of imports to and exports from China could be adversely affected by the failure to continue
market reforms or changes to existing pro-export economic policies. The level of imports to and exports from China may also be
adversely affected by changes in political, economic and social conditions or other relevant policies of the Chinese government, such
as changes in laws, regulations or export and import restrictions, internal political instability, changes in currency policies, changes in
trade policies and territorial or trade disputes. A decrease in the level of imports to and exports from China could adversely affect our
business, operating results and financial condition.
We conduct a substantial amount of business in China. The legal system in China has inherent uncertainties that could have a
material adverse effect on our business, financial condition and results of operations.
The Chinese legal system is based on written statutes and their legal interpretation by the Standing Committee of the National
People’s Congress. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the Chinese
government has been developing a comprehensive system of commercial laws, and considerable progress has been made in
introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance,
commerce, taxation and trade. However, because these laws and regulations are relatively new, there is a general lack of internal
guidelines or authoritative interpretive guidance and because of the limited number of published cases and their non-binding nature,
interpretation and enforcement of these laws and regulations involve uncertainties. We conduct a substantial portion of our business in
China or with Chinese counter parties. For example, we enter into charters with Chinese customers, which charters may be subject to
new regulations in China. We may, therefore, be required to incur new or additional compliance or other administrative costs, and pay
new taxes or other fees to the Chinese government. In addition, a number of our newbuilding vessels are being built at Chinese
shipyards. Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could
affect our vessels that are either chartered to Chinese customers or that call to Chinese ports and our vessels being built at Chinese
shipyards, and could have a material adverse effect on our business, results of operations and financial condition and our ability to pay
dividends.
The market values of our vessels have declined and may further decline, which could limit the amount of funds that we can
borrow, cause us to breach certain financial covenants in our credit facilities (including ship financing facilities) or result in an
impairment charge, and we may incur a loss if we sell vessels following a decline in their market value.
The fair market values of dry bulk vessels have generally experienced high volatility and have recently declined significantly.
The fair market value of our vessels may continue to fluctuate depending on a number of factors, including:
•
•
•
prevailing level of charter rates;
general economic and market conditions affecting the shipping industry;
types, sizes and ages of vessels;
8
•
•
•
•
•
•
•
supply of and demand for vessels;
other modes of transportation;
cost of newbuildings;
governmental or other regulations;
the need to upgrade vessels as a result of charterer requirements, technological advances in vessel design or equipment or
otherwise;
technological advances; and
competition from other shipping companies and other modes of transportation.
If the fair market value of our vessels declines, we might not be in compliance with various covenants in our ship financing
facilities, some of which require the maintenance of a certain percentage of fair market value of the vessels securing the facility to the
principal outstanding amount of the loans under the facility or a maximum ratio of total liabilities to market value of adjusted total
assets. Under such circumstances, the amount of funds we may draw down under our credit facilities may be limited, and an event of
default could result. In such circumstances, we may not be able to refinance our debt or obtain additional financing on terms that are
acceptable to us or at all. If we are not able to comply with the covenants in our credit facilities and are unable to remedy the relevant
breach, our lenders could accelerate our debt and foreclose on our vessels, or the funds required to pay for a vessel may not be
available at the time the payments are due to the shipbuilder or seller. Furthermore, if vessel values decline, we may have to record an
impairment charge in our consolidated financial statements, which could adversely affect our financial results. In addition, if we sell
one or more of our vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our
consolidated financial statements, the sale proceeds may be less than the vessels’ carrying value on our consolidated financial
statements, resulting in a loss and a reduction in earnings.
Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of such acquisitions
may increase and this could adversely affect our business, results of operations, cash flow and financial condition.
Compliance with safety and other vessel requirements imposed by classification societies may be very costly and may
adversely affect our business.
The vast majority of commercial vessels are built to safety and other vessel requirements established by private classification,
or class, societies such as the American Bureau of Shipping. The class society certifies that a vessel is safe and seaworthy in
accordance with its standards and regulations, which is an element of compliance with the Safety of Life at Sea Convention known as
SOLAS, and, where so engaged, the applicable conventions, rules and regulations adopted by the country of registry of the vessel.
Every classed vessel is subject to a specific program of periodic class surveys consisting of annual surveys, an intermediate survey and
a class renewal or special survey normally every five years. Surveys become more intensive as the vessel ages.
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 taken out of the water in a dry dock every two and a
half to five years for inspection of its underwater parts.
Compliance with class society recommendations and requirements may result in significant expense. If any vessel does not
maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports and will be
unemployable and uninsurable until such failures are remedied, which could negatively impact our results of operations 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 international, national, state and local laws, regulations, treaties and conventions in
force in international waters and the jurisdictions in which our vessels operate or are registered, which can significantly affect the
ownership and operation of our vessels. These laws and other legal requirements include, but are not limited to, the U.S. Act to
Prevent Pollution from Ships, the U.S. Oil Pollution Act of 1990 (the “OPA”), the U.S. Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the U.S. Clean Air Act, the U.S. Clean Water Act, the U.S. Ocean Dumping Act, 1972, the
U.S. Maritime Transportation Security Act of 2002 and international conventions issued under the auspices of the United Nations
International Maritime Organization including the International Convention on the Prevention of Marine Pollution by Dumping of
Wastes and Other Matter, 1972 as modified by the 1996 London Protocol, the International Convention for the Prevention of Pollution
from Ships, 1973 as modified by the Protocol of 1978, the International Convention for the Safety of Life at Sea, 1974, and the
International Convention on Load Lines, 1966. Compliance with such laws and other legal requirements may require vessels to be
altered, costly equipment to be installed or operational changes to be implemented and may decrease the resale value or reduce the
useful lives of our vessels. Such compliance costs could have a material adverse effect on our business, financial condition and results
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of operations. A failure to comply with applicable laws and other legal requirements may result in administrative and civil monetary
fines and penalties, additional compliance plans or programs or other ongoing increased compliance costs, criminal sanctions or the
suspension or termination of our operations. Because such laws and other legal requirements are often revised, we cannot predict the
ultimate cost of complying with them or their impact on the resale prices or useful lives of our vessels. Additional conventions, laws
and regulations or other legal requirements 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 business, financial condition and results of 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. Furthermore, environmental, safety, manning and other laws and legal requirements have become more stringent
and impose greater costs on vessels after significant vessel related accidents like the grounding of the Exxon Valdez in 1989 and the
explosion and oil spill in 2010 with respect to the Deepwater Horizon offshore oil drilling rig. Similar unpredictable events may result
in further regulation of the shipping industry as well as modifications to statutory liability schemes, which could have a material
adverse effect on our business, financial condition and results of operations. An oil spill caused by one of our vessels or attributed to
one of our vessels could result in significant company liability, including fines, penalties and criminal liability and remediation costs
for natural resource and other damages under a variety of laws and legal requirements, as well as third-party damages.
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, and
certificates with respect to our operations and to satisfy insurance and financial responsibility requirements for potential oil (including
marine fuel) spills and other pollution incidents. Any such insurance may not be sufficient to cover all such liabilities and it may be
difficult to obtain adequate coverage on acceptable terms in certain market conditions. Claims against our vessels whether covered by
insurance or not may result in 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.
In order to comply with emerging ballast water treatment requirements, we may have to purchase expensive ballast water
treatment systems and modify our vessels to accommodate such systems.
Many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the
introduction of invasive harmful species via such discharges. The United States, for example, requires vessels entering its waters from
another country to conduct mid-ocean ballast exchange, or undertake some alternative measure, and to comply with certain reporting
requirements. The International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM
Convention”), adopted by the UN International Maritime Organization in February 2004, calls for the phased introduction of
mandatory reducing living organism limits in ballast water over time. Although the BWM Convention has not yet entered into force
and has not been ratified by the United States, the United States Coast Guard has adopted regulations imposing requirements similar to
those of the BWM Convention. In order to comply with these living organism limits, vessel owners may have to install expensive
ballast water treatment systems or make port facility disposal arrangements and modify existing vessels to accommodate those
systems. To date, many of these systems are unproven and not yet certified for use by any government. We cannot predict whether the
BWM Convention will be sufficiently ratified to enter into force or whether other countries will adopt it or similar requirements
unilaterally. Adoption of the BWM Convention standards could have an adverse material impact on our business, financial condition
and results of operations depending on the available ballast water treatment systems and the extent to which existing vessels must be
modified to accommodate such systems.
An over-supply of dry bulk carrier capacity in recent years may prolong or further depress the current low charter rates,
which may limit our ability to operate our dry bulk carriers profitably.
The supply of dry bulk vessels has increased significantly since the beginning of 2006. As of the beginning of February 2015,
the order book for newbuilding vessels stood at approximately 20.5% of the existing global fleet capacity excluding conversion and
cancellations. Vessel supply has increased more than vessel demand in recent years, causing downward pressure on charter rates
during that time. If supply is not fully absorbed by the market, charter rates may continue to be under pressure due to vessel supply.
Since our fleet will continue to be mostly employed in voyage charters and short-term time charters, we remain exposed to the spot
market.
World events could affect our results of operations and financial condition.
Past terrorist attacks, as well as the threat of future terrorist attacks around the world, continue to cause uncertainty in the
world’s financial markets and may affect our business, operating results and financial condition. Continuing conflicts, instability and
other recent developments in the Ukraine, the Korean Peninsula, the East China Sea, the Middle East, including Iraq, Syria, Egypt,
West Africa and North Africa, and the presence of U.S. or other armed forces in the Middle East, 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.
The epidemic of the Ebola virus disease, which is ongoing in West Africa, may lead to crew member illness, which can disrupt the
operations of our vessels, or to public health measures, which may prevent our vessels from calling on ports or discharging cargo in
the affected areas or in other locations after having visited the affected areas. These uncertainties could also adversely affect our
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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. In November 2013, the government of the People’s Republic of China announced an Air Defense Identification Zone
(“ADIZ”), covering much of the East China Sea. When introduced, the Chinese ADIZ was controversial because a number of nations
are not honoring the ADIZ, and the ADIZ includes certain maritime areas that have been contested among various nations in the
region. Tensions relating to the Chinese ADIZ may escalate as a result of incidents relating to the ADIZ or other territorial disputes,
which may result in additional limitations on navigation or trade. Any of these occurrences could have a material adverse impact on
our business, financial condition and results of operations.
Acts of piracy on ocean-going vessels have had and may continue to have an adverse effect on our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the
Indian Ocean and in the Gulf of Aden off the coast of Somalia. Although the frequency of sea piracy worldwide decreased during
2012 and 2013 to its lowest level since 2009, sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of
Somalia and increasingly in the Gulf of Guinea and the West Coast of Africa, with dry bulk vessels particularly vulnerable to such
attacks. If these piracy attacks result in regions in which our vessels are deployed being characterized as “war risk” zones by insurers,
as the Gulf of Aden temporarily was in May 2008, or Joint War Committee “war and strikes” listed areas, premiums payable for such
coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including
those due to employing onboard security guards, could increase in such circumstances. Furthermore, while we believe the charterer
remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold charterhire 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 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, any 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, cash flows and results of operations.
We could face penalties under European Union, United States or other economic sanctions which could adversely affect our
reputation, our financial results and the market for our common shares.
Our business could be adversely impacted if we are found to have violated economic sanctions under the applicable laws of
the European Union, the United States or another applicable jurisdiction against countries such as Iran, Sudan, Syria, North Korea and
Cuba. U.S. economic sanctions, for example, prohibit a wide scope of conduct, target numerous countries and individuals, are
frequently updated or changed and have vague application in many situations.
Many economic sanctions relate to our business, including prohibitions on certain kinds of trade with countries, such as
exportation or re-exportation of commodities, or prohibitions against certain transactions with designated nationals who may be
operating under aliases or through non-designated companies. The imposition of Ukrainian-related economic sanctions on Russian
persons, first imposed in March 2014, is an example of economic sanctions with a potentially widespread and unpredictable impact on
shipping. Certain of our charterers or other parties that we have entered into contracts with regarding our vessels may be affiliated
with persons or entities that are the subject of sanctions imposed by the Obama administration, and European Union and/or other
international bodies as a result of the annexation of Crimea by Russia in 2014. If we determine that such sanctions require us to
terminate existing contracts or if we are found to be in violation of such applicable sanctions, our results of operations may be
adversely affected or we may suffer reputational harm.
Additionally, the U.S. Iran Threat Reduction Act (which was signed into law in 2012) amended the Exchange Act to require
issuers that file annual or quarterly reports under Section 13(a) of the Exchange Act to include disclosure in their annual and quarterly
reports as to whether the issuer or its affiliates have knowingly engaged in certain activities prohibited by sanctions against Iran or
transactions or dealings with certain identified persons. We are subject to this disclosure requirement.
Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations and intend to
maintain such compliance, there can be no assurance that we will 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 severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding,
or being required, to divest their interest, or not to invest, in us. Even inadvertent violations of economic sanctions can result in the
imposition of material fines and restrictions and could adversely affect our business, financial condition and results of operations, our
reputation, and the market price of our common shares.
Our vessels may call on ports subject to economic sanctions or embargoes that could adversely affect our reputation and the
market for our common shares.
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,
such as Cuba, Iran, Sudan and Syria. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all
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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. With effect from July 1, 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability
and Divestment Act, or CISADA, which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the
application of the prohibitions to companies, such as ours, 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. In
addition, on May 1, 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or
attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on
behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a
foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in U.S. dollars.
Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat
Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act
intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or
petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United States to impose
five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling
beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to
another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so
used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel
was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from
financial transactions subject to U.S. jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years.
On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) entered into an
interim agreement with Iran entitled the “Joint Plan of Action” (“JPOA”). Under the JPOA it was agreed that, in exchange for Iran
taking certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the U.S. and EU would
voluntarily suspend certain sanctions for a period of six months. On January 20, 2014, the U.S. and E.U. indicated that they would
begin implementing the temporary relief measures provided for under the JPOA. These measures include, among other things, the
suspension of certain sanctions on the Iranian petrochemicals, precious metals, and automotive industries from January 20, 2014 until
July 20, 2014. On July 18, 2014, the P5+1 and Iran agreed to extend the measures taken under JPOA until November 24, 2014. At that
time, the P5+1 and Iran agreed to a further extension of these measures until July 1, 2015. On April 2, 2015, the P5+1 and Iran
announced a framework agreement, according to which the P5+1 may gradually life some of the sanctions currently in place against
Iran.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and
intend to maintain such compliance, there can be no assurance that we will be in compliance in the future as such regulations and
sanctions may be amended over time, and the U.S. retains the authority to revoke the aforementioned relief if Iran fails to meet its
commitments under the JPOA. Any such violation could result in fines, penalties or other sanctions that could severely impact our
ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to
divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that
prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state
sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common stock may adversely affect
the price at which our common stock trades. 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. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other
activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are
not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts
with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of
our common stock may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental
actions in these and surrounding countries.
Our operating results are subject to seasonal fluctuations.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in
charterhire rates. This seasonality may result in volatility in our operating results to the extent that we enter into new charter
agreements or renew existing agreements during a time when charter rates are weaker or we operate our vessels on the spot market or
index based time charters, which may result in quarter-to-quarter volatility in our operating results. The dry bulk 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. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain
commodities. Since we charter our vessels principally in the spot market, our revenues from our dry bulk carriers may be weaker
during the fiscal quarters ended June 30 and September 30, and stronger during the fiscal quarters ended December 31 and March 31.
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.
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The operation of our vessels is affected by the requirements set forth in the United Nations’ International Maritime
Organization’s International Management Code (the “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 of vessels and describing procedures for
dealing with emergencies. In addition, vessel classification societies impose significant safety and other requirements on our vessels.
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. Each of our existing vessels is ISM Code-certified, and each of the vessels that we have agreed to
acquire will be ISM Code-certified when delivered to us. However, if we are found not to be in compliance with ISM Code
requirements, we may have to incur material direct and indirect costs to resume compliance and our insurance coverage could be
adversely impacted as a result of compliance. Our vessels may also be delayed or denied port access if they are found to be in non-
compliance, which could result in charter claims and increased inspection and operational costs even after resuming compliance. Any
failure to comply with the ISM Code could negatively affect our business, financial condition, cash flows and results of operations.
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 and trans-shipment points. Inspection procedures may result in the seizure of contents of our vessels, delays in the loading,
offloading, trans-shipment 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, cash flows and results of operations.
The operation of dry bulk carriers entails certain operational risks that could affect our earnings and cash flow.
For a dry bulk carrier, the cargo itself and its interaction with the vessel can be an operational risk. By their nature, dry bulk
cargoes are often heavy, dense and easily shifted and react badly to water exposure. In addition, dry bulk 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 vessel. Vessels damaged due to treatment during unloading procedures may be
more susceptible to breach at sea. Hull breaches in dry bulk carriers may lead to the flooding of the vessels’ holds. If a dry bulk carrier
suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel’s
bulkheads, leading to the loss of a vessel. If we are unable to adequately maintain our vessels, we may be unable to prevent these
events. Any of these circumstances or events may have a material adverse effect on our business, results of operations, cash flows,
financial condition and ability to pay dividends. In addition, the loss of any of our vessels could harm our reputation as a safe and
reliable vessel owner and operator.
Rising fuel, or bunker, prices and marine fuel availability may adversely affect our profits.
Since we expect to primarily employ our vessels in the spot market, we expect that vessel fuel, known as bunkers, will be the
largest single expense item in our shipping operations for our vessels. While we believe that we will experience a competitive
advantage as a result of increased bunker prices due to the greater fuel efficiency of our vessels compared to the average global fleet,
changes in the price of fuel may adversely affect our profitability. The imposition of stringent vessel air emissions requirements, such
as the requirement to reduce the amount of sulfur in fuel to 0.10% in certain coastal areas on January 1, 2015 and potentially in all
areas of the world in 2020 or 2025, could lead to marine fuel shortages and substantial increases in marine fuel prices which could
have a material adverse effect on our business, financial condition and results of operations. The price and supply of fuel are
unpredictable and fluctuate 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 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 our profitability and competitiveness of our business versus other forms of transportation, such as truck
or rail.
Our business has inherent operational risks, which may not be adequately covered by insurance.
Our vessels and their cargoes are at risk of being damaged or lost because of events or risks such as Acts of God, marine
disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism, piracy, cyber-attack, radioactive
contamination and other circumstances or events. In addition, transporting cargoes across a wide variety of international jurisdictions
creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the
potential for changes in tax rates or policies, and the potential for government expropriation of our vessels. Any of these events may
result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make
payments to us under our charters.
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In the event of a casualty to a vessel or other catastrophic event, we rely on our insurance to pay the insured value of the
vessel or the damages incurred. Through our management agreements with our technical managers, we procure insurance for the
vessels in our fleet against those risks that we believe the shipping industry commonly insures against. This insurance includes marine
hull and machinery insurance, protection insurance and indemnity insurance, which include pollution risks and crew insurances, and
war risk insurance. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially
reasonable terms through protection and indemnity associations and providers of excess coverage is $1.0 billion per vessel per
occurrence.
We maintain and expect to maintain hull and machinery insurance, protection insurance and indemnity insurance for all of
our existing and newbuilding vessels, which includes environmental damage and pollution insurance coverage and war risk insurance
for our fleet. We do not maintain nor expect to maintain, for our vessels, insurance against loss of hire, which covers business
interruptions that result from the loss of use of a vessel. Therefore, if the availability of a vessel for hire is interrupted, the loss of
earnings due to such interruption could negatively affect our business. 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, and we may not be able to obtain certain insurance
coverages. 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.
We cannot assure you that we will be adequately insured against all risks or that we will be able to obtain adequate insurance
coverage at reasonable rates for our vessels in the future. For example, in the past more stringent environmental regulations have led
to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or
pollution. Additionally, our insurers may refuse to pay particular claims. Any significant loss or liability for which we are not insured
could have a material adverse effect on our business and financial condition.
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 (P&I Associations)
through which we receive insurance coverage for tort liability, including pollution-related liability. In addition, our P&I Associations
may not have enough resources to cover claims made against them. Our payment of these calls could result in a significant expense to
us, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Labor interruptions could disrupt our business.
Star Bulk Management Inc. and Starbulk S.A. currently provide the crew for all of our vessels, 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.
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.
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.
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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 and their cargoes
are at a risk of being damaged or lost because of events such as mechanical failure, collision, human error, war, terrorism, piracy,
marine disasters, and bad weather and other acts of God. 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.
Failure to comply with the U.S. Foreign Corrupt Practices Act (the “FCPA”) could result in fines, criminal penalties, charter
terminations and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for
corruption. We are committed to doing business in accordance with applicable anti-corruption laws, including the FCPA. We are
subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take
actions determined to be in violation of such anti-corruption laws. Any such violation could result in substantial fines, sanctions, civil
and/or criminal penalties and curtailment of operations in certain jurisdictions, and might adversely affect our business, results of
operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business.
Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and
attention of our senior management.
Because we generate all of our revenues in U.S. dollars but incur a 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 revenue in U.S. dollars, and the majority of our expenses are denominated in U.S. dollars. However, a
portion of our ship operating and administrative expenses are denominated in currencies other than U.S. dollars. For the years ended
December 31, 2013 and, 2014, we incurred approximately 30% and 20%, respectively, of our operating expenses and 88% and 47%,
respectively, of our general and administrative expenses in currencies other than U.S. dollars. 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. Declines in the value of the
dollar could lead to higher expenses payable by us. While we historically have not mitigated the risk associated with exchange rate
fluctuations through the use of financial derivatives, we may employ such instruments from time to time in the future in order to
minimize this risk. Any future use of financial derivatives would involve certain risks, including the risk that losses on a hedged
position could exceed the notional 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.
We cannot assure you that we will be successful in finding employment for all of our vessels.
Risks Related to Our Company
As of April 6, 2015, our existing fleet of 68 vessels, had an aggregate capacity of approximately 7.1 million dwt. We have
also entered into or acquired construction contracts, either directly with the shipyards or indirectly through the use of bareboat
agreements with purchase options, for 29 newbuilding vessels, with scheduled deliveries to us from April 2015 to September 2016.
We intend to employ our vessels primarily in the spot market, under short term time charters or voyage charters. We will own a large
number of vessels that will enter these markets in a relatively short period of time without having previously secured employment. We
cannot assure you that we will be successful in finding employment for our newbuilding vessels in the volatile spot market
immediately upon their deliveries to us or whether any such employment will be at profitable rates, nor can we assure you continued
timely employment of our existing vessels.
We have significant risks relating to the construction of our newbuilding vessels.
As of April 6, 2015, giving effect to the Transactions, we had contracts for 29 newbuilding vessels. These vessels are
scheduled to be delivered through September 2016. Vessel construction projects are generally subject to risks of delay or cost overruns
that are inherent in any large construction project, which may be caused by numerous factors, including shortages of equipment,
materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment or shipyard construction, failure of
equipment to meet quality and/or performance standards, financial or operating difficulties experienced by equipment vendors or the
shipyard, unanticipated actual or purported change orders, inability to obtain required permits or approvals, unanticipated cost
increases between order and delivery, design or engineering changes and work stoppages and other labor disputes, adverse weather
conditions or any other events of force majeure. Significant cost overruns or delays could adversely affect our financial position,
results of operations and cash flows. Additionally, failure to complete a project on time may result in the delay of revenue from that
vessel, and we will continue to incur costs and expenses related to delayed vessels, such as supervision expense and interest expense
for the outstanding debt.
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We continue to have significant capital expenditures, which increased substantially as a result of the Transactions.
The dry bulk shipping business is highly capital-intensive because of the significant investment in vessels that is required. As
of April 6, 2015, the total payments for our 29 newbuilding vessels were expected to be $1,296.1 million, of which we had already
paid $258.6 million. As of April 6, 2015, we had $208.4 million of cash on hand, we had obtained commitments for $832.1 million of
secured debt for 27 newbuilding vessels, and we were in negotiations for an additional $65.0 million of secured debt for two
newbuilding vessels. We may not be able to obtain sufficient financing to fulfill all of our capital requirements.
If we are not able to borrow additional funds, raise other capital or utilize available cash on hand, we may not be able to
acquire our newbuilding vessels, which could have a material adverse effect on our business, financial condition, results of operations
and cash flows. We expect to fund our remaining newbuilding commitments through credit facilities, the proceeds of equity and notes
issuances, existing cash, bareboat charters and other fixed income securities but may not be able to do so. There can be no assurance
that we will be able to obtain such financings on a timely basis or on terms we deem reasonable or acceptable. To the degree we raise
equity financing to fund our capital expenditures, such equity raises may dilute the ownership of our existing shareholders and may be
dilutive to our earnings per share. If for any reason we fail to make a payment when due, which may result in a default under our
newbuilding contracts, or otherwise fail to take delivery of our newbuilding vessels, we would be prevented from realizing potential
revenues from these vessels, we could also lose all or a portion of our yard payments that were paid by us, and we could be liable for
penalties and damages under such contracts.
We are highly leveraged, which could significantly limit our ability to execute our business strategy and has increased the risk
of default under our debt obligations.
As of April 6, 2015, we had $935.9 million of outstanding indebtedness under our outstanding credit facilities and debt
securities including $41.2 million under our capital lease obligations.
Our outstanding debt agreements impose operating and financial restrictions on us. These restrictions limit our ability, or the
ability of our subsidiaries party thereto, to:
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pay dividends and make capital expenditures if we do not repay amounts drawn under our credit facilities or if there is
another default under our credit facilities;
incur additional indebtedness, including the issuance of guarantees;
create liens on our assets;
change the flag, class or management of our vessels or terminate or materially amend the management agreement
relating to each vessel;
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sell our vessels;
• merge or consolidate with, or transfer all or substantially all our assets to, another person; or
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enter into a new line of business.
In addition, our debt agreements require us or our subsidiaries to maintain various financial ratios, including:
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a minimum percentage of aggregate vessel value to loans outstanding;
a maximum ratio of total liabilities to market value adjusted total assets;
a minimum EBITDA to interest coverage ratio;
a minimum liquidity; and
a minimum equity ratio.
Because some of these ratios are dependent on the market value of our vessels, should our charter rates or vessel values
materially decline in the future, we may be required to take action to reduce our debt or to act in a manner contrary to our business
objectives to meet any such financial ratios and satisfy any such financial covenants. Events beyond our control, including changes in
the economic and business conditions in the shipping markets in which we operate, may affect our ability to comply with these
covenants. We cannot assure you that we will meet these ratios or satisfy our financial or other covenants or that our lenders will
waive any failure to do so.
These covenants may adversely affect our ability to finance future operations or limit our ability to pursue certain business
opportunities or take certain corporate actions. The covenants may also restrict our flexibility in planning for changes in our business
and the industry and make us more vulnerable to economic downturns and adverse developments. A breach of any of the covenants in,
or our inability to maintain the required financial ratios under, our debt agreements would prevent us from borrowing additional
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money under our debt agreements and could result in a default under our debt agreements. If a default occurs under our credit
facilities, the lenders could elect to declare the outstanding debt, together with accrued interest and other fees, to be immediately due
and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of our assets.
Our ability to meet our cash requirements, including our debt service obligations, is dependent upon our operating
performance, which is subject to general economic and competitive conditions and to financial, business and other factors affecting
our operations, many of which are or may be beyond our control. We cannot provide assurance that our business operations will
generate sufficient cash flows from operations to fund these cash requirements and debt service obligations. If our operating results,
cash flow or capital resources prove inadequate, we could face substantial liquidity problems and might be required to dispose of
material assets or operations to meet our debt and other obligations. If we are unable to service our debt, we could be forced to reduce
or delay planned expansions and capital expenditures, sell assets, restructure or refinance our debt or seek additional equity capital,
and we may be unable to take any of these actions on satisfactory terms or in a timely manner. Further, any of these actions may not
be sufficient to allow us to service our debt obligations or may have an adverse impact on our business. Our debt agreements may
limit our ability to take certain of these actions. Our failure to generate sufficient operating cash flow to pay our debts or to
successfully undertake any of these actions could have a material adverse effect on us.
Our substantial leverage could materially and adversely affect our ability to obtain additional financing for working capital,
capital expenditures, acquisitions, debt service requirements or other purposes, could make us more vulnerable to general adverse
economic, regulatory and industry conditions, and could limit our flexibility in planning for, or reacting to, changes and opportunities
in the markets in which we compete.
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, and may enter into in the future, various contracts, including charterparties and contracts of
affreightment (“COAs”) with our customers, newbuilding contracts with shipyards and credit facilities with our lenders. 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. In addition, in the event any shipyards
do not perform under their contracts, and we are unable to enforce certain refund guarantees with third-party lenders for any reason,
we may lose all or part of our investment, and we may not be able to operate the vessels we ordered in accordance with our business
plan. Should our counterparties fail to honor their 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.
We are currently prohibited from paying dividends under our debt agreements, and we may be unable to pay dividends in the
future.
Under the terms of a number of our outstanding financing arrangements, we are subject to various restrictions on our ability
to pay dividends. Certain of our financing arrangements prevent us from paying dividends if an event of default exists, if certain dates
have not passed and/or if certain financial ratios are not met. See Note 9, “Long Term Debt” to our audited consolidated financial
statements, for more information regarding these restrictions contained in our historical financing arrangements. In general, when
dividends are paid, they are distributed on a quarterly basis from our operating surplus, in amounts that allow 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.
In addition, 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. The laws of the Republic of Marshall Islands generally prohibit the payment of dividends other than from surplus
(retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company
is insolvent or would be rendered insolvent by the payment of such a dividend. We may not have sufficient surplus in the future to pay
dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give no assurance that
dividends will be paid at all.
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, both
shoreside personnel and crew. 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 due to the increase in the
size of the global shipping fleet. In addition, 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
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grow our business, which could have a material 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.
As of April 6, 2015, we have newbuilding contracts for 29 dry bulk vessels and expect to receive the last Excel Vessel (the
Ore Hansa (tbr Star Jennifer) by mid-April 2015. 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,
Starbulk S.A. and its crewing agent may not be able to continue to hire suitable employees as we expand our 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 and adversely affected and, among other things, the amount of
cash available for distribution as dividends to our shareholders may be reduced.
If we acquire and operate secondhand vessels, we will be exposed to increased operating and other costs, which could
adversely affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to
obtain profitable charters.
Our current business strategy includes additional growth which may, in addition to the acquisition of newbuilding vessels,
include the acquisition of modern secondhand vessels. While we expect that we would typically inspect secondhand vessels prior to
acquisition, this does not provide us with the same knowledge about their condition that we would have had if these vessels had been
built for and operated exclusively by us. Generally, we, as a purchaser of secondhand vessels will not receive the benefit of warranties
from the builders for the secondhand vessels that we acquire. In addition, unforeseen maintenance, repairs, special surveys or dry
docking may be necessary for acquired secondhand vessels, which could also increase our costs and reduce our ability to employ the
vessel to generate revenue.
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.
The aging of our vessels may result in increased operating costs in the future, which could adversely affect our earnings.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our vessels
age they will typically become less fuel-efficient and more costly to maintain than more recently constructed vessels due to
improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to
charterers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require
expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our vessels
may engage. As our vessels age, market conditions may not justify those expenditures or may not enable us to operate our vessels
profitably during the remainder of their useful lives.
Technological innovation could reduce our charterhire income and the value of our vessels.
The charterhire rates and the value and operational life of a vessel are determined by a number of factors including the
vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and
discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and
straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the
stress of operations. If new dry bulk carriers are built that are more efficient or more flexible or have longer physical lives than our
vessels, competition from these more technologically advanced vessels could adversely affect the amount of charterhire payments we
receive for our vessels once their initial charters expire and the resale value of our vessels could significantly decrease. In addition,
although we view the fuel efficiency of our newbuilding Eco-type vessels as a competitive advantage, this competitive advantage may
eventually erode (along with vessel value) as more Eco-type vessels are put into service by our competitors and older, less fuel-
efficient vessels are retired. As a result, our business, results of operations, cash flows and financial condition could be adversely
affected by technological innovation.
In the highly competitive international shipping industry, we may not be able to compete for charters with new entrants or
established companies with greater resources, and as a result, we may be unable to employ our vessels profitably.
Our vessels will be employed 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 we do. Competition for the
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transportation of dry bulk cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel
and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources could enter the dry
bulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and
higher quality vessels than we are able to offer. If we are unable to successfully compete with other dry bulk shipping companies, our
results of operations would be adversely impacted.
We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material
adverse effect on us.
We may be, from time to time, involved in various litigation matters. These matters may include, among other things,
contract disputes, shareholder litigation, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort
claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our
business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim
or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse
effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which may have a
material adverse effect on our financial condition.
We may have difficulty managing our planned growth properly.
Historically, we have grown through acquisitions, including the July 2014 Transactions and the Excel Transactions, and we
have a significant number of newbuilding vessels to be delivered. In addition, one of our strategies is to continue to grow by
expanding our operations and adding to our fleet. Our future growth will primarily depend upon a number of factors, some of which
may not be within our control. These factors include our ability to:
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identify suitable dry bulk carriers, including newbuilding slots at shipyards and/or shipping companies for acquisitions at
attractive prices;
obtain required financing for our existing and new operations;
identify businesses engaged in managing, operating or owning dry bulk carriers for acquisitions or joint ventures;
integrate any acquired dry bulk carriers or businesses successfully with our existing operations, including obtaining any
approvals and qualifications necessary to operate vessels that we acquire;
hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;
identify additional new markets;
enhance our customer base; and
improve our operating, financial and accounting systems and controls.
Our failure to effectively identify, acquire, develop and integrate any dry bulk carriers or businesses could adversely affect
our business, financial condition and results of operations. The number of employees that perform services for us and our current
operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet in the dry bulk sector,
and we may not be able to effectively hire more employees or adequately improve those systems. Finally, acquisitions may require
additional equity issuances, which may dilute our common shareholders if issued at lower prices than the price they acquired their
shares, or debt issuances (with amortization payments), both of which could lower our available cash. If any such events occur, our
financial condition may be adversely affected. We cannot give any assurance that we will be successful in executing our growth plans
or that we will not incur significant expenses and losses in connection with our future growth.
In the July 2014 Transactions, we acquired a 50% interest in Heron, an entity we do not control.
In the July 2014 Transactions, we acquired a convertible loan to Heron, which has been converted into 50% of the equity of
Heron. Heron is a 50-50 joint venture between Oceanbulk Shipping and ABY Group Holding Limited, and we share joint control over
Heron with ABY Group Holding Limited. Because of this arrangement, neither party entirely controls Heron, and any operational and
other decisions with respect to Heron need to be jointly agreed between Oceanbulk Shipping and ABY Group Holding Limited. As of
April 6, 2015, all vessels previously owned by Heron have been either sold to third parties or distributed to Heron’s equity holders. As
part of these distributions, we acquired the two Heron Vessels. While Oceanbulk Shipping and ABY Group Holding Limited intend
that Heron eventually will be dissolved shortly after the last vessel is sold and local authorities permit, until that occurs, contingencies
to us may arise. However, the pre-transaction investors in Heron will effectively remain as ultimate beneficial owners of Heron, until
Heron is dissolved on the basis that, according to the Merger Agreement, any cash received from the final liquidation of Heron will be
transferred to the Sellers. Under the Merger Agreement, we only agreed to issue 2,115,706 of our common shares and pay an amount
of $25.0 million in cash, for the acquisition of the two Heron Vessels.
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Certain benefits we expect from the Transactions are based on projections and assumptions, which are uncertain and subject
to change.
We have made certain estimates and assumptions with respect to certain benefits that we expect from the July 2014
Transactions that affect the reported amounts of earnings, assets, liabilities, revenues, expenses, earnings per share and related
information included in our historical consolidated financial statements and pro forma financial information, as well as EBITDA and
other measures derived from that information. In addition, in connection with the Excel Transactions, we have made various estimates
and assumptions with respect to the eventual operations and chartering of the Excel Vessels as we acquire them. These estimates and
assumptions may prove to be inaccurate or may change in the future, and actual results could differ materially from those estimates or
assumptions. There can be no assurance that we will realize these benefits, including anticipated synergistic benefits, if any, as a result
of the Transactions. The market price of our common shares may decline if the estimates are not realized or we do not achieve the
perceived benefits of the Transactions, including perceived benefits to our cash flows and EBITDA, earnings and earnings per share,
as rapidly or to the extent anticipated.
Our ability to realize benefits from the Transactions is subject to various integration and other risks, and if we fail to realize
such benefits, our business could be materially and adversely affected.
Integrating the assets and operations acquired in the Transactions successfully or otherwise realizing any of the anticipated
benefits of the Transactions, including anticipated cost savings and additional revenue opportunities, involves a number of risks and
uncertainties, including:
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our ability to integrate the management teams, strategies, cultures, technologies and operations of the various entities or
vessels involved in the Transactions;
our ability to retain and assimilate key personnel (and retain their technical and operational expertise);
our ability to retain existing customers;
our ability to successfully implement and retain uniform standards, controls, procedures, policies and information
systems in the face of possible cultural conflicts or differences of opinion on technical and operational decisions;
our ability to smoothly transition ownership and operation of acquired vessels (including the Excel Vessels), including
avoiding disruptions resulting from crewing, procurement, bunkering, supply, dry docking, maintenance and other
similar matters;
our ability to achieve the cost savings and operating synergies we anticipated;
diversion of management attention from ongoing business concerns to integration matters;
possible cash flow interruptions or loss of revenue as a result of change of ownership transitional matters related to the
Transactions;
the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies
due to the Transactions; and
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our ability to maintain relationships with key suppliers.
Therefore, we may not successfully integrate the assets and operations acquired in the Transactions in a timely manner, and
we may not realize the anticipated net reductions in costs and expenses and other benefits of the Transactions to the extent, or in the
timeframe, anticipated. In addition to the integration risks discussed above, our ability to realize these net reductions in costs and
expenses and other benefits and synergies could be adversely impacted by practical or legal constraints on our ability to combine the
operations we acquired in the Transactions.
We may experience impairment of the value of long-lived assets.
The value of our long-lived assets can become impaired, as indicated by factors such as changes in our stock price, book
value or market capitalization, and the past and anticipated operating performance and cash flows of operations. We test for
impairment regularly, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable.
We will be exposed to volatility in the LIBOR and intend to selectively enter into derivative contracts, which can result in
higher than market interest rates and charges against our income.
The loans under our credit facilities are generally advanced at a floating rate based on LIBOR, which has been stable, but was
volatile in prior years, which can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on
our earnings and cash flow. In addition, in recent years, LIBOR has been at relatively low levels, and may rise in the future as the
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current low interest rate environment comes to an end. Our financial condition could be materially adversely affected at any time that
we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit
facilities and any other financing arrangements we may enter into in the future, including those we enter into to finance a portion of
the amounts payable with respect to newbuildings. Moreover, even if we have entered into interest rate swaps or other derivative
instruments for purposes of managing our interest rate exposure, our hedging strategies may not be effective and we may incur
substantial losses.
We intend to selectively enter into derivative contracts to hedge our overall exposure to interest rate risk exposure. Entering
into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. The
derivatives strategies that we employ in the future may not be successful or effective, and we could, as a result, incur substantial
additional interest costs. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Interest Rate” for a description
of our expected interest rate swap arrangements.
We have made and in the future may make acquisitions and significant strategic investments and acquisitions, which may
involve a number of risks. If we are unable to address these risks successfully, such acquisitions and investments could have a
materially adverse impact on our business, financial condition and results of operations.
We have undertaken a number of acquisitions and investments in the past, including the Transactions, and may do so from
time to time in the future. The risks involved with these acquisitions and investments include:
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the possibility that we may not receive a favorable return on our investment or incur losses from our investment, or the
original investment may become impaired;
failure to satisfy or set effective strategic objectives;
our assumption of known or unknown liabilities or other unanticipated events or circumstances;
the diversion of management’s attention from normal daily operations of the business;
difficulties in integrating the operations, technologies, products and personnel of the acquired company or its assets;
difficulties in supporting acquired operations;
difficulties or delays in the transfer of vessels, equipment or personnel;
failure to retain key personnel;
unexpected capital equipment outlays and related expenses;
insufficient revenues to offset increased expenses associated with acquisitions;
under-performance problems with acquired assets or operations;
issuance of common stock that could dilute our current shareholders;
recording of goodwill and non-amortizable intangible assets that will be subject to periodic impairment testing and
potential impairment charges against our future earnings;
the opportunity cost associated with committing capital in such investments;
undisclosed defects, damage, maintenance requirements or similar matters relating to acquired vessels;
becoming subject to litigation.
We may not be able to address these risks successfully without substantial expense, delay or other operational or financial
problems. Any delays or other such operations or financial problems could adversely impact our business, financial condition and
results of operations.
Our costs of operating as a public company are significant, and our management is required to devote substantial time to
complying with public company regulations.
We are a public company, and as such, we have significant legal, accounting and other expenses in addition to our
registration and listing expenses. In addition, Sarbanes-Oxley, as well as rules subsequently implemented by the SEC and Nasdaq, has
imposed various requirements on public companies, including changes in corporate governance practices, and these requirements may
continue to evolve. We and our management personnel, and other personnel, if any, will need to devote a substantial amount of time to
comply with these requirements. Moreover, these rules and regulations increase our legal and financial compliance costs and make
some activities more time-consuming and costly.
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Sarbanes-Oxley requires, among other things, that we maintain and periodically evaluate our internal control over financial
reporting and disclosure controls and procedures. In particular, we need to perform system and process evaluation and testing of our
internal control over financial reporting to allow management and our independent registered public accounting firm to report on the
effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley. Our compliance with
Section 404 may require that we incur substantial accounting expenses and expend significant management efforts.
Because the Public Company Accounting Oversight Board is not currently permitted to inspect our independent accounting
firm, you may not benefit from such inspections.
Auditors of U.S. public companies are required by law to undergo periodic Public Company Accounting Oversight Board
(the “PCAOB”), inspections that assess their compliance with U.S. law and professional standards in connection with performance of
audits of financial statements filed with the SEC. Certain European Union countries, including Greece, do not currently permit the
PCAOB to conduct inspections of accounting firms established and operating in such European Union countries, even if they are part
of major international firms. Accordingly, unlike for most U.S. public companies, the PCAOB is prevented from evaluating our
auditor’s performance of audits and its quality control procedures, and, unlike shareholders of most U.S. public companies, we and our
shareholders are deprived of the possible benefits of such inspections.
We may be adversely affected by the introduction of new accounting rules for leasing.
International and U.S. accounting standard-setting boards (the International Accounting Standards Board (“IASB”) and the
Financial Accounting Standards Board (“FASB”)) have issued new exposure drafts in their joint project that would require lessees to
record most leases on their balance sheets as lease assets and liabilities. Entities would still classify leases, but classification would be
based on different criteria and would serve a different purpose than it does today. Lease classification would determine how entities
recognize lease-related revenue and expense, as well as what lessors record on the balance sheet. Classification would be based on the
portion of the economic benefits of the underlying asset expected to be consumed by the lessee over the lease term. If the proposals
are adopted, they would be expected generally to have the effect of bringing most off-balance sheet leases onto a lessee’s balance
sheet as liabilities, which would also change the income and expense recognition patterns of those items. Financial statement metrics
such as leverage and capital ratios, as well as EBITDA and Adjusted EBITDA, may also be affected, even when cash flow and
business activity have not changed. This may in turn affect covenant calculations under various contracts (e.g., loan agreements)
unless the affected contracts are modified. The IASB’s and FASB’s deliberations on certain topics are expected to continue, and an
effective date has not yet been determined. Accordingly, the timing and ultimate effect of those proposals on us is uncertain.
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 (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, we, as the surviving entity of the Redomiciliation Merger, would be subject
to U.S. federal income tax as a U.S. domestic corporation on our 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, we believe that the Company 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.
Beginning in 2015 we have to pay U.S. federal income tax on our U.S. source income.
Under the Code, 50% of the gross shipping income of a non-U.S. corporation, such as ourselves, that is attributable to
transportation that begins or ends, but that does not both begin and end, in the United States is characterized as “United States source
gross shipping income,” and such income is subject to a 4% U.S. federal income tax without allowance for any deductions, unless the
corporation qualifies for exemption from U.S. federal income taxation under Section 883 of the Code and the Treasury Regulations
promulgated thereunder.
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We do not expect to qualify for the exemption from U.S. federal income taxation under Section 883 of the Code beginning in
2015 and for the foreseeable future. Accordingly, we will be subject to the 4% U.S. federal income tax on our United States source
gross shipping income. If a significant portion of our income is United States source gross shipping income, the imposition of such tax
could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders. In
2014, if we had not qualified for such an exemption, we would have owed approximately $202,230 in U.S. federal income tax. We
expect our United States source gross shipping income to increase in 2015 due to an increase in the size of our fleet, and, accordingly,
we expect our U.S. federal income tax liability in 2015 to be larger than $202,230.
The Internal Revenue Service could treat us as a “passive foreign investment company,” which could have adverse U.S.
federal income tax consequences to U.S. shareholders.
A non-U.S. corporation will be treated as a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax
purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” (e.g.,
dividends, interest, capital gains and rents derived other than in the active conduct of a rental business) or (2) at least 50% of the
average value of the corporation’s assets produce or are held for the production of passive income. For purposes of determining the
PFIC status of a non-U.S. corporation, income earned in connection with the performance of services does not constitute passive
income, but rental income generally is treated as passive income unless the non-U.S. corporation is treated under specific rules as
deriving its rental income in the active conduct of a trade or business. We intend to take the position that income we derive from our
voyage and time chartering activities is services income, rather than rental income, and accordingly, that such income is not passive
income for purposes of determining our PFIC status. Based on this characterization of income from voyage and time charters and the
expected composition of our income and assets, we believe that we currently are not a PFIC, and we do not expect to become a PFIC
in the future. Additionally, we believe that our contracts for newbuilding vessels are not assets held for the production of passive
income, because we intend to use these vessels for voyage and time chartering activities. However, there is no direct legal authority
under the PFIC rules addressing our characterization of income from our voyage and time chartering activities nor our characterization
of contracts for newbuilding vessels. Moreover, the determination of PFIC status for any year can only be made on an annual basis
after the end of such taxable year and will depend on the composition of our income, assets and operations from time to time. Because
of the above described uncertainties, there can be no assurance that the Internal Revenue Service will not challenge the determination
made by us concerning our PFIC status or that we will not be a PFIC for any taxable year.
If we were classified as a PFIC for any taxable year during which a U.S. shareholder owns common shares (regardless of
whether we continue to be a PFIC), the U.S. shareholder would be subject to special adverse rules, including taxation at maximum
ordinary income rates plus an interest charge on both gains on sale and certain dividends, unless the U.S. shareholder makes an
election to be taxed under an alternative regime. Certain elections may be available to U.S. shareholders if we were classified as a
PFIC.
Risks Related to Our Relationships with Mr. Pappas, Oaktree and Other Parties
Affiliates of Oaktree own a majority of our common shares, subject to certain restrictions on voting, acquisitions and
dispositions thereof.
As of April 6, 2015, Oaktree and its affiliates beneficially own 82,154,649 common shares, which would represent
approximately 50.81% of our outstanding common shares. However, pursuant to the Oaktree Shareholders Agreement, Oaktree and
certain affiliates thereof have agreed to voting restrictions, ownership limitations and standstill restrictions. For instance, Oaktree and
its affiliates will be entitled to nominate a maximum of four out of nine members of our board of directors, subject to certain
additional limitations. In addition, Oaktree and its affiliates will be required to vote their voting securities in excess of 33% of the
outstanding voting securities (subject to adjustment as set forth in the Oaktree Shareholders Agreement) proportionately with the votes
cast by the other shareholders, subject to certain exceptions, which include (i) voting against a change of control transaction with an
unaffiliated buyer and (ii) voting in favor of a change of control transaction with an unaffiliated buyer (but only if such transaction is
approved by a majority of disinterested directors). In addition, Oaktree and affiliates thereof will be subject to certain standstill
restrictions, and may not receive a control premium for their common shares as part of a change of control transaction. Despite the
foregoing limitations, Oaktree and its affiliates are able to exert considerable influence over us. Oaktree and its affiliates may be able
to prevent or delay a change of control of us and could preclude any unsolicited acquisition of us. The concentration of ownership and
voting power in Oaktree may make some transactions more difficult or impossible without the support of Oaktree, even if such events
are in the best interests of our other shareholders. The concentration of voting power in Oaktree may have an adverse effect on the
price of our common shares. As a result of such influence, we may take actions that our other shareholders do not view as beneficial,
which may adversely affect our results of operations and financial condition and cause the value of your investment to decline.
Additionally, Oaktree is in the business of making investments in companies and currently holds, and may from time to time
in the future acquire, interests in the shipping industry that directly or indirectly compete with certain portions of our business.
Further, if Oaktree pursues acquisitions or makes further investments in the shipping industry, those acquisitions and investment
opportunities may not be available to us, and we have agreed to renounce any interest or expectancy in, or in being offered an
opportunity to participate in, any corporate opportunities that may be presented to or become known to Oaktree or any of its affiliates.
23
In addition, the members of the board of directors nominated by Oaktree will have fiduciary duties to us and in addition may
have duties to Oaktree. As a result, such circumstances may entail real or apparent conflicts of interest with respect to matters
affecting both us and Oaktree, whose interests, in some circumstances, may be adverse to ours.
Our Chief Executive Officer, Mr. Petros Pappas, and certain members of his family have affiliations with Oceanbulk
Maritime S.A. (“Oceanbulk Maritime”), Interchart Shipping Inc. (“Interchart”) and other ventures, which could create
conflicts of interest. Certain members of our senior management also have affiliations with Oceanbulk Maritime and other
ventures that could create conflicts of interest.
While we do not expect that our Chief Executive Officer, Mr. Petros Pappas, will have any material relationships with any
companies in the dry bulk shipping industry other than us, he will continue to be involved in other areas of the shipping industry,
including as the founder of Oceanbulk Maritime, a dry cargo shipping company, and as a member of the management of Oceanbulk
Container Carriers LLC, and PST Tankers LLC, which are other joint ventures between Oaktree and entities controlled by the family
of Mr. Petros Pappas involved in the container shipping and product tanker businesses, respectively. Ms. Pappas is a significant equity
holder of Oceanbulk Maritime and Interchart, a charter broker company, and an equity holder in various other entities, some of which
are involved in the dry bulk shipping industry. These other affiliations and ventures could cause distraction to Mr. Pappas as our Chief
Executive Officer if he focuses a substantial portion of his time on them, and the involvement of Ms. Pappas with other ventures could
cause conflicts of interest with us.
Certain members of our senior management (Messrs. Norton, Begleris, Spyrou and Rescos and Ms. Damigou) are also
members of the management of Oceanbulk Maritime, Oceanbulk Container Carriers LLC or PST Tankers LLC. These other
affiliations and ventures could cause distraction to such members of senior management if they focus a substantial portion of their
time on such affiliations and ventures.
Any of these affiliations and relationships of Mr. Pappas, certain members of his family and certain members of our senior
management may create conflicts of interest not in the best interest of us or our shareholders from time to time. This could result in an
adverse effect on our business, financial condition, results of operations and cash flows.
As a “foreign private issuer” under the Securities Exchange Act of 1934, we are permitted to, and we may, rely on exemptions
from certain corporate governance standards of the Nasdaq, including, among others, the requirement that a majority of our
board of directors consist of independent directors. Our reliance upon such exemptions may afford less protection to holders
of our common shares.
The corporate governance rules of the Nasdaq require, subject to exceptions, listed companies to have, among other things, a
majority of their board members be independent and independent director oversight of executive compensation, nomination of
directors and corporate governance matters. Nevertheless, a “foreign private issuer” (as defined in Rule 3b-4 of the Exchange Act) is
permitted to follow its home country practice in lieu of the above requirements.
We are a foreign private issuer, and, as such, we may follow the laws of the Republic of the Marshall Islands, our home
country, with respect to the foregoing requirements. For example, our board of directors is not required by the laws of the Republic of
the Marshall Islands to have a majority of independent directors, so, while our board of directors includes seven members that would
likely be deemed independent for purposes of the Nasdaq rules, we are not required to comply with the Nasdaq rule that requires us to
have a majority of independent directors, and we may in the future have less than a majority of directors who would be deemed
independent for purposes of the Nasdaq rules. Consequently, for so long as we remain a foreign private issuer, the approach of our
board of directors may be different from that of a board of directors required to have a majority of independent directors, and as a
result, our management oversight may be more limited than if we were required to comply with the Nasdaq rules applicable to U.S.
domestic listed companies. If in the future we lose our status as a foreign private issuer, we would be required to comply with the rules
of the Nasdaq applicable to U.S. domestic listed companies within six months.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
We are a “foreign private issuer,” and therefore, we are not required to comply with all of the periodic disclosure and current
reporting requirements of the Exchange Act applicable to U.S. domestic companies whose securities are registered under the
Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently
completed second fiscal quarter, and accordingly the next determination will be made with respect to us on June 30, 2015. We will
lose our foreign private issuer status if more than 50% of our outstanding voting securities are directly or indirectly held of record by
residents of the U.S., and:
• more than a majority of our executive officers and directors are U.S. citizens or residents;
• more than 50% of our assets are located in the U.S.; or
•
our business is administered principally in the U.S.
We may therefore lose our foreign private issuer status in the future.
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If we were to lose our foreign private issuer status, we would be required to file with the SEC periodic reports and
registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign
private issuer. We would also have to comply with U.S. federal proxy requirements, and our officers, directors and 10% shareholders
would become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we
would lose our ability to rely upon exemptions from certain Nasdaq corporate governance requirements. As a result, the regulatory
and compliance costs to us under U.S. securities laws as a U.S. domestic issuer could be significantly higher.
Our directors who have relationships with Oaktree may have conflicts of interest with respect to matters involving us.
Three of our directors are affiliated with Oaktree. These persons will have fiduciary duties to us and in addition will have
duties to Oaktree. In addition, under the Oaktree Shareholders Agreements, none of our officers or directors who is also an officer,
director, employee or other affiliate of Oaktree or an officer, director or employee of an affiliate of Oaktree will be liable to us or our
shareholders for breach of any fiduciary duty by reason of the fact that any such individual directs a corporate opportunity to Oaktree
or its affiliates instead of us, or does not communicate information regarding a corporate opportunity to us that such person or affiliate
has directed to Oaktree or its affiliates. As a result, such circumstances may entail real or apparent conflicts of interest with respect to
matters affecting both us and Oaktree, whose interests, in some circumstances, may be adverse to ours. In addition, as a result of
Oaktree’s ownership interest, conflicts of interest could arise with respect to transactions involving business dealings between us and
Oaktree or their affiliates, including potential business transactions, potential acquisitions of businesses or properties, the issuance of
additional securities, the payment of dividends by us and other matters.
Our executive officers will not devote all of their time to our business, which may hinder our ability to operate successfully.
Our executive officers participate in business activities not associated with us, including serving as members of the
management teams of Oceanbulk Maritime (which is affiliated with the Pappas family), Oceanbulk Container Carriers LLC and PST
Tankers LLC (which are both affiliated with Oaktree and entities controlled by the family of Mr. Petros Pappas), and are not required
to work full-time on our affairs. Initially, we expect that each of our executive officers will devote a substantial portion of his/her
business time to the completion of our newbuilding program and management of our Company. Our executive officers may devote
less time to us than if they were not engaged in other business activities and may owe fiduciary duties to the shareholders of other
companies with which they may be affiliated, including those companies listed above. In particular, we expect that the amount of time
Mr. Pappas allocates to managing us will vary from time to time depending on the needs of the business and the level of strategic
activity at the time. This structure may create conflicts of interest in matters involving or affecting us and our customers and it is not
certain that any of these conflicts of interest will be resolved in our favor. This could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We are dependent on our managers and their ability to hire and retain key personnel.
Our success depends to a significant extent upon the abilities and efforts of our management team. For example, Mr. Pappas
is integral to our business, and our success depends significantly on his abilities, industry knowledge and relationships. We do not
maintain “key man” life insurance on any of our officers, and the loss of any of these individuals could adversely affect our business
prospects and financial condition.
Our continued success will depend upon our and our managers’ ability to hire and retain key members of our management
team. Difficulty in hiring and retaining personnel could adversely affect our results of operations. 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 due to the increase in the size of the global shipping fleet. 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 and financial condition. 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. As we expand our fleet, we will also need to expand our operational and financial systems and hire new
shoreside staff and seafarers to crew our vessels; if we cannot expand these systems or recruit suitable employees, its performance
may be adversely affected.
Risks Related to Our Corporate Structure and Our Common Shares
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our
financial obligations and to make dividend payments.
We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no
significant assets other than the equity interests in our subsidiaries. As a result, our ability to satisfy our financial obligations and to
make dividend payments in the future depends on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain
funds from our subsidiaries, our board of directors may exercise its discretion not to declare or pay dividends. We do not intend to
obtain funds from other sources to pay dividends. Furthermore, certain of our outstanding financing arrangements restrict the ability of
some of our subsidiaries (which are the parent companies of various shipowning subsidiaries) to pay us dividends under certain
circumstances (such as if an event of default exists, if certain dates have not passed and/or if certain financial ratios are not met). See
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Note 9, “Long Term Debt” to our audited consolidated financial statements, for more information regarding these restrictions
contained in our historical financing arrangements. To the extent we do not receive dividends from our subsidiaries, our ability to pay
dividends will be restricted.
Because we are organized under the laws of the Marshall Islands and because substantially all of our assets are located outside
of the United States, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our
management.
We are organized under the laws of the Marshall Islands and substantially all of our assets are located outside of the United
States. In addition, the majority of our directors and officers are or will be non-residents of the United States and all or a substantial
portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for you
to bring an action against us or against our directors and officers 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
or officers.
We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate law.
Our corporate affairs are governed by our Third Amended and Restated Articles of Incorporation (the “Articles of
Incorporation”) and our Second Amended and Restated Bylaws (the “Bylaws”) and by the Marshall Islands Business Corporations
Act (the “MIBCA”). The provisions of the MIBCA resemble provisions of the corporation laws of a number of states in the United
States. However, there have been few judicial cases in the Marshall Islands interpreting the MIBCA. The rights and fiduciary
responsibilities of directors under the laws 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 the United States. The rights of shareholders of
companies incorporated in the Marshall Islands may differ from the rights of shareholders of companies incorporated in the United
States. While the MIBCA provides that it is to be interpreted according to the laws of the State of Delaware and other states with
substantially similar legislative provisions, there have been few, if any, court cases interpreting the MIBCA in the Marshall Islands
and we cannot predict whether Marshall Islands courts would reach the same conclusions as United States courts. Thus, you may have
more difficulty in protecting your 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 that has developed a relatively more substantial body of case
law. Additionally, the Republic of the Marshall Islands does not have a legal provision for bankruptcy or a general statutory
mechanism for insolvency proceedings. As such, in the event of a future insolvency or bankruptcy, our shareholders and creditors may
experience delays in their ability to recover their claims after any such insolvency or bankruptcy.
The price of our common shares may be highly volatile.
The price of our common shares 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 dry bulk shipping industry;
• market conditions in the dry bulk shipping industry;
•
•
•
•
changes in government regulation;
the failure of securities analysts to publish research about us, or shortfalls in our operating results from levels forecast by
securities analysts;
announcements concerning us or our competitors; and
the general state of the securities markets.
The seaborne transportation industry has been highly unpredictable and volatile. The market for our common shares in this
industry may be equally volatile. Consequently, you may not be able to sell the common shares at prices equal to or greater than those
paid by you.
Future sales of our common shares could cause the market price of our common shares to decline.
Our Articles of Incorporation authorize us to issue common shares, of which 161,691,380 shares had been issued and were
outstanding as of April 6, 2015. Sales of a substantial number of shares of our common shares in the public market, or the perception
that these sales could occur, may depress the market price for our common shares. These sales could also impair our ability to raise
additional capital through the sale of our equity securities in the future. We intend to issue additional shares of our common shares in
the future. Our shareholders may incur dilution from any future equity offering and upon the issuance of additional shares of our
common shares upon the exercise of options we grant to certain of our executive officers or upon the issuance of additional common
shares pursuant to our equity incentive plan.
26
Certain shareholders hold registration rights, which may have an adverse effect on the market price of our common stock.
On September 20, 2011, we filed a registration statement on Form S-8 (File No. 333-176922) that covers the resale of up to
311,006 of our common shares that have been issued under our 2007, 2010 and 2011 equity incentive plans. We have included
485,783 common shares for resale in a universal shelf registration statement (File No. 333-180674), which was declared effective by
the Securities and Exchange Commission (the “Commission”) on July 17, 2012. A Form F-3 registration statement for 7,731,776
common shares was filed with the SEC pursuant to a registration rights agreement and declared effective on November 12, 2013 for
shares held by Oaktree and Monarch. On July 11, 2014, we entered into the Registration Rights Agreement. For more information
regarding the terms of the Registration Rights Agreement, “Item 7. Major Shareholders and Related Party Transactions—B. Related
Party Transactions.” Pursuant to the Registration Rights Agreement, we filed a Form F-3 registration statement (Registration No. 333-
197886), registering the resale of 67,258,287 common shares to be sold by certain selling shareholders listed therein, which was
declared effective on September 25, 2014. In addition, the Registration Rights Agreement also provides the Oaktree Seller and its
affiliates with certain demand registration rights and the Oaktree Seller, Pappas Seller, Monarch, Angelo, Gordon and Excel and
certain affiliates thereof with certain shelf registration rights in respect of any common shares held by them (including the 29,917,312
common shares to be issued as the Excel Vessel Share Consideration and the 37,250,418 common shares purchased by Oaktree,
Angelo, Gordon, Monarch and affiliates of the family of Mr. Pappas in the 2015 Equity Offering), subject to certain conditions. As a
result of the Excel Transactions and pursuant to the Registration Rights Agreement, we filed another Form F-3 registration statement
(Registration No. 333-198832) registering the resale of 29,917,312 common shares to be issued to Excel as the Excel Vessel Share
Consideration, and the 37,250,418 common shares purchased by Oaktree, Angelo, Gordon, Monarch and affiliates of the family of
Mr. Petros Pappas in the 2015 Equity Offering. This registration statement was declared effective on February 25, 2015. In addition,
in the event that we register additional common shares for sale to the public following the closing of the Transactions, we will be
required to give notice to the Oaktree Seller, Pappas Seller, Monarch, Angelo, Gordon and Excel, and certain affiliates thereof of its
intention to effect such registration and, subject to certain limitations, we will be required to include common shares held by those
holders in such registration. The resale of these common shares in addition to the offer and sale of the other securities included in such
registration statements may have an adverse effect on the market price of our common stock.
Anti-takeover provisions in our organizational documents could have the effect of discouraging, delaying or preventing a
merger or acquisition, or could make it difficult for our shareholders to replace or remove our current board of directors,
which could adversely affect the market price of our common shares.
Several provisions of our Articles of Incorporation and our Bylaws could make it difficult for our shareholders 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 shareholders may consider favorable. These
provisions include:
•
•
•
•
•
•
•
authorizing our board of directors to issue “blank check” preferred stock without shareholder approval;
providing for a classified board of directors with staggered, three-year terms;
establishing certain advance notice requirements for nominations for election to our board of directors or for proposing
matters that can be acted on by shareholders at shareholder meetings;
prohibiting cumulative voting in the election of directors;
limiting the persons who may call special meetings of shareholders;
authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of a majority of the
outstanding shares of our common shares entitled to vote for the directors; and
establishing supermajority voting provisions with respect to amendments to certain provisions of our Articles of
Incorporation and our Bylaws.
These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in
control and, as a result, may adversely affect the market price of our common shares and your ability to realize any potential change of
control premium.
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 c/o Star Bulk
Management Inc., 40 Agiou Konstantinou Str., Maroussi 15124, Athens, Greece and its telephone number is 011-30-210-617-8400.
Star Maritime Acquisition Corp. (“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, its officers
27
and directors were the holders of 601,795 common shares representing all of its then issued and outstanding capital stock. On
December 21, 2005, Star Maritime consummated its initial public offering of 1,257,833 units, at a price of $150.00 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 $120.00 per share. During December 2005, Star Maritime also completed a private placement of an aggregate of
75,500 units, each unit consisting of one share of common stock and one warrant to purchase one share of Star Maritime common
stock at an exercise price of $120.00 per share, to Mr. Petros Pappas, our Chief Executive Officer and one of our directors, Mr. Koert
Erhardt, one of our directors, Mr. Prokopios Tsirigakis, our former Chief Executive Officer and former director, and Mr. George
Syllantavos, our former Chief Financial Officer and former director. The $11.3 million gross proceeds of the private placement were
used to pay all fees and expenses of the initial public offering and as a result, the $188.7 million gross proceeds of the initial public
offering were deposited in a trust account maintained by American Stock Transfer & Trust Company, LLC. 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 dry bulk
carriers, with a combined cargo-carrying capacity of approximately 692,000 dwt, from certain subsidiaries of TMT Co, Ltd, a global
shipping company with management headquarters in Taiwan (“TMT”). These eight dry bulk carriers are referred to as the initial fleet.
The aggregate purchase price specified in the Master Agreement by and among Star Bulk, Star Maritime and TMT (the “Master
Agreement”), for the initial fleet was $224.5 million in cash and 835,843 of our common shares, which were issued on November 30,
2007. As additional consideration for the eight vessels, we agreed to issue 107,130 common shares to TMT in two installments as
follows: (i) 53,565 additional common shares, no more than 10 business days following the filing of the Annual Report on Form 20-F
for the fiscal year ended December 31, 2007, and (ii) 53,565 additional common shares, no more than 10 business days following the
filing of the 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 shareholders’ 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’s common stock was exchanged for one of our common shares and each warrant of Star
Maritime was assumed by us with the same terms and conditions except that each became exercisable for our common shares. The
Redomiciliation Merger became effective 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. Our common shares and warrants started
trading on the Nasdaq Global Select Market on December 3, 2007, under the ticker symbols SBLK and SBLKW, respectively. 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.
On February 25, 2014, we acquired 33% of the total outstanding common stock of Interchart, a Liberian company affiliated
with family members of our Chief Executive Officer, which acts as chartering broker to our fleet, for a total consideration of $0.2
million in cash and 22,598 restricted common shares issued on April 1, 2014. The ownership interest was purchased from an entity
affiliated with family members of our Chief Executive Officer, including our former director Ms. Milena-Maria Pappas. On the same
date, we entered into a services agreement, with Interchart for chartering, brokering and commercial services for our vessels for an
annual fee of (cid:31)0.5 million (approximately $0.6 million, using the exchange rate as of December 31, 2014, eur/usd 1.22). In November
2014, we entered into a new agreement with Interchart for chartering, brokering and commercial services for all of our vessels for a
monthly fee of $0.3 million. The agreement is effective from October 1, 2014 until March 31, 2015. The previous agreement with
Interchart, dated February 25, 2014, was terminated when this agreement became effective.
