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Excel Maritime Carriers 20-F 2010
d1064872a_20-fa.htm
 
 
 
 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
   
   
  FORM 20-F/A
 

[_]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
OR
   
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
   
 
For the fiscal year ended December 31, 2009
   
 
OR
   
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from  ____________ to ____________
   
 
OR
   
[_]
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: Not applicable
   
 
Commission file number: 1-10137
   
   
 
EXCEL MARITIME CARRIERS LTD.
 
(Exact name of Registrant as specified in its charter)
   
   
   
 
(Translation of Registrant's name into English)
   
   
 
LIBERIA
 
(Jurisdiction of incorporation or organization)
   
 
Excel Maritime Carriers Ltd.
 
Par La Ville Place
 
14 Par La Ville Road
 
Hamilton HM JX Bermuda
 
(Address of principal executive offices)
   
 
Vicky Poziopoulou
 
(Tel) +30 210 620 9520, v.poziopoulou@excelmaritime.com
 
(Fax) +30 210 620 9528
 
17th km National Road Athens-Lamia & Finikos Str.
 
145 64, Nea Kifisia, Athens, Greece
 
 
 
 

 

 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
     
             Common shares, par value $0.01
 
          New York Stock Exchange

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, 2009, there were 79,770,159 shares of Class A common stock and 145,746 shares of Class B common stock of the registrant outstanding.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
 
|_| Yes
|X| No

If this report is an annual report or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 
|_| Yes
|X| No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 
|X| Yes
|_| No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

 
|_| Yes
|_| No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer |_|
Accelerated filer |X|
Non-accelerated filer |_|

Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing.
 
 
|X| U.S. GAAP
|_| International Financial Reporting Standards as issued by the International Accounting Standards Board
 
 
|_| Other
 

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 
|_| Item 17
|_| Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 
|_| Yes
|X| No

 
2

 
 
 
Explanatory Note
 
 
This Amendment No. 1 ("Amendment") to the Annual Report on Form 20-F for the fiscal year ended December 31, 2009 (the "Annual Report") of Excel Maritime Carriers Ltd. (the "Company") is being filed to amend information in the following items of the Annual Report: Item 4.B, "Business Overview – Risk of Loss and Liability Insurance – Protection and Indemnify Insurance"; and Item 5.A, "Operating and Financial Review and Prospects – Results of Operations – Impairment of Long-Lived Assets" and "– Equity Infusion". In addition, cross-references with respect to certain of the changed items were added to Item 5.B, "Operating and Financial Review and Prospects – Liquidity and Capital Resources – Equity Infusion," Item 7.B, "Major Shareholders and Related Party Transactions – Related Party Transactions – Equity Infusion" and Item 10.C "Additional Information – Material Contracts – Equity Infusion."  Notes 1, 5 and 16(a) to the Company's Consolidated Financial Statements that are included in the Annual Report have also been amended.  The remaining information of the Annual Report remains unchanged from the initial filing of the Annual Report on March 10, 2010 .
 

 
3

 

TABLE OF CONTENTS
 
PART I
   
 
ITEM 1 -
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
6
       
 
ITEM 2 -
OFFER STATISTICS AND EXPECTED TIMETABLE
6
       
 
ITEM 3 -
KEY INFORMATION
6
       
 
ITEM 4 -
INFORMATION ON THE COMPANY
33
       
 
ITEM 4A -
UNRESOLVED STAFF COMMENTS
45
       
 
ITEM 5 -
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
45
       
 
ITEM 6 -
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
59
       
 
ITEM 7 -
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
63
       
 
ITEM 8 -
FINANCIAL INFORMATION
65
       
 
ITEM 9 -
THE OFFER AND LISTING
66
       
 
ITEM 10 -
ADDITIONAL INFORMATION
67
       
 
ITEM 11 -
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
82
       
 
ITEM 12 -
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
83
       
PART II
     
       
 
ITEM 13 -
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
83
       
 
ITEM 14 -
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
83
       
 
ITEM 15 -
CONTROLS AND PROCEDURES
83
       
 
ITEM 16A-
AUDIT COMMITTEE FINANCIAL EXPERT
85
       
 
ITEM 16B-
CODE OF ETHICS
85
       
 
ITEM 16C-
PRINCIPAL ACCOUNTANT FEES AND SERVICES
85
       
 
ITEM 16D-
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
85
       
 
ITEM 16E-
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
86
       
 
ITEM 16F.
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
86
       
 
ITEM16G.
CORPORATE GOVERNANCE
86
       
PART III
     
       
 
ITEM 17 -
FINANCIAL STATEMENTS
86
       
 
ITEM 18 -
FINANCIAL STATEMENTS
86
       
 
ITEM 19 –
EXHIBITS
 

 
 
4

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
Matters discussed in this document may constitute forward-looking statements.
 
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.
 
Please note in this annual report, "we", "us", "our", "the Company", and "Excel" all refer to Excel Maritime Carriers Ltd. and its consolidated subsidiaries.
 
Excel Maritime Carriers Ltd., or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. This document and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. The words "believe", "anticipate", "intends", "estimate", "forecast", "project", "plan", "potential", "will", "may", "should", "expect" and similar expressions identify forward-looking statements.
 
The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, managements examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
 
In addition to these important factors and matters discussed elsewhere herein and in the documents incorporated by reference herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies, general market conditions, including fluctuations in charter hire rates and vessel values, changes in the Company's operating expenses, including bunker prices, drydocking and insurance costs, changes in governmental rules and regulations, changes in income tax legislation 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, and other important factors described from time to time in the reports filed by the Company with the U.S. Securities and Exchange Commission, or the SEC.
 

 
5

 

PART I
 
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable
 
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable
 
ITEM 3 - KEY INFORMATION
 
A. Selected Financial Data
 
The following table summarizes our selected historical financial information at the dates and for the periods indicated prepared in accordance with U.S. Generally Accepted Accounting Principles and gives effect to the adjustments described in "Item 5, Operating and Financial Review and Prospects" and in Note 3 to our consolidated financial statements. The consolidated statement of operations data for the years ended December 31, 2007, 2008 and 2009 and the consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this 2009 Annual Report. The consolidated statement of operations data for the year ended December 31, 2006 and the balance sheet data as of December 31, 2007 have been derived from our audited financial statements as filed with the SEC on Form 6-K on June 1, 2009. The selected consolidated financial data should be read in conjunction with "Item 5, Operating and Financial Review and Prospects", the consolidated financial statements, related notes, and other financial information included elsewhere in this 2009 Annual Report.
 
Selected Historical Financial Data and Other Operating Information
 
   
Year ended December 31,
 
   
2005 (1)
   
2006(1)
   
2007(1)
      2008 (1,2)      2009  
   
(unaudited)
                             
   
(In thousands of U.S. Dollars, except for share and per share data and average daily results)
 
STATEMENT OF OPERATIONS DATA:
                                 
Voyage revenues
  $ 118,082     $ 123,551     $ 176,689     $ 461,203     $ 391,746  
Time charter amortization
    -       -       -       233,967       364,368  
Revenues from managing related party vessels
    522       558       818       890       488  
Voyage expenses
    (11,693 )     (8,109 )     (11,077 )     (28,145 )     (19,317 )
Charter hire expense
    -       -       -       (23,385 )     (32,832 )
Charter hire amortization
    -       -       -       (28,447 )     (39,952 )
Commissions – related party
    (1,412 )     (1,536 )     (2,204 )     (3,620 )     (2,260 )
Vessel operating expenses
    (24,215 )     (30,414 )     (33,637 )     (69,684 )     (83,197 )
Depreciation
    (20,092 )     (28,453 )     (27,864 )     (98,753 )     (123,411 )
Vessel impairment loss
    -       -       -       (2,232 )     -  
Dry docking and special survey costs                              
    (1,747 )     (4,239 )     (6,834 )     (13,511 )     (11,379 )
General and administrative expenses                             
    (6,637 )     (9,837 )     (12,586 )     (32,925 )     (42,995 )
Contract termination expense-related party
    (4,963 )     -       -       -       -  
Loss on disposal of JV ownership interest
    -       -       -       -       (3,705 )
Gain on sale of vessels 
    27,701       -       6,993       -       61  
Write down of goodwill 
    -       -       -       (335,404 )     -  
Loss from vessel's purchase cancellation
    -       -       -       (15,632 )     -  
Operating income                     
    75,546       41,521       90,298       44,322       397,615  
Interest and finance costs, net                  
    (7,878 )     (11,844 )     (8,111 )     (54,889 )     (56,287 )
Interest rate swap losses, net                    
    -       (773 )     (439 )     (35,884 )     (1,126 )
Foreign exchange gains (losses)
    117       (212 )     (367 )     71       (322 )
Other, net
    66       145       (66 )     1,585       408  
US source income taxes
    (311 )     (426 )     (486 )     (783 )     (660 )
Income from investment in affiliate
    -       -       873       487       -  
Loss in value of investment
    -       -       -       (10,963 )     -  
Net income (loss)                                           
    67,540       28,411       81,702       (56,054 )     339,628  
Loss assumed by non-controlling interests
    -       3       2       140       154  
Net income (loss) attributable to Excel
  $ 67,540     $ 28,414     $ 81,704     $ (55,914 )   $ 339,782  

 
6

 


Selected Historical Financial Data and Other Operating Information
 
   
Year ended December 31,
 
   
2005 (1)
   
2006(1)
   
2007(1)
      2008 (1,2)      2009  
   
(unaudited)
                             
   
(In thousands of U.S. Dollars, except for share and per share data and average daily results)
 
Earnings (losses) per common share, basic
  $ 3.63     $ 1.42     $ 4.10     $ (1.53 )   $ 5.03  
Weighted average number of shares, basic
    18,599,876       19,947,411       19,949,644       37,003,101       67,565,178  
Earnings (losses) per common share, diluted
  $ 3.63     $ 1.42     $ 4.09     $ (1.53 )   $ 4.85  
Weighted average number of shares, diluted
    18,599,876       19,947,411       19,965,676       37,003,101       69,999,760  
Cash dividends declared per share
  $ -     $ -     $ 0.60     $ 1.20     $ -  
                                         
BALANCE SHEET DATA:
                                       
Cash and cash equivalents                    
  $ 58,492     $ 86,289     $ 243,672     $ 109,792     $ 100,098  
Current assets, including cash   
    70,547       95,788       252,734       127,050       148,100  
Vessels net / advances for vessel acquisition
    465,668       437,418       527,164       2,893,615       2,731,347  
Total assets                             
    559,421       545,055       813,499       3,316,809       3,130,182  
Current liabilities, including current portion of long—term debt
    57,110       43,719       55,990       314,903       217,174  
Total long—term debt, excluding current portion 
    215,926       185,467       315,301       1,256,707       1,121,765  
Total Stockholders' equity
    286,385       315,865       442,208       1,053,398       1,486,272  
                                         
OTHER FINANCIAL DATA:
                                       
Net cash provided by operating activities
  $ 73,639     $ 58,341     $ 108,733     $ 263,899     $ 147,252  
Net cash used in investing activities
    (417,743 )     (662 )     (123,609 )     (785,279 )     (2,282 )
Net cash provided by  (used in) financing activities
    337,693       (29,882 )     172,259       387,500       (154,664 )
                                         
FLEET DATA:
                                       
Average number of vessels (3)
    14.4       17.0       16.5       38.6       47.2  
Available days for fleet (4)           
    5,070       5,934       5,646       13,724       16,878  
Calendar days for fleet (5)                  
    5,269       6,205       6,009       14,134       17,229  
Fleet utilization (6)
    96.2 %     95.6 %     94.0 %     97.1 %     98.0 %
                                         
AVERAGE DAILY RESULTS:
                                       
Time charter equivalent (7)
  $ 20,706     $ 19,195     $ 28,942     $ 31,291     $ 21,932  
Vessel operating expenses(8)
    4,596       4,901       5,598       4,930       4,829  
General and administrative expenses (9)
    1,237       1,620       2,156       2,324       2,514  
Total vessel operating expenses (10)
    5,833       6,521       7,754       7,254       7,343  

(1) The financial information for the years presented has been adjusted to reflect the adoption of the amendments in the accounting for Non-controlling Interest in a Subsidiary provided in FASB Accounting Standards CodificationTM ("ASC") ASC Topic 810-10-45, the adoption of ASC Topic 470-20 which requires the issuer of certain convertible debt instruments that may be settled in cash on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible borrowing rate, as well as the change in the method of accounting for dry docking and special survey costs discussed in the notes to the consolidated financial statements included in "Item 18, Financial Statements". With the exception of the amendments made in ASC 810 which require retrospective application only in the presentation and disclosure requirements, the other two accounting changes require retrospective application for all periods presented and were effected in the accompanying consolidated financial statements in accordance with ASC Topic 250 "Accounting Changes and Error Corrections", which requires that an accounting change should be retrospectively applied to all prior periods presented, unless it is impractical to determine the prior period impacts. The effect of the above changes is presented in "Item 5, Operating and Financial Review and Prospects" and in Note 3 to our consolidated financial statements.