Beginning in July 2014, we entered into the Merger, the Heron Transaction, the Pappas Transaction and the Excel
Transactions that greatly expanded our fleet, as described in “Item 3. Key Information”.
Vessel Acquisitions, Newbuilding Vessels, Bareboat Charters, Dispositions and Other Significant Transactions
Vessel Acquisitions
On November 5, 2013, we entered into two agreements with two third parties to acquire Star Challenger and Star Fighter for
an aggregate price of $58.1 million. Star Challenger and Star Fighter are Ultramax vessels of 61,462 dwt and 61,455 dwt, built in
2012 and 2013, respectively. The vessels were delivered to us on December 12, 2013 and on December 30, 2013, respectively.
On January 24, 2014, we entered into agreements to acquire Star Vega and Star Sirius from Glocal Maritime Ltd., a third
party, for an aggregate purchase price of $60.0 million. Both Star Vega and Star Sirius are Post Panamax vessels of 98,681 dwt each,
built in 2011. The vessels were delivered to us on February 13, 2014 and March 7, 2014, respectively. Upon their delivery, the vessels
were chartered back to Glocal Maritime Ltd. for a daily rate of $15,000 less brokerage commission of 1.25%, with the duration of
their charters lasting at least until June 2016.
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Newbuilding Vessels
On July 5, 2013, we entered into agreements with Shanghai Waigaoqiao Shipbuilding Co. (“SWS”) for the construction of
two 180,000 dwt Capesize vessels, with fuel efficient specifications, Hull 1338 (tbn Star Aries) and Hull 1339 (tbn Star Taurus), with
expected deliveries in September 2015 and January 2016, respectively.
On September 23, 2013, we entered into agreements with SWS for the construction of two 208,000 dwt Newcastlemax
vessels, with fuel efficient specifications, Hull 1342 (tbn Star Gemini) and Hull 1343 (tbn Star Leo), with expected deliveries in
January and March 2016, respectively.
On September 27, 2013, we entered into agreements with Nantong COSCO KHI Ship Engineering Co. (“NACKS”) for the
construction of two 61,000 dwt Ultramax vessels, Hull NE 196 (tbn Star Antares) and Hull NE 197 (tbn Star Lutas), and one 209,000
dwt Newcastlemax vessel, Hull NE 198 (tbn Star Poseidon), each with fuel efficient specifications and expected deliveries in
September 2015, November 2015 and March 2016, respectively.
On October 22, 2013, we entered into contracts with Japan Marine United Corporation (“JMU”), for the construction of two
60,000 dwt Ultramax vessels, Hull 5040 (tbn Star Acquarius) and Hull 5043 (tbn Star Pisces), with fuel efficient specifications and
expected deliveries in May 2015 and July 2015, respectively.
Bareboat Charters
On February 17, 2014, we entered into agreements (the “Bareboat Charters”) with CSSC (Hong Kong) Shipping Company
Limited (“CSSC”), an affiliate of SWS, to bareboat charter for ten years two fuel efficient Newcastlemax vessels (Hull 1372 (tbn Star
Libra) and Hull 1371(tbn Star Virgo), each with a cargo carrying capacity of 208,000 deadweight tons. The vessels are being
constructed pursuant to shipbuilding contracts entered into between two pairings of affiliates of SWS. Each pair has one shipyard
party (each, an “SWS Builder”) and one ship-owning entity (each an “SWS Owner”). Delivery to us of each vessel is deemed to occur
upon delivery of the vessel to the SWS Owner from the corresponding SWS Builder. Pursuant to the terms of the Bareboat Charters,
we are required to pay upfront fees, corresponding to the pre-delivery installments to the shipyard. An amount of $47.2 million and
$46.4 million, respectively, for the construction cost of each vessel, corresponding to the last pre-delivery and delivery installment to
the shipyard, will be financed by the relevant SWS Owner, to whom we will pay a daily bareboat charter hire rate payable monthly
plus a variable amount corresponding to the LIBOR payable every six months. In addition, we will pay for Hull 1371 (tbn Star Virgo)
an installment of $0.3 million and an additional amount of $0.7 million for agreed extra costs for both vessels. In addition, we will pay
an amount of $0.9 million, representing handling fees for the construction of the two vessels in two installments. The first installment
of $0.5 million was paid upon the signing of the Bareboat Charters, and the second installment is due in one year. Under the terms of
the Bareboat Charters, we have the option to purchase the CSSC Vessels at any time, such option being exercisable on a monthly basis
against a predetermined, amortizing-during-the-charter-period prices. We have the obligation to purchase the two vessels at the
expiration of the bareboat term at a purchase price of $14.2 million and $13.9 million, respectively. Upon the earlier of the exercise of
the purchase options or the expiration of the Bareboat Charters, we will own the CSSC Vessels.
Merger and Pappas Transactions
In the Merger and Pappas Transactions, we acquired 13 dry bulk vessels and contracts for the construction of 26 newbuilding
dry bulk fuel-efficient Eco-type vessels (eight of which, Peloreus, Leviathan, Indomitable, Honey Badger, Wolverine, Idee Fixe,
Roberta and Gargantua were delivered to us by April 6, 2015) at shipyards in Japan and China, of which nine are subject to bareboat
charters, as described below. The total purchase consideration for the July 2014 Transactions is estimated at $616.3 million.
On May 17, 2013, subsidiaries of Ocenbulk entered into separate bareboat charter party contracts with affiliates of New
Yangzijiang shipyards for eight-year bareboat charters of four newbuilding 64,000 dwt Ultramax vessels Hulls HN 1061 (tbn
Roberta), HN 1062 (tbn Laura), HN 1063 (tbn Idee Fixe) and HN 1064 (tbn Kaley) being built at New Yangzijiang. The vessels are
being constructed pursuant to four shipbuilding contracts entered into between four pairings of affiliates of New Yangzijiang. Each
pair has one shipyard party (each, a “New YJ Builder”) and one ship-owning entity (each a “New YJ Owner”). Delivery of each vessel
to us is deemed to occur upon delivery of the vessel to the New YJ Owner from the corresponding New YJ Builder. An amount of
$20.7 million for the construction cost of each vessel will be financed by the relevant New YJ Owner, to whom we will pay a pre-
agreed daily bareboat charter hire rate on a 30-days advance basis. After each vessel’s delivery, we have monthly purchase options to
acquire the vessel at pre-determined, amortizing-during-the-charter-period prices. On the eighth anniversary of the delivery of each
vessel, we have the obligation to purchase the vessel at a purchase price of $6.0 million. Two of the above vessels, Idee Fixe (ex HN
1063) and Roberta (ex HN 1061), were delivered to us on March 25, 2015 and March 31, 2015, respectively.
On December 27, 2013, subsidiaries of Ocenbulk entered into separate bareboat charter party contracts with affiliates of SWS
for ten-year bareboat charters of five newbuilding 208,000 dwt Newcastlemax vessels Hulls HN 1359 (tbn Star Marisa), HN 1360
(tbn Star Ariadne), HN 1361 (tbn Star Magnanimus), HN 1362 (tbn Star Manticore) and HN 1363 (tbn Star Chaucer) being built at
SWS. The vessels are being constructed pursuant to shipbuilding contracts entered into between five pairings of affiliates of SWS.
Each pair has one shipyard party (each, an “SWS Builder”) and one ship-owning entity (each an “SWS Owner”). Delivery of each
vessel to us is deemed to occur upon delivery of the vessel to the SWS Owner from the corresponding SWS Builder. An amount of
29
$46.4 million for the construction cost of each vessel will be financed by the relevant SWS Owner, to whom we will pay a daily
bareboat charter hire rate payable monthly plus a variable amount corresponding to the LIBOR payable every six months and a one-
time handling fee of $0.5 million. After each vessel’s delivery, we have monthly purchase options to acquire the vessel at pre-
determined, amortizing-during-the-charter-period prices. At the end of the ten-year charter period for each vessel, we have the
obligation to purchase the vessel at a purchase price of $13.9 million.
The Merger Agreement also provided for the acquisition of the Heron Vessels. On November 11, 2014, we entered into two separate
agreements with Heron to acquire the vessels ABYO Gwyneth (renamed Star Gwyneth) and ABYO Angelina (renamed Star Angelina),
which were delivered to us on December 5, 2014. The cost for the acquisition of these vessels was determined based on the fair value
of the 2,115,706 common shares issued on July 11, 2014, in connection with the Heron Transaction, of $25.1 million and $25.0
million in cash payment which was financed by the Heron Vessels Facility (as defined below see “Item 5. Operating and Financial
Review and Prospects—B. Liquidity and Capital Resources—Senior Secured Credit Facilities”), according to the provisions of the
Merger Agreement with respect to these acquisitions.
A total of 54,104,200 of our common shares were issued to the various selling parties in the July 2014 Transactions.
Excel Transactions
Through the Excel Transactions, we acquired the 34 Excel Vessels for an aggregate of 29,917,312 common shares and
$288.4 million in cash. In the case of three Excel Vessels (Christine (tbr Star Martha), Sandra (tbr Star Pauline) and Lowlands Beilun
(tbr Star Despoina)) which were transferred subject to existing charters, we received the outstanding equity interests of the vessel-
owning subsidiaries that own those Excel Vessels (although all other assets and liabilities of such vessel-owning subsidiaries remained
with Excel).
Vessel Dispositions
On February 22, 2012, we entered into an agreement to sell Star Ypsilon to a third party, together with a quantity of 667
metric tons of fuel oil, for a contracted price of $9.13 million less an address commission of 3% and a brokerage commission of 2%.
We delivered the vessel to its purchasers on March 9, 2012. In connection with the sale of Star Ypsilon and the terms of the HSH
Nordbank $64.5 million Facility (as defined below see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and
Capital Resources—Senior Secured Credit Facilities”), on March 7, 2012, we repaid $7.36 million of the outstanding borrowings
under the HSH Nordbank $64.5 million Facility and the mortgage over the vessel was released.
On March 14, 2013, we entered into an agreement to sell Star Sigma to a third party for a contracted price of $9.0 million less
an address commission of 3% and a brokerage commission of 1%. The vessel was delivered to its purchasers on April 10, 2013. On
April 2, 2013, in connection with the sale of Star Sigma, we fully repaid the $4.7 million balance of Capesize Tranche of the HSH
Nordbank $64.5 million Facility. The remaining $4.7 million balance from the sale proceeds of Star Sigma was applied as a
prepayment to the Supramax Tranche of the HSH Nordbank $64.5 million Facility. As a result, the next seven scheduled quarterly
installments for that facility, commencing in April 2013 were reduced on a pro-rata basis equal to the amount of the prepayment and
the mortgage over the vessel was released.
On December 17, 2014, January 20, 2015, January 28, 2015, March 6, 2015 and March 19, 2015, we entered into separate
agreements with third parties to sell the vessels Star Kim, Star Julia, Star Tatianna, Rodon and Star Monika, respectively, five of the
Excel Vessels, at market terms. The vessels were delivered to their purchasers on January 21, 2015, February 4, 2015, February 9,
2015, March 12, 2015 and April 6, 2015, respectively.
In 2015, in connection with the sales of Star Kim, Star Julia, Star Tatianna and Star Monika and in accordance with the
terms of the Excel Vessel CiT Facility (as defined below see “Item 5. Operating and Financial Review and Prospects—B. Liquidity
and Capital Resources—Senior Secured Credit Facilities”), we prepaid $18.2 million of the outstanding amount under the Excel
Vessel CiT Facility, which amount was applied against the balloon installment thereunder.
B.
Business overview
General
We are an international shipping company with extensive operational experience that owns and operates a fleet of dry bulk
carrier vessels. On a fully delivered basis, we will have a fleet of 98 vessels consisting primarily of Capesize as well as Kamsarmax,
Ultramax and Supramax vessels with a carrying capacity between 45,500 dwt and 209,000 dwt. Our vessels transport a broad range of
major and minor bulk commodities, including ores, coal, grains and fertilizers, along worldwide shipping routes. Our highly
experienced executive management team, with a combined 120 years of shipping industry experience, is led by Mr. Petros Pappas,
who has more than 35 years of shipping industry experience and has managed more than 270 vessel acquisitions and dispositions.
As of April 6, 2015, our operating fleet of 68 vessels had an aggregate capacity of approximately 7.1 million dwt. We have
also entered into or acquired contracts for the construction of 29 of the latest generation “Eco-type” vessels at leading shipyards in
Japan and China, which we define as vessels that are designed to be more fuel-efficient than standard vessels of similar size and age.
30
As of April 6, 2015, the total payments for our 29 newbuilding vessels were expected to be $1,296.1 million, of which we had already
paid $258.6 million. As of April 6, 2015, we had $208.4 million of cash on hand, we had obtained commitments for $832.1 million of
secured debt for 27 newbuilding vessels and we were in negotiations for an additional $65.0 million of secured debt for two
newbuilding vessels. By the third quarter of 2016, we expect our fleet to consist of 98 wholly owned vessels, with an average age of
7.2 years and an aggregate capacity of 11.5 million dwt. As of April 6, 2015, the average age of our operating fleet was 8.4 years. On
a fully delivered basis and based on publicly available information, we believe our fleet will make us the largest U.S. publicly traded
dry bulk shipping company by deadweight tonnage.
Our fleet is well-positioned to take advantage of economies of scale in commercial, technical and procurement management,
with 20 of our 29 newbuilding vessels expected to be delivered in the remainder of 2015. For our operating fleet and our
newbuildings, we have focused on vessels built at leading Japanese and Chinese shipyards, which, in our experience, are more reliable
and less expensive to operate and are accordingly preferred by charterers. Currently, because of prevailing market conditions, we
primarily employ our vessels in the spot market, under short term time charters or voyage charters. While employing the vessels under
a voyage charter may require more management attention than under time charters, the vessel owner benefits from any fuel savings it
can achieve because fuel is paid for by the vessel owner. On a fully-delivered basis, we will have a large, modern, fuel-efficient and
high-quality fleet, which emphasizes the largest Eco-type Capesize and Newcastlemax vessels, built at leading shipyards and featuring
the latest technology. As a result, we believe we will have an opportunity to capitalize on rising market demand during a period of
reduced fleet growth, customer preferences for our ships and economies of scale, while enabling us to capture the benefits of fuel cost
savings through spot time charters or voyage charters.
Our Fleet
We have built a fleet through timely and selective acquisitions of secondhand and newbuilding vessels. Because of the
industry reputation and extensive relationships of Mr. Pappas and the other members of our senior management, we have been able to
contract for our newbuilding vessels with leading shipyards at prices that we believe reflect the recent dry bulk shipping downturn.
We believe that owning a modern, well-maintained fleet reduces operating costs, improves the quality of services we deliver and
provides us with a competitive advantage in securing favorable spot time charters and voyage charters with high-quality
counterparties. Each of our newbuilding vessels will be equipped with a vessel remote monitoring system that will provide data to a
central location in order to monitor fuel and lubricant consumption and efficiency on a real-time basis. We expect to retrofit all of our
operating vessels and most of the Excel Vessels with a similar monitoring system. While these monitoring systems are generally
available in the shipping industry, we believe that they can be cost-effectively employed only by large-scale shipping operators, such
as us.
Our fleet, which emphasizes large Capesize vessels, primarily transports minerals from the Americas and Australia to East
Asia, particularly China, but also Japan, South Korea, Taiwan, Indonesia and Malaysia. Our Supramax vessels carry minerals, grain
products and steel between the Americas, Europe, Africa, Australia and Indonesia and from these areas to China, Japan, South Korea,
Taiwan, the Philippines and Malaysia.
31
Our newbuilding vessels are being built at leading Japanese and Chinese shipyards. The following tables summarize key information about
our fully delivered fleet, as of April 6, 2015:
Operating Fleet
Drybulk
Vessel Type
Vessel Name
1 Gargantua (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Newcastlemax
Indomitable (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
2
3 Leviathan (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
4 Peloreus (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
5 Obelix (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
6 Christine (tbr Star Martha) (2) . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
7 Sandra (tbr Star Pauline) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
8 Pantagruel (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
9 Star Borealis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
10 Star Polaris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
11 Star Angie (ex Iron Miner) (2) . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
12 Big Fish (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
13 Kymopolia (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
14 Big Bang (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
15 Star Aurora . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
16 Star Mega . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
17 Lowlands Beilun (tbr Star Despoina) (2) . . . . . . . . . . . . . . . . . . Capesize
18 Star Big . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
19 Star Eleonora (ex Kirmar) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . Capesize
20 Star Monisha (ex Iron Beauty) (2) . . . . . . . . . . . . . . . . . . . . . . . Capesize
21 Amami (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Post Panamax
22 Madredeus (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Post Panamax
23 Star Sirius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Post Panamax
24 Star Vega. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Post Panamax
25 Star Angelina (ex ABYO Angelina) (3) . . . . . . . . . . . . . . . . . . . Kamsarmax
26 Star Gwyneth (ex ABYO Gwyneth) (3) . . . . . . . . . . . . . . . . . . . . Kamsarmax
27 Star Kamila (ex Iron Bradyn) (2) . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
28 Pendulum (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
29 Star Maria (ex Iron Lindrew) (2) . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
30 Star Markella (ex Iron Brooke)(2) . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
31 Star Danai (ex Pascha) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
32 Star Georgia (ex Coal Hunter) (2) . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
33 Star Sophia (ex Iron Manolis) (2) . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
. . . . . . . . . . . . . . . . . . . . Kamsarmax
34 Star Mariella (ex Santa Barbara) (2)
35 Star Moira (ex Iron Vassilis) (2) . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
36 Star Nina (ex Iron Kalypso) (2) . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
37 Star Renee (ex Coal Gypsy) (2) . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
38 Star Nasia (ex Iron Anne) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
39 Star Laura (ex Iron Fuzeyya) (2) . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
40 Star Helena (ex Iron Bill) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
41 Mercurial Virgo (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
42 Magnum Opus (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
43 Tsu Ebisu (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kamsarmax
44 Star Iris (ex Grain Express) (2) . . . . . . . . . . . . . . . . . . . . . . . . . Panamax
45 Star Aline (ex IronKnight) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . Panamax
46 Star Emily (ex Grain Harvester) (2) . . . . . . . . . . . . . . . . . . . . . Panamax
47 Star Christianna (ex Isminaki) (2) . . . . . . . . . . . . . . . . . . . . . . . Panamax
48 Star Natalie (ex Angela Star)(2) . . . . . . . . . . . . . . . . . . . . . . . . Panamax
49 Star Nicole (ex Elinakos) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . Panamax
50 Star Vanessa (ex Coal Pride) (2) . . . . . . . . . . . . . . . . . . . . . . . . Panamax
51 Star Claudia (ex Happyday) (2) . . . . . . . . . . . . . . . . . . . . . . . . Panamax
Idee Fixe (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ultramax
52
53 Roberta (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ultramax
54 Star Challenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ultramax
55 Star Fighter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ultramax
56 Honey Badger (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ultramax
57 Wolverine (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ultramax
58 Maiden Voyage (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
59 Strange Attractor (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
60 Star Omicron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
61 Star Gamma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
62 Star Zeta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
63 Star Delta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
64 Star Theta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
65 Star Epsilon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
66 Star Cosmo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
67 Star Kappa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supramax
68 Star Michele (ex Emerald) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . Handymax
Total dwt:
Capacity
(dwt.)
Year Built
209,529
182,476
182,511
182,496
181,433
180,274
180,274
180,181
179,678
179,600
177,931
177,643
176,990
174,109
171,199
170,631
170,162
168,404
164,218
164,218
98,681
98,681
98,681
98,681
82,981
82,790
82,769
82,619
82,598
82,594
82,574
82,298
82,269
82,266
82,257
82,224
82,221
82,220
82,209
82,187
81,545
81,022
81,001
76,466
76,429
76,417
74,577
73,798
73,751
72,493
71,662
63,458
63,426
61,462
61,455
61,297
61,297
58,722
55,742
53,489
53,098
52,994
52,434
52,425
52,402
52,246
52,055
45,588
7,060,508
2015
2015
2014
2014
2011
2010
2008
2004
2011
2011
2007
2004
2006
2007
2000
1994
1999
1996
2001
2001
2011
2011
2011
2011
2006
2006
2005
2006
2007
2007
2006
2006
2007
2006
2006
2006
2006
2006
2006
2006
2013
2014
2014
2004
2004
2004
1998
1998
1997
1999
1997
2015
2015
2012
2013
2015
2015
2012
2006
2005
2002
2003
2000
2003
2001
2005
2001
1998
Charter Type/
Month of Contract
Expiry
May 2015
May 2015
April 2015
June 2015
-
October 2015
August 2015
-
-
-
May 2015
-
May 2015
November 2015
May 2015
-
August 2015
May 2015
-
-
February 2016
April 2016
June 2016
August 2016
April 2015
June 2015
April 2015
April 2015
May 2015
-
April 2015
May 2015
May 2015
May 2015
May 2015
May 2015
April 2015
June 2015
May 2015
June 2015
June 2015
May 2015
May 2015
May 2015
April 2015
April 2015
April 2015
June 2015
April 2015
February 2016
April 2015
June 2015
June 2015
April 2015
April 2015
May 2015
May 2015
April 2015
April 2015
April 2015
May 2015
May 2015
July 2015
April 2015
April 2015
April 2015
May 2015
May 2015
32
(1) These vessels were acquired pursuant to the July 2014 Transactions.
(2) These vessels were delivered to us from Excel pursuant to the Excel Transactions.
(3) These vessels were delivered to us from Heron.
Acquired fleet to be delivered
Vessel Name
Ore Hansa (tbr Star Jennifer) . . . . . . . . . . . . . . . . Kamsarmax
Drybulk
Vessel
Type
Capacity
(dwt.)
82,209
Year Built
2006
Shipyard
Tsuneishi Japan
Newbuilding Vessels
Total dwt to be acquired
from Excel:
82,209
Drybulk
Vessel
Type
Vessel Name
1 HN 1062 (tbn Laura) (2) . . . . . . . . . . . . . . . Ultramax
2 HN 5017 (tbn Deep Blue) . . . . . . . . . . . . . Capesize
3 HN 1312 (tbn Bruno Marks) . . . . . . . . . . . Capesize
4 HN 1064 (tbn Kaley) (2) . . . . . . . . . . . . . . Ultramax
5 HN 5040 (tbn Star Aquarius) . . . . . . . . . . Ultramax
6 HN NE 167 (tbn Goliath) . . . . . . . . . . . . . Newcastlemax
7 HN NE 184 (tbn Maharaj) . . . . . . . . . . . . . Newcastlemax
8 HN 1313 (tbn Jenmark) . . . . . . . . . . . . . . . Capesize
9 HN 1080 (tbn Kennadi) . . . . . . . . . . . . . . . Ultramax
10 HN 5043 (tbn Star Pisces) . . . . . . . . . . . . . Ultramax
11 HN 1372 (tbn Star Libra) (3) . . . . . . . . . . Newcastlemax
12 HN 1081 (tbn Mackenzie) . . . . . . . . . . . . . Ultramax
13 HN 5055 (tbn Behemoth) . . . . . . . . . . . . . . Capesize
14 HN 1338 (tbn Star Aries) . . . . . . . . . . . . . . Capesize
15 HN NE 196 (tbn Star Antares) . . . . . . . . . Ultramax
16 HN 1082 (tbn Night Owl) . . . . . . . . . . . . . Ultramax
17 HN 1359 (tbn Star Marisa) (3) . . . . . . . . . Newcastlemax
18 HN 5056 (tbn Megalodon) . . . . . . . . . . . . . Capesize
19 HN 1083 (tbn Early Bird) . . . . . . . . . . . . . Ultramax
20 HN NE 197 (tbn Star Lutas) . . . . . . . . . . . Ultramax
21 HN 1342 (tbn Star Gemini) . . . . . . . . . . . . Newcastlemax
22 HN 1339 (tbn Star Taurus) . . . . . . . . . . . . Capesize
23 HN 1360 (tbn Star Ariadne) (3) . . . . . . . . Newcastlemax
24 HN 1371 (tbn Star Virgo) (3) . . . . . . . . . . Newcastlemax
25 HN NE 198 (tbn Star Poseidon) . . . . . . . . Newcastlemax
26 HN 1343 (tbn Star Leo) . . . . . . . . . . . . . . . Newcastlemax
27 HN 1361 (tbn Star Magnanimus) (3) . . . . Newcastlemax
. . . . . . Newcastlemax
28 HN 1362 (tbn Star Manticore) (3)
29 HN 1363 (tbn Star Chaucer) (3) . . . . . . . . Newcastlemax
Capacity
(dwt.)
Shipyard
64,000 New Yangzijiang, China
182,000 JMU, Japan
180,000 SWS, China
64,000 New Yangzijiang, China
60,000 JMU, Japan
209,000 NACKS, China
209,000 NACKS, China
180,000 SWS, China
64,000 New Yangzijiang, China
60,000 JMU, Japan
208,000 SWS, China
64,000 New Yangzijiang, China
182,000 JMU, Japan
180,000 SWS, China
61,000 NACKS, China
64,000 New Yangzijiang, China
208,000 SWS, China
182,000 JMU, Japan
64,000 New Yangzijiang, China
61,000 NACKS, China
208,000 SWS, China
180,000 SWS, China
208,000 SWS, China
208,000 SWS, China
209,000 NACKS, China
208,000 SWS, China
208,000 SWS, China
208,000 SWS, China
208,000 SWS, China
Expected
Delivery
Date
April 2015
April 2015
May 2015
May 2015
May 2015
June 2015
July 2015
July 2015
July 2015
July 2015
August 2015
August 2015
September 2015
September 2015
September 2015
October 2015
November 2015
November 2015
November 2015
November 2015
January 2016
January 2016
February 2016
February 2016
March 2016
March 2016
May 2016
June 2016
September 2016
Total dwt:
Total operating dwt:
Total dwt to be acquired
from Excel:
Total fully delivered dwt:
4,391,000
7,060,508
82,209
11,533,717
(1) As used in herein, “JMU” refers to Japan Marine United, “SWS” refers to Shanghai Waigaoqiao Shipbuilding Co., Ltd., “NACKS” refers to Nantong COSCO
KHI Ship Engineering Co., Ltd., and “New Yangzijiang” refers to Jiangsu Yangzijiang Shipbuilding Co. Ltd.
(2) We have entered into bareboat charters with affiliates of the New Yangzijiang shipyard for these vessels with the option to purchase the vessels at any time and a
purchase obligation upon the completion of the eighth year of the bareboat charterparty.
(3) We have entered into bareboat charters with affiliates of the SWS shipyard for these vessels with the option to purchase the vessels at any time and a purchase
obligation upon the completion of the tenth year of the bareboat charterparty.
33
Our Competitive Strengths
We believe that we possess a number of competitive strengths in our industry, including:
Track record of fleet growth with an extensive pipeline of attractive newbuilding vessels
Since 2007, we have successfully acquired 76 on the water modern dry bulk carrier vessels built between 1992 and 2015,
with a total capacity of approximately 12.0 million dwt, including 23 Capesize, four Post-Panamax, 20 Kamsarmax, 13 Panamax, four
Ultramax, ten Supramax and two Handymax vessels. During the same period we have successfully disposed of ten older dry bulk
carrier vessels, including four Capesize, five Panamax and one Handymax vessel.
Our operating fleet of dry bulk carrier vessels were built at leading Japanese, Chinese and Korean shipyards between 1993
and 2015, all of which are serving existing customers. Our management team’s newbuilding philosophy has been to focus on building
vessels exclusively at what we believe to be among the leading shipyards in Japan and China rather than simply purchasing available
slots at any shipyard. Based on our experience, we believe that charterers will prefer newer, high-quality vessels and that such vessels
will help to reduce operating and maintenance expenses and increase utilization rates. Mr. Pappas has leveraged his relationships with
the shipyards to carefully plan our 29-vessel newbuilding program, including Capesize ships built at JMU, which we believe are very
desirable because of their fuel efficiency and reliability. Our newbuilding program is designed to take advantage of economies of scale
as quickly as practicable, adding a total capacity of approximately 4.4 million dwt, with 20 of the 29 vessels to be delivered in the
remaining months of 2015. As of April 6, 2015, the average age of our operating fleet was 8.4 years. When our newbuilding program
is completed (which we expect in the third quarter of 2016), on a fully delivered basis, our fleet is expected to consist of 98 wholly
owned vessels, with an average age of 7.2 years and an aggregate capacity of 11.5 million dwt. We believe that our operating fleet and
our expected newbuilding delivery schedule give us a competitive advantage.
Focus on fuel efficiency and improving vessel operations
All of our 29 newbuilding vessels are Eco-type vessels, and our Capesize ships being built at JMU in Japan have some of the
lowest projected fuel consumption rates in the Capesize market. These fuel-efficient Eco-type vessels will enable us to take advantage
of available fuel cost savings and operational efficiencies and give us the opportunity to generate advantageous TCE rates, particularly
in an environment in which fuel costs are high and charterhire rates are relatively low. In addition, each of our newbuilding vessels
will be equipped with a sophisticated vessel remote monitoring system that will allow us to collect real-time information on the
performance of critical on-board equipment, with a particular focus on fuel consumption and engine performance. Using this
information, we will be able to be proactive in identifying potential problems and evaluating optimum operating parameters during
various sea passage conditions. We will also be able to compare actual vessel performance to reported vessel performance and provide
feedback to crews in real time, thereby reducing the likelihood of errors or omissions by our crews. Similar systems will be retrofitted
to all of our operating vessels and most of the Excel Vessels. The vessel remote monitoring system is designed to enhance our ability
to manage the operations of our vessels, thereby increasing operational efficiency and reducing maintenance costs and off-hire time. In
addition, because of the similarities between the Excel Vessels and a number of our newbuilding vessels, we can take advantage of
efficiencies in crewing, training and spare parts inventory management and can apply technical and operational knowledge of one ship
to its sister ships. In addition to our newbuilding Eco-type vessels, 31 of our operating vessels are being equipped with sliding engine
valves and alpha lubricators, making them semi-Eco vessels with increased fuel efficiency and decreased lubricant consumption. Most
of the Excel Vessels either are equipped or are in the process of being equipped with similar features for increased fuel efficiency and
decreased lubricant consumption.
Experienced management team with a strong track record in the shipping industry
Our company’s leadership has considerable shipping industry expertise. Our founder and Chief Executive Officer, Mr.
Pappas, has an established track record in the dry bulk industry, with more than 35 years of experience and more than 270 vessel
acquisitions and dispositions. Mr. Pappas has extensive experience in operating and investing in shipping, including through his
principal shipping operations and investment vehicle, Oceanbulk Maritime. Mr. Pappas also has extensive relationships in the
shipping industry, and he has leveraged his deep relationships with shipbuilders to formulate our newbuilding program.
Mr. Hamish Norton, our President, is also the Head of Corporate Development and Chief Financial Officer of Oceanbulk
Maritime with more than 22 years of experience in the shipping industry. Prior to joining Oceanbulk Maritime, from 2007 through
2012, Mr. Norton was a Managing Director and the Global Head of the Maritime Group at Jefferies LLC, and from 2003 to 2007, he
was head of the shipping practice at Bear Stearns. Mr. Norton has advised in numerous capital markets and mergers and acquisitions
transactions by shipping companies.
Mr. Christos Begleris, our Co-Chief Financial Officer, has served as Deputy Chief Financial Officer of Oceanbulk Maritime
since 2013 and was the Chief Financial Officer of Oceanbulk from January 2014. He has been involved in the shipping industry since
2008 and has considerable banking and capital markets experience, having executed more than $9.0 billion of acquisitions and
financings.
34
Mr. Simos Spyrou, our Co-Chief Financial Officer, has served as Chief Financial Officer of Star Bulk since September 2011.
Mr. Spyrou has more than 15 years of experience in the Greek equity and derivative markets at the Hellenic Exchanges Group.
Mr. Nicos Rescos, our Chief Operating Officer, has served as the Chief Operating Officer of Oceanbulk Maritime since April
2010 and the Commercial Director of Goldenport Holdings Inc. since 2000. He has been involved in the shipping industry in key
commercial positions since 1993 and has strong expertise in the dry bulk, container and product tanker markets, having been
responsible for more than 150 vessel acquisitions and dispositions.
Mr. Zenon Kleopas, our Executive Vice-President—Technical & Operations, joined us in July 2011 and has over 30 years of
experience in the shipping industry. He was actively involved in the acquisition of our initial fleet in 2007 and 2008. He has extensive
experience in ship operations and supervising ship management through his continuous employment in shipping companies in the
United Kingdom and Greece since 1980.
For more information on our management team, see “Item 6. Directors, Senior Management and Employees – Directors,
Senior Management and Employees.”
Extensive relationships with customers, lenders, shipyards and other shipping industry participants
Through Mr. Pappas and our senior management team, we have strong global relationships with shipping companies,
charterers, shipyards, brokers and commercial shipping lenders. Our senior management team has a long track record in the voyage
chartering of dry bulk ships (including those that comprise our operating fleet), which we expect will be of great benefit to us in
increasing the profitability of our newbuilding fleet. The chartering team has long experience in the business of arranging voyage and
short-term time charters and can leverage its extensive industry relationships to arrange for favorable and profitable charters. We
believe that these relationships with these counterparties and our strong sale and purchase track record and reputation as a
creditworthy counterparty should provide us with access to attractive asset acquisitions, chartering and ship financing opportunities.
Mr. Pappas has also leveraged his deep relationships with various shipyards to enable us to implement our newbuilding program and
obtain attractive slots at those shipyards.
Our Business Strategies
Our primary objectives are to grow our business profitably and to continue to grow as a successful owner and operator of dry
bulk vessels. The key elements of our strategy are:
Capitalize on expected increases in demand for dry bulk shipping
We have observed a recent downward volatility in dry bulk charterhire rates. Based on our analysis of industry dynamics, we
believe that dry bulk charterhire rates will rise for the medium term, coinciding with our expected fleet expansion. The supply of dry
bulk 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 February, 2015, the global dry bulk carrier order book amounted to approximately 20.5% of the existing fleet at that time.
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. Generally, dry bulk carriers at or over 25 years old are likely to be scrapped.
During 2014, a total of 15.6 million dwt was scrapped, representing the fourth highest level in the history of the dry bulk industry. In
addition, in the first two months of 2015, we have observed a record demolition rate for dry bulk vessels, with 5.9 million dwt being
scrapped. Historically, from 2006 to 2014, vessel demolition rates ranged from 2.0 million dwt to 33.0 million dwt. We have also
observed the conversion of a number of newbuilding dry bulk vessels to tanker and container vessels, which we consider has the
positive consequence of reducing dry bulk vessel deliveries and hence supply. We expect that the historically low freight rate
environment will continue to dissuade ship owners from ordering further dry bulk vessels. By reducing vessel supply, we believe that
the above three factors will have a positive effect on freight rates in the future. While the charter market remains at current levels, we
intend to operate our vessels in the spot market under short-term time charter market or voyage charters in order to benefit from any
future increases in charter rates.
Charter our vessels in an active and sophisticated manner
Our business strategy is centered on arranging voyage and short term time charters for our vessels, an approach that is
tailored specifically to the fuel efficiency of our fleet, particularly our newbuilding vessels. While this process is more difficult and
labor-intensive than placing our vessels on longer-term time charters, it can lead to greater profitability, particularly for vessels that
have lower fuel consumption than typical vessels. When operating a vessel on a voyage charter, we (as owner of the vessel) will incur
fuel costs, and therefore, we are in a position to benefit from fuel savings (particularly for our Eco-type vessels). If charter market
levels rise, we may employ part of our fleet in the long-term time charter market, while we may be able to more advantageously
employ our newbuilding fleet in the voyage charter market in order to capture the benefit of available fuel cost savings. For a long-
term time charter, a rate based in part on the projected fuel consumption of our ship must be negotiated, and we may not be given full
credit by the chartering party for the fuel efficiency of our vessels. In addition, our large, diverse and high quality fleet provides scale
to major charterers, such as iron ore miners, utility companies and commodity trading houses. On December 17, 2014, we announced
the formation of a long-term strategic partnership with a significant iron ore mining company for the chartering of three
35
Newcastlemax vessels to be delivered in 2015, under an index-linked voyage charter for a five-year period. This arrangement will
allow us to take the full benefit of the vessels’ increased cargo carrying capacity as well as potential savings arising from their fuel
efficiency, as we will be compensated on a $/ton basis, while being responsible for the voyage expenses of the vessels. We seek
similar arrangements with other charterers, offering them providing the scale required for the transportation of large commodity
volumes over a multitude of trading routes around the world.
Expand our fleet through opportunistic acquisitions of high-quality vessels at attractive prices
As of April 6, 2015, we had contracts for 29 additional newbuilding vessels with an aggregate capacity of approximately 4.4
million dwt. We have also entered into the Excel Transactions, pursuant to which, we agreed to acquire 34 operating vessels with an
aggregate capacity of approximately 3.2 million dwt. As of April 6, 2015, 33 Excel Vessels with a capacity of 3.1 million dwt had
been delivered to us (of which five Excel Vessels had been sold to new owners as of that date). We intend to continue to
opportunistically acquire high-quality vessels at attractive prices. When evaluating acquisitions, we will consider and analyze, among
other things, our expectations of fundamental developments in the dry bulk shipping industry sector, the level of liquidity in the resale
and charter market, the cash flow earned by the vessel in relation to its value, its condition and technical specifications with particular
regard to fuel consumption, expected remaining useful life, the credit quality of the charterer and duration and terms of charter
contracts for vessels acquired with charters attached, as well as the overall diversification of our fleet and customers. We believe that
these circumstances combined with our management’s knowledge of the shipping industry may present an opportunity for us to grow
our fleet at favorable prices.
Maintain a strong balance sheet through moderate use of leverage
We plan to finance our fleet, including future vessel acquisitions, with a mix of debt and equity, and we intend to maintain
moderate levels of leverage over time, even though we may have the capacity to obtain additional financing. As of December 31,
2014, our debt to total capitalization ratio was approximately 42%. By maintaining moderate levels of leverage, we maintain greater
flexibility than our more leveraged competitors to operate our vessels under shorter spot or period charters. Charterers have
increasingly favored financially solid vessel owners, and we believe that our balance sheet strength will enable us to access more
favorable chartering opportunities, as well as give us a competitive advantage in pursuing vessel acquisitions from commercial banks
and shipyards, which in our experience have recently displayed a preference for contracting with well-capitalized counterparties.
Competition
Demand for dry bulk carriers fluctuates in line with the main patterns of trade of the major dry bulk cargoes and varies
according to changes in the supply and demand for these items. We compete with other owners of dry bulk carriers in the
Newcastlemax, Capesize, Post Panamax (including the Kamsarmax subcategory), Ultramax and Supramax (including the Handymax
subcategory) size sectors. Ownership of dry bulk carriers is highly fragmented and is divided among approximately 1,700 independent
dry bulk 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.
We believe that we possess a number of strengths that provide us with a competitive advantage in the dry bulk shipping
industry:
• We own a modern, diverse, high quality fleet of dry bulk carrier vessels. Our fleet consists of 68 vessels currently in the
water, while we have 29 high specification, fuel efficient, Eco-type vessels, on order at quality shipyards in China and
Japan. We believe that owning a modern, high quality fleet reduces operating costs, improves safety and provides us
with a competitive advantage in securing favorable time charters. We maintain the quality of our vessels by carrying out
regular inspections, both while in port and at sea, and adopting a comprehensive maintenance program for each vessel.
Furthermore we take a proactive approach to safety and environmental protection through comprehensively planned
maintenance systems, preventive maintenance programs and by retaining and training qualified crews.
• We benefit from strong relationships with members of the shipping and financial industries. Our Chief Executive
Officer, directors and management team have established relationships with leading charterers as well as chartering,
sales and purchase brokerage houses around the world. Our Chief Executive Officer, directors and management team
have maintained relationships with, and have achieved acceptance by, major governmental and private industrial users,
commodity producers and traders.
• We have an experienced management team and board of directors. Our management team and our board of directors,
collectively, have more than 120 years shipping experience during which they have developed strong industry
relationships with leading charterers, financial institutions, shipyards, insurance underwriters, protection and indemnity
associations.
• We conduct a significant portion of the commercial and technical management of our vessels in-house through our
wholly owned subsidiaries, Star Bulk Management Inc and Starbulk S.A. We believe having control over the
commercial and technical management provides us with a competitive advantage over many of our competitors by
36
allowing us to more closely monitor our operations and to offer higher quality performance, reliability and efficiency in
arranging charters and the maintenance of our vessels. We also believe that these management capabilities contribute
significantly in maintaining a lower level of vessel operating and maintenance costs.
• We obtain chartering and brokering services from Interchart, an entity affiliated with our Chief Executive Officer, of
which we own 33%. We believe having an influence over the chartering and brokering services provides us with a
competitive advantage over many of our competitors by allowing us to obtain profitable rates and retain flexibility in the
employment of our vessels.
Customers
We have well established relationships with major dry bulk charterers, which we serve by carrying a variety of cargoes over a
multitude of routes around the globe. We charter out our vessels to major iron ore miners, utilities companies, commodity trading
houses and diversified shipping companies. The following is an indicative list of such companies with which we chartered our vessels
in the year ended December 31, 2014: Cargill, E.O.N. Global Commodities, EDF Man Shipping, EDF Trading, FMG International,
Glencore, Glocal Maritime Ltd, Louis Dreyfus, Noble, Norden, Oldendorf Carriers, Rio Tinto and Western Bulk Pte. Ltd.
For the year ended December 31, 2014, we derived 40% of our voyage revenues from four of our customers.
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 dry bulk 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. Seasonality in the sector in which we operate could materially affect our operating results and cash available for
dividends.
Operations
Management of the Fleet
Star Bulk Management and Starbulk S.A perform the operational and technical management services for the vessels in our
fleet, including chartering, marketing, capital expenditures, personnel, accounting, paying vessel taxes and maintaining insurance.
As of December 31, 2014, we had 119 employees, engaged in the day to day management of the vessels in our fleet,
including our executive officers, through Star Bulk Management and Starbulk S.A. Star Bulk Management and Starbulk S.A. employ
a number of additional shore-based executives and employees designed to ensure the efficient performance of our activities. 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.
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 Starbulk S.A.
Starbulk S.A. provides the technical and crew management of all of our vessels. Technical management includes
maintenance, dry docking, repairs, insurance, regulatory and classification society compliance, arranging for and managing crews,
appointing technical consultants and providing technical support.
Crewing
Starbulk S.A. 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. Starbulk S.A. 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. Starbulk S.A. 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 and provides the crewing management for all the vessels in our fleet.
Basis for Statements
The International Dry Bulk Shipping Industry
Dry bulk 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 2014, based on preliminary figures, it is estimated that approximately 4.52 billion tons of dry bulk cargo was transported
by sea.
37
The demand for dry bulk carrier capacity is derived from the underlying demand for commodities transported in dry bulk
carriers, which is influenced by various factors such as broader macroeconomic dynamics, globalization trends, industry specific
factors, geological structure of ores, political factors, and weather. The demand for dry bulk carriers is determined by the volume and
geographical distribution of seaborne dry bulk trade, which in turn is influenced by general trends in the global economy and factors
affecting demand for commodities. During the 1980s and 1990s seaborne dry bulk trade increased by 1-2% per annum. However, over
the last decade, between 2004 and 2014, seaborne dry bulk trade increased at a compound annual growth rate of 5.5%, substantially
influenced by the entrance of China in the World Trade Organization. The global dry bulk carrier fleet may be divided into seven
categories based on a vessel’s carrying capacity. These main categories consist of
• Newcastlemax vessels, which are vessels with carrying capacities of between 200,000 and 210,000 dwt. These vessels
carry both iron ore and coal and they represent the largest vessels able to enter the port of Newcastle in Australia. There
are relatively few ports around the world with the infrastructure to accommodate vessels of this size.
• Capesize vessels, which are vessels with carrying capacities of between 100,000 and 200,000 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.
•
•
Post-Panamax vessels, which are vessels with carrying capacities of between 90,000 and 100,000 dwt. These vessels
tend to have a shallower draft and larger beam than a standard Panamax vessel, and a higher cargo capacity. These
vessels have been designed specifically for loading high cubic cargoes from draft restricted ports, although they cannot
transit the Panama Canal at its current dimensions. They will be able to transit the Panama Canal once its scheduled
expansion is completed.
Panamax vessels, which are vessels with carrying capacities of between 65,000 and 90,000 dwt. These vessels carry coal,
grains, and, to a lesser extent, minor bulks, including steel products, forest products and fertilizers. Panamax vessels can
pass through the Panama Canal.
• Ultramax vessels, which are vessels with carrying capacities of between 60,000 and 65,000 dwt. These vessels carry
grains and minor bulks and operate along many global trade routes. They represent the largest and most modern version
of Supramax bulk carrier vessels (see below).
• Handymax vessels, which are vessels with carrying capacities 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. Handymax 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, which are vessels with carrying capacities of up to 35,000 dwt. These vessels carry exclusively minor
bulk cargo. Increasingly, these vessels have been operating along regional trading routes. Handysize vessels are well
suited for small ports with length and draft restrictions that lack the infrastructure for cargo loading and unloading.
The supply of dry bulk 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 February, 2015, the global dry bulk carrier order book amounted to approximately 20.5% of the
existing fleet at that time. 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. Generally, dry bulk carriers at or over 25 years old
are likely to be scrapped. During 2014, a total of 15.6 million dwt was scrapped, representing the fourth highest level in the history of
the dry bulk industry. In addition, in the first two months of 2015, we have observed a record demolition rate for dry bulk vessels, with
5.9 million dwt being scrapped. Historically, from 2006 to 2014, vessel demolition rates ranged from 2.0 million dwt to 33.0 million
dwt. We have also observed the conversion of a number of newbuilding dry bulk vessels to tanker and container vessels, which we
consider has the positive consequence of reducing dry bulk vessel deliveries and hence supply. We expect that the historically low
freight rate environment will continue to dissuade ship owners from ordering further dry bulk vessels. By reducing vessel supply, we
believe that the above three factors will have a positive effect on freight rates in the future.
Charterhire Rates
Charterhire rates paid for dry bulk 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 similar across the
different charter types and between the different dry bulk carrier categories. However, because demand for larger dry bulk 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 also influenced by cargo size, commodity, port dues and canal
38
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 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 dry bulk shipping industry, the charterhire rate references most likely to be monitored are the freight rate indices
issued by the Baltic Exchange, such as the Baltic Dry Index (“BDI”). 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 dry bulk shipping industry is cyclical with attendant volatility in charterhire rates and profitability. While the degree of
charterhire rate volatility among different types of dry bulk carriers varies widely, the abrupt and dramatic downturn in the dry bulk
charter market has severely affected the entire dry bulk shipping industry. The BDI fell 94% from a peak of 11,793 in May 2008 to a
low of 663 in December 2008 and remained volatile since. During 2009, the BDI reached a low of 772 on January 5, 2009 and a high
of 4,661 on November 19, 2009. The BDI continued its volatility in 2010, increasing from 3,235 in January 2010 to a high of 4,209 in
May 2010 before subsequently decreasing 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 by the end of 2010. The BDI further decreased in 2011 to 1,043 in February 2011 and
continued to decline in the beginning of 2012 to 753. The BDI recorded a record low of 647 in February 2012. The BDI then increased
from these low levels, reaching 2,337 in December 2013. Subsequently, due to downward volatility, the BDI fluctuated in a range
between 698 and 2,337 from December 2013 through December 2014. The BDI has ranged from 509 to 771 during January and
February 2015, and the dry bulk market remains volatile.
Vessel Prices
Newbuilding prices are determined by a number of factors, including the underlying balance between shipyard output and
capacity, raw material and labor costs, freight markets and sometimes exchange rates. In the recent past, high levels of new ordering
were recorded across all sectors of shipping with the total orderbook reaching approximately 78% of the fleet during the period
between August and November of 2008. As a result, most of the major shipyards in Japan, South Korea and China had no available
capacity for two forthcoming years, and an increased number of orders were placed at second and third tier yards mostly in China. The
downturn in freight rates, the lack of funding due to the wider global financial crisis, as well as the fact that many yards had limited or
no shipbuilding experience led to a substantial number of these orders being cancelled or delayed. During 2014, new vessels of 48.2
million dwt in aggregate capacity were delivered, versus a total amount of 73.5million dwt scheduled deliveries for this year, implying
a slippage/cancellation rate of 35%, higher than the average ratio of 30% during the years 2008 through 2013. It is expected that this
trend will continue to persist in the future, albeit at a lower degree.
Newbuilding prices have increased significantly since 2003, due to tightness in shipyard capacity, high steel prices, rising
labor cost, high levels of new ordering and stronger freight rates. However, with the sudden and steep decline in freight rates after
August 2008 and lack of new vessel ordering, newbuilding vessel values entered a downward trend and have continued to gradually
decline. This trend however was reversed in the later part of the second half of 2013, as the precipitous increase in freight rates has led
to a substantial amount of new orders being placed to the majority of top shipyards in Japan, South Korea and China wiping out their
available capacity for 2014 and shifting the pricing power from buyers to shipbuilders. We still observe that first class shipbuilders
have meaningful forward coverage, and are hence reluctant to reduce their prices. Furthermore, in the first two months of 2015, we
have observed a historical low number of newbuilding orders, equal to only 0.54 million dwt. By comparison, from 2010 to 2014,
newbuilding orders for dry bulk vessels ranged from 24.5 million dwt to 104.0 million dwt. We have also observed the conversion of a
number of dry bulk vessels to tanker and container vessels, which we consider has the positive consequence of reducing dry bulk
vessel deliveries and hence supply. We expect that the historically low freight rate environment will continue to dissuade ship owners
from ordering further dry bulk vessels. We believe that these factors will have a positive effect on freight rates in the future, reducing
vessel supply.
Broadly speaking, the secondhand market is affected by both the newbuilding prices as well as the overall freight
expectations and sentiment observed at any given time. The steep increase in newbuilding prices and the strength of the charter market
have also affected secondhand values, to the extent that prices rose sharply in 2004 and 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 also had a very negative impact on secondhand values. Currently newbuilding and secondhand values have retreated to lower
levels since the middle of 2014, and they still remain below historical mean levels.
Environmental and Other Regulations in the Dry bulk 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
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resources. Compliance with such laws, regulations and other requirements may entail significant expenses, 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 (the “USCG”), 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 change frequently 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 grounding of
the Exxon Valdez in 1989 or the explosion and oil spill in 2010 with respect to the Deepwater Horizon offshore oil rig in the Gulf of
Mexico, could result in additional legislation or regulations that could negatively affect our profitability.
International Maritime Organization
The International Maritime Organization (the “IMO”) is the United Nations agency for maritime safety and the prevention of
pollution by ships.
Pollution
The IMO adopted, in 1973, the International Convention for the Prevention of Marine Pollution from Ships, which has been
modified by the related Protocol of 1978 and various amendments (collectively, “MARPOL”). MARPOL entered into force on
October 2, 1983. It has been signed and ratified by over 150 nations, including many of the jurisdictions in which our vessels operate.
MARPOL is separated into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil
leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, liquid or packaged form; Annexes IV and V relate
to sewage and garbage management, respectively; and Annex VI, relates to air emissions. Annex VI was separately adopted by the
IMO in September of 1997.
We believe that all our vessels are currently compliant in all material respects with these regulations.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution. Effective May 2005, Annex VI sets
limits on nitrogen oxide emissions from ships whose diesel engines were constructed (or underwent major conversions) on or after
January 1, 2000. It also prohibits “deliberate emissions” of “ozone depleting substances,” defined to include certain halons and
chlorofluorocarbons. “Deliberate emissions” are not limited to times when the ship is at sea; they can for example include discharges
occurring in the course of the ship’s repair and maintenance. Emissions of “volatile organic compounds” from certain tankers and the
shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls
(“PCBs”)) are also prohibited. 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 of sulfur emissions known as Emission Control Areas (“ECAs”) (see below).
The IMO’s Maritime Environment Protection Committee (“MEPC”) further amended Annex VI, with these amendments
entering into force on July 1, 2010 (the “Amended Annex VI”). The Amended Annex VI establishes new tiers of stringent nitrogen
oxide emissions standards for new marine engines, depending on their date of installation. The U.S. Environmental Protection Agency
(the “EPA”) promulgated equivalent (and in some senses stricter) emissions standards in late 2009.
The Amended Annex VI also seeks to further reduce air pollution by, among other things, implementing a progressive
reduction of the amount of sulphur contained in any fuel oil used on board ships. As of January 1, 2012, the Amended Annex VI
requires that fuel oil contain no more than 3.50% sulfur. By January 1, 2020, sulfur content must not exceed 0.50%, subject to a
feasibility review to be completed no later than 2018.
Sulfur content standards are even stricter within certain ECAs. By July 1, 2010, ships operating within an ECA were not
permitted to use fuel with sulfur content in excess of 1.0%, which was further reduced to 0.10% on January 1, 2015. The Amended
Annex VI establishes procedures for designating new ECAs. Currently, the Baltic Sea, the North Sea, and certain coastal areas of
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North America have been designated ECAs. Furthermore, as of January 1, 2014 the United States Caribbean Sea was designated an
ECA. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. If
other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or
port operations by vessels are adopted by the EPA or the countries where we operate, compliance with these regulations could entail
significant capital expenditures, operational changes, or otherwise increase the costs of our operations.
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.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for oil pollution in international waters and the
territorial waters of the signatories to such conventions. For example, in February 2004, the IMO adopted an International Convention
for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”). The BWM Convention’s
implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, 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. Many of the implementation dates originally written in
the BWM Convention have already passed, so that once the BWM Convention enters into force, the period for installation of
mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install ballast
water management systems (the “BWMS”). For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the
application dates of BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM
Convention. This in effect makes all vessels constructed before the entry into force date ‘existing’ vessels, and allows for the
installation of a BWMS on such vessels at the first renewal survey following entry into force. Although the BWM Convention has not
yet entered into force and has not been ratified by the United States, the USCG has adopted regulations imposing requirements similar
to those of the BWM Convention. Once 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 such compliance would be material,
it is difficult to predict the overall impact of such a requirement on our operations.
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 by different Protocols in 1976, 1984, and 1992, and amended in 2000
(the “CLC”). Under the CLC 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 that country by discharge of
persistent oil, subject to certain exceptions. Under the CLC, the right to limit liability is forfeited where the spill is caused by the ship
owner’s personal fault. Under the 1992 Protocol, the right to limit liability is forfeited where the spill is caused by the ship owner’s
personal act or omission and by the ship owner’s intentional or reckless act or omission where the ship owner knew pollution damage
would probably result from such act or omission. The CLC requires ships covered by it to maintain insurance covering the liability of
the owner in a sum equivalent to an owner’s liability for a single incident. We believe that our protection and indemnity insurance
covers such liability.
The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker
Convention”) to impose strict liability on ship owners for pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention 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 (the “LLMC”)). With respect to non-ratifying states, liability for spills or releases of bunker fuel is determined by the
national or other domestic laws in the jurisdiction where the events or the damages occur.
IMO regulations also require owners and operators of vessels to adopt shipboard oil pollution emergency plans and/or
shipboard marine pollution emergency plans for noxious liquid substances in accordance with the guidelines developed by the IMO.
Safety Management System Requirements
The IMO has also adopted the International Convention for the Safety of Life at Sea (the “SOLAS”) and the International
Convention on Load Lines (the “LL Convention”), which impose a variety of standards that regulate the design and operational
features of ships. The IMO has also adopted the LLMC, which specifies the limits of liability for claims relating to loss of life or
personal injury and property claims (such as damage to other ships, property or harbor works). The IMO periodically revises the
SOLAS, the LL Convention and the LLMC standards. The amendments made to the SOLAS in May 2012 entered in force on January
1, 2014. The LLMC was also amended in April 2012, and the amendments are expected to go into effect on June 8, 2015. The
amendments alter the limits of liability for loss of life or personal injury claims and property claims against ship owners. We believe
that all our vessels are in substantial compliance with SOLAS and LL Convention standards, and that our insurance policies are in
compliance with the LLMC standards.
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Pursuant to Chapter IX of SOLAS, the International Safety Management Code for the Safe Operation of Ships and Pollution
Prevention (the “ISM Code”), our operations are also subject to environmental standards and requirements. The ISM Code requires
the owner of a vessel, or any person responsible for the operation 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
safely operating the vessel and describing procedures for responding to emergencies. The failure of a ship owner 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. We rely upon the safety management system that we and
our technical manager have developed for compliance with the ISM Code.
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. We have confirmed that Starbulk S.A. has obtained
documents of compliance for its offices and safety management certificates for all of our vessels for which the certificates are required
by the IMO. The document of compliance (the “DOC”) and the safety management certificate (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. As of the date of this filing, each of
our vessels is ISM code-certified.
Compliance Enforcement
The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility for implementing
and enforcing a broad range of international maritime regulations with respect to all ships granted the right to fly its flag. The
“Shipping Industry Guidelines on Flag State Performance” evaluate and report on flag states based on factors such as sufficiency of
infrastructure, ratification, implementation, and enforcement of principal international maritime treaties and regulations, supervision
of statutory ship surveys, casualty investigations and participation at IMO and International Labour Organization (the “ILO”)
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.
Additionally, noncompliance with the ISM Code or other IMO regulations may subject the ship owner 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 USCG and the European Union (the “EU”) 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.
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.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United
Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have
been required to implement national programs to reduce greenhouse gas emissions. As of January 1, 2013, however, all new ships
must comply with two new sets of mandatory requirements, which were adopted by MEPC in July 2011 to address greenhouse gas
emission from ships. Currently, operating ships are required to develop Ship Energy Efficiency Management Plans (“SEEMPs”),
while minimum energy efficiency levels per capacity mile apply to new ships, as defined by the Energy Efficiency Design Index
(“EEDI”). These requirements could cause us to incur additional compliance costs. The IMO is planning to implement market-based
mechanisms to reduce greenhouse gas emissions from ships at an upcoming MEPC session. The European Parliament and Council of
Ministers are expected to endorse regulations that would require monitoring and reporting of greenhouse gas emissions from marine
vessels in 2015. In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has
adopted regulations to limit greenhouse gas emissions from certain mobile sources and large stationary sources. The EPA enforces
both the CAA and the international standards found in Annex VI of MARPOL concerning marine diesel emissions, and the sulfur
content found in marine fuel. Any passage of climate control legislation or other regulatory initiatives by the IMO, EU, the U.S. or
other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol that restrict emissions
of greenhouse gases could require us to make significant financial expenditures, including capital expenditures to upgrade our vessels,
which we cannot predict with certainty at this time.
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (the “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 around the United States. The United States has also enacted the Comprehensive
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Environmental Response, Compensation and Liability Act (the “CERCLA”), which applies to the discharge of hazardous substances
other than oil, except in limited circumstances, whether on land or at sea. In the case of a vessel, OPA and CERCLA both define
“owner and operator” as “any person owning, operating or chartering by demise the vessel.” Although OPA is primarily directed at oil
tankers (which we do not operate), it also applies to non-tanker ships with respect to the fuel oil (i.e. bunkers) used to power such
ships. CERCLA also applies to our operations.
Under OPA, vessel owners and operators 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:
•
•
•
•
•
•
injury to, destruction or loss of, or loss of use of, natural resources and the costs of assessment thereof;
injury to, or economic losses resulting from, the destruction of real and personal property;
net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal
property, or natural resources;
loss of subsistence use of natural resources that are injured, destroyed or lost;
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural
resources; and
net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as
protection from fire, safety or health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages, but such caps do not apply to direct cleanup costs. Effective July 31,
2009, the USCG adjusted the limits of OPA liability for non-tank vessels to the greater of $1,000 per gross ton or $854,400 (subject to
periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an
applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting
pursuant to a contractual relationship), or a responsible party’s gross negligence or willful misconduct. These limits similarly do not
apply if the responsible party fails or refuses to (i) report the incident where the responsible party knows or has reason to know of the
incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause,
comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
The explosion and oil spill in 2010 with respect to the Deepwater Horizon offshore oil rig in the Gulf of Mexico may also
result in additional regulatory initiatives or statutes, including the raising of liability caps under OPA. For example, on August 15,
2012, the U.S. Bureau of Safety and Economic Enforcement issued a final drilling safety rule for offshore oil and gas operations that
strengthens the requirements for safety equipment, well control systems, and blowout prevention practices (the “Final Rule”). The
Final Rule took effect on October 22, 2012.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and
remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated
with assessing the damage, health assessments and health effects studies. There is no liability if the discharge of a hazardous substance
results solely from the act or omission of a third party, an act of God or an act of war. 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
$500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and
damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary
cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability
also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in
connection with response activities where the vessel is subject to OPA.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of
financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject.
Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond,
qualification as a self-insurer or a guarantee. We comply with the USCG’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.
OPA specifically permits individual U.S. states to impose their own liability regimes with regard to oil pollution incidents
occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA. Some states have
enacted legislation providing for unlimited liability for oil spills. In some cases, states that have enacted such legislation have not yet
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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 (the “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, many 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 EPA and USCG, have enacted rules relating to ballast water discharge, compliance with which requires 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 EPA has enacted rules requiring a permit regulating ballast water discharges and other discharges incidental to the
normal operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the
Normal Operation of Vessels (“the VGP”). For a new vessel delivered to an owner or operator after September 19, 2009 to be covered
by the VGP, the owner must submit a Notice of Intent (“NOI”) at least 30 days before the vessel operates in United States waters. On
March 28, 2013, EPA re-issued the VGP for another five years; this 2013 VGP took effect December 19, 2013. The 2013 VGP
contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in US waters, more stringent
requirements for exhaust gas scrubbers and the use of environmentally acceptable lubricants. We have submitted NOIs for our vessels
where required and do not believe that the costs associated with obtaining and complying with the VGP will have a material impact on
our operations.
The USCG, regulations adopted under the U.S. National Invasive Species Act (the “NISA”) also impose mandatory ballast
water management practices for all vessels equipped with ballast water tanks entering or operating in U.S. waters which require the
installation of equipment to treat ballast water before it is discharged in U.S. waters or, in the alternative, the implementation of other
port facility disposal arrangements or procedures. Vessels not complying with these regulations are restricted from entering U.S.
waters. The USCG must approve any technology before it is placed on a vessel.
Notwithstanding the foregoing, as of January 1, 2014, vessels are technically subject to the phasing-in of these standards. As
a result, the USCG has provided waivers to vessels which cannot install the as-yet unapproved technology. The EPA, on the other
hand, has taken a different approach to enforcing ballast discharge standards under the VGP. On December 27, 2013, the EPA issued
an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the
reasons why vessels do not have the requisite technology installed, but will not grant any waivers.
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990 (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 (the “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.
However, compliance with future EPA and USCG regulations could require the installation of certain engineering equipment
and water treatment systems to treat ballast water before it is discharged or the implementation of other port facility disposal
arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
European Union Regulations
In October 2009, the EU 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. Aiding and abetting the discharge of a polluting substance may also
lead to criminal penalties. Member States were required to enact laws or regulations to comply with the directive by the end of 2010.
Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. The directive applies to
all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in
danger.
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International Labour Organization
The International Labour Organization (the “ILO”) is a specialized agency of the UN with headquarters in Geneva,
Switzerland. The ILO has adopted the Maritime Labor Convention 2006 (the “MLC 2006”). A Maritime Labor Certificate and a
Declaration of Maritime Labor Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross
tons in international trade. The MLC 2006 entered into force on August 20, 2013. We have developed new procedures to ensure full
compliance with the requirements of the MLC 2006.
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 (the “MTSA”) came into effect. To implement certain
portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements on certain
ports and facilities, some of which are regulated by the EPA.
Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with
maritime security. The new Chapter V became effective in July 2004 and imposes various detailed security obligations on vessels and
port authorities, and mandates compliance with the International Ship and Port Facility Security Code (the “ISPS Code”). The ISPS
Code is designed to enhance the security of ports and ships against terrorism. Amendments to SOLAS Chapter VII, made mandatory
in 2004, apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime
Dangerous Goods Code (the “IMDG Code”). After July 1, 2004, to trade internationally, a vessel must attain an International Ship
Security Certificate (the “ISSC”) from a recognized security organization approved by the vessel’s flag state. Among the various
requirements are:
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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, 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.
A vessel operating without a valid certificate may be detained at port until it obtains an ISSC, or it may be expelled from
port, or refused entry at port.
The USCG regulations, intended to align its requirements with international maritime security standards, exempts from
MTSA vessel security measures non-U.S. vessels provided such vessels have on board a valid ISSC that attests 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 complies 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.
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:
45
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, within three months before or after each anniversary date of 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. If the vessel experiences excessive
wear and tear, substantial amounts of money may be spent for steel renewals to pass a special survey. In lieu of the special survey
every four or five years, depending on whether a grace period was granted, a ship owner 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 ship owner’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 dry docking in order to increase available days and decrease capital
expenditures, provided the vessel is inspected underwater.
Most vessels are also dry docked 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 ship
owner 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 (the “IACS”). All our vessels are
certified as being “in class” by RINA, ABS and NKK, major classification societies which are member of IACS. 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 dry bulk vessel includes risks such as mechanical and structural failure, hull damage, collision, property
loss, cargo, loss or damage and business interruption due to political circumstances in foreign countries, piracy, 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 therein, has made liability insurance more expensive for ship owners 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. 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.
Hull & Machinery and War Risks Insurance
We maintain marine hull and machinery and war risks insurance, which include the risk of actual or constructive total loss,
for all of our vessels. Our vessels are each covered up to at least their 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.
Protection and indemnity insurance is provided by mutual protection and indemnity associations (“P&I Associations”), which
insure liabilities to third parties in connection with our shipping activities. This includes third-party liability and other related
expenses, including but not limited to, those 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
46
mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.” Our coverage is limited to
approximately $6.5 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 thirteen 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 $6.5 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.(cid:3)
Organizational structure(cid:3)
As of December 31, 2014, 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”. We also own 33% of the total outstanding common stock of
Interchart.
D.(cid:3)
Property, plant and equipment(cid:3)
We do not own any real property. Our interests in the vessels in our fleet are our only material properties. See Item 4.
“Business overview—Our Fleet.”
Item 4A.(cid:3) Unresolved Staff Comments(cid:3)
None.
Item 5.(cid:3)
Operating and Financial Review and Prospects(cid:3)
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. Business Overview” 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 “Item 3. Key Information
– D. Risk Factors” and elsewhere in this report.