(2) On January 29, 2008, we entered into an Agreement and Plan of Merger with Quintana Maritime Limited, or Quintana, and Bird Acquisition Corp., or Bird, our wholly-owned subsidiary. On April 15, 2008, we completed the acquisition of 100% of the voting equity interests in Quintana. As a result of the acquisition, Quintana operates as a wholly-owned subsidiary of Excel under the name Bird. The acquisition of Quintana was accounted for under the purchase method of accounting. The Company began consolidating Quintana from April 16, 2008, as of which date the results of operations of Quintana are included in the 2008 consolidated statement of operations.

 
7

 



(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 calendar days each vessel was a part of our fleet during the period divided by the number of calendar days in that period.
 
(4) Available days for fleet are the total calendar days the vessels were in our possession for the relevant period after subtracting for off hire days associated with major repairs, dry-dockings or special or intermediate surveys.
 
(5) Calendar days are the total days we possessed the vessels in our fleet for the relevant period including off hire days associated with major repairs, dry-dockings or special or intermediate surveys.
 
(6) Fleet utilization is the percentage of time that our vessels were available for revenue generating available days, and is determined by dividing available days by fleet calendar days for the relevant period.
 
(7) Time charter equivalent, or TCE, is a measure of the average daily revenue performance of a vessel on a per voyage basis. Our method of calculating TCE is consistent with industry standards and is determined by dividing voyage revenues, (net of voyage expenses) by available days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs, net of gains or losses from the sales of bunkers to time charterers that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract, as well as commissions.
 
Time charter equivalent revenue and TCE rate are not measures of financial performance under U.S. GAAP and may not be comparable to similarly titled measures of other companies. However, TCE 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 voyage charters, time charters and bareboat charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rate for the years presented (amounts in thousands of U.S. dollars, except for TCE rate, which is expressed in U.S. dollars and available days):

   
2005
   
2006
   
2007
   
2008
   
2009
 
   
(unaudited)
                         
Voyage revenues
  $ 118,082     $ 123,551     $ 176,689     $ 461,203     $ 391,746  
Less: Voyage expenses and commissions to related party
    (13,105 )     (9,645 )     (13,281 )     (31,765 )     (21,577 )
Time Charter equivalent revenues
  $ 104,977     $ 113,906     $ 163,408     $ 429,438     $ 370,169  
Available days for fleet
    5,070       5,934       5,646       13,724       16,878  
Time charter equivalent (TCE) rate
  $ 20,706     $ 19,195     $ 28,942     $ 31,291     $ 21,932  

(8) Daily vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs is calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period.
 
(9) Daily general and administrative expenses are calculated by dividing general and administrative expenses including foreign exchange differences by fleet calendar days for the relevant time period.
 
(10) Total vessel operating expenses, or TVOE, is a measurement of our total expenses associated with operating our vessels. TVOE is the sum of vessel operating expenses and general and administrative expenses. Daily TVOE is the sum of daily vessel operating expenses and daily general and administrative expenses.
 
B. Capitalization and Indebtedness
 
Not Applicable.
 
C. Reasons for the Offer and Use of Proceeds
 
Not Applicable.
 

 
8

 


 
D. Risk Factors
 
Some of the following risks relate principally to the industry in which we operate and our business in general. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected and the trading price of our securities could decline.
 
Industry Specific Risk Factors
 
The dry bulk carrier charter market has sustained significant fluctuations since October 2008, which has adversely affected our earnings and may require us to impair the carrying values of our fleet, require us to raise additional capital in order to remain compliant with ourloan covenants and loan covenant waivers and affect our ability to pay dividends in the future.>
 
The Baltic Drybulk Index, or BDI, declined from a high of 11,793 in May 2008 to a low of 663 in December 2008, which represents a decline of 94%. The BDI fell over 70% during the month of October 2008 alone. Over the comparable period of May through December 2008, the high and low of the Baltic Panamax Index and the Baltic Capesize Index represent a decline of 96% and 99%, respectively.  Between January and December 2009, the BDI reached a high of 4,661, though this level still represented a decline of 61% and 58% respectively, in the Panamax and Capesize sector from the historic highs reached in 2008, while currently the BDI stands at approximately 3,242. The decline and volatility in charter rates is due to various factors, including the lack of trade financing for purchases of commodities carried by sea, which has resulted in a significant decline in cargo shipments, and the excess supply of iron ore in China, which has resulted in falling iron ore prices and increased stockpiles in Chinese ports. The decline and volatility in charter rates in the drybulk market also affects the value of our drybulk vessels, which follows the trends of drybulk charter rates, and earnings on our charters, and similarly, affects our cash flows, liquidity and compliance with the covenants contained in our loan agreements.
 
The market value of our vessels may decrease, which would require us to raise additional capital in order to remain compliant with our loan covenants and loan covenant waiver agreements, and could result in the loss of our vessels and adversely affect our earnings and financial condition.
 
The current volatility in the dry bulk charter market may significantly reduce the charter rates for our vessels trading in the spot market. While we have currently received waivers from our lenders, in connection with the Nordea Syndicated Bank Facility due 2016 in the amount of $1.4 billion, which we will refer to as the Nordea credit facility, and the Credit Suisse credit facility in the amount of $75.6 million, which we will refer to as the Credit Suisse credit facility, for any non-compliance with loan covenants, if we are not able to remedy such non-compliance by the time the waivers expire, our lenders could require us to post additional collateral, enhance our equity and liquidity, increase our interest payments or pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels from our fleet, or they could accelerate our indebtedness and foreclose on their collateral, which would impair our ability to continue to conduct our business. In addition, if we are not in compliance with these covenants and we are unable to obtain waivers, we will not be able to pay dividends in the future until the covenant defaults are cured or we obtain waivers. This may limit our ability to continue to conduct our operations, pay dividends to you, finance our future operations, make acquisitions or pursue business opportunities.
 
In addition, if we are able to sell additional shares at a time when the charter rates in the dry bulk charter market are low, such sales could be at prices below those at which shareholders had purchased their shares, which could, in turn, result in significant dilution of our then existing shareholders and affect our ability to pay dividends in the future and our earnings per share. Even if we are able to raise additional capital in the equity markets, there is no assurance we will remain compliant with our loan covenants in the future.
 
In addition, if the book value of a vessel is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value, we would incur a loss that could adversely affect our operating results.
 

 
9

 


 
Charterhire rates for dry bulk vessels are volatile and have declined significantly since their recent historic highs and may decrease in the future, which may adversely affect our earnings and financial condition.
 
We are an independent shipping company that operates in the dry bulk shipping markets. One of the factors that impacts our profitability is the freight rates we are able to charge. The dry bulk shipping industry is cyclical with attendant volatility in charter hire rates and profitability. The degree of charter hire rate volatility among different types of dry bulk vessels has varied widely, and charter hire rates for dry bulk vessels have recently declined from historically high levels. Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major commodities carried by sea internationally. Because the factors affecting the supply 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.
 
Factors that influence demand for vessel capacity include:
 
 
·
supply and demand for energy resources, commodities, 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, semi-finished and finished consumer and industrial products;
 
 
·
the globalization of production and manufacturing;
 
 
·
global and regional and political conditions, including armed conflicts and terrorist activities; embargoes and strikes;
 
 
·
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
 
 
·
weather.
 
The factors that influence the supply of vessel capacity include:
 
 
·
the number of newbuilding deliveries;
 
 
·
the scrapping rate of older vessels;
 
 
·
vessel casualties;
 
 
·
the level of port congestion;
 
 
·
changes in environmental and other regulations that may limit the useful life of vessels;
 
 
·
the number of vessels that are out of service; and
 

 
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·
changes in global dry bulk commodity production.
 
We anticipate that the future demand for our dry bulk vessels will be dependent upon economic growth in the world's economies, seasonal and regional changes in demand, changes in the capacity of the global dry bulk fleet and the sources and supply of dry bulk cargo to be transported by sea. The capacity of the global dry bulk carrier fleet seems likely to increase and economic growth may continue to be slow. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.
 
The current global economic downturn may continue to negatively impact our business.
 
In the current global economy, operating businesses have faced and continue to face 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 current economic downturn has had and may continue to have during 2010 a number of adverse consequences for dry bulk and other shipping sectors, including, among other things:
 
 
·
an absence of financing for vessels;
 
 
·
a further decrease in the market value of our vessels and no active second-hand market for the sale of vessels;
 
 
·
low charter rates; and
 
 
·
declaration of bankruptcy by some charterers, operators and shipowners.
 
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.
 
Continued disruptions in world financial markets and the resulting governmental action in the United States and in other parts of the world could have a material adverse impact on our ability to obtain financing, our results of operations, financial condition and cash flows and could cause the market price of our common shares to further decline.>
 
The credit markets worldwide and in the United States continued to contract in 2009 and experienced de-leveraging and reduced liquidity, and the United States federal government, state governments and foreign governments have implemented 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.
 
A number of financial institutions experienced serious financial difficulties in 2009. The uncertainty surrounding the future of the credit markets in the United States and the rest of the world has resulted in reduced access to credit worldwide. As of December 31, 2009, we have total outstanding indebtedness of $1.3 billion.
 
We face risks attendant to changes in economic environments, changes in interest rates, and instability in certain securities markets, among other factors. Major market disruptions and the current adverse changes in market conditions and regulatory climate in the United States and worldwide may adversely affect our business or impair our ability to borrow amounts under our credit facilities or any future financial arrangements. The current market conditions may last longer than we anticipate. These recent and developing economic and governmental factors may have a material adverse effect on our results of operations, financial condition or cash flows and could cause the price of our common shares to further decline significantly.
 

 
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Changes in the economic and political environment in China and policies adopted by the Chinese 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 most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in such respects as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, 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. Many of the reforms are unprecedented or experimental and may be subject to revision, change or abolition based upon the outcome of such experiments. If the Chinese government does not continue to pursue a policy of economic reform, the level of imports to and exports from China could be adversely affected by the Chinese government's changes to these economic reforms, as well as 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, all of which could, adversely affect our business, operating results and financial condition.
 
Our operating results will be subject to seasonal fluctuations, which could affect our operating results and ability to service our debt or pay dividends in the future.>
 
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charterhire rates. To the extent we operate vessels in the spot market this seasonality 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. As a result, our revenues from our dry bulk carriers may be weaker during the fiscal quarters ended June 30 and September 30, and, conversely, our revenues from our dry bulk carriers may be stronger in fiscal quarters ended December 31 and March 31. While this seasonality will not affect our operating results as long as our fleet is employed on period time charters, if our vessels are employed in the spot market in the future, it could materially affect our operating results.
 
Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.>
 
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. In 2008 and 2009, the frequency of piracy incidents increased significantly, particularly in the Gulf of Aden off the coast of Somalia, with dry bulk vessels and tankers particularly vulnerable to such attacks. For example, in November 2008, the Sirius Star, a tanker vessel not affiliated with us, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100.0 million. 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 as "war and strikes" listed areas by the Joint War Committee, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention of any of our vessels, hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, financial condition, results of operations and ability to service our debt or pay dividends in the future.
 

 
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We are subject to international safety regulations, and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
 
Our business and the operation of our vessels are materially affected by government regulation in the form of international conventions and national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale price or useful life of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations.  We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations.
 
The operation of our vessels is affected by the requirements set forth in the IMO's International Management Code for the Safe Operation of Ships and Pollution Prevention or the ISM Code. The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. If we fail to comply with the ISM Code, we may be subject to increased liability, our insurance coverage may be invalidated or decreased, or our vessels may be detained or denied access to certain ports. Currently, each of our vessels is ISM code-certified by Bureau Veritas or American Bureau of Shipping and we expect that any vessel that we agree to purchase will be ISM code-certified upon delivery to us. Bureau Veritas and American Bureau of Shipping have awarded ISM certification to Maryville Maritime Inc., or Maryville, our vessel management company and a wholly-owned subsidiary of ours. However, there can be no assurance that such certification will be maintained indefinitely. Recently, the U.S. Environmental Protection Agency, or the EPA, has implemented regulations under the Clean Water Act, or the CWA, that regulate the discharge of ballast water. In relation to these regulations, we have submitted on July 31, 2009 for each of our vessels a permit application called a Notice of Intent, or NOI which applies to the vessels calling on U.S ports or travel through U.S. navigable waters.
 
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 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 or require significant capital expenditures. Changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, financial condition and results of operations.
 
Rising fuel prices may affect our profitability.
 
Fuel is a significant, if not the largest, expense in our shipping operations when vessels are not under period charter. Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation.
 

 
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An over-supply of dry bulk carrier capacity may lead to reductions in charterhire rates and profitability.
 