We are an international shipping company with extensive operational experience that owns and operates a fleet of dry bulk
carrier vessels. Our vessels transport a broad range of major and minor bulk commodities, including ores, coal, grains and fertilizers,
along worldwide shipping routes.
A.(cid:3)
Operating Results(cid:3)
As of April 6, 2015, we employ nine of our vessels on medium to long-term time charters with an average remaining term of
approximately 0.82 years and 59 of our vessels in the spot market under short-term time charters or voyage charters. 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. In addition, we are also responsible for the dry docking costs related to
our vessels.
Nine of our vessels in our fleet are employed on medium to long-term time charters, scheduled to expire from August 2015
until August 2016. In the future, we may employ these and our other vessels under contracts of affreighment, bareboat charters, in the
spot market, under short term time charters or voyage charters, or in dry bulk carrier pools.
47
Key Performance Indicators
Our business is comprised of the following main elements:
•(cid:3)
employment and operation of our dry bulk vessels; and(cid:3)
•(cid:3) management of the financial, general and administrative elements involved in the conduct of our business and ownership
of our dry bulk vessels.(cid:3)
The employment and operation of our vessels require the following main components:
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
vessel maintenance and repair;(cid:3)
crew selection and training;(cid:3)
vessel spares and stores supply;(cid:3)
contingency response planning;(cid:3)
onboard safety procedures auditing;(cid:3)
accounting;(cid:3)
vessel insurance arrangement;(cid:3)
vessel chartering;(cid:3)
vessel security training and security response plans pursuant to the requirements of the ISPS Code;(cid:3)
obtaining ISM Code certification and audits for each vessel within the six months of taking over a vessel;(cid:3)
vessel hire management;(cid:3)
vessel surveying; and(cid:3)
vessel performance monitoring.(cid:3)
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:
•(cid:3) management of our financial resources, including banking relationships (i.e., administration of bank loans and bank
accounts);(cid:3)
•(cid:3) management of our accounting system and records and financial reporting;(cid:3)
•(cid:3)
administration of the legal and regulatory requirements affecting our business and assets; and(cid:3)
•(cid:3) management of the relationships with our service providers and customers.(cid:3)
The principal factors that affect our profitability, cash flows and shareholders’ return on investment include:
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
charter rates and periods of charterhire;(cid:3)
levels of vessel operating expenses;(cid:3)
depreciation and amortization expenses;(cid:3)
financing costs; and(cid:3)
fluctuations in foreign exchange rates.(cid:3)
We believe that the important measures for analyzing trends in the results of operations consist of the following:
•(cid:3) 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 all vessels were part of our fleet during the period divided by the number of calendar days in
that period.(cid:3)
•(cid:3) Ownership days are the total number of calendar days all vessels in our fleet were owned by us for the relevant period.(cid:3)
•(cid:3) Available days for the fleet are equal to the ownership days minus off-hire days, as a result of major repairs, dry docking
or special or intermediate surveys.(cid:3)
48
•(cid:3) Voyage days are equal to the total number of days the vessels were in our possession for the relevant period minus off-
hire days incurred for any reason (including off-hire for dry docking, major repairs, special or intermediate surveys or
transfer of ownership).(cid:3)
•(cid:3) Fleet utilization is calculated by dividing voyage days by available days for the relevant period.(cid:3)
•(cid:3) Time charter equivalent rate. Our method of calculating the time charter equivalent rate (the “TCE rate”) is determined
by dividing voyage revenues (net of voyage expenses and amortization of fair value of above or below market acquired
time charter agreements) by voyage days for the relevant time period. The following table reflects our voyage days,
ownership days, fleet utilization and TCE rates for the periods indicated:(cid:3)
(TCE rates expressed in U.S. dollars)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voyage Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time Charter Equivalent (TCE)
Year
Ended
December
31, 2012
Year
Ended
December
31, 2013
Year
Ended
December
31, 2014
14.19
14
10.8
5,192
4,879
4,699
13.34
15
9.6
4,868
4,763
4,651
28.88
62
9.4
10,541
10,413
8,948
96%
15,419
85,684
$
$
98%
14,427
68,296
$
$
86%
12,161
145,041
$
$
Time charter equivalent rate (the “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 or 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 report
TCE revenues, a non-GAAP measure, since our management believes it provides additional meaningful information in conjunction
with voyage revenues, the most directly comparable U.S. GAAP measure, because it assists our management in making decisions
regarding the deployment and use of our vessels and in evaluating their financial performance. The TCE rate is also included herein
because it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping
company’s performance irrespective of changes in the mix of charter types (i.e., voyage charters, time charters and bareboat charters),
under which the vessels may be employed between the periods and because we believe that it presents useful information to investors.
Our calculation of TCE, however, 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 U.S. Dollars, except as otherwise stated)
Voyage revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
Voyage expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of fair value of below/above market acquired time charter
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time Charter equivalent revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voyage days for fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Time charter equivalent (TCE) rate (in U.S. Dollars)
$
$
$
$
Voyage Revenues
Year
Ended
December
31, 2012
Year
Ended
December
31, 2013
Year
Ended
December
31, 2014
85,684
$
68,296
$
145,041
(19,598)
(7,549)
(42,341)
6,369
72,455
4,699
15,419
$
$
$
6,352
67,099
4,651
14,427
$
$
$
6,113
108,813
8,948
12,161
Voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days and the amount of
daily charter hire and the level of freight rates that our vessels earn under time and voyage charters, respectively, which, in turn, are
49
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 dry dock undergoing repairs, maintenance and upgrade work, the
age, condition and specifications of our vessels, levels of supply and demand in the seaborne transportation market.
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 bunkers cost 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,
lubricants 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, lubricants and insurance, may also cause these
expenses to increase.
Dry Docking expenses
Dry docking expenses relate to regularly scheduled intermediate survey or special survey dry docking necessary to preserve
the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Dry
docking expenses can vary according to the age of the vessel, the location where the dry docking takes place, shipyard availability and
the number of days the vessel is off-hire. We utilize the direct expense method, under which we expense all dry docking costs as
incurred.
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 calculated based on a vessel’s cost less the estimated residual value.
General and Administrative Expenses
We incur general and administrative expenses, including our onshore personnel related expenses, directors and executives’
compensation, legal and accounting expenses.
Interest and Finance Costs
We incur interest expense and financing costs in connection with vessel-specific debt relating to the acquisition of our
vessels. 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.
Gain / (Loss) on Derivative Financial Instruments
From time to time, we may take positions in freight derivatives, including freight forward agreements (the “FFAs”) and
freight options with an objective to utilize those instruments as economic hedges 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. Upon the 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. All of our FFAs are settled on a daily basis through London
Clearing House (LCH), and there is also a margin maintenance requirement based on marking the contract to market. Freight options
are treated as assets/liabilities until they are settled. Any such settlements by us or settlements to us under FFAs are recorded as gain
or loss on derivative financial instruments.
In addition, we may enter into interest rate swap transactions to manage interest costs and risk associated with changing
interest rates with respect to our variable interest loans and credit facilities. Interest rate swaps are recorded in the balance sheet as
either assets or liabilities, measured at their fair value, with changes in such fair value recognized in earnings, unless specific hedge
accounting criteria are met. On August 31, 2014, we designated all of our then outstanding interest rate swap agreements, as cash flow
50
hedges. As part of the July 2014 Transactions, we acquired five swap agreements that Oceanbulk Shipping had entered during the
third quarter of 2013, all of which were re-designated upon acquisition as cash flow hedges in accordance with ASC Topic 815
“Derivatives and Hedging”. After the date our swaps were designated as cash flow hedges, changes in the fair value corresponding to
the effective portion of these swaps are reported on our consolidated balance sheet in Accumulated Other Comprehensive Income and
are subsequently recognized in earnings, under “Interest and finance costs” when the hedged items impact earnings, while the
ineffective portion is recognized in earnings under “Gain / (Loss) on derivative financial instruments, net”. The outstanding fair value
(based on Level 2 inputs of the fair value hierarchy) as of the same date being separately reflected as Derivative Assets or Liabilities
within our consolidated balance sheet.
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.”
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 shares 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 U.S. GAAP and rules of the
Commission. Where a vessel has been under a voyage charter, the vessel is delivered to the buyer free of charter. In the shipping
industry, the last charterer of the vessel in the hands of the seller rarely continues as the first charterer of the vessel in the hands of the
buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel can be acquired only
if the charterer consents to the acquisition and the buyer enters 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 the latter is a separate services
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 either assumed an existing charter
obligation or entered into a time charter with the existing charterer in connection with the purchase of a vessel 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 either assume an existing charter obligation or enter into a time
charter with the existing charterer in connection with the purchase of a vessel 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, depending on the charter party terms, we may
need to take the following steps before the vessel is ready to commence operations:
•(cid:3)
•(cid:3)
•(cid:3)
obtain the charterer’s consent to us as the new owner;(cid:3)
obtain the charterer’s consent to a new technical manager;(cid:3)
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;(cid:3)
•(cid:3)
replace all hired equipment on board, such as gas cylinders and communication equipment;(cid:3)
51
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;(cid:3)
in some cases, register the vessel under a flag state and obtain the charterer’s consent to a new flag for the vessel;(cid:3)
perform the related inspections in order to obtain new trading certificates from the flag state;(cid:3)
implement a new planned maintenance program for the vessel; and(cid:3)
ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security
regulations of the flag state.(cid:3)
The above discussion is intended to help you understand how acquisitions of vessels may affect our business and results of
operations.
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 (“U.S. 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 we believe are the most critical
accounting policies that involve a high degree of judgment and the methods of their application. For a description of all of our
significant accounting policies, see Note 2 (Significant Accounting Policies) to our consolidated financial statements included herein
for more information.
Impairment of long-lived assets: We follow guidance related to impairment or disposal of long-lived assets, which addresses
financial accounting and reporting for such impairment or disposal. 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. The guidance calls for an impairment loss 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 impairment loss is determined by the difference between the carrying amount of the asset and the fair value of the asset. In this
respect, management regularly reviews the carrying amount of each vessel when events and circumstances indicate that the carrying
amount of a vessel might not be recoverable (such as vessel sales and purchases, business plans, obsolesce or damage to the asset and
overall conditions).
As of September 30, 2012, because of the sustained decline in charter rates and vessel values during the previous years and
the market expectations that these rates and values would remain at low levels and were unlikely to increase to the high levels of 2008,
we performed an impairment review for all of our vessels. We compared undiscounted cash flows from each vessel to the carrying
values for the vessel to determine if the carrying value of each asset was recoverable. The undiscounted projected net operating cash
flows for each vessel are determined by considering the charter revenues from existing time charters for the fixed vessel days and an
estimated daily time charter equivalent for the unfixed days over the remaining estimated life of the vessel, assuming a vessel
utilization of approximately 98%, net of brokerage and address commissions, expected outflows for vessel’s maintenance and vessel
operating expenses. Estimates of daily time charter equivalent for the unfixed days are based on the current Forward Freight
Agreement (“FFA”) rates, for as long as they are available, and historical average rates for the period thereafter. 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, which is assumed to be 25 years from the delivery of the
vessel from the shipyard. Expected expenditures for the vessel’s scheduled maintenance and operating expenses are based on our
budgeted figures and adjusted annually for inflation rate of 3% for the year 2012. The estimated salvage value of each vessel is $200
per light weight ton, in accordance with our vessel’s depreciation policy. These estimates are consistent with the plans and forecasts
used by management to conduct our business. If our estimate of undiscounted future cash flow for any vessel is lower than the vessel’s
carrying value, the carrying value is written down, by recording a charge to operations to the vessel’s fair market value.
Such analysis, for each of our vessels as of September 30, 2012, indicated that the carrying amount of our then entire
Supramax fleet and Star Sigma was not recoverable and an impairment loss of $303.2 million was recognized.
As of December 31, 2013, we performed impairment review only for the two vessels Star Aurora and Star Polaris whose
carrying values were below their market values because (i) during the year 2013, the BDI recovered to an annual average of 1,206, as
compared to 920 in 2012; (ii) after the recognized impairment loss of $303.2 million in 2012 as described above, the carrying values
of all of our vessels had been adjusted in line with their market values; and (iii) events and circumstances indicated that, since our
latest performed impairment test of September 30, 2012, no adverse factors had occurred or were evidenced that could indicate that
the carrying values of our vessels may not be recoverable. For the impairment review of the Star Aurora and Star Polaris we used the
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same framework for estimating projected undiscounted cash flow as described above. As a result of the improved market conditions,
we indicated that the carrying amount of the respective vessels was recoverable, and no asset impairment was necessary.
Due to continued global economic downturn and the prevailing conditions in the shipping industry, as of December 31, 2014,
we performed an impairment analysis for 51 vessels out of our 62 vessels, whose carrying values were above their respective market
values. Based on our analysis conducted under the same framework for estimating projected undiscounted cash flow as described
above, the future undiscounted projected cash flows expected to be earned by each of these vessels over its operating life were in
excess compared to each vessel’s carrying value. No asset impairment was, therefore, necessary.
Although we believe that the assumptions used to evaluate potential asset impairment are based on historical trends and are
reasonable and appropriate, such assumptions are highly subjective. To minimize such subjectivity, our analysis for the year ended
December 31, 2014, also involved sensitivity analysis to the model inputs we believe are more important and likely to change. In
particular, we modified the utilization ratio, reducing it from approximately 98% to approximately 92%, in order to account for the
effect of increased idle time of vessels under a weak market environment. We did not sensitize our model with regards to freight rate
assumption for the unfixed vessels, as we consider the FFA as of December 31, 2014 to approximate historical low levels, and thus
fully reflect the conceivable downside scenario. We deflated the budgeted operating expenses for the year 2015 by $100/day per
vessel, so as to simulate expected management’s reaction under a low revenue environment. Our sensitivity analysis revealed that,
even under such scenario, the future undiscounted projected cash flows expected to be earned by each of these vessels over their
operating lives were in excess of each vessel’s carrying value, and therefore no asset impairment was necessary.
Vessel Acquisitions and Depreciation: We record the value of our vessels at their cost (which includes acquisition costs
directly attributable to the vessel and delivery expenditures, including pre-delivery expenses and expenditures made to prepare the
vessel for its initial voyage) less accumulated depreciation. We depreciate our vessels on a straight-line basis over their estimated
useful lives, after considering the estimated salvage value. We estimate the useful life of our vessels to be 25 years from the date of
initial delivery from the shipyard, with secondhand vessels depreciated from the date of their acquisition through their remaining
estimated useful life. We estimate the salvage value of our vessels at $200 per light weight ton.
An increase in the useful life of a vessel or in its residual value would have the effect of decreasing the annual depreciation
and extending it into later periods. A decrease in the useful life of a vessel or in its residual value would have the effect of increasing
the annual depreciation and extending it into later periods.
A decrease in the useful life of the vessel may occur as a result of poor vessel maintenance, harsh ocean going and weather
conditions, or poor quality of shipbuilding. When regulations place limitations over the ability of a vessel to trade on a worldwide
basis, its remaining useful life is adjusted to end at the date such regulations preclude such vessel’s further commercial use. Weak
freight market rates result in owners scrapping more vessels, and scrapping them earlier in their lives due to the unattractive returns.
An increase in the useful life of the vessel may occur as a result of superior vessel maintenance performed, favorable ocean
going and weather conditions, superior quality of shipbuilding, or high freight market rates, which result in owners scrapping the
vessels later due to the attractive cash flows.
Fair value of above/below market acquired time charter: If time charters are assumed when vessels are acquired, we value
any asset or liability arising from the market values of the time charters. The 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. Such intangible assets or liabilities are recognized
ratably as adjustments to revenues over the remaining term of the assumed time charter.
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 were recognized as “Gain on time charter agreement termination” or in the
accompanying consolidated statements of operations. See note 8 of our consolidated financial statements.
Stock Incentive plan awards: Stock-based compensation represents the cost of vested and non-vested shares granted to
employees and to directors, for their services, 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 the total fair value of such shares is
expensed on the grant date. Applicable guidance related to stock compensation describes two generally accepted methods of
recognizing an 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 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, however, re-evaluate the reasonableness of our assumption at each reporting period. We pay dividends on
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all issued shares regardless of whether they have vested and there is an obligation of the employee to return the dividend if the
employment ceases prior to the date that shares vest. The dividends declared and paid on issued and non-vested shares that are
expected to vest are charged to retained earnings.
Trade accounts receivable, net: The amount shown as trade accounts receivable, at each balance sheet date, includes
estimated recoveries from each voyage or time charter net of any provision for doubtful debts. At each balance sheet date, we provide
for doubtful accounts on the basis of identified doubtful receivables.
Derivatives: We designate our derivatives based upon guidance on accounting for derivative instruments and hedging
activities, which establishes accounting and reporting standards for derivative instruments. The guidance on accounting for certain
derivative instruments and certain hedging activities requires all derivative instruments to be recorded on the balance sheet as either an
asset or liability measured at its fair value, with changes in fair value recognized in earnings, unless specific hedge accounting criteria
are met.
Hedge Accounting: At the inception of a hedge relationship, we formally designate and document the hedge relationship to
which we wish to apply hedge accounting and the risk management objective and strategy undertaken for the hedge. The
documentation includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and
how we will assess the hedging instrument’s effectiveness in offsetting exposure to changes in the hedged item’s cash flows
attributable to the hedged risk. Hedges are expected to be highly effective in achieving offsetting changes in cash flows and are
assessed on an ongoing basis to determine whether they actually have been highly effective throughout the financial reporting periods
for which they were designated. Currently, we are party to interest swap agreements under which we receive a floating interest rate
and pay a fixed interest rate for a certain period in exchange.
Contracts that meet the strict criteria for hedge accounting are accounted for as cash flow hedges. A cash flow hedge is a
hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability,
or a highly probable forecasted transaction that could affect profit or loss. The effective portion of the gain or loss on the hedging
instrument is recognized directly as a component of accumulated other comprehensive income/(loss) in equity, while any ineffective
portion, if any, is recognized immediately in current period earnings. If the hedging instrument expires or no longer meets the criteria
for hedge accounting we will discontinue cash flow hedge accounting. At that time, any cumulative gain or loss on the hedging
instrument recognized in equity is kept in equity until the forecasted transaction occurs. When the forecasted transaction occurs, any
cumulative gain or loss on the hedging instrument is recognized in the statement of operations. If a hedged transaction is no longer
expected to occur, the net cumulative gain or loss recognized in equity is transferred to net profit or loss for the year as financial
income or expense.
Other Derivatives: Changes in the fair value of derivative instruments that have not been designated as hedging instruments
are reported in current period earnings.
Year ended December 31, 2014 compared to the year ended December 31, 2013.
Voyage revenues: Voyage revenues for the years ended December 31, 2014 and 2013, were approximately $145.0 million
and $68.3 million, respectively. This increase was mainly attributable to the increase in the average number of vessels operated during
the year ended December 31, 2014 to 28.9, compared to 13.3 during the year ended December 31, 2013, as a result of the
Transactions. This increase was partially offset by the decrease in the charter rates earned by our vessels for the respective periods.
During the year ended December 31, 2014, our operated vessels earned $12,161 TCE rate per day as compared to $14,427 TCE rate
per day, for the year ended December 31, 2013.
Management fee income: For the years ended December 31, 2014 and 2013, management fee income was approximately
$2.3 million and $1.6 million, respectively. The increase was due to the increase in the average number of vessels under management
to 8.6 vessels during the year ended December 31, 2014, from 5.8 during the year ended December 31, 2013. As a result of the July
2014 Transactions, 11 vessels under our management that were part of the fleets of Oceanbulk and the Pappas Companies became part
of our fleet as of July 11, 2014. We, therefore, stopped receiving fees for the management of these 11 vessels.
Voyage expenses: For the years ended December 31, 2014 and 2013, voyage expenses were approximately $42.3 million and
$7.5 million, respectively. Consistent with dry bulk industry practice, we paid broker commissions as a percentage of the total daily
charterhire rate of each charter to ship brokers associated with the charter. Additionally, effective January 1, 2014, we began to pay a
fixed brokerage fee to Interchart. Voyage expenses also consist of fees for hiring, port, canal and fuel costs. The increase in voyage
expenses was mainly attributable to the increase in the average number of vessels for the year ended December 31, 2014, as a result of
the Transactions, and the increased level of spot market activity, which resulted in higher port, canal and fuel costs, compared to the
year ended December 31, 2013.
Vessel operating expenses: For the years ended December 31, 2014 and 2013, our vessel operating expenses were
approximately $53.1 million and $27.1 million, respectively. The increase in operating expenses was mainly due to higher average
number of vessels during the year ended December 31, 2014, as compared to the year ended December 31, 2013, as a result of the
Transactions. In addition, vessel operating expenses for the year ended December 31, 2014 and 2013 include $3.0 million and $0.2
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million, respectively, related to one-time pre-delivery and pre-joining expenses incurred in connection with the delivery of the new
vessels in our fleet. Pre-joining and pre-delivery expenses relate to the expenses for the initial crew manning, as well as the initial
supply of stores for the vessel upon delivery. Our average daily operating expenses per vessel for the year ended December 31, 2014,
were $5,037, compared to $5,564 during the year ended December 31, 2013, representing a 10% reduction, as a result of synergies
and economies of scale from operating a larger fleet. Excluding the amount of pre-joining and pre-delivery expenses, our average
daily operating expenses per vessel for the year ended December 31, 2014 and 2013 would have been $4,750 and $5,523, respectively,
which would have represented a decrease of 14%.
Dry docking expenses: For the year ended December 31, 2014 and 2013, our dry docking expenses were $5.4 million and
$3.5 million, respectively. During the year ended December 31, 2014, two of our Capesize vessels and two Supramax vessels
underwent dry docking surveys. Dry docking expenses were higher in 2014 mainly due to the fact that one of the Capesize vessels in
dry dock was one of our oldest vessels. During the year ended December 31, 2013, one Capesize and three Supramax vessels
underwent dry docking surveys.
Depreciation: For the years ended December 31, 2014 and 2013, we recorded vessel depreciation charges of $37.2 million
and $16.1 million, respectively. The increase in depreciation was due to the increase in the average number of vessels in our fleet
during the year ended December 31, 2014, as compared to the year ended December 31, 2013, as a result of the Transactions, and the
corresponding increase in the depreciable asset base.
General and administrative expenses: For the years ended December 31, 2014 and 2013, general and administrative
expenses were $32.7 million and $9.9 million, respectively. For the year ended December 31, 2014, our general and administrative
expenses consisted of salaries and other related costs of our executive officers and other employees ($11.2 million), office renovation
costs and office rents, legal, accounting costs and consultancy fees, regulatory compliance costs and other miscellaneous expenses
($6.3 million), costs related to vested and non-vested stock grants under the equity incentive plan ($4.0 million), severance payment in
shares to our former Chief Executive Officer pursuant to the terms of his release agreement ($1.8 million), and acquisition costs in
connection with the July 2014 Transactions ($9.4 million). For the year ended December 31, 2013, our general and administrative
expenses consisted of salaries and other related costs of our executive officers and other employees ($6.2 million), office renovation
costs and office rents, legal, accounting costs and consultancy fees, regulatory compliance costs and other miscellaneous expenses
($2.2 million) and costs related to vested and non-vested stock grants under the equity incentive plan ($1.5 million). The increase in
salaries and other related costs of our executive officers and other employees was due to the higher number of employees during the
year ended December 31, 2014, as compared to the year ended December 31, 2013, as a result of the growth of our fleet due to the
Transactions, and in anticipation of the deliveries of our newbuilding vessels.
Bad debt expense: For the year ended December 31, 2014, we recognized bad debt expense of $0.2 million, representing a
write off related to unpaid hires from charterers, since we determined that such amounts were not recoverable. No bad debt expense
was recognized during the year ended December 31, 2013.
Other operational loss: For the year ended December 31, 2014, other operational loss was $0.1 million. In September 2010,
we signed an agreement to sell a 45% interest in the future proceeds related to the settlement of certain commercial claims. As a result,
in connection with the settlement of one of the commercial claims described in other operational gain below, for the year ended
December 31, 2013, we incurred an expense of $1.1 million, which is included under other operational loss for the year ended
December 31, 2013.
Other operational gain: For the year ended December 31, 2014, other operational gain was $10.0 million and mainly
consisted of: (i) $8.0 million of revenue from the sale to a third party of the claim against the previous charterer of Star Borealis for
charter party repudiation due to early redelivery of the vessel (please see Item 8. “Financial Information – Consolidated statements and
other financial information - Legal proceedings”); (ii) $1.4 million regarding the extinguishment of the liability to the previous
charterer of Star Borealis, related to the amount of fuel and lubricants remaining on board at the time of the charter repudiation; (iii)
$0.2 million received as a rebate from our previous manning agent; and (iv) a $0.5 million gain derived from a hull and machinery and
protection and indemnity claims. For the year ended December 31, 2013, other operational gain was $3.8 million and mainly consisted
of: (i) $2.7 million revenue, related to the payment of installments due to us under settlement agreements for two commercial claims;
and (ii) $1.0 million of gain from a hull and machinery insurance claim.
Gain from bargain purchase: For the year ended December 31, 2014, we recorded a gain from bargain purchase of $12.3
million, representing the excess of the fair value of the net assets acquired in the acquisition of Oceanbulk and the Pappas Companies,
over the aggregate purchase consideration.
Interest and finance costs: For the year ended December 31, 2014 and 2013, interest and finance costs were $9.6 million and
$6.8 million, respectively. The increase is attributable to higher average balance of our outstanding indebtedness amounting to $412.3
million for the year ended December 31, 2014, compared to $200.2 million for the year ended December 31, 2013. Additionally for
the year ended December 31, 2014, interest and finance costs include an amount of $1.1 million relating to interest rate swap
settlements. No interest swap settlements were included in interest and finance costs for the year ended December 31, 2013, since at
that time our interest rate swaps did not qualify for hedge accounting. Interest and finance costs, for the year ended December 31,
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2014 and 2013, also included interest capitalized from general debt amounting to $7.8 million and $0.6 million, respectively, in
connection with our newbuilding vessels.
Interest and other income: For the year ended December 31, 2014 and 2013, interest income was $0.6 million and $0.2
million, respectively. The increase was mainly due to an increased average cash balance during the year ended December 31, 2014, as
compared to the year ended December 31, 2013.
Gain/ (Loss) on derivative financial instrument, net: Loss on derivative financial instruments of $0.8 million for the year
ended December 31, 2014 represents the non-cash loss from the mark to market valuation of four of our interest rate swaps up to
August 31, 2014, the date we designated the respective interest rate swaps as cash flow hedges. The change in the fair value of these
swaps after the hedging designation was recorded in equity to the extent these hedges were effective. Gain on derivative financial
instruments of $0.09 million during the year ended December 31, 2013, represented the non-cash gain from the mark to market
valuation of two interest rate swaps outstanding as of December 31, 2013, that were not designated as cash flow hedges.
Loss on debt extinguishment: During the year ended December 31, 2014, we recorded an amount of $0.7 million under loss
on debt extinguishment, in connection with the non-cash write off of unamortized deferred finance charges due to the partial
prepayment of the Excel Vessel Bridge Facility (as defined below).
Year ended December 31, 2013 compared to the year ended December 31, 2012.
Voyage revenues: Voyage revenues for the years ended December 31, 2013 and 2012, were approximately $68.3 million and
$85.7 million, respectively. This decrease was mainly attributable to: (i) decreased charter rates in certain of our vessels during the
year ended December 31, 2013, compared to year ended December 31, 2012; and (ii) a decrease in the average number of vessels
operated during the year ended December 31, 2013 to 13.34, compared to 14.19 during the year ended December 31, 2012. During the
year ended December 31, 2013, we earned $14,427 TCE rate per day as compared to $15,419 TCE rate per day for the year ended
December 31, 2012, due to the decrease in prevailing charter rates at which our vessels were chartered. Charterhire rates were volatile
in 2012 and 2013 and continue to be volatile.
Management fee income: For the years ended December 31, 2013 and 2012, management fee income was approximately
$1.6 million and $0.5 million, respectively. The increase was due to the increase in the average number of third and related party
vessels under management to 5.8 vessels during the year ended December 31, 2013 from 1.7 during the year ended December 31,
2012.
Voyage expenses: For the years ended December 31, 2013 and 2012, voyage expenses were approximately $7.5 million and
$19.6 million, respectively. Consistent with dry bulk industry practice, we paid broker commissions based on a percentage of the total
daily charterhire rate of each charter to ship brokers associated with the charter. Voyage expenses also consist of fees for hiring
chartered-in vessels, port, canal and fuel costs. The decrease in voyage expenses was attributable to: (i) an expense of $4.1 million for
chartering-in third party vessels to serve shipments under a COA with Vale International Ltd., which was completed in February 2012;
and (ii) the lower level of spot market activity during the year ended December 31, 2013, which resulted in lower port, canal and fuel
costs compared to the year ended December 31, 2012.
Vessel operating expenses: For the years ended December 31, 2013 and 2012, our vessel operating expenses were
approximately $27.1 million and $27.8 million and our daily vessel operating expenses were $5,564 and $5,361, 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 in operating costs was mainly due to
the fact that the average number of vessels that operated decreased to 13.34 during the year ended December 31, 2013, as compared to
14.19 during the year ended December 31, 2012.
Dry docking expenses: For the year ended December 31, 2013 and 2012, our dry docking expenses were $3.5 million and
$5.7 million, respectively. During both years ended December 31, 2013 and 2012, we had three Supramax vessels and one Capesize
vessel that underwent their periodic dry docking surveys. The decrease is attributable mainly to the age of the vessels that underwent
their periodic dry docking surveys, with younger vessels dry docking in 2013, resulting in lower dry docking expenses.
Depreciation: For the years ended December 31, 2013 and 2012, we recorded vessel depreciation charges of $16.1 million
and $33.0 million, respectively. The decrease in depreciation was attributable to: (i) impairment losses recognized as of September 30,
2012, in connection to our then oldest Capesize vessel, Star Sigma and the then entire fleet of our eight Supramax vessels, which
resulted in a reduced net book value for the respective vessels; and (ii) the lower average number of vessels of 13.34 that operated
during the year ended December 31, 2013, as compared to 14.19 during the year ended December 31, 2012.
General and administrative expenses: For the years ended December 31, 2013 and 2012, we incurred general and
administrative expenses of approximately $9.9 million and $9.3 million, respectively. For the year ended December 31, 2013, our
general and administrative expenses consisted of salaries and other related costs of the executive officers and other employees ($6.2
million), office renovation costs and office rents, legal, accounting costs and consultancy fees, regulatory compliance costs and other
miscellaneous expenses ($2.2 million) and costs related to vested and non-vested stock grants under the equity incentive plan ($1.5
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million). For the year ended December 31, 2012, our general and administrative expenses consisted of salaries and other related costs
of the executive officers and other employees ($5.2 million), office renovation costs and office rents, legal, accounting costs and
consultancy fees, regulatory compliance costs and other miscellaneous expenses ($2.6 million) and costs related to non-vested stock
grants under the equity incentive plan ($1.5 million). The increase in salaries and other related costs of the executive officers and other
employees was due to a higher number of employees during the year ended December 31, 2013 compared to the year ended December
31, 2012, as a result of the growth of our managed fleet.
Vessel impairment loss: On September 30, 2012 we performed an impairment analysis for all the vessels in our fleet by
comparing projected undiscounted cash flows to the carrying values of vessels. As a result of this analysis during the year ended
December 31, 2012, we recorded an impairment loss of $303.2 million related to the write down to fair value of the carrying amount
of our then entire fleet of eight Supramax vessels and of our then oldest Capesize vessel Star Sigma. Our analysis for the year ended
December 31, 2013, indicated that the carrying amount of our vessels was recoverable and therefore no impairment loss was recorded.
Gain on time charter agreement termination: For the year ended December 31, 2012, we recorded a gain on time charter
agreement termination of $6.5 million. Star Sigma was time chartered to Pacific Bulk Shipping Ltd. at a gross daily charter rate of
$38,000 per day for the period from March 1, 2009 until October 29, 2013, and was redelivered earlier to us on December 31, 2011.
On January 4, 2012, we signed an agreement with the charterer in order to receive an amount of $5.7 million in cash, as compensation
for the early redelivery of the respective vessel. The total amount was received in January 2012. In addition to the cash payment,
Pacific Bulk Shipping Ltd. supplied us with 1,027 metric tons of fuel, valued at $0.7 million.
Other operational loss: For the year ended December 31, 2013, we recorded a loss of $1.1 million, representing the expense
incurred by us towards a third party in connection with the settlement of a legal case included in the agreement signed in September
2010. Under the specific agreement, we sold to the third party a 45% interest in the future proceeds related to the recovery of certain
commercial claims against a consideration of $5.0 million. The expense of $1.1 million was incurred in connection with the settlement
amount of $2.5 million described in other operational gain below. For the year ended December 31, 2012, we recorded a loss of $1.2
million representing the expense incurred by us towards a third party, in connection with the settlement of a legal case included in the
above mentioned agreement. The expense of $1.2 million was incurred in connection with the settlement amount of $2.5 million
described in other operational gain below.
Other operational gain: For the year ended December 31, 2013, we recognized a gain of $3.8 million. comprising of $2.5
million and $0.2 million regarding the settlement of two commercial claims against Ishhar Overseas, a previous charterer of Star
Epsilon and Star Kappa and Korea Line Corporation, a previous charterer of Star Gamma and Star Cosmo (please see Item 8.
“Financial Information – Consolidated statements and other financial information – Legal proceedings”), respectively and a gain of
$1.0 million regarding a hull and machinery claim. For the year ended December 31, 2012, we recognized a gain of $2.7 million,
comprising of $2.5 million and $0.2 million regarding the settlement of two commercial claims against Ishhar Overseas, a previous
charterer of Star Epsilon and Star Kappa and Korea Line Corporation, a previous charterer of Star Gamma and Star Cosmo,
respectively and a gain of $0.8 million regarding a hull and machinery claim.
Loss on sale of vessel: For the year ended December 31, 2013, we recorded a loss on sale of vessel of $0.1 million related to
the sale of Star Sigma that was concluded in March 2013 and the vessel was delivered to her purchasers in April 2013. For the year
ended December 31, 2012, we recorded a loss on sale of vessel of $3.2 million related to the sale of Star Ypsilon that was concluded in
February 2012 and was delivered to her purchasers in March 2012.
Interest and finance costs: For the years ended December 31, 2013 and 2012, our interest and finance costs under our term
loan facilities totaled approximately $6.8 million and $7.8 million, respectively. This decrease was mainly due to lower average
outstanding debt during 2013 of $200.2 million, compared to $241.9 million for 2012, and due to interest capitalized from general
debt in 2013 of $0.6 million, in connection with our newbuilding vessels.
Gain/ (Loss) on derivative financial instrument, net: In June 2013, we entered into two interest rate swap agreements. The
valuation of these, as of December 31, 2013, resulted into a non-cash gain of $0.1 million, which was included in “Gain / loss on
derivative financial instrument, net” in the consolidated statements of operations, since our interest rate swaps were not designated as
cash flow hedges at that time. Gain on derivative instruments for the year ended December 31, 2012, resulting from the mark-to-
market valuation of the freight derivative contracts that we had entered into, amounted to $0.04 million.
Interest and other income: For both years ended December 31, 2013 and 2012, interest income was $0.2 million,
respectively.
Recent Accounting Pronouncements
Revenue from Contracts with Customers: In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance
under current U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. ASU 2014-09 will
require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. ASU 2014-
09 will also require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
57
customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or
fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016. Early application is not
permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
Presently, we are assessing what effect the adoption of ASU 2014-09 will have on our financial statements and accompanying notes.
Presentation of Financial Statements – Going Concern: In August 2014, the FASB issued Accounting Standards Update (ASU) No.
2014-15, Presentation of Financial Statements – Going Concern. ASU 2014-15 provides U.S. GAAP guidance on management’s
responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and on related
required footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or
events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial
statements are issued. ASU 2014-15 is applicable to all entities and is effective for annual reporting periods ending after December 15,
2016 and for annual and interim reporting periods thereafter. Early application is permitted. Presently, we are assessing what effect the
adoption of ASU 2014-15 will have on our financial statements and accompanying notes.
B.(cid:3)
Liquidity and Capital Resources(cid:3)
Our principal source of funds has been equity provided by our shareholders, additional debt under secured credit facilities or
unsecured bond notes and operating cash flow. Our principal use of funds has been capital expenditures to grow our fleet, maintain the
quality of our dry bulk 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, paying of operating costs, funding working capital
requirements and maintaining cash reserves against fluctuations in operating cash flows and paying cash dividends when permissible.
Our primary source of short-term liquidity is our operating revenues.
Our medium- and long-term liquidity requirements relate to funding the equity portion of any possible investments in
additional secondhand vessels, newbuilding vessels and the repayment of long-term debt balances. Sources of funding for our
medium- and long-term liquidity requirements include new loans, equity issuance or vessel sales.
Recent Equity Offerings and Senior Notes
On July 25, 2013, pursuant to the Rights Offering, approved by our Board of Directors in April 2013, we issued 15,338,861
shares of common stock, which resulted in net proceeds of approximately $77.9 million, after deducting offering expenses of $2.2
million.
On October 7, 2013, we issued and sold 8,050,000 common shares in an underwritten public offering, which resulted in net
proceeds of approximately $68.1 million, after deducting offering expenses of $2.7 million.
On November 6, 2014, we issued $50.0 million aggregate principal amount of 8.00% Senior Notes due 2019 (the “2019
Notes”). The 2019 Notes mature in November 2019 and are senior, unsecured obligations of Star Bulk Carriers Corp. The 2019 Notes
are not guaranteed by any of our subsidiaries.
On January 14, 2015, we issued and sold 49,000,418 common shares in an underwritten public offering, at a price of $5.00
per share. The aggregate proceeds net of underwriting commissions amounted to $242.2 million, which we expect to use for the
financing of our newbuilding program and general corporate purposes.
Significant Acquisitions and Newbuilding Vessels
On July 11, 2014, we completed the July 2014 Transactions. A total of 54,104,200 of our common shares were issued to the
various selling parties in the July 2014 Transactions, of which 45,460,324 shares were issued to Oaktree, and 8,643,876 were issued to
the owners of the Pappas Companies. In the July 2014 Transactions we acquired 12 then-existing vessels, 25 contracts for
newbuilding vessels and an equity interest in Heron, which eventually resulted in the distribution to us of two additional vessels.
In August 2014, we entered into definitive agreements relating to the Excel Transactions with Excel, pursuant to which we
are acquiring the 34 Excel Vessels for an aggregate of 29,917,312 common shares and $288.4 million of cash. At the transfer of each
Excel Vessel, we pay the cash and share consideration for such Excel Vessel to Excel. We use cash on hand, together with borrowings
under various of our credit facilities (described below), to pay the cash consideration for the Excel Vessels. As of April 6, 2015, 33 of
the Excel Vessels had been delivered to us in exchange for 28,924,151 common shares and $279.2 million of cash. As of April 6,
2015, we had drawn approximately $256.2 million under the Citi Facility, the DVB $24.75 million Facility, the Excel Vessel CiT
Facility and the DNB $120.0 million Facility (each as defined and described below under “Recent Developments”), to finance the
closings of the 33 Excel Vessels that had been delivered as of that date (or refinance amounts originally drawn under the Excel Vessel
Bridge Facility in respect of those Excel Vessels, which was fully repaid on January 29, 2015).
As of December 31, 2014, we have contracted to acquire 35 newbuilding dry bulk carriers from SWS, JMU and NACKS, 26
of which are scheduled to be delivered in 2015 (six of which (Indomitable, Honey Badger, Wolverine, Idee Fixe, Roberta and
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Gargantua), have been delivered to us as of April 6, 2015) and nine in 2016. Out of the 35 newbuilding vessels, we have entered into
eight- to ten-year bareboat charters with respect to: (a) two 208,000 dwt Newcastlemax dry bulk vessels, Hull 1371 (tbn Star Virgo)
and 1372 (tbn Star Libra), being built at SWS; (b) four newbuilding 64,000 dwt Ultramax vessels (Hulls HN 1061 (tbn Roberta) , HN
1062 (tbn Laura), HN 1063 (tbn Idee Fixe) and HN 1064 (tbn Kaley)) being built at New Yangzijiang; and (c) five newbuilding
208,000 dwt Newcastlemax vessels (Hulls HN 1359 (tbn Star Marisa), HN 1360 (tbn Star Ariadne), HN 1361 (tbn Star Magnanimus),
HN 1362 (tbn Star Manticore) and HN 1363 (tbn (Star Chaucer)) being built at SWS, all 11 of which are scheduled to be delivered in
2015 and 2016. We have the option to purchase these 11 vessels at any time, and we have a purchase obligation upon the completion
of each bareboat charterparty.
As of April 6, 2015, the total payments for our 29 newbuilding vessels were expected to be $1,296.1 million, of which we
had already paid $258.6 million. As of April 6, 2015, we had obtained commitments for $832.1 million of secured debt for 27
newbuilding vessels and we were in negotiations for an additional $65.0 million of secured debt for the remaining two newbuilding
vessels. A portion of the net proceeds from our sale of the $50.0 million 2019 Notes and from the 2015 Equity Offering will also be
used for the financing of our current capital expenditures. The remaining payments for the newbuilding vessels are expected to be paid
from cash on hand or from proceeds of additional debt or equity financings.
As of December 31, 2013, we had outstanding borrowings of $190.3 of which $18.3 million was scheduled to be repaid in
the next twelve months. As of December 31, 2014, we had outstanding borrowings of $861.8 million including the $50.0 million
under the issued 2019 Notes, of which $96.5 million is scheduled to be repaid in the next twelve months. Our indebtedness as of
December 31, 2014, increased substantially by $671.5 million, as a result of the Transactions, compared to the year ended December
31, 2013. As of April 6, 2015, we had $208.4 million in cash and outstanding borrowings of $935.9 million, including the $50.0
million under the issued 2019 Notes and the amount of $41.2 million under our capital lease obligations. See Note 9 of our
consolidated financial statements for the outstanding borrowings of each of our Senior Secured Credit Facilities, all of which are
described below and Note 6 for our capital leases.
We believe that our current cash balance and our operating cash flows will be sufficient to meet our 2015 liquidity needs,
even though the dry bulk charter market has remained at relatively depressed levels throughout 2012, 2013 and 2014. Since the last
quarter of 2014, the dry bulk shipping industry has experienced very low charter rates, and if such rates continue at such levels, our
operating cash flows may be adversely affected, and we may be required to sell certain of our vessels or obtain additional financing
(either equity or debt financing) in order to meet our liquidity needs. Our results of operations have been and may in the future be
adversely affected if market conditions do not improve.
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 dry bulk carriers using a combination of funds from operations and bank debt
secured by mortgages on our dry bulk 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 dry bulk carriers and the selective sale of older dry bulk carriers. These
acquisitions will be principally subject to management’s expectation of future market conditions as well as our ability to acquire dry
bulk carriers on favorable terms.
Cash Flows
Cash and cash equivalents as of December 31, 2014, amounted to $86.0 million, compared to $53.5 million as of December
31, 2013. We define working capital as current assets minus current liabilities, including the current portion of long-term debt. Our
working capital deficit was $5.8 million as of December 31, 2014, compared to working capital surplus of $33.9 million as of
December 31, 2013.
As of December 31, 2014, we were required to maintain minimum liquidity, not legally restricted, of $35.4 million, which is
included within “Cash and cash equivalents” in 2014 balance sheet. In addition, as of December 31, 2013 and 2014, we were required
to maintain minimum liquidity, legally restricted, of $2.5 million and $14.0, respectively, which is included within “Restricted cash”
in the balance sheets. Minimum liquidity, not legally restricted of $9.3 million, as of December 31, 2013, was initially classified as
“Restricted cash” in the prior year’s financial statements. We reclassified this amount from “Restricted cash” to “Cash and cash
equivalents” in the 2013 balance sheet.
We believe that our current cash balance and our operating cash flow will be sufficient to meet our liquidity needs over the
next twelve months.
Year ended December 31, 2014 compared to the year ended December 31, 2013
Net Cash Provided By Operating Activities
Net cash provided by operating activities for the year ended December 31, 2014 and 2013, were $12.8 million and $27.5
million, respectively. The TCE rate for the year ended December 31, 2014 and 2013 was $12,161 and $14,427, respectively.
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Net Cash Used In Investing Activities
Net cash used in investing activities for the year ended December 31, 2014 and 2013 was $437.1 million and $107.6 million,
respectively.
For the year ended December 31, 2014, net cash used in investing activities consisted of: (i) $117.9 million paid for advances
and other capitalized expenses for our newbuilding vessels; (ii) $400.0 million paid for the acquisition of secondhand vessels
(including the Heron Vessels and most of the Excel Vessels); (iii) $0.6 million paid for the acquisition of other fixed assets; (iv) $0.2
million paid for the acquisition of 33% of the total outstanding common stock of Interchart Shipping Inc., a Liberian company that
acts as a chartering broker to our fleet; (v) $4.9 million cash consideration paid for the acquisition of above fair market charters
attached to three of the Excel Vessels; and (vi) a net increase of $11.5 million in restricted cash, offset by: (i) hull and machinery
insurance proceeds amounting to $0.6 million; (ii) $96.3 million cash assumed as part of the acquisition of Oceanbulk and the Pappas
Companies; and (iii) $1.1 million cash received in December 2014, representing a 20% advance in connection with the sale of Star
Kim.
For the year ended December 31, 2013, net cash used in investing activities consisted of $67.9 million paid for advances and
other capitalized expenses for our newbuilding vessels and $59.9 million paid for the acquisition of secondhand vessels and other
fixed assets, offset by $8.3 million of proceeds from the sale of Star Sigma, a decrease of $7.7 million in restricted cash and $4.3
million of hull and machinery insurance proceeds.
Net Cash Provided By Financing Activities
Net cash provided by financing activities for the year ended December 31, 2014 and 2013 was $456.7 and $112.0 million,
respectively.
For the year ended December 31, 2014, net cash provided by financing activities consisted of: (i) proceeds from bank loans
and Excel Vessel Bridge Facility of $489.7 million for the financing of the acquisition of the Excel Vessels, Heron Vessels and other
secondhand vessels; (ii) proceeds from bank loans of $97.5 million for delivery installments for three of our newbuilding vessels (two
of them delivered in 2014 and one delivered in early January 2015), (ii) $50.0 million proceeds from the issuance of our senior
unsecured notes due 2019; (iii) financing fees paid amounting to $6.5 million; and (iv) loan regular repayment installments as well as
partial prepayment of Excel Vessel Bridge Facility amounting to $174.0 million.
For the year ended December 31, 2013, net cash provided by financing activities consisted of: (i) gross proceeds from the
rights offering and the underwritten public offering of $150.9 million less offering expenses of $4.9 million; (ii) loan installment
payments and prepayments of $33.8 million; and (iii) $0.3 million of financing fees paid.
Year ended December 31, 2013 compared to the year ended December 31, 2012
Net Cash Provided By Operating Activities
Net cash provided by operating activities for the years ended December 31, 2013 and 2012, was $27.5 million and $19.0
million, respectively. Although the average TCE rates decreased for the year ended December 31, 2013, to $14,427 from $15,419 for
the year ended December 31, 2012, and the average number of vessels decreased to 13.34 for the year ended December 31, 2013, as
compared to 14.19 for the year ended December 31, 2012, the increase in cash provided by operating activities was primarily due to
the (i) increase in management fee income from $0.5 million to $1.6 million and (ii) positive movement in working capital of $2.2
million compared to a negative movement of $13.5 million for the year ended December 31, 2012. A portion of this increase in
working capital was a result of the $6.5 million gain from the time charter agreement termination, which occurred during the year
ended December 31, 2012, in connection to early redelivery of Star Sigma by its previous charterer.
Net Cash Used In/ Provided By Investing Activities
Net cash used in investing activities for the year ended December 31, 2013 was $107.6 million. Net cash provided by
investing activities for the year ended December 31, 2012 was $17.2 million. For the year ended December 31, 2013, net cash used in
investing activities mainly consisted of (i) $127.8 million paid for advances for our newbuilding vessels, acquisitions of second hand
vessels and other fixed assets, (ii) net proceeds of $8.3 million from sale of Star Sigma, (iii) a net decrease of $7.7 million in restricted
cash and (iv) insurance proceeds of $4.3 million. For the year ended December 31, 2012, net cash provided by investing activities
mainly consisted of (i) net proceeds of $8.0 million from sale of Star Ypsilon, (ii) a net decrease of $2.4 million in restricted cash, (iii)
insurance proceeds of $7.0 million and (iv) payments of $0.1 million relating to additions to office equipment.
Net Cash Provided By/ Used In Financing Activities
Net cash provided by financing activities for the year ended December 31, 2013 was $112.0 million. Net cash used in
financing activities for the year ended December 31, 2012 was $46.6 million. For the year ended December 31, 2013, net cash
provided by financing activities mainly consisted of (i) proceeds from the rights offering and our underwritten public offering of
$150.9 million less offering expenses of $4.9 million, (ii) loan installment payments of $33.8 million and (iii) payment of financing
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fees of $0.3 million. For the year ended December 31, 2012, net cash used in financing activities mainly consisted of (i) loan
installment payments of $42.0 million, (ii) cash dividend payments of $3.6 million, (iii) payment of financing fees of $0.1 million and
(iv) payment of $0.9 million for the repurchase of 61,730 shares under the terms of the share re-purchase plan which expired on
December 31, 2012.
Senior Secured Credit Facilities
1.
Commerzbank $120.0 million Facility
On December 27, 2007, we entered into a loan agreement (the “Commerzbank $120.0 million Facility”) with Commerzbank
AG (“Commerzbank”) to provide financing in an amount of up to $120.0 million to partially finance the acquisition of the second
hand vessels Star Gamma, Star Delta, Star Epsilon, Star Zeta and Star Theta. The Commerzbank $120.0 million Facility is secured by
a first priority mortgage over the financed vessels. On June 10, 2009 and December 24, 2009, the loan agreement was amended to
revise some of its economic terms for a period up to January 31, 2011, in view of the depressed conditions prevailing at the market at
that time. The loans under the Commerzbank $120.0 million Facility were available in two tranches of up to $50.0 million and $70.0
million. The first tranche is repayable in 28 consecutive quarterly installments commencing in January 2010, with (i) the first four
installments of $2.3 million each, (ii) the next thirteen installments of $1.0 million each, (iii) the remaining eleven installments of $1.3
million each and (iv) a final balloon payment at maturity of $13.7 million payable together with the last installment. The second
tranche is repayable in 28 consecutive quarterly installments commencing in January 2010, with (i) the first four installments of $4.0
million each (ii) the remaining 24 installments of $1.8 million each and (iii) a final balloon payment of $12.0 million payable together
with the last installment at the maturity date of October 2016.
2.
Commerzbank $26.0 million Facility
On September 3, 2010, we entered into a loan agreement with Commerzbank (the “Commerzbank $26.0 million Facility”) to
provide financing in an amount of up to $26.0 million to partially finance the acquisition of the second hand vessel Star Aurora. The
Commerzbank $26.0 million Facility is secured by a first priority mortgage over the financed vessel. The Commerzbank $26.0 million
Facility will be repaid over a six year period in (i) 24 consecutive quarterly installments of $1.0 million each, commencing in
December 2010, three months after the drawdown and (ii) a final balloon payment of $3.2 million payable with the last installment.
3.
Restructuring Agreement - Commerzbank $120.0 million and $26.0 million Facilities
On December 17, 2012, we executed a commitment letter with Commerzbank to amend the Commerzbank $120.0 million
Facility and the Commerzbank $26.0 million Facility. The definitive documentation for the supplemental agreement (the
“Commerzbank Supplemental”) was signed on July 1, 2013. Pursuant to the Commerzbank Supplemental, we paid Commerzbank a
flat fee of 0.40% of the combined outstanding loans under the two facilities and agreed to (i) prepay Commerzbank $2.0 million pro
rata against the balloon payments of each facility (which was completed on December 31, 2012), (ii) raise $30.0 million in equity
(which condition was satisfied with the completion of our rights offering in July 2013, which resulted in gross proceeds of $80.1
million and our underwritten public offering in October 2013, which resulted in gross proceeds of $70.8 million – please see the
section of this annual report entitled “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources”),
(iii) increase our vessel management services to cover at least ten third-party vessels by December 31, 2013 (which condition was
satisfied as of December 31, 2013), (iv) increase the loan margins, (v) amend some of the financial covenants under the two facilities,
(vi) defer 60% and 50% of the quarterly installments for the years ended December 31, 2013 and 2014 (the “Deferred Amounts”), to
the balloon payments or to a payment in accordance with a cash sweep mechanism; (vi) include a semi-annual cash sweep mechanism,
under which all earnings of the mortgaged vessels after operating expenses, dry docking provision, general and administrative
expenses and debt service, if any, will be used as repayment of the Deferred Amounts; and (vii) not pay any dividends as long as
Deferred Amounts are outstanding and/or until original terms are complied with. In the Commerzbank Supplemental, Commerzbank
also agreed to waive an on-charter covenant for the Star Aurora in the Commerzbank $26.0 million Facility until July 31, 2015.
4.
Credit Agricole $70.0 million Facility
On January 20, 2011, we entered into a loan agreement with Credit Agricole Corporate and Investment Bank (“Credit
Agricole”) for a term loan up to $70.0 million (the “Credit Agricole $70.0 million Facility”) to partially finance the construction cost
of two of our newbuilding vessels, Star Borealis and Star Polaris, which were delivered to us in 2011. The Credit Agricole $70.0
million Facility is secured by a first priority mortgage over the financed vessels and is divided into two tranches. We drew down $67.3
million under this facility. The Credit Agricole $70.0 million Facility is repayable in 28 consecutive quarterly installments,
commencing three months after the delivery of each vessel, of $0.5 million for each tranche, and a final balloon payment payable at
maturity, of $19.6 million (due August 2018) and $20.1 million (due November 18) for the Star Borealis and Star Polaris tranches,
respectively.
On May 20, 2013, we signed a waiver letter with Credit Agricole in order to revise some of the financial covenants contained
in the loan agreement for a period up to March 31, 2014, as well as to revise the dividend distribution related requirements so that Star
Bulk Carriers Corp. shall not pay any dividends until March 31, 2014.
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5.
ABN AMRO $31.0 million Facility
On July 21, 2011, we entered into a senior secured credit facility with ABN AMRO Bank N.V. (“ABN AMRO”) for $31.0
million (the “ABN AMRO $31.0 million Facility”), to partially finance the acquisition of the second-hand vessels Star Big and Star
Mega. The ABN AMRO $31.0 million Facility is secured by a first priority mortgage over the financed vessels. The borrowers under
the ABN AMRO $31.0 million Facility are the two vessel-owning subsidiaries that own the two vessels and Star Bulk Carriers Corp.
is the guarantor. The ABN AMRO $31.0 million Facility is repayable in 18 consecutive, quarterly installments, commencing in
October 2011, with the first 14 installments of $1.4 million and the remaining four installments of $0.6 million, and a final balloon
payment of $8.9 million payable at the maturity date of January 2016.
We and ABN AMRO amended the ABN AMRO $31.0 million Facility under a first supplemental agreement (the “ABN
$31.0 million First Supplemental”) dated March 16, 2012. On April 2, 2013, we and ABN AMRO signed a second supplemental
agreement (the “ABN $31.0 million Second Supplemental” and, together with the ABN First Supplemental, the “ABN $31.0 million
Supplementals”). Under the ABN $31.0 million Supplementals, we agreed to (i) revise the financial covenants until December 31,
2014, (ii) not pay dividends until December 31, 2014, and (iii) increase the margin by 50 bps, beginning on March 31, 2013, until the
time we were able to raise at least $30.0 million of additional equity. We paid the increased margin of 50 bps from March 31, 2013
until July 26, 2013, when we completed our rights offering which resulted in net proceeds of $77.9 million after deducting offering
expenses of $2.2 million.
6.
HSH Nordbank $64.5 million Facility
On October 3, 2011, we entered into a $64.5 million secured term loan agreement (the “HSH Nordbank $64.5 million
Facility”) with HSH Nordbank AG (“HSH Nordbank”) to repay, together with cash on hand, certain existing debt. The borrowers
under the HSH Nordbank $64.5 million Facility are the vessel-owning subsidiaries that own the Star Cosmo, Star Kappa, Star Sigma,
Star Omicron and Star Ypsilon, and Star Bulk Carriers Corp. is the guarantor. The borrowing under this new loan agreement together
with $5.3 million in cash was used to repay in full our indebtedness under our old loan agreements with Piraeus Bank S.A.; a term
loan of $150.0 million dated April 14, 2008 and a term loan of $35.0 million dated July 1, 2008, in 2011. This facility consists of two
tranches. The first tranche of $48.5 million (the “Supramax Tranche”) is repayable in 20 quarterly consecutive, quarterly installments
of $1.3 million commencing in January 2012 and a final balloon payment of $23.5 million payable at the maturity date of September
2016. The second tranche of $16.0 million (the “Capesize Tranche”) was repayable in 12 consecutive, quarterly installments of $1.3
million, commencing in January 2012 and matured in September 2014.
We and HSH Nordbank signed a supplemental agreement (the “HSH Nordbank $64.5 Supplemental”) on July 17, 2013.
Under the HSH Nordbank $64.5 million Supplemental, we agreed to (i) defer a minimum of approximately $3.5 million payments
from January 1, 2013 until December 31, 2014, (ii) prepay HSH Nordbank AG $6.6 million with pledged cash already held by HSH
Nordbank, of which $3.5 million was applied against the balloon payment of Supramax Tranche and $3.1 million was applied pro rata
against the eight quarterly repayment installments of the Supramax Tranche, starting with the scheduled repayment date in January
2013, (iii) amend some of the financial covenants until December 31, 2014, (iv) raise $20.0 million in equity (which condition was
satisfied with the completion of our rights offering in July 2013, which resulted in gross proceeds of $80.1 million and our
underwritten public offering in October 2013, which resulted in gross proceeds of $70.8 million – please see the section of this annual
report entitled “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources”), (v) to increase the loan
margins from January 1, 2013 until December 31, 2014, (vi) include a semi-annual cash sweep mechanism, under which all earnings
of the mortgaged vessels after operating expenses, dry docking provision, general and administrative expenses and debt service, if any,
will be used as prepayment to the balloon installment for the Supramax Tranche, and (vii) not pay any dividends until December 31,
2014 or later in case of a covenant breach. When we sold the Star Sigma in April 2013, the HSH Nordbank $64.5 million Supplement
also required us to use the proceeds from the sale to fully prepay the balance of the Capesize Tranche and use the remaining vessel
sale proceeds of $4.1 million to prepay a portion of the Supramax Tranche, thus reducing the next seven scheduled quarterly
installments reduced from $0.8 million to $0.2 million.
7.
HSH Nordbank $35.0 million Facility
On February 6, 2014, we entered into a secured term loan agreement (the “HSH Nordbank $35.0 million Facility”) with HSH
Nordbank. The borrowings under this new loan agreement were used to partially finance the acquisition of second-hand vessels Star
Challenger and Star Fighter. The HSH Nordbank $35.0 million Facility is secured by a first priority mortgage over the financed
vessels. The borrowers under the HSH Nordbank $35.0 million Facility are the two vessel-owning subsidiaries that own the two
vessels and Star Bulk Carriers Corp. is the guarantor. This facility matures in February 2021 and is repayable in 28 equal, consecutive,
quarterly installments, commencing in May 2014, of $0.3 million for each of the Star Challenger and Star Fighter, and a final balloon
payment of $8.8 million and $9.3 million, payable at maturity together with the last installments for Star Challenger and Star Fighter,
respectively.
8.
Deutsche Bank $39.0 million Facility
On March 14, 2014, we entered into a new $39.0 million secured term loan agreement with Deutsche Bank AG (the
“Deutsche Bank $39.0 million Facility”). The borrowings under this new loan agreement were used to partially finance the acquisition
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of the vessels Star Sirius and Star Vega. The Deutsche Bank $39.0 million Facility is secured by a first priority mortgage over the
financed vessels. The borrowers under the Deutsche Bank $39.0 million Facility are the two vessel-owning subsidiaries that own the
two vessels and Star Bulk Carriers Corp. is the guarantor. This facility consists of two tranches of $19.5 million each and matures in
March 2021. Each tranche is repayable in 28 equal, consecutive, quarterly installments of $0.4 million each, commencing in June
2014 and a final balloon payment of $8.6 million payable at maturity.
Debt Assumed under the July 2014 Transactions
As a result of the July 2014 Transactions, we assumed, on July 11, 2014, an additional $208.2 million aggregate principal
amount of debt consisting of the following debt agreements:
9.
ABN AMRO $87.5 million Facility
On August 1, 2013, Oceanbulk Shipping entered into a $34.5 million credit facility with ABN AMRO, N.V. (the “ABN
AMRO $87.5 million Facility”) in order to partially finance the acquisition cost of the vessels Obelix and Maiden Voyage. The loans
under the ABN AMRO $87.5 million Facility were available in two tranches of $20.4 million and $14.1 million. On August 6, 2013,
Oceanbulk Shipping drew down the available tranches. On December 18, 2013, the ABN AMRO $87.5 million Facility was amended
to add an additional loan of $53.0 million to partially finance the acquisition cost of the vessels Big Bang, Strange Attractor, Big Fish
and Pantagruel. On December 20, 2013, Oceanbulk Shipping drew down the available tranches. The tranche under the ABN AMRO
$87.5 million Facility relating to vessel Obelix matures in September 2017, the one relating to vessel Maiden Voyage matures in
August 2018 and those relating to vessels Big Bang, Strange Attractor, Big Fish and Pantagruel mature in December 2018. The
tranches are repayable in quarterly consecutive installments ranging between $0.2 million to $0.6 million and a final balloon payment
for each tranche at maturity, ranging between $2.5 million and $12.8 million. The ABN AMRO $87.5 million Facility is secured by a
first-priority ship mortgage on the financed vessels, general assignments, charter assignments and, operating account assignments and
was guaranteed by Oceanbulk Shipping LLC. Following the completion of the Merger, Star Bulk Carriers Corp. replaced Oceanbulk
Shipping as guarantor of the ABN AMRO $87.5 million Facility.
10.
Deutsche Bank $85.0 million Facility
On May 20, 2014, Oceanbulk Shipping entered into a loan agreement with Deutsche Bank AG Filiale Deutschlandgeschaft
for the financing of an aggregate amount of $85.0 million (the “Deutsche Bank $85.0 million Facility”), in order to partially finance
the construction cost of Magnum Opus, Peloreus and Leviathan. Each tranche matures five years after the drawdown date. The
applicable tranches were drawn down concurrently with the deliveries of the financed vessels, in May, July and September 2014,
respectively. Each loan is subject to 19 quarterly amortization payments equal to 1/60th of the loan amount, with the 20th payment
equal to the remaining amount outstanding on the loan. The Deutsche Bank $85.0 million Facility is secured by first priority cross-
collateralized ship mortgages on the financed vessels, charter assignments and insurance and earnings assignments, and was originally
guaranteed by Oceanbulk Shipping. On July 4, 2014, an amendment to the Deutsche Bank $85.0 million Facility was executed in
order to add ITF International Transport Finance Suisse AG as a lender and replace Oceanbulk Shipping with Star Bulk Carriers Corp.
as guarantor of this facility.
11.
HSBC $86.6 million Facility
On June 16, 2014, Oceanbulk Shipping entered into a loan agreement with HSBC Bank plc. (the “HSBC $86.6 million
Facility”) for the financing of an aggregate amount of $86.6 million, to partially finance the acquisition cost of the second hand
vessels Kymopolia, Mercurial Virgo, Pendulum, Amami and Madredeus. The loan, which was drawn in June 2014, matures in May
2019 and is repayable in 20 quarterly installments, commencing three months after the drawdown, of $1.6 million plus a balloon
payment of $55.5 million due together with the last installment. The HSBC $86.6 million Facility is secured by a first priority
mortgage over the financed vessels and general and specific assignments and was originally guaranteed by Oceanbulk Shipping. On
September 11, 2014, a supplemental agreement to the HSBC Facility was executed in order to replace Oceanbulk Shipping with Star
Bulk Carriers Corp. as guarantor of the HSBC $86.6 million Facility.
12.
CEXIM $57.36 million Facility
On June 26, 2014, Oceanbulk Shipping entered into a loan agreement with the Export-Import Bank of China (the “CEXIM
$57.36 million Facility”) for the financing of an aggregate amount of $57.36 million, which will be available in two tranches of $28.7
million each, to partially finance the construction cost of two Capesize bulk carriers currently under construction at SWS (Hulls HN
1312 (tbn Bruno Mars) and HN 1313 (tbn Jenmark), with expected delivery in April and May 2015, respectively. Each tranche will
mature ten years from the delivery date of the last delivered financed vessel and will be repayable in 20 semi-annual installments of
$1.2 million plus a balloon payment of $5.7 million, with the first installment being due on the first January 21 or July 21 six months
after the delivery of each vessel. The CEXIM $57.36 million Facility will be secured by first priority cross-collateralized ship
mortgages on the financed vessels, charter assignments and insurance and earnings assignments, and is guaranteed by Oceanbulk
Shipping.
63
13.
Dioriga $20.0 million Facility
On April 14, 2014, Dioriga Shipping Co. entered into a loan agreement with HSBC Bank plc (the “Dioriga $20.0 million
Facility”) for $20.0 million to partially finance the construction cost of Tsu Ebisu, which was delivered in April 2014. The Dioriga
$20.0 million Facility will mature in March 2019 and will be repayable in 20 quarterly installments of $0.4 million each, commencing
three months after the drawdown, plus a balloon payment of $13.0 million due together with the last installment. The Dioriga $20.0
million Facility is secured by a first priority mortgage over the financed vessel and general and specific assignments. On October 3,
2014, a supplemental agreement to the Dioriga $20.0 million Facility was executed in order for Star Bulk Carriers Corp. to become the
guarantor of the Dioriga $20.0 million Facility and to include covenants similar to those of our other vessel financing facilities.
14.
NIBC $32.0 million Facility
On November 7, 2014, we and NIBC Bank N.V. entered into an agreement with respect to a credit facility (the “NIBC $32.0
million Facility”) for the financing of an aggregate amount of $32.0 million, which will be available in two tranches of $16.0 million,
to partially finance the construction cost of two Ultramax bulk carriers currently under construction by Japan Marine United
Corporation (Hulls HN 5040 (tbn Star Acquarius) and HN 5043 (tbn Star Pisces), with expected delivery in May and July 2015,
respectively. The facility will mature in November, 2020. Each tranche is expected to be drawn concurrently with the delivery of the
relevant vessel and will be repayable in consecutive quarterly installments of $0.3 million, commencing three months after the
drawdown, plus a balloon payment of $10.4 million for each of HN 5040 ( tbn Star Acquarius) and HN 5043 (tbn Star Pisces)
respectively, both due in November 2020.. The NIBC Facility is secured by a first priority cross collateralized mortgage over the
financed vessels and general and specific assignments and is guaranteed by Star Bulk Carriers Corp.