The market supply of dry bulk carriers has been increasing, and the number of drybulk carriers on order is near historic highs. These newbuildings were delivered in significant numbers starting at the beginning of 2006 and continuing through 2009. As of December 2009, newbuilding orders had been placed for an aggregate of about 60% of the existing global dry bulk fleet on a deadweight basis, with deliveries expected during the next 24 months. An over-supply of dry bulk carrier capacity may result in a reduction of charterhire rates. If such a reduction occurs, upon the expiration or termination of our vessels' current charters we may only be able to re-charter our vessels at reduced or unprofitable rates or we may not be able to charter these vessels at all.
 
World events outside our control may negatively affect the shipping industry, which could adversely affect our operations and financial condition.
 
Terrorist attacks like those in New York in 2001, London in 2005, Mumbai in 2008 and other countries and the United States' continuing response to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty in the world financial markets and may affect our business, results of operations and financial condition. Additional acts of terrorism and any resulting armed conflict around the world may contribute to further economic instability in the global financial markets. In the past, political conflicts resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping. For example, in October 2002, the VLCC Limburg was attacked by terrorists in Yemen. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea. Future terrorist attacks could result in increased volatility of the financial markets in the United States and globally and could result in an economic recession in the United States or the world. These uncertainties could adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In addition, future hostilities or other political instability in regions where our vessels trade could affect our trade patterns. Any of these occurrences could have a material adverse impact on our operating results, revenue, and costs.
 
We are subject to vessel security regulations and will incur costs to comply with recently adopted regulations and may be subject to costs to comply with similar regulations which may be adopted in the future in response to terrorism.

Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Security Act of 2002, or MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to the International Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the convention dealing specifically with maritime security. The new chapter went into effect in July 2004, and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created International Ship and Port Facilities Security, or ISPS Code. Among the various requirements are:
 
 
·
on-board installation of automatic information systems, to enhance vessel-to-vessel and vessel-to-shore communications;
 
 
·
on-board installation of ship security alert systems;
 
 
·
the development of vessel security plans; and
 
 
·
compliance with flag state security certification requirements.
 
Furthermore, additional security measures could be required in the future which could have a significant financial impact on us. The U.S. Coast Guard regulations, intended to be aligned with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board, a valid International Ship Security Certificate, or ISSC, that attests to the vessel's compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Code and take measures for our vessels to attain compliance with all applicable security requirements within the prescribed time periods. Although management does not believe these additional requirements will have a material financial impact on our operations, there can be no assurance that there will not be an interruption in operations to bring vessels into compliance with the applicable requirements and any such interruption, could cause a decrease in charter revenues.

 
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Our commercial vessels are subject to inspection by a classification society.
 
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. Classification societies are non-governmental, self-regulating organizations and certify that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention. The Company's vessels are currently enrolled with Bureau Veritas, American Bureau of Shipping, Nippon Kaiji Kyokai, Det Norske Veritas and Lloyd's Register of Shipping.
 
A vessel must undergo Annual Surveys, Intermediate Surveys and Special Surveys. In lieu of a Special Survey, a vessel's machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Our vessels are on Special Survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also required to be dry-docked every two to three years for inspection of the underwater parts of such vessel. Generally, we will make a decision to scrap a vessel or reassess its useful life at the time of a vessel's fifth Special Survey.
 
If any vessel fails any Annual Survey, Intermediate Survey, or Special Survey, the vessel may be unable to trade between ports and, therefore, would be unemployable, potentially causing a negative impact on our revenues due to the loss of revenues from such vessel until it was able to trade again.
 
Maritime claimants could arrest our vessels, which could interrupt our cash flow.
 
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to make significant payments to have the arrest 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 try to assert "sister ship" liability against one vessel in our fleet for claims relating to another of our ships.
 
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
 
A government could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a vessel and becomes her owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels would negatively impact our revenues.
 
The operation of our ocean-going vessels entails the possibility of marine disasters including damage or destruction of the vessel due to accident, the loss of a vessel due to piracy or terrorism, loss of life, damage or destruction of cargo and similar events that may cause a loss of revenue from affected vessels and could damage our business reputation, which may in turn lead to loss of business.

The operation of our ocean-going vessels entails certain inherent risks that may adversely affect our business and reputation, including:
 
 
·
Damage or destruction of a vessel due to marine disaster such as a collision;
 
 
·
the loss of a vessel due to piracy and terrorism;
 
 
·
cargo and property losses or damage as a result of the foregoing or less drastic causes such as human error, mechanical failure and bad weather;
 

 
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·
environmental accidents as a result of the foregoing; and
 
 
·
business interruptions and delivery delays caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions.
 
Any of these circumstances or events could substantially increase our costs. For example, the costs of replacing a vessel or cleaning up a spill could substantially lower its revenues by taking such vessels out of operation permanently or for periods of time. The involvement of our vessels in a disaster or delays in delivery or damages or loss of cargo may harm our reputation as a safe and reliable vessel operator and could cause us to lose business.
 
Company Specific Risk Factors
 
We are affected by voyage charters in the spot market and short-term time charters in the time charter market, which are volatile.
 
We charter some of our vessels on voyage charters, which are charters for one specific voyage, and some on short-term time charter basis. A short-term time charter is a charter with a term of less than six months. Although dependence on voyage charters and short-term time charters is not unusual in the shipping industry, the voyage charter and short-term time charter markets are highly competitive and rates within those markets may fluctuate significantly based upon available charters and the supply of and demand for sea borne shipping capacity. While our focus on the voyage and short-term time charter markets may enable us to benefit if industry conditions strengthen, we must consistently procure this type of charter business to obtain these benefits. Conversely, such dependence makes us vulnerable to declining market rates for this type of charters.
 
Moreover, to the extent our vessels are employed in the voyage charter market, our voyage expenses will be more significantly impacted by increases in the cost of bunkers (fuel). Unlike time charters in which the charterer bears all of the bunker costs, in voyage charters we bear the bunker costs, port charges and canal dues. As a result, increases in fuel costs in any given period could have a material adverse effect on our cash flow and results of operations for the period in which the increase occurs.
 
There can be no assurance that we will be successful in keeping all our vessels fully employed in these short-term markets or that future spot and short-term charter rates will be sufficient to enable our vessels to be operated profitably. If the current low charter rates in the dry bulk market continue through any significant period, our earnings may be adversely affected.
 
A decline in the market value of our vessels could lead to a default under our loan agreements and the loss of our vessels.
 
When the market value of a vessel declines, it reduces our ability to refinance the outstanding debt or obtain future financing. Also, while we have currently received waivers from our lenders, in connection with the Nordea credit facility and the Credit Suisse credit facility, for any non-compliance with loan covenants, further declines in the market and vessel values could cause us to breach financial covenants in our lending facilities in the future. In such an event, if we are unable to pledge additional collateral, or obtain waivers for such breaches from the lenders, the lenders could accelerate the debt and in general, if we are unable to service such accelerated debt, we may have vessels repossessed by our lenders.
 

 
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A drop in spot charter rates may provide an incentive for some charterers to default on their time charters.
 
When we enter into a time charter, charter rates under that time charter are fixed for the term of the charter. If the spot charter rates in the dry bulk shipping industry become significantly lower than the time charter rates that some of our charterers are obligated to pay us under our existing time charters, the charterers may have incentive to default under that time charter or attempt to renegotiate the time charter. If our charterers fail to pay their obligations, we would have to attempt to re-charter our vessels at lower charter rates, which would affect our results from operations and ability to comply with our loan covenants. If our charterers default and we are not able to comply with our loan covenants and our lenders chose to accelerate our indebtedness and foreclose on their liens, we could be required to sell vessels in our fleet and our ability to continue to conduct our business would be impaired.
 
We depend upon a few significant customers for a large part of our revenues. The loss of one or more of these customers could adversely affect our financial performance.
 
We have historically derived a significant part of our revenue from a small number of charterers. During 2009 and 2008, we derived approximately 34% and 23%, respectively, of our gross revenues from one charterer.
 
If one or more of our customers is unable to perform under one or more charters with us and we are not able to find a replacement charter, or if a customer exercises certain rights to terminate the charter, we could suffer a loss of revenues that could materially adversely affect our business, financial condition and results of operations.
 
We could lose a customer or the benefits of a time charter if, among other things:
 
 
·
the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
 
 
·
the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, default under the charter; or
 
 
·
the customer terminates the charter because the vessel has been subject to seizure for more than a specified number of days.
 
In particular, we depend on our customer, Bunge Limited, or Bunge, which is an agribusiness, for revenues from a substantial portion of our fleet and are therefore exposed to risks in the agribusiness market. Changes in the economic, political, legal and other conditions in agribusiness could adversely affect our business and results of operations. Based on Bunge's filings with the SEC, these risks include the following, among others:
 
 
·
The availability and demand for the agricultural commodities and agricultural commodity products that Bunge uses and sells in its business, which can be affected by weather, disease and other factors beyond Bunge's control;
 
 
·
Bunge's vulnerability to cyclicality in the oilseed processing industry;
 
 
·
Bunge's vulnerability to increases in raw material prices; and
 
 
·
Bunge's exposure to economic and political instability and other risks of doing business globally and in emerging markets.
 
Deterioration in Bunge's business as a result of these or other factors could have a material adverse impact on Bunge's ability to make timely charter hire payments to us and to renew its time charters with us. This could have a material adverse impact on our financial condition and results of operations.
 

 
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When our time charters end, we may not be able to replace them promptly or with profitable ones and, in addition, any such new charters are potentially subject to further decline in charter rates and other market deterioration, which could cause us to incur impairment charges.
 
We cannot assure you that we will be able to obtain charters at comparable rates or with comparable charterers, if at all, when the charters on the vessels in our fleet expire. The charterers under these charters have no obligation to renew or extend the charters. We will generally attempt to recharter our vessels at favorable rates with reputable charterers as the charters expire, unless management determines at that time to employ the vessel in the spot market. We cannot assure you that we will succeed. Failure to obtain replacement charters will reduce or eliminate our revenue, our ability to expand our fleet and our ability to service our debt and pay dividends to shareholders.
 
If dry bulk vessel charter hire rates are lower than those under our current charters, we may have to enter into charters with lower charter hire rates. Also, it is possible that we may not obtain any charters. In addition, we may have to reposition our vessels without cargo or compensation to deliver them to future charterers or to move vessels to areas where we believe that future employment may be more likely or advantageous. Repositioning our vessels would increase our vessel operating costs.
 
The market values of our vessels have declined and may further decrease, and we may incur losses when we sell vessels or we may be required to write down their carrying value, which may adversely affect our earnings.
 
The fair market values of our vessels have generally experienced high volatility and have declined significantly compared with May 2008. You should expect the market values of our vessels to fluctuate depending on general economic and market conditions affecting the shipping industry and prevailing charter hire rates, competition from other shipping companies and other modes of transportation, the types, sizes and ages of our vessels, applicable governmental regulations and the cost of newbuildings.
 
If a determination is made that a vessel's future useful life is limited or its future earnings capacity is reduced, it could result in an impairment of its value on our financial statements that would result in a charge against our earnings and the reduction of our shareholders' equity. If for any reason we sell our vessels at a time when prices have fallen, the sale may be less than the vessels' carrying amount on our financial statements, and we would incur a loss and a reduction in earnings.
 
Further declines in charter rates and other market deterioration could cause us to incur impairment charges.
 
We evaluate the carrying amounts of our vessels to determine if events have occurred that would require an impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes in circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for potential impairment indicators and projection of future cash flows related to the vessels is complex and requires us to make various estimates including future freight rates and earnings from the vessels which have been historically volatile.
 
When our estimate of undiscounted future cash flows 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 if the fair market value is lower than the vessel's carrying value. The carrying values of our vessels may not represent their fair market value in the future because the new market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Any impairment charges incurred as a result of declines in charter rates could have a material adverse effect on our business, results of operations, cash flows and financial condition.
 
If we are not in compliance with the covenants in our loan agreements, our ability to conduct our business and to pay dividends may be affected if we are unable to obtain waivers or covenant modifications from our lenders.
 
Our loan agreements contain various financial covenants. The current low dry bulk charter rates and dry bulk vessel values have affected our ability to comply with some of these covenants.
 

 
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While we have currently received waivers from our lenders, in connection with the Nordea credit facility and the Credit Suisse credit facility if we are not able to remedy such non-compliance by the time the waivers expire, our lenders could require us to post additional collateral, enhance our equity and liquidity, increase our interest payments or pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, or they could accelerate our indebtedness and foreclose on their collateral, which would impair our ability to continue to conduct our business. In addition, if we are not in compliance with these covenants and we are unable to obtain waivers, we will not be able to pay dividends in the future until the covenant defaults are cured or we obtain waivers. We may also be required to reclassify all of our indebtedness as current liabilities, which would be significantly in excess of our cash and other current assets, and accordingly would adversely affect our ability to continue as a going concern.
 
If our indebtedness is accelerated, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders foreclose their liens.
 
We took on substantial additional indebtedness to finance the acquisition of Quintana, and this additional indebtedness could significantly impair our ability to operate our business.
 
In connection with the acquisition of Quintana in 2008, we entered into the Nordea Credit Facility, which consists of a $1.0 billion term loan and a $400.0 million revolving loan. The security for the Nordea Credit Facility includes, among other assets, mortgages on certain vessels previously owned by us and the vessels previously owned by Quintana and assignments of earnings with respect to certain vessels previously owned by us and the vessels previously operated by Quintana. Such increased indebtedness could limit our financial and operating flexibility, requiring us to dedicate a substantial portion of our cash flow from operations to the repayment of our debt and the interest on our debt, making it more difficult to obtain additional financing on favorable terms, limiting our ability to capitalize on significant business opportunities and making us more vulnerable to economic downturns.
 
Restrictive covenants in our loan agreements impose financial and other restrictions on us, including our ability to pay dividends.
 
Our loan agreements impose operating and financial restrictions on us and require us to comply with certain financial covenants. These restrictions and covenants limit our ability to, among other things:
 
 
·
pay dividends during the period over which the initial covenants are modified;
 
 
·
maintain excess cash flow generated from our operations;
 
 
·
incur additional indebtedness, including through the issuance of guarantees;
 
 
·
change the flag, class or management of our vessels;
 
 
·
create liens on our assets;
 
 
·
sell our vessels without replacing such vessels or prepaying a portion of our loan;
 
 
·
merge or consolidate with, or transfer all or substantially all our assets to, another person; or
 
 
·
change our business.
 
Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders' interests may be different from ours and we cannot guarantee that we will be able to obtain our lenders' consent when needed. If we do not comply with the restrictions and covenants in our loan agreements, we will not be able to pay dividends to you in the future, finance our future operations, make acquisitions or pursue business opportunities.
 

 
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We may be unable to fulfil our obligations under our agreements to complete the construction of six newbuilding vessels.
 
We currently have contracts (construction contracts and/or Memoranda of Agreement) to obtain six newbuilding vessels (including the four Capesize vessels of the joint ventures for which no refund guarantee has been provided by the shipyard), for an aggregate purchase price of $464.0 million. We have guaranteed the performance of one of these joint ventures obligations under a contract for a newbuilding vessel with purchase price of 72.4 million.
 
Our ability to obtain financing in the current economic environment, particularly for the acquisition of dry bulk vessels, which are experiencing low charter rates and depressed vessel values, is limited, and unless there is an improvement in our cash flow from operations and we are successful in obtaining debt financing, we may not be able to complete these transactions and we would lose the advances already paid, which amount to approximately $44.6 million as of December 31, 2009, and we may incur additional liability and costs.
 
The derivative contracts we have entered into to hedge our exposure to fluctuations in interest rates could result in higher than market interest rates and charges against our income.
 
We have entered into two interest rate swaps for purposes of managing our exposure to fluctuations in interest rates applicable to indebtedness under two of our credit facilities, which were advanced at a floating rate based on LIBOR. Our hedging strategies, however, may not be effective and we may incur substantial losses if interest rates move materially differently from our expectations. Since our existing interest rate swaps do not, and future derivative contracts may not, qualify for treatment as hedges for accounting purposes, we recognize fluctuations in the fair value of such contracts in our income statement. In addition, our financial condition could be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under our financing arrangements. Any hedging activities we engage in may not effectively manage our interest rate exposure or have the desired impact on our financial conditions or results of operations.
 
Our ability to successfully implement our business plans depends on our ability to obtain additional financing, which may affect the value of your investment in the Company.
 
We will require substantial additional financing to fund the acquisition of additional vessels and to implement our business plans. We cannot be certain that sufficient financing will be available on terms that are acceptable to us or at all. If we cannot raise the financing we need in a timely manner and on acceptable terms, we may not be able to acquire the vessels necessary to implement our business plans and consequently you may lose some or all of your investment in the Company.
 
While we expect that a significant portion of the financing resources needed to acquire vessels will be through long-term debt financing, we may raise additional funds through additional equity offerings. New equity investors may dilute the percentage of the ownership interest of existing shareholders in the Company. Sales or the possibility of sales of substantial amounts of shares of our common stock in the public markets could adversely affect the market price of our common stock.
 
We cannot assure you that we will be able to refinance indebtedness incurred under our credit facilities.

For so long as we have outstanding indebtedness under our credit facilities, we will have to dedicate a portion of our cash flow from operations to pay the principal and interest of this indebtedness. We cannot assure you that we will be able to generate cash flow in amounts that are sufficient for these purposes. If we are not able to satisfy these obligations, we may have to undertake alternative financing plans or sell our assets. The actual or perceived credit quality of our charterers, any defaults by them, and the market value of our fleet, among other things, may materially affect our ability to obtain alternative financing. If we are not able to find alternative sources of financing on terms that are acceptable to us or at all, our business, financial condition, results of operations and cash flows may be materially adversely affected.
 

 
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Our vessels may suffer damage and we may face unexpected drydocking costs which could affect our cash flow and financial condition.
 
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. We may have to pay drydocking costs that our insurance does not cover. This would decrease earnings.
 
Class B shareholders can exert considerable control over us, which may limit future shareholders' ability to influence our actions.
 
Our Class B common shares have 1,000 votes per share and our Class A common shares have one vote per share. Class B shareholders, including certain executive officers and directors, together own 100% of our issued and outstanding Class B common shares, representing approximately 64.6% of the voting power of our outstanding capital stock as of December 31, 2009.
 
Because of the dual class structure of our capital stock, the holders of Class B common shares have the ability to control and will be able to control all matters submitted to our stockholders for approval even if they come to own less than 50% of our outstanding common shares. Even though we are not aware of any agreement, arrangement or understanding by the holders of our Class B common shares relating to the voting of their shares of common stock, the holders of our Class B common shares have the power to exert considerable influence over our actions.
 
As of December 31, 2009, Argon S. A. owned approximately 6.3% of our outstanding Class A common shares and none of our outstanding Class B common shares, representing approximately 2.2% of the total voting power of our outstanding capital stock. Argon S.A. is holding these shares pursuant to a trust in favor of Starling Trading Co, a corporation whose sole shareholder is Ms. Ismini Panayotides, the adult daughter of the Company's Chairman. Ms. Panayotides has no power of voting or disposition of these shares, and disclaims beneficial ownership of these shares except to the extent of her securing interest.
 
As of December 31, 2009, Boston Industries S.A. owned approximately 0.1% of our outstanding Class A common shares and approximately 38.2% of our outstanding Class B common shares, together representing approximately 24.8% of the total voting power of our outstanding capital stock. Boston Industries S.A. is controlled by Ms. Mary Panayotides, the spouse of the Company's Chairman. Ms. Panayotides has no power of voting or disposition of these shares and disclaims beneficial ownership of these shares.
 
As of December 31, 2009, Lhada Holdings Inc. owned approximately 16.1% of our outstanding Class A common shares and none of our outstanding Class B common shares, representing approximately 5.7% of the total voting power of our outstanding capital stock. Lhada Holdings Inc. is owned by a trust, the beneficiaries of which are certain members of the family of the Company's Chairman.
 
As of December 31, 2009, Tanew Holdings Inc. owned approximately 16.1% of our outstanding Class A common shares and none of our outstanding Class B common shares, representing approximately 5.7% of the total voting power of our outstanding capital stock. Tanew Holdings Inc. is owned by a trust, the beneficiaries of which are certain members of the family of the Company's Chairman.
 
As of December 31, 2009, our chairman, Mr. Gabriel Panayotides, owned approximately 2.8% of our outstanding Class A common shares and approximately 21.1% of our outstanding Class B common shares, representing approximately 14.7% of the total voting power of our capital stock.
 
One of our directors may have conflicts of interest, and the resolution of these conflicts of interest may not be in our or our shareholders' best interest.
 
We are party to five joint ventures to purchase newbuilding Capesize dry bulk carrier vessels. Four of these joint ventures are with AMCIC Cape Holdings LLC, or AMCIC, an affiliate of Hans J. Mende, to purchase four newbuilding Capesize vessels. Mr. Mende is a member of our Board of Directors, or our Board, and serves on the board of directors of Fritz Shipco LLC, Iron Lena Shipco LLC, Gayle Frances Shipco LLC, and Benthe Shipco LLC.
 

 
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The presence of Mr. Mende on the board of directors of each of the other four joint ventures may create conflicts of interest because Mr. Mende has responsibilities to these joint ventures. His duties as director of each of the other four joint ventures may conflict with his duties as our director regarding business dealings between the joint ventures and us. In addition, Mr. Mende has a direct economic interest in four of the five joint ventures. The economic interests of Mr. Mende in four of the five joint ventures may conflict with his duty as one of our directors regarding business dealings between these joint ventures and us.
 
As a result of these joint venture transactions, conflicts of interest may arise between the joint ventures and us.
 
If we do not adequately manage the construction of the newbuilding vessels, the vessels may not be delivered on time or in compliance with their specifications.
 
We are party to six contracts to purchase newbuilding vessels, five of which are through joint ventures in which we participate. We are obliged to supervise the construction of these vessels. If we are denied supervisory access to the construction of these vessels by the relevant shipyard or otherwise fail to adequately manage the shipbuilding process, the delivery of the vessels may be delayed or the vessels may not comply with their specifications, which could compromise their performance. Both delays in delivery and failure to meet specifications could result in lower revenues from the operations of the vessels, which could reduce our earnings.
 
If our joint venture partners do not honor their commitments under the joint venture agreements, the joint ventures may not take delivery of the newbuilding vessels.
 
We rely on our joint venture partners to honor their financial commitments under the joint venture agreements, including the payment of their portions of installments due under the shipbuilding contracts or MOAs. If our partners do not make these payments, we may be in default under these contracts.
 
Delays in deliveries of or failure to deliver newbuildings under construction could materially and adversely harm our operating results and could lead to the termination of related time charter agreements.
 
Four of our joint venture newbuilding vessels are under construction at Korea Shipyard Co., Ltd., a greenfield shipyard that has never built vessels before and for which there is no historical track record. The relevant joint ventures have not yet received refund guarantees with respect to these vessels, which may imply that the shipyard will not be able to timely deliver the vessels. The delivery of any one or more of these vessels could be delayed or may not occur, which would delay our receipt of revenues under the time charters for these vessels or otherwise deprive us of the use of the vessel, and thereby adversely affect our results of operations and financial condition. In addition, under some time charters, we may be required to deliver a vessel to the charterer even if the relevant newbuilding has not been delivered to us. If the delivery of the newbuildings is delayed or does not occur, we may be required to enter into a bareboat charter at a rate in excess of the charterhire payable to us. If we are unable to deliver the newbuilding or a vessel that we have chartered at our cost, the customer may terminate the time charter which could adversely affect our results of operations and financial condition.
 
The delivery of the newbuildings could be delayed or may not occur because of:
 
 
·
work stoppages or other labor disturbances or other event that disrupts the operations of the shipbuilder;
 
 
·
quality or engineering problems;
 
 
·
changes in governmental regulations or maritime self-regulatory organization standards;
 
 
·
lack of raw materials and finished components;
 
 
·
failure of the builder to finalize arrangements with sub-contractors;
 
 
·
failure to provide adequate refund guarantees;
 
 
·
bankruptcy or other financial crisis of the shipbuilder;
 

 
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·
a backlog of orders at the shipbuilder;
 
 
·
hostilities, political or economic disturbances in the country where the vessels are being built;
 
 
·
weather interference or catastrophic event, such as a major earthquake or fire;
 
 
·
our requests for changes to the original vessel specifications;
 
 
·
shortages of or delays in the receipt of necessary construction materials, such as steel;
 
 
·
our inability to obtain requisite permits or approvals; or
 
 
·
a dispute with the shipbuilder.
 
In addition, the shipbuilding contracts for the new vessels contain a "force majeure" provision whereby the occurrence of certain events could delay delivery or possibly terminate the contract. If delivery of a vessel is materially delayed or if a shipbuilding contract is terminated, it could adversely affect our results of operations and financial condition and our ability to service our debt or pay dividends to our shareholders in the future.
 
We face strong competition.
 
We obtain charters for our vessels in highly competitive markets in which our market share is insufficient to enforce any degree of pricing discipline. Although we believe that no single competitor has a dominant position in the markets in which we compete, we are aware that certain competitors may be able to devote greater financial and other resources to their activities than we can, resulting in a significant competitive threat to us.
 
We cannot give assurances that we will continue to compete successfully with our competitors or that these factors will not erode our competitive position in the future.
 
Risk of loss and lack of adequate insurance may affect our results.
 
Adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances and events create an inherent risk of catastrophic marine disasters and property loss in the operation of any ocean-going vessel. In addition, business interruptions may occur due to political circumstances in foreign countries, hostilities, labor strikes, and boycotts. Any such event may result in loss of revenues or increased costs.
 
Our business is affected by a number of risks, including mechanical failure of our vessels, collisions, property loss to the vessels, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes.
 