15.
BNP $32.48 million Facility
On July 31, 2014, Positive Shipping Company, one of our subsidiaries following the completion of the Pappas Transaction,
executed a binding term sheet with BNP Paribas (the “BNP $32.48 million Facility”) for the financing of an amount up to $32.48
million to partially finance the construction cost of its Capesize bulk carrier Indomitable, which was constructed by Japan Marine
United Corporation. Definitive agreement relating to this facility was executed on December 3, 2014 and the amount of $32.48 million
was drawn in December 2014, in anticipation of the delivery of the Indomitable to us on January 8, 2015. The facility will be repaid in
20 equal, consecutive, quarterly principal payments of $0.5 million each, with the first becoming due and payable three months from
the drawdown date and a balloon installment of $21.7 million payable simultaneously with the last installment, which is due in
December 2019. The BNP $32.48 million Facility is secured by a first priority mortgage over the financed vessel and general and
specific assignments and is guaranteed by Star Bulk Carriers Corp.
16.
Excel Vessel Bridge Facility
On August 19, 2014, we, through Unity Holding LLC (“Unity”), a fully owned subsidiary of Star Bulk, entered into a $231.0
million Senior Secured Credit Agreement, among Unity, as Borrower, the initial lenders named therein, as Initial Lenders, affiliates of
Oaktree and Angelo, Gordon as Lenders, and Wilmington Trust, National Association, as Administrative Agent (the “Excel Vessel
Bridge Facility”). We used borrowings under the Excel Vessel Bridge Facility to fund portion of the cash consideration for the Excel
Vessels. On January 29, 2015, we repaid all of the amounts drawn under the Excel Vessel Bridge Facility and terminated the facility.
17.
DVB $24.75 million Facility
On October 31, 2014, as part of the Excel Transactions, we acquired 100% of the equity interests of Christine Shipco LLC,
which is the owner of the vessel Christine (tbr Star Martha), one of the 34 Excel Vessels. In order to finance this acquisition, we
entered into a credit facility with DVB Bank SE, Frankfurt (the “DVB $24.75 million Facility”). Definitive documentation for the
DVB $24.75 million Facility was signed on October 30, 2014, and on October 31, 2014 we drew $24.75 million to pay Excel the
related cash consideration. The DVB $24.75 million Facility will be repaid in 24 consecutive, quarterly principal payments of $0.9
million for each of the first four quarters and of $0.5 million for each of the remaining 20 quarters, with the first becoming due and
payable three months from the drawdown date, and a balloon payment of $12.2 million payable simultaneously with the last quarterly
installment, which is due in October 2020. The DVB $24.75 million Facility is secured by a first priority pledge of the membership
interests of the Christine Shipco LLC and general and specific assignments and is guaranteed by Star Bulk Carriers Corp.
18.
Excel Vessel CiT Facility
On December 9, 2014, we entered into a new credit facility with CiT Finance LLC (the “Excel Vessel CiT Facility”) for an
amount up to $30.0 million to partially finance the acquisition of 11 of the older Excel Vessels. The Excel Vessel CiT Facility is
secured on a first-priority basis by these 11 Excel Vessels we have acquired, consisting of nine Panamax and two Handymax vessels
(the “Excel Collateral Vessels”). We drew $30.0 million under the Excel Vessel CiT Facility on December 10, 2014. The borrowers
under the Excel Vessel CiT Facility are the various vessel-owning subsidiaries that own the Excel Collateral Vessels and Star Bulk
Carriers Corp. will be the guarantor. The Excel Vessel CiT Facility will mature in December 2016 and will be subject to quarterly
amortization payments of $0.5 million, commencing on March 31, 2015, with a balloon payment equal to the outstanding amount
under the Excel Vessel CiT Facility payable simultaneously with the last quarterly installment.
64
19.
Sinosure Facility
On December 22, 2014, we entered into a new credit facility with Deutsche Bank (China) Co., Ltd. Beijing Branch and
HSBC Bank plc (the “Sinosure Facility”) for the financing of an aggregate amount of up to $156.5 million to partially finance the
construction cost of eight Ultramax bulk carriers Honey Badger (ex-HN NE 164), Wolverine (ex-HN NE 165), HN NE 196 (tbn Star
Antares), HN NE 197 (tbn Star Lutas), HN 1080 (tbn Kennadi), HN 1081 (tbn Mackenzie), HN 1082 (tbn Night Owl), HN 1083 (tbn
Early Bird)) (the “Sinosure Financed Vessels”), which, with the exception of the Wolverine and Honey Badger, which were both
delivered to us in February 2015, are under construction, with expected deliveries between April 2015 and November 2015. The
financing will be available in eight separate tranches, one for each Sinosure Financed Vessel, and will be credit insured (95%) by
China Export & Credit Insurance Corporation. Each tranche, which will be documented by a separate credit agreement, will mature 12
years after each drawdown and will be repaid in 48 equal and consecutive quarterly installments. The Sinosure Facility will be secured
by a first priority cross collateralized mortgage over the Sinosure Financed Vessels and general and specific assignments and will be
guaranteed by Star Bulk Carriers Corp.
On February 11, 2015, we entered into two separate credit agreements under the Sinosure Facility for the partial financing of
the Wolverine (the “Wolverine Facility”) and Honey Badger (the “Honey Badger Facility”). On March 13, 2015, we drew $19.1 under
the Wolverine Facility and $19.1 million under Honey Badger Facility. Each facility will be repaid in 48 consecutive, quarterly
principal payments of $0.4 million until its maturity on March 2027. The Wolverine Facility and the Honey Badger Facility are
secured by a first priority cross collateralized mortgage over the Wolverine and the Honey Badger, respectively, and general and
specific assignments and will be guaranteed by Star Bulk Carriers Corp.
20.
Citi Facility
On December 22, 2014, we entered into a new credit facility with Citibank, N.A., London Branch (the “Citi Facility”) to
provide financing for an amount of up to $100.0 million, in lieu of the Excel Vessel Bridge Facility, in connection with the acquisition
of vessels Sandra (tbr Star Pauline), Lowlands Beilun (tbr Star Despoina), Star Angie, Star Sophia, Star Georgia, Star Kamila and
Star Nina, which are seven of the Excel Vessels we have acquired (the “Citi Financed Excel Vessels”). The first tranche of $51.5
million was drawn on December 23, 2014, and the second tranche of $42.6 million was drawn on January 21, 2015. We used amounts
drawn under the Citi Facility to repay portion of the Excel Vessel Bridge Facility in respect of those Citi Financed Excel Vessels. The
Citi Facility matures on December 30, 2019. The Citi Facility will be repaid in 20 equal, consecutive, quarterly principal payments of
$3.4 million, with the first installment due on March 30, 2015, with a balloon installment of $26.3 million payable simultaneously
with the last quarterly installment. The Citi Facility is secured by a first priority mortgage over the Citi Financed Excel Vessels and
general and specific assignments and is guaranteed by Star Bulk Carriers Corp.
21.
Heron Vessels Facility
In November, 2014, we entered into a secured term loan agreement with CiT Finance LLC (the “Heron Vessels Facility”), in
the amount of up to $25.3 million, in order to partially finance the acquisition cost of the two Heron Vessels, Star Gwyneth and Star
Angelina. The drawdown of the financed amount incurred in December 2014, when we took delivery of the Heron Vessels. The Heron
Vessels Facility matures on June 30, 2019 and is repayable in 19 equal consecutive, quarterly principal payments of $0.7 million (with
the first becoming due and payable on December 31, 2014), with a balloon installment payable at maturity equal to the then
outstanding amount of the loan. The Heron Vessels Facility is secured by a first priority mortgage over the financed vessels and
general and specific assignments and is guaranteed by Star Bulk Carriers Corp.
22.
DNB $120.0 million Facility
On December 29, 2014, we entered into an agreement with DNB Bank ASA as facility agent, security agent account bank
and bookrunner, DNB Bank ASA, NIBC Bank N.V and Skandinaviska Enskilda Banken AB as original lenders, mandated lead
arrangers and hedge counterparties (the “DNB $120.0 million Facility”), to provide financing for up to $120.0million, in lieu of the
Excel Vessel Bridge Facility, in connection with the acquisition of vessels Star Nasia, Star Monisha, Star Eleonora, Star Danai, Star
Renee, Star Markella, Star Laura, Star Moira, Ore Hansa (tbr Star Jennifer), Star Mariella, Star Helena and Star Maria, which are
twelve of the Excel Vessels we have acquired or are acquiring (the “DNB Financed Excel Vessels”). We drew $88.3 million in
December 2014, $9.5 million in January 2015, $9.5 million in February 2015, and we expect to draw the remaining amount of $9.5
million by the mid-April 2015. We used amounts drawn under the DNB Facility to repay portion of the amounts drawn under the
Excel Vessel Bridge Facility relating to the DNB Financed Excel Vessels. The DNB Facility matures in December 2019 and will be
repaid in 20 equal, consecutive, quarterly principal payments of $4.4 million, with the first installment due in March 2015, and a
balloon installment of $29.2 million payable simultaneously with the 20th installment. The DNB Facility is secured by a first priority
mortgage over the DNB Financed Excel Vessels and general and specific assignments and is guaranteed by Star Bulk Carriers Corp.
23.
DVB $31.0 million Committed term sheet
On March 6, 2015, we entered in a committed term sheet with DVB Bank SE (the “DVB $31.0 million Committed term
sheet”) for the financing of the newbuilding vessel HN5017 (tbn Deep Blue) for up to $31.0 million.
65
24.
BNP $39.5 million Committed term sheet
On March 13, 2015, we entered in a committed term sheet with BNP Paribas (the “BNP $39.5 million Committed term
sheet”) for the financing of two vessels, the newbuilding vessel HN5056 (tbn Megalodon) and the 2004 built Panamax vessel Star
Emily, which is one of the Excel Vessels, for up to $39.5 million.
25.
DNB – CEXIM $227.5 million Committed term sheet
On March 19, 2015, we entered in a committed term sheet with DNB Bank ASA as facility agent, security agent account
bank and bookrunner, DNB Bank ASA and the Export-Import Bank of China (CEXIM) as mandated lead arrangers and DNB Bank
ASA, Skandinaviska Enskilda Banken AB (SEB) and CEXIM as original lenders for the financing of seven newbuilding vessels,
HN166 (tbn Gargantua), HN167 (tbn Goliath), HN1338 (tbn Star Aries), HN184 (tbn Maharaj), HN1339 (tbn Star Taurus), HN1342
(tbn Star Gemini) and HN198 (tbn Star Poseidon), for up to $227.5 million.
26.
ABN AMRO Bank N.V. $31.0 million Facility:
On March 31, 2015, we and ABN AMRO signed a third supplemental agreement and agreed to revise certain financial
covenants.
27.
Restructuring Agreement – Commerzbank $120.0 million and $26.0 million Facilities:
On March 30, 2015, we and Commerzbank AG signed a second supplemental agreement. Under the supplemental agreement,
we agreed to (i) prepay Commerzbank AG $3.0 million,(ii) amend some of the financial covenants and iii) change the repayment date
relative to Commerzbank $26.0 million tranche from September 7, 2016 to July 31, 2015.
All of our bank loans bear interest at LIBOR plus a margin.
Credit Facility Covenants
Our outstanding credit facilities generally contain customary affirmative and negative covenants, on a subsidiary level,
including limitations to:
•
•
•
incur additional indebtedness, including the issuance of guarantees;
create liens on our assets;
change the flag, class or management of our vessels or terminate or materially amend the management agreement
relating to each vessel;
sell our vessels;
•
• merge or consolidate with, or transfer all or substantially all our assets to, another person; or
•
enter into a new line of business.
In addition, under certain of our loan agreements, we are not allowed to pay dividends or distributions until the later of (i)
March 31, 2015 and (ii) the repayment of the deferred amounts under the Commerzbank $120.0 million Facility and the
Commerzbank $26.0 million Facility. Additionally, we may not pay dividends or distributions if an event of default has occurred and
is continuing or would result from such dividend or distribution.
Furthermore, our credit facilities contain financial covenants requiring us to maintain various financial ratios, including:
•
•
•
•
•
a minimum percentage of aggregate vessel value to loans secured;
a maximum ratio of total liabilities to market value adjusted total assets;
a minimum EBITDA to interest coverage ratio;
a minimum liquidity; and
a minimum equity ratio.
As of December 31, 2013 and 2014, we were required to maintain minimum liquidity, not legally restricted, of $9.3 million
and $35.4 million, respectively. In addition, as of December 31, 2013 and 2014, we were required to maintain minimum liquidity,
legally restricted, of $2.5 million and $14.0 million, respectively.
As of December 31, 2013 and 2014, we were in compliance with the applicable financial and other covenants contained in
our debt agreements.
2019 Notes
On November 6, 2014, we issued $50.0 million aggregate principal amount of 8.00% Senior Notes due 2019 (the “2019
Notes”). The net proceeds were $48.4 million. The 2019 Notes mature in November 2019 and are senior, unsecured obligations of Star
Bulk Carriers Corp. The 2019 Notes are not guaranteed by any of our subsidiaries.
66
The 2019 Notes bear interest at a rate of 8.00% per annum, payable quarterly in arrears on the 15th of February, May, August
and November of each year, commencing on February 15, 2015.
We may redeem the 2019 Notes, in whole or in part, at any time on or after November 15, 2016 at a redemption price equal
to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to
November 15, 2016, we may redeem the 2019 Notes, in whole or in part, at a price equal to 100% of their principal amount plus a
make-whole premium and accrued interest to the date of redemption. In addition, we may redeem the 2019 Notes in whole, but not in
part, at any time, at a redemption price equal to 100% of their principal amount to be redeemed, plus accrued and unpaid interest to,
but excluding, the redemption date, if certain events occur involving changes in taxation.
The indenture governing the 2019 Notes requires us to maintain a maximum ratio of net debt to consolidated total assets and
a minimum consolidated tangible net worth. The indenture governing the 2019 Notes also contains various negative covenants,
including a limitation on asset sales and a limitation on restricted payments. The indenture governing the 2019 Notes prevents us from
paying dividends if the two above financial ratios are not met. The indenture governing the 2019 Notes also contains other customary
terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not
less than 25% in aggregate principal amount of the 2019 Notes then outstanding may declare the entire principal amount of all the
2019 Notes plus accrued interest, if any, to be immediately due and payable. Upon certain change of control events, we are required to
offer to repurchase the 2019 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to, but not
including, the date of redemption. If we receive net cash proceeds from certain asset sales and do not apply them within a specified
deadline, we will be required to apply those proceeds to offer to repurchase the 2019 Notes at a price equal to 101% of their principal
amount, plus accrued and unpaid interest to, but not including, the date of redemption.
As of December 31, 2014, we were in compliance with the applicable financial and other covenants contained in the 2019
Notes.
Dividend Payments
Currently, as mentioned above, we are prohibited from paying dividends under our facilities until the later of (i) March 31,
2015 and (ii) the repayment of the deferred amounts under the Commerzbank $120.0 million Facility and the Commerzbank $26.0
million Facility. Additionally, we may not pay dividends or distributions if an event of default has occurred and is continuing or would
result from such dividend or distribution. In addition, we did not pay any dividends for the year ended 2014. Please see the section of
this annual report entitled “Senior Secured Credit Facilities”.
C.
Research and Development, Patents and Licenses
Not Applicable.
D.
Trend Information
Please see Item 5.A, “Operating Results.”
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 sets forth our contractual obligations and their maturity dates as of December 31, 2014:
In thousands of Dollars
Obligations
Principal Loan Payments (including Excel
Vessel Bridge Facility presented separately in
the balance sheet) . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.00% 2019 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payments (1). . . . . . . . . . . . . . . . . . . . . . . . . .
Shipbuilding contracts (2) . . . . . . . . . . . . . . . . . . . . .
Bareboat capital leases - upfront hire & handling
fees (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bareboat commitments charter hire (3) . . . . . . . . .
Office rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments due by period
Less
than 1
year
-2015
1-3
years
(2016 -
2017)
3-5
years
(2018-
2019)
More
than 5 years
(After January
1, 2020 )
Total
811,793
50,000
107,390
759,066
96,485
-
32,326
617,986
38,966
535,791
948
2,303,954
36,986
9,563
108
793,454
298,934
-
45,926
141,080
1,980
72,957
216
561,093
360,261
50,000
27,197
-
-
83,235
202
520,895
56,113
-
1,941
-
-
370,036
422
428,512
67
(1) Amounts shown reflect interest payments we expect to make with respect to our long-term debt obligations. The interest payments reflect an assumed LIBOR
based applicable rates of 0.17125% and 0.2556% (the one month and three month LIBOR as of December 31, 2014) plus the relevant margin of the applicable
credit facility.
(2) The amounts presented in the historical contractual obligations table represent our remaining obligations as of December 31, 2014 with respect to the pipeline of
our newbuilding program, excluding those applicable under the bareboat lease agreements classified as capital leases, which are discussed under footnote (3)
below.
(3) We have entered into bareboat charters for eleven of our newbuilding vessels with the option to purchase the vessels at any time and a purchase obligation upon
the completion of the charter period, which range from eight to ten years. The amounts represent our commitments under the bareboat lease arrangements
representing the upfront hire fee and the charter hire. The bareboat charter hire is comprised of fixed and variable portion, the variable portion is calculated based
on the 6-month LIBOR of 0.3628%, as of December 31, 2014.
Our Fleet – Illustrative Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of
Certain Vessels
In Item 5.A, “Critical Accounting Policies – Impairment of long-lived assets”, we discuss our policy for impairing the
carrying values of our vessels. During the past few years, the market values of vessels have experienced particular volatility, with
substantial declines in many vessel classes. As a result, the charter-free market value, or basic market value, of certain of our vessels
may have declined below those vessels’ carrying value. We would, however, not impair those vessels’ carrying value under our
accounting impairment policy, due to our belief that future undiscounted cash flows expected to be earned by such vessels over their
operating lives would exceed such vessels’ carrying amounts.
The table set forth below indicates: (i) the carrying value of each of our vessels as of December 31, 2014, and (ii) which of
our vessels we believe has a basic market value below its carrying value. The aggregate difference between the carrying value of our
vessels and their market value of $225.4 million, represents the amount by which we believe we would have to reduce our net income
if we sold these 51 vessels in the current environment, on industry standard terms, in cash transactions, and to a willing buyer where
we are not under any compulsion to sell, and where the buyer is not under any compulsion to buy. For purposes of this calculation, we
have assumed that the vessels would be sold at a price that reflects our estimate of their current basic market values. However, we are
not holding our vessels for sale.
Our estimates of basic market value assume that our vessels are all in good and seaworthy condition without need for repair
and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from
various industry sources, including:
•
•
•
•
•
•
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
news and industry reports of similar vessel sales;
news and industry reports of sales of vessels that are not similar to our vessels, where we have made certain adjustments
in an attempt to derive information that can be used as part of our estimates;
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or
unsolicited, or that shipbrokers have generally disseminated;
offers that we may have received from potential purchasers of our vessels; and
vessel sale prices and values of which we are aware through both formal and informal communications with ship owners,
shipbrokers, industry analysts and various other shipping industry participants and observers.
As we obtain information from various industry and other sources, our estimates of basic market value are inherently
uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future basic
market value of our vessels or prices that we could achieve if we were to sell them.
68
Vessel Name
Leviathan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Peloreus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Obelix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Sandra (tbr Star Pauline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Christine (tbr Star Martha) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Pantagruel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
Star Borealis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Star Polaris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Star Angie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
10 Big Fish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 Kymopolia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 Big Bang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13 Star Aurora . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14 Star Mega . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 Lowlands Beilun (tbr Star Despoina). . . . . . . . . . . . . . . . . . . . . . .
16 Star Big . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17 Star Eleonora . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18 Amami . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 Madredeus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20 Star Sirius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21 Star Vega . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22 Star Angelina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23 Star Gwyneth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 Star Kamila . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25 Pendulum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26 Star Maria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27 Star Markella . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28 Star Danai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29 Star Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30 Star Sophia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31 Star Mariella . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32 Star Moira . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33 Star Renee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34 Star Nasia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35 Star Laura . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36 Star Helena . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37 Mercurial Virgo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38 Magnum Opus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39 Tsu Ebisu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40 Star Iris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41 Star Aline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42 Star Emily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43 Star Christianna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44 Star Natalie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45 Star Vanessa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46 Star Monika . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47 Star Julia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48 Star Tatianna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49 Star Challenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50 Star Fighter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51 Maiden Voyage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 Strange Attractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53 Star Omicron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54 Star Gamma (ex C Duckling) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55 Star Zeta (ex I Duckling) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56 Star Delta (ex F Duckling) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57 Star Theta (ex J Duckling) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58 Star Epsilon (ex G Duckling) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59 Star Cosmo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60 Star Kappa (ex E Duckling) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61 Star Michele . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62 Star Kim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Size (dwt.)
182,511
182,496
181,433
180,274
180,274
180,181
179,678
179,600
177,931
177,643
176,990
174,109
171,199
170,631
170,162
168,404
164,218
98,681
98,681
98,681
98,681
82,981
82,790
82,769
82,619
82,598
82,594
82,574
82,298
82,269
82,266
82,257
82,221
82,220
82,209
82,187
81,545
81,022
81,001
76,466
76,429
76,417
74,577
73,798
72,493
71,504
70,083
69,634
61,462
61,455
58,722
55,742
53,489
53,098
52,994
52,434
52,425
52,402
52,246
52,055
45,588
38,858
Year Acquired
Carrying Value as of
December 31, 2014
(in millions of U.S. dollars)
2014
2014
2014
2014
2014
2014
2011
2011
2014
2014
2014
2014
2010
2011
2014
2011
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2013
2013
2014
2014
2008
2008
2008
2008
2007
2007
2008
2007
2014
2014
59.8
59.2
50.8
30.1
44.7
34.0
48.7
49.2
37.3
34.1
38.7
39.3
32.5
9.8
13.3
11.6
17.7
27.9
27.9
29.1
29.0
24.9
24.9
22.4
21.5
18.3
20.7
20.1
17.6
20.4
21.6
17.6
15.6
22.9
15.9
15.3
25.8
33.2
33.2
20.5
19.9
18.9
9.8
10.6
8.6
5.0
4.3
5.9
27.9
28.0
28.9
21.4
15.7
12.3
13.5
10.5
13.3
11.5
12.6
11.6
8.8
5.0
1,441.1
*
Indicates drybulk carrier vessels for which we believe, as of December 31, 2014, the basic charter-free market value is lower than the vessel’s carrying value.
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
69
We refer you to the risk factor entitled “The market values of our vessels may decline, which could limit the amount of funds
that we can borrow, cause us to breach certain financial covenants in our credit facilities (including ship financing facilities) or result
in an impairment charge, and we may incur a loss if we sell vessels following a decline in their market value” and the discussion
herein under the headings “Critical Accounting Policies – Impairment of long-lived assets” and “Results of Our Operations – Year
ended December 31, 2014 compared to the year ended December 31, 2013 – Vessel Impairment Loss”.
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.
In July 2013, the board of directors increased the number of directors constituting the board of directors to six and appointed
Mr. Roger Schmitz as a Class B director. At the 2013 annual general meeting in September 2013, Petros Pappas, previously a Class A
director, was elected as a Class C director and Mr. Spyros Capralos was re-elected as a Class C director.
In July 2014 and in connection with the Transactions, the board of directors increased the number of directors constituting the
board of directors to nine and, following the resignation of Ms. Milena-Maria Pappas, appointed Rajath Shourie as a Class A director,
Emily Stephens as a Class B director, Renée Kemp as a Class C director and Stelios Zavvos as a Class A director pursuant to the terms
and subject to the conditions of the Transactions.
The appointments of Rajath Shourie as a Class A director, Emily Stephens as a Class B director, Renée Kemp as a Class C
director took place under the Oaktree Shareholders Agreement, which we entered into at the closing of the July 2014 Transactions
(described in “Item 4. Information on the Company—A. History and Development of the Company”). Under the Oaktree Shareholders
Agreement, Oaktree currently has the right to nominate four of our nine directors.
At the 2014 annual general meeting in October 2014, Messrs. Rajath Shourie, Tom Søfteland and Stelios Zavvos were re-
elected as Class A directors.
On February 17, 2015, Rajath Shourie and Emily Stephens were replaced by Mahesh Balakrishnan and Jennifer Box,
respectively. The four directors currently designated by Oaktree are Messrs. Pappas and Balakrishnan and Mses. Box and Kemp.
Our directors and executive officers are as follows:
Name
Petros Pappas
Spyros Capralos
Hamish Norton
Simos Spyrou
Christos Begleris
Nicos Rescos
Zenon Kleopas
Tom Søfteland
Koert Erhardt
Roger Schmitz
Mahesh Balakrishnan
Jennifer Box
Renée Kemp
Stelios Zavvos
Age
62
60
56
40
33
43
60
54
59
33
32
33
36
61
Position
Chief Executive Officer and Class C Director
Non-Executive Chairman and Class C Director
President
Co-Chief Financial Officer
Co-Chief Financial Officer
Chief Operating Officer
EVP—Technical & Operations
Class A Director
Class B Director
Class B Director
Class A Director
Class B Director
Class C Director
Class A Director
Petros Pappas, Chief Executive Officer and Director
Petros Pappas serves as our CEO and as a director on our board of directors. Mr. Pappas served from our inception up to July
2014 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 270 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. Mr. Pappas has been a Director of the UK Defense
70
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 Ship owners (UGS). Mr. Pappas received his B.A. in Economics and his MBA from The University of
Michigan, Ann Arbor. Mr. Pappas was recently awarded the 2014 Lloyd’s List Greek Awards “Shipping Personality of the Year”.
Spyros Capralos, Non-Executive Chairman and Director
Spyros Capralos serves as our Non-Executive Chairman and director. Mr. Capralos served from February 7, 2011 up to July
2014 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 ten years of banking experience with Bankers Trust Company (now Deutsche
Bank) in Paris, New York, Athens, Milan and 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. Effective as of January 1, 2015, Mr. Capralos also serves as Chief
Executive Officer of Oceanbulk Container Carriers LLC.
Hamish Norton, President
Hamish Norton serves as our President. He was previously the Head of Corporate Development and Chief Financial Officer
of Oceanbulk Maritime S.A. Prior to joining Oceanbulk Maritime, from 2007 through 2012, Mr. Norton was a Managing Director and
the Global Head of the Maritime Group at Jefferies LLC, and from 2003 to 2007, he was head of the shipping practice at Bear,
Stearns. Mr. Norton is notable for creating Nordic American Tankers Ltd. and Knightsbridge Tankers Ltd., the first two high dividend
yield shipping companies, and has advised on numerous capital markets and mergers and acquisitions transactions by shipping
companies. From 1984-1999 he worked at Lazard Frères & Co.; from 1995 onward as general partner and head of shipping. Mr.
Norton received an A.B. in Physics from Harvard and a Ph.D. in Physics from University of Chicago.
Simos Spyrou, Co-Chief Financial Officer
Simos Spyrou serves as our Co-Chief Financial Officer. Mr. Spyrou joined us as Deputy Chief Financial Officer in 2011, and
was appointed Chief Financial Officer in September 2011. From 1997 to 2011, Mr. Spyrou worked at the Hellenic Exchanges
(HELEX) Group, the public company which operates the Greek equities and derivatives exchange, the clearing house and the central
securities depository. From 2005 to 2011, Mr. Spyrou held the position of Director of Strategic Planning, Communication and Investor
Relations at the Hellenic Exchanges Group and he also served as a member of the Strategic Planning Committee of its board of
directors. From 1997 to 2002, Mr. Spyrou was responsible for financial analysis at the research and technology arm of the Hellenic
Exchanges Group. Mr. Spyrou attended the University of Oxford, receiving a degree in Mechanical Engineering and an MSc in
Engineering, Economics & Management, specializing in finance. Following the completion of his studies at Oxford, he obtained a
post graduate degree in Banking and Finance, from Athens University of Economics & Business.
Christos Begleris, Co-Chief Financial Officer
Christos Begleris serves as our Co-Chief Financial Officer. He served as Deputy Chief Financial Officer of Oceanbulk
Maritime since March 2013. He has been involved in the shipping industry since 2008, as deputy to the Chief Financial Officer of
Thenamaris (Ships Management) Inc. Mr. Begleris has considerable banking and capital markets experience, having executed more
than $9.0 billion of acquisitions and financings in the corporate finance and fixed income groups of Lehman Brothers and the principal
investments group of London & Regional Properties. Mr. Begleris received an M.Eng. in Mechanical Engineering from Imperial
College, London, and an MBA from Harvard Business School.
Nicos Rescos, Chief Operating Officer
Nicos Rescos serves as our Chief Operating Officer. He was the Chief Operating Officer of Oceanbulk Maritime S.A. since
April 2010. Mr. Rescos has been involved in the shipping industry since 1993 and has strong expertise in the dry bulk, container and
product tanker markets. From 2007 to 2009, Mr. Rescos worked with a family fund in Greece investing in dry bulk vessels and
product tankers. From 2000 to 2007, Mr. Rescos served as the Commercial Manager of Goldenport Holdings Inc. where he was
responsible for the acquisition of 35 dry bulk and container vessels and initiated the company’s entry in the product tankers arena
through an innovative joint venture with a major commodity trading company. He received a BSc in Management Sciences from The
University of Manchester Institute of Science and Technology (UMIST) and an MSc in Shipping Trade and Finance from the City
University Business School.
Zenon Kleopas, Executive Vice President-Technical Operations
Zenon Kleopas serves as our Executive Vice President-Technical Operations. Mr. Kleopas joined us in July 2011 as Chief
Operating Officer and has over 30 years of experience in the shipping industry. He was actively involved in the acquisition of our
initial fleet in 2007 and 2008. He has extensive experience in ship operations and supervising ship management through his
continuous employment in Shipping Companies in the U.K. and Greece since 1980. Mr. Kleopas has worked for various shipping
71
companies, including Victoria Steamship Co Ltd. (London), Marship Corporation (renamed Marship Services Inc), Astron Maritime
SA, Combine Marine Inc. and Oceanbulk Maritime SA. Before joining us, Mr. Kleopas was the general manager of Combine Marine
Inc. and the managing director of Oceanbulk Maritime SA. Mr. Kleopas received a B.Sc. degree in 1978 and a M.Sc. degree in 1980
from Glasgow University, both in Naval Architecture & Ocean Engineering. He is a member of the Technical Chamber of Greece, the
Royal Institution of Naval Architects (UK), the Marine Technical Managers’ Association of Greece and the Hellenic Technical
Committee of classification society RINA.
Tom Søfteland, Director
Tom Søfteland serves and has served since our inception as a member of our board of directors and as chairman of the audit
committee. He served as a member of Star Maritime’s board of directors since its inception. During 1982 – 1990 he served in different
positions within Odfjell Chemical Tankers, including operations, chartering and project activities. In August 1990 he joined the
shipping department of IS Bank ASA and in 1992 he became the general manager of the shipping, oil & offshore department. In 1994
he was promoted to Deputy CEO of the bank. During the fourth quarter of 1996, Mr. Søfteland founded Capital Partners A.S. of
Bergen, Norway, a financial services firm which specialized in shipping, oil & off-shore finance, investment bank and asset
management services. He held the position as CEO until he resigned in June of 2007. As from second half of 2007 and until today,
Mr. Søfteland runs his own investment company, styled Spinnaker AS, based in Norway. He has also joined several private and public
companies both shipping and non-shipping, based in London, New York, Bergen, Athens and Singapore, as an investor, chairman or
director such as EGD Holding AS, SeaSeaShipping Ltd, Tailwind Group and Stream Tankers AS. Mr. Søfteland received his B.Sc. in
Economics from the Norwegian School of Business and Administration (NHH).
Koert Erhardt, Director
Koert Erhardt serves and has served since our inception as a member of our board of directors. He is currently the Managing
Director of Augustea Bunge Maritime Ltd. of Malta. From September 2004 to December 2004, he served as the Chief Executive
Officer and a member of the board of CC Maritime S.A.M., an affiliate of the Coeclerici Group, an international conglomerate whose
businesses include shipping and transoceanic transportation of dry bulk 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 the Freight
Forward Agreement trading, which acts as a financial hedging mechanism for the pool. From 1994 to 1998, he served as the General
Manager of Bulk Italia, a prominent shipping company 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 dry bulk arm of the Nedlloyd Group, an international conglomerate whose interests include container
ship liner services, tankers, oil drilling rigs and ship brokering. Mr. Erhardt received his Diploma in Maritime Economics and
Logistics from Hogere Havenen Vervoersschool (now Erasmus University), Rotterdam, and successfully completed the International
Executive Program at INSEAD, Fontainebleau, France. Mr. Erhardt has also studied at the London School of Foreign Trade.
Roger Schmitz, Director
Roger Schmitz serves and has served since July 25, 2013 as a member of our board of directors. Mr. Schmitz is a Senior
Investment Professional for Monarch Alternative Capital LP, where he is responsible for analyzing investments and potential
investments in a wide variety of corporate and sovereign situations, both domestically and internationally. Prior to joining Monarch in
2006, Mr. Schmitz was an Analyst in the Financial Sponsors Group at Credit Suisse, where he focused on leverage finance. Mr.
Schmitz received an A.B., cum laude, in economics from Bowdoin College.
Mahesh Balakrishnan, Director
Mahesh Balakrishnan serves as a member of our board of directors. Ms. Balakrishnan is a Senior Vice President in Oaktree’s
Opportunities Funds. He joined Oaktree in 2007 and has been focused on investing in the Chemicals, Energy, Financial Institutions,
Real Estate and Shipping sectors. Mr. Balakrishnan has worked with a number of Oaktree’s portfolio companies and currently serves
on the boards of STORE Capital Corp. (NYSE:STOR) and Momentive Performance Materials. He has been active on a number of
creditors’ committees during restructuring of investments, including Eagle Bulk Shipping, Excel, Lehman Brothers and
LyondellBasell. Prior to Oaktree, Mr. Balakrishnan spent two years in the Financial Sponsors & Leveraged Finance group at UBS
Investment Bank. Mr. Balakrishnan graduated cum laude with a B.A. degree in Economics (Honors) from Yale University.
Jennifer Box, Director
Jennifer Box serves as a member of our board of directors. Ms. Box is a Senior Vice President in Oaktree’s Opportunities
Funds. Since she joined Oaktree in 2009, Ms. Box has made investments in the Shipping, Power, Energy, Media and Technology
sectors. Prior to Oaktree, Ms. Box spent three and a half years as an Investment Associate at The Blackstone Group in the Distressed
Debt Fund. Prior to Blackstone, she was an Associate Consultant at The Boston Consulting Group. Ms. Box graduated summa cum
laude with a B.S. degree in Economics and a minor in Mathematics from Duke University, where she was elected to Phi Beta Kappa.
She is a CFA charterholder.
72
Renée Kemp, Director
Renée Kemp serves as a member of our board of directors. Ms. Kemp joined Oaktree in 2012 and currently serves as Vice
President, Legal. Prior to joining Oaktree, Ms. Kemp spent six years as a Solicitor in the corporate finance department of the London
law firm, Charles Russell LLP. She undertook a secondment in 2008 with the legal department of Novator Partners LLP, an FSA
regulated fund manager in London. Ms. Kemp received a First Class Bachelor of Laws degree with Honours from James Cook
University in Queensland, and qualified as a solicitor in Australia in 2005. She re-qualified as a solicitor in England and Wales in
2008.
Stelios Zavvos, Director
Stelios Zavvos serves as a member of our board of directors. Mr. Zavvos is the Founder and CEO of Zeus Private Equity
Group, which engages in the investment and development of large scale projects throughout Southeastern Europe, Turkey and the
United States. Mr. Zavvos was also Founder and CEO of Continental American Capital, an investment group which focused on real
estate investment and financing in the United States. He is the Founder and President of the Harvard Business School Club of Greece,
Chairman of Solidarity Net Foundation, a Member of the European Council on Foreign Relations, as well as a Member of
International Crisis Group’s International Advisory Council. He holds an MBA from Harvard Business School and a MSc in Civil
Engineering from Polytechnic University of Athens.
B.
Compensation of Directors and Senior Management
For the year ended December 31, 2014, aggregate compensation to our senior management was $1,515,933. 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 receives 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. The table below summarizes the fees of the board of directors for the year ended December 31, 2014.
In Dollars
Spyros Capralos . . . . . . . . . . . . . . . . . . . . . . . . . . .
Petros Pappas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Milena-Maria Pappas . . . . . . . . . . . . . . . . . . . . . .
Tom Søfteland . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Koert Erhardt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roger Schmitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajath Shourie . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emily Stephens . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Renée Kemp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stelios Zavvos . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Incentive Plan
15,493
9,890
9,890
37,500
35,671
24,000
12,151
12,151
11,151
13,151
181,048
On March 21, 2013, we adopted an equity incentive plan (“the 2013 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
240,000 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 2013 Equity Incentive Plan is to encourage ownership of shares by, and to assist us in attracting, retaining
and providing incentives to, our officers, key employees, directors and consultants, whose contributions to us are or may be important
to our success and to align the interests of such persons with our shareholders. The various types of incentive awards that may be
issued under the 2013 Equity Incentive Plan enable us to respond to changes in compensation practices, tax laws, accounting
regulations and the size and diversity of our 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 issuance of restricted
shares, grants of options to purchase common stock, stock appreciation rights, restricted stock, restricted stock units and unrestricted
stock.
On February 20, 2014, our board of directors approved the 2014 Equity Incentive Plan (the “2014 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 430,000 shares of common stock for issuance under the 2014 Equity Incentive Plan, subject to adjustment for
changes in capitalization as provided in the plan. All of the material provisions of the 2014 Equity Incentive Plan are substantially
similar to the provisions contained in our prior equity incentive plans.
73
Under the terms of the Equity Incentive Plans, stock options and stock appreciation rights granted under the Equity Incentive
Plans 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 administrator of the Equity Incentive Plans, 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 administrator of the Equity Incentive Plans, but in no event will they be exercisable later than ten
years from the date of grant.
The administrator of the Equity Incentive Plans may grant common 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 administrator of the Equity
Incentive Plans. 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 administrator of the Equity Incentive
Plans. The administrator of the Equity Incentive Plans 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 Equity Incentive Plans), unless otherwise provided by the
administrator of the Equity Incentive Plans in an award agreement, awards then outstanding shall become fully vested and exercisable
in full.
The board of directors may amend or terminate the Equity Incentive Plans 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. Shareholders’ approval of Equity Incentive Plans 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 Equity Incentive Plans will expire ten years from the date on which the Equity
Incentive Plans was adopted by the board of directors.
In 2007, 2010 and 2011 we adopted the 2007 Equity Incentive Plan, the 2010 Equity Incentive Plan and the 2011 Equity
Incentive Plan, respectively, and reserved for issuance 133,333 common shares under each plan. The terms and conditions of the 2007,
2010 and 2011 Equity Incentive Plans are substantially similar to those of the 2013 and 2014 Equity Incentive Plans. All of the
common shares that were reserved for issuance under the 2007, the 2010 and 2011 Equity Incentive Plans were issued and vested in
full.
During the years 2012, 2013 and 2014 and as of April 6, 2015, pursuant to the Equity Incentive Plans, we have granted the
following securities:
• On January 17, 2012, an aggregate of 90,667 restricted common shares were granted to our directors, officers and
employees. The respective shares were issued on April 20, 2012 and vested on March 30, 2012;
• On March 21, 2013, 239,333 restricted common shares were granted to our directors, officers and employees. The
respective shares were issued on September 11, 2013 and vested on March 21, 2014.
• On March 21, 2013, 12,000 restricted common shares were granted to our former director Mr. Espig. The respective
shares issued on June 27, 2013, and vested immediately.
• On May 3, 2013, 28,000 restricted common shares were granted to Mr. Spyros Capralos, our former Chief Executive
Officer and current Non-Executive Chairman, pursuant to the terms of renewal consultancy agreement with an entity
owned and controlled by him. The first installment of 9,333 shares was issued on May 27, 2014, and vested on May 3,
2014. The remaining two installments of 9,333 and 9,334, respectively, were cancelled and will not be issued since his
consultancy agreement was terminated following the Transactions.
• On February 20, 2014, 394,167 restricted common shares were granted to certain of our directors, officers and
employees. The respective shares were issued on May 27, 2014 and vested in March 2015.
• On February 20, 2014, 8,000 restricted common shares were granted to two of our directors, Mr. Softeland and Mr.
Erhardt. The respective shares were issued on May 27, 2014 and vested on the same date that they were granted.
• On July 11, 2014, 15,000 restricted common shares were granted to two of our directors, Mr. Softeland and Mr. Schmitz.
We plan to issue the respective shares during the second quarter of 2015.
• On August 4, 2014, 168,842 restricted common shares were issued to our former Chief Executive Officer and current
Non-Executive Chairman, Spyros Capralos, in connection with a termination agreement.
As of the date of this annual report, 5,593 common shares are available under the 2014 Equity Incentive Plan.
74
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 Class A directors expires in 2017;
• The term of Class B directors expires in 2015; and
• The term of Class C director expires in 2016.
Employment and Consultancy Agreements
Star Bulk Management entered into an employment agreement with Mr. Spyros Capralos in February 2011 for work
performed for Star Bulk. Star Bulk has also entered into a separate consulting agreement with a company owned and controlled by Mr.
Capralos in February 2011 for work performed by him outside of Greece. In May 2013, Star Bulk Management entered into renewal
employment and consulting agreements with Mr. Spyros Capralos and with a company owned and controlled by him. Under the
employment agreement, Mr. Capralos received an annual base salary which 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. Capralos was
entitled to receive an annual consulting fee. Mr. Capralos also received 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 the consultancy
agreement. In July 2014, the employment and consultancy agreements with Mr. Capralos were terminated in connection with the July
2014 Transactions and Mr. Capralos received a severance payment of 168,842 common shares and an amount of (cid:31)664,000 in cash.
Star Bulk Management entered into an employment agreement with Mr. Simos Spyrou in May 2011 for work performed for
Star Bulk. Star Bulk has also entered into a separate consulting agreement with a company owned and controlled by Mr. Spyrou in
May 2011 for work performed by him outside of Greece. In May 2013, Star Bulk Management entered, into renewal employment and
consulting agreements with Mr. Spyrou and with a company owned and controlled by him. Under the employment agreement, Mr.
Spyrou receives 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 agreement, the company controlled by Mr. Spyrou is entitled to receive an annual consulting
fee.
Star Bulk Management entered into a consulting agreement with a company owned and controlled by Mr. Zenon Kleopas in
July 2011. This agreement has an indefinite term and each party may terminate the agreement giving one month’s notice. Under the
consulting agreement, the company controlled by Mr. Kleopas is entitled to receive an annual consulting fee. In addition, in
connection with the July 2014 Transactions the Company’s then Chief Operating Officer, Mr. Zenon Kleopas, was appointed
Executive Vice President Technical.
Following the completion of the Merger, on December 17, 2014, we entered into employment agreements with Messrs.
Petros Pappas, our new Chief Executive Officer, Hamish Norton, our new President, Nicos Rescos, our new Chief Operating Officer,
and Christos Begleris, our new Co-Chief Financial Officer, for work performed for Star Bulk. We have also entered into consulting
agreements with companies owned and controlled by each of the new Chief Operating Officer and the new Co-Chief Financial Officer
for work performed by them outside of Greece. Under the employment agreements, Messrs. Rescos and Begleris 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 agreement, the companies controlled by Messrs. Rescos and Begleris, respectively, are entitled to receive an annual
consulting fee. The aforementioned employment and consultancy agreements have a term of three years unless terminated earlier in
accordance with their terms, except for the employment agreement of the new Chief Executive Officer, which has a term of one year,
unless terminated earlier in accordance with its terms.
Our officers will be eligible to receive discretionary bonus awards and/or awards under our equity incentive plan in such
amounts, if any, as determined by our board of directors, in its sole discretion. In making such determinations, the board of directors
will consider the then prevailing operations and financial condition of our Company, 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 which is comprised of three independent directors, 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, is responsible for, among other things, recommending to
the board of directors our senior executive officers’ compensation and benefits.
75
Our nominating and corporate governance committee, which is comprised of two independent directors, is responsible for,
among other things, (i) recommending to the board of directors nominees for director and directors for appointment to committees of
the board of directors, and (ii) advising the board of directors with regard to corporate governance practices.
Shareholders may also nominate directors in accordance with procedures set forth in Bylaws.
Our Audit Committee consists of Mr. Koert Erhardt, Mr. Stelios Zavvos and Mr. Tom Softeland, who is the chairman of the
committee. Our Compensation Committee consists of Mr. Tom Softeland, Mr. Mahesh Balakrishnan and Mr. Spyros Capralos, who is
the chairman of the committee. Our Nominating Committee consists of Mr. Spyros Capralos, Ms. Jennifer Box and Mr. Koert Erhardt,
who is the chairman of the committee.
D.
Employees
As of December 31, 2012, 2013, 2014 and April 6, 2015 we had 55, 67, 119 and 141 employees, respectively, including our
executive officers. There was an 83% increase in the number employees, as compared to the year ended December 31, 2013, as a
result of the Merger and the consequent anticipated fleet growth of Star Bulk.
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 April 6, 2015 regarding the ownership of our common shares with
respect to each shareholder, who we know to beneficially own more than five percent of our outstanding common shares, and our
directors.
Beneficial Owner
Oaktree Capital Group Holdings GP, LLC and certain of its advisory clients (2) . . . . . . . . . . .
Monarch Alternative Capital LP and certain of its advisory clients (3) . . . . . . . . . . . . . . . . . . . . .
Angelo, Gordon and certain of its advisory clients (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Millennia Holdings LLC (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mirabel Shipholding & Invest Limited (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ilta Commodities, S.A. (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Milena-Maria Pappas (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excel Maritime Carriers Ltd. (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Petros Pappas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spyros Capralos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hamish Norton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Simos Spyrou . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christos Begleris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nicos Rescos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zenon Kleopas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tom Søfteland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Koert Erhardt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roger Schmitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mahesh Balakrishnan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jennifer Box. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Renée Kemp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stelios Zavvos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emily Stephens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajath Shourie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares of common stock
Amount
82,154,649
9,611,004
2,480,000
5,051,148
1,832,293
800,000
1,750,335
28,924,151
-
341,373
-
81,984
-
4,953
30,000
86,675
102,947
-
-
-
-
-
-
-
Percentage (1)
50.81%
5.94%
1.53%
3.12%
1.13%
*
1.08%
17.89%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
(1) Percentage amounts based on 161,691,380 common shares outstanding as of April 6, 2016.
(2) Consists of (i) 5,389,727 shares held by Oaktree Value Opportunities Fund, L.P. (“VOF”), (ii) 8,693,979 shares held by Oaktree Opportunities Fund IX Delaware,
L.P. (“Fund IX”), (iii) 79,849 shares held by Oaktree Opportunities Fund IX (Parallel 2), L.P. (“Parallel 2”) and (iv) 67,991,094 shares held by Oaktree Dry Bulk
Holdings LLC (“Dry Bulk Holdings”). Each of the foregoing funds and entities is affiliated with Oaktree Capital Group Holdings GP, LLC (“OCGH”). The
members of OCGH are Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank, Sheldon M. Stone, Larry W. Keele, Stephen A. Kaplan and David M.
Kirchheimer. Each of the direct and indirect general partners, managing members, directors, unit holders, shareholders, and members of VOF, Fund IX, Parallel 2
and Dry Bulk Holdings, may be deemed to share voting and dispositive power over the shares owned by such entities, but disclaims beneficial ownership in such
shares except to the extent of any pecuniary interest therein. The address for these entities is c/o Oaktree Capital Management, L.P., 333 South Grand Avenue,
28th Floor, Los Angeles, California 90071. OCM Investments, LLC (a subsidiary of Oaktree Capital Management, L.P., which is the investment manager of the
76
Oaktree funds) is registered as a broker-dealer with the Commission and in all 50 states, the District of Columbia and Puerto Rico, and is a member of the U.S.
Financial Industry Regulatory Authority. Oaktree funds purchased common shares in the ordinary course of business and at the time of the purchase of our
common shares, had no agreements or understandings, directly or indirectly, with any person to distribute the common shares.
(3) Consists of (i) 3,693,682 shares held by Monarch Debt Recovery Master Fund Ltd., (ii) 2,301,803 shares held by Monarch Opportunities Master Fund Ltd., (iii)
1,896,484 shares held by MCP Holdings Master LP, (iv) 880,279 shares held Monarch Capital Master Partners III LP, (v) 436,651 shares held by P Monarch
Recovery Ltd., (vi) 265,538 shares held by Monarch Alternative Solutions Master Fund Ltd., (vii) 103,883 shares held by Monarch Capital Master Partners II LP
and (viii) 32,684 shares held by Monarch Structured Credit Master Fund Ltd. Monarch Alternative Capital LP (“MAC”) serves as advisor to these entities with
respect to shares directly owned by such entities. MDRA GP LP (“MDRA GP”) is the general partner of MAC and Monarch GP LLC (“Monarch GP”) is the
general partner of MDRA GP. By virtue of such relationships, MAC, MDRA GP and Monarch GP may be deemed to have voting and dispositive power over the
shares owned by such entities. The address for these entities is 535 Madison Avenue, 26th Floor, New York, NY 10022.
(4) Consists of (i) 910,000 shares held by AG Super Fund, L.P., (ii) 888,000 shares held by AG Capital Recovery Partners VII, L.P., (iii) 204,000 shares held by AG
Super Fund International Partners, L.P., (iv) 201,000 shares held by AG Eleven Partners, L.P., (v) 121,000 shares held by AG Select Partners Advantage Fund,
L.P., (vi) 68,000 shares held by AG FDS, L.P., (vii) 50,000 shares held by Nutmeg Partners, L.P., and (viii) 38,000 shares held by AG MM, L.P. Angelo, Gordon
& Co., L.P. (“AG”) serves as advisor to these entities with respect to shares directly owned by such entities. AG Partners, L.P. (“AGP”) is the general partner of
AG and JAMG LLC (“JAMG”) is the general partner of AGP. The managing members of JAMG are John M. Angelo and Michael L. Gordon. By virtue of such
relationships, AG and Messrs. Angelo and Gordon may be deemed to have voting and dispositive power over the shares owned by the entities listed above. The
address for these entities is 245 Park Avenue, New York, New York 10167. AG BD LLC (a subsidiary of AG) is registered as a broker-dealer with the
Commission and in 19 states, and is a member of the U.S. Financial Industry Regulatory Authority. The entities listed above in (i) through (viii) purchased
common shares in the ordinary course of business and, at the time of the purchase of such common shares, had no agreements or understandings, directly or
indirectly, with any person to distribute the common shares.
(5) These companies are related to family members of our Chief Executive Officer, Mr. Petros Pappas.
(6) Ms. Milena Maria Pappas is the daughter of our Chief Executive Officer, Mr. Petros Pappas, and our former Director.
(7) Excel will receive 29,917,312 common shares in the Excel Transactions as the Excel Vessel Share Consideration for the Excel Vessels (or vessel-owning entities)
transferred to us pursuant to binding agreements relating to the Excel Transactions executed on August 19, 2014. We have been informed by Excel that, over time,
such common shares will be distributed to the equity holders of Excel, including Oaktree. Oaktree will beneficially own an aggregate of 94,335,920 common
shares, or 58.0% of our outstanding common shares. Monarch will beneficially own an aggregate of 9,611,004 common shares, or 5.9% of our outstanding
common shares. Angelo, Gordon will beneficially own an aggregate of 9,541,801 common shares, or 5.9% of our outstanding common shares, in each case,
giving effect to the distribution of the Excel Vessel Share Consideration to the equity holders of Excel.
Less than 1%.
*
Our major shareholders have the same voting rights as our other shareholders. No foreign government owns more than 50%
of our outstanding common shares. 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.
While Oaktree owns more than 50% of our outstanding common shares, under the Oaktree Shareholders Agreement
(described in “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.”), with certain limited
exceptions, Oaktree effectively cannot vote more than 33% of our outstanding common shares (subject to adjustment under certain
circumstances). Furthermore, pursuant to the Oaktree Shareholders Agreement, so long as Oaktree and its affiliates beneficially own at
least 10% of our outstanding voting securities, Oaktree and its affiliates have agreed not to directly or indirectly acquire beneficial
ownership of any additional voting securities of ours or other equity-linked or other derivative securities with respect to our voting
securities if such acquisition would result in Oaktree’s beneficial ownership exceeding 63.6%, subject to certain specified exceptions.
In addition, pursuant to the Oaktree Shareholders Agreement, subject to various exclusions, so long as Oaktree and its affiliates
beneficially own at least 10% of our voting securities, unless specifically invited in writing by our board of directors, they may not (i)
enter into any tender or exchange offer or various types of merger, business combination, restructuring or extraordinary transactions,
(ii) solicit proxies or consents in respect of such transactions, (iii) otherwise act to seek to control or influence our management, board
of directors or other policies (except with respect to the nomination of Oaktree designees pursuant to the Oaktree Shareholders
Agreement and other nominees proposed by the Nominating and Corporate Governance Committee) or (iv) enter into any
negotiations, arrangements or understandings with any third party with respect to any of the above. Pursuant to the Oaktree
Shareholders Agreement, Oaktree also agreed to various limitations on the transfer of its common shares.
As of April 6, 2015, 161,691,380 of our outstanding common shares were held in the United States by 118 holders of record,
including Cede & Co., the nominee for the Depository Trust Company, which held 66,885,724 of those shares.
B.
Related Party Transactions
Commission Payments to Oceanbulk Maritime, S.A.
Oceanbulk Maritime, S.A., a related party, is a ship management company and is controlled by our former director Ms.
Milena-Maria Pappas. During the year 2012, we paid to Oceanbulk Maritime, S.A. a brokerage commission of $91,264 relating to the
sale of Star Ypsilon. During the year 2013, we paid to Oceanbulk a brokerage commission of $90,436 regarding the sale of Star
Sigma.
On November 25, 2013, our board of directors approved a commission payable to Oceanbulk Maritime, S.A. related to the
negotiations with shipyards for the construction of nine of our newbuilding vessels. We have agreed to pay a commission of 0.5% of
the shipbuilding contract price for two newbuilding Capesize vessels (HN 1338 (tbn Star Aries) and HN 1339 (tbn Star Taurus)) and
three newbuilding Newcastlemax vessels (HN 1342 (tbn Star Gemini), HN1343 (tbn Star Leo) and HN NE 198 (tbn Star Poseidon))
and a flat fee of $0.2 million per vessel for four newbuilding Ultramax vessels (HN 5040 (tbn Star Aquarius), HN 5043 (tbn Star
Pisces), HN NE 196 (tbn Star Antares) and HN NE 197 (tbn Star Lutas)). For all of the nine newbuilding vessels, the total
commission will amount to $2.1 million. We have agreed to pay the commission in four equal installments, the first two installments
77
were paid in cash, while the remaining two installments will be paid in the form of common shares, the amount of which will depend
on the price of our common shares on the date of the two remaining installments. The first and the second installment of $0.5 million
each, were paid in cash in December 2013 and in April 2014, respectively. The total amount of $1.0 million was capitalized and is
included under “Advances for vessels under construction and acquisitions of vessels” in our consolidated balance sheets. The last two
installments, are due in June 2015 and in April 2016, respectively.
On March 22, 2014, Starbulk S.A. entered into an agreement with Oceanbulk Maritime S.A., under which certain
management services, including crewing, purchasing, arranging insurance, vessel telecommunications and master general accounts
supervision, are provided to four dry bulk vessels under the management of Oceanbulk Maritime S.A. Pursuant to the terms of this
agreement, Starbulk S.A. received a fixed management fee of $170 per day, per vessel, which as of June 1, 2014, was changed to $110
per day, per vessel, based on an addendum signed on May 22, 2014.
As of December 31, 2014, we provided such services to these four dry bulk carrier vessels. The related income for the year
ended December 31, 2014, was $0.2 million and is included under “Management fee income” in our consolidated statement of
operations.
In addition, prior to the Merger, Oceanbulk and the Pappas Companies had entered into a management agreement with
Oceanbulk Maritime S.A. and its affiliates pursuant to which Oceanbulk Maritime S.A. provided commercial and administrative
services to Oceanbulk and the Pappas Companies. Following the completion of the Merger on July 11, 2014, this management
agreement with Oceanbulk Maritime S.A. was terminated.
Following the completion of the Merger and the Pappas Transaction, we own the vessels Magnum Opus and Tsu Ebisu,
which were managed by Oceanbulk Maritime S.A. prior to the Merger and continued to be managed by that entity after the Merger,
until August and September 2014, respectively. The related expense for the year ended December 31, 2014, was $158,000 and is
included under “Management fee expense” in our consolidated statement of operations.
Oceanbulk Maritime S.A. has provided performance guarantees under the bareboat charter agreements relating to the
newbuilding vessels with hull numbers HN 1061 (tbn Roberta), HN 1062 (tbn Laura), HN 1063 (tbn Idee Fixe) and HN 1064 (tbn
Kaley), which are four vessels being built in the New Yangzijiang shipyard. All of the performance guarantees described above have
been counter-guaranteed by Oceanbulk Carriers. Following the completion of the Merger in July 2014, in September, 2014, Star Bulk
replaced Oceanbulk Carriers in providing these counter-guarantees.
In addition, Oceanbulk Maritime S.A. has also provided performance guarantees under the shipbuilding contracts for the
newbuilding vessels with hull numbers, HN 5017-JMU (tbn Deep Blue), HN 5055-JMU (tbn Bahemoth), HN 5056-JMU (tbn
Megalodon), HN NE164-NACKS (tbn Honey Badger), HN NE165-NACKS (tbn Wolverine), HN NE166-NACKS (tbn Gargantua),
HN NE167-NACKS (tbn Goliath) and HN NE184-NACKS (tbn Maharaj). Prior to the Merger, all of the performance guarantees
were counter-guaranteed by Oceanbulk Shipping. Following the completion of the Merger, on September 20, 2014 Star Bulk provided
counter-guarantees to Oceanbulk Maritime S.A. in exchange for the counter-guarantees provided by Oceanbulk Shipping.
As of December 31, 2013 and 2014, we had an outstanding receivable balance of $9,076 and $240,806 from Oceanbulk
Maritime S.A.
Managed vessels of Oceanbulk Shipping
Prior to the Merger, Starbulk S.A. had entered into vessel management agreements with certain entities owned and controlled
by Oceanbulk Shipping. Pursuant to the terms of these agreements, Starbulk S.A. received a fixed management fee of $750 per day,
per vessel. These management agreements were terminated on July 11, 2014, the date the Merger closed. The related income for the
years ended December 31, 2012, 2013 and 2014, was $203,750, $822,750 and $1,389,750, respectively, and is included under
“Management fee income” in our consolidated statements of operations. As of December 31, 2013, we had an outstanding receivable
of $419,955 from and an outstanding payable of $389,350 to these entities. As of December 31, 2014, we had an outstanding payable
of $9,188 to Maiden Voyage LLC, previous owner of the Maiden Voyage, one of the vessels of Oceanbulk Shipping.
Product Shipping and Trading S.A.
On June 7, 2013, Starbulk S.A. entered into an agreement with Product Shipping & Trading S.A., a Marshall Islands
company, under which, we provided certain management services including crewing, purchasing and arranging insurance to the
vessels which are under the management of Product Shipping & Trading S.A. Product Shipping & Trading S.A is controlled by family
members of our Chief Executive Officer, Mr. Petros Pappas. Pursuant to the terms of this agreement, we received a fixed management
fee of $130 per day, per vessel. In October 2013, we decided to gradually cease providing the above mentioned services to the vessels
which are under the management of Product Shipping & Trading S.A., except for arranging insurance services, and as a result, the
management fee decreased to $20 per day per vessel and effective July 1, 2014, the agreement was terminated. The related income for
the years ended December 31, 2013 and 2014, was $241,700 and $61,960, respectively and is included in “Management fee income”
in the consolidated statements of operations. As of December 31, 2013, we had an outstanding receivable of $55,670 and as of
December 31, 2014 we had an outstanding receivable of $4,030 from Product Shipping & Trading S.A.
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Employment and Consultancy Agreements
Effective February 7, 2011, we entered into an employment agreement with our former Chief Executive Officer and current
Chairman, Mr. Spyros Capralos to employ him as our Chief Executive Officer and President. On May 3, 2013, this agreement was
renewed for a term of three years and automatic renewal for a successive year unless terminated earlier in accordance with its terms.
This agreement was terminated in July 2014. Under the employment agreement, Mr. Capralos was entitled to receive an annual salary
and additional incentive compensation as determined annually by the compensation committee of our board of directors.
Effective February 7, 2011, we also entered into a separate consulting agreement with a company owned and controlled by,
our former Chief Executive Officer and current Chairman, Mr. Spyros Capralos, for work performed by him outside of Greece. On
May 3, 2013, this agreement was renewed for a term of three years and automatic renewal for a successive year unless terminated
earlier in accordance with its terms. Under the consulting agreement, the company controlled by Mr. Capralos was entitled to receive
an annual consulting fee. Mr. Capralos was also entitled to receive additional incentive compensation as determined by the
compensation committee of our board of directors. Pursuant to a termination agreement between us and Mr. Spyros Capralos, dated
July 31, 2014, we agreed to terminate the employment and consultancy agreements with Mr. Capralos and agreed to a severance
payment of 168,842 common shares and an amount of (cid:31)664,000 in cash (approximately $810,080, using the exchange rate as of
December 31, 2014, which was $1.22 per euro).
On May 2, 2011, we entered into an employment agreement with Mr. Simos Spyrou, our Co-Chief Financial Officer. On the
same date, we also entered into a separate consulting agreement with a company owned and controlled by Mr. Spyrou for work
performed by him outside of Greece. On May 3, 2013, each of these agreements was renewed for a term of three years and automatic
renewal for a successive year unless terminated earlier in accordance with their terms. Under the employment agreement, Mr. Spyrou
received an annual base salary that may increase based on annual review by the compensation committee of our board of directors.
Under the consulting agreement, the company controlled by Mr. Spyrou received an annual consulting fee and additional incentive
compensation as determined annually by the compensation committee of our board of directors.
On July 1, 2011, we entered into a consulting agreement with a company owned and controlled by our former Chief
Operating Officer and current Executive Vice-President-Technical, Mr. Zenon Kleopas. This agreement has an indefinite term and
each party may terminate the agreement giving one month’s notice. Under this agreement the Company would pay Mr. Kleopas an
annual consulting fee.
Following the completion of the Merger, on December 17, 2014, we entered into consulting agreements with companies
owned and controlled by each of the new Chief Operating Officer, Mr. Nicos Rescos, and our new co-Chief Financial Officer, Mr.
Christos Begleris. In addition, we entered into employment agreements with the new Chief Executive Officer, the President, the new
Chief Operating Officer and the new Co-Chief Financial Officer, Messrs. Petros Pappas, Hamish Norton, Nicos Rescos and Christos
Begleris, respectively. All these agreements have a term of three years, unless terminated earlier in accordance with their terms, except
for the employment agreement of the new Chief Executive Officer, Mr. Petros Pappas, which has a term of one year, unless
terminated earlier in accordance with its terms. Pursuant to the consulting agreements, the entities controlled by the new Chief
Operating Officer and the new co-Chief Financial Officer are entitled to receive an annual discretionary bonus, as determined by the
our board of directors in its sole discretion.
Pursuant to all aforementioned consultancy agreements with Messrs. Spyrou, Kleopas, Rescos and Begleris, effective as of
December 31, 2014, we are required to pay an aggregate base fee to the above executives at an annual rate of not less than $491,564
(this amount includes the annual Euro amount, under the relevant consultancy agreements, using the exchange rate as of December 31,
2014, which was $1.22 per euro).
In aggregate, the related expenses under the employment agreements for 2014, 2013 and 2012 were $865,199, $237,585 and
$197,805, respectively, and are included in General and administrative expenses in the consolidated statement of operations.
In aggregate, the related expenses under the consultancy agreements for 2014, 2013 and 2012 were $1,515,933, $527,852 and
$453,297, respectively, and are included in General and administrative expenses in the consolidated statement of operations.
Lease Agreement with Combine Marine Ltd.
On January 1, 2012, Starbulk S.A. entered into a one year lease agreement for office space with Combine Marine Ltd., or
Combine Ltd., a company controlled by our former director Ms. Milena-Maria Pappas and by Mr. Alexandros Pappas, both children
of our Chief Executive Officer, Mr. Petros Pappas. The lease agreement provided for a monthly rental of (cid:31)2,500 (approximately
$3,050, using the exchange rate as of December 31, 2014, which was $1.22 per euro). On January 1, 2013, the agreement was renewed
and unless terminated by either party, it will expire in January 2024. The related expense for the rent for the years ended December 31,
2014, 2013 and 2012, was $41,834, $40,883 and $39,547, respectively, and is included in General and administrative expenses in the
consolidated statements of operations. As of December 31, 2014 and 2013, we had an outstanding receivable balance of $0, $1,291,
respectively, from Combine Ltd.
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Interchart Shipping Inc.
Interchart, a Liberian company affiliated with family members of our Chief Executive Officer, acts as a chartering broker for
all of our vessels. On February 25, 2014, we acquired 33% of the total outstanding common stock of Interchart, for a total
consideration of $0.4 million consisting of $0.2 million in cash and 22,598 common shares. The common shares were issued on April
1, 2014, and the fair value per share of $14.51 was determined by reference to the per share closing price of our common shares on the
issuance date. The ownership interest was purchased from an entity affiliated with family members of our Chief Executive Officer,
including our former director, Ms. Milena-Maria Pappas. On February 25, 2014, we entered into a services agreement with Interchart,
for chartering, brokering and commercial services for our vessels for an annual fee of (cid:31)0.5 million (approximately $0.6 million, using
the exchange rate as of December 31, 2014, which was $1.22 per euro). This fee is adjustable for changes in our fleet pursuant to the
terms of the services agreement. Before the services agreement, Interchart acted as chartering broker of all our vessels on an agreed
upon basis. Under the services agreement, all previously agreed upon brokerage commissions due to Interchart were cancelled
retroactively from January 1, 2014. In November 2014, we entered into a new services agreement with Interchart for chartering,
brokering and commercial services for all of our vessels for a monthly fee of $0.3 million. The new agreement is effective from
October 1, 2014 until March 31, 2015. The previous agreement with Interchart, dated February 25, 2014, was terminated when this
agreement became effective. During the years ended December 31, 2014, 2013 and 2012, the brokerage commission on charter
revenue charged by Interchart amounted to $1,996,727, $772,820 and $1,133,829, respectively, and is included in “Voyage expenses”
in the consolidated statements of operations. As of December 31, 2014 and 2013, we had an outstanding liability of $6,118, and
$58,370, respectively, to Interchart.