In addition, the operation of any ocean-going vessel is subject to the inherent possibility of catastrophic marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. The United States Oil Pollution Act of 1990, or OPA, by imposing potentially unlimited liability upon owners, operators and bareboat charterers for certain oil pollution accidents in the U.S., has made liability insurance more expensive for ship owners and operators and has also caused insurers to consider reducing available liability coverage.
 
We carry insurance to protect against most of the accident-related risks involved in the conduct of our business and we maintain environmental damage and pollution insurance coverage. We do not carry insurance covering the loss of revenue resulting from vessel off-hire time. We believe that our insurance coverage is adequate to protect us against most accident-related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage. Currently, the available amount of coverage for pollution is $1.0 billion for dry bulk carriers per vessel per incident. However, there can be no assurance that all risks are adequately insured against, that any particular claim will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future. More stringent environmental regulations in the past have resulted in increased costs for insurance against the risk of environmental damage or pollution. In the future, we may be unable to procure adequate insurance coverage to protect us against environmental damage or pollution.
 

 
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Outside of the United States, other national laws generally provide for the owner to bear strict liability for pollution, subject to a right to limit liability under applicable national or international regimes for limitation of liability. The most widely applicable international regime limiting maritime pollution liability is the Convention on Limitation of Liability for Maritime Claims (London 1976), or 1976 Convention. Rights to limit liability under the 1976 Convention are forfeited where a spill is caused by a shipowner's intentional or reckless conduct. Certain states have ratified the IMO's 1996 Protocol to the 1976 Convention. The Protocol provides for substantially higher liability limits to apply in those jurisdictions than the limits set forth in the 1976 Convention. Finally, some jurisdictions are not a party to either the 1976 Convention or the Protocol of 1996, and, therefore, a ship owner's rights to limit liability for maritime pollution in such jurisdictions may be uncertain.

In some areas of regulation, the European Union has introduced new laws without attempting to procure a corresponding amendment of international law. In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. The directive could therefore result in criminal liability being incurred in circumstances where it would not be otherwise incurred under international law. Experience has shown that in the emotive atmosphere often associated with pollution incidents, the negligence alleged by prosecutors has often been found by courts on grounds which the international maritime community has found hard to understand. Moreover, there is skepticism that "serious negligence" is likely to prove any narrower in practice than ordinary negligence. Criminal liability for a pollution incident could not only result in us incurring substantial penalties or fines, but may also, in some jurisdictions, facilitate civil liability claims for greater compensation than would otherwise have been payable.

Because we obtain some of our insurance through protection and indemnity associations, we may also be subject to calls, or premiums, in amounts based not only on our own claim records, but also on the claim records of all other members of the protection and indemnity associations.

We may be subject to calls, or premiums, in amounts based not only on our claim records but also on the claim records of all other members of the protection and indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability. Our payment of these calls could result in significant expenses to us, which could have a material adverse effect on our business, results of operations and financial condition and our ability to pay interest on, or the principal of, the senior notes.
 
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.
 
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 depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, or by the law of the jurisdiction of their incorporation or formation, which regulates the payment of dividends by companies.
 
Risks associated with the purchase and operation of second hand vessels may affect our results of operations.
 
The majority of our vessels were acquired second-hand, and we estimate their useful lives to be 28 years from their date of delivery from the yard, depending on various market factors and management's ability to comply with government and industry regulatory requirements. Part of our business strategy includes the continued acquisition of second hand vessels when we find attractive opportunities.
 
In general, expenditures necessary for maintaining a vessel in good operating condition increase as a vessel ages. Second hand vessels may also develop unexpected mechanical and operational problems despite adherence to regular survey schedules and proper maintenance. Cargo insurance rates also tend to increase with a vessel's age, and older vessels tend to be less fuel-efficient than newer vessels. While the difference in fuel consumption is factored into the freight rates that our older vessels earn, if the cost of bunker fuels were to increase significantly, it could disproportionately affect our vessels and significantly lower our profits. In addition, changes in governmental regulations, safety or other equipment standards may require:
 

 
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·
expenditures for alterations to existing equipment;
 
 
·
the addition of new equipment; or
 
 
·
restrictions on the type of cargo a vessel may transport.
 
We cannot give assurances that future market conditions will justify such expenditures or enable us to operate our vessels profitably during the remainder of their economic lives.
 
The aging of our fleet 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. Our current operating fleet has an average age of approximately 9.7 years.
 
As our fleet ages, we will incur increased costs. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, including environmental 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 our vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or 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. As a result, our business, results of operations, cash flows and financial condition could be adversely affected.
 
If we acquire additional dry bulk carriers and those vessels are not delivered on time or are delivered with significant defects, our earnings and financial condition could suffer.
 
We expect to acquire additional vessels in the future. A delay in the delivery of any of these vessels to us or the failure of the contract counterparty to deliver a vessel at all could cause us to breach our obligations under a related time charter and could adversely affect our earnings, our financial condition and the amount of dividends, if any, that we pay in the future. The delivery of these vessels could be delayed or certain events may arise which could result in us not taking delivery of a vessel, such as a total loss of a vessel, a constructive loss of a vessel, or substantial damage to a vessel prior to delivery. In addition, the delivery of any of these vessels with substantial defects could have similar consequences.
 
As we expand our business, we may need to improve our operating and financial systems and expand our commercial and technical management staff, and will need to recruit suitable employees and crew for our vessels.
 
Our fleet has experienced rapid growth. If we continue to expand our fleet, we will need to recruit suitable additional administrative and management personnel. Although we believe that our current staffing levels are adequate, we cannot guarantee that we will be able to continue to hire suitable employees as we expand our fleet. If we encounter business or financial difficulties, we may not be able to adequately staff our vessels. If we are unable to grow our financial and operating systems or to recruit suitable employees as we expand our fleet, our business and financial condition may be adversely affected.
 

 
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Because most of our employees are covered by industry-wide collective bargaining agreements, failure of industry groups to renew those agreements may disrupt our operations and adversely affect our earnings.
 
We currently employ approximately 1,114 seafarers on-board our vessels and 139 land-based employees in our Athens office. The 139 employees in Athens are covered by industry-wide collective bargaining agreements that set basic standards. We cannot assure you that these agreements will prevent labor interruptions. Any labor interruptions could disrupt our operations and harm our financial performance.
 
We may not be exempt from Liberian taxation which would materially reduce our net income and cash flow by the amount of the applicable tax.
 
The Republic of Liberia enacted a new income tax law generally effective as of January 1, 2001, or the New Act, which repealed, in its entirety, the prior income tax law, or the Prior Law, in effect since 1977 pursuant to which we and our Liberian subsidiaries, as non-resident domestic corporations, were wholly exempt from Liberian tax.
 
In 2004, the Liberian Ministry of Finance issued regulations pursuant to which a non-resident domestic corporation engaged in international shipping such as ourselves will not be subject to tax under the New Act retroactive to January 1, 2001, or the New Regulations. In addition, the Liberian Ministry of Justice issued an opinion that the New Regulations were a valid exercise of the regulatory authority of the Ministry of Finance. Therefore, assuming that the New Regulations are valid, we and our Liberian subsidiaries will be wholly exempt from tax as under the Prior Law. If we were subject to Liberian income tax under the New Act, we and our Liberian subsidiaries would be subject to tax at a rate of 35% on our worldwide income. As a result, our net income and cash flow would be materially reduced by the amount of the applicable tax. In addition, our stockholders would be subject to Liberian withholding tax on dividends at rates ranging from 15% to 20%.
 
U.S. tax authorities could treat us as a "passive foreign investment company," which could have adverse U.S. federal income tax consequences to U.S. holders.
 
A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income." U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
 
Based on our past, current and proposed method of operation, we do not believe that we have been, are or will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities does not constitute "passive income," and the assets that we own and operate in connection with the production of that income do not constitute passive assets.
 
There is substantial legal authority supporting this position consisting of case law and United States Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes.  However, it should be noted that there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes.  Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC.  Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations changed.
 

 
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If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders will face adverse U.S. tax consequences. Under the PFIC rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders, as discussed below under "Taxation"), such shareholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the shareholders' holding period of our common shares. See "Taxation" for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.
 
We may have to pay tax on United States source income, which would reduce our earnings.
 
Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under section 883 of the Code and the applicable Treasury Regulations recently promulgated thereunder.
 
We do not believe that we are currently entitled to exemption under Section 883 for any taxable year. Therefore, we are subject to an effective 2% United States federal income tax on the gross shipping income that we derive during the year that is attributable to the transport or cargoes to or from the United States.
 
The market price of our Class A common stock has fluctuated widely and the market price of our Class A common stock may fluctuate in the future.
 
The market price of our Class A common stock has fluctuated widely since our Class A common stock began trading on the New York Stock Exchange, or NYSE, in September 2005 and may continue to do so as a result of many factors, including our actual results of operations and perceived prospects, the prospects of our competition and of the shipping industry in general and in particular the drybulk sector, differences between our actual financial and operating results and those expected by investors and analysts, changes in analysts' recommendations or projections, changes in general valuations for companies in the shipping industry, particularly the drybulk sector, changes in general economic or market conditions and broad market fluctuations.  In addition, future sales of our Class A common stock  may decrease our stock price.
 
Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may have.
 
We are a Liberian corporation. Our articles of incorporation and bylaws and the Business Corporation Act of Liberia 1976 govern our affairs. While the Liberian Business Corporation Act resembles provisions of the corporation laws of a number of states in the United States, Liberian law does not as clearly establish your rights and the fiduciary responsibilities of our directors as do statutes and judicial precedent in some U.S. jurisdictions. However, while the Liberian courts generally follow U.S. court precedent, there have been few judicial cases in Liberia interpreting the Liberian Business Corporation Act. Investors may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction which has developed a substantial body of case law.
 

 
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Certain of our directors, officers, and principal stockholders are affiliated with entities engaged in business activities similar to those conducted by us which may compete directly with us, causing such persons or entities with which they are affiliated to have conflicts of interest.

Some of our directors, officers and principal stockholders have affiliations with entities that have similar business activities to those conducted by us or that are parties to agreements with us. Certain of our directors are also directors of other shipping companies and they may enter similar businesses in the future. These other affiliations and business activities may give rise to certain conflicts of interest in the course of such individuals' affiliation with us. For instance, four of our joint ventures are with AMCIC Cape Holdings, or AMCIC, an affiliate of Hans J. Mende, to purchase four newbuilding Capesize vessels.  Mr. Mende is a member of our Board of Directors, and also serves on the board of directors of Fritz Shipco LLC, Iron Lena Shipco LLC, Gayle Frances Shipco LLC, and Benthe Shipco LLC.  Although we do not prevent our directors, officers and principal stockholders from having such affiliations, we use our best efforts to cause such individuals to comply with all applicable laws and regulations in addressing such conflicts of interest. Our officers and employee directors devote their full time and attention to our ongoing operations, and our non-employee directors devote such time as is necessary and required to satisfy their duties as directors of a public company.

Excel Maritime Carriers Ltd. is incorporated in the Republic of Liberia, which does not have a well-developed body of corporate law.

Excel Maritime Carriers Ltd.'s corporate affairs are governed by its amended and restated articles of incorporation and by-laws and by the Liberian Business Corporations Act, or the BCA. The provisions of the BCA are intended to resemble provisions of the corporation laws of a number of states in the United States. The rights and fiduciary responsibilities of directors under the law of the Republic of Liberia are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Stockholder rights may differ as well.
 
We may be unable to retain key management personnel and other employees in the shipping industry, which may negatively impact the effectiveness of our management and results of operations.
 
Our success depends to a significant extent upon the abilities and efforts of our management team. Our ability to retain key members of our management team and to hire new members as may be necessary will contribute to that success. The loss of any of these individuals could adversely affect our business prospects and financial condition. Difficulty in hiring and retaining replacement personnel could have a similar effect. We do not maintain "key man" life insurance on any of our officers.
 
Because we generate all of our revenues in U.S. dollars but incur a significant portion of our expenses in other currencies, exchange rate fluctuations could hurt our results of operations.
 
We generate all of our revenues in U.S. dollars but incur approximately 20% of our vessel operating expenses in currencies other than U.S. dollars. This variation in operating revenues and expenses could lead to fluctuations in net income due to changes in the value of the U.S. dollar relative to the other currencies, in particular the Japanese yen, the Euro, the Singapore dollar and the British pound sterling. Expenses incurred in foreign currencies against which the U.S. dollar falls in value may increase as a result of these fluctuations, therefore decreasing our net income. We do not currently hedge these risks. Our results of operations could suffer as a result.
 
Our substantial operations outside the United States expose us to political, governmental and economic instability, which could harm our operations.
 
Because our operations are primarily conducted outside of the United States, they may be affected by economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered. Future hostilities or political instability in regions where we operate or may operate could have a material adverse effect on our business, results of operations and ability to service our debt and pay dividends. In addition, tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries where our vessels trade may limit trading activities with those countries, which could also harm our business, financial condition and results of operations.
 

 
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Unless we set aside reserves for vessel replacement, at the end of a vessel's useful life our revenue will decline if we are also unable to borrow funds for vessel replacement.
 
If we do not maintain cash reserves for vessel replacement, we may be unable to replace the vessels in our fleet upon the expiration of their useful lives in the event we also have insufficient credit or access to credit at the times of such expiration. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels to customers. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations, financial condition and ability to service our debt and pay dividends will be adversely affected. Any reserves set aside for vessel replacement would not be available for other cash needs or dividends. In periods where we make acquisitions, our Board may limit the amount or percentage of our cash from operations available to service our debt and pay dividends.
 
The price of our Class A common stock may be volatile.
 
The price of our Class A common stock prior to and after an offering may be volatile, and may fluctuate due to factors such as:
 
 
·
actual or anticipated fluctuations in quarterly and annual results;
 
 
·
mergers and strategic alliances in the shipping industry;
 
 
·
market conditions in the industry;
 
 
·
changes in government regulation;
 
 
·
fluctuations in our quarterly revenues and earnings and those of our publicly held competitors;
 
 
·
shortfalls in our operating results from levels forecast by securities analysts;
 
 
·
announcements concerning us or our competitors; and
 
 
·
the general state of the securities market.
 
Future sales of our Class A common stock may depress our stock price.
 
The market price of our Class A common stock could decline as a result of sales of substantial amounts of our Class A common stock in the public market or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future equity offerings.
 
Issuance of preferred stock may adversely affect the voting power of our shareholders and have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock.
 
Our articles of incorporation currently authorize our Board to issue preferred shares in one or more series and to determine the rights, preferences, privileges and restrictions, with respect to, among other things, dividends, conversion, voting, redemption, liquidation and the number of shares constituting any series subject to prior shareholders' approval. If our Board determines to issue preferred shares, such issuance may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable. The issuance of preferred shares with voting and conversion rights may also adversely affect the voting power of the holders of common shares. This 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 stock and your ability to realize any potential change of control premium.
 

 
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We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants of our notes and future and existing credit facilities and make payments on our debt.
 
As of December 31, 2009, we have had total debt of $1.3 billion.  Our level of debt could have important consequences for us, including the following:
 
 
·
we may have difficulty borrowing money in the future for acquisitions, capital expenditures or to meet our operating expenses or other general corporate obligations;
 
 
·
we will need to use a substantial portion of our cash flows to pay interest on our debt, which will reduce the amount of money we have for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other business activities;
 
 
·
we may have a higher level of debt than some of our competitors, which may put us at a competitive disadvantage;
 
 
·
we may be more vulnerable to economic downturns and adverse developments in our industry or the economy in general; and
 
 
·
our debt level, and the financial covenants in our various debt agreements, could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
 
To service our indebtedness, we will require a significant amount of cash.  Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt obligations could harm our business, financial condition and results of operations.
 
Our ability to make scheduled payments on and to refinance our indebtedness and to fund future capital expenditures will depend on our ability to generate cash from operations in the future.  This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.  We cannot assure you that our business will generate sufficient cash flow from operations in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.  If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to sell assets, seek additional equity or debt capital or restructure our debt.  We cannot assure you that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all.  In addition, any failure to make scheduled payments of interest and principal on our notes or any other outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms.  Our cash flow and capital resources may be insufficient for payment of interest on and principal of our debt in the future and any such alternative measures may be unsuccessful or may not permit us to meet scheduled debt service obligations, which could cause us to default on our obligations and could impair our liquidity.
 
The agreements and instruments governing our debt contain restrictive covenants, which may limit our liquidity and corporate activities and prevent proper service of debt, which could result in the loss of our vessels.
 
Our loan agreements impose significant operating and financial restrictions on us.  These restrictions may limit our ability to:
 
 
·
incur additional indebtedness;
 
 
·
create liens on our assets;
 
 
·
sell capital stock of our subsidiaries;
 
 
·
make investments;
 

 
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·
engage in mergers or acquisitions;
 
 
·
pay dividends or redeem capital stock;
 
 
·
make capital expenditures;
 
 
·
change the management of our vessels or terminate or materially amend the management agreement relating to each vessel; and
 
 
·
sell our vessels.
 
Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions.  Our lenders' interests may be different from ours and we cannot guarantee that we will be able to obtain our lenders' permission when needed.  This may prevent us from taking actions that we believe are in our best interest.
 
We are subject to certain fraudulent transfer and conveyance statutes which may adversely affect holders of our notes. >
 
Fraudulent transfer and insolvency laws to which we and our subsidiary guarantors may be subject may result in our notes and the guarantees being voided, subordinated or limited.
 
The Republic of the Marshall Islands
 
Many of our guarantors, as of the issue date of our notes, are organized under the laws of the Republic of the Marshall Islands. While the Republic of the Marshall Islands does not have a bankruptcy statute or general statutory mechanism for insolvency proceedings, a Marshall Islands court could apply general U.S. principles of fraudulent conveyance, discussed below, in light of the provisions of the Marshall Islands Business Corporations Act, or the BCA, restricting the grant of guarantees without a corporate purpose. In such case, a Marshall Islands court could void or subordinate our notes or our subsidiary guarantees, including for the reasons a U.S. court could void or subordinate a guarantee as described below.
 
United States
 
Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of our notes and the incurrence of the subsidiary guarantees, particularly any future guarantees of any U.S. subsidiaries we might create. Under U.S. federal bankruptcy law and comparable provisions of U.S. state fraudulent transfer or conveyance laws, if any such law would be deemed to apply, which may vary from state to state, our notes or the subsidiary guarantees could be voided as a fraudulent transfer or conveyance if (1) we or any of the guarantors, as applicable, issued our notes or incurred the guarantees with the intent of hindering, delaying or defrauding creditors, or (2) we or any of the guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for either issuing our notes or incurring the guarantees and, in the case of (2) only, one of the following is also true at the time thereof:
 
 
·
we or any of the guarantors, as applicable, were insolvent or rendered insolvent by reason of the issuance of our notes or the incurrence of the subsidiary guarantees;
 
 
·
the issuance of our notes or the incurrence of the subsidiary guarantees left us or any of the guarantors, as applicable, with an unreasonably small amount of capital to carry on the business;
 
 
·
we or any of the guarantors intended to, or believed that we or such guarantor would, incur debts beyond our or such guarantor's ability to pay as they mature; or
 
 
·
we or any of the guarantors was a defendant in an action for money damages, or had a judgment for money damages docketed against us or such guarantor if, in either case, after final judgment, the judgment is unsatisfied.
 

 
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If a court were to find that the issuance of our notes or the incurrence of the subsidiary guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under our notes or such subsidiary guarantee or further subordinate our notes or such subsidiary guarantee to presently existing and future indebtedness of ours or of the related guarantor, or require the holders of our notes to repay any amounts received with respect to such guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on our notes. Further, the voidance of our notes could result in an event of default with respect to our and our subsidiaries' other debt that could result in acceleration of such debt.
 
As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied. A debtor will generally not be considered to have received value in connection with a debt offering if the debtor uses the proceeds of that offering to make a dividend payment or otherwise retire or redeem equity securities issued by the debtor.
 
We cannot be certain as to the standards a court would use to determine whether or not we or the guarantors were solvent at the relevant time or, regardless of the standard that a court uses, that the issuance of the subsidiary guarantees would not be further subordinated to our or any 38 of our guarantors' other debt. Generally, however, an entity would be considered insolvent if, at the time it incurred indebtedness:
 
 
·
the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; or
 
 
·
the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
 
 
·
it could not pay its debts as they become due.
 
Other jurisdictions
 
The laws of the other jurisdictions in which guarantors are or may be organized (such as the Republic of Liberia and Cyprus) may also limit the ability of those guarantors to guarantee debt of a parent company. These limitations arise under various provisions or principles of corporate law, including provisions requiring a subsidiary guarantor to receive adequate corporate benefit from the financing, rules governing preservation of share capital, and thin capitalization and fraudulent transfer principles. In certain of these jurisdictions, the subsidiary guarantees will contain language limiting the amount of debt guaranteed so that the applicable local law restrictions will not be violated. Accordingly, if you were to enforce the subsidiary guarantees in such jurisdictions, your claims may be limited. Furthermore, although we believe that the subsidiary guarantees of such guarantors are enforceable (subject to local law restrictions), a third-party creditor may challenge these guarantees and prevail in court. We can provide no assurance that the subsidiary guarantees will be enforceable.
 
It may be difficult to serve process on or enforce a U.S. judgment against us, our officers and the majority of our directors.
 
We are a Liberian corporation and nearly all of our executive officers and directors are located outside of the United States.  Most of our directors and officers and certain of the experts reside outside the United States. In addition, a substantial portion of our assets and the assets of our directors, officers and experts are located outside of the United States.  As a result, you may have difficulty serving legal process within the United States upon us or any of these persons.  You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in U.S. courts against us or any of these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is substantial doubt that the courts of the Republic of Liberia or of the non-U.S. jurisdictions in which our offices are located would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws.
 

 
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ITEM 4 - INFORMATION ON THE COMPANY
 
A. History and Development of the Company
 
We, Excel Maritime Carriers Ltd., were incorporated under the laws of the Republic of Liberia on November 2, 1988.
 
Our Class A common stock has traded on the NYSE under the symbol "EXM" since September 15, 2005. Prior to that date, our Class A common stock traded on the American Stock Exchange, or the AMEX, under the same symbol. As of December 31, 2009, we had 79,770,159 shares of our Class A common stock and 145,746 shares of our Class B common stock issued and outstanding.
 
The address of our registered office in Bermuda is 14 Par-la-Villa Road, Hamilton HM JX, Bermuda. We also maintain executive offices at 17th km National Road Athens-Lamia & Finikos Str., 145 64, Nea Kifisia, Athens, Greece. Our telephone number at that address dialing from the U.S. is (011) 30 210 818 7000.
 
Capital Expenditures and Divestitures
 
Beginning on March 6, 2007, we held 18.9% of the outstanding common stock of Oceanaut Inc., or Oceanaut, a corporation in the development stage, organized on May 3, 2006 under the laws of the Republic of the Marshall Islands. Oceanaut was formed to acquire, through a merger, capital stock exchange, asset acquisition, stock purchase or other similar business combination, vessels or one or more operating businesses in the shipping industry.
 
On March 6, 2007 Oceanaut completed its initial public offering in the United States under the United States Securities Act of 1933, as amended and sold 18,750,000 units, or the units, at a price of $8.00 per unit, raising gross proceeds of $150.0 million. Prior to the closing of the initial public offering, Oceanaut consummated a private placement to us, consisting of 1,125,000 units at $8.00 per unit price and 2,000,000 warrants at $1.00 per warrant to purchase an equivalent amount of common stock at a price of $6.00 per share, raising gross proceeds of $11.0 million. On April 6, 2009, Oceanaut announced that its shareholders approved its dissolution and liquidation, and on April 15, 2009, we received $5.2 million, representing approximately $8.26 per share of Oceanaut common stock included in 625,000 of the 1,125,000 Oceanaut insider units that we owned.
 
On April 27, 2007, our Board of Directors approved the sale of vessel Goldmar for $15.7 million, net of selling costs to a company affiliated with its Chairman.
 
In December 2007, the vessels July M and Mairouli were delivered to the Company for $126.0 million in total.
 
On April 15, 2008, we completed our acquisition of Quintana. As a result of the acquisition, Quintana operates as a wholly-owned subsidiary of Excel under the name Bird Acquisition Corp., or Bird. Under the terms of the merger agreement, each issued and outstanding share of Quintana common stock was converted into the right to receive (i) $13.00 in cash and (ii) 0.3979 shares of Excel Class A common stock. We paid approximately $764.0 million in cash and 23,496,308 shares of our Class A common stock to existing shareholders of Quintana in exchange for all of the outstanding shares of Quintana. The total consideration for the acquisition amounted to $1.4 billion.
 
During the year ended December 31, 2008, we paid $84.9 million in relation to our vessels under construction, including vessel Sandra which was delivered to us on December 26, 2008 at a total cost of $149.1 million.
 
In February 2009, we sold the vessel Swift for net proceeds of approximately $3.7 million.
 
On October 27, 2009 we and one of our joint venture partners completed two agreements for the exchange of our ownership interests in three joint venture companies. Please see "Item 10, Additional Information – C. Material Contracts – Newbuilding Contracts", for a discussion of the restructuring of our ownership interests in these joint ventures. Based on the agreements concluded, we agreed to sell our 50% ownership interest in Lillie Shipco LLC to AMCIC Cape Holdings LLC ("AMCIC"), an affiliate company of a member of our Board of Directors for a consideration of $1.2 million and the transfer by AMCIC to us of its 50% ownership interest in Hope Shipco LLC. In addition, AMCIC sold its 28.6% ownership interest in Christine Shipco LLC to us for a consideration of $2.8 million. Following the completion of the transaction, we became 100% owner of Hope Shipco LLC, increased our interest in Christine Shipco LLC to 71.4% and disposed our interest in Lillie Shipco LLC.
 