Acquisition of Heron Vessels
Heron is a 50-50 joint venture between us and ABY Group Holding Limited, and we share joint control over Heron with
ABY Group Holding Limited. More specifically, following the completion of the Merger and the provision agreed as part of the
Merger Agreement, with respect to the Heron Vessels, we acquired a convertible loan of Heron, which on November 5, 2014 was
converted into 50% of the equity of Heron. In addition, pursuant to an agreement, dated September 5, 2014, among Oceanbulk
Shipping, ABY Group and Heron with regards to the conversion of the Heron convertible loan, the governance of Heron and the
distribution of some of its vessels to Heron investors, on November 11, 2014, we entered into two separate agreements to acquire from
Heron the vessels ABYO Gwyneth and ABYO Angelina, which were delivered to us on December 5, 2014.
Oaktree Shareholders Agreement
The following is a summary of the material terms of the Oaktree Shareholders Agreement. Capitalized terms that are used in
this description of the Oaktree Shareholders Agreement but not otherwise defined below have the meanings ascribed to them under the
caption, “8. Certain Definitions.”
General
The Oaktree Shareholders Agreement was entered into on the date the Merger was completed (July 11, 2014) and governs the
ownership interest of Oaktree and its affiliated investment funds that own Common Shares (and any Affiliates (as defined below) of
the foregoing persons that become Oaktree Shareholders pursuant to a transfer or other acquisition of our Equity Securities (as defined
below) in accordance with the terms of the Oaktree Shareholders Agreement, collectively, the “Oaktree Shareholders”) following the
Merger. Based on the number of our outstanding common shares at April 6, 2015, the Oaktree Shareholders beneficially own
approximately 50.81% of the common shares of the Company.
Representation on the Board of Directors
After the closing of the Merger, we and the board of directors increased the size of the board of directors from six directors
(“Directors”) to nine Directors.
The Oaktree Shareholders are entitled to nominate four (but in no event more than four) Directors (each such nominee,
including the persons designated at the closing of the Merger as described in the preceding paragraph the “Oaktree Designees”) to the
board of directors for so long as the Oaktree Shareholders and their Affiliates in the aggregate beneficially own (for purposes of the
Oaktree Shareholders Agreement and this summary, as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934)
40% or more of our outstanding Voting Securities. During any period the Oaktree Shareholders are entitled to nominate four Directors
pursuant to the Oaktree Shareholders Agreement: (i) if Mr. Petros Pappas is then serving as our Chief Executive Officer and as a
Director, then the Oaktree Shareholders are entitled to nominate only three Directors and (ii) at least one of the Oaktree Designees will
not be a citizen or resident of the United States solely to the extent that (x) at least one of the nominees to the board of directors (other
than the Oaktree Designees) is a United States citizen or resident and (y) as a result, we would not qualify as a “foreign private issuer”
under Rule 405 under the Securities Act of 1933 and Rule 3b-4(c) under the Exchange Act if such Oaktree Designee is a citizen or
resident of the United States.
The Oaktree Shareholders are entitled to nominate three Directors, two Directors and one Director to the board of directors
for so long as the Oaktree Shareholders and their Affiliates beneficially own 25% or more, but less than 40% of the outstanding
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Voting Securities, own 15% or more, but less than 25% of the outstanding Voting Securities and own 5% or more, but less than 15%
of our outstanding Voting Securities, respectively.
After the closing of the Merger, pursuant to the Oaktree Shareholders Agreement, we appointed each of Mr. Rajath Shourie
and Mses. Emily Stephens and Renée Kemp (each of which was an Oaktree Designee) as a Director whose term expires at the first,
second and third annual meeting of the Stockholders following the date of completion of the Merger, respectively. Mr. Shourie was re-
elected as a Director at our 2014 Annual General Meeting. On February 17, 2015, Mr. Shourie and Ms. Stephens resigned as Directors
and were replaced by Mr. Mahesh Balakrishnan and Ms. Jennifer Box, both of whom are Oaktree Designees.
We have also agreed to establish and maintain an audit committee (the “Audit Committee”), a compensation committee (the
“Compensation Committee”) and a nominating and corporate governance committee (the “Nominating and Corporate Governance
Committee”), as well as such other board of directors committees as the board of directors deems appropriate from time to time or as
may be required by applicable law or the rules of Nasdaq (or other stock exchange or securities market on which the Common Shares
are at any time listed or quoted). The committees will have such duties and responsibilities as are customary for such committees,
subject to the provisions of the Oaktree Shareholders Agreement.
The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee will consist
of at least three Directors, with the number of members determined by the board of directors; provided, however, that for so long as
the Oaktree Shareholders and their Affiliates in the aggregate beneficially own 15% or more of our outstanding Voting Securities, the
Compensation Committee and the Nominating and Corporate Governance Committee will consist of three members each, and the
Oaktree Shareholders are entitled to include one Oaktree Designee on each such Committee.
The board of directors will appoint individuals selected by the Nominating and Corporate Governance Committee to fill the
positions on the committees of the board of directors that are not required to be filled by Oaktree Designees. As of April 6, 2015, our
Audit Committee consists of Mr. Koert Erhardt, Mr. Stelios Zavvos and Mr. Tom Softeland, who is the chairman of the committee. As
of April 6, 2015, our Compensation Committee consists of Mr. Tom Softeland, Mr. Mahesh Balakrishnan and Mr. Spyros Capralos,
who is the chairman of the committee. As of April 6, 2015, our Nominating Committee consists of Mr. Spyros Capralos, Ms. Jennifer
Box and Mr. Koert Erhardt, who is the chairman of the committee.
Directors serve on the board until their resignation or removal or until their successors are nominated and appointed or
elected; provided, that if the number of Directors that the Oaktree Shareholders are entitled to nominate pursuant to the Oaktree
Shareholder Agreement is reduced by one or more Directors, then the Oaktree Shareholders shall, within 5 business days, cause such
number of Oaktree Designees then serving on the board of directors to resign from the board of directors as is necessary so that the
remaining number of Oaktree Designees then serving on the board of directors is less than or equal to the number of Directors that the
Oaktree Shareholders are then entitled to nominate. However, no such resignation will be required if a majority of the Directors then
in office (other than the Oaktree Designees) provides written notification to the Oaktree Shareholders within such 5 business day
period that such resignation will not be required.
If any Oaktree Designee serving as a Director dies or is unwilling or unable to serve as such or is otherwise removed or
resigns from office, then the Oaktree Shareholders can promptly nominate a successor to such Director (to the extent they are still
entitled to pursuant to the Oaktree Shareholder Agreement). We have agreed to take all actions necessary in order to ensure that such
successor is appointed or elected to the board of directors as promptly as practicable. If the Oaktree Shareholders are not entitled to
nominate any vacant Director position(s), we and the board of directors will fill such vacant Director position(s) with an individual(s)
selected by the Nominating and Corporate Governance Committee.
Voting
Except with respect to any Excluded Matter (as defined below), at any meeting of our stockholders, Oaktree Shareholders
have agreed to (and have agreed to cause their Affiliates to) vote, or cause to be voted, or exercise their rights to consent (or cause
their rights to consent to be exercised) with respect to, all our Voting Securities beneficially owned by them (and which are entitled to
vote on such matter) in excess of the Voting Cap as of the record date for the determination of our stockholders entitled to vote or
consent to such matter, with respect to each matter on which our stockholders are entitled to vote or consent, in the same proportion
(for or against) as our Voting Securities that are owned by stockholders (other than an Oaktree Shareholder, any of their Affiliates or
any Group (for purposes of the Oaktree Shareholders Agreement and this summary, as such term is defined in Section 13(d)(3) of the
Exchange Act), which includes any of the foregoing) are voted or consents are given with respect to each such matter.
In any election of directors to the board of directors, except with respect to an election of Directors to the board of directors
where one or more members of the slate of nominees put forward by the Nominating and Corporate Governance Committee is being
opposed by one or more competing nominees (a “Contested Election”), the Oaktree Shareholders have agreed to (and have agreed to
cause their Affiliates to) vote, or cause to be voted, or exercise their rights to consent (or cause their rights to consent to be exercised)
with respect to, all our shares beneficially owned by them (and which are entitled to vote on such matter) in favor of the slate of
nominees approved by the Nominating and Corporate Governance Committee.
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In the case of a Contested Election, Oaktree Shareholders have agreed to (and have agreed to cause their Affiliates to) vote,
or cause to be voted, or exercise their rights to consent (or cause their rights to consent to be exercised) with respect to, all shares
beneficially owned by them in excess of the Voting Cap in the same proportion (for or against) as all of our shares that are owned by
our other stockholders (other than the Oaktree Shareholders, any of their Affiliates or any Group which includes any of the foregoing)
are voted or consents are given with respect to such Contested Election.
For so long as the Oaktree Shareholders and their affiliates in the aggregate beneficially own at least 33% of the outstanding
Voting Securities of the Company, without the prior written consent of Oaktree, we and the board of directors have agreed not to,
directly or indirectly (whether by merger, consolidation or otherwise), (i) issue Preferred Stock or any other class or series of our
Equity Interests that ranks senior to the shares as to dividend distributions and/or distributions upon the liquidation, winding up or
dissolution of the Company or any other circumstances, (ii) issue Equity Securities to a person or Group, if, after giving effect to such
transaction, such issuance would result in such Person or Group beneficially owning more than 20% of our outstanding Equity
Securities (except that we and the board of directors retain the right to issue Equity Securities in connection with a merger or other
business combination transaction with the consent of the Oaktree Shareholders), or (iii) issue any Equity Securities of any of our
subsidiaries (other than to the Company or a wholly-owned subsidiary of the Company); or (iv) terminate the Chief Executive Officer
or any other of our officers set forth in the Oaktree Shareholders Agreement at any time during the 18 months following the closing
date, except if such termination is for Cause (as defined in our 2014 Equity Incentive Plan).
During the 18 months after the closing of the Merger, for so long as the Oaktree Shareholders and their affiliates in the
aggregate beneficially own at least 33% of our outstanding Voting Securities, the affirmative approval of at least seven Directors will
be required to appoint any replacement Chief Executive Officer of the Company.
Standstill Restrictions
For so long as the Oaktree Shareholders and their Affiliates in the aggregate beneficially own at least 10% of our outstanding
Voting Securities, the Oaktree Shareholders and their Affiliates have agreed not to, directly or indirectly, acquire (i) the beneficial
ownership of any additional of our Voting Securities, (ii) the beneficial ownership of any other of our Equity Securities that derive
their value from any of our Voting Securities or (iii) any rights, options or other derivative securities or contracts or instruments to
acquire such beneficial ownership that derive their value from such Voting Securities or other Equity Securities, in each case of
clauses (i), (ii) and (iii), if, immediately after giving effect to any such acquisition, Oaktree Shareholders and their Affiliates would
beneficially own in the aggregate more than a percentage of our outstanding Voting Securities equal to (A) the Oaktree Shareholders’
ownership percentage of our Voting Securities immediately after the closing of the Merger (i.e., approximately 61.3%) plus (B) 2.5%.
The foregoing restrictions do not apply to participation by the Oaktree Shareholders or their Affiliates in: (i) pro rata primary
offerings of our Equity Securities based on number of outstanding Voting Securities held or (ii) acquisitions of our Equity Securities
that have received Disinterested Director Approval (as defined below).
For so long as the Oaktree Shareholders and their Affiliates in the aggregate beneficially own at least 10% of our Voting
Securities, unless specifically invited in writing by the board of directors (with Disinterested Director Approval), neither Oaktree nor
any of their Affiliates will in any manner, directly or indirectly, (i) enter into any tender or exchange offer, merger, acquisition
transaction or other business combination or any recapitalization, restructuring, liquidation, dissolution or other extraordinary
transaction involving the Company, (ii) make, or in any way participate in, directly or indirectly, any “solicitation” of “proxies,”
“consents” or “authorizations” (as such terms are used in the proxy rules of the SEC promulgated under the Exchange Act) to vote, or
seek to influence any person other than the Oaktree Shareholders with respect to the voting of, any of our Voting Securities (other than
with respect to the nomination of the Oaktree Designees and any other nominees proposed by the Nominating and Corporate
Governance Committee), (iii) otherwise act, alone or in concert with third parties, to seek to control or influence the management,
board of directors or policies of the Company or any of its Subsidiaries (other than with respect to the nomination of the Oaktree
Designees and any other nominees proposed by the Nominating and Corporate Governance Committee), or (iv) enter into any
negotiations, arrangements or understandings with any third party with respect to any of the foregoing activities.
However, if (i) we publicly announces our intent to pursue a tender offer, merger, sale of all or substantially all of our assets
or any similar transaction, which in each such case would result in a Change of Control Transaction, or any recapitalization,
restructuring, liquidation, dissolution or other extraordinary transaction involving the Company and its subsidiaries, taken as a whole,
then the Oaktree Shareholders are permitted to privately make an offer or proposal to the board of directors and (ii) if the board of
directors approves, recommends or accepts a buyout transaction with an Unaffiliated Buyer, the restrictions of the Oaktree
Shareholders’ participation in such transaction will cease to apply, except that any such actions must be discontinued upon the
termination or abandonment of the applicable buyout transaction (unless the board of directors determines otherwise with
Disinterested Director Approval).
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Limitations on Transfer; No Control Premium
For so long as Oaktree and their Affiliates in the aggregate beneficially own at least 10% of our Voting Securities, the
Oaktree Shareholders and their Affiliates have agreed not to sell any of their Common Shares to a person or group that, after giving
effect to such transaction, would hold more than 20% of our outstanding Equity Securities. Notwithstanding the foregoing, the
Oaktree and their Affiliates may sell their shares in the Company to any person or Group pursuant to:
•
•
•
•
sales that have received Disinterested Director Approval;
a tender offer or exchange offer, by an Unaffiliated Buyer, that is made to all of our stockholders, so long as such offer
would not result in a Change of Control Transaction, unless the consummation of such Change of Control Transaction
has received Disinterested Director Approval;
transfers to an Affiliate of the Oaktree Shareholders that is an investment fund or managed account in accordance with
the Oaktree Shareholders Agreement; and
sales in the open market (including sales conducted by a third-party underwriter, initial purchaser or broker-dealer) in
which the Oaktree Shareholder or their Affiliates do not know (and would not in the exercise of reasonable commercial
efforts be able to determine) the identity of the purchaser.
For so long as the Oaktree Shareholders and their Affiliates in the aggregate beneficially own at least 10% of our Voting
Securities, neither the Oaktree Shareholders nor any of their Affiliates will sell or otherwise dispose of any of their Common Shares in
any Change of Control Transaction unless our other stockholders of the Company are entitled to receive the same consideration per
Common Share (with respect to the form of consideration and price), and at substantially the same time, as the Oaktree Shareholders
or their Affiliates with respect to their Common Shares in such transaction.
Other Agreements
For so long as the Oaktree Shareholders are entitled to nominate at least one Director, all transactions involving the Oaktree
Shareholders or their Affiliates, on the one hand, and the Company or its subsidiaries, on the other hand, will require Disinterested
Director Approval; provided, that Disinterested Director Approval will not be required for (a) pro rata participation in primary
offerings of our Equity Securities based on number of outstanding Voting Securities held, (b) arms-length ordinary course business
transactions of not more than $5 million in the aggregate per year with portfolio companies of the Oaktree Shareholders or investment
funds or accounts Affiliated with the Oaktree Shareholders or (c) the transactions expressly required or expressly permitted under the
Merger Agreement relating to Heron, the Registration Rights Agreement and the Oaktree Shareholders Agreement.
We have also agreed to waive (on behalf of itself and its subsidiaries) the application of the doctrine of corporate opportunity,
or any other analogous doctrine, with respect to the Company and its subsidiaries, to the Oaktree Designees, to any of the Oaktree
Shareholders or to any of the respective Affiliates of the Oaktree Designees or any of the Oaktree Shareholders. None of the Oaktree
Designees, any Oaktree Shareholder or any of their respective Affiliates has any obligation to refrain from (i) engaging in the same or
similar activities or lines of business as the Company or any of its subsidiaries or developing or marketing any products or services
that compete, directly or indirectly, with those of the Company or any of its subsidiaries, (ii) investing or owning any interest publicly
or privately in, or developing a business relationship with, any Person engaged in the same or similar activities or lines of business as,
or otherwise in competition with, the Company or any of its subsidiaries or (iii) doing business with any client or customer of the
Company or any of its subsidiaries (each of the activities referred to in clauses (i), (ii) and (iii), a “Specified Activity”). We (on behalf
of the Company and its subsidiaries) have agreed to renounce any interest or expectancy in, or in being offered an opportunity to
participate in, any Specified Activity that may be presented to or become known to any Oaktree Shareholder or any of its Affiliates.
However, if and to the extent that from time to time after the closing of the Merger Mr. Petros Pappas may be considered an Affiliate
of any Oaktree Shareholder, the foregoing waivers do not apply to Mr. Petros Pappas, and any provisions governing corporate
opportunities set forth in the Pappas Shareholders Agreement with respect to Mr. Petros Pappas and/or any employment or services
agreement between the Company and Mr. Petros Pappas control.
Certain Exclusions
The restrictions described in “Voting,” “Standstill Restrictions” and “Limitations on Transfer; No Control Premium” of this
summary do not apply to portfolio companies of the Oaktree Shareholders or their Affiliates unless Oaktree (or its successor)
possesses at least 50% of the voting power of such portfolio companies or an action of such portfolio company is taken at the express
request or direction of, or in coordination with, an Oaktree Shareholder or its affiliate investment funds.
We have agreed to acknowledge that the Oaktree Shareholders have made investments and entered into business
arrangements with Mr. Petros Pappas, his immediate family, the members of the Pappas Seller (immediately prior to the Merger) or
their respective Affiliates (collectively, the “Pappas Investors”) outside of the Oceanbulk Companies, and may from time to time enter
into certain agreements with respect to the holding and/or disposition of Equity Securities of the Company. For purposes of the
Oaktree Shareholders Agreement, these arrangements and potential future agreements between the Oaktree Shareholders or their
Affiliates, on the one hand, and the Pappas Investors, on the other hand, will not cause (i) any Oaktree Shareholder to be deemed to be
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an Affiliate of, or constitute a group or beneficially own any Equity Securities of the Company beneficially owned by, the Pappas
Investors, or (ii) the Equity Securities of the Company held by the Pappas Investors to be deemed to be subject to the provisions of the
Oaktree Shareholders Agreement.
Certain Definitions
For purposes of this description of the Oaktree Shareholders Agreement, the following definitions apply:
“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such first Person, where “control” for purposes of this definition means
the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract, as trustee or executor or otherwise.
“Change of Control Transaction” means (a) any acquisition, in one or more related transactions, by any Person or Group,
whether by transfer of Equity Securities, merger, consolidation, amalgamation, recapitalization or equity sale (including a sale of
securities by the Company) or otherwise, which has the effect of the direct or indirect acquisition by such Person or Group of the
Majority Voting Power in the Company; or (b) any acquisition by any Person or Group directly or indirectly, in one or more related
transactions, of all or substantially all of the consolidated assets of the Company and its subsidiaries (which may include, for the
avoidance of doubt, the sale or issuance of Equity Securities of one or more subsidiaries of the Company).
“Common Shares” means the shares of common stock, par value $0.01 per share, of the Company, or any other capital stock
of the Company or any other Person into which such stock is reclassified or reconstituted (whether by merger, consolidation or
otherwise) (as adjusted for any stock splits, stock dividends, subdivisions, recapitalizations and the like).
“Company” means Star Bulk Carriers Corp.
“Disinterested Director Approval” means, with respect to any transaction or conduct requiring such approval pursuant to this
Agreement, the approval of a majority of the Disinterested Directors with respect to such transaction or conduct (and the quorum
requirements set forth in the charter or bylaws of the Company shall be reduced to exclude any Directors that are not Disinterested
Directors for purposes of such approval).
“Disinterested Directors” means any Directors who (a) are not Oaktree Designees and (b) do not have any material business,
financial or familial relationship with a party (other than the Company or its subsidiaries) to the transaction or conduct that is the
subject of the approval being sought. Notwithstanding the foregoing, Petros Pappas shall not constitute an Oaktree Designee (other
than for purposes of the election of directors, the standstill obligations and the transfer limitations applicable to the Oaktree
Shareholders and their Affiliates), and the existing agreements and potential future arrangements with respect to the holding and/or
disposition of Equity Securities between the Pappas Investors and the Oaktree Shareholders shall not disqualify Petros Pappas or other
Pappas Investors from constituting a Disinterested Director for purposes of this Agreement (with certain exceptions).
“Equity Securities” means, with respect to any entity, all forms of equity securities in such entity or any successor of such
entity (however designated, whether voting or non-voting), all securities convertible into or exchangeable or exercisable for such
equity securities, and all warrants, options or other rights to purchase or acquire from such entity or any successor of such entity, such
equity securities, or securities convertible into or exchangeable or exercisable for such equity securities, including, with respect to the
Company, the Common Shares and Preferred Shares.
“Excluded Matter” includes each of the following:
(a) any vote of the Stockholders in connection with a Change of Control Transaction with an Unaffiliated
Buyer; provided, however, that if the Oaktree Shareholders or their Affiliates are voting in support of such Change
of Control Transaction, then such vote shall constitute an Excluded Matter only if such Change of Control
Transaction has received the Disinterested Director Approval; and
(b) any vote of the Stockholders in connection with (i) an amendment to the charter or bylaws of the
Company or (ii) the dissolution of the Company; provided, however, that if the Oaktree Shareholders or their
Affiliates are voting in support of such matter in either case, then such vote shall constitute an Excluded Matter only
if such matter has received the Disinterested Director Approval.
“Majority Voting Power” means, with respect to any Person, either (a) the power to elect or direct the election of a majority
of the board of directors or other similar body of such Person or (b) direct or indirect beneficial ownership of Equity Securities
representing more than 39% of the Voting Securities of such Person.
“Other Large Holder” means, with respect to any matter in which the Stockholders are entitled to vote or consent, any
Person or Group that is not an Oaktree Shareholder, an Affiliate of an Oaktree Shareholder or a Group that includes any of the
foregoing; provided, however, that if the Oaktree Shareholders, on the one hand, and the Pappas Investors, on the other hand, are
entitled to vote on or consent to such matter and a majority of the Voting Securities held by the Pappas Investors are voting on or
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consenting to such matter in the same manner as a majority of the Voting Securities held by the Oaktree Shareholders (i.e., both
positions of Voting Securities are “for” or both positions of Voting Securities are “against”), then an “Other Large Holder” shall mean
any Person or Group that is not an Oaktree Shareholder, a Pappas Investor, an Affiliate of either of the foregoing or a Group that
includes any of the foregoing.
“Other Large Holder Effective Voting Percentage” means, with respect to an Other Large Holder as of the record date for the
determination of Stockholders entitled to vote or consent to any matter, the ratio (expressed as a percentage) of (a) the sum of (i) the
number of Voting Securities of the Company beneficially owned by such Other Large Holder as of such record date, plus (ii) the
product of (x) the excess (if any) of the number of Voting Securities of the Company beneficially owned in the aggregate by the
Oaktree Shareholders and their Affiliates as of such record date, over the number of Voting Securities of the Company that is equal to
the product of the total number of Voting Securities of the Company outstanding as of such record date, multiplied by the Voting Cap
Percentage applicable with respect to such matter, multiplied by (y) a percentage equal to (I) the number of Voting Securities of the
Company beneficially owned by such Other Large Holder as of such record date, divided by (II) the number of Voting Securities of
the Company beneficially owned by all Stockholders (other than the Oaktree Shareholders and their Affiliates) as of such record date
and with respect to which a vote was cast or consent given (for or against) in respect of such matter, divided by (b) the total number of
Voting Securities of the Company outstanding as of such record date.
“Person” means an association, a corporation, an individual, a partnership, a limited liability company, a trust or any other
entity or organization, including a Governmental Authority.
“Preferred Shares” means the shares of preferred stock, par value $0.01 per share, of the Company, or any other capital stock
of the Company or any other Person into which such stock is reclassified or reconstituted (whether by merger, consolidation or
otherwise) (as adjusted for any stock splits, stock dividends, subdivisions, recapitalizations and the like).
“Unaffiliated Buyer” means any Person other than (a) an Oaktree Shareholder, (b) an Affiliate of an Oaktree Shareholder, (c)
any Person or Group in which an Oaktree Shareholder and/or any of its Affiliates has, at the applicable time of determination, Equity
Securities of at least $100 million (whether or not such Person or Group is deemed to be an Affiliate of an Oaktree Shareholder)
(provided that this clause (c) shall not be applicable for purposes of Section 4.2 hereof) and (d) a Group that includes any of the
foregoing.
“Voting Cap” means, as of any date of determination, the number of Voting Securities of the Company equal to the product
of (a) the total number of outstanding Voting Securities of the Company as of such date multiplied by (b) the Voting Cap Percentage
as of such date.
“Voting Cap Maximum” means, as of any date of determination, a percentage equal to the Other Large Holder Effective
Voting Percentage as of such date multiplied by 110%; provided, that if the Voting Cap Percentage obtained by applying such Voting
Cap Maximum would exceed 39%, then the Voting Cap Maximum shall equal the greater of (a) the sum of the Other Large Holder
Effective Voting Percentage as of such date plus 1% and (b) 39%.
“Voting Cap Percentage” means 33%; provided, however, that if as of the record date for the determination of Stockholders
entitled to vote or consent to any matter, an Other Large Holder beneficially owns greater than 15% of the outstanding Voting
Securities of the Company (the “Voting Cap Threshold”), then, subject to the next proviso, for every 1% of outstanding Voting
Securities of the Company beneficially owned by such Other Large Holder in excess of the Voting Cap Threshold, the Voting Cap
Percentage shall be increased by 2%; provided further, however, that the Voting Cap Percentage shall not exceed a percentage equal to
the Voting Cap Maximum as of such record date. For the avoidance of doubt, if multiple Other Large Holders beneficially own more
than 15% of the outstanding Voting Securities of the Company, the Voting Cap Percentage shall be adjusted in relation to that Other
Large Holder having the greatest beneficial ownership of Voting Securities of the Company.
“Voting Securities” means, with respect to any entity as of any date, all forms of Equity Securities in such entity or any
successor of such entity with voting rights as of such date, other than any such Equity Securities held in treasury by such entity or any
successor or subsidiary thereof, including, with respect to the Company, Common Shares and Preferred Shares (in each case to the
extent (a) entitled to voting rights and (b) issued and outstanding and not held in treasury by the Company or owned by subsidiaries of
the Company).
Pappas Shareholders Agreement
The following is a summary of the material terms of the Pappas Shareholders Agreement. Capitalized terms that are used in
this description of the Pappas Shareholders Agreement but not otherwise defined below have the meanings ascribed to them under the
caption, “8. Certain Definitions.”
General
The Pappas Shareholders Agreement, which entered into effect on July 11, 2014, upon the closing of the Merger, governs the
ownership interest of Mr. Petros Pappas and his children, Ms. Milena-Maria Pappas (one of our former directors) and Mr. Alexandros
Pappas, and entities affiliated to them (“Pappas Shareholders”) in the Company following consummation of the Merger. Based upon
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the number of our shares outstanding as of April 6, 2015, the Pappas Shareholders beneficially own approximately 6.80% of our total
issued and outstanding common shares of the Company.
Voting
At any meeting of our stockholders, the Pappas Shareholders have agreed to (and have agreed to cause their Affiliates to)
vote, or cause to be voted, or exercise their rights to consent (or cause their rights to consent to be exercised) with respect to, all of our
shares beneficially owned by them (and which are entitled to vote on such matter) in excess of the Voting Cap as of the record date for
the determination of our stockholders entitled to vote or consent to such matter, with respect to each matter on which our stockholders
are entitled to vote or consent, in the same proportion (for or against) as all shares owned by other of our stockholders.
Except as described below, in any election of directors to the board of directors, the Pappas Shareholders have agreed to (and
have agreed to cause their Affiliates to) vote, or cause to be voted, or exercise their rights to consent (or cause their rights to consent to
be exercised) with respect to, all of our shares beneficially owned by them (and which are entitled to vote on such matter) in favor of
the slate of nominees approved by the Nominating and Corporate Governance Committee.
At any Contested Election following the later of (i) the date on which Mr. Petros Pappas ceases to be our Chief Executive
Officer or (ii) the date on which Mr. Petros Pappas ceases to be a Director, the Pappas Shareholders have agreed to (and have agreed
to cause their Affiliates to) vote, or cause to be voted, or exercise their rights to consent (or cause their rights to consent to be
exercised) with respect to, all shares beneficially owned by them in excess of the Voting Cap in the same proportion (for or against) as
all shares owned by other of our stockholders.
Standstill Restrictions
Under the terms of the Pappas Shareholders Agreement, until the Pappas Shareholders Agreement is terminated, neither the
Pappas Shareholders nor any of their Affiliates will in any manner, directly or indirectly, (i) enter into any tender or exchange offer,
merger, acquisition transaction or other business combination or any recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction involving the Company, (ii) make, or in any way participate, directly or indirectly, in any solicitations of
proxies, consents or authorizations to vote, or seek to influence any Person other than the Pappas Shareholders with respect to the
voting of, any Voting Securities of the Company or any of its Subsidiaries (other than with respect to the nomination of any nominees
proposed by the Nominating and Corporate Governance Committee), (iii) otherwise act, alone or in concert with third parties, to seek
to control or influence the management, board of directors or policies of the Company or any of its Subsidiaries (other than with
respect to the nomination of any nominees proposed by the Nominating and Corporate Governance Committee), (iii) otherwise act,
alone or in concert with third parties, to seek to control or influence the management, board of directors or policies of the Company or
any of its Subsidiaries (other than with respect to the nomination of any nominees proposed by the Nominating and Corporate
Governance Committee), or (iv) enter into any negotiations, arrangements or understandings with any third party with respect to any
of the foregoing activities. However, if (i) we publicly announce our intent to pursue a tender offer, merger, sale of all or substantially
all of our assets, then the Pappas Shareholders will be permitted to privately make an offer or proposal to the board of directors and
(ii) if the board of directors approves, recommends or accepts a buyout transaction the standstill restrictions of the Pappas
Shareholders’ participation in such transaction will cease to apply until such buyout transaction is terminated or abandoned and will
become applicable again upon any such termination or abandonment (unless the board of directors determines otherwise with
Disinterested Director Approval).
No Aggregation with Oaktree
We have agreed to acknowledge that the Pappas Shareholders have made investments and entered into business arrangements
with the Oaktree Shareholders outside of Oceanbulk, and may from time to time enter into certain agreements with respect to the
holding and/or disposition of Equity Securities of the Company. For purposes of the Pappas Shareholders Agreement, these
arrangements and potential future agreements between the Pappas Shareholders and the Oaktree Shareholders will not cause (i) any
Pappas Shareholder to be deemed to be an Affiliate of, or constitute a group or beneficially own of our Equity Securities beneficially
owned by, the Oaktree Shareholders, or (ii) our Equity Securities held by the Oaktree Shareholders to be deemed to be subject to the
provisions of the Pappas Shareholders Agreement.
Other Agreements
All transactions involving the Pappas Shareholders or their Affiliates, on the one hand, and the Company or its Subsidiaries,
on the other hand, will require Disinterested Director Approval; provided, that Disinterested Director Approval will not be required for
pro rata participation in primary offerings of our Equity Securities based on number of outstanding Voting Securities held.
Corporate Opportunity
From and after the date of the Pappas Shareholders Agreement and through and including the earliest of (x) the date of
termination of the Pappas Shareholders Agreement, (y) the 36-month anniversary of the date of the Pappas Shareholders Agreement
and (z) the date that Petros Pappas ceases to be our Chief Executive Officer, if a Pappas Shareholder (or any Affiliate thereof) acquires
knowledge of a potential dry bulk transaction or dry bulk matter which may, in such Pappas Shareholder’s good faith judgment, be a
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business opportunity for both such Pappas Shareholder and the Company (subject to certain exceptions), such Pappas Shareholder
(and its Affiliate) has the duty to promptly communicate or offer such opportunity to the Company. If we do not notify the applicable
Pappas Shareholder within five business days following receipt of such communication or offer that it is interested in pursuing or
acquiring such opportunity for itself, then such Pappas Shareholder (or its Affiliate) will be entitled to pursue or acquire such
opportunity for itself.
Termination
The Pappas Shareholders Agreement will terminate upon the earlier of (a) a liquidation, winding-up or dissolution of the
Company and (b) the later of (x) such time as the Pappas Shareholders and their Affiliates in the aggregate beneficially own less than
5% of the outstanding our Voting Securities and (y) the date that is six months following the later of (i) the date Petros Pappas ceases
to be the Chief Executive Officer or (ii) the date Mr. Petros Pappas ceases to be a Director.
Certain Definitions
For purposes of this description of the Pappas Shareholders Agreement, the following definitions apply:
“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such first Person, where “control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of
voting securities, by contract, as trustee or executor or otherwise.
“beneficial owner” means a “beneficial owner”, as such term is defined in Rule 13d-3 under the Exchange Act; “beneficially
own”, “beneficial ownership” and related terms shall have the correlative meanings.
“Company” means Star Bulk Carriers Corp.
“Contested Election” means an election of Directors to the board of directors where one or more members of the slate of
nominees put forward by the Nominating and Corporate Governance Committee is being opposed by one or more competing
nominees.
“Disinterested Director Approval” means the approval of a majority of the Disinterested Directors (and the quorum
requirements set forth in the Charter or bylaws of the Company shall be reduced to exclude any Directors that are not Disinterested
Directors for purposes of such approval).
“Disinterested Directors” means any Directors who (a) are not Petros Pappas, any other Pappas Shareholder or any Affiliate
of any Pappas Shareholder and (b) do not have any material business, financial or familial relationship with a party (other than the
Company or its Subsidiaries) to the transaction or conduct that is the subject of the approval being sought. Notwithstanding the
foregoing, the agreements and relationships between the Pappas Shareholders and the Oaktree Shareholders shall not disqualify any
Director designated by Oaktree from constituting a Disinterested Director (except if any such Oaktree designee is Mr. Petros Pappas,
any Pappas Shareholder or any Affiliate thereof). Notwithstanding anything to the contrary in the foregoing, any Oaktree designee
shall be disqualified from constituting a Disinterested Director for purposes of the standstill provision.
“Equity Securities” means, with respect to any entity, all forms of equity securities in such entity or any successor of such
entity (however designated, whether voting or non-voting), all securities convertible into or exchangeable or exercisable for such
equity securities, and all warrants, options or other rights to purchase or acquire from such entity or any successor of such entity, such
equity securities, or securities convertible into or exchangeable or exercisable for such equity securities, including, with respect to the
Company, the Common Shares and Preferred Shares.
“Voting Cap” means, as of any date of determination, the number of Voting Securities of the Company equal to the product
of (a) the total number of outstanding Voting Securities of the Company as of such date multiplied by (b) 14.9%.
Registration Rights Agreement
On July 11, 2014, the Oaktree Seller, the Pappas Seller, certain of our stockholders affiliated with Monarch and certain
affiliates thereof entered into the Registration Rights Agreement. Pursuant to the terms of the Registration Rights Agreement, we
have, among other things, filed Form F-3 registration statement (Registration No. 333-197886), covering the resale of shares owned
by such stockholders, which was declared effective on September 25, 2014.
In addition, the Registration Rights Agreement also provides the Oaktree Seller and its affiliates with certain demand
registration rights and provides the Oaktree Seller, Pappas Seller, Monarch and certain affiliates thereof with certain shelf registration
rights in respect of any of our common shares held by them, subject to certain conditions, including those shares acquired pursuant to
the July 2014 Transactions.
In addition, in the event that we register additional common shares for sale to the public following the closing of the July
2014 Transactions, we are required to give notice to the Oaktree Seller, the Pappas Seller, Monarch and certain affiliates thereof of our
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intention to effect such registration and, subject to certain limitations, we are required to include our common shares held by those
holders in such registration. We obtained the consent of the above shareholders before filing Form F-3 registration statement
(Registration No. 333-198832) covering the resale of our common shares issued under the Purchase Agreement for the Excel Vessels,
which was declared effective on February 25, 2015.
We are required to bear the registration expenses, other than underwriting discounts and commissions and transfer taxes, if
any, attributable to the sale of any holder’s securities pursuant to the Registration Rights Agreement. The Registration Rights
Agreement includes customary indemnification provisions in favor of the stockholders party thereto, any person who is or might be
deemed a control person (within the meaning of the Securities Act, and the Exchange Act and related parties against certain losses and
liabilities (including reasonable costs of investigation and legal expenses) arising out of or relating to any filing or other disclosure
made by us under the securities laws relating to any such registration.
On August 28, 2014, the Registration Rights Agreement was amended in conjunction with the Excel Transactions. Pursuant
to the terms of this Amendment No. 1 to the Registration Rights Agreement, we have, among other things, filed Form F-3 registration
statement (Registration No. 333-198832) covering the resale of our common shares issued under the Purchase Agreement for the
Excel Vessels, which was declared effective on February 25, 2015.
Excel Transactions
On August 19, 2014, we entered into the Excel Transactions.
Entities affiliated with Oaktree and entities affiliated with Angelo, Gordon are holders of 46.7% and 23.6%, respectively, of
the outstanding equity of Excel. The Excel Transactions were approved by the disinterested members of our board of directors, based
upon the recommendation of a transaction committee of disinterested directors, which considered the Excel Transactions on our behalf
in coordination with its management team. The total consideration was determined based on the average of three vessel appraisals by
independent vessel appraisers.
At the transfer of each Excel Vessel, we have paid or will pay the cash and share consideration for such Excel Vessel to
Excel. Excel uses the cash consideration, to cause an amount of outstanding indebtedness under its senior secured credit agreement to
be repaid, such that all liens and obligations with respect to the transferred Excel Vessel (or vessel-owning subsidiary) are released
upon the transfer to us.
The Vessel Purchase Agreement contains various customary representations, warranties and covenants. The transfers of the
individual Excel Vessels were made pursuant to customary memoranda of agreement (“MOAs”) for vessel transfers.
In addition, subject to certain limitations, we have agreed to indemnify Excel and various related parties for breaches of
certain fundamental representations, warranties and covenants in the Vessel Purchase Agreement and the MOAs for up to six months
following the date of the final closing under the Vessel Purchase Agreement (the “Survival Date”), which is likely to occur during
April 2015. Similarly, subject to certain limitations, Excel has agreed to indemnify us and various related parties for breaches of
certain fundamental representations, warranties and covenants in the Vessel Purchase Agreement and the MOAs up to the Survival
Date.
Excel has agreed that it will not transfer or otherwise monetize through derivative transactions the “Subject Shares” (as
defined below) until after the Survival Date (subject to a requirement to continue to retain the Subject Shares if there is a pending
indemnification claim against Excel), except that Excel may transfer Subject Shares if it makes appropriate arrangements to escrow a
certain minimum amount of proceeds. “Subject Shares” is defined in the Vessel Purchase Agreement to mean a number of our
common shares (based on the volume-weighted average price for the five consecutive trading days ending on and including the date of
the Vessel Purchase Agreement) that would equal to (x) $2.5 million times (y) the amount of consideration received for all Excel
Vessels delivered to date divided by (z) the total amount of consideration for all Excel Vessels.
As outlined above, in connection with the foregoing Excel Transactions, we entered into an amendment to the Registration
Rights Agreement to provide holders of the Excel Vessel Share Consideration with certain customary demand, shelf and piggyback
registration rights.
The Excel Vessel Bridge Facility
We have been using cash on hand, borrowings under other debt facilities and borrowings under the $231.0 million Excel
Vessel Bridge Facility extended to us by entities affiliated with Oaktree and entities affiliated with Angelo, Gordon to fund the cash
consideration for the Excel Vessels.
Unity Holding LLC, a direct subsidiary of ours, was the borrower under the Excel Vessel Bridge Facility, and each individual
vessel-owning subsidiary was a guarantor. The Excel Vessel Bridge Facility was secured by 33 of the Excel Vessels acquired by us as
well as related bank accounts, earnings and insurance proceeds and the equity of each vessel-owning subsidiary of Unity.
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The Excel Vessel Bridge Facility contains customary affirmative and negative covenants applicable to Unity and its
subsidiaries, including limitations on the incurrence of additional indebtedness and guarantee obligations, the incurrence of liens,
fundamental changes, asset sales, transactions with affiliates and investments. The Excel Vessel Bridge Facility contains customary
events of default.
As of December 31, 2014, $56.2 million of borrowings were outstanding under the Excel Vessel Bridge Facility. We prepaid,
and terminated, the Excel Vessel Bridge Facility on January 29, 2015.
Purchase of Shares in the 2015 Equity Offering
As part of 2015 Equity Offering, the Significant Shareholders purchased 37,250,418 firm common shares at the public
offering price of $5.0 per common share. The aggregate proceeds to us of the 2015 Equity Offering, net of underwriters’ commissions,
were approximately $242.2 million.
On an as-adjusted basis, giving effect to 2015 Equity Offering and all 29,917,312 common shares comprising the Excel
Vessel Share Consideration are distributed by Excel to its equity holders, Oaktree, Angelo, Gordon, Monarch and the Pappas
Shareholders, including the Pappas Affiliates, would beneficially own approximately 58.0%, 5.9%, 5.9% and 7.8%, respectively, of
our outstanding common shares. Prior to the 2015 Equity Offering, giving effect to the distribution of the Excel Vessel Share
Consideration to the Excel equity holders, Oaktree, Angelo, Gordon, Monarch and the Pappas Shareholders would beneficially own
approximately 57.4%, 6.2%, 5.4% and 9.3%, respectively of our outstanding common shares.
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 of directors 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.
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 2010, we commenced arbitration proceedings against Ishhar Overseas FZE of Dubai (“Ishhar”) for repudiatory breach of
the charter parties due to the nonpayment of charter hires related to Star Epsilon and Star Kappa. We sought damages for repudiations
of the charter parties due to early redelivery of the vessels as well as unpaid hire of approximately $2.0 million. We pursued an interim
award for such nonpayment of charter hire and an award for the loss of charter hire for the remaining period under the charter. Claim
submissions were filed. As of December 31, 2011, we determined that the above amount was not recoverable and recognized a
provision for doubtful receivables of approximately $2.0 million. Subsequently, a conditional settlement agreement was signed on
September 5, 2012, under which we agreed to receive a cash payment of $5.0 million in seventeen monthly installments. The first
installment of $0.5 million was received upon the execution of the settlement agreement and the next sixteen monthly installments,
varying between $0.3 million and $0.5 million, were received on the last day of each month beginning from September 30, 2012 and
ending on December 31, 2013.
In February 2011, Korea Line Corporation (“KLC”), charterer at the time of the vessels Star Gamma and Star Cosmo,
commenced rehabilitation proceedings in Seoul, South Korea. Under the rehabilitation plan approved by the KLC’s creditors on
October 14, 2011, we were entitled to receive an amount of $6.8 million, of which 37% is to be paid in cash over a period of ten years
and the remaining 63% shall be converted into KLC’s shares at a rate of one common share of KLC with par value of KRW 5,000
(approximately $4.55 using the exchange rate as of December 31, 2014, of 0.00091 KRW/usd) for each KRW 100,000 (approx. $91
using the exchange rate as of December 31, 2014, of 0.00091 KRW/usd) of claim. Based on the terms of the rehabilitation plan, the
shares of KLC will be restricted from trading for six months. We do not expect that we will have either control or significant influence
over KLC as a result of the shares that we are entitled to receive under the terms of the rehabilitation plan. In addition, we entered into
a direct agreement with KLC and received $172,429 in October 2011 and $172,429 in January 2013, as part of the due hire for Star
Gamma. Finally, we entered into two tripartite agreements with KLC and the sub-charterers of the vessels Star Gamma and Star
Cosmo under which, we received an amount of $86,000 from the Star Gamma sub-charter in December 2011 and an amount of
$121,000 in March 2012 from the Star Cosmo sub-charterer. As of December 31, 2011, we determined that an amount of $498,000
was not recoverable due to the long-term time period of KLC’s rehabilitation plan and the uncertainty surrounding the continuation of
KLC’s operations.
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On November 19, 2012, we received 11,502 shares (46,007 shares before split) of KLC as part of the rehabilitation plan
described above for the vessel Star Gamma, which shares were sold the same date. The cash proceeds from the sale of the respective
shares was $144,000. In December 2012, we also received $12,055 and $740 in cash, for Star Gamma and Star Cosmo respectively,
pursuant to the terms of the rehabilitation plan, and the total amount of $156,795 is included under “Other operational gain” in the
consolidated statements of operations for the year ended December 31, 2012. In October 2013 we received $166,545 and $10,388 for
Star Gamma and Star Cosmo respectively, pursuant to the terms of the rehabilitation plan, and the total amount of $176,933 is
included under “Other operational gain” in the consolidated statements of operations for the year ended December 31, 2013. These
amounts have been received as early payment of the cash component of the rehabilitation plan. The next tranche of 718 shares for the
vessel Star Cosmo was released from lock up on June 4, 2013, and until the date of this report, these shares have not been sold. In
addition in November 2013, 24,196 and 983 shares were issued pursuant to the terms of the rehabilitation plan for Star Gamma and
Star Cosmo, respectively.
On July 13, 2011, Star Cosmo was retained by the port authority in the Spanish port of Almeria and was released on July 16,
2011. According to the port authority, the vessel allegedly discharged oily water while sailing in Spanish waters in May 2011, more
than two months before being retained, and related records were allegedly deficient. Administrative investigation commenced locally.
We posted a cash collateral of (cid:31)340,000 (or $ 414,800 using the exchange rate as of December 31, 2014, eur/usd 1.22) to guarantee
the payment of fines that may be assessed in the future and the vessel was released. The cash collateral of (cid:31)340,000 has been released
to us in March 2012, after being replaced by a P&I Letter of undertaking. The fines were previously reduced by the Spanish
administrative to (cid:31)260,000 (or $317,200 using the exchange rate as of December 31, 2014, eur/usd 1.22). Except for (cid:31)60,000
(approximately $73,200 using the exchange rate as of December 31, 2014, eur/usd 1.22), which amount was irrevocably adjudicated
in March 2015, the remaining amount of this fine remains subject to adjudication. Up to $1.0 billion of the liabilities associated with
the vessel’s actions, mainly for sea pollution, are covered by our P&I Club Insurance. We have not accrued any amount for the
specific case.
In March 2013, we commenced arbitration proceedings against Hanjin HHIC-Phil Inc., the shipyard that constructed the Star
Polaris, relating to engine failure the vessel experienced in South Korea. This resulted in 142 off-hire days and the loss of $2.3 million
in revenues. We are pursuing the compensation for the cost of the repairs and the loss of revenues and an arbitration hearing is
scheduled in July 2015.
On June 28, 2013, we received a letter from the receivers of STX Pan Ocean Co. Ltd. (“STX”), terminating the charter
agreement for the vessel Star Borealis. Star Borealis was on time charter at an average gross daily charter rate of $24,750 for the
period from September 11, 2011 until July 11, 2021. On September 11, 2014, we agreed the settlement of a claim for damages and due
hire brought by our subsidiary, Star Borealis LLC, arising from the repudiation of the Star Borealis charter agreement by the charterer
STX (the “Settled Claim”). Star Borealis LLC negotiated, sold and assigned the rights to the Settled Claim to an unrelated third party
for consideration of $8.0 million, which was received on October 3, 2014. We recorded in 2014 a gain of approximately $9.4 million
including the extinguishment of a $1.4 million liability related to the amount of fuel and lubricants remaining on board of the vessel
Star Borealis at the time of the charter repudiation.
On October 23, 2014, a purported shareholder (the “Plaintiff”) of Star Bulk Carriers Corp. filed a derivative and putative
class action lawsuit in New York state court against our Chief Executive Officer, members of our board of directors and several of our
shareholders and related entities. We have been named as a nominal defendant in the lawsuit. The lawsuit alleges that our acquisition
of Oceanbulk and purchase of several Excel Vessels were the result of self-dealing by various defendants and that we entered into the
respective transactions on unfair terms. The lawsuit further alleges that, as a result of these transactions, several defendants’ interests
in Star Bulk Carriers Corp. have increased and that the Plaintiff’s interest in Star Bulk Carriers Corp. has been diluted. The lawsuit
also alleges that our management has engaged in other conduct that has resulted in corporate waste. The lawsuit seeks cancellation of
all shares issued to the defendants in connection with our acquisition of Oceanbulk, unspecified monetary damages, the replacement of
some or all members of our board of directors and of our Chief Executive Officer, and other relief. We believe the claims are
completely without merit, deny them, and intend to vigorously defend against them in court.
On November 24, 2014, we and the other defendants removed the action to the United States District Court for the Southern
District of New York. The court has issued a case management plan pursuant to which all fact discovery must be completed by
October 2, 2015, and all expert discovery must be completed by November 16, 2015. No date for trial has been set. On March 4, 2015,
we and the other defendants moved to dismiss the complaint. Briefing is underway and is expected to be completed by May 8, 2015.
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, and 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.
90
Dividend Policy
We pay dividends, if any, 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 preferential United States federal income tax rate (subject to certain conditions)
with respect to non-corporate individual shareholders. 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 shareholder’s tax basis in its common stock on a Dollar-for-Dollar basis and
thereafter as capital gain. Please see Item 10 “Additional Information—E. Taxation” for additional information relating to the tax
treatment of our dividend payments.
Currently, we are prohibited from paying dividends under our facilities and did not pay any dividends in 2014. Please see the
section of this annual report entitled “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”
B.
Significant Changes.
There have been no significant changes since the date of the annual consolidated financial statements included in this annual
report, other than those described in Note 20 “Subsequent events” of our annual consolidated financial statements.
Item 9.
The Offer and Listing
A.
Offer and Listing Details
Our 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,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
High
Low
15.88
13.83
14.70
32.67
37.68
$
$
$
$
$
5.41
4.39
4.57
10.03
25.84
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 December 31, 2014
1st Quarter ended March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter ended June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter ended September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter ended December 31, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended December 31, 2013
1st Quarter ended March 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter ended June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter ended September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter ended December 31, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
15.88
14.95
15.62
11.40
5.75
7.75
11.53
13.83
$
$
$
$
$
$
$
$
High
10.76
10.00
10.21
5.41
4.44
4.39
5.37
7.72
Low
$
$
$
$
$
$
$
$
91
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.
April 2015 (through and including April 6, 2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
3.76
4.54
4.80
6.66
8.32
10.49
11.40
$
$
$
$
$
$
$
3.47
3.05
4.01
3.67
5.41
7.90
8.28
High
Low
Item 10.
Additional Information
A.
Share Capital
Not Applicable.
B.
Memorandum and Articles of Association
Our Articles of Incorporation were filed as Exhibit 1 to our Report on Form 6-K filed with the Commission on October 15,
2012 and are incorporated by reference into Exhibit 1.1 to of this Annual Report. Pursuant to the Articles of Incorporation, we effected
a 15-for-1 reverse stock split of our issued and outstanding common shares, par value $0.01 per share, effective as of October 15,
2012. The reverse stock split was approved by shareholders at our annual general meeting of shareholders held on September 7, 2012.
The reverse stock split reduced the number of our issued and outstanding common shares from 81,012,403 common shares to
5,400,810 common shares and affected all issued and outstanding common shares. The number of our authorized common shares was
not affected by the reverse split. No fractional shares were issued in connection with the reverse stock split.
Under our Articles of Incorporation, our authorized capital stock consists of 325,000,000 registered shares of stock:
•
•
300,000,000 common shares, par value $0.01 per share; and
25,000,000 preferred shares, par value $0.01 per share. Our board of directors shall have the authority to issue all or any
of the preferred shares in one or more classes or series with such voting powers, designations, preferences and relative,
participating, optional or special rights and qualifications, limitations or restrictions as shall be stated in the resolutions
providing for the issue of such class or series of preferred shares.
As of the date of this annual report, we had issued and outstanding 161,691,380 common shares. No preferred shares are
issued or outstanding.
In addition, our Articles of Incorporation grant the Chairman of our board of directors a tie- breaking vote in the event the
directors’ vote is evenly split or deadlocked on a matter presented for vote.
Our Articles of Incorporation and Bylaws
Our purpose, as stated in Section B of our Articles of Incorporation, is to engage in any lawful act or activity for which
corporations may now or hereafter be organized under the Marshall Islands Business Corporations Act (the “MIBCA”).
Directors
Our directors are elected by a majority of the votes cast by shareholders entitled to vote in an election. Our 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 of directors. Our 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 term of our board of
directors is as follows: (i) the term, of our Class A directors expires in 2017; (ii) the term of Class B directors expires in 2015; and (iii)
the term of Class C director expires in 2016. 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.
92
Shareholder Meetings
Under our Bylaws, annual shareholder 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 of directors 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 shareholders that will be eligible to receive notice and vote at the meeting.
Dissenters’ Rights of Appraisal and Payment
Under the MIBCA, our shareholders 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 Articles of Incorporation, a shareholder 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 shareholder
must follow the procedures set forth in the MIBCA to receive payment. In the event that we and any dissenting shareholder fail to
agree on a price for the shares, the MIBCA 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 our shares are primarily traded on a local
or national securities exchange.
Shareholders’ Derivative Actions
Under the MIBCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known
as a derivative action, provided that the shareholder 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 Bylaws include 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 MIBCA if the director or officer 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 or her 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 Bylaws may discourage shareholders 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 shareholders.
Anti-takeover Provisions of our Charter Documents
Several provisions of our Articles of Incorporation and our 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 shareholder 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 shareholder may consider in its best interest, and (2) the removal of
incumbent officers and directors.
Blank Check Preferred Stock
Under the terms of our Articles of Incorporation, our board of directors has authority, without any further vote or action by
our shareholders, 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 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 provision for the board of directors 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 shareholders who do not agree
with the policies of the board of directors from removing a majority of the board of directors for two years.
93
Election and Removal of Directors
Our 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 our
outstanding voting shares. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited Actions by Shareholders
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 MIBCA.
Advance Notice Requirements for Shareholder Proposals and Director Nominations
Our 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
As of December 31, 2014, we had 19 credit facilities with lenders, including Commerzbank A.G., Credit Agricole Corporate
and Investment Bank, HSH Nordbank, ABN AMRO Bank N.V., Deutsche Bank AG, HSBC Bank plc., Export-Import Bank of China,
NIBC Bank N.V., BNP Paribas, DVB Bank SE, CiT Finance LLC, Deutsche Bank (China) Co., Ltd., Citibank, N.A., and DNB Bank
ASA, as agent and as lender. In addition, we had one binding term-sheet with Deutsche Bank (China) Co., Ltd. Beijing Branch and
HSBC Bank plc (the “Sinosure FACILITY”). For a discussion of our facilities, please see the section of this annual report entitled
“Item 5. Operating and Financial Review—B. Liquidity and Capital Resources—Senior Secured Credit Facilities.”
As of December 31, 2014, we were also a party to a senior indenture with U.S. Bank National Association, as trustee. For a
discussion of the indenture, please see the section of this annual report entitled “Item 5. Operating and Financial Review—B.
Liquidity and Capital Resources—2019 Senior Notes Offering.”
As of December 31, 2014, we are a party to a services agreement with Interchart, the Oaktree Shareholders Agreement, the
Pappas Shareholders Agreement and the Registration Rights Agreement. For a discussion of these agreements, please see the section
of this annual report entitled “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.”
We have no other material contracts, other than contracts entered into in the ordinary course of business, to which we are a
party.
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 shares.
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.
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 shareholders.
Material United States Federal Income Tax Considerations
The following is a discussion of the material U.S. federal income tax consequences to us of our activities and to our
shareholders of the ownership and disposition of our common shares. This discussion is not a complete analysis or listing of all of the
possible tax consequences to our shareholders of the ownership and disposition of our common shares and does not address all tax
considerations that might be relevant to particular holders in light of their personal circumstances or to persons that are subject to
special tax rules. In particular, the information set forth below deals only with shareholders that will hold common shares as capital
assets for U.S. federal income tax purposes (generally, property held for investment) and that do not own, and are not treated as
94
owning, at any time, 10% or more of the total combined voting power of all classes of our stock entitled to vote. In addition, this
description of the material U.S. federal income tax consequences does not address the tax treatment of special classes of shareholders,
such as (i) financial institutions, (ii) regulated investment companies, (iii) real estate investment trusts, (iv) tax-exempt entities, (iv)
insurance companies, (v) persons holding the common shares as part of a hedging, integrated or conversion transaction, constructive
sale or “straddle,” (vi) persons that acquired common shares through the exercise or cancellation of employee stock options or
otherwise as compensation for their services, (vii) U.S. expatriates, (viii) persons subject to the alternative minimum tax, (ix) dealers
or traders in securities or currencies and (x) U.S. shareholders whose functional currency is not the U.S. dollar. You are encouraged to
consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under U.S. federal,
state, local or non-U.S. law of the ownership of our common shares.
U.S. Federal Income Tax Considerations
The following is a discussion of the material U.S. federal income tax consequences to us of our activities and to U.S. Holders
and Non-U.S. Holders (as defined below) of the ownership and disposition of our common shares.
The following discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), U.S. judicial
decisions, administrative pronouncements and existing and proposed Treasury Regulations, all as in effect as of the date hereof. All of
the preceding authorities are subject to change, possibly with retroactive effect, so as to result in U.S. federal income tax consequences
different from those discussed below. We have not requested, and will not request, a ruling from the U.S. Internal Revenue Service
(the “IRS”) with respect to any of the U.S. federal income tax consequences described below, and as a result there can be no assurance
that the IRS will not disagree with or challenge any of the conclusions we have reached and describe herein.
This summary does not address estate and gift tax consequences or tax consequences under any state, local or non-U.S. laws.
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 in Item 4.A “Information on the Company – History and development of the Company.”
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 U.S. Internal Revenue Service (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.
U.S. Federal Income Taxation of the Company
U.S. Tax Classification of the Company
We are treated as a corporation for U.S. federal income tax purposes. As a result, U.S. Holders will not be directly subject to
U.S. federal income tax on our income, but rather will be subject to U.S. federal income tax on distributions received from us and
dispositions of common shares as described below.
95
U.S. Federal Income Taxation of Operating Income: In General
We anticipate that we will earn substantially all our income from the hiring or leasing of vessels for use mostly on a voyage
or time charter basis or from the performance of services directly related to those uses, all of which we refer to as “shipping income.”
Unless a non-U.S. corporation qualifies for an exemption from U.S. federal income taxation under Section 883 of the Code,
such corporation will be subject to U.S. federal income taxation on its “shipping income” that is treated as derived from sources within
the United States. For U.S. federal income tax purposes, 50% of shipping income that is attributable to transportation that begins or
ends, but that does not both begin and end, in the United States constitutes income from sources within the United States (“United
States source gross transportation income” or “USSGTI”), and, in the absence of exemption from tax under Section 883 of the Code,
such USSGTI generally will be subject to a 4% U.S. federal income tax imposed without allowance for deductions.
Shipping income of a non-U.S. corporation attributable to transportation that both begins and ends in the United States is
considered to be derived entirely from sources within the United States. However, U.S. law prohibits non-U.S. corporations, such as
us, from engaging in transportation that produces income considered to be derived entirely from U.S. sources.
Shipping income of a non-U.S. corporation attributable to transportation exclusively between two non-U.S. ports will be
considered to be derived entirely from sources outside the United States. Shipping income of a non-U.S. corporation derived from
sources outside the United States will not be subject to any U.S. federal income tax.
Exemption of Operating Income from U.S. Federal Income Taxation
Under Section 883 of the Code and the Treasury Regulations thereunder, a non-U.S. corporation will be exempt from U.S.
federal income taxation on its U.S. source shipping income if:
(1) it is organized in a country 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 (a “qualified
foreign country”); and
(2) one of the following tests is met: (A) more than 50% of the value of its shares is beneficially owned, directly or indirectly,
by “qualified shareholders,” which term includes individuals that (i) are “residents” of qualified foreign countries and (ii) comply with
certain substantiation requirements (the “50% Ownership Test”); (B) it is a “controlled foreign corporation” and it satisfies an
ownership test (the “CFC Test”); or (C) its shares are “primarily and regularly traded on an established securities market” in a
qualified foreign country or in the United States (the “Publicly-Traded Test”).
The Republic of the Marshall Islands has been officially recognized by the IRS as a qualified foreign country that grants the
requisite “equivalent exemption” from tax in respect of each category of shipping income we earn and currently expect to earn in the
future.
We believe that for 2014 we satisfied the Publicly-Traded Test, although for 2015 and the foreseeable future we will not
satisfy such test, as discussed below. Beginning in 2015 we do not currently anticipate circumstances under which we would be able
to satisfy the 50% Ownership Test of the CFC Test. Accordingly, we do not believe we will be exempt from U.S. federal income tax
on our U.S. source shipping income beginning in 2015 and for the foreseeable future.
Publicly-Traded Test. The Treasury Regulations under Section 883 of the Code provide, in pertinent part, that shares of a
non-U.S. corporation will be considered to be “primarily traded” on an established securities market in a country 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, stock of a non-U.S. corporation will be considered to be “regularly traded” on an established
securities market if (1) one or more classes of stock of the corporation that represent more than 50% of the total combined voting
power of all classes of stock of the corporation entitled to vote and of the total value of the stock of the corporation, are listed on such
market and (2) (A) such class of stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable
year or one-sixth of the days in a short taxable year and (B) the aggregate number of shares of such class of stock traded on such
market during the taxable year must be at least 10% of the average number of shares of such class of stock outstanding during such
year or as appropriately adjusted in the case of a short taxable year.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of shares will not be
considered to be “regularly traded” on an established securities market for any taxable year in which 50% or more of the vote and
value of the outstanding shares of such class are owned, actually or constructively under specified share attribution rules, on more than
half the days during the taxable year by persons that each own 5% or more of the vote and value of such class of outstanding stock
(the “5% Override Rule”).
For purposes of determining the persons that actually or constructively own 5% or more of the vote and value of our common
shares (“5% Shareholders”), the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and
96
Schedule 13D filings with the U.S. Securities and Exchange Commission, as owning 5% or more of our common shares. 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% Shareholder 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 that within the group of 5% Shareholders, qualified shareholders (as defined for purposes of Section 883)
own sufficient number of shares to preclude non-qualified shareholders in such group from owning 50% or more of the total value of
the class of stock of the closely held block that is a part of our common shares for more than half the number of days during the
taxable year.
On July 11, 2014, pursuant to the transaction with Oceanbulk discussed above, Oaktree became a 5% Shareholder that holds
50% or more of the vote and value of our common shares. Because the Oceanbulk transaction occurred more than halfway through
2014, we do not expect the 5% Override Rule was triggered for 2014. However, for 2015 and the foreseeable future, we do not expect
to be able to establish that a sufficient number of our common shares are indirectly held by indirect owners of Oaktree that are
qualified shareholders to preclude indirect owners of Oaktree that are not qualified shareholders from owning 50% or more of our
common shares. Accordingly, we do not expect to satisfy the Publicly-Traded Test and to qualify for an exemption under Section 883
for 2015 or for the foreseeable future.
Taxation in Absence of Section 883 Exemption
So long as Oaktree owns 50% or more of our common shares, we do not expect to qualify for the Section 883 exemption. For
any taxable year in which we are not eligible for the benefits of Section 883 exemption, our USSGTI will be subject to a 4% tax
imposed by Section 887 of the Code without the benefit of deductions to the extent that such income is not considered to be
“effectively connected” with the conduct of a U.S. trade or business, as described below. Since under the sourcing rules described
above, no more than 50% of our shipping income would be treated as derived from sources within the United States, the maximum
effective rate of U.S. federal income tax on our shipping income would never exceed 2% under this regime.
To the extent our shipping income derived from sources within the United States is considered to be “effectively connected”
with the conduct of a U.S. trade or business, as described below, any such “effectively connected” shipping income, net of applicable
deductions, would be subject to U.S. federal income tax, currently imposed at rates of up to 35%. In addition, we would generally be
subject to the 30% “branch profits” tax on earnings effectively connected with the conduct of such trade or business, as determined
after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of our U.S. trade or
business.
Our shipping income would be considered “effectively connected” with the conduct of a U.S. trade or business only if:
(1) we have, or are considered to have, a fixed place of business in the United States involved in the earning of U.S. source
shipping income; and
(2) substantially all of our U.S. source shipping income is attributable to regularly scheduled transportation, such as the
operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages
that begin or end in the United States.
We do not intend to have, or permit circumstances that would result in having, any vessel sailing to or from the United States
on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, it is
anticipated that none of our shipping income will be “effectively connected” with the conduct of a U.S. trade or business.
U.S. Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883, we will not be subject to U.S. federal income tax with
respect to gain realized on a sale of a vessel, provided that (i) the sale is considered to occur outside of the United States under U.S.
federal income tax principles and (ii) such sale is not attributable to an office or other fixed place of business in the United States. 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. We intend to conduct our operations so that the gain on any
sale of a vessel by us will not be taxable in the United States.
U.S. Federal Income Taxation of U.S. Holders
As used herein, a “U.S. Holder” is a beneficial owner of a common share that is: (1) a citizen of or an individual resident of
the United States, as determined for U.S. federal income tax purposes; (2) a corporation (or other entity treated as a corporation for
U.S. federal income tax purposes) created or organized under the laws of the United States or any state thereof or the District of
Columbia; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust (A) if a
court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have
authority to control all substantial decisions of the trust or (B) that has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person.
97
If a pass-through entity, including a partnership or other entity classified as a partnership for U.S. federal income tax
purposes, is a beneficial owner of our common shares, the U.S. federal income tax treatment of an owner or partner will generally
depend upon the status of such owner or partner and upon the activities of the pass-through entity. Owners or partners of a pass-
through entity that is a beneficial owner of common shares are encouraged to consult their tax advisors.
U.S. Holders are urged to consult their tax advisors as to the particular consequences to them under U.S. federal, state and
local, and applicable non-U.S. tax laws of the ownership and disposition of common shares.