 
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During the year ended December 31, 2009, we paid $9.4 million representing scheduled advances in relation to our vessels under construction.
 
B. Business Overview
 
We are a provider of worldwide sea borne transportation services for dry bulk cargo including among others, iron ore, coal and grain, collectively referred to as "major bulks," and steel products, fertilizers, cement, bauxite, sugar and scrap metal, collectively referred to as "minor bulks". Our fleet is managed by one of our wholly-owned subsidiaries, Maryville.
 
Currently, our fleet consists of 40 vessels and, together with seven Panamax vessels under bareboat charters, we operate 47 vessels, consisting of five Capesize, fourteen Kamsarmax, 21 Panamax, five Handymax and two Supramax vessels, with a total carrying capacity of approximately 3.9 million dwt. In addition to the above fleet, we have also assumed - through a wholly owned subsidiary and five joint venture vessel-owning companies, six shipbuilding contracts for six Capesize vessels, two of which are expected to be delivered to us within the year ending December 31, 2010. As no refund guarantees have yet been received for the remaining four newbuilding contracts, their construction may be delayed and they may never be delivered at all.
 
Our Fleet
 
The following is a list of the operating vessels in our fleet as of March 9, 2010, all of which are drybulk carriers:
 
Vessel Name
DWT
Year Built
Type
Sandra
180,274
 
2008
Capesize
Lowlands Beilun
170,162
 
1999
Capesize
Iron Miner
177,931
 
2007
Capesize
Kirmar
164,218
 
2001
Capesize
Iron Beauty
164,218
 
2001
Capesize
Iron Manolis
82,269
 
2007
Kamsarmax
Iron Brooke
82,594
 
2007
Kamsarmax
Iron Lindrew
82,598
 
2007
Kamsarmax
Coal Hunter
82,298
 
2006
Kamsarmax
Pascha
82,574
 
2006
Kamsarmax
Coal Gypsy
82,221
 
2006
Kamsarmax
Iron Anne
82,220
 
2006
Kamsarmax
Iron Vassilis
82,257
 
2006
Kamsarmax
Iron Bill
82,187
 
2006
Kamsarmax
Santa Barbara
82,266
 
2006
Kamsarmax
Ore Hansa
82,209
 
2006
Kamsarmax
Iron Kalypso
82,224
 
2006
Kamsarmax
Iron Fuzeyya
82,209
 
2006
Kamsarmax
Iron Bradyn
82,769
 
2005
Kamsarmax
Grain Harvester
76,417
 
2004
Panamax
Grain Express
76,466
 
2004
Panamax
Iron Knight
76,429
 
2004
Panamax
Coal Pride
72,493
 
1999
Panamax
Iron Man (1)
72,861
 
1997
Panamax
Coal Age (1)
72,824
 
1997
Panamax

 
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Vessel Name
DWT
Year Built
Type
Fearless I (1)
73,427
 
1997
Panamax
Barbara (1)
73,307
 
1997
Panamax
Linda Leah (1)
73,317
 
1997
Panamax
King Coal (1)
72,873
 
1997
Panamax
Coal Glory (1)
73,670
 
1995
Panamax
Isminaki
74,577
 
1998
Panamax
Angela Star
73,798
 
1998
Panamax
Elinakos
73,751
 
1997
Panamax
Rodon
73,656
 
1993
Panamax
Happy Day
71,694
 
1997
Panamax
Birthday
71,504
 
1993
Panamax
Renuar
70,155
 
1993
Panamax
Powerful
70,083
 
1994
Panamax
Fortezza
69,634
 
1993
Panamax
First Endeavour
69,111
 
1994
Panamax
July M
55,567
 
2005
Supramax
Mairouli
53,206
 
2005
Supramax
Emerald
45,588
 
1998
Handymax
Marybell
42,552
 
1987
Handymax
Attractive
41,524
 
1985
Handymax
Lady
41,090
 
1985
Handymax
Princess I
38,858
 
1994
Handymax
Total
3,860,130
     

(1)  Indicates a vessel sold by Quintana to a third party in July 2007 and subsequently leased back to Quintana under a bareboat charter.

In addition to the above fleet, we are party- through a wholly owned subsidiary and the joint ventures in which we participate- to the following newbuilding contracts for six Capesize vessels:
 
Vessel
DWT
Expected Delivery
Ownership
Hope
181,000
 
November 2010
100%
Christine
180,000
 
April 2010
71.4%
Fritz
180,000
 
May 2010 (A)
50.0%
Benthe
180,000
 
June 2010 (A)
50.0%
Gayle Frances
180,000
 
July 2010 (A)
50.0%
Iron Lena
180,000
 
August 2010 (A)
50.0%
Total
1,081,000
     

(A) Indicates contracted delivery dates for a new building vessel for which no refund guarantee has yet received and may be delayed in delivery or may never be delivered at all.

 
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Business Strategy
 
Our business strategy includes:
 
·      Fleet Expansion and Reduction in Average Age. We intend to continue to grow our fleet and, over time, reduce its average age. Most significantly, our acquisition of Quintana allowed us to add 30 young and well maintained operating dry bulk carriers to our fleet. Our vessel acquisition candidates generally are chosen based on economic and technical criteria. We also expect to explore opportunities to sell some of our older vessels at attractive prices.
 
·      Balanced Fleet Deployment Strategy. Our fleet deployment strategy seeks to maximize charter revenue throughout industry cycles while maintaining cash flow stability. We intend to achieve this through a balanced portfolio of spot and period time charters. Upon completion of their current charters, our recently acquired vessels may or may not be employed on spot/short-duration time charters, depending on the market conditions at the time.
 
·      Capitalizing on our Established Reputation. We believe that we have established a reputation in the international shipping community for maintaining high standards of performance, reliability and safety. Since the appointment of new management in 1998 (Maryville), the Company has not suffered the total loss of a vessel at sea or otherwise. In addition, our wholly-owned management subsidiary, Maryville, carries the distinction of being one of the first Greece-based ship management companies to have been certified ISO 14001 compliant by Bureau Veritas.
 
·      Expansion of Operations and Client Base. We aim to become one of the world's premier full service dry bulk shipping companies. We operate a fleet of 47 vessels with a total carrying capacity of 3.9 million dwt and a current average age of approximately 9.7 years, which makes us one of the largest dry bulk shipping companies in the industry and gives us the largest dry bulk fleet by dwt operated by any U.S.-listed company.
 
Competitive Strengths
 
We believe that we possess a number of competitive strengths in our industry:
 
·      Experienced Management Team. Our management team has significant experience in operating dry bulk carriers and expertise in all aspects of commercial, technical, operational and financial areas of our business, promoting a focused marketing effort, tight quality and cost controls, and effective operations and safety monitoring.
 
·      Strong Customer Relationships. We have strong relationships with our customers and charterers that we believe are the result of the quality of our fleet and our reputation for quality vessel operations. Through our wholly-owned management subsidiary, Maryville, we have many long-established customer relationships, and our management believes it is well regarded within the international shipping community. During the past 19 years, vessels managed by Maryville have been repeatedly chartered by subsidiaries of major dry bulk operators. In 2009, we derived approximately 34% of our gross revenues from a single charterer, Bunge.
 
·      Cost Efficient Operations. We historically operated our fleet at competitive costs by carefully selecting second hand vessels, competitively commissioning and actively supervising cost efficient shipyards to perform repair, reconditioning and systems upgrading work, together with a proactive preventive maintenance program both ashore and at sea, and employing professional, well trained masters, officers and crews. We believe that this combination has allowed us to minimize off-hire periods, effectively manage insurance costs and control overall operating expenses.
 
Ship Management
 
Historically, our fleet was managed by Excel Management Ltd., or Excel Management, an affiliated Liberian corporation formed on January 13, 1998 and controlled by the Chairman of our Board, under a five-year management agreement. Excel Management had sub-contracted Maryville to perform some of these management services. Maryville became a wholly-owned subsidiary of ours on March 31, 2001.
 

 
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In order to streamline operations, reduce costs and take control of the technical and commercial management of our fleet, in early March 2005, with effect from January 1, 2005, we reached an agreement with Excel Management to terminate the management agreement, the term of which was scheduled to extend until April 30, 2008. The technical and commercial management of our fleet was assumed by Maryville in order to eliminate the fees we would have paid to Excel Management for the remaining term of the management agreement, which would have increased substantially given the expansion of our fleet.
 
In exchange for terminating the management agreement mentioned above and in exchange for a one time cash payment of $ 2.0 million, we agreed to issue to Excel Management 205,442 shares of our Class A common stock and to issue to Excel Management additional shares at any time until December 31, 2008 if we issue additional shares of our Class A common stock to any other party for any reason, such that the number of additional Class A common stock that would be issued to Excel Management together with the initial 205,442 shares of Class A common stock, in the aggregate, equal 1.5% of our total outstanding Class A common stock after taking into account the third party issuance and the shares issued to Excel Management under the anti-dilution provision of the agreement. With the exception of the one time cash payment of $2.0 million discussed above, no other consideration would be received from Excel Management for any shares of Class A common stock issued by us to Excel Management pursuant to an anti-dilution issuance.
 
On June 19, 2007, we issued to Excel Management 298,403 Class A common shares (representing the 205,442 Class A common shares described in the termination agreement and 92,961 additional Class A common shares to reflect the necessary anti-dilution adjustment resulting from the issuance of Class A common stock by us since March 2005) in exchange for the cash payment of $2.0 million.
 
In addition, during the year ended December 31, 2008, we issued 392,801 shares of our Class A common stock under the anti-dilution provision as a result of the shares issued in relation to our acquisition of Quintana, the cancellation of a vessel's purchase and of the incentive share issuances to certain of our officers, directors, and employees. The anti-dilution provision lapsed as of January 1, 2009.
 
Brokering agreement
 
On March 4, 2005, we also entered into a one-year brokering agreement with Excel Management. Under this brokering agreement, Excel Management will, pursuant to our instructions, act as our broker with respect to, among other matters, the employment of our vessels. For its chartering services under the brokering agreement, Excel Management will receive a commission fee equal to 1.25% of the revenue of our vessels. This agreement extends automatically for successive one-year terms at the end of its initial term and may be terminated by either party upon twelve months prior written notice. The agreement was automatically extended by another year on March 4, 2010.
 
Permits and Authorizations
 
The business of the Company and the operation of its vessels are materially affected by government regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often revised, the Company cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale price or useful life of its vessels. Additional conventions, laws and regulations may be adopted which could limit the ability of the Company to do business or increase the cost of its doing business.
 
The Company is required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to its operations. The kinds of permits, licenses, certificates and other authorizations required for each vessel 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 the vessel. Subject to these factors, as well as the discussion below, the Company believes that it has been and will be able to obtain all permits, licenses and certificates material to the conduct of its operations. However, additional laws and regulations, environmental or otherwise, may be adopted which could limit the Company's ability to do business or increase the Company's cost of doing business and which may materially adversely affect the Company's operations.
 

 
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Environmental and Other Regulations
 
Government regulation significantly affects the ownership and operation of dry bulk carriers. A variety of government and private entities subject dry bulk vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (United States Coast Guard, harbor master or equivalent), classification societies, flag state administrations (country of registry), charterers or contract of affreightment counterparties, and terminal operators. Certain of these entities will require us to obtain permits, licenses and certificates 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 dry bulk shipping 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 officers and crews and compliance with local, national and international environmental laws and regulations. We believe that the operations 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.
 
International Maritime Organization
 
The International Maritime Organization, or IMO, (the United Nations agency for maritime safety and the prevention of pollution by ships) has adopted the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the related Protocol of 1978 relating thereto, which has been updated through various amendments, or the MARPOL Convention. The MARPOL Convention establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. The IMO adopted regulations that set forth pollution-prevention requirements applicable to dry bulk carriers. These regulations have been adopted by over 150 nations, including many of the jurisdictions in which the Company's vessels operate.
 
In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships.  Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits deliberate emissions of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile organic compounds from cargo tanks, and the shipboard incineration of specific substances.  Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions.  Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and adversely affect our business, cash flows, results of operations and financial condition.  In October 2008, the IMO adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone-depleting substances, which amendments enter into force on July 1, 2010.  The amended Annex VI will reduce air pollution from vessels by, among other things, (i) implementing a progressive reduction of sulfur oxide emissions from ships by reducing the global sulfur fuel cap initially to 3.50% (from the current cap of 4.50%), effective from January 1, 2012, then progressively to 0.50%, effective from January 1, 2020, subject to a feasibility review to be completed no later than 2018; and (ii) establishing new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation.  The United States ratified the Annex VI amendments in October 2008, and the U.S. Environmental Protection Agency, or EPA, promulgated equivalent emissions standards in late 2009.
 