Distributions
Subject to the discussion of passive foreign investment companies (“PFICs”) below, any distributions made by us with
respect to our common shares to a U.S. Holder will generally constitute foreign-source dividends to the extent of our current or
accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of such 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 shares 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.
If, as expected, the common shares are readily tradable on an established securities market in the United States within the
meaning of the Code and if certain holding period and other requirements (including a requirement that we are not a PFIC in the year
of the dividend or the preceding year) are met, dividends received by non-corporate U.S. Holders will be “qualified dividend income”
to such U.S. Holders. Qualified dividend income received by non-corporate U.S. Holders (including an individual) will be subject to
U.S. federal income tax at preferential rates.
Sale, Exchange or Other Disposition of Common Shares
Subject to the discussion of PFICs below, a U.S. Holder generally will recognize capital gain or loss upon a sale, exchange or
other disposition of our common shares 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 shares. Such gain or loss will be treated as long-term
capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition.
Such capital gain or loss will generally be treated as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes.
Long-term capital gains of certain non-corporate U.S. Holders are currently eligible for reduced rates of taxation. A U.S. Holder’s
ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Considerations
The foregoing discussion assumes that we are not, and will not be, a PFIC. If we are classified as a PFIC in any year during
which a U.S. Holder owns our common shares, the U.S. federal income tax consequences to such U.S. Holder of the ownership and
disposition of common shares could be materially different from those described above. A non-U.S. corporation will be considered a
PFIC for any taxable year in which (i) 75% or more of its gross income is “passive income” (e.g., dividends, interest, capital gains and
rents derived other than in the active conduct of a rental business) or (ii) 50% or more of the average value of its assets produce (or are
held for the production of) “passive income.” For this purpose, we will be treated as earning and owning our proportionate share of the
income and assets, respectively, of any of our subsidiaries that are treated as pass-through entities for U.S. federal income tax
purposes. Further, we will be treated as holding directly our proportionate share of the assets and receiving directly the proportionate
share of the income of corporations of which we own, directly or indirectly, at least 25%, by value. For purposes of determining our
PFIC status, income 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. We intend to take the position that income we derive from our voyage and time chartering
activities is services income, rather than rental income, and accordingly, that such income is not passive income for purposes of
determining our PFIC status. We believe that there is substantial legal authority supporting our position consisting of case law and IRS
pronouncements concerning the characterization of income derived from voyage and time charters as services income for other tax
purposes. Additionally, we believe that our contracts for newbuilding vessels are not assets held for the production of passive income,
because we intend to use these vessels for voyage and time chartering activities.
Assuming that it is proper to characterize income from our voyage and time chartering activities as services income and
based on the expected composition of our income and assets, we believe that we currently are not a PFIC, and we do not expect to
become a PFIC in the future. However, our characterization of income from voyage and time charters and of contracts for newbuilding
vessels is not free from doubt. Moreover, the determination of PFIC status for any year must be made only on an annual basis after the
end of such taxable year and will depend on the composition of our income, assets and operations during such taxable year. Because
of the above described uncertainties, there can be no assurance that the IRS will not challenge the determination made by us
concerning our PFIC status or that we will not be a PFIC for any taxable year.
If we were treated as a PFIC for any taxable year during which a U.S. Holder owns common shares, the U.S. Holder would
be subject to special adverse rules (described in “—Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election”)
unless the U.S. Holder makes a timely election to treat us as a “Qualified Electing Fund” (a “QEF election”) or marks its common
shares to market, as discussed below. We intend to promptly notify our shareholders if we determine that we are a PFIC for any
98
taxable year. A U.S. Holder generally will be required to file IRS Form 8621 if such U.S. Holder owns common shares in any year in
which we are classified as a PFIC.
Taxation of U.S. Holders Making a Timely QEF Election. If a U.S. Holder makes a timely QEF election, such U.S. Holder
must report for U.S. federal income tax purposes its pro-rata share of our ordinary earnings and net capital gain, if any, for each of our
taxable years during which we are a PFIC that ends with or within the taxable year of such U.S. Holder, regardless of whether
distributions were received from us by such U.S. Holder. No portion of any such inclusions of ordinary earnings will be treated as
“qualified dividend income.” Net capital gain inclusions of certain non-corporate U.S. Holders might be eligible for preferential
capital gains tax rates. The U.S. Holder’s adjusted tax basis in the common shares will be increased to reflect any income included
under the QEF election. Distributions of previously taxed income will not be subject to tax upon distribution but will decrease the U.S.
Holder’s tax basis in the common shares. An electing U.S. Holder would not, however, be entitled to a deduction for its pro-rata share
of any losses that we incur with respect to any taxable year. An electing U.S. Holder would generally recognize capital gain or loss on
the sale, exchange or other disposition of our common shares. A U.S. Holder would make a timely QEF election for our common
shares by filing IRS Form 8621 with its U.S. federal income tax return for the first year in which it held such shares when we were a
PFIC. If we determine that we are a PFIC for any taxable year, we would provide each U.S. Holder with all necessary information in
order to make the QEF election described above.
Taxation of U.S. Holders Making a “Mark-to-Market” Election. Alternatively, if we were treated as a PFIC for any taxable
year and, as we anticipate, our common shares are treated as “marketable stock,” a U.S. Holder would be allowed to make a “mark-to-
market” election with respect to our common shares. If that election is properly and timely made, the U.S. Holder generally would
include as ordinary income in each taxable year that we are a PFIC the excess, if any, of the fair market value of the common shares at
the end of the taxable year over such U.S. Holder’s adjusted tax basis in the common shares. The U.S. Holder would also be permitted
an ordinary loss in each such year in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the common shares over
their 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 shares would be adjusted to reflect any such income or loss
amount recognized. Any gain realized on the sale, exchange or other disposition of our common shares in a year that we are a PFIC
would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares in such a
year 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. If we were treated as a PFIC for any
taxable year, a U.S. Holder that does not make either a QEF election or a “mark-to-market” election (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 the common shares 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 for the common shares), and (2)
any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:
(1) the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the
common shares;
(2) the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a
PFIC, would be taxed as ordinary income and would not be “qualified dividend income”; and
(3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the
applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to
the resulting tax attributable to each such other taxable year.
U.S. Holders are urged to consult their tax advisors concerning the U.S. federal income tax consequences of holding common
shares if we are considered a PFIC in any taxable year.
Additional Tax on Net Investment Income
Certain U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds may be subject to a
3.8% tax on all or a portion of their “net investment income,” which includes dividends on our common shares and net gains from the
disposition of our common shares. U.S. Holders that are individuals, estates or trusts should consult their tax advisors regarding the
applicability of this tax to any of their income or gains in respect of our common shares.
99
U.S. Federal Income Taxation of Non-U.S. Holders
As used herein, a “Non-U.S. Holder” is any beneficial owner of a common share that is, for U.S. federal income tax
purposes, an individual, corporation, estate or trust and that is not a U.S. Holder.
If a pass-through entity, including a partnership or other entity classified as a partnership for U.S. federal income tax
purposes, is a beneficial owner of our common shares, the U.S. federal income tax treatment of an owner or partner will generally
depend upon the status of such owner or partner and upon the activities of the pass-through entity. Owners or partners of a pass-
through entity that is a beneficial owner of common shares are encouraged to consult their tax advisors.
Distributions
A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends received from us
with respect to our common shares, unless that income is effectively connected with the Non-U.S. Holder’s conduct of a trade or
business in the United States. In general, if the Non-U.S. Holder is entitled to the benefits of an applicable U.S. income tax treaty with
respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S.
Holder in the United States.
Sale, Exchange or Other Disposition of Common Shares
A Non-U.S. Holder 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 shares, unless:
(1) the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States; in
general, in the case of a Non-U.S. Holder entitled to the benefits of an applicable U.S. income tax treaty with respect to that gain, that
gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or
(2) 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.
Income or Gains Effectively Connected with a U.S. Trade or Business
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, dividends on the common
shares and gain from the sale, exchange or other disposition of the shares, that is effectively connected with the conduct of that trade
or business (and, if required by an applicable U.S. income tax treaty, is attributable to a U.S. permanent establishment), will generally
be subject to regular U.S. federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S.
Holders. In addition, in the case of a corporate Non-U.S. Holder, its earnings and profits that are attributable to the effectively
connected income, which are subject to certain adjustments, may be subject to an additional U.S. federal 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.
Information Reporting and Backup Withholding
Information reporting might apply to dividends paid in respect of common shares and the proceeds from the sale, exchange or
other disposition of common shares within the United States. Backup withholding (currently at a rate of 28%) might apply to such
payments made to a U.S. Holder unless the U.S. Holder furnishes its taxpayer identification number, certifies that such number is
correct, certifies that such U.S. Holder is not subject to backup withholding and otherwise complies with the applicable requirements
of the backup withholding rules. Certain U.S. Holders, including corporations, are generally not subject to backup withholding and
information reporting requirements, if they properly demonstrate their eligibility for exemption. United States persons who are
required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and
Certification). Each Non-U.S. Holder must submit an appropriate, properly completed IRS Form W-8 certifying, under penalties of
perjury, to such Non-U.S. Holder’s non-U.S. status in order to establish an exemption from backup withholding and information
reporting requirements. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will
be allowed as a refund or credit against your U.S. federal income tax liability, provided that the required information is furnished to
the IRS in a timely manner.
Certain U.S. Holders who are individuals are required to report information relating to our common shares, subject to certain
exceptions (including an exception for common shares held in accounts maintained by certain financial institutions). U.S. Holders are
urged to consult their tax advisors regarding their reporting requirements.
F.
Dividends and paying agents
Not Applicable.
G.
Statement by experts
Not Applicable.
H.
Documents on display
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You may read and copy any document that we file, including this annual report, and obtain copies at prescribed rates from
the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling 1 (800) SEC-0330. The Commission maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements and other information regarding issuers that file electronically with the
Commission. Our filings are also available on our website at http://www.starbulk.com. The information on our website, however, is
not, and should not be deemed to be a part of this annual report. You may also obtain copies of the incorporated documents, without
charge, upon written or oral request to Star Bulk Carriers Corp., c/o Star Bulk Management Inc., 40 Agiou Konstantinou Str.,
Maroussi, 15124, Athens, Greece.
I.
Subsidiary information
Not Applicable.
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rates
Our exposure to market risk for changes in interest rate relates primarily to our long-term debt. The international dry bulk
industry is a capital intensive industry, requiring significant amounts of investment. Much of this investment is provided in the form of
secured long-term debt. Our debt contains interest rates that fluctuate with LIBOR. Significant increases in interest rates could
adversely affect our operating margins, results of operations and our ability to service our debt.
From time to time, we may take positions in interest rate derivative contracts to manage interest costs and risk associated
with changing interest rates with respect to our variable interest loans and credit facilities. Generally, our approach is to economically
hedge a portion of the floating-rate debt associated with our vessels. We manage the exposure to the rest of our debt based on our
outlook for interest rates and other factors.
We are exposed to credit loss in the event of non-performance by the counterparties to the interest rate derivative contracts. In
order to minimize counterparty risk, we only enter into derivative transactions with counterparties that bear an investment grade rate at
the time of the transaction. In addition, to the extent possible and practical, we enter into interest rate derivative contracts with
different counterparties to reduce concentration risk.
In June 2013, we entered into two interest rate derivative contracts with Credit Agricole Corporate and Investment Bank (the
“Credit Agricole Swaps”) to fix forward our floating interest rate liabilities under the two tranches of the Credit Agricole $70.0
million Facility. The Credit Agricole Swaps were based on an amortizing notional amount beginning from $26.8 million and $28.6
million, for the Star Borealis and Star Polaris tranches, respectively. The Credit Agricole Swaps came into effect in November and
August 2014, and will mature in August and November 2018, for the Star Borealis and Star Polaris tranches, respectively. Under the
terms of the Credit Agricole Swaps, we pay on a quarterly basis a fixed rate of 1.720% and 1.705% per annum for the Star Borealis
and Star Polaris tranches, respectively, while receiving a variable amount equal to the three month LIBOR, both applied on the
notional amount of the swaps outstanding at each settlement date. As of December 31, 2014, the notional amount of these swaps was
$26.8 million and $28.1 million, for Star Borealis and Star Polaris, respectively.
In addition, on April 28, 2014, we entered into two interest rate derivative contracts (the “HSH Swaps”) to fix forward 50%
of our floating interest rate derivative contracts for the HSH Nordbank $35.0 million Facility. The HSH Swaps came into effect in
September 2014 and mature in September 2018. Under the terms of the HSH Swaps, we pay on a quarterly basis a fixed rate of
1.765% per annum, while receiving a variable amount equal to the three month LIBOR, both applied on the notional amount of the
swaps outstanding at each settlement date. As of December 31, 2014, the notional amount of these swaps was $16.6 million.
Up to August 31, 2014, because the Credit Agricole Swaps and the HSH Swaps were not designated as accounting hedges,
changes in their fair value at each reporting period up to that date were reported in earnings as a loss under “Gain/(loss) on derivative
financial instruments, net” in the consolidated statements of operations.
On August 31, 2014, we designated the Credit Agricole Swaps and the HSH Swaps as cash flow hedges in accordance with
ASC Topic 815, “Derivatives and Hedging.” Accordingly, the effective portion of these cash flow hedges, from September 1, 2014 to
December 31, 2014, was reported in “Accumulated other comprehensive loss”.
As part of the Merger, we acquired five swap agreements that Oceanbulk Shipping had entered during the third quarter of
2013 with Goldman Sachs Bank USA (the “Goldman Sachs Swaps”). The Goldman Sachs Swaps came into effect on October 1, 2014
and mature on April 1, 2018. Under their terms, Oceanbulk Shipping makes quarterly payments to the counterparty at fixed rates
ranging between 1.79% to 2.07% per annum, based on an aggregate notional amount beginning at $186.3 million on July 1, 2015 and
increasing up to $461.3 million on October 1, 2015 and thereafter decreasing by $9.84 million each quarter. The counterparty makes
quarterly floating rate payments at three-month LIBOR to Oceanbulk Shipping based on the same notional amount. Upon the
completion of the Merger, on July 11, 2014, we re-designated the Goldman Sachs Swaps as cash flow hedges in accordance with ASC
Topic 815. Accordingly, the effective portion of these cash flow hedges, from that date to December 31, 2014, was reported in
“Accumulated other comprehensive loss”. As of December 31, 2014 the notional amount of these swaps was $186.3 million.
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The aggregate notional amount outstanding, as of December 31, 2014, for all the nine interest rate derivative contracts we
had effective at that time was $257.9 million with an average fixed rate of 1.8%.
During the year ended December 31, 2014, we recorded a loss on interest rate derivative contracts of $0.8 million in “Gain /
(loss) on derivative financial instruments, net”, in the consolidated statement of operations, which resulted from the change in the fair
market value of the respective derivative contracts prior to their designation as cash flow hedges. In addition, as of December 31,
2014, we recorded a loss of $0.4 million in “Accumulated other comprehensive loss” resulting from the change in the fair market
value of the respective derivative contracts, after their designation as cash flow hedges.
Our interest expense for the year ended December 31, 2014 was $8.6 million. Our estimated interest expense for the year
ending December 31, 2015 is expected to be $32.3 million. Our estimated amount of interest expense reflects interest payments we
expect to make with respect to our long-term debt obligations. The interest payments reflect an assumed LIBOR-based applicable rate
of 0.17125% and 0.2556% (the one-month and three-month LIBOR rates as of December 31, 2014, respectively) plus the relevant
margin of the applicable credit facility. The following table sets forth the sensitivity of our existing loans in millions of Dollars, as of
December 31, 2014, as to a 100 basis point increase in LIBOR during the next five years:
For the year
ending December 31,
2015
2016
2017
2018
2019
Estimated amount
of interest expense
32.3
25.9
20.0
16.9
10.3
Estimated amount
of interest expense after an
increase of 100 basis points
40.1
32.2
24.7
20.7
12.3
Sensitivity
7.8
6.3
4.7
3.8
2.0
The table below provides information about our financial instruments at December 31, 2014, that are sensitive to changes in
interest rates, including our debt and interest rate derivative contracts. For long-term debt, the table presents expected outstanding
balances and related weighted-average interest rates by expected maturity dates. For interest rate derivative contracts, the table
presents notional amounts and weighted-average fixed pay interest rates by expected contractual maturity dates. Generally, our interest
rate derivative contracts involve the receipt of floating payments based on the three-month LIBOR and the payment of fixed amounts
based on a fixed rate specified in each swap agreement, on a quarterly basis.
In thousands of Dollars
As of year ended December 31,
2014
2015
2016
2017
2018
2019
2020
2021
Long-Term Debt:
Variable Rate Debt, outstanding
balance . . . . . . . . . . . . . . . . . . . . . . $ 811,793 $ 715,308 $ 486,268 $ 416,374 $ 289,479 $ 56,113 $ 36,627 $
-
Average Interest Rate on Variable
Debt (1) . . . . . . . . . . . . . . . . . . . . . .
3.7%
3.7%
3.6%
3.5%
3.7%
3.9%
3.7%
3.4%
Fixed-Rate Debt, outstanding
balance . . . . . . . . . . . . . . . . . . . . . . 50,000
50,000
50,000
50,000
50,000
-
Average Interest Rate on Fixed
Debt (2) . . . . . . . . . . . . . . . . . . . . . .
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
-
-
Interest Rate Derivative
Contracts: (3)
Notional Amount Balance (4) . . . . . $ 257,869 $ 517,839 $ 473,339 $ 428,842 $
Average Fixed Pay Rate . . . . . . . . .
1.8%
1.8%
1.8%
1.8%
- $
1.7%
- $
-
- $
-
-
-
-
-
(1) Average Interest Rate on Variable Debt represents the weighted average interest rate for our floating rate debt comprising of LIBOR rate as of December 31,
2014 and applicable margin.
(2) Average Interest Rate on Fixed Debt represents the 8.00% annual coupon for our 8.00% 2019 Notes.
(3) Our interest rate derivative contracts involve the receipt of floating payments based on the three month LIBOR and the payment of fixed amounts based on a
fixed rate specified in each swap agreement, on a quarterly basis.
(4) All of interest swap derivative contracts expire within 2018.
102
Currency and Exchange Rates
We generate all of our revenues in Dollars and operating expenses in currencies other than the Dollar are approximately 21%
of total operation expenses during 2014. Further, 56% of our General and administrative expenses, excluding expenses of $5.8 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 during 2014. 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, 2014, the effect of a 1% adverse movement in
Dollar/Euro exchange rates would have resulted in an increase of $151,002 and $90,033 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.
Freight Derivatives
From time to time, we may take positions in freight derivatives, including Freight Forward Agreements (“FFAs”) and freight
options. Generally freight derivatives 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 reported on 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 of 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 these agreements. This could adversely affect our results
of operation and cash flow.
During the years ended December 31, 2012, we entered into a limited number of FFAs and freight options on the Capesize
and Panamax and Supramax indexes. We used these freight derivatives as an economic hedge to reduce the risk on specific vessels
trading in the spot market, or to take advantage of short term fluctuations in the market prices. Our freight derivatives do not qualify as
cash flow hedges for accounting purposes and therefore gains or losses are recognized in the accompanying consolidated statements of
operations. FFAs are settled on a daily basis through London Clearing House and also include a margin maintenance requirement
based on marking the contract to market. Freight options are treated as assets/liabilities until they are settled. During the years ended
December 31, 2014, and December 31, 2013, we did not enter into FFAs and freight options and therefore we did not record any gain
or loss from freight derivatives. During the year ended December 31, 2012, the gain on freight derivatives amounted to $0.04 million.
As of the date of this report we have not any open position on freight derivatives.
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.
103
Item 13.
Defaults, Dividend Arrearages and Delinquencies
PART II.
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
Not Applicable.
Item 15.
Controls and Procedures
(a)
Disclosure Controls and Procedures
As of December 31, 2014, our management (with the participation of our Chief Executive Officer and Co-Chief Financial
Officers) conducted an evaluation pursuant to Rule 13a-15 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. Based on
the evaluation, our Chief Executive Officer and Co-Chief Financial Officers concluded that as of December 31, 2014, 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 Co-Chief Financial Officers, 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 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 and 15d-15 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 Co-Chief Financial Officers, 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 U.S. 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 our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
our assets that could have a material effect on the consolidated financial statements.
Management has conducted an assessment of the effectiveness of our internal control over financial reporting based on the
framework established in the “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission, or COSO, (2013 Framework).
Based on this assessment, management has determined that our internal control over financial reporting as of December 31,
2014 is effective.
(c)
Attestation Report of the Independent Registered Public Accounting Firm
The attestation report on the Company’s internal control over financial reporting issued by the registered public accounting
firm that audited the consolidated financial statements Ernst Young (Hellas) Certified Auditors Accountants S.A., appears under “Item
18. Financial Statements” of this annual report and is incorporated herein by reference.
(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
Our management, including our Chief Executive Officer and the Co-Chief Financial Officers, 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
104
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. 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.
Item 16A.
Audit Committee Financial Expert
Our board of directors 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
We have adopted a code of ethics that applies to our directors, officers and employees. A copy of our code of ethics is posted
in the “Corporate Governance” section of Star Bulk Carriers Corp. website, and may be viewed at http://www.starbulk.com. We will
also provide a hard copy of our code of ethics free of charge upon written request of a shareholder. Shareholders may direct their
requests to the attention of Investor Relations, c/o Star Bulk Management Inc., 40 Agiou Konstantinou Str., Maroussi 15124, Athens,
Greece.
Item 16C.
Principal Accountant Fees and Services
The table below sets forth the total fees for the services performed by our principal accountants, Ernst & Young (Hellas)
Certified Auditors Accountants S.A in 2014 and 2013, which we refer to as the Independent Registered Accounting Firms. This table
below also identifies these amounts by category of services:
(In thousands of Dollars)
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2013
2014
581
-
-
-
581
$
$
1,047
-
-
-
1,047
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
On February 23, 2010, our board of directors adopted a stock repurchase plan for up to $30.0 million to be used for
repurchasing our common shares until December 31, 2011. On August 10, 2011, our board of directors decided to reinstate the share
repurchase plan with the limitation of acquiring up to a maximum amount of $3.0 million worth of our shares, at a maximum price of
$19.5 per share. On November 9, 2011, our board of directors extended the duration of the share repurchase plan until December 31,
2012.
The following table summarizes our repurchases of our ordinary shares per month during the year ended December 31,
2012:
January 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total number of
shares
repurchased
21,294
27,103
13,333
61,730
Average price
paid
per share
14.25
14.25
10.95
13.8
$
$
$
$
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
0
0
0
0
$
$
$
$
Maximum
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
0
0
0
0
105
During the years ended December 31, 2013 and 2014, there were no shares repurchased.
Item 16F.
Change in Registrants Certifying Accountant
None.
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:
• While our board of directors is currently comprised of directors a majority of whom are independent, 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 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 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 of directors, 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 whom are independent and a
compensation committee comprised solely of independent directors, our audit committee consists of three 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 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 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.
Item 16H.
Mine Safety Disclosure
Not Applicable.
106
PART III.
Item 17.
Financial Statements
See Item 18. “Financial Statements.”
Item 18.
Financial Statements
The financial statements beginning on page F-1 together with the respective reports of the Independent Registered Public Accounting
Firms are filed as part of this annual report.
Item 19.
Exhibits
Exhibits
Number
1.1
1.2
2.1
2.2
2.3
Third Amended and Restated Articles of Incorporation of Star Bulk Carriers Corp. (included as Exhibit 1.1 of the
Company’s Form 6-K, which was filed with the Commission on October 15, 2012 and incorporated herein by
reference).
Description
Third Amended and Restated Bylaws of the Company
Form of Share Certificate
Base Indenture, dated as of November 6, 2014, between the Company and U.S. Bank National Association, as trustee
(the “Trustee”) (included as Exhibit 4.1 to the Company’s Current Report on Form 6-K, dated November 7, 2014 and
incorporated herein by reference).
First Supplemental Indenture, dated as of November 6, 2014, between the Company and the Trustee (included as
Exhibit 4.1 to the Company’s Current Report on Form 6-K, dated November 7, 2014 and incorporated herein by
reference).
4.1
Purchase Agreement, dated as of May 1, 2013, by and among Star Bulk Carriers Corp. and the purchasers named
therein (included as Exhibit 99.1 of the Company’s Schedule 13D, which was filed with the Commission on August 5,
2013 and incorporated herein by reference).
4.2
Amended and Restated Registration Rights Agreement dated July 11, 2014 (included as Annex B to Exhibit 99.1 to
the Company’s Current Report on Form 6-K, dated June 20, 2014 and incorporated herein by reference)
4.3
Amendment No.1 to Amended and Restated Registration Rights Agreement dated August 28, 2014 (included as
Exhibit 99.2 to the Company’s Current Report on Form 6-K, dated September 3, 2014 and incorporated herein by
reference)
4.4
Agreement and Plan of Merger dated June 16, 2014 (included as Exhibit 99.2 to the Company’s Current Report on
Form 6-K, dated June 16, 2014 and incorporated herein by reference)
4.5
Oaktree Shareholders Agreement (included as Annex B to Exhibit 99.1 to the Company’s Current Report on Form 6-
K, dated June 20, 2014 and incorporated herein by reference)
4.6
Pappas Shareholder Agreement by and among the Company and the parties named therein dated July 11, 2014
(included as Exhibit 99.3 to the Company’s Current Report on Form 6-K, dated June 16, 2014 and incorporated herein
by reference)
4.7
Vessel Purchase Agreement by and among the Company, Excel and Christine Shipco Holdings Corp. dated August
19, 2014 (included as Exhibit 99.1 to the Company’s Current Report on Form 6-K, dated September 3, 2014 and
incorporated herein by reference)
4.8
Underwriting Agreement, dated October 30, 2014, between Star Bulk Carriers Corp. (the “Company”) and the
underwriters named on Schedule I thereto. (included as Exhibit 1.1 to the Company’s Current Report on Form 6-K,
dated November 07, 2014 and incorporated herein by reference)
4.9
Underwriting Agreement, dated January 9, 2015, between Jefferies LLC and Morgan Stanley & Co. LLC, as
representative of the other several underwriters listed in Schedule I thereto, and Star Bulk Carriers Corp. (included as
Exhibit 1.1 to the Company’s Current Report on Form 6-K, dated January 15, 2015 and incorporated herein by
reference)
107
Exhibits
Number
6.1
For earnings per share calculation, see “Item 18. Financial Statements—Note 13.”
Description
8.1
For a list of all our subsidiaries, see “Item 18. Financial Statements—Note 1”.
11.1
Code of Ethics
12.1
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended
12.2
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended
13.1
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
13.2
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
15.1
Consent of Independent Registered Public Accounting Firm (Ernst & Young (Hellas) Certified Auditors Accountants
S.A.)
101
The following materials from the Company’s Annual Report on Form 20-F for the fiscal year ended December 31,
2014, formatted in Extensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets as of December 31, 2013 and 2014;
(ii) Consolidated Statements of Operations for the years ended December 31, 2012, 2013 and 2014;
(iii) Consolidated Statements of Comprehensive Income/ (Loss) for the years ended December 31, 2012, 2013 and
2014;
(iv) Consolidated Statements of Shareholders’ Equity for the for the years ended December 31, 2012, 2013 and 2014;
(v) Consolidated Statements of Cash Flows for the for the years ended December 31, 2012, 2013 and 2014; and
(vi) the Notes to Consolidated Financial Statements.
108
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: April 7, 2015
Star Bulk Carriers Corp.
(Registrant)
By:
/s/ Petros Pappas
Name: Petros Pappas
Title: Chief Executive Officer
109
STAR BULK CARRIERS CORP.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2013 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended December 31, 2012, 2013 and 2014 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income / (Loss) for the years ended December 31, 2012, 2013 and 2014 . . . .
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2012, 2013 and 2014 . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2013 and 2014 . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Star Bulk Carriers Corp.
We have audited the accompanying consolidated balance sheets of Star Bulk Carriers Corp. (the “Company”) as of December 31,
2014 and 2013, and the related consolidated statements of operations, comprehensive income / (loss), stockholders’ equity and cash
flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Star Bulk Carriers Corp. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Star
Bulk Carriers Corp.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
and our report dated April 7, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
Athens, Greece
April 7, 2015
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Star Bulk Carriers Corp.
We have audited Star Bulk Carriers Corp.’s (the “Company”) internal control over financial reporting as of December 31, 2014, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). Star Bulk Carriers Corp.’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 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that 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, Star Bulk Carriers Corp. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Star Bulk Carriers Corp. as of December 31, 2014 and 2013, and the related consolidated statements of
operations, comprehensive income / (loss), stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2014 of Star Bulk Carriers Corp. and our report dated April 7, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
Athens, Greece
April 7, 2015
F-3
STAR BULK CARRIERS CORP.
Consolidated Balance Sheets
As of December 31, 2013 and 2014
(Expressed in thousands of U.S. dollars except for share and per share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash, current (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due from managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due from related parties (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FIXED ASSETS
Advances for vessels under construction and acquisition of vessels (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessels and other fixed assets, net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2014
$
$
53,548
1,862
3,203
1,726
81
486
1,561
1,212
63,679
86,000
3,352
24,765
14,368
81
245
1,269
4,350
134,430
67,932
326,674
394,606
454,612
1,441,851
1,896,463
OTHER NON-CURRENT ASSETS
Long-term investment (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred finance charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash , non-current (Note 9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative asset (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of above market acquired time charter (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,114
620
91
7,978
$ 468,088
634
8,029
10,620
—
11,908
$ 2,062,084
LIABILITIES & STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excel Vessel Bridge Facility from related parties, current portion (Note 3 & Note 9) . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances from sale of vessel (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to related parties (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liability, current (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
NON-CURRENT LIABILITIES
8.00% 2019 Notes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excel Vessel Bridge Facility from related parties, non current portion (Note 3 & Note 9) . . . . . . . . . . . . . . . . . .
Derivative liability, non-current (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMMITMENTS & CONTINGENCIES (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STOCKHOLDERS’ EQUITY
Preferred Stock; $0.01 par value, authorized 25,000,000 shares; none issued or outstanding at December 31,
2013 and 2014 (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock, $0.01 par value, 300,000,000 shares authorized; 29,059,671 and 109,426,236 shares issued
and outstanding at December 31, 2013 and 2014, respectively (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid in capital (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are integral part of these consolidated financial statements.
$
18,286
—
6,638
—
559
3,501
—
750
29,734
—
172,048
—
—
200
201,982
—
—
88,317
8,168
18,487
1,100
2,166
13,738
5,722
2,500
140,198
50,000
667,315
47,993
2,010
266
907,782
—
—
291
668,219
—
(402,404)
266,106
$ 468,088
1,094
1,567,713
(378)
(414,127)
1,154,302
$ 2,062,084
F-4
STAR BULK CARRIERS CORP.
Consolidated Statements of Operations
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. dollars except for share and per share data)
Revenues:
Voyage revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management fee income (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2012
2013
2014
$
85,684
478
86,162
$
68,296
1,598
69,894
145,041
2,346
147,387
Expenses
Voyage expenses (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessel operating expenses (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dry docking expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessels’ impairment loss (Note 5 and Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on time charter agreement termination (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operational loss (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operational gain (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of vessel (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from bargain purchase (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (loss) / income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Income/ (Expenses):
Interest and finance costs (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain / (Loss) on derivative financial instruments, net (Note 19). . . . . . . . . . . . . . . . .
Loss on debt extinguishment (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,598
27,832
5,663
33,045
—
9,320
—
303,219
(6,454)
1,226
(3,507)
3,190
—
393,132
(306,970)
(7,838)
246
41
—
(7,551)
Income/(Loss) before equity in income of investee . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in income of investee (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) / income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(314,521)
—
$ (314,521)
$
7,549
27,087
3,519
16,061
—
9,910
—
—
—
1,125
(3,787)
87
—
61,551
8,343
(6,814)
230
91
—
(6,493)
1,850
—
1,850
(Loss) / Earnings per share, basic and diluted (Note 13) . . . . . . . . . . . . . . . . . . . . . . . .
$
(58.32)
$
0.13
42,341
53,096
5,363
37,150
158
32,723
215
—
—
94
(10,003)
—
(12,318)
148,819
(1,432)
(9,575)
629
(799)
(652)
(10,397)
(11,829)
106
(11,723)
(0.20)
$
$
Weighted average number of shares outstanding, basic (Note 13) . . . . . . . . . . . . . . .
Weighted average number of shares outstanding, diluted (Note 13) . . . . . . . . . . . . .
5,393,131
5,393,131
14,051,344
14,116,389
58,441,193
58,441,193
The accompanying notes are an integral part of these consolidated financial statements.
F-5
STAR BULK CARRIERS CORP.
Consolidated Statements of Comprehensive Income / (Loss)
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. dollars except for share and per share data)
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
Unrealized loss from hedging interest rate swaps recognized in Other comprehensive
loss before reclassifications (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments of interest rate swap loss transferred to Interest and
finance costs (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
2012
$ (314,521)
2013
$
1,850
$
2014
(11,723)
—
—
—
—
—
—
(1,433)
1,055
(378)
Comprehensive (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (314,521)
$
1,850
$
(12,101)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
STAR BULK CARRIERS CORP.
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. dollars except for share and per share data)
Common Stock
# of Shares
Par
Value
Additional
Paid-in
Capital
Other
Comprehensive
loss
Accumulated
deficit
Total
Stockholders’
Equity
BALANCE, January 1, 2012 . . . . . . . . . . . . .
5,357,224 $
54 $
520,261
$
— $
(86,102) $
434,213
Net loss for the year ended December 31,
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of vested and non-vested shares
and amortization of stock-based
compensation (Note 14) . . . . . . . . . . . . . . . . . . .
Dividends declared and paid ($0.675 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and cancellation of common
shares (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . .
BALANCE, December 31, 2012 . . . . . . . . . .
Net income for the year ended December
31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock (Note 10) . . . . . .
Issuance of vested and non-vested shares
and amortization of stock-based
compensation (Note 14) . . . . . . . . . . . . . . . . . .
BALANCE, December 31, 2013 . . . . . . . . . .
Net loss for the year ended December 31,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . .
Issuance of common stock - Acquisition of
33% of Interchart (Note 10) . . . . . . . . . . . . . . .
Issuance of vested and non-vested shares
and amortization of stock-based
compensation (Note 14) . . . . . . . . . . . . . . . . . .
Issuance of common stock Merger &
Pappas Transaction (Note 1) . . . . . . . . . . . . . . .
Issuance of common stock Heron
Transaction in escrow account (Note 1) . . . . .
Issuance of common stock Excel
Transactions (Note 1) . . . . . . . . . . . . . . . . . . . .
BALANCE, December 31, 2014 . . . . . . . . . .
— $ — $
—
$
— $ (314,521) $ (314,521)
$
$
$
$
105,316
1
1,545
—
—
—
(61,730)
5,400,810 $
(1)
54 $
(860)
520,946
— $ — $
23,388,861
234
—
145,788
270,000
3
29,059,671 $ 291 $
1,485
668,219
— $ — $
—
—
22,598
—
—
—
328
580,342
5
5,829
51,988,494
520
615,752
2,115,706
21
25,058
—
—
—
1,546
(3,631)
(3,631)
—
— $ (404,254) $
—
(861)
116,746
— $
—
1,850 $
—
1,850
146,022
—
— $ (402,404) $
—
1,488
266,106
— $
(378)
(11,723) $
—
(11,723)
(378)
—
—
—
—
—
—
—
—
328
5,834
616,272
25,079
252,527
25,659,425
109,426,236 $ 1,094 $ 1,567,713
257
$
—
252,784
—
(378) $ (414,127) $ 1,154,302
The accompanying notes are an integral part of these consolidated financial statements.
F-7
STAR BULK CARRIERS CORP.
Consolidated Statements of Cash Flows
For the years ended December 31, 2012, 2013 and 2014
(Expressed in thousands of U.S. dollars)
Cash Flows from Operating Activities:
Net (loss) / income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of fair value of above market acquired time charters (Note 7) . . . . . . . . . . . . . . . .
Amortization of deferred finance charges (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment (Note 9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessels’ impairment loss (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of vessel (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of derivatives (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from insurance claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from bargain purchase (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of liability in other operational gain (non cash gain) (Note 11) . . . . . . . . . . . . . . . . . . .
Equity in income of investee (Note 3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
(Increase)/Decrease in:
Restricted cash for forward freight and bunker derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 vessels under construction and acquisition of vessels and other assets . . . . . . . . . .
Cash paid for above market acquired time charters (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash proceeds from vessel sale (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term investment (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from Merger & Pappas Transaction (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hull and Machinery Insurance proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by / (used in) Investing Activities
Cash Flows from Financing Activities:
Proceeds from bank loans and 8.00% 2019 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan prepayments and repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing fees paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offering expenses paid related to the issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) / provided by Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) / increase 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, net of amount capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these consolidated financial statements.
2012
2013
2014
$ (314,521 )
$
1,850
$
(11,723)
33,045
6,369
502
—
303,219
3,190
1,546
(82 )
67
—
(812 )
—
—
—
153
(1,207 )
254
(8,581 )
(147 )
(11 )
(237 )
(174 )
(719 )
(48 )
(2,807 )
18,999
(91 )
—
7,962
—
—
6,983
2,579
(195 )
17,238
—
(42,026 )
(91 )
—
—
(861 )
(3,631 )
(46,609 )
(10,372 )
32,072
16,061
6,352
522
—
—
87
1,488
(91)
38
—
(1,030)
—
—
—
—
2,766
1,887
(131)
(339)
—
(1,626)
297
350
—
(986)
27,495
(127,814)
—
8,267
—
—
4,265
7,664
—
(107,618)
—
(33,780)
(271)
150,905
(4,883)
—
—
111,971
31,848
21,700
37,150
6,113
681
652
—
—
5,834
1,717
66
215
(237)
(12,318)
(1,361)
(106)
—
(16,057)
(5,409)
(2,328)
287
—
1,995
(449)
6,713
—
1,384
12,819
(518,447)
(4,856)
1,100
(200)
96,268
550
35
(11,525)
(437,075)
637,207
(173,986)
(6,513)
—
—
—
—
456,708
32,452
53,548
$
21,700
$
53,548
$
86,000
7,612
6,156
5,803
F-8
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
1.
Basis of Presentation and General Information:
The accompanying consolidated financial statements as of and for the years ended December 31, 2012, 2013 and 2014, include the
accounts of Star Bulk Carriers Corp. (Star Bulk) and its wholly owned subsidiaries as set forth below (collectively, the “Company”).
Star Bulk was incorporated on December 13, 2006 under the laws of the Marshall Islands and maintains executive offices in Athens,
Greece. The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership and operation of
dry bulk carrier vessels. Since December 3, 2007, Star Bulk shares trade on the NASDAQ Global Select Market under the ticker
symbol SBLK.
On October 15, 2012, the Company effected a 15-for-1 reverse stock split on its issued and outstanding common stock (Note 10). All
share and per share amounts disclosed in the accompanying financial statements give effect to this reverse stock split retroactively, for
all periods presented.
The July 2014 Transactions
On July 11, 2014, the Company, as part of its growth strategy, completed a transaction that resulted in the acquisition of Oceanbulk
Shipping LLC (“Oceanbulk Shipping”) and Oceanbulk Carriers LLC (“Oceanbulk Carriers”, and, together with Oceanbulk Shipping,
“Oceanbulk”) from Oaktree Dry Bulk Holdings LLC (including affiliated funds, “Oaktree”) and Millennia Holdings LLC (“Millennia
Holdings”, and together with Oaktree, the “Oceanbulk Sellers” or “Sellers”) through the merger of the Company’s wholly-owned
subsidiaries, Star Synergy LLC and Star Omas LLC, into Oceanbulk’s holding companies (the “Merger”). At the time of the Merger,
Oceanbulk owned and operated a fleet of 12 dry bulk carrier vessels and owned contracts for the construction of 25 newbuilding fuel-
efficient Eco-type dry bulk vessels (two of which, Peloreus and Leviathan were delivered on July 22, 2014 and September 19, 2014,
respectively) at shipyards in Japan and China. Millennia Holdings is an entity that is affiliated with the family of Mr. Petros Pappas,
who became the Company’s Chief Executive Officer in connection with the Merger.
The agreement governing the Merger, the “Merger Agreement”, also provided for the acquisition (the “Heron Transaction”) by the
Company of two Kamsarmax vessels (the “Heron Vessels”), from Heron Ventures Ltd. (“Heron”), a limited liability company
incorporated in Malta. Oceanbulk Shipping at the time had an outstanding loan receivable of $23,680 from Heron that was convertible
into 50% of the equity interests of Heron (the “Heron Convertible Loan”). The Heron Convertible Loan was converted into 50% of the
equity of Heron on November 5, 2014. The Company issued 2,115,706 of its common shares into escrow as part of the consideration
for the acquisition of the Heron Vessels. The common shares were released from escrow to the Sellers on January 30, 2015 (Note 20),
following the transfer of the Heron Vessels to the Company on December 5, 2014 (Note 5). In addition to the issued shares, upon the
delivery of the Heron vessels the Company paid $25,000 in cash, which was financed by the Heron Vessels Facility (described in Note
9p), which the Company had entered in November 2014.
In addition, concurrently with the Merger, the Company completed a transaction (the “Pappas Transaction”), in which it acquired all
of the issued and outstanding shares of Dioriga Shipping Co. and Positive Shipping Company (collectively, the “Pappas Companies”),
which were entities owned and controlled by affiliates of the family of Mr. Pappas. At the time of the Merger, the Pappas Companies
owned and operated a dry bulk carrier vessel (Tsu Ebisu) and had a contract for the construction of a newbuilding dry bulk carrier
vessel, HN 5016 (Indomitable), which was delivered on January 8, 2015 (Note 20). The Merger, the Heron Transaction and the
Pappas Transaction are referred to, together, as the “July 2014 Transactions”.
A total of 54,104,200 of the Company’s common shares were issued to the various selling parties in the July 2014 Transactions,
consisting of 48,395,766 common shares consideration for the Merger with Oceanbulk, 3,592,728 common shares consideration for
the acquisition of Pappas Companies and 2,115,706 common shares partial consideration for the acquisition of the Heron Vessels.
F-9
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
1.
Basis of Presentation and General Information – (continued):
The Merger and the Pappas Transaction have been reflected in the Company’s consolidated financial statements for the year ended
December 31, 2014, as purchases of businesses pursuant to Financial Accounting Standards Board (FASB) Accounting Standards
Codification (“ASC”) 805, “Business Combinations”, and the results of operations of Oceanbulk and the Pappas Companies have been
included in the accompanying consolidated statement of operations for the year ended December 31, 2014 since July 11, 2014, the
date the Merger and the Pappas Transaction were completed. The following table summarizes the estimated fair values of the
significant assets acquired and liabilities assumed by the Company on the date of the acquisition with respect to the Merger and the
Pappas Transaction:
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances for vessel acquisition and vessels under construction . . . . . . . . . . . . . . . . . . . .
Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of above market acquired charters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Current liabilities, excluding current portion of long term bank debt and derivative
financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, including current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration paid in common shares for Oceanbulk and Pappas Companies
(51,988,494 shares issued) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from Bargain Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 11, 2014
$
$
$
$
$
89,887
6,381
13,906
316,786
426,000
1,967
854,927
12,372
208,237
5,728
226,337
628,590
616,272
12,318
The purchase price allocation was prepared by the Company, assisted by a third party expert, based on management estimates and
assumptions, making use of available market data and taking into consideration third party valuations. Major adjustments to record the
acquired assets and assumed liabilities at fair value include:
(a) a $158,523 fair value adjustment recognized for vessels under construction, as supported by vessel valuations of
independent shipbrokers on a fully delivered and charter free basis, through Level 2 of the fair value hierarchy based on
observable inputs, prevailing in the sale and purchase market of similar vessels on June 23, 2014, which, according to the
third party appraiser and management estimates and based on the then current market trends were not materially different
from the values on July 11, 2014;
(b) a $79,465 fair value adjustment recognized for vessels in operation, as supported by vessel valuations of independent
shipbrokers on a charter free basis, through Level 2 of the fair value hierarchy based on observable inputs, prevailing in the
sale and purchase market of similar vessels on June 23, 2014, which, according to the third party appraiser and management
estimates and based on the then current market trends were not materially different from the values on July 11, 2014;
(c) a write-off of the Heron Convertible Loan of $23,680, as further discussed below, on the basis that no economic benefit is
expected to be provided to the Company from Heron’s liquidation process (other than the distribution of the Heron Vessels in
exchange for separate consideration of 2,115,706 common shares and $25,000 in cash) with any distributable cash from the
liquidation of Heron to be transferred to the former owners of Oceanbulk Shipping as further discussed in Note 17.2;
F-10
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
1.
Basis of Presentation and General Information – (continued):
(d) a write-off of $3,003 deferred finance costs with respect to financing arrangements that, according to the third party
appraiser and management estimates, are not expected to provide any ongoing benefit to the business;
(e) a $1,967 intangible asset recognized with respect to a fair value adjustment for two favorable charters under which
Oceanbulk is the lessor, through Level 2 of the fair value hierarchy based on observable inputs, by comparing the discounted
cash flows under the existing charters with those that could be obtained in the then current market by vessels of similar size
and age for the remaining charter period. The respective intangible asset will be amortized on a straight-line basis over the
remaining period of the time charters which are scheduled to end during the first and second quarter of 2016 (please refer to
Note 7).
The fair value of the share consideration issued in the July 2014 Transactions was based on the average closing market price of
$11.854 per share of the Company’s common shares, as determined over a period of two trading days before and two trading days
after, and inclusive, of July 11, 2014.
The resulting gain from bargain purchase from the acquisition of Oceanbulk and the Pappas Companies of $12,318 is separately
presented in the accompanying consolidated statement of operations for the year ended December 31, 2014. The gain from bargain
purchase is primarily attributable to the estimates of the fair value of the assets acquired and liabilities assumed and the subsequent
stability or slightly declining market value of dry bulk carrier vessels since the signing of the agreements relating to the July 2014
Transactions, combined with the simultaneous decline in stock prices for most U.S. listed shipping companies, including Star Bulk,
which have decreased by a greater amount than their net assets values.
The following unaudited financial information reflects the results of operations of Oceanbulk and Pappas Companies since the
acquisition date included in the Company’s consolidated statement of operations for the year ended December 31, 2014:
Voyage revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oceanbulk
39,585
(645)
(4,822)
$
$
$
$
$
$
Pappas
Companies
2,249
111
(213)
The following unaudited pro forma consolidated financial information reflects the results of operations for the years ended December
31, 2013 and 2014, as if the Merger and the Pappas Transaction had been consummated on January 1, 2013 and after giving effect to
purchase accounting adjustments, including the nonrecurring pro forma reversal of: (i) the gain from bargain purchase of $12,318 in
2014; (ii) all acquisition-related transaction costs of $12,757 in 2014; and (iii) the interest expense of $1,412 in 2013 and $1,816 in
2014, with respect to the convertible loan owed by Oceanbulk to its members, which was converted into equity because of the Merger,
as if the conversion had taken place on January 1, 2013. These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what operating results would have been, had the Merger and the Pappas
Transaction actually taken place on January 1, 2013. In addition, these results are not intended to be a projection of future results and
do not reflect any synergies that might be achieved from the combined operations:
Pro forma revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma operating income / (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma loss per share, basic and diluted . . . . . . . . . . . . . . . . . . .
2,013
82,090
(1,172)
(10,604)
(0.15)
$
$
$
$
$
$
$
$
2,014
177,654
(10,296)
(24,075)
(0.27)
The Heron Transaction has been reflected in the Company’s consolidated financial statements for the year ended December 31, 2014,
as a purchase of assets with the acquisition cost of the two Heron Vessels delivered on December 5, 2014, consisting of the value of
the 2,115,706 common shares issued on July 11, 2014, of $25,080, and $25,000 in cash, financed by the Heron Vessels Facility (Note
17.2) being recorded within “Vessels and other fixed assets, net” in the accompanying consolidated balance sheets (Note 5). As
discussed above, as part of the purchase price allocation as of July 11, 2014, the Company assigned zero value to the Heron
Convertible Loan, as no economic benefit is expected to be provided to the Company from Heron’s liquidation process (other than the
distribution of the Heron Vessels, in exchange of the 2,115,706 common shares and $25,000 in cash payment, discussed above), since
any distributable cash from the liquidation of Heron will be transferred to the former owners of Oceanbulk Shipping and not to the
Company as further discussed in Note 17.2 below.
F-11
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
1.
Basis of Presentation and General Information – (continued):
On September 5, 2014, Oceanbulk Shipping, which became, following the Merger a wholly owned subsidiary of Star Bulk, entered
into a term sheet with ABY Group Holdings Limited (“ABY Group”) and Heron. The term sheet provided for the conversion of the
Heron Convertible Loan. Among other things, the term sheet contained customary governance provisions and provisions relating to
the liquidation of Heron following the conversion of the Heron Convertible Loan. Under the term sheet, Oceanbulk Shipping would
receive as a distribution the vessels ABYO Gwyneth (renamed Star Gwyneth) and ABYO Angelina (renamed Star Angelina) (two
Kamsarmax vessels of 82,790 dwt and 82,981 dwt, respectively), and ABY Group would receive, as a distribution, the ABYO Audrey
(a Capesize vessel of 175,125 dwt) and the ABYO Oprah (a Kamsarmax vessel of 82,551 dwt). On November 5, 2014, the conversion
of the Heron Convertible Loan into 50% of the equity interests of Heron was completed. However, such conversion did not affect the
Company’s financial statements since, as further discussed above and in Note 17.2, pursuant to the provisions of the Merger
Agreement, the former owners of Oceanbulk will effectively remain the ultimate beneficial owners of Heron until Heron is dissolved
and any distributable cash from the liquidation of Heron will be transferred to the former owners of Oceanbulk Shipping and not to the
Company.
The Company incurred transaction costs and a stock based compensation expense relating to the July 2014 Transactions of $9,364 and
$1,808, respectively, which are included in “General and administrative expenses” in the accompanying consolidated statement of
operations for the year ended December 31, 2014.
The Excel Transactions
On August 19, 2014, the Company entered into definitive agreements with Excel Maritime Carriers Ltd. (“Excel”) pursuant to which
(the “Excel Transactions”) the Company will acquire 34 operating dry bulk vessels, consisting of six Capesize vessels, 14 sistership
Kamsarmax vessels, 12 Panamax vessels and two Handymax vessels (the “Excel Vessels”) for an aggregate consideration of
29,917,312 of its common shares (the “Excel Vessel Share Consideration”) and $288,391 in cash (Note 3).
The Excel Vessels are being transferred to the Company in a series of closings, on a vessel-by-vessel basis, in general upon reaching
port after their current voyages and cargoes are discharged. As of December 31, 2014, 28 of the 34 Excel Vessels had been transferred
to the Company, for aggregate consideration of 25,659,425 common shares and $248,751 of cash. With the exception of the Ore
Hansa (tbr Star Jennifer), which the Company expects to receive in mid-April 2015, the Company completed the remaining Excel
Vessels deliveries within the first quarter of 2015 (Note 20).
In the case of three Excel Vessels (Christine (tbr Star Martha), Sandra (tbr Star Pauline) and Lowlands Beilun (tbr Star Despoina)),
which were transferred subject to existing charters, the Company acquired the outstanding equity interests of the vessel-owning
subsidiaries that own those Excel Vessels (although all other assets and liabilities of such vessel-owning subsidiaries remained with
Excel). The delivery of each Excel Vessel has been reflected in the Company’s financial statements for the year ended December 31,
2014 as a purchase of assets.
At the transfer of each Excel Vessel, the Company paid the cash and share consideration for such Excel Vessel to Excel. The
Company used cash on hand, together with borrowings under (i) a $231,000 secured bridge loan facility (the “Excel Vessel Bridge
Facility”) provided to the Company by Excel’s majority equityholders, which are entities affiliated with Oaktree and entities affiliated
with Angelo, Gordon & Co. (“Angelo, Gordon”), and (ii) other bank borrowings, to fund part of the cash consideration for the
acquisition of the Excel Vessels (Notes 3 and 9). Excel used the cash consideration to cause an amount of outstanding indebtedness
under its senior secured credit agreement to be repaid, such that all liens and obligations with respect to each transferred Excel Vessel
were released upon its transfer to the Company.
F-12
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
1.
Basis of Presentation and General Information – (continued):
Below is the list of the Company’s wholly owned subsidiaries as of December 31, 2014:
Subsidiaries owning vessels in operation at December 31, 2014
Vessel Name
Wholly Owned Subsidiaries
1 Cape Ocean Maritime LLC . . . . . . . . . . . . . . .
2 Cape Horizon Shipping LLC . . . . . . . . . . . . . .
3 OOCAPE1 Holdings LLC . . . . . . . . . . . . . . . .
4 Sandra Shipco LLC . . . . . . . . . . . . . . . . . . . . .
5 Christine Shipco LLC . . . . . . . . . . . . . . . . . . .
6 Pacific Cape Shipping LLC . . . . . . . . . . . . . . .
7 Star Borealis LLC . . . . . . . . . . . . . . . . . . . . . .
8 Star Polaris LLC . . . . . . . . . . . . . . . . . . . . . . .
9 Star Trident V LLC . . . . . . . . . . . . . . . . . . . . .
10 Sky Cape Shipping LLC . . . . . . . . . . . . . . . . .
11 Global Cape Shipping LLC . . . . . . . . . . . . . . .
12 Sea Cape Shipping LLC . . . . . . . . . . . . . . . . .
13 Star Aurora LLC . . . . . . . . . . . . . . . . . . . . . . .
14 Star Mega LLC . . . . . . . . . . . . . . . . . . . . . . . .
15 Lowlands Beilun Shipco LLC . . . . . . . . . . . . .
16 Star Big LLC . . . . . . . . . . . . . . . . . . . . . . . . .
17 Star Trident VII LLC . . . . . . . . . . . . . . . . . . . .
18 Nautical Shipping LLC . . . . . . . . . . . . . . . . . .
19 Majestic Shipping LLC . . . . . . . . . . . . . . . . . .
20 Star Sirius LLC . . . . . . . . . . . . . . . . . . . . . . . .
21 Star Vega LLC . . . . . . . . . . . . . . . . . . . . . . . .
22 Star Alta II LLC . . . . . . . . . . . . . . . . . . . . . . .
23 Star Alta I LLC . . . . . . . . . . . . . . . . . . . . . . . .
24 Star Trident I LLC . . . . . . . . . . . . . . . . . . . . .
25 Grain Shipping LLC . . . . . . . . . . . . . . . . . . . .
26 Star Trident XIX LLC . . . . . . . . . . . . . . . . . . .
27 Star Trident XII LLC . . . . . . . . . . . . . . . . . . . .
28 Star Trident IX LLC . . . . . . . . . . . . . . . . . . . .
29 Star Trident XI LLC . . . . . . . . . . . . . . . . . . . .
30 Star Trident VIII LLC . . . . . . . . . . . . . . . . . . .
31 Star Trident XVI LLC . . . . . . . . . . . . . . . . . . .
32 Star Trident XIV LLC . . . . . . . . . . . . . . . . . . .
33 Star Trident X LLC . . . . . . . . . . . . . . . . . . . . .
34 Star Trident II LLC . . . . . . . . . . . . . . . . . . . . .
35 Star Trident XIII LLC . . . . . . . . . . . . . . . . . . .
36 Star Trident XVII LLC . . . . . . . . . . . . . . . . . .
37 Mineral Shipping LLC . . . . . . . . . . . . . . . . . .
38 KMSRX Holdings LLC . . . . . . . . . . . . . . . . . .
39 Dioriga Shipping Co. . . . . . . . . . . . . . . . . . . . .
40 Star Trident III LLC . . . . . . . . . . . . . . . . . . . .
41 Star Trident IV LLC . . . . . . . . . . . . . . . . . . . .
42 Star Trident XX LLC . . . . . . . . . . . . . . . . . . .
43 Star Trident XXI LLC . . . . . . . . . . . . . . . . . . .
44 Star Trident XXII LLC . . . . . . . . . . . . . . . . . .
45 Star Trident XXV LLC . . . . . . . . . . . . . . . . . .
46 Star Trident XXVII LLC . . . . . . . . . . . . . . . . .
47 Star Trident XXVIII LLC . . . . . . . . . . . . . . . .
48 Star Trident XXIX LLC . . . . . . . . . . . . . . . . .
49 Star Challenger I LLC . . . . . . . . . . . . . . . . . . .
50 Star Challenger II LLC . . . . . . . . . . . . . . . . . .
51 Premier Voyage LLC . . . . . . . . . . . . . . . . . . .
52 Glory Supra Shipping LLC . . . . . . . . . . . . . . .
53 Star Omicron LLC . . . . . . . . . . . . . . . . . . . . .
54 Star Gamma LLC . . . . . . . . . . . . . . . . . . . . . .
55 Star Zeta LLC . . . . . . . . . . . . . . . . . . . . . . . . .
56 Star Delta LLC . . . . . . . . . . . . . . . . . . . . . . . .
57 Star Theta LLC . . . . . . . . . . . . . . . . . . . . . . . .
58 Star Epsilon LLC . . . . . . . . . . . . . . . . . . . . . .
59 Star Cosmo LLC . . . . . . . . . . . . . . . . . . . . . . .
60 Star Kappa LLC . . . . . . . . . . . . . . . . . . . . . . .
61 Star Trident XXX LLC . . . . . . . . . . . . . . . . . .
62 Star Trident XXXI LLC . . . . . . . . . . . . . . . . .
Leviathan (1)
Peloreus (1)
Obelix (1)
Sandra (tbr Star Pauline) (2)
Christine (tbr Star Martha) (2)
Pantagruel (1)
Star Borealis
Star Polaris
Star Angie (2)
Big Fish (1)
Kymopolia (1)
Big Bang (1)
Star Aurora
Star Mega
Lowlands Beilun (tbr Star Despoina) (2)
Star Big
Star Eleonora (2)
Amami (1)
Madredeus (1)
Star Sirius
Star Vega
Star Angelina (3)
Star Gwyneth (3)
Star Kamila (2)
Pendulum (1)
Star Maria (2)
Star Markella (2)
Star Danai (2)
Star Georgia (2)
Star Sophia (2)
Star Mariella (2)
Star Moira (2)
Star Renee (2)
Star Nasia (2)
Star Laura (2)
Star Helena (2)
Mercurial Virgo (1)
Magnum Opus (1)
Tsu Ebisu (1)
Star Iris (2)
Star Aline (2)
Star Emily (2)
Star Christianna (2)
Star Natalie (2)
Star Vanessa (2)
Star Monika (2)
Star Julia (2)
Star Tatianna (2)
Star Challenger
Star Fighter
Maiden Voyage (1)
Strange Attractor (1)
Star Omicron
Star Gamma (ex C Duckling)
Star Zeta (ex I Duckling)
Star Delta (ex F Duckling)
Star Theta (ex J Duckling)
Star Epsilon (ex G Duckling)
Star Cosmo
Star Kappa (ex E Duckling)
Star Michele (2)
Star Kim (2) (4)
DWT
182,511
182,496
181,433
180,274
180,274
180,181
179,678
179,600
177,931
177,643
176,990
174,109
171,199
170,631
170,162
168,404
164,218
98,681
98,681
98,681
98,681
82,981
82,790
82,769
82,619
82,598
82,594
82,574
82,298
82,269
82,266
82,257
82,221
82,220
82,209
82,187
81,545
81,022
81,001
76,466
76,429
76,417
74,577
73,798
72,493
71,504
70,083
69,634
61,462
61,455
58,722
55,742
53,489
53,098
52,994
52,434
52,425
52,402
52,246
52,055
45,588
38,858
Date
Delivered to
Star Bulk
September 19, 2014
July 22, 2014
July 11, 2014
December 29, 2014
October 31, 2014
July 11, 2014
September 9, 2011
November 14, 2011
October 29, 2014
July 11, 2014
July 11, 2014
July 11, 2014
September 8, 2010
August 16, 2011
December 29, 2014
July 25, 2011
December 3, 2014
July 11, 2014
July 11, 2014
March 7, 2014
February 13, 2014
December 5, 2014
December 5, 2014
September 3, 2014
July 11, 2014
November 5, 2014
September 29, 2014
October 21, 2014
October 14, 2014
October 31, 2014
September 19, 2014
November 19, 2014
December 18, 2014
August 29, 2014
December 8, 2014
December 29, 2014
July 11, 2014
July 11, 2014
July 11, 2014
September 8, 2014
September 4, 2014
September 16, 2014
October 6, 2014
August 29, 2014
November 7, 2014
October 10, 2014
December 22, 2014
August 28, 2014
December 12, 2013
December 30, 2013
July 11, 2014
July 11, 2014
April 17, 2008
January 4, 2008
January 2, 2008
January 2, 2008
December 6, 2007
December 3, 2007
July 1, 2008
December 14, 2007
October 14, 2014
December 5, 2014
Year
Built
2014
2014
2011
2008
2010
2004
2011
2011
2007
2004
2006
2007
2000
1994
1999
1996
2001
2011
2011
2011
2011
2006
2006
2005
2006
2007
2007
2006
2006
2007
2006
2006
2006
2006
2006
2006
2013
2014
2014
2004
2004
2004
1998
1998
1999
1993
1994
1993
2012
2013
2012
2006
2005
2002
2003
2000
2003
2001
2005
2001
1998
1994
F-13
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
1.
Basis of Presentation and General Information – (continued):
(1) Vessels acquired pursuant to the Merger and the Pappas Transaction
(2) Vessels acquired pursuant to the Excel Transactions
(3) Vessels acquired from Heron
(4) This vessel was sold on December 17, 2014 and was delivered to her new owners on January 21, 2015.
Subsidiaries owning newbuildings at December 31, 2014
Wholly Owned
Subsidiaries
Newbuildings Name
1 Positive Shipping Company . . . . . . . HN 5016 (tbn Indomitable) (Note 20)
2 Aurelia Shipping LLC . . . . . . . . . . . . HN NE 164 (tbn Honey Badger) (Note 20)
3 Rainbow Maritime LLC . . . . . . . . . . HN NE 165 (tbn Wolverine) (Note 20)
4 Spring Shipping LLC . . . . . . . . . . . . . HN 1061 (tbn Roberta) (5) (Note 20)
5 Orion Maritime LLC . . . . . . . . . . . . . HN 1063 (tbn Idee Fixe) (5) (Note 20)
6 Pearl Shiptrade LLC . . . . . . . . . . . . . HN NE 166 (tbn Gargantua) (Note 20)
7 Success Maritime LLC . . . . . . . . . . . HN 1062 (tbn Laura) (5)
8 L.A. Cape Shipping LLC . . . . . . . . . . HN 5017 (tbn Deep Blue)
9 Olympia Shiptrade LLC . . . . . . . . . . HN 1312 (tbn Bruno Marks)
10 Ultra Shipping LLC . . . . . . . . . . . . . . HN 1064 (tbn Kaley) (5)
11 Star Asia I LLC . . . . . . . . . . . . . . . . . HN 5040 (tbn Star Aquarius)
12 Sea Diamond Shipping LLC . . . . . . . HN NE 167 (tbn Goliath)
13 Coral Cape Shipping LLC . . . . . . . . . HN NE 184 (tbn Maharaj)
14 Victory Shipping LLC . . . . . . . . . . . . HN 1313 (tbn Jenmark)
15 Blooming Navigation LLC . . . . . . . . HN 1080 (tbn Kennadi)
16 Star Asia II LLC . . . . . . . . . . . . . . . . . HN 5043 (tbn Star Pisces)
17 Star Seeker LLC . . . . . . . . . . . . . . . . . HN 1372 (tbn Star Libra) (5)
Jasmine Shipping LLC . . . . . . . . . . . HN 1081 (tbn Mackenzie)
18
19 Cape Confidence Shipping LLC . . . . HN 5055 (tbn Behemoth)
20 Star Cape I LLC . . . . . . . . . . . . . . . . . HN 1338 (tbn Star Aries)
21 Star Axe I LLC . . . . . . . . . . . . . . . . . . HN NE 196 (tbn Star Antares)
22 Oday Marine LLC . . . . . . . . . . . . . . . HN 1082 (tbn Night Owl)
23 Clearwater Shipping LLC . . . . . . . . . HN 1359 (tbn Star Marisa) (5)
24 Cape Runner Shipping LLC . . . . . . . HN 5056 (tbn Megalodon)
25 Searay Maritime LLC . . . . . . . . . . . . HN 1083 (tbn Early Bird)
26 Star Axe II LLC . . . . . . . . . . . . . . . . . HN NE 197 (tbn Star Lutas)
27 Star Castle I LLC . . . . . . . . . . . . . . . . HN 1342 (tbn Star Gemini)
28 Star Cape II LLC . . . . . . . . . . . . . . . . HN 1339 (tbn Star Taurus)
29 Domus Shipping LLC . . . . . . . . . . . . HN 1360 (tbn Star Ariadne) (5)
30 Star Breezer LLC . . . . . . . . . . . . . . . . HN 1371 (tbn Star Virgo) (5)
31 Star Ennea LLC . . . . . . . . . . . . . . . . . HN NE 198 (tbn Star Poseidon)
32 Star Castle II LLC . . . . . . . . . . . . . . . HN 1343 (tbn Star Leo)
33 Festive Shipping LLC . . . . . . . . . . . . HN 1361 (tbn Star Magnanimus) (5)
34 Gravity Shipping LLC . . . . . . . . . . . . HN 1362 (tbn Star Manticore) (5)
35 White Sand Shipping LLC . . . . . . . . HN 1363 (tbn Star Chaucer) (5)
(5) Subject to a bareboat capital lease (Note 6)
Type
DWT
Capesize
Ultramax
Ultramax
Ultramax
Ultramax
Newcastlemax
Ultramax
Capesize
Capesize
Ultramax
Ultramax
Newcastlemax
Newcastlemax
Capesize
Ultramax
Ultramax
Newcastlemax
Ultramax
Capesize
Capesize
Ultramax
Ultramax
Newcastlemax
Capesize
Ultramax
Ultramax
Newcastlemax
Capesize
Newcastlemax
Newcastlemax
Newcastlemax
Newcastlemax
Newcastlemax
Newcastlemax
Newcastlemax
182,160
61,000
61,000
64,000
64,000
209,000
64,000
182,000
180,000
64,000
60,000
209,000
209,000
180,000
64,000
60,000
208,000
64,000
182,000
180,000
61,000
64,000
208,000
182,000
64,000
61,000
208,000
180,000
208,000
208,000
209,000
208,000
208,000
208,000
208,000
Expected
Delivery
Date
January 2015
February 2015
February 2015
March 2015
March 2015
April 2015
April 2015
April 2015
May 2015
May 2015
May 2015
June 2015
July 2015
July 2015
July 2015
July 2015
August 2015
August 2015
September 2015
September 2015
September 2015
October 2015
November 2015
November 2015
November 2015
November 2015
January 2016
January 2016
February 2016
February 2016
March 2016
March 2016
May 2016
June 2016
September 2016
F-14
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
1. Basis of Presentation and General Information – (continued):
Non-vessel owning subsidiaries at December 31, 2014
Wholly Owned Subsidiaries
Star Bulk Management Inc.
Starbulk S.A.
Star Bulk Manning LLC
Star Omas LLC (6)
Star Synergy LLC (6)
Oceanbulk Shipping LLC
Oceanbulk Carriers LLC
International Holdings LLC
Unity Holding LLC
Star Bulk (USA) LLC
Star Trident XXIII LLC (7)
Star Trident XXVI LLC (7)
Star Trident VI LLC (7)
Star Trident XVIII LLC (7)
Star Trident XV LLC (7)
Star Trident XXIV LLC (7)
Lamda LLC (8)
Star Alpha LLC (8)
Star Beta LLC (8)
Star Ypsilon LLC (8)
(6) Entities established to merge with the holding companies of Oceanbulk (please refer to Note 1)
(7) Entities established to acquire Excel Vessels which as of December 31, 2014, had not been delivered to the Company
(8) Owning companies of vessels which have been sold and currently have no operations
Below is the list of the vessels which were under commercial and technical management by Star Bulk’s wholly owned subsidiary,
Starbulk S.A., during the year ended December 31, 2014. For each vessel, Starbulk S.A. received a fixed management fee of $0.75 per
day.
Vessel Owning Company
Vessel Name
Global Cape Shipping LLC (9) . . . . . . . . . . . . . Kymopolia
OOCAPE1 Holdings LLC (9) . . . . . . . . . . . . . . Obelix
Pacific Cape Shipping LLC (9) . . . . . . . . . . . . . Pantagruel
Sea Cape Shipping LLC (9) . . . . . . . . . . . . . . . . Big Bang
Sky Cape Shipping LLC (9) . . . . . . . . . . . . . . . . Big Fish
Majestic Shipping LLC (9) . . . . . . . . . . . . . . . . . Madredeus
Nautical Shipping LLC (9) . . . . . . . . . . . . . . . . . Amami
Grain Shipping LLC (9) . . . . . . . . . . . . . . . . . . . Pendulum
Mineral Shipping LLC (9) . . . . . . . . . . . . . . . . . Mercurial Virgo
Adore Shipping Corp. . . . . . . . . . . . . . . . . . . . . . Renascentia(10)
Hamon Shipping Inc . . . . . . . . . . . . . . . . . . . . . . . Marto (11)
Glory Supra Shipping LLC (9) . . . . . . . . . . . . .
Premier Voyage LLC (9) . . . . . . . . . . . . . . . . . . . Maiden Voyage
Serenity Maritime Inc. . . . . . . . . . . . . . . . . . . . . .
Serenity I
Strange Attractor
DWT
176,990
181,433
180,181
174,109
177,662
98,681
98,681
82,619
81,545
74,732
74,470
55,742
58,722
53,688
Effective Date
of Management
Agreement
January 30, 2014
October 19, 2012
October 24, 2013
August 30, 2013
October 18, 2013
February 4, 2014
February 4, 2014
February 17, 2014
February 17, 2014
June 20, 2013
August 2, 2013
September 24, 2013
September 28, 2012
June 11, 2011
Year Built
2006
2011
2004
2007
2004
2011
2011
2006
2011
1999
2001
2006
2012
2006
(9)
(10)
(11)
These companies were subsidiaries of Oceanbulk and related parties to the Company (please refer to Note 3), which became wholly owned subsidiaries
following the completion of the Merger on July 11, 2014, when the respective management agreements were terminated.
On June 20, 2014, this vessel was sold and the management agreement between Starbulk S.A. and the previous owners was terminated. The Company
received management fees for a period of two months following the termination date, in accordance with the terms of the management agreement.
On July 3, 2014, the Company received a notice of termination of the management agreement for this vessel. The management agreement was terminated
upon the vessel’s delivery to its new managers, on August 20, 2014. The Company received management fees for a period of three months following the
termination date, in accordance with the terms of the management agreement.
F-15
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
1. Basis of Presentation and General Information – (continued):
Charterers who individually accounted for more than 10% of the Company’s voyage revenues during the years ended December 31,
2012, 2013 and 2014 are as follows:
Charterer
A . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2013
14%
15%
28%
10%
13%
3%
34%
6%
2014
12%
3%
12%
1%
The outstanding accounts receivable balance as at December 31, 2014 of these charterers was $248.
2.
Significant Accounting policies:
a)
Principles of consolidation: The accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles 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 intercompany balances and
transactions have been eliminated in the consolidation.
Star Bulk as the holding company determines whether it has controlling financial interest in an entity by first
evaluating whether the entity is a voting interest entity or a variable interest entity. Under ASC 810 “Consolidation”,
a voting interest entity is an entity in which the total equity investment at risk is sufficient to enable the entity to
finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive
residual returns and make financial and operating decisions. Star Bulk consolidates voting interest entities in which
it owns all, or at least a majority (generally, greater than 50%), of the voting interest.
A variable interest entity (“VIE”) is an entity as defined under ASC 810-10, which in general either does not have
equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the
entity to support its activities. A controlling financial interest in a VIE is present when a company absorbs a majority
of an entity’s expected losses, receives a majority of an entity’s expected residual returns, or both. The company
with a controlling financial interest, known as the primary beneficiary, is required to consolidate the VIE. The
Company evaluates all arrangements that may include a variable interest in an entity to determine if it may be the
primary beneficiary, and would be required to include assets, liabilities and operations of a VIE in its consolidated
financial statements. As of December 31, 2012, 2013 and 2014, no such interest existed.
Equity method investments: Investments in the equity of entities over which the Company exercises significant
influence, but does not exercise control are accounted for by the equity method of accounting. Under this method,
the Company records such an investment at cost and adjusts the carrying amount for its share of the earnings or
losses of the entity subsequent to the date of investment and reports the recognized earnings or losses in income. The
Company also evaluates whether a loss in value of an investment that is other than a temporary decline should be
recognized. Evidence of a loss in value might include absence of an ability to recover the carrying amount of the
investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the
investment. Dividends received reduce the carrying amount of the investment. When the Company’s share of losses
in an entity accounted for by the equity method equals or exceeds its interest in the entity, the Company does not
recognize further losses, unless the Company has made advances, incurred obligations and made payments on behalf
of the entity.
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, 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 under different assumptions or conditions.
Comprehensive income/ (loss): The statement of comprehensive income / (loss) presents the change in equity (net
assets) during a period from transactions and other events and circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting from investments by shareholders and distributions to
shareholders. Reclassification adjustments are presented out of accumulated other comprehensive income / (loss) on
b)
c)
d)
F-16
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
2.
Significant Accounting policies – (continued):
e)
f)
g)
h)
i)
j)
k)
the face of the statement in which the components of other comprehensive income / (loss) are presented or in the
notes to the financial statements. The Company follows the provisions of ASC 220 “Comprehensive Income”, and
presents items of net income / (loss), items of other comprehensive income / (loss) (“OCI”) and total comprehensive
income / (loss) in two separate and consecutive statements.
Concentration of credit risk: Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash and cash equivalents and restricted cash, trade accounts
receivable and derivative contracts (including freight derivatives, bunker derivatives and interest rate swaps). The
Company’s policy is to place cash and cash equivalents, and 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. To decrease this risk, the
Company limits its exposure in over-the-counter transactions by diversifying among counter parties with high credit
ratings, and selects freight derivatives, if any, that clear through the London Clearing House. The Company
performs periodic evaluations of the relative credit standing of those financial institutions In addition the Company
limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers’ financial
condition.
Foreign currency transactions: The functional currency of the Company is the U.S. Dollar since its vessels operate
in the 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 period 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 converted into
U.S. Dollars at the period-end exchange rates. Resulting gains or losses are included in “Interest and other income”
in the accompanying consolidated statements of operations.
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.
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, which are legally restricted as to
withdrawal or use. In the event that the obligation to maintain 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.
Trade accounts receivable, net: The amount shown as trade accounts receivable, at each balance sheet date,
includes estimated amounts recovered from each voyage or time charter net of any provision for doubtful debts. At
each balance sheet date, the Company provides for doubtful accounts on the basis of specific identified doubtful
receivables. As of December 31, 2013 and 2014, provision for doubtful receivables was nil.
Inventories: Inventories consist of consumable lubricants and bunkers, which are stated at the lower of cost or
market value. Cost is determined by the first in, first out method.
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. Any subsequent expenditure, when it does not extend the useful life of the vessel,
increase the earning capacity or improve the efficiency or safety of the vessel, is expensed as incurred.
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 and acquisition of vessels” until the date of delivery and acceptance of the
F-17
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
2.
Significant Accounting policies – (continued):
m)
n)
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.
Fair value of above/below market acquired time charter: The Company values any asset or liability arising from
the market value of the time charters assumed when a vessel is acquired. The value of above or below market
acquired time charters is determined by comparing the 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. Such intangible asset or liability is recognized ratably as an adjustment to revenues over the remaining
term of the assumed time charter.
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 a vessel-by-vessel basis, when events and circumstances indicate that the
carrying amount of the vessels might not be recoverable (such as vessel sales and purchases, business plans,
obsolescence or damage to the asset and overall market conditions). When impairment indicators are present, the
Company compares undiscounted cash flows to the carrying values of the Company’s vessels to determine if the
assets were impaired. In developing its estimates of future undiscounted cash flows, the Company makes
assumptions and estimates about vessels’ future performance, with the significant assumptions being related to
charter rates, ship operating expenses, vessels’ residual value, fleet utilization and the estimated remaining useful
lives of the vessels, assumed to be 25 years from the delivery of the vessel from the shipyard. These assumptions are
based on current market conditions and historical trends as well as future expectations. The projected net operating
cash flows are being determined by considering the charter revenues from existing time charters for the fixed vessel
days and an estimated daily time charter equivalent for the unfixed days over the estimated remaining economic life
of each vessel, net of brokerage and address commission, expected outflows for scheduled vessel maintenance (dry-
docking and special surveys) and vessel’s operating expenses assuming an average annual inflation rate of 3% and
fleet utilization of 98%. The salvage value used in the impairment test is estimated to be $200 per light weight ton
(LWT), in accordance with the Company’s vessel depreciation policy. Estimates of revenue are based on the current
Forward Freight Agreements, or “FFAs”, rates for as long as they are available and historical average rates of
similar size vessels for the period thereafter. If the Company’s estimate of undiscounted future cash flows for any
vessel is lower than the vessel’s carrying value, the carrying value is written down to the vessel’s fair market value
with a charge recording in earnings.
As of December 31, 2013, the Company performed impairment review only for the two vessels Star Aurora and
Star Polaris, whose carrying values were below their market values because: (i) during the year 2013, the BDI
recovered to an annual average of 1,206, as compared to 920 in 2012; (ii) after the recognized impairment loss of
$303.2 million in 2012 as described above, the carrying values of all the Company’s vessels had been adjusted in
line with their market values; and (iii) events and circumstances indicated that, since Company’s latest performed
impairment test of September 30, 2012, no adverse factors had occurred or were evidenced that could indicate that
the carrying values of Company’s vessels may not be recoverable. For the impairment review of the Star Aurora and
Star Polaris the Company used the same framework for estimating projected undiscounted cash flow as described
above. As a result of the improved market conditions, this analysis indicated that the carrying amount of the
respective vessels was recoverable, and no asset impairment was necessary for the year ended December 31, 2013.
Due to continued global economic downturn and the prevailing conditions in the shipping industry, as of December
31, 2014, the Company performed an impairment analysis for 51 out of the Company’s 62 vessels, whose carrying
values were above their respective market values. Based on the analysis conducted under the same framework for
estimating projected undiscounted cash flow as described above, the future undiscounted projected cash flows
expected to be earned by each of these vessels over its operating life were in excess compared to each vessel’s
carrying value. No asset impairment was, therefore, necessary for the year ended December 31, 2014.
F-18
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
2.
Significant Accounting policies – (continued):
o)
p)
q)
r)
Although the Company believes that the assumptions used to evaluate potential impairment loss are based on
historical trends and are reasonable and appropriate, such assumptions are highly subjective. In this respect the
Company’s analysis for the year ended December 31, 2014 also involved sensitivity tests to the model inputs that it
considered as more important and likely to change. In particular, the Company modified the utilization ratio,
reducing it from approximately 98% to approximately 92% under a worst case scenario, in order to illustrate the
increased idle time of vessels under a weak market environment. The Company did not sensitize its model with
regards to freight rate assumption for the unfixed vessels, as it considers the FFA rates as of December 31, 2014 to
approximate historical low levels, hence fully reflect the conceivable downside scenario. It also deflated the
budgeted operating expenses for the year 2015 so as to simulate the expected management’s reaction under a low
revenue environment.
Vessels held for sale: It is the Company’s policy to dispose of vessels when suitable opportunities occur. The
Company classifies a vessel as being held for sale when all of the following criteria, enumerated under ASC 360
“Property, Plant, and Equipment”, are met: (i) management has committed to a plan to sell the vessel; (ii) the vessel
is available for immediate sale in its present condition; (iii) an active program to locate a buyer and other actions
required to complete the plan to sell the vessel have been initiated; (iv) the sale of the vessel is probable, and transfer
of the asset is expected to qualify for recognition as a completed sale within one year; (v) the vessel is being actively
marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) 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.
The resulting difference, if any, is recorded under “Vessel impairment loss” in the accompanying consolidated
statement of operations. The vessels are not depreciated once they meet the criteria to be classified as held for sale.
At December 31, 2013 and 2014, there were no vessels held for sale.
Financing costs: Fees paid to lenders or required to be paid to third parties on the lenders’ behalf for obtaining new
loans, senior notes or for refinancing existing 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 relevant loan facility.
Any unamortized balance of costs relating to loans repaid or refinanced is expensed in the period in which the
repayment or refinancing is made, subject to the guidance regarding Debt Extinguishment. Any unamortized balance
of costs related to credit facilities repaid is expensed in the period. Any unamortized balance of costs relating to
credit facilities refinanced is deferred and amortized over the term of the relevant credit facility in the period in
which the refinancing occurs.
Pension indemnities: Administrative employees are covered by state-sponsored pension funds of Greece. 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 and the corresponding liability at each period end is reflected within “Accounts payable” in
the accompanying consolidated balance sheets. Upon retirement, the state-sponsored pension funds are responsible
for paying the employees retirement benefits without recourse to the Company.
Stock incentive plan awards: Stock based compensation represents the cost of vested and non-vested shares granted
to employees and to directors, for their services, 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 accelerated method.
s)
Dry docking and special survey expenses: Dry docking and special survey expenses are expensed when incurred.
F-19
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
2.
Significant Accounting policies – (continued):
t)
Accounting for revenue and related expenses: The Company generates its revenues from charterers for the
charterhire of its vessels under time charter agreements, where a contract is entered into for the use of a vessel for a
specific period of time and a specified daily charterhire rate, or voyage charter agreements, where a contract is made
in the spot market for the use of a vessel for a specific voyage at a specified charter rate.
Under time charter agreements, voyage costs, such as fuel and port charges are borne and paid by the charterer.
Company’s time charter agreements are classified as operating leases. Revenues under operating lease arrangements
are recognized when a charter agreement exists, the 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.
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 agreements and is recognized when an 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 balance sheet date and is related to revenue to be 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 (if any) 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. Payments in advance for services are recorded as
prepaid expenses.
Voyage expenses consist of bunker consumption, port expenses and agency fees related to the voyage. In addition,
voyage expenses include expenses related to the charter-in of vessels owned by third parties, whenever this is
applicable. Such expenses are recognized on a pro-rata basis over the duration of the voyage.
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 recognized as incurred.
Fair value measurements: The Company follows the provisions of ASC 820 “Fair Value Measurements and
Disclosures” that defines and provides guidance as to the measurement of fair value. ASC 820 creates a hierarchy of
measurement and indicates that, when possible, fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. The fair value hierarchy gives the highest
priority (Level 1) to quoted prices in active markets and the lowest priority (Level 3) to unobservable data, for
example, the reporting entity’s own data. Under the standard, fair value measurements are separately disclosed by
level within the fair value hierarchy (Note 19).
Earnings/ (loss) per share: Earnings or loss 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
earnings per share reflect the potential dilution assuming that common shares were issued for the exercise of
outstanding in-the-money warrants and non-vested shares and 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
13).
Segment reporting: The Company has determined that it operates under one reportable segment relating to its
operations of dry bulk vessels. The Company reports financial information and evaluates its operations and
operating results 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 Officer, who is the chief operating decision
maker, reviews operating results solely by revenue per day and operating results of the fleet, and thus, the Company
u)
v)
w)
F-20
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
2.
Significant Accounting policies – (continued):
x)
y)
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, subject to restrictions as per the charter agreement, and,
as a result, the disclosure of geographic information is impracticable.
Accounting for leases: Leases of assets under which substantially all the risks and rewards of ownership are
effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are
recognized as an expense on a straight-line method over the lease term. Leases that meet the criteria for capital lease
classification under ASC 840 “Leases” are classified as capital leases. As of December 31, 2014 the Company was
the lessee under certain capital lease arrangements as further disclosed in Note 6. As of December 31, 2014, the
Company held no operating lease arrangements acting as lessee other than its office leases.
Derivatives: The Company enters into derivative financial instruments to manage risk related to fluctuations of
interest rates. In case the instruments are eligible for hedge accounting, at the inception of a hedge relationship, the
Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge
accounting and the risk management objective and strategy undertaken for the hedge. The documentation includes
identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how
the entity will assess the hedging instrument’s effectiveness in offsetting exposure to changes in the hedged item’s
cash flows attributable to the hedged risk. A cash flow hedge is a hedge of the exposure to variability in cash flows
that is attributable to a particular risk associated with a recognized asset or liability, or a highly probable forecasted
transaction that could affect profit or loss. Such hedges are expected to be highly effective in achieving offsetting
changes in cash flows and are assessed at each reporting date to determine whether they actually have been highly
effective throughout the financial reporting periods for which they were designated. All derivatives are recorded on
the balance sheet as assets or liabilities and are measured at fair value. For derivatives designated as cash flow
hedges, the effective portion of the changes in their fair value is recorded in Accumulated other comprehensive
income / (loss) and is subsequently recognized in earnings, under “Interest and finance costs” when the hedged
items impact earnings, while the ineffective portion, if any, is recognized immediately in current period earnings
under “Gain / (Loss) on derivative financial instruments, net”.
The changes in the fair value of derivatives not qualifying for hedge accounting are recognized in earnings. The
Company discontinues cash flow hedge accounting if the hedging instrument expires or is sold, terminated or
exercised and it no longer meets all the criteria for hedge accounting or if the Company de-designates the instrument
as a cash flow hedge. At that time, any cumulative gain or loss on the hedging instrument recognized in equity
remains in equity until the forecasted transaction occurs or until it becomes probable of not occurring. When the
forecasted transaction occurs, any cumulative gain or loss on the hedging instrument is recognized in earnings. If a
hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is reclassified
to earnings for the year. Following the hedging designations made during the third quarter of 2014 (Note 19), all of
the Company’s interest rates swaps effective as of December 31, 2014 have been designated as accounting hedges.
No hedge accounting was applied in prior periods.
z)
Recent accounting pronouncements:
Revenue from Contracts with Customers: In May 2014, the FASB issued Accounting Standards Update (ASU) No.
2014-09, Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific
revenue recognition guidance under current U.S. GAAP and replace it with a principles-based approach for
determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of
transferred goods or services as they occur in the contract. ASU 2014-09 will also require additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or
fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016. Early
application is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect
adjustment as of the date of adoption. Presently, the Company is assessing what effect the adoption of ASU 2014-09
will have on its financial statements and accompanying notes.
F-21
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
2.
Significant Accounting policies – (continued):
Presentation of Financial Statements – Going Concern: In August 2014, the FASB issued Accounting Standards
Update (ASU) No. 2014-15, Presentation of Financial Statements – Going Concern. ASU 2014-15 provides U.S.
GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s
ability to continue as a going concern and on related required footnote disclosures. For each reporting period,
management will be required to evaluate whether there are conditions or events that raise substantial doubt about a
company’s ability to continue as a going concern within one year from the date the financial statements are issued.
ASU 2014-15 is applicable to all entities and is effective for annual reporting periods ending after December 15,
2016 and for annual and interim reporting periods thereafter. Early application is permitted. Presently, the Company
is assessing what effect the adoption of ASU 2014-15 will have on its financial statements and accompanying notes.
3.
Transactions with Related Parties:
Transactions and balances with related parties are analyzed as follows:
Balance Sheet
Assets
Combine Marine Ltd (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oceanbulk Maritime S.A. and its affiliates (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Managed Vessels of Oceanbulk Shipping (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product Shipping & Trading S.A. (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Interchart Shipping Inc. (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management and Directors Fees (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Managed Vessels of Oceanbulk Shipping LLC (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oceanbulk Sellers (Note 17.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excel Vessel Bridge Facility outstanding balance
Excel Vessel Bridge Facility – current portion (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excel Vessel Bridge Facility – non current portion (i) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Excel Vessel Bridge Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized Expenses
$
$
$
$
$
$
2013
2014
1
9
420
56
486
58
111
—
390
559
2013
—
—
—
2013
$ —
241
—
4
245
$
$
6
462
9
1,689
$ 2,166
2014
$ 8,168
47,993
$ 56,161
2014
Advances for vessels under construction and acquisition of vessels
Oceanbulk Maritime S.A.- commision fee for newbuilding vessels (d)
. . . . . . . . . . .
$
519
$ 1,038
Statements of Operations
Commission on sale of vessel-Oceanbulk (d) . . . . . . . . . . . . . . . . . . . . . . . $
Executive directors consultancy fees (b) . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-executive directors compensation (b) . . . . . . . . . . . . . . . . . . . . . . . .
Office rent - Combine Marine Ltd. (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voyage expenses-Interchart (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management fee expense - Oceanbulk Maritime S.A. (d) . . . . . . . . . . .
Interest on Excel Vessel Bridge Facility (i) . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Management fee income - Oceanbulk Maritime S.A. (d)
Management fee income - Managed Vessels of Oceanbulk Shipping
LLC (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management fee income Product Shipping & Trading S.A. (f) . . . . . .
2012
(91) $
2013
(90) $
(453)
(124)
(40)
(1,134)
—
—
—
204
—
(528)
(114)
(41)
(773)
—
—
—
823
242
2014
—
(1,516)
(191)
(42)
(1,997)
(158)
(1,659)
188
1,390
62
F-22
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
3.
Transactions with Related Parties – (continued):
(a)
Interchart Shipping Inc. or Interchart: On February 25, 2014, the Company acquired 33% of the total
outstanding common stock of Interchart for total consideration of $200 in cash and 22,598 of the Company’s
common shares. The common shares were issued on April 1, 2014, and the fair value per share of $14.51 was
determined by reference to the per share closing price of the Company’s common shares on the issuance date. The
ownership interest was purchased from an entity affiliated with family members of Company’s Chief Executive
Officer, including the Company’s former director Mrs. Milena-Maria Pappas. This transaction is accounted for as an
equity method investment.
(b)
On February 25, 2014, the Company also entered into a services agreement (the “Services Agreement”) with
Interchart, for chartering, brokering and commercial services for all the Company’s vessels for an annual fee of
(cid:31)500,000 ($610, using the exchange rate as of December 31, 2014, which was $1.22 per euro). This fee is
adjustable for changes in the Company’s fleet pursuant to the terms of the Services Agreement. Before the Services
Agreement, Interchart acted as chartering broker of all the Company’s vessels on an agreed upon basis. Under the
Services Agreement, all previously agreed upon brokerage commissions due to Interchart were cancelled
retroactively from January 1, 2014.
In November 2014, the Company entered into a new services agreement with Interchart for chartering, brokering
and commercial services for all of the Company’s vessels for a monthly fee of $275, with a term until March 31,
2015. The agreement is effective from October 1, 2014, and on the same date the previous agreement dated February
25, 2014, was terminated.
During the years ended December 31, 2012, 2013 and 2014 the brokerage commissions charged by Interchart were
$1,134, $773 and $1,997, respectively, and are included in “Voyage expenses” in the accompanying consolidated
statements of operations. As of December 31, 2013 and 2014, the Company had outstanding payables of $58 and $6,
respectively, to Interchart.
Management and Directors Fees: During 2011 the Company entered into consulting agreements with companies
owned and controlled by each of the then Chief Executive Officer, Chief Financial Officer and Chief Operating
Officer. These agreements had a term of three years unless terminated earlier in accordance with their terms, except
for the consultancy agreement with the entity controlled by the Company’s then Chief Operating Officer which
provided for an indefinite term (terminable by either party with one month’s notice). In addition, on May 3, 2013,
the Company entered into separate renewal consulting agreements with the companies controlled by the Company’s
then Chief Executive Officer and Chief Financial Officer. Additionally, pursuant to the aforementioned agreements,
the entities controlled by the Company’s then Chief Executive Officer and Chief Financial Officer were entitled to
receive an annual discretionary bonus, as determined by the Company’s Board of Directors in its sole discretion.
Finally, the entity controlled by the then Chief Executive Officer was entitled to receive a minimum guaranteed
incentive award of 28,000 shares of common stock. These shares vested in three equal annual installments, the first
installment of 9,333 shares vested on February 7, 2012, the second installment of 9,333 shares vested on February 7,
2013 and the last installment of 9,334 shares vested on February 7, 2014. The minimum guaranteed incentive award
of 28,000 shares of the Company’s stock was also renewed as part of the renewal of the consultancy agreement
incurred between the Company and the company controlled by the former Chief Executive Officer with the new
shares vesting in three equal annual installments, the first installment of 9,333 shares vested on May 3, 2014, the
second installment of 9,333 shares vests on May 3, 2015 and the last installment of 9,334 shares vests on May 3,
2016.
In connection with the July 2014 Transactions, the Company’s former Chief Executive Officer resigned as Chief
Executive Officer and remains with the Company as Non-Executive Chairman. On July 31, 2014, the Company
entered into an agreement to terminate the consultancy agreement with the company owned by the former Chief
Executive Officer and made a severance payment of (cid:31)664,000 (approx. $810.1, using the exchange rate as of
December 31, 2014, which was $1.22 per euro) of cash and 168,842 common shares, which were issued on the same
date. As a result of the termination agreement, the second and the third installments of the former Chief Executive
Officer’s minimum guaranteed incentive award, under his renewed consultancy agreement, of 9,333 and 9,334,
which would have been vested on May 3, 2015 and 2016, respectively, were cancelled. In addition, in connection
with the July 2014 Transactions, the then Chief Operating Officer of the Company was appointed as Company’s
Executive Vice President-Technical.
F-23
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
3.
Transactions with Related Parties – (continued):
Following the completion of the Merger, on December 17, 2014, the Company entered into consulting agreements
with companies owned and controlled by each of the new Chief Operating Officer and the new co-Chief Financial
Officer. These agreements have a term of three years unless terminated earlier in accordance with their terms.
Pursuant to the corresponding agreements, the entities controlled by the new Chief Operating Officer and the new
co-Chief Financial Officer are entitled to receive an annual discretionary bonus, as determined by the Company’s
Board of Directors in its sole discretion.
Pursuant to all aforementioned agreements, effective as of December 31, 2014, the Company is required to pay an
aggregate base fee at an annual rate of not less than $492 (this amount is the sum of all consulting fees in USD and
EURO, using the exchange rate as of December 31, 2014, which was $1.22 per euro), under the relevant consultancy
agreements, using the exchange rate as of December 31, 2014, which was $ 1.22 per euro).
The expenses related to the Company’s executive officers for the years ended December 31, 2012, 2013 and 2014,
including the severance cash payment in 2014 to the Company’s former Chief Executive Officer were $453, $528
and $1,516, respectively, and are included under “General and administrative expenses” in the accompanying
consolidated statements of operations. The related expenses of non-executive directors for the years ended
December 31, 2012, 2013 and 2014 were $124, $114 and $191, respectively, and are included under “General and
administrative expenses” in the accompanying consolidated statements of operations. As of December 31, 2013 and
2014, the Company had outstanding payables of $111 and $462, respectively, to its executive officers and directors
and non-executive directors, representing unpaid consulting fees and unpaid fees for their participation in the Board
of Directors of the Company and the other special committees of the Board of Directors.
(c)
Combine Marine Ltd.: On January 1, 2012, Starbulk S.A., entered into a one year lease agreement for office space
with Combine Marine Ltd., a company controlled by one of the then Company’s directors, Mrs. Milena - Maria
Pappas and by Mr. Alexandros Pappas, both of whom are children of Mr. Petros Pappas, the Company’s current
Chief Executive Officer and then Company’s Chairman. The lease agreement provides for a monthly rental of
(cid:31)2,500 (approximately $3, using the exchange rate as of December 31, 2014, which was $1.22 per euro). On
January 1, 2013, the agreement was renewed, and, unless terminated by either party, it will expire in January 2024.
The related expense for the rent for the years ended December 31, 2012, 2013 and 2014 was $40, $41 and $42,
respectively, and is included under “General and Administrative expenses” in the accompanying consolidated
statements of operations. As of December 31, 2013 and 2014, the Company had outstanding receivables of $1 and
$0, respectively, from Combine Marine Ltd.
(d)
Oceanbulk Maritime S.A.: Oceanbulk Maritime S.A. (“Oceanbulk Maritime”) is a ship management company
controlled by the Company’s former director Mrs. Milena-Maria Pappas. During the years ended December 31,
2012, 2013 and 2014, the Company paid to Oceanbulk Maritime a brokerage commission of $91, $90 and $0
relating to the sale of certain of its vessels.
On November 25, 2013, the Company’s Board of Directors approved a commission payable to Oceanbulk Maritime
with respect to its involvement in the negotiations with the shipyards for nine of the Company’s contracted
newbuilding vessels (Note 6). The agreement provides for a commission of 0.5% of the shipbuilding contract price
for two newbuilding Capesize vessels (HN 1338 (tbn Star Aries) and HN 1339 (Star Taurus)) and three newbuilding
Newcastlemax vessels (HN 1342 (tbn Star Gemini), HN 1343 (tbn Star Leo) and HN NE 198 (tbn Star Poseidon))
and a flat fee of $200 per vessel for four newbuilding Ultramax vessels (HN 5040 (tbn Star Aquarius), HN 5043 (tbn
Star Pisces), HN NE 196 (tbn Star Antares) and HN NE 197 (tbn Star Lutas)), for a total commission of $2,077.
The commission was agreed to be paid in four equal installments. The first two installments were paid in cash, while
the remaining two installments will be paid in the form of common shares, the number of which will depend on the
price of the Company’s common shares on the date of the two remaining installments. The first and the second
installments of $519, each, were paid in cash in December 2013 and in April 2014, respectively. The total amount of
$1,038 was capitalized and is included under “Advances for vessel under construction and acquisition of vessels” in
the accompanying consolidated balance sheets. The last two installments are due in June 2015 and in April 2016,
respectively.
F-24
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
3.
Transactions with Related Parties – (continued):
(d)
Oceanbulk Maritime S.A. – (continued):
On March 22, 2014, Starbulk S.A. entered into an agreement with Oceanbulk Maritime, under which certain
management services, including crewing, purchasing, arranging insurance, vessel telecommunications and master
general accounts supervision, are provided to six dry bulk vessels under the management of Oceanbulk Maritime,
during the year 2014. Pursuant to the terms of this agreement, Starbulk S.A. received a fixed management fee of
$0.17 per day, per vessel, which as of June 1, 2014, was changed to $0.11 per day, per vessel, based on an
addendum signed on May 22, 2014.
As of December 31, 2014, the Company provided management services to four dry bulk carrier vessels covered by
the March 22, 2014 agreement with Oceanbulk Maritime. The related income for the year ended December 31,
2014, was $188 and is included under “Management fee income” in the accompanying consolidated statement of
operations.
In addition, prior to the Merger, Oceanbulk and the Pappas Companies had entered into a management agreement
with Oceanbulk Maritime and its affiliates pursuant to which Oceanbulk Maritime provided commercial and
administrative services to Oceanbulk and the Pappas Companies. Following the completion of the Merger on July
11, 2014, this management agreement with Oceanbulk Maritime was terminated.
Following the completion of the Merger and the Pappas Transaction, the Company owns the vessels Magnum Opus
and Tsu Ebisu, which were managed by Oceanbulk Maritime prior to the Merger and continued to be managed by
Oceanbulk Maritime after the Merger, until September and August 2014, respectively.
The related expense for the year ended December 31, 2014, was $158 and is included under “Management fee
expense” in the accompanying consolidated statement of operations. Oceanbulk Maritime has provided performance
guarantees under the bareboat charter agreements relating to the newbuilding vessels with hull numbers HN 1061
(tbn Roberta), HN 1062 (tbn Laura), HN 1063 (tbn Idee Fixe) and HN 1064 (tbn Kaley) discussed in Note 6. In
addition, Oceanbulk Maritime has also provided performance guarantees under the shipbuilding contracts for the
newbuilding vessels with hull numbers, HN 5017-JMU (tbn Deep Blue), HN 5055-JMU (tbn Bahemoth), HN 5056-
JMU (tbn Megalodon), HN NE164-NACKS (tbn Honey Badger), HN NE165-NACKS (tbn Wolverine), HN NE166-
NACKS (tbn Gargantua), HN NE167-NACKS (tbn Goliath) and HN NE184-NACKS (tbn Maharaj), discussed in
Note 6. Prior to the Merger, all of the performance guarantees were counter-guaranteed by Oceanbulk Shipping.
Following the completion of the Merger, on September 20, 2014 Star Bulk provided counter-guarantees to
Oceanbulk Maritime in exchange for the counter-guarantees provided by Oceanbulk Shipping.
As of December 31, 2013 and 2014, the Company had outstanding receivables of $9 and $241 from Oceanbulk
Maritime and its affiliates, respectively.
(e)
Managed vessels of Oceanbulk Shipping: Prior to the Merger, Starbulk S.A. had entered into vessel management
agreements with certain ship-owning companies owned and controlled by Oceanbulk Shipping (Note 1). Pursuant to
the terms of these agreements, Starbulk S.A. received a fixed management fee of $0.75 per day, per vessel. These
management agreements were terminated on July 11, 2014, the date the Merger closed. The related income for the
years ended December 31, 2012, 2013 and 2014, was $204, $823 and $1,390, respectively, and is included under
“Management fee income” in the accompanying consolidated statements of operations. As of December 31, 2013,
the Company had an outstanding receivable of $420 from and outstanding payable of $390 to these entities. As of
December 31, 2014, the Company had an outstanding payable of $9 to Maiden Voyage LLC, previous owner of the
vessel Maiden Voyage, one of the vessels of Oceanbulk Shipping.
F-25
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
3.
Transactions with Related Parties – (continued):
(f)
(g)
(h)
(i)
Product Shipping & Trading S.A.: Product Shipping & Trading S.A. is an entity controlled by family members of
the Company’s ex-Chairman and current Chief Executive Officer, Mr. Petros Pappas. On June 7, 2013, Starbulk
S.A. entered into an agreement with Product Shipping & Trading S.A., under which the Company provided certain
management services including crewing, purchasing and arranging insurance to the vessels under the management
of Product Shipping & Trading S.A. Pursuant to the terms of this agreement, Starbulk S.A. received a fixed
management fee of $0.13 per day, per vessel. In October, 2013 the Company decided to gradually cease providing
the above mentioned services to the vessels managed by Product Shipping & Trading S.A., except for arranging
insurance services, and as a result, the management fee decreased to $0.02 per day, per vessel, and effective July 1,
2014, the agreement was terminated. The related income for the years ended December 31, 2013 and 2014 was $242
and $62, respectively, and is included under “Management fee income” in the accompanying consolidated statement
of operations. As of December 31, 2013 and 2014, the Company had outstanding receivables of $56 and $4,
respectively, from Product Shipping & Trading S.A.
Oaktree Shareholder Agreement: As a result of the Merger, on July 11, 2014, Oaktree became the beneficial
owner of approximately 61.3% of the Company’s then outstanding common shares. At the closing of the July 2014
Transactions, the Company and Oaktree entered into a shareholders agreement (the “Oaktree Shareholders
Agreement”). Under the Oaktree Shareholders Agreement, Oaktree has the right to nominate four of the Company’s
nine directors so long as it beneficially owns 40% or more of the Company’s outstanding voting securities. The
number of directors able to be designated by Oaktree is reduced to three directors if Oaktree beneficially owns 25%
or more but less than 40% of the Company’s outstanding voting securities, to two directors if Oaktree beneficially
owns 15% or more but less than 25%, and to one director if Oaktree beneficially owns 5% or more but less than
15%. Oaktree’s designation rights terminate if it beneficially owns less than 5% of the Company’s outstanding
voting securities. Therefore, in July 2014 and in connection with the July 2014 Transactions, the Company’s Board
of Directors, increased the number of directors constituting the Board of Directors to nine and, following the
resignation of Mrs. Milena - Maria Pappas, appointed Mr. Rajath Shourie, Ms. Emily Stephens, Ms. Renée Kemp
and Mr. Stelios Zavvos as directors. Following these changes in the composition of the Board of Directors, the four
individuals designated by Oaktree to be Company’s directors were Messrs. Pappas and Shourie and Mses. Stephens
and Kemp in accordance with the provisions of the Oaktree Shareholders Agreement (Note 20). Under the Oaktree
Shareholders Agreement, with certain limited exceptions, Oaktree effectively cannot vote more than 33% of the
Company’s outstanding common shares (subject to adjustment under certain circumstances).
Excel Transactions: As discussed in detail in Note 1, on August 19, 2014, the Company entered into the Excel
Transactions. The principal shareholders of Excel are Oaktree and Angelo Gordon, none of which though, on its
own, is deemed to have control on Excel’s strategy and operations either by means of holding equity interests,
control of Excel’s board of directors or other type of arrangement indicating a parent-subsidiary relationship.
Therefore the Company concluded that the Excel Transactions were not transactions under common control.
Nevertheless, due to Oaktree’s relationship with the Company and the relationship of Oaktree to Excel, the
Company concluded that the Excel Transactions, including the acquisition of the Excel Vessels and the conclusion
of the Excel Vessel Bridge Facility (Note 9), should be treated as related party transactions for purposes of its
financial statements presentation and disclosure. Interest expense incurred for the year ended December 31, 2014,
amounted to $1,659.
Acquisition of Heron Vessels: Following the completion of the Merger, pursuant to the provisions of the Merger
Agreement relating to the Heron Vessels, and in accordance with the agreement among Oceanbulk Shipping, ABY
Group and Heron, dated September 5, 2014, with respect to the conversion of the Heron Convertible Loan, the
governance of Heron and the distribution of some of its vessels to its investors, as further discussed in Note 1, on
November 11, 2014, the Company entered into two separate agreements to acquire from Heron the vessels ABYO
Gwyneth (renamed Star Gwyneth) and ABYO Angelina (renamed Star Angelina), which were delivered to the
Company on December 5, 2014 (Note 5).
F-26
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
4.
Inventories:
The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:
Lubricants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bunkers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2013
1,726
—
1,726
$
$
2014
6,853
7,515
14,368
5.
Vessels and other fixed assets, net:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Cost
Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessels and other fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessels acquired / disposed during the year ended December 31, 2012
2013
2014
$
$
481,086
—
1,083
482,169
(155,495)
326,674
$ 1,541,538
100,065
1,683
1,643,286
(201,435)
$ 1,441,851
On February 22, 2012, the Company entered into an agreement with a third party in order to sell the vessel Star Ypsilon together with
a quantity of 667 metric tons of fuel oil, for a contracted price of $9,126 less an address commission of 3% and a brokerage
commission of 2%. The vessel was delivered to its purchasers on March 9, 2012. The net carrying amount of Star Ypsilon as of the
date of its delivery was $11,152 and the resulting loss of $3,190 is included under “Loss on sale of vessel” in the accompanying
consolidated statements of operations.
No vessel acquisitions took place during the year ended December, 31, 2012.
Vessels acquired / disposed during the year ended December 31, 2013
On March 14, 2013, the Company entered into an agreement with a third party to sell the Star Sigma for a contracted price of $9,044
less an address commission of 3% and a brokerage commission of 1%. The vessel was delivered to its buyers on April 10, 2013. The
net carrying amount of Star Sigma as of the date of its delivery was $8,354, and the resulting loss of $87 is included under “Loss on
sale of vessel” in the accompanying consolidated statements of operations.
On November 5, 2013, the Company entered into two agreements to acquire from two unaffiliated third parties, one 61,462 dwt
Ultramax vessel, Star Challenger, built 2012 and one 61,455 dwt Ultramax vessel, Star Fighter, built 2013, for approximately
$28,760 each vessel. The vessels were delivered to the Company on December 12, 2013 and December 30, 2013, respectively. In
connection with the acquisition of these vessels, the Company capitalized an amount equal to 1% brokerage commission for each
vessel.
Vessels acquired / disposed during the year ended December 31, 2014
On January 24, 2014, the Company entered into two agreements to acquire from Glocal Maritime Ltd, or “Glocal”, an unaffiliated
third party, two 98,000 dwt Post-Panamax vessels, Star Vega and Star Sirius, built 2011, for an aggregate purchase price of $60,000.
The vessels Star Vega and Star Sirius, were delivered to the Company on February 13, 2014 and March 7, 2014, respectively. The
vessels, upon their delivery, were chartered back to Glocal for a daily rate of $15 less brokerage commission of 1.25% at least until
June 2016.
F-27
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
5.
Vessels and other fixed assets, net-(continued):
Following the completion of the Merger and the Pappas Transaction discussed in Note 1, the Company became the owner of 13
operating vessels (refer to relevant table in Note 1), the fair value of which following the purchase price allocation was estimated at
$426,000 (based on Level 2 inputs of the fair value hierarchy). In addition, on July 22, 2014 and on September 19, 2014, the Company
took delivery of the vessels Peloreus and Leviathan, two Capesize vessels with a capacity of 182,000 dwt each, built by the Japan
Marine United Corporation, or JMU shipyard. The newbuilding contracts for those vessels had been acquired by the Company as part
of the Merger. The delivery installment payment of $34,625 for each vessel was partially financed by $32,500 drawn for each vessel
under a loan facility with Deutsche Bank AG (Note 9), and the remaining amount of $2,125, for each vessel, was financed by existing
cash.
In addition to the fair value adjustment recognized as part of the Merger and the Pappas Transaction, as further discussed in Note 1,
following the delivery of the vessels Peloreus and Leviathan, an amount of $20,600 representing the fair value adjustment (increase)
relating to these vessels was transferred from “Advances for vessels under construction and acquisition of vessels” to “Vessels and
other fixed assets, net”.
Pursuant to the Excel Transactions discussed in Note 1, as of December 31, 2014, 28 out of the 34 Excel Vessels had been transferred
to the Company, for an aggregate consideration of 25,659,425 common shares (based on Level 1 inputs of the fair value hierarchy)
and $248,751 in cash, or a total cost of $501,535, including time charters attached (Note 7). The Company used cash on hand, together
with borrowings under the Excel Vessel Bridge Facility, the Citi Facility, the Excel Vessel CiT Facility, the DNB $120,000 Facility
and the DVB $24,750 Facility, to pay the cash consideration for the Excel Vessels, as further discussed in Note 9.
As further discussed in Note 3, on November 11, 2014, the Company entered into two separate agreements with Heron to acquire the
vessels ABYO Gwyneth (renamed Star Gwyneth) and ABYO Angelina (renamed Star Angelina), which were delivered to the Company
on December 5, 2014. The cost for the acquisition of these vessels was determined based on the fair value of the 2,115,706 common
shares issued on July 11, 2014, in connection with the Heron Transaction, of $25,080 (Level 1) and the amount of $25,000 financed
by the Heron Vessels Facility (Note 9), according to the provisions of the Merger Agreement with respect to these acquisitions, as
further discussed in Note 17.2.
On December 17, 2014, the Company entered into an agreement with a third party to sell the vessel Star Kim, one of the Excel
Vessels, at market terms which also approximated the vessel’s net book value. The vessel did not meet the ‘held-for-sale’
classification criteria as of December 31, 2014, as she was not considered available for immediate sale in her present condition. The
vessel was delivered to her new owner on January 21, 2015 (Note 20). As of December 31, 2014, the Company had received an
advance payment from the buyers amounting to $1,100, which is included under “Advances from sale of vessel” in the accompanying
consolidated balance sheet as of December 31, 2014.
Impairment Analysis
The Company’s impairment analysis for 2012, indicated that the carrying values of the entire Supramax fleet and Star Sigma were not
recoverable, and after comparing the vessels’ fair values to their carrying values, an impairment loss amounting to $303,219 was
recognized under “Vessel impairment loss” in the accompanying consolidated statements of operations for the year ended December
31, 2012. This analysis for the year ended December 31, 2013 and 2014, indicated that the carrying amount of the Company’s vessels
was recoverable and therefore the Company concluded that no impairment charge was necessary (Note 19).
6.
Advances for vessels under construction and acquisition of vessels:
The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:
2013
2014
Pre-delivery yard installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment (Notes 1 and 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bareboat capital leases – upfront hire & handling fees . . . . . . . . . . . . . . . . . . .
Capitalized interest and finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other capitalized costs (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances for secondhand vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessels delivered (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 66,780
—
—
633
519
—
—
$ 67,932
$ 299,129
137,923
31,467
11,696
4,580
79
(30,262)
$ 454,612
F-28
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
6.
Advances for vessels under construction and acquisition of vessels - continued:
As summarized in the relevant table of Note 1, as of December 31, 2014, the Company was party to 24 newbuilding contracts for the
construction of dry bulk carriers of various types, 15 of which were assumed as part of the Merger and the Pappas Transaction. As of
December 31, 2014, the total aggregate remaining contracted price for the 24 newbuilding vessels plus agreed extras was $759,066,
payable in periodic installments up to their deliveries, of which $617,986 is payable during the next twelve months ending December
31, 2015, and the remaining $141,080 is payable in 2016.
On July 5, 2013, the Company through its two wholly-owned subsidiaries, Star Cape I LLC and Star Cape II LLC, contracted with
Shanghai Waigaoqiao Shipbuilding Co. Ltd., or SWS, shipyard to build two 180,000 dwt eco-type, fuel efficient Capesize drybulk
vessels, Hull 1338 (tbn Star Aries) and Hull 1339 (tbn Star Taurus). These vessels are scheduled to be delivered in September 2015
and January 2016, respectively.
On September 23, 2013, the Company through its two wholly-owned subsidiaries, Star Castle I LLC and Star Castle II LLC,
contracted with SWS, to build two 208,000 dwt eco-type, fuel efficient Newcastlemax drybulk vessels, Hull 1342 (tbn Star Gemini)
and Hull 1343 (tbn Star Leo). These vessels are scheduled to be delivered in January and in March 2016, respectively.
On September 27, 2013, the Company through its three wholly-owned subsidiaries, Star Axe I LLC, Star Axe II LLC and Star Ennea
III LLC, contracted with Nantong COSCO KHI Ship Engineering Co., or NACKS, shipyard to build two 61,000 dwt eco-type, fuel
efficient Ultramax drybulk vessels, Hull NE 196 (tbn Star Antares) and Hull NE 197 (tbn Star Lutas), with expected deliveries in
September and November 2015, respectively and one 209,000 dwt eco-type, fuel efficient Newcastlemax drybulk vessel, Hull NE 198
(tbn Star Poseidon), with expected delivery in March 2016.
On October 22, 2013, the Company through its two wholly-owned subsidiaries, Star Asia I LLC and Star Asia II LLC, contracted with
Japan Marine United Corporation, or JMU, to build two 60,000 dwt eco-type, fuel efficient Ultramax drybulk vessels, Hull 5040 (tbn
Star Acquarius) and Hull 5043 (tbn Star Pisces), with expected deliveries in May and July 2015, respectively.
On December 30, 2014, in anticipation of the delivery of the Indomitable to the Company on January 8, 2015, the Company made a
payment of $34,942, which was held in escrow until the delivery of the vessel (Note 20), of which $32,480 was drawn under the BNP
$32,480 Facility discussed in Note 9, and the remaining amount was financed using existing cash. Total advances paid and other
capitalized costs incurred with respect to this vessel up to December 31, 2014 are reflected within “Advances for vessels under
construction and acquisition of vessels” in the accompanying balance sheet for the year ended December 31, 2014.
Capital leases
On February 17, 2014, the Company entered into separate bareboat charter party contracts with CSSC (Hong Kong) Shipping
Company Limited, or CSSC, an affiliate of SWS, a Chinese shipyard, to bareboat charter for ten years, two fuel efficient newbuilding
Newcastlemax dry bulk vessels, Hull 1372 (tbn Star Libra) and Hull 1371 (tbn Star Virgo), or the “CSSC Vessels”, each with a cargo
carrying capacity of 208,000 dwt. The vessels are being constructed pursuant to shipbuilding contracts entered into between two
pairings of affiliates of SWS. Each pair has one shipyard party (each, an “SWS Builder”) and one ship-owning entity (each an “SWS
Owner”). Delivery to the Company of each vessel is deemed to occur upon delivery of the vessel to the SWS Owner from the
corresponding SWS Builder. Pursuant to the terms of the bareboat charters, the Company is required to pay upfront fees,
corresponding to the pre-delivery installments to the shipyard. An amount of $47,200 and $46,400, respectively, for the construction
cost of each vessel, corresponding to the last pre-delivery and delivery installment to the shipyard, will be financed by the relevant
SWS Owner, to whom the Company will pay a daily bareboat charter hire rate payable monthly plus a variable amount corresponding
to the LIBOR payable every six months. In addition, the Company will pay for Hull 1371 (tbn Star Virgo), an installment of $300 plus
an additional amount of $669 for agreed extra costs for both vessels. In addition, the Company is also obliged to pay an amount of
$936 representing handling fees in two installments. The first installment of $462 was paid upon the signing of the bareboat charters,
and the second installment is due in one year. Under the terms of the bareboat charters, the Company has the option to purchase the
CSSC Vessels at any time, such option being exercisable on a monthly basis against pre-determined, amortizing-during-the-charter-
period prices whilst it has a respective obligation of purchasing the vessels at the expiration of the bareboat term at a purchase price of
$14,160 and $13,919, respectively. Upon the earlier of the exercise of the purchase options or the expiration of the bareboat charters,
the Company will own the CSSC Vessels.
F-29
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
6.
Advances for vessels under construction and acquisition of vessels - continued:
In addition, following the completion of the Merger and the Pappas Transactions the Company also assumed bareboat charters with
respect to four newbuilding vessels being built at New Yangzijiang and five newbuilding vessels being built at SWS as follows:
• On May 17, 2013, subsidiaries of Oceanbulk entered into separate bareboat charter party contracts with affiliates of New
Yangzijiang shipyards for eight-year bareboat charters of four newbuilding 64,000 dwt Ultramax vessels (Hulls HN 1061
(tbn Roberta), HN 1062 (tbn Laura), HN 1063 (tbn Idee Fixe) and HN 1064 (tbn Kaley) being built at New Yangzijiang. The
vessels are being constructed pursuant to four shipbuilding contracts entered into between four pairings of affiliates of New
Yangzijiang. Each pair has one shipyard party (each, a “New YJ Builder”) and one ship-owning entity (each a “New YJ
Owner”). Delivery of each vessel to the Company is deemed to occur upon delivery of the vessel to the New YJ Owner from
the corresponding New YJ Builder. Pursuant to the terms of the bareboat charter, the Company is required to pay upfront
fees, corresponding to the pre-delivery installments to the shipyard. An amount of $20,680 for the construction cost of each
vessel, corresponding to the delivery installment to the shipyard, will be financed by the relevant New YJ Owner, to whom
the Company will pay a pre-agreed daily bareboat charter hire rate on a 30-days advance basis. In addition, the Company will
pay for the four newbuilding vessels an aggregate amount of $3,248 for agreed extra costs. After each vessel’s delivery, the
Company has monthly purchase options to acquire the vessel at pre-determined, amortizing-during-the-charter-period prices.
On the eighth anniversary of the delivery of each vessel, the Company has the obligation to purchase the vessel at a purchase
price of $6,000. Upon the earlier of the exercise of the purchase options or the expiration of the bareboat charters, the
Company will own the four vessels.
Capital leases
• On December 27, 2013, subsidiaries of Oceanbulk entered into separate bareboat charter party contracts with affiliates of
SWS for ten-year bareboat charters of five newbuilding 208,000 dwt Newcastlemax vessels (Hulls HN 1359 (tbn Star
Marisa), HN 1360 (tbn Star Ariadne), HN 1361 (tbn Star Magnanimus), HN 1362 (tbn Star Manticore) and HN 1363 (tbn
Star Chaucer)) being built at SWS. The vessels are being constructed pursuant to shipbuilding contracts entered into between
five pairings of affiliates of SWS. Each pair has one shipyard party (each, an “SWS Builder”) and one ship-owning entity
(each an “SWS Owner”). Delivery of each vessel to the Company is deemed to occur upon delivery of the vessel to the SWS
Owner from the corresponding SWS Builder. Pursuant to the terms of the bareboat charter, the Company is required to pay
upfront fees, corresponding to the pre-delivery installments to the shipyard. An amount of $46,400 for the construction cost
of each vessel, corresponding to the delivery installment to the shipyard, will be financed by the relevant SWS Owner, to
whom the Company will pay a daily bareboat charter hire rate payable monthly plus a variable amount corresponding to the
LIBOR payable every six months and a one-time handling fee of $464. In addition, the Company will pay for the five
newbuilding vessels an aggregate amount of $1,680 for agreed extra costs. After each vessel’s delivery, the Company has
monthly purchase options to acquire the vessel at pre-determined, amortizing-during-the-charter-period prices. At the end of
the ten-year charter period for each vessel, the Company has the obligation to purchase the vessel at a purchase price of
$13,919. Upon the earlier of the exercise of the purchase options or the expiration of the bareboat charters, the Company will
own the five vessels.
Based on ASC 840, the Company determined that all bareboat charters discussed above should be classified as capital leases. In
addition, based on the lease agreement provisions, the Company is deemed to have substantially all of the construction period risk and
therefore is considered the owner of the vessels during the construction period. Therefore the amount of $31,467 paid during the year
ended December 31, 2014, representing upfront hire and handling fees, has been capitalized and is included under “Advances for
vessels under construction and acquisition of vessels” in the accompanying consolidated balance sheet for the relevant period. In
addition, an amount of $27,100 of fair value adjustment related to these capital leases of Oceanbulk pursuant to the purchase price
allocation of the Merger, has also been capitalized and is included under “Advances for vessels under construction and acquisition of
vessels” in the accompanying consolidated balance sheet as of December 31, 2014. Each of the above bareboat charters is considered
a sales type lease and will be accounted for as a sale and leaseback transaction upon the delivery of each newbuilding to the Company,
when the lease term is deemed to begin. At that time the financial liability and the financial asset will be recognized in accordance
with the applicable capital lease accounting guidance.
F-30
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
7.
Fair value of Above Market Acquired Time Charters:
During 2011, the Company acquired two second-hand Capesize vessels, Star Big and Star Mega, with existing time charter contracts.
Upon their delivery, the Company evaluated the attached charter contracts by comparing the charter rates in the acquired time charter
agreements with the market rates for equivalent time charter agreements prevailing at the time the foregoing vessels were delivered
and recognized an asset of $23,065.
As part of the Merger in July 2014, a $1,967 intangible asset was recognized corresponding to a fair value adjustment for two
favorable time charters under which Oceanbulk was the lessor at the time of acquisition, with respect to vessels Amami and
Madredeus, as further discussed in Note 1.
In addition, for three Excel Vessels (Christine (tbr Star Martha), Sandra (tbr Star Pauline) and Lowlands Beilun (tbr Star Despoina)),
which were transferred to the Company subject to existing charters, the Company recognized an asset of $8,076, since it determined
that the respective charters were favorable comparing to the existing charter rates.
For the years ended December 31, 2012, 2013 and 2014, the amortization of fair value of the above market acquired time charters
amounted to $6,369, $6,352 and $6,113, respectively, and is included under “Voyage revenues” in the accompanying consolidated
statements of operations. The accumulated amortization of these above market time charters as of December 31, 2013 and 2014 was
$15,087 and $21,200, respectively.
The carrying amount of the above market acquired time charters amounting to $11,908 as of December 31, 2014 will be amortized on
a straight line basis to revenues through the end of the corresponding charter parties, over a weighted-average period of 0.8 years as
follows:
Years
December 31, 2015 . . . . . .
December 31, 2016 . . . . . .
Total . . . . . . . . . . . . . . . . . . .
$
$
Amount
11,654
254
11,908
8.
Gain on time charter agreement termination:
For the year ended December 31, 2012
The vessel Star Sigma, which was time chartered to Pacific Bulk Shipping Ltd. at a gross daily charter rate of $38.0 per day for the
period from March 1, 2009 until October 29, 2013, was redelivered earlier to the Company on December 31, 2011. On January 4,
2012, the Company signed an agreement with the charterer in order to receive an amount of $5,734 in cash as compensation for the
early redelivery of the respective vessel. The total amount was received in January 2012. In addition to the cash payment, Pacific Bulk
supplied the Company with 1,027 metric tons of fuel, valued at $720. The total gain of $6,454 is reflected under “Gain on time charter
agreement termination” in the accompanying consolidated statements of operations for the year ended December 31, 2012.
F-31
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
Long-term debt:
The table below presents outstanding amounts under the Company’s bank loans and notes as of December 31, 2013 and 2014:
Commerzbank $120,000 and $26,000 facilities . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Agricole Corporate and Investment Bank $70,000 facility . . . . . . . .
ABN AMRO Bank N.V. $31,000 facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HSH Nordbank AG $64,500 facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HSH Nordbank AG $35,000 facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deutsche Bank AG $39,000 facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ABN $87,458 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deutsche Bank $85,000 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HSBC $86,600 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CEXIM $57,360 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HSBC $20,000 Dioriga Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NIBC $32,000 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BNP $32,480 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excel Vessel Bridge Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DVB $24,750 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excel Vessel CiT Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sinosure Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Citi Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Heron Vessels Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DNB $120,000 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.00% 2019 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
a)
Commerzbank $120,000 Facility:
2013
82,530
58,908
18,400
30,496
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
190,334
$
$
2014
74,680
54,968
12,800
29,600
33,187
36,660
76,689
82,708
83,490
—
19,300
—
32,480
56,161
24,750
30,000
—
51,478
24,567
88,275
50,000
861,793
$
$
On December 27, 2007, the Company entered into a loan agreement with Commerzbank AG for 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 (the
“Commerzbank $120,000 Facility”). The Commerzbank $120,000 Facility is secured by a first priority mortgage over the financed
vessels. On June 10, 2009 and December 24, 2009, the loan agreement was amended to revise some of its economic terms for a period
up to January 31, 2011, in view of the depressed conditions prevailing at the market at that time. Under the terms of this loan facility,
the repayment of $120,000 is scheduled over a nine year term and is divided into two tranches. The first tranche of up to $50,000 is
repayable in twenty-eight consecutive quarterly installments, commencing in January 2010, with: (i) the first four installments of
$2,250 each, (ii) the next thirteen installments of $1,000 each, (iii) the remaining eleven installments of $1,300 each, and a final
balloon payment of $13,700 payable together with the last installment. The second tranche of up to $70,000 is repayable in twenty-
eight consecutive quarterly installments, commencing in January 2010, with: (i) the first four installments of $4,000 each, (ii) the
remaining twenty-four installments of $1,750 each, and (iii) a final balloon payment of $12,000 payable together with the last
installment.
b)
Commerzbank $26,000 Facility:
On September 3, 2010 the Company entered into a loan agreement with Commerzbank AG for up to $26,000 in order to partially
finance the acquisition cost of the second hand vessel, Star Aurora (the “Commerzbank $26,000 Facility”). The Commerzbank
$26,000 Facility is secured by a first priority mortgage over the financed vessel. The loan is repayable over a six year period, in
twenty-four consecutive quarterly installments of $950 each, commencing in December 2010, three months after the drawdown, and a
final balloon payment of $3,200 payable together with the last installment.
F-32
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
Long-term debt- (continued):
Restructuring Agreement - Commerzbank $120,000 and $26,000 Facilities
On December 17, 2012, the Company executed a commitment letter with Commerzbank to amend the Commerzbank $120,000
Facility and the Commerzbank $26,000 Facility. The definitive documentation for the supplemental agreement (the “Commerzbank
Supplemental”) was signed on July 1, 2013. Pursuant to the Commerzbank Supplemental, the Company paid Commerzbank a flat fee
of 0.40% of the combined outstanding loans under the two facilities and agreed to (i) prepay Commerzbank $2,000 pro rata against the
balloon payments of each facility (which was completed on December 31, 2012), (ii) raise $30,000 in equity (which condition was
satisfied after the completion of the Company’s rights offering in July 2013, which resulted in gross proceeds of $80,065 and its
underwritten public offering in October, 2013, which resulted in gross proceeds of $70,840, (Note 10)), (iii) increase the vessel
management services to cover at least ten third-party vessels by December 31, 2013 (which was satisfied as of December 31, 2013),
(iv) increase the loan margins, (v) amend some of the financial covenants under the two facilities, (vi) defer 60% and 50% of the
quarterly installments for the years ended December 31, 2013 and 2014 (the “Deferred Amounts”), to the balloon payments or to a
payment in accordance with a cash sweep mechanism; (vi) include a semi-annual cash sweep mechanism, under which all earnings of
the mortgaged vessels after operating expenses, dry docking provision, general and administrative expenses and debt service, if any,
will be used as repayment of the Deferred Amounts; and (vii) not pay any dividends as long as Deferred Amounts are outstanding
and/or until original terms are complied with. In the Commerzbank Supplemental, Commerzbank also agreed to waive an on-charter
covenant for the Star Aurora in the Commerzbank $26,000 Facility until July 31, 2015.
c)
Credit Agricole $70,000 Facility:
On January 20, 2011, the Company entered into a loan agreement with Credit Agricole Corporate and Investment Bank for a term loan
up to $70,000 (the “Credit Agricole $70,000 Facility”) to partially finance the construction cost of the Company’s two newbuildings,
Star Borealis and Star Polaris, which were delivered to the Company in 2011. The Credit Agricole $70,000 Facility is secured by a
first priority mortgage over the financed vessels and is divided into two tranches. The Company drew down $67,275 under this
facility. The Credit Agricole $70,000 Facility is repayable in twenty eight consecutive quarterly installments, commencing three
months after the delivery of each vessel, of $485.4 and $499.7, respectively, and a final balloon payment payable at maturity, of
$19,558.2 (due August 2018) and $20,134 (due November 18) for the Star Borealis and Star Polaris tranches, respectively.
On May 20, 2013, the Company signed a waiver letter with Credit Agricole Corporate and Investment Bank in order to revise some of
the financial covenants contained in the loan agreement for a period up to March 31, 2014, as well as to revise the dividend
distribution related requirements so that Star Bulk Carriers Corp. shall not pay any dividends until March 31, 2014.
d)
ABN AMRO Bank N.V. $31,000 Facility:
On July 21, 2011, the Company entered into a senior secured credit facility with ABN AMRO Bank N.V. (“ABN AMRO”) for
$31,000 (the “ABN AMRO $31,000 Facility”), to partially finance the acquisition of the second-hand vessels Star Big and Star Mega.
The ABN AMRO $31,000 Facility is secured by a first priority mortgage over the financed vessels. The borrowers under the ABN
AMRO $31,000 Facility are the two vessel-owning subsidiaries that own the two vessels and Star Bulk Carriers Corp. is the guarantor.
The ABN AMRO $31,000 Facility is repayable in 18 consecutive, quarterly installments, commencing three months after the initial
borrowings in October 2011. The first 14 installments amount to $1,400 each and the remaining four installments amount to $625
each, and a final balloon payment of $8,900 is payable together with the last installment at the maturity date of January 2016.
On March 16, 2012, the Company and ABN AMRO amended the ABN AMRO $31,000 Facility under a first supplemental agreement
(the “ABN $31,000 First Supplemental”). On April 2, 2013, the Company and ABN AMRO signed a second supplemental agreement
(the “ABN $31,000 Second Supplemental” and, together with the ABN First Supplemental, the “ABN $31,000 Supplementals”).
Under the ABN $31,000 Supplementals, the Company agreed to (i) revise the financial covenants until December 31, 2014, (ii) not
pay dividends until December 31, 2014, and (iii) increase the margin by 50 bps, beginning on March 31, 2013, until the time the
Company was able to raise at least $30,000 of additional equity. The Company paid the increased margin of 50 bps from March 31,
2013 until July 26, 2013, upon the completion of the Company’s rights offering which resulted in net proceeds of $77,898 after
deducting offering expenses of $2,167 (Note 10).
F-33
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
Long-term debt- (continued):
e)
HSH Nordbank AG $64,500 Facility:
On October 3, 2011, the Company entered into a $64,500 secured term loan agreement (the “HSH Nordbank $64,500 Facility”) with
HSH Nordbank AG (“HSH Nordbank”) to repay, together with cash on hand, certain existing debt. The borrowers under the HSH
Nordbank $64,500 Facility are the vessel-owning subsidiaries that own the Star Cosmo, Star Kappa, Star Sigma, Star Omicron and
Star Ypsilon, and Star Bulk Carriers Corp. is the guarantor. The borrowing under this new loan agreement together with $5,326 in cash
was used to repay in full the Company’s indebtedness under its old loan agreements with Piraeus Bank S.A.; a term loan of $150,000
dated April 14, 2008 and a term loan of $35,000 dated July 1, 2008, in 2011. This facility consists of two tranches. The first tranche of
$48,500 (the “Supramax Tranche”) is repayable in 20 quarterly consecutive installments of $1,250 commencing in January 2012 and a
final balloon payment of $23,500 payable at the maturity date of September 2016. The second tranche of $16,000 (the “Capesize
Tranche”) was repayable in 12 consecutive, quarterly installments of $1,333, commencing in January 2012 and matured in
September 2014.
The Company and HSH Nordbank signed a supplemental agreement (the “HSH Nordbank $64,500 Supplemental”) on July 17, 2013.
Under the HSH Nordbank $64,500 Supplemental, the Company agreed to (i) defer a minimum of approximately $3,500 payments
from January 1, 2013 until December 31, 2014, (ii) prepay HSH Nordbank $6,590 with pledged cash already held by HSH Nordbank,
of which $3,500 was applied against the balloon payment of Supramax Tranche and $3,090 was applied pro rata against the eight
quarterly repayment installments of the Supramax Tranche, starting with the scheduled repayment date in January 2013, (iii) amend
some of the financial covenants until December 31, 2014, (iv) raise $20,000 in equity (which condition was satisfied after the
completion of the Company’s rights offering in July 2013, which resulted in gross proceeds of $80,065 and its underwritten public
offering in October, 2013, which resulted in gross proceeds of $70,840 (Note 10)), (v) increase the loan margins from January 1, 2013
until December 31, 2014, (vi) include a semi-annual cash sweep mechanism, under which all earnings of the mortgaged vessels after
operating expenses, dry docking provision, general and administrative expenses and debt service, if any, are to be used as prepayment
to the balloon payment of the Supramax Tranche, and (vii) not pay any dividends until December 31, 2014 or later in case of a
covenant breach. When the Company sold the Star Sigma in April 2013, the HSH Nordbank $64,500 Supplement also required the
Company to use the proceeds from the sale to fully prepay the balance of the Capesize Tranche and use the remaining vessel sale
proceeds of $4,123 to prepay a portion of the Supramax Tranche. As a result, the next seven scheduled quarterly installments
commencing in April 2013 were reduced pro rata according to the prepayment from $813 to $224.
f)
HSH Nordbank AG $35,000 Facility:
On February 6, 2014, the Company entered into a new $35,000 secured term loan agreement (the “HSH Nordbank $35,000 Facility”)
with HSH Nordbank AG. The borrowings under this new loan agreement were used to partially finance the acquisition of second-hand
vessels Star Challenger and Star Fighter. The HSH Nordbank $35,000 Facility is secured by a first priority mortgage over the
financed vessels. The borrowers under the HSH Nordbank $35,000 Facility are the two vessel-owning subsidiaries that own the two
vessels and Star Bulk Carriers Corp. is the guarantor. This facility matures in February 2021 and is repayable in 28 equal, consecutive,
quarterly installments, commencing in May 2014, of $312.5 and $291.7 for the Star Challenger and Star Fighter, respectively, and a
final balloon payment of $8,750 and $9,332.4, payable together with the last installments, for Star Challenger and Star Fighter,
respectively.
g)
Deutsche Bank AG $39,000 Facility:
On March 14, 2014, the Company entered into a new $39,000 secured term loan agreement with Deutsche Bank AG (the “Deutsche
Bank $39,000 Facility”). The borrowings under this new loan agreement were used to partially finance the acquisition of the vessels
Star Sirius and Star Vega. The Deutsche Bank $39,000 Facility is secured by a first priority mortgage over the financed vessels. The
borrowers under the Deutsche Bank $39,000 Facility are the two vessel-owning subsidiaries that own the two vessels and Star Bulk
Carriers Corp. is the guarantor. This facility consists of two tranches of $19,500 each and matures in March 2021. Each tranche is
repayable in 28 equal, consecutive, quarterly installments of $390 each commencing in June 2014, and a final balloon payment of
$8,580 payable at maturity.
F-34
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
Long-term debt- (continued):
h)
Assumed debt as part of the Merger and the Pappas Transactions:
As a result of the July 2014 Transactions, the Company assumed, on July 11, 2014, an additional $208,237 aggregate principal amount
consisting of the following debt agreements:
1)
ABN $87,458 Facility
On August 1, 2013, Oceanbulk Shipping entered into a $34,458 credit facility with ABN AMRO, N.V. (the “ABN AMRO $87,458
Facility”) in order to partially finance the acquisition cost of the vessels Obelix and Maiden Voyage. The loans under the ABN AMRO
$87,458 Facility were available in two tranches of $20,350 and $14,108. On August 6, 2013, Oceanbulk Shipping drew down the
available tranches. On December 18, 2013, the ABN AMRO $87,458 Facility was amended to add an additional loan of $53,000 to
partially finance the acquisition cost of the vessels Big Bang, Strange Attractor, Big Fish and Pantagruel. On December 20, 2013,
Oceanbulk Shipping drew down the available tranches. The tranche under the ABN AMRO $87,458 Facility relating to vessel Obelix
matures in September 2017, the one relating to vessel Maiden Voyage matures in August 2018 and those relating to vessels Big Bang,
Strange Attractor, Big Fish and Pantagruel mature in December 2018. The tranches are repayable in quarterly consecutive
installments ranging between $248 to $550 and a final balloon payment for each tranche at maturity, ranging between $2,500 and
$12,813. The ABN AMRO $87,458 Facility is secured by a first-priority ship mortgage on the financed vessels, general assignments,
charter assignments and, operating account assignments and was guaranteed by Oceanbulk Shipping LLC. Following the completion
of the Merger, Star Bulk Carriers Corp. replaced Oceanbulk Shipping as guarantor of the ABN AMRO $87,458 Facility.
2)
Deutsche Bank $85,000 Facility
On May 20, 2014, Oceanbulk Shipping entered into a loan agreement with Deutsche Bank AG Filiale Deutschlandgeschaft for the
financing of an aggregate amount of $85,000 (the “Deutsche Bank $85,000 Facility”), in order to partially finance the construction
cost of Magnum Opus, Peloreus and Leviathan. Each tranche matures five years after the drawdown date. The applicable tranches
were drawn down concurrently with the deliveries of the financed vessels, in May, July and September 2014, respectively. Each loan
is subject to 19 quarterly amortization payments equal to 1/60th of the loan amount, with the 20th payment equal to the remaining
amount outstanding on the loan. The Deutsche Bank $85,000 Facility is secured by first priority cross-collateralized ship mortgages on
the financed vessels, charter assignments and insurance and earnings assignments, and was originally guaranteed by Oceanbulk
Shipping. On July 4, 2014, an amendment to the Deutsche Bank $85,000 Facility was executed in order to add ITF International
Transport Finance Suisse AG as a lender and replace Oceanbulk Shipping with Star Bulk Carriers Corp. as guarantor of this facility.
3)
HSBC $86,600 Facility
On June 16, 2014, Oceanbulk Shipping entered into a loan agreement with HSBC Bank plc. (the “HSBC $86,600 Facility”) for the
financing of an aggregate amount of $86,600, to partially finance the acquisition cost of the second hand vessels Kymopolia,
Mercurial Virgo, Pendulum, Amami and Madredeus. The loan, which was drawn in June 2014, matures in May 2019 and is repayable
in 20 quarterly installments, commencing three months after the drawdown, of $1,555 plus a balloon payment of $55,500 due together
with the last installment. The HSBC $86,600 Facility is secured by a first priority mortgage over the financed vessels and general and
specific assignments and was originally guaranteed by Oceanbulk Shipping. On September 11, 2014, a supplemental agreement to the
HSBC $86,600 Facility was executed in order to replace Oceanbulk Shipping with Star Bulk Carriers Corp. as guarantor of the HSBC
$86,600 Facility.
4)
CEXIM $57,360 Facility
On June 26, 2014, Oceanbulk Shipping entered into a loan agreement with the Export-Import Bank of China (the “CEXIM $57,360
Facility”) for the financing of an aggregate amount of $57,360, which will be available in two tranches of $28,680 each, to partially
finance the construction cost of two Capesize bulk carriers currently under construction at SWS (Hulls HN 1312 (tbn Bruno Mars) and
HN 1313 (tbn Jenmark)), with expected delivery in April and May 2015, respectively. Each tranche will mature ten years from the
delivery date of the last delivered financed vessel and will be repayable in 20 semi-annual installments of $1,147 plus a balloon
payment of $5,736, with the first installment being due on the first January 21 or July 21 six months after the delivery of each vessel.
The CEXIM $57,360 Facility will be secured by first priority cross-collateralized ship mortgages on the financed vessels, charter
assignments and insurance and earnings assignments, and is guaranteed by Oceanbulk Shipping.
F-35
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
Long-term debt- (continued):
h)
Assumed debt as part of the Merger and the Pappas Transactions-(continued):
5)
HSBC $20,000 Dioriga Facility
On April 14, 2014, Dioriga Shipping Co. entered into a loan agreement with HSBC Bank plc (the “HSBC $20,000 Dioriga Facility”)
for $20,000 to partially finance the construction cost of Tsu Ebisu, which was delivered in April 2014. The HSBC $20,000 Dioriga
Facility will mature in March 2019 and will be repayable in 20 quarterly installments of $350 each, commencing three months after
the drawdown, plus a balloon payment of $13,000 due together with the last installment. The HSBC $20,000 Dioriga Facility is
secured by a first priority mortgage over the financed vessel and general and specific assignments. On October 3, 2014, a
supplemental agreement to the HSBC $20,000 Dioriga Facility was executed in order for Star Bulk Carriers Corp. to become the
guarantor of the HSBC $20,000 Dioriga Facility and to include covenants similar to those of the Company’s other vessel financing
facilities.
During July 2014, the Company obtained the consent of the various relevant lenders to complete the July 2014 Transactions.
i)
NIBC $32,000 Facility:
On November 7, 2014, the Company and NIBC Bank N.V. entered into an agreement with respect to a credit facility (the “NIBC
$32,000 Facility”) for the financing of an aggregate amount of $32,000, which will be available in two tranches of $16,000, to
partially finance the construction cost of two Ultramax bulk carriers currently under construction by Japan Marine United Corporation
(Hulls HN 5040 (tbn Star Acquarius) and HN 5043 (tbn Star Pisces)), with expected delivery in May and July 2015, respectively. The
facility will mature in November, 2020. Each tranche is expected to be drawn concurrently with the delivery of the relevant vessel and
will be repayable in consecutive quarterly installments of $267.5, commencing three months after the drawdown, plus a balloon
payment of $10,382.5, for each of HN 5040 (tbn Star Acquarius) and HN 5043 (tbn Star Pisces), both due in November 2020. The
NIBC $32,000 Facility is secured by a first priority cross collateralized mortgage over the financed vessels and general and specific
assignments and is guaranteed by Star Bulk Carriers Corp.
j)
BNP $32,480 Facility:
On July 31, 2014, Positive Shipping Company, a subsidiary of Star Bulk following the completion of the Pappas Transaction,
executed a binding term sheet with BNP Paribas (the “BNP $32,480 Facility”) for the financing of an amount up to $32,500 to
partially finance the construction cost of its Capesize bulk carrier under construction by Japan Marine United Corporation (Hull HN
5016, tbn Indomitable). Definitive agreement relating to this facility was executed on December 3, 2014 and the amount of $32,480
was drawn in December 2014, in anticipation of the delivery of the Indomitable to the Company on January 8, 2015 (Note 20). The
facility will be repaid in 20 equal, consecutive, quarterly principal payments of $537.2 each, with the first becoming due and payable
three months from the drawdown date and a balloon installment of $21,737 payable simultaneously with the 20th installment, which is
due in December 2019. The BNP $32,480 Facility is secured by a first priority mortgage over the financed vessel and general and
specific assignments and is guaranteed by Star Bulk Carriers Corp.
k)
Excel Vessel Bridge Facility (Note 3 and Note 20):
On August 19, 2014, the Company, through Unity Holdings LLC (“Unity”), a fully owned subsidiary, entered into a $231,000 Senior
Secured Credit Agreement, among Unity, as Borrower, the initial lenders named therein, as Initial Lenders, affiliates of Oaktree and
Angelo Gordon as Lenders, and Wilmington Trust National Association, as Administrative Agent. The Company has used borrowings
under the Excel Vessel Bridge Facility to fund portion of the cash consideration for the Excel Vessels. The Excel Vessel Bridge
Facility is secured (i) by a first priority mortgage on all the Excel Vessels, except those that have been refinanced by the DNB
$120,000 Facility and the Citi Facility (see below o) and r)) and financed by the DVB $24,750 Facility (see below l)); and (ii) by a
second priority mortgage on those vessels financed by the Excel Vessel CiT Facility (see below m). The Excel Vessel Bridge Facility
matures in February 2016, with mandatory prepayments of $6,000, each due in March, June and September 2015. Unity, Star Bulk,
and each individual vessel-owning subsidiary of Unity are guarantors under the Excel Vessel Bridge Facility. As of December 31,
2014, 28 of the Excel Vessels had been delivered to the Company, and an amount of $195,914 had been drawn under the Excel Vessel
Bridge Facility, of which an amount of $139,753 was prepaid from proceeds from the Citi Facility and the DNB $120,000 Facility
(discussed below), with such prepayment being applied in direct order of maturity according to the provisions of the Excel Vessel
Bridge Facility (Note 20f).
As of December 31, 2014, the classification of the Excel Vessel Bridge Facility, in the accompanying balance sheet was made
according to the repayment schedules of the Citi Facility and DNB $120,000 Facility.
F-36
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
Long-term debt- (continued):
l)
DVB $24,750 Facility:
On October 31, 2014, as part of the Excel Transactions, the Company acquired 100% of the equity interests of Christine Shipco LLC,
which is the owner of the vessel Christine (tbr Star Martha), one of the 34 Excel Vessels. In order to finance this acquisition, the
Company entered into a credit facility with DVB Bank SE, Frankfurt (the “DVB $24,750 Facility”). Definitive documentation for the
DVB $24,750 Facility was signed on October 30, 2014, and on October 31, 2014 the Company drew $24,750 to pay Excel the related
cash consideration. The DVB $24,750 Facility will be repaid in 24 consecutive, quarterly principal payments of $900 for each of the
first four quarters and of $450 for each of the remaining 20 quarters, with the first becoming due and payable three months from the
drawdown date, and a balloon payment of $12,150 payable simultaneously with the last quarterly installment, which is due in
October 2020. The DVB $24,750 Facility is secured by a first priority pledge of the membership interests of the Christine Shipco LLC
and general and specific assignments and is guaranteed by Star Bulk Carriers Corp.
m)
Excel Vessel CiT Facility:
On December 9, 2014, the Company entered into a new credit facility with CiT Finance LLC (the “Excel Vessel CiT Facility”) for an
amount up to $30,000 to partially finance the acquisition of 11 of the older Excel Vessels. The Excel Vessel CiT Facility is secured on
a first-priority basis by these 11 vessels, which the Company has acquired or is acquiring under the Excel Vessel Purchase Agreement,
consisting of nine Panamax and two Handymax vessels (the “Excel Collateral Vessels”). Pursuant to an intercreditor agreement
executed among the lenders under the Excel Vessel Bridge Facility and Excel Vessel CiT Facility, the Excel Collateral Vessels will
also secure the Excel Vessel Bridge Facility on a second-priority basis. The Company drew $30,000 under the Excel Vessel CiT
Facility on December 10, 2014. The borrowers under the Excel Vessel CiT Facility are the various vessel-owning subsidiaries that
own the Excel Collateral Vessels and Star Bulk Carriers Corp. will be the guarantor. The Excel Vessel CiT Facility will mature in
December 2016 and will be subject to quarterly amortization payments of $500, commencing on March 31, 2015, with a balloon
payment equal to the outstanding amount under the Excel Vessel CiT Facility payable simultaneously with the last quarterly
installment.
n)
Sinosure Facility:
On December 22, 2014, the Company executed a binding term sheet with Deutsche Bank (China) Co., Ltd. Beijing Branch and HSBC
Bank plc (the “Sinosure Facility”) for the financing of an aggregate amount of up to $156,453 to partially finance the construction cost
of eight of its Ultramax bulk carriers (Hulls HN NE 164 (tbn Honey Badger), HN NE 165 (tbn Wolverine), HN NE 196 (tbn Star
Antares), HN NE 197 (tbn Star Lutas), HN 1080 (tbn Kennadi), HN 1081 (tbn Mackenzie), HN 1082 (tbn Night Owl), HN 1083 (tbn
Early Bird)) (the “Sinosure Financed Vessels”), which are currently under construction by Jiangsu Yangzijiang Shipbuilding Co. Ltd
and Nantong COSCO KHI Ship Engineering Co. Ltd., with expected deliveries between February 2015 and November 2015. The
financing will be available in eight separate tranches, one for each Sinosure Financed Vessel, and will be credit insured (95%) by
China Export & Credit Insurance Corporation. The final loan documentation was signed on February 11, 2015 (Note 20). Each
tranche, which will be documented by a separate credit agreement, will mature twelve years after each drawdown and will be repaid in
48 equal and consecutive quarterly installments. The Sinosure Facility will be secured by a first priority cross collateralized mortgage
over the Sinosure Financed Vessels and general and specific assignments and will be guaranteed by Star Bulk Carriers Corp.
o)
Citi Facility:
On December 22, 2014, the Company entered into a new credit facility with Citibank, N.A., London Branch (the “Citi Facility”) to
provide financing in an amount of up to $100,000, in lieu of the Excel Vessel Bridge Facility, in connection with the acquisition of
vessels Sandra (tbr Star Pauline), Lowlands Beilun (tbr Star Despoina), Star Angie, Star Sophia, Star Georgia, Star Kamila and Iron
Kalypso (tbr Star Nina), which are seven of the Excel Vessels the Company has acquired or is acquiring (the “Citi Financed Excel
Vessels”). The first tranche of $51,477.5 was drawn on December 23, 2014, and the second tranche of $42,627.5 was drawn on
January 21, 2015. The Company used amounts drawn under the Citi Facility to repay portion of the Excel Vessel Bridge Facility in
respect of those Citi Financed Excel Vessels. The Citi Facility matures on December 30, 2019. The Citi Facility will be repaid in 20
equal, consecutive, quarterly principal payments of $3,388, with the first installment due on March 30, 2015, with a balloon
installment of $26,349 payable simultaneously with the 20th quarterly installment. The Citi Facility is secured by a first priority
mortgage over the Citi Financed Excel Vessels and general and specific assignments and is guaranteed by Star Bulk Carriers Corp.
F-37
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
Long-term debt- (continued):
p)
Heron Vessels Facility:
In November 2014, the Company entered into a secured term loan agreement with CiT Finance LLC, in the amount of up to $25,311
(the “Heron Vessels Facility”), in order to partially finance the acquisition cost of the two Heron Vessels, Star Gwyneth and Star
Angelina. The drawdown of the financed amount incurred in December 2014, when the Company took delivery of the Heron Vessels.
The facility matures on June 30, 2019, and is repayable in 19 equal consecutive, quarterly principal payments of $744.4 (with the first
becoming due and payable on December 31, 2014), with a balloon installment payable at maturity equal to the then outstanding
amount of the loan. The facility is secured by a first priority mortgage over the financed vessels and general and specific assignments
and is guaranteed by Star Bulk Carrier Corp.
q)
DNB $120,000 Facility:
On December 29, 2014, the Company entered into an agreement with DNB Bank ASA as facility agent, security agent account bank
and bookrunner, DNB Bank ASA, NIBC Bank N.V and Skandinaviska Enskilda Banken AB as original lenders, mandated lead
arrangers and hedge counterparties (the “DNB $120,000 Facility”), to provide financing for up to $120,000, in lieu of the Excel Vessel
Bridge Facility, in connection with the acquisition of vessels Star Nasia, Iron Beauty (tbr Star Monisha), Star Eleonora, Star Danai,
Star Renee, Star Markella, Star Laura, Star Moira, Ore Hansa (tbr Star Jennifer), Star Mariella, Star Helena and Star Maria, which
are twelve of the Excel Vessels the Company has acquired (the “DNB Financed Excel Vessels”). The Company drew $88,275 on
December 30, 2014, $9,515 in January, 2015, and $9,507 in February 2015 (Note 20). The Company used amounts drawn under the
DNB $120,000 Facility to repay portion of the amounts drawn under the Excel Vessel Bridge Facility relating to the DNB Financed
Excel Vessels. The DNB $120,000 Facility matures in December 2019 and is repayable in 20 equal, consecutive, quarterly principal
payments of $4,374, with the first installment due in March 2015, and a balloon installment of $29,160 payable simultaneously with
the 20th installment. The DNB $120,000 Facility is secured by a first priority mortgage over the DNB Financed Excel Vessels and
general and specific assignments and is guaranteed by Star Bulk Carriers Corp.
r)
Issuance of the 8.00% 2019 Notes:
On November 6, 2014, the Company issued $50,000 aggregate principal amount of 8.00% Senior Notes due 2019 (the “2019 Notes”).
The net proceeds were $48,425. The 2019 Notes mature in November 2019 and are senior, unsecured obligations of Star Bulk Carriers
Corp. The 2019 Notes are not guaranteed by any of the Company’s subsidiaries.
The 2019 Notes bear interest at a rate of 8.00% per year, payable quarterly in arrears on each February 15, May 15, August 15 and
November 15, commencing on February 15, 2015.
The Company may redeem the 2019 Notes, in whole or in part, at any time on or after November 15, 2016 at a redemption price equal
to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to
November 15, 2016, the Company may redeem the 2019 Notes, in whole or in part, at a price equal to 100% of their principal amount
plus a make-whole premium and accrued and unpaid interest to the date of redemption. In addition, the Company may redeem the
2019 Notes in whole, but not in part, at any time, at a redemption price equal to 100% of their principal amount to be redeemed, plus
accrued and unpaid interest to, but excluding, the redemption date, if certain events occur involving changes in taxation.
The indenture governing the 2019 Notes contains customary terms and covenants, including that upon certain events of default
occurring and continuing, either the trustee or the holders of not less than 25% in aggregate principal amount of the 2019 Notes then
outstanding may declare the entire principal amount of all the 2019 Notes plus accrued interest, if any, to be immediately due and
payable. Upon certain change of control events, the Company is required to offer to repurchase the 2019 Notes at a price equal to
101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of redemption. If the Company
receives net cash proceeds from certain asset sales and does not apply them within a specified deadline, the Company will be required
to apply those proceeds to offer to repurchase the 2019 Notes at a price equal to 101% of their principal amount, plus accrued and
unpaid interest to, but not including, the date of redemption.
The Company’s outstanding credit facilities generally contain customary affirmative and negative covenants, on a subsidiary level,
including limitations to:
•
•
incur additional indebtedness, including the issuance of guarantees;
create liens on its assets;
F-38
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
•
Long-term debt- (continued):
change the flag, class or management of its vessels or terminate or materially amend the management agreement relating to each
vessel;
•
sell its vessels;
• merge or consolidate with, or transfer all or substantially all its assets to, another person; or
•
enter into a new line of business.
In addition, under certain of its loan agreements, the Company is not allowed to pay dividends or distributions until the later of i)
March 31, 2015 and ii) the repayment of the deferred amounts under Commerzbank $120,000 and $26,000 facilities. In any event, the
Company may not pay dividends or distributions if an event of default has occurred and is continuing or would result from such
dividend or distribution.
Furthermore, the Company’s credit facilities contain financial covenants requiring the Company to maintain various financial ratios,
including:
•
•
•
•
•
a minimum percentage of aggregate vessel value to loans secured;
a maximum ratio of total liabilities to market value adjusted total assets;
a minimum EBITDA to interest coverage ratio;
a minimum liquidity; and
a minimum equity ratio
As of December 31, 2014, the Company was required to maintain minimum liquidity, not legally restricted, of $35,400, which is
included within “Cash and cash equivalents” in the accompanying 2014 balance sheet. In addition, as of December 31, 2013 and 2014,
the Company was required to maintain minimum liquidity, legally restricted, of $2,482 and $13,972, respectively, which is included
within “Restricted cash” in the accompanying balance sheets. An amount of $9,250 representing minimum liquidity, not legally
restricted, as of December 31, 2013, was initially classified as “Restricted cash” in the prior year financial statements. The Company
has reclassified this amount from “Restricted cash” to “Cash and cash equivalents” in the accompanying 2013 balance sheet.
As of December 31, 2013 and 2014, the Company was in compliance with the applicable financial and other covenants contained in
its debt agreements, including the Excel Vessel Bridge Facility and the 2019 Notes.
The weighted average interest rate related to the Company’s existing debt (including the margin) as of December 31, 2012, 2013 and
2014 was 2.92 %, 3.34% and 3.53 %, respectively.
The principal payments required to be made after December 31, 2014, for all the then outstanding debt, are as follows:
Years
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2020 and thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total (including Excel Vessel Bridge Facility and 8.00% 2019 Notes) . . . . . . .
Excluding Excel Vessel Bridge Facility presented separately in the balance sheet
(Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excluding 8.00% 2019 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term debt – current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term debt – non-current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
96,485
229,040
69,894
126,895
283,366
56,113
861,793
56,161
50,000
755,632
88,317
667,315
$
$
$
$
$
F-39
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
9.
Long-term debt- (continued):
At December 31, 2014, all of the Company’s owned vessels, having a net carrying value of $1,441,086, were subject to first-priority
mortgages as collateral to its loan facilities and eight of the Company’s owned vessels, having a net carrying value of $57,967 were
also subject to second-priority mortgages as collateral to its loan facilities, as described in (k) and (m) above.
All of the Company’s bank loans bear interest at LIBOR plus a margin. The amounts of “Interest and finance costs” included in the
accompanying consolidated statements of operations are analyzed as follows
Interest on long term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Interest capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments of interest rate swap loss transferred to
Interest and finance costs from Other comprehensive loss . . . . . . . . . . . . .
Amortization of deferred finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other bank and finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
$ 7,167
—
—
502
169
$ 7,838
$
2013
6,786
(633)
—
522
139
6,814
$
$
$
2014
15,362
(7,838)
1,055
681
315
9,575
In connection with the partial prepayment of Excel Vessel Bridge Facility, an amount of $652 of unamortized deferred finance
charges, was written off and included under “Loss on debt extinguishment” in the accompanying consolidated statement of operations
for the year ended December 31, 2014.
10.
Preferred, Common Stock and Additional paid in capital:
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, 2013 and 2014 the Company
had not issued any preferred stock.
Common Stock: Star Bulk was authorized to issue 100,000,000 registered common shares, 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 is 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.
Each outstanding share of the Company’s 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 ratably receive all dividends, if any, declared by the Company’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 the
Company’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 the Company may
issue in the future.
15-for-1 reverse stock split: Effective as of the opening of trading on October 15, 2012, the Company affected a one-for-fifteen
reverse stock split of its common shares. The reverse stock split was approved by the Company’s shareholders at the Company’s 2012
Annual General Meeting of Shareholders, held on September 7, 2012. The reverse stock split reduced the number of the Company’s
common shares from 81,012,403 to 5,400,810 and affected all issued and outstanding common shares. No fractional shares were
issued in connection to the reverse split. Shareholders who would otherwise hold a fractional share of the Company’s common stock
received a cash payment in lieu of such fractional share.
Share re-purchase Plan: On February 23, 2010, the Company’s Board of Directors adopted a 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 would be
cancelled and removed from the Company’s share capital.
On August 10, 2011, the Company’s Board of Directors decided to reinstate the share repurchase plan with the limitation of acquiring
up to a maximum amount of $3,000 of Company’s shares, at a maximum price of $19.5 per share. On November 9, 2011 the
Company’s Board of Directors extended the duration of the share repurchase plan until December 31, 2012.
F-40
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
10.
Preferred, Common Stock and Additional paid in capital – (continued):
During the year ended December 31, 2012, the Company repurchased and cancelled 61,730 treasury shares, which were repurchased
in the open market for an aggregate purchase price of $860, pursuant to the terms of Company’s existing share repurchase plan. As of
December 31, 2012, the Company had $2,140 of remaining capacity under the plan.
On July 25, 2013, pursuant to a rights offering, approved by the Company’s Board of Directors in April 2013, the Company issued
15,338,861 shares of common stock, which resulted in net proceeds of $77,898 after deducting offering expenses of $2,167. The
proceeds were primarily used for orders for fuel-efficient dry bulk vessels with some of the proceeds being reserved for working
capital and general corporate purposes.
On October 7, 2013, the Company offered 8,050,000 common shares, in a primary underwritten public offering price of $8.80 per
share less underwriters’ discount. The sale of shares by the Company resulted in net proceeds of $68,124 after deducting offering
expenses of $2,716. The Company used the net proceeds from this offering for the partial funding of newbuilding vessels, for vessel
acquisitions, and for general corporate purposes.
As disclosed in Note 14 below, during the year ended December 31, 2013, the Company issued: (i) 239,333 common shares in
connection with its 2013 Equity Incentive Plan; (ii) 12,000 common shares, which were granted to a former director of the Company;
and (iii) 18,667 common shares to the former Chief Executive Officer of the Company, representing the second and the third
installments of his minimum guaranteed incentive award in accordance with his consultancy agreement (Note 3).
In July 2014, the Company issued as consideration 54,104,200 common shares in the July 2014 Transactions, consisting of 48,395,766
common shares for the Merger, 3,592,728 common shares for the acquisition of the Pappas Companies and 2,115,706 common shares
as partial consideration for the acquisition of the Heron Vessels (Note 1).
As disclosed in Note 3 above, 22,598 common shares were issued during the year ended December 31, 2014, as part of the
consideration for the acquisition of 33% of the total outstanding common stock of Interchart.
As disclosed in Note 14 below, during the year ended December 31, 2014, the Company issued: (i) 394,167 common shares in
connection with its 2014 Equity Incentive Plan; (ii) 8,000 common shares, which were granted to certain directors of the Company;
(iii) 9,333 common shares to the Company’s former Chief Executive Officer, representing the first installment of his minimum
guaranteed incentive award in accordance with his consultancy agreement; and (iv) 168,842 the Company’s former Chief Executive
Officer pursuant to a termination agreement dated July 31, 2014 (Note 3).
In August 2014, the Company agreed to issue the Excel Vessel Share Consideration of 29,917,312 common shares under the terms of
the Excel Transactions. As of December 31, 2014, the Company had issued 25,659,425 common shares as part of the Excel Vessel
Share Consideration (Note 1 and Note 5).
11.
Other operational gain:
For the year ended December 31, 2012, other operational gain totaled $3,507, mainly consisting of $2,514 and $157, which
represented non-recurring revenues from the settlement of two commercial claims (Note 17.1 (a) and (b)) and a gain from a hull &
machinery claim amounting to $812.
For the year ended December 31, 2013, other operational gain totaled $3,787, mainly consisting of $2,500 and $177 paid to the
Company, in connection with the settlement of two commercial claims (Note 17.1 (a) and (b)) and $1,030 regarding a gain from a hull
and machinery claim.
On June 28, 2013, the Company received a letter from the receivers of STX Pan Ocean Co. Ltd., or STX, terminating the charter
agreement for the vessel Star Borealis, effective immediately. Star Borealis was on time charter at an average gross daily charter rate
of $24.75 for the period from September 11, 2011 until July 11, 2021. On September 11, 2014, Star Bulk agreed the settlement of a
claim for damages and due hire brought by its subsidiary, Star Borealis LLC (“Star Borealis”) arising from the repudiation of the long-
term time charter by charterer STX, which claim had been filed with the Seoul Central District Court, Korea, (the “Settled Claim”).
Star Borealis negotiated, sold and assigned the rights to the Settled Claim to an unrelated third party for consideration of $8,016,
which was received on October 3, 2014. The Company recorded in 2014 a gain of approximately $9,377 including the extinguishment
of a $1,361 liability related to the amount of fuel and lubricants remaining on board of the vessel Star Borealis at the time of the
charter repudiation.
In addition, other operational gain for the year ended December 31, 2014, includes $456 relating to a gain from a hull and machinery
insurance claim and a gain from a protection and indemnity claim, as well as $170 relating to a rebate from the Company’s previous
manning agent.
F-41
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
12.
Other operational loss:
On September 29, 2010, the Company entered into an agreement with a third party to sell 45% of its interests in any future proceeds
related to the recovery of certain of the commercial claims for consideration of $5,000 (Note 17.1. (a)). During the year ended
December 31, 2012, the Company came to a legal settlement over a legal case included in the above agreement and paid the third
party 45% of the proceeds from that settlement. As a result, for the year ended December 31, 2012, other operational loss of $1,226
mainly consists of $1,131 for the expense incurred by the Company towards the above third party.
Similarly, for the year ended December 31, 2013, other operational loss totaled $1,125, representing the expense incurred by the
Company to a third party in connection to the settlement of a commercial claim, based on the same agreement.
For the year ended December 31, 2014, other operational loss totaled $94.
13.
(Loss)/ Earnings per share:
All shares issued (including the restricted shares issued under the Company’s equity incentive plan) are the Company’s common stock
and have equal rights to vote and participate in dividends. The restricted shares issued under the Company’s equity incentive plans are
subject to forfeiture provisions set forth in the applicable award agreement. The calculation of basic earnings per share does not
consider the non-vested shares as outstanding until the time-based vesting restriction has lapsed. For the years ended December 31,
2012 and 2014, and on the basis that the Company incurred losses, the effect of 18,667 and 394,167 non-vested shares, respectively,
would be anti-dilutive, and “Basic loss per share” equals “Diluted loss per share”. The weighted average diluted common shares
outstanding for the year ended December 31, 2013 included the effect of 65,045 incremental shares assumed to be issued under the
treasury stock method, excluding 3,404 incremental shares due to their anti-dilutive effect.
The Company calculates basic and diluted losses per share as follows:
(Loss) / Income:
Net (loss) / income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(314,521)
$
1,850
$
(11,723)
2012
2013
2014
Basic (loss) / earnings per share:
Weighted average common shares outstanding, basic . . . . . . . . . . . . . . . . . . . . . . .
Basic (loss) / earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,393,131
(58.32)
$
14,051,344
0.13
$
58,441,193
(0.20)
$
Effect of dilutive securities:
Dillutive effect of non vested shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding, diluted . . . . . . . . . . . . . . . . . . . . .
—
5,393,131
65,045
14,116,389
—
58,441,193
Diluted (loss) / earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(58.32)
$
0.13
$
(0.20)
14.
Equity Incentive Plan:
On March 21, 2013, the Company’s Board of Directors adopted the 2013 Equity Incentive Plan and reserved for issuance 240,000
common shares thereunder. 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 an interest in the success of the Company, maximize their performance and enhance the long-term performance of
the Company. As of December 31, 2014, all of the respective shares have been granted and vested.
On March 21, 2013, 239,333 restricted common shares were granted to certain directors, officers, employees of the Company, the
respective shares were issued on September 11, 2013, and vested on March 21, 2014. Additionally, on March 21, 2013, 12,000
restricted common shares were granted to a Company’s former director, the respective shares vested immediately and were issued on
June 27, 2013. The fair value of each share was $6.46 and was determined by reference to the closing price of the Company’s
common stock on the grant date.
On February 20, 2014, the Company’s Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”) and reserved for
issuance 430,000 common shares thereunder. The terms and conditions of the 2014 Plan are substantially similar to the terms and
conditions of Company’s previous equity incentive plans.
F-42
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
14.
Equity Incentive Plan - (continued):
On February 20, 2014, 394,167 restricted common shares were granted to certain directors, officers and employees of the Company,
which will vest on March 20, 2015. Additionally, on February 20, 2014, 8,000 restricted common shares were granted to certain
directors of the Company, which vested immediately. The fair value of each share was $10.86, based on the closing price of the
Company’s common shares on the grant date. The shares were issued in May 2014 along with 9,333 common shares to the
Company’s former Chief Executive Officer, representing the first installment of his minimum guaranteed incentive award in
accordance with his consultancy agreement (Note 3).
On August 4, 2014, the Company issued an aggregate of 168,842 common shares to its former Chief Executive Officer and current
Non-Executive Chairman, in accordance with the terms of an agreement to terminate his consultancy agreement, effective July 31,
2014 (Note 3). The fair value of each share was $10.71, based on the closing price of the Company’s common stock on the grant date,
the date of the release agreement. In addition, as a result of the termination agreement, the second and the third installments of his
minimum guaranteed incentive award under his consultancy agreement of 9,333 and 9,334, which would vest on May 3, 2015 and
2016, respectively, were cancelled.
On July 11, 2014, 15,000 common shares were granted to two of the Company’s directors and vested on the same date. The Company
plans to issue the respective shares in 2015. The fair value of each share was $12.03, based on the closing price of the Company’s
common shares on the grant date.
Vesting of all non-vested shares is 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 use such non-vested shares for voting until these shares vest or
exercise any right as a shareholder of these shares. The issued and non-vested shares, however, pay dividends as declared. The
dividends of these shares are forfeitable. For the years ended December 31, 2012, 2013 and 2014, the Company paid no dividends on
non-vested shares.
The Company expects that there will be no forfeitures of non-vested shares. The shares which are issued in accordance with the terms
of the Company’s equity incentive plans or awards remain restricted until they vest. For the years ended December 31, 2012, 2013 and
2014, the stock based compensation cost was $1,546, $1,488 and $5,834, 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, 2012, 2013 and 2014, and the movement during
these years, is presented below.
Unvested as at January 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested as at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested as at January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested as at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested as at January 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelation of shares due to termination agreement with former CEO. . . . . . . . . . . . . . . . . . . . . . . . .
Unvested as at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of shares
28,000
90,667
(100,000 )
18,667
18,667
279,333
(21,333 )
276,667
276,667
586,009
(449,842 )
(18,667 )
394,167
Weighted
Average Grant
Date Fair
Value
$
$
$
$
$
$
36.75
13.50
15.67
36.75
36.75
6.43
19.71
7.46
7.46
10.85
8.94
6.20
10.86
F-43
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
14.
Equity Incentive Plan - (continued):
As of December 31, 2014, there was $858 of total unrecognized compensation cost related to non-vested stock-based compensation
arrangements granted under the Company’s equity incentive plans or awards. The cost is expected to be recognized over a weighted-
average period of 0.22 years. The total fair value of shares vested during the years ended December 31, 2012, 2013 and 2014 was
$1,386, $136 and $5,773, respectively.
15.
Accrued liabilities
The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vessel operating and voyage expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan interest and financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.
Income taxes:
a)
Taxation on Marshall Islands Registered Companies
$
2013
255
159
262
1,734
1,091
$ 3,501
$
2014
432
1,149
350
8,477
3,330
$ 13,738
Under the laws of the countries of the shipowning companies’ incorporation and/or vessels’ registration, the shipowning 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. In addition, effective January 1, 2013,
each foreign flagged vessel managed in Greece by Greek or foreign ship management companies is subject to Greek tonnage tax,
under the laws of the Hellenic Republic. The technical managers of the Company’s vessels , which are established in Greece under
Greek Law 89/67, are responsible for the filing and payment of the respective tonnage tax on behalf the Company. These tonnage
taxes for 2013 and 2014 amounted to $668 and $1,260, respectively, and have also 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 for
the taxable years 2012, 2013 and 2014, 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 (IRC) 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 of all classes of stock of the corporation entitled to vote and of
the total value of the stock of the corporation, are listed on the market and (ii) (A) such class of stock is traded on the market, other
than in minimal quantities, on at least 60 days during the taxable year or one sixth of the days in a short taxable year; and (B) the
aggregate number of shares of such class of stock traded on such market during the taxable year must be at least 10% of the average
number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year.
Notwithstanding the foregoing, the treasury regulations provide, in pertinent part, that a class of the Company’s stock will not be
considered to be “regularly traded” on an established securities market for any taxable year in which 50% or more of the vote and
value of the outstanding shares of such class are 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 the vote and value of such class of the Company’s
outstanding stock, (“5% Override Rule”).
F-44
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
17.
Commitments and Contingencies:
1)
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. The Company’s vessels are covered for pollution in the amount of $1
billion per vessel per incident, by the Protection and Indemnity (P&I) Association in which the Company’s vessels are entered. The
Company’s vessels are subject to calls payable to their P&I Association and may be subject to supplemental calls which are based on
estimates of premium income and anticipated and paid claims. Such estimates are adjusted each year by the Board of Directors of the
P&I Association until the closing of the relevant policy year, which generally occurs within three years from the end of the policy
year. Supplemental calls, if any, are expensed when they are announced and according to the period they relate to. The Company is
not aware of any supplemental calls in respect of any policy years other than those that have already been recorded in its consolidated
financial statements.
a.
In 2010, the Company commenced arbitration proceedings against Ishhar Overseas FZE of Dubai (“Ishhar”) for repudiatory
breach of the charter parties due to the nonpayment of charter hires related to Star Epsilon and Star Kappa. The Company
sought damages for repudiations of the charter parties due to early redelivery of the vessels as well as unpaid hire of $1,949.
The Company pursued an interim award for such nonpayment of charter hire and an award for the loss of charter hire for the
remaining period under the charter. Claim submissions were filed. As of December 31, 2011, the Company determined that
the above amount was not recoverable and recognized a provision for doubtful receivables of $1,949.
Subsequently, a conditional settlement agreement was signed on September 5, 2012, under which the Company agreed to
receive a cash payment of $5,000 in seventeen monthly installments. The first installment of $500 was received upon the
execution of the settlement agreement and the next sixteen monthly installments, varying between $250 and $500, were
received on the last day of each month beginning from September 30, 2012 and ending on December 31, 2013.
During the years ended December 31, 2012 and 2013, the Company received $2,514 and $2,500, respectively, under the
settlement agreement, which is included under “Other operational gain” in the accompanying consolidated statements of
operations for the years ended December 31, 2012 and 2013 (Note 11).
b.
In February 2011, Korea Line Corporation (“KLC”), charterer at the time of the vessels Star Gamma and Star Cosmo,
commenced rehabilitation proceedings in Seoul, Korea. Under the rehabilitation plan approved by KLC’s creditors on
October 14, 2011, the Company was entitled to receive $6,839, of which 37% is to be paid in cash over a period of ten years
and the remaining 63% shall be converted into KLC’s shares at a rate of one common share of KLC with par value of KRW
5,000 (approx. $0.0045 using the exchange rate as of December 31, 2014, KRW/usd 0.00091) for each KRW 100,000
(approx. $0.09 using the exchange rate as of December 31, 2014, KRW/usd 0.00091) of claim. Based on the terms of the
rehabilitation plan, the shares of KLC will be restricted from trading for six months. The Company does not expect that it
will have either control or significant influence over KLC as a result of the shares that it is entitled to receive under the terms
of the rehabilitation plan. In addition, the Company entered into a direct agreement with KLC and received $172 in October
2011 and $172 in January 2013, as part of the due hire for Star Gamma. Finally, the Company entered into two tripartite
agreements with KLC and the sub-charterers of the vessels Star Gamma and Star Cosmo, under which the Company received
$86 from the Star Gamma sub-charter in December 2011 and $121 in March 2012 from the Star Cosmo sub-charterer. As of
December 31, 2011, the Company determined that $498 of receivables were not recoverable due to the long term time period
of KLC’s rehabilitation plan and the uncertainty surrounding the continuation of KLC’s operations and recognized a
corresponding provision.
F-45
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
17.
Commitments and Contingencies - (continued):
1)
Legal proceedings - (continued):
On November 19, 2012, the Company received 11,502 shares (46,007 shares before split) of KLC as part of the
rehabilitation plan described above for the vessel Star Gamma, which shares were sold the same date. The cash
proceeds from the sale of the respective shares were $144. In December 2012, the Company also received $12 and
$1 in cash, for Star Gamma and Star Cosmo, respectively, pursuant to the terms of the rehabilitation plan. The total
amount of $157 is included under “Other operational gain” in the consolidated statements of operations for the year
ended December 31, 2012 (Note 11). In October 2013 the Company received $167 and $10 for Star Gamma and
Star Cosmo, respectively, pursuant to the terms of the rehabilitation plan, and the total amount of $177 is included
under “Other operational gain” in the consolidated statements of operations for the year ended December 31, 2013
(Note 11). These amounts have been received as early payment of the cash component of the rehabilitation plan. The
next tranche of 718 shares for the vessel Star Cosmo was released from lock up on June 4, 2013 and as of December
31, 2014, the shares had not been sold. In addition, in November 2013, 24,196 and 983 shares were issued pursuant
to the terms of the rehabilitation plan for Star Gamma and Star Cosmo, respectively, all of which had not been sold
up to December 31, 2014.
On July 13, 2011, Star Cosmo was retained by the port authority in the Spanish port of Almeria and was released on
July 16, 2011. According to the port authority, the vessel allegedly discharged oily water while sailing in Spanish
waters in May 2011, more than two months before being retained, and related records were allegedly deficient.
Administrative investigation commenced locally. The Company posted a cash collateral of (cid:31)340,000 (approx. $415,
using the exchange rate as of December 31, 2014, eur/usd 1.22) to guarantee the payment of fines that may be
assessed in the future, and the vessel was released. The cash collateral of (cid:31)340,000 was released to the Company in
March 2012, after being replaced by a P&I Letter of undertaking. The fines were previously reduced by the Spanish
administrative authorities to (cid:31)260,000 (approx. $317, using the exchange rate as of December 31, 2014, eur/usd
1.22). Except for an amount of (cid:31)60,000 (approx. $73.2, using the exchange rate as of December 31, 2014, eur/usd
1.22), which was irrevocably adjudicated in March 2015, the remaining amount of this fine remains subject to
adjudication. Up to $1 billion of the liabilities associated with the individual vessel’s actions, mainly for sea
pollution, are covered by the P&I Club Insurance. The Company has not accrued any amount for this case.
In March 2013, the Company commenced arbitration proceedings against Hanjin HHIC-Phil Inc., the shipyard that
constructed the Star Polaris, relating to an engine failure the vessel experienced in Korea. This resulted in 142 off-
hire days and the loss of $2,343 in revenues. The Company is pursuing the compensation for the cost of the repairs
and the loss of revenues and an arbitration hearing is scheduled in July 2015.
On June 28, 2013, the Company received a letter from the receivers of STX Pan Ocean Co. Ltd., or STX,
terminating the charter agreement for the vessel Star Borealis. Star Borealis was on time charter at an average gross
daily charter rate of $24.75 for the period from September 11, 2011 until July 11, 2021. On September 11, 2014,
Star Bulk agreed the settlement of a claim for damages and due hire brought by its subsidiary, Star Borealis LLC
arising from the purported repudiation of the Star Borealis charter agreement by charterer STX (the “Settled
Claim”). Star Borealis LLC negotiated, sold and assigned the rights to the Settled Claim to an unrelated third party
for $8,016, which was received on October 3, 2014. The Company recorded in 2014 a gain of approximately $9,377
including the extinguishment of a $1,361 liability related to the amount of fuel and lubricants remaining on board of
Star Borealis at the time of the charter repudiation.
On October 23, 2014, a purported shareholder (the “Plaintiff”) of the Company filed a derivative and putative class
action lawsuit in New York state court against the Company’s Chief Executive Officer, members of its Board of
Directors and several of its shareholders and related entities. The Company has been named as a nominal defendant
in the lawsuit. The lawsuit alleges that the acquisition of Oceanbulk and purchase of several Excel Vessels were the
result of self-dealing by various defendants and that the Company entered into the respective transactions on unfair
terms. The lawsuit further alleges that, as a result of these transactions, several defendants’ interests in the Company
have increased and that the Plaintiff’s interest in the Company has been diluted. The lawsuit also alleges that the
Company’s management has engaged in other conduct that has resulted in corporate waste. The lawsuit seeks
cancellation of all shares issued to the defendants in connection with the acquisition of Oceanbulk, unspecified
monetary damages, the replacement of some or all members of the Company’s Board of Directors and its Chief
Executive Officer, and other relief. The Company believes the claims are completely without merit, denies them,
and intends to vigorously defend against them in court.
c.
d.
e.
f.
F-46
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
17.
Commitments and Contingencies - (continued):
1)
Legal proceedings - (continued):
On November 24, 2014, the Company and the other defendants removed the action to the United States District
Court for the Southern District of New York. The court has issued a case management plan pursuant to which all
fact discovery must be completed by October 2, 2015, and all expert discovery must be completed by November 16,
2015. No date for trial has been set. On March 4, 2015, the Company and the other defendants moved to dismiss
the complaint. Briefing is underway and is expected to be completed by May 8, 2015.
2)
Other contingencies:
Contingencies relating to Heron
Following the completion of the Merger, Oceanbulk Shipping became a wholly owned subsidiary of the Company.
As further discussed in Note 1, Oceanbulk Shipping owned the Heron Convertible Loan, which was convertible into
50% of Heron’s equity. After the conversion of the loan, on November 5, 2014 (Note 1), Heron is a 50-50 joint
venture between Oceanbulk Shipping and ABY Group Holding Limited, and Oceanbulk Shipping shares joint
control over Heron with ABY Group Holding Limited. Based on the applicable related agreements, neither party
will entirely control Heron. In addition, any operational and other decisions with respect to Heron will need to be
jointly agreed between Oceanbulk Shipping and ABY Group Holding Limited. As of December 31, 2014, all vessels
previously owned by Heron have been either sold or distributed to its equity holders, with the exception of one
which was sold in March 2015. While Oceanbulk Shipping and ABY Group Holding Limited intend that Heron
eventually will be dissolved shortly after the last vessel is sold and local authorities permit, until that occurs,
contingencies to the Company may arise. However, the pre-transaction investors in Heron will effectively remain as
ultimate beneficial owners of Heron, until Heron is dissolved on the basis that, according to the Merger Agreement,
any cash received from the final liquidation of Heron will be transferred to the Sellers. As further disclosed in Note
9, the Company entered into a loan agreement with CiT Finance LLC for an amount of $25,311, to finance the cash
portion of the acquisition of the Heron Vessels and drew this amount in December 2014, upon the acquisition of the
Heron Vessels. As of December 31, 2014, the Company had an outstanding payable of $1,689 to the Sellers which is
included under “Due to related parties” in the accompanying balance sheet as of December 31, 2014.
3)
Lease commitments:
The following table sets forth inflows or outflows, related to the Company’s leases, as at December 31, 2014.
+ inflows/ - outflows
Future, minimum, non-cancellable charter
revenue (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,892 $ 65,327 $
(108)
Office rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bareboat capital leases - upfront hire &
(948)
Twelve month periods ending December 31,
Total
2015
2016
2017
2018
2019
2020 and
thereafter
8,565 $
(108)
— $
— $
(108)
(105)
— $
(97)
—
(422)
handling fees . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Bareboat commitments charter hire (2) . . . .
(43,231) (370,036)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (501,813) $ 18,670 $ (26,476) $ (40,112) $ (40,109) $ (43,328) $ (370,458)
(1,980)
(9,563) (32,953)
(38,966)
(535,791)
—
(40,004)
—
(40,004)
(36,986)
—
(1) The amounts represent the minimum contractual charter revenues to be generated from the existing, as of December 31, 2014, non-cancellable time and freight
charter until their expiration, net of address commission, assuming no off-hire days other than those related to scheduled interim and special surveys of the vessels.
(2) The amounts represent the Company’s commitments under the bareboat lease arrangements representing the upfront hire fee and the charter hire. The bareboat
charter hire is comprised of fixed and variable portion, the variable portion is calculated based on the 6-month LIBOR of 0.3628%, as of December 31, 2014
(please refer to Note 6).
F-47
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
18.
Voyage and Vessel operating expenses:
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
Voyage expenses
Port charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bunkers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions – third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions – related parties (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chartered-in vessel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total voyage expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2013
2014
$
2,484
10,788
947
1,134
4,050
195
$ 19,598
$ 1,455
4,338
867
773
—
116
$ 7,549
$ 5,132
33,146
1,902
1,997
—
164
$ 42,341
Vessel operating expenses
Crew wages and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance, repairs, spares and stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lubricants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tonnage taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Upgrading expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total vessel operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,498
2,655
6,779
3,046
169
19
666
$ 27,832
$ 14,355
2,968
5,772
2,339
797
205
651
$ 27,087
$ 29,449
4,561
9,415
3,901
1,360
3,167
1,243
$ 53,096
19.
Fair value measurements:
The guidance for fair value measurements applies to all assets and liabilities that are being measured and reported on a fair value
basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The same guidance
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.
In addition, ASC 815, “Derivatives and Hedging” requires companies to recognize all derivative instruments as either assets or
liabilities at fair value in the statement of financial position.
Fair value on a recurring basis
19.1
Freight derivatives:
The Company occasionally trades in the freight derivatives (FFAs and freight options) markets in order to use those instruments as
economic hedge instruments to reduce the risk on specific vessels trading in the spot market, or to take advantage of short term
fluctuations in the market prices.
Dry bulk shipping freight derivatives have the following characteristics: (i) they cover periods that range from several days and
months to one year or more years; (ii) they can be based on time charter rates or freight rates on specific quoted routes; and (iii) they
are executed between two parties.
All Company’s freight derivatives, if any, are cleared transactions. FFAs are usually settled on a daily basis through the London
Clearing House. There is also a margin maintenance requirement based on marking the contract to market. Freight options are treated
as assets/liabilities until they are settled. During 2012, the Company entered into several freight derivatives, including freight options,
with a corresponding gain on freight derivative contracts for the year ended December 31, 2012 of $41, which is reflected under
“Gain/ (loss) on derivative financial instruments, net” in the accompanying consolidated statements of operations, since the Company
had not designated them as cash flow hedges for accounting purposes.
F-48
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
19.
Fair value measurements – (continued):
Fair value on a recurring basis-(continued):
19.1
Freight derivatives:
During 2013 and 2014, the Company did not enter into any freight derivatives. As of December 31, 2013 and 2014, no fair value
measurement for assets or liabilities were recognized in the Company’s consolidated balance sheets with respect to freight derivatives,
since the Company had no open positions for these types of instruments as of those dates.
19.2
Interest rate swaps:
From time to time, the Company enters into interest rate derivative contracts to manage interest costs and risk associated with
changing interest rates with respect to its variable interest loans and credit facilities.
In June 2013, the Company entered into two interest rate swap agreements with Credit Agricole Corporate and Investment Bank (the
“Credit Agricole Swaps”) to fix forward its floating interest rate liabilities under the two tranches of the Credit Agricole $70,000
Facility (Note 9c). The Credit Agricole Swaps were based on an amortizing notional amount beginning from $26,840 and $28,628, for
the Star Borealis and Star Polaris tranches, respectively, of the Credit Agricole $70,000 Facility. The Credit Agricole Swaps were
effective by November and August 2014, respectively, and mature in August and November 2018. Under the terms of the Credit
Agricole Swaps, the Company pays on a quarterly basis a fixed rate of 1.705% and 1.720% per annum, respectively, while receiving a
variable amount equal to the three month LIBOR, both applied on the notional amount of the swaps outstanding at each settlement
date.
In addition, on April 28, 2014, the Company entered into two interest rate swap agreements (the “HSH Swaps”) to fix forward 50% of
its floating interest rate liabilities for the HSH Nordbank $35,000 Facility (Note 9f). The HSH Swaps came into effect in September
2014 and mature in September 2018. Under the terms of the HSH Swaps, the Company is paying on a quarterly basis a fixed rate of
1.765% per annum, while receiving a variable amount equal to the three month LIBOR, both applied on the notional amount of the
swaps outstanding at each settlement date.
Up to August 31, 2014, because the Credit Agricole Swaps and the HSH Swaps were not designated as accounting hedges, changes in
their fair value at each reporting period up to that date, were reported in earnings as a loss under “Gain/ (loss) on derivative financial
instruments, net”. On August 31, 2014 the Company designated the Credit Agricole Swaps and the HSH Swaps as cash flow hedges in
accordance with ASC 815, “Derivatives and Hedging”. Accordingly, the effective portion of these cash flow hedges from September
1, 2014 to December 31, 2014 was reported in “Accumulated other comprehensive loss”. As of December 31, 2014 the notional
amount of these swaps was $71,562.
Finally, as part of the Merger, the Company acquired five swap agreements that Oceanbulk Shipping had entered during the third
quarter of 2013 with Goldman Sachs Bank USA (the “Goldman Sachs Swaps”). The Goldman Sachs Swaps were effective by October
2014 and mature in April 2018. Under their terms, Oceanbulk Shipping makes quarterly payments to the counterparty at fixed rates
ranging between 1.79% to 2.07% per annum, based on an aggregate notional amount beginning at $186,307 on July 1, 2015, and
increasing up to $461,264 on October 1, 2015. The counterparty makes quarterly floating rate payments at three-month LIBOR to the
Company based on the same notional amount. Upon the completion of the Merger, on July 11, 2014, the Company re-designated the
Goldman Sachs Swaps as cash flow hedges in accordance with ASC 815. Accordingly, the effective portion of these cash flow
hedges, from that date to December 31, 2014, was reported in “Accumulated other comprehensive loss”. As of December 31, 2014 the
notional amount of these swaps was $186,307.
F-49
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
19.
Fair value measurements – (continued):
Fair value on a recurring basis-(continued):
19.2
Interest rate swaps:
The amount of gain recognized in Other Comprehensive Income / (Loss) (effective portion) which is reflected in the accompanying
2014 consolidated statement of comprehensive income is analyzed as follows:
Consolidated Statement of Comprehensive Income/(Loss)
2012
2013
2014
Unrealized loss from hedging interest rate swaps recognized in Other Comprehensive
loss before reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments of interest rate swap loss transferred to Interest and
finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss from hedging interest rate swaps, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
—
$
—
$
(1,433)
—
—
$
—
—
$
1,055
(378)
The amounts of gain/ (loss) on Derivative Financial Instruments recognized in the accompanying consolidated statements of
operations are analyzed as follows:
Consolidated Statement of Operations
Gain/(loss) on derivative instruments, net
Gains/(losses) from freight derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains/(losses) from the Credit Agricole Swaps and the HSH Swaps before
hedging designation (August 31, 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ineffective portion of cash flow hedges following hedging designation . . . . . . . . . . . . . .
Total Gains/(Losses) on derivative instruments, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and finance costs
Reclassification adjustments of interest rate swap loss transferred to Interest and
finance costs from Other Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Gains/(Losses) recognized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2012
2013
2014
41
$
—
$
—
—
—
41
$
—
41
$
91
—
91
—
91
(799)
—
(799)
(1,055)
(1,854)
$
$
An amount of approximately ($91) is expected to be reclassified into earnings during the following 12-month period when realized.
In relation to the above interest rate swap agreements designated as cash flow hedges and in accordance with ASC 815 “Derivatives
and Hedging - Timing and Probability of the Hedged Forecasted Transaction,” the management of the Company considered the
creditworthiness of its counterparties and the expectations of the forecasted transactions and determined that no events have occurred
that would make the forecasted transaction not probable.
The following table summarizes the valuation of the Company’s financial instruments as of December 31, 2013 and 2014, based on
Level 2 observable inputs of the fair value hierarchy such as interest rate curves:
Significant Other
Observable Inputs (Level 2)
2014
2013
(not
designated
as cash
flow
hedges)
(designated
as cash
flow
hedges)
ASSETS
Interest rate swaps - asset position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES
Interest rate swaps - liability position (current and non-current) . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
91
91
—
—
$
$
$
$
—
—
7,732
7,732
F-50
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
19.
Fair value measurements – (continued):
Fair value on a recurring basis-(continued):
19.2
Interest rate swaps:
The carrying values of temporary cash investments, restricted cash, accounts receivable and accounts payable approximate their fair
value due to the short-term nature of these financial instruments. The fair value of long-term bank loans, bearing interest at variable
interest rates, approximates their recorded values as of December 31, 2014.
The 8.00% 2019 Notes have a fixed rate, and their estimated fair value, determined through Level 1 inputs of the fair value hierarchy
(quoted price on NASDAQ under the ticker symbol SBLKL), is approximately $37,460 as of December 31, 2014.
Fair value on a nonrecurring basis
As a result of the decline in charter rates and vessel values during the previous years and because market expectations for future rates
were low and vessel values were unlikely to increase to the high levels of 2008, the Company reviewed, in 2012, 2013 and 2014 the
recoverability of the carrying amount of its vessels. The Company’s impairment analysis for 2012 indicated that the carrying amount
of its then entire Supramax fleet and Star Sigma was not recoverable and after comparing the vessels’ fair values to their carrying
values, an impairment loss of $303,219 was recognized, which was included under “Vessel impairment loss” in the accompanying
consolidated statements of operations for the year ended December 31, 2012. The impairment analysis for the year ended December
31, 2013 and 2014, indicated that the carrying amount of the Company’s vessels was recoverable, and therefore, the Company
concluded that no impairment charge was necessary.
Details of the 2012 impairment charge for each vessel are noted in the table below.
Fair Value Measurements Using
Vessel
Star Cosmo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Star Delta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Star Epsilon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Star Gamma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Star Kappa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Star Omicron. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Star Theta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Star Zeta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Star Sigma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
—
—
—
—
—
—
—
—
—
—
Significant
Other
Observable
Inputs
(Level 2)
14,000
12,000
13,000
14,000
13,500
17,750
15,000
15,250
9,000
123,500
Significant
Unobservable
Inputs
(Level 3)
—
—
—
—
—
—
—
—
—
—
Vessel
impairment
loss
45,838
35,836
36,756
36,033
39,115
39,841
36,784
29,811
3,205
303,219
The fair value is based on the Company’s best estimate of the value of each vessel on a time charter free basis, and is supported by
vessel valuations of independent shipbrokers as of September 30, 2012.
In addition, please refer to Note 1 for the fair value of assets acquired and liabilities assumed by the Company at the Merger and the
Pappas Transaction on July 11, 2014, which was the acquisition date.
20.
Subsequent Events:
a) Equity offering: On January 14, 2015, the Company completed a primary underwritten public offering of 49,000,418 of its
common shares, at a price of $5.00 per share. The aggregate proceeds to the Company net of underwriters commissions were
approximately $242,211.
b) Excel Vessel deliveries: Subsequent to December 31, 2014, five of the remaining Excel Vessels were delivered to the
Company in exchange for 3,264,726 common shares and $30,286 in cash.
F-51
STAR BULK CARRIERS CORP.
Notes to Consolidated Financial Statements
December 31, 2014
(Expressed in thousands of U.S. dollars – except share, per share data and scrap rates, unless otherwise stated)
20.
Subsequent Events-(continued):
c) Sale of Vessels: On January 20, 2015, January 28, 2015, March 6, 2015 and March 19, 2015, the Company entered into
separate agreements with third parties to sell four of the recently acquired Excel Vessels Star Julia, Star Tatianna, Rodon and
Star Monika, respectively. The vessels were delivered to their new owners on February 4, 2015, February 9, 2015, March 12,
2015 and April 3, 2015, respectively. In addition, the vessel Star Kim, which was agreed to be sold in December 2014 (Note
5), was delivered to her new owners on January 21, 2015. In connection with the sale of the vessels Star Julia, Star Tatianna,
Star Monika and Star Kim the Company prepaid an amount of $18,181 under the Excel Vessel CiT Facility (Note 9).
d) Outsourcing of Certain Procurement Services: As of January 1, 2015, the Company has engaged Ship Procurement
Services S.A., an unaffiliated third party company, to provide to its fleet certain procurement services at a daily fee of $0.295
per vessel.
e) Delivery of newbuilding vessels: On January 8, 2015, the Company took delivery of the vessel Indomitable (HN 5016), for
which it had made a payment of $34,942 in December 2014. To partially finance the delivery installment of the
Indomnitable, the Company drew down $32,480 under the BNP $32,480 Facility (Note 9j). In addition, on February 27,
2015, the Company took delivery of the Honey Badger (HN 164) and Wolverine (HN 165), for which the Company paid
delivery installments of $19,422 each. These two vessels were partially financed under the Sinosure Facility (Note 9n). On
March 13, 2015, the Company drew down $38,162 for the financing of both Honey Badger and Wolverine. On March 25,
2015 and March 31, 2015, the Company took delivery of the vessels Idee Fixe (ex HN 1063) and Roberta (ex HN 1061),
respectively, which were subject to bareboat capital lease agreements with New YJ Builders (Note 6). On April 2, 2015, the
Company took delivery of the vessel Gargantua (ex-HN 166), for which it made a payment of $37,682, $32,400 of which
was drawn under the DNB – CEXIM Facility on April 1, 2015 (see note 20 j below).
f) Repayment of the Excel Vessel Bridge Facility: On January 29, 2014, the Company fully prepaid the Excel Vessel Bridge
Facility.
g) Release of Heron shares: In January 2015, the 2,115,706 shares issued into escrow as consideration for the Heron
Transaction (Notes 1 and 17.2) were released from the escrow account.
h) DVB committed term sheet: On March 6, 2015, the Company entered into a committed term sheet with DVB Bank SE for
the financing of the newbuilding vessel HN5017 (tbn Deep Blue) for an amount up to $31,000.
i) BNP committed term sheet: On March 13, 2015, the Company entered into a committed term sheet with BNP Paribas for
the financing of two vessels, the newbuilding vessel HN5056 (tbn Megalodon) and the 2004 built Panamax vessel Star Emily,
for an amount up to $39,500.
j) DNB–SEB–CEXIM committed term sheet: On March 19, 2015, the Company entered into a committed term sheet and on
March 31, 2015 signed the final loan documentation, with DNB Bank ASA as facility agent, security agent account bank and
bookrunner, DNB Bank ASA and the Export-Import Bank of China (CEXIM) as mandated lead arrangers and DNB Bank
ASA, Skandinaviska Enskilda Banken AB (SEB) and CEXIM as original lenders for the financing of seven newbuilding
vessels, HN166 (tbn Gargantua), HN167 (tbn Goliath), HN1338 (tbn Star Aries), HN184 (tbn Maharaj), HN1339 (tbn Star
Taurus), HN1342 (tbn Star Gemini) and HN198 (tbn Star Poseidon) for an amount up to $227,500.
k) ABN AMRO Bank N.V. $31,000 Facility: On March 31, 2015, the Company and ABN AMRO signed a third supplemental
agreement and agreed to revise certain financial covenants.
l) Restructuring Agreement – Commerzbank $120,000 and $26,000 Facilities: On March 30, 2015, the Company and
Commerzbank AG signed a second supplemental agreement. Under the supplemental agreement, the Company agreed to
(i) prepay Commerzbank AG $3,000 ,(ii) amend some of the financial covenants and iii) change the repayment date for the
Commerzbank $26,000 Facility from September 7, 2016 to July 31, 2015.
F-52
CORPORATE OFFICE
40, Agiou Konstantinou Street, 2nd floor, Marousi 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
LEGAL COUNSEL
Seward & Kissel LLP
One Battery Park Plaza, NY 10004
Tel.: +1-212-574-1200
INDEPENDED AUDITORS
Ernst & Young (Hellas) Certified Auditors - Accountants S.A.
11th Km National Road (Athens - Lamia) 14451 Metamorphosi, Greece,
Tel: +30 210 2886000
INVESTOR RELATIONS CONTACTS
Capital Link, Inc.
230, Park Avenue Suite 1536, New York, NY 10169
Tel.: +1-212-661-7566, starbulk@capitallink.com
STOCK LISTING
Star Bulk Carriers Corp.’s Common stock is listed on the
NASDAQ Global Select Market and trades under the symbol “SBLK.”
starbulk
.com