The IMO also adopted the International Convention for the Safety of Life at Sea, or SOLAS, and the International Convention on Load Lines, or LL, which impose a variety of standards that regulate the design and operational features of ships.  The IMO periodically revises the SOLAS and LL standards.
 
In addition, the IMO adopted the International Convention for the Control and Management of Ships' Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will not enter into force 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 tonnage. To date, there has not been sufficient adoption of this standard for it to take force.
 

 
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The operation of our ships is also affected by the requirements set forth in the ISM Code. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a 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. Currently, each of the Company's applicable vessels is ISM code-certified. However, there can be no assurance that such certifications will be maintained indefinitely.
 
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
 
The United States Oil Pollution Act of 1990
 
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 with 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.
 
Under OPA, vessel owners, operators and bareboat charterers are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:
 
(i)  natural resources damage and the costs of assessment thereof;
 
(ii)  real and personal property damage;
 
(iii)  net loss of taxes, royalties, rents, fees and other lost revenues;
 
(iv)  lost profits or impairment of earning capacity due to property or natural resources damage;
 
(v)  net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards; and
 
(vi) loss of subsistence use of natural resources.
 
Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability for non-tank vessels to the greater of $1,000 per gross ton or $0.85 million per non-tank (e.g. drybulk) vessel that is over 3,000 gross tons (subject to periodic adjustment for inflation). CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for any other vessel. These OPA and CERCLA limits of liability do not apply if an incident was directly caused by violation of applicable U.S. federal safety, construction or operating regulations or by a responsible party's gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.
 
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 states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states, which have enacted such legislation, have not yet issued implementing regulations defining vessel owners' responsibilities under these laws. The Company intends to comply with all applicable state regulations in the ports where the Company's vessels call.
 

 
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The U.S. Clean Water Act
 
The CWA prohibits the discharge of oil, hazardous substances and ballast water 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.
 
The U.S. Clean Air Act
 
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Our vessels that operate in such port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these requirements. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these existing requirements.
 
Other Environmental Initiatives
 
European Union Regulations
 
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.
 
Greenhouse Gas Regulation
 
In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or UNFCCC, which we refer to as the Kyoto Protocol, entered into force. Pursuant to the Kyoto Protocol, adopting countries are required to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are suspected of contributing to global warming. Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol. However, international negotiations are continuing with respect to a successor to the Kyoto Protocol, which sets emission reduction targets through 2012, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the United States and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The European Union has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from vessels, if such emissions are not regulated through the IMO or the UNFCCC by December 31, 2010. In the United States, the EPA has issued a final finding that greenhouse gases threaten public health and safety, and has promulgated regulations, expected to be finalized in March 2010, regulating the emission of greenhouse gases from motor vehicles and stationary sources.  The EPA may decide in the future to regulate greenhouse gas emissions from ships and has already been petitioned by the California Attorney General to regulate greenhouse gas emissions from ocean-going vessels.  Other federal and state regulations relating to the control of greenhouse gas emissions may follow, including the climate change initiatives that are being considered in the U.S. Congress.  In addition, the IMO is evaluating various mandatory measures to reduce greenhouse gas emissions from international shipping, including market-based instruments.  Any passage of climate control legislation or other regulatory initiatives by the EU, U.S., IMO or other countries where we operate that restrict emissions of greenhouse gases could require us to make significant financial expenditures that we cannot predict with certainty at this time.
 

 
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The International Dry Bulk Shipping Market
 
The dry bulk shipping market is the primary provider of global commodities transportation. Approximately one third of all seaborne trade is dry bulk related.
 
After three consecutive years in which demand for seaborne trade has grown faster than newbuilding supply, the situation was reversed in mid-2005. While demand growth slowed, a new all-time high for newbuilding deliveries, together with minimal scraping, resulted in a weaker market in 2005 which continued in the first half of 2006. Beginning with the second half of 2006, the market showed signs of significant strength which continued in 2007 with the BDI closing the year 2007 at 9,143. The market remained at high levels until May 20, 2008 when the BDI reached an all-time high.
 
Following May 2008, the BDI fell over 90% from May 2008 through December 16, 2008 and almost 75% during the fourth quarter of 2008 through December 16, 2008, reaching a low of 663, or 94% below the May 2008 high point, in December 2008. The BDI recovered during 2009, at a rate of 350% to close the year at 3005 points, whoever from January 2009 through December 2009, the BDI was reaching a high of 4661, or 700% above the December 2008 low point, in November 2009.
 
The average BDI value for 2009, about 2600, represented only 60% of the average BDI for 2008, about 6390, despite the latter part of 2008 being depressed. The current BDI value is approximately 24% higher than the 2009 average levels.
 
 The general decline in the dry bulk carrier charter market has resulted in lower charter rates for vessels exposed to the spot market and time charters linked to the BDI. Specifically, we currently employ 14 of our vessels in the spot market.
 
Dry bulk vessel values have also declined both as a result of a slowdown in the availability of global credit and the significant deterioration in charter rates. Charter rates and vessel values have been affected in part by the lack of availability of credit to finance both vessel purchases and purchases of commodities carried by sea, resulting in a decline in cargo shipments, and the excess supply of iron ore in China, resulting in falling iron ore prices and increased stockpiles in Chinese ports. There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or whether they will improve to any significant degree. Charter rates may remain at depressed levels for some time, which will adversely affect our revenue and profitability.
 
Capesize rates, which averaged $100,000 per day in August 2008, fell to approximately $2,300 per day on December 2, 2008. The Capesize market is currently at approximately USD 37,804 per day. We believe that while the root cause of the fall has been a sharp slowdown in Chinese steel demand and prices leading to reduced demand for iron ore and coal, the price reductions of  approximately 30% achieved from the 'big three' mining companies, Companhia Vale do Rio Doce, a Brazilian mining company, BHP Billiton and Rio Tinto, Anglo Australian mining companies, for the 2009 benchmark pricing, coupled with lower transportation cost, sparked Chinese steel mills to restock and turn back to foreign mined high quality iron ore. Additionally, the thawing trade finance, bank's willingness to issue letters of credit resulted in increased financing for the purchase of commodities carried by sea which has led to a significant incline in cargo shipments and an attendant surge in charter rates.
 
Vessel Security Regulations
 
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002, or MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States.  Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new chapter became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS Code is designed to protect ports and international shipping against terrorism. After July 1, 2004, to trade internationally, a vessel must attain an International Ship Security Certificate from a recognized security organization approved by the vessel's flag state. Among the various requirements are:
 

 
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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 vessel security plans;
 
 
·
ship identification number to be permanently marked on a vessel's hull;
 
 
·
a continuous synopsis record kept on-board showing a vessel's history including, name of the ship and of the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and
 
 
·
compliance with flag state security certification requirements.
 
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt from MTSA vessel security measures non-U.S. vessels that have on board, as of July 1, 2004, a valid ISSC attesting to the vessel's compliance with SOLAS security requirements and the ISPS Code.  We will implement and comply with the various security measures addressed by the MTSA, SOLAS and the ISPS Code to the extent they are applicable to us or our vessels.
 
Customers
 
The Company has many long-established customer relationships, and management believes it is well regarded within the international shipping community. During the past 19 years, vessels managed by Maryville have been repeatedly chartered by subsidiaries of major dry bulk operators. In 2009, we derived approximately 34% of our gross revenues from a single charterer, Bunge. In particular, all 14 of our Kamsarmax vessels and two Panamax vessels are on time charter to Bunge until December 31, 2010. Consequently, a significant portion of our future revenues will be derived from Bunge – see "Risk Factors" above for further details.
 
Inspection by Classification Societies
 
The hull and machinery of every large, commercial oceangoing vessel must be "classed" by a classification society.  A classification society certifies that a 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, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:
 
 
·
Annual Surveys.  For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant and where applicable for special equipment classed, at intervals of 12 months from the date of commencement of the class period indicated in the certificate.
 

 
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·
Intermediate Surveys.  Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal.  Intermediate surveys may be carried out on the occasion of the second or third annual survey.
 
 
·
Class Renewal Surveys.  Class renewal surveys, also known as special surveys, are carried out for the ship's hull, machinery, including the electrical plant and for any special equipment classed, at the intervals indicated by the character of classification for the hull.  At the special survey the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures.  Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals.  The classification society may grant a one year grace period for completion of the special survey.  Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear.  In lieu of the special survey every four or five years, depending on whether a grace period was granted, a shipowner has the option of arranging with the classification society for the vessel's hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five year cycle.  At an owner's application, 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.
 
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 that must be rectified by the shipowner within prescribed time limits.
 
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in-class" by a classification society that is a member of the International Association of Classification Societies.  All our vessels are certified as being "in-class" by Bureau Veritas, American Bureau of Shipping, Nippon Kaiji Kyokai, Det Norske Veritas and Lloyd's Register of Shipping.  All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard purchase contracts and memoranda of agreement. If the vessel is not certified on the scheduled date of closing, we have no obligation to take delivery of the vessel.
 
Our wholly-owned management subsidiary, Maryville, implemented Safety Management and Quality standards long before they became mandatory by the relevant institutions. Although the shipping industry was aware that the ISM Code would become mandatory as of July 1, 1998, Maryville, in conjunction with ISO 9002:1994, commenced operations back in 1995 aiming to voluntarily implement both systems well before the International Safety Management date.
 
Maryville was the first ship management company in Greece to receive simultaneous ISM and ISO Safety and Quality Systems Certifications in February 1996 for the safe operation of dry cargo vessels.  At the end of 2003, Maryville's Management System was among the first five company management systems to have been successfully audited and found to be in compliance with management System Standards for both ISO 9001:2000 and ISO 14001:1996 mentioned above. Certification to Maryville for both standards was issued in early 2004.
 
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. The Company's vessels are on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also required to be dry-docked every two to three years for inspection of the underwater parts of such vessel. Generally, the Company will make a decision to scrap a vessel or reassess its useful life at the time of a vessel's fifth special survey.
 

 
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Risk of Loss and Liability Insurance
 
General
 
The operation of any cargo vessel includes risks such as mechanical failure, structural damage to the vessel, collision, personal injuries, 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 mishaps, 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 any vessel trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship owners and operators trading in the U.S. market.
 
Hull and Machinery Insurance and War Risks Insurance
 
The Company maintains hull and machinery and war risks insurance, which includes the risk of actual or constructive total loss, and protection and indemnity insurance with mutual assurance associations. The Company does not carry insurance covering the loss of revenue resulting from vessel off-hire time. The Company believes that its insurance coverage is adequate to protect it against most accident-related risks involved in the conduct of its business and that it maintains appropriate levels of environmental damage and pollution insurance coverage. However, there can be no assurance that all risks are adequately insured against, that any particular claim will be paid or that the Company will be able to procure adequate insurance coverage at commercially reasonable rates.
 
Protection and Indemnity Insurance
 
We are a member of a protection and indemnity association, or P&I Club, that covers our third party liabilities in connection with our shipping activities.  This includes third-party liability and other expenses and claims in connection with injury or death of crew, passengers and other third parties, loss or damage to cargo, damage to other third-party property, pollution arising from oil or other substances, wreck removal and related costs. Subject to the "capping" discussed below, our coverage, except for pollution, is unlimited.  Our current protection and indemnity insurance coverage for oil pollution is $1 billion per vessel per incident. The Company's P&I policies are subject to deductibles for up to $11,000 for crew claims, $7,500 and $4,000 for all other claims per each accident or occurrence.
 
The P&I Club of which we are a member is one of the 13 P&I Clubs that compose the International Group of P&I Clubs, which insure more than 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Each P&I Club has capped its exposure to this pooling agreement at $4.25 billion. A member of a P&I Club that is a member of the International Group is typically subject to possible supplemental amounts or calls, payable to its P&I Club based on its claim records as well as the claim records of all other members of the individual associations, and members of the International Group.  To the extent the Company experiences supplemental calls, its policy is to expense such amounts. Supplemental calls for 2007, 2008 and 2009 amounted to $0.3 million, $1.0 million and $0.6 million, respectively and are included in operating expenses in the consolidated financial statements for the three years ended December 31, 2009.  All such amounts are not material.
 
Although there is no cap on our liability exposure under this arrangement, historically supplemental calls have ranged from 0%-40% of our annual insurance premiums, and in no year have exceeded $1.0 million.
 
C. Organizational Structure
 
We are the parent company of the following subsidiaries as of March 9, 2010:
 
Subsidiary
 
Place of Incorporation
 
Percentage of  Ownership
         
Maryville Maritime Inc.
 
Liberia
 
100%
Point Holdings Ltd. (1)
 
Liberia
 
100%
Bird Acquisition Corp.(2)
 
Marshall Islands
 
100%

(1)
Point Holdings Ltd. is the parent company (100%) of sixteen Liberian ship-owning subsidiaries as follows, each of which owns one vessel: Fianna Navigation S.A., Marias Trading Inc., Yasmine International Inc., Tanaka Services Ltd., Amanda Enterprises Ltd., Whitelaw Enterprises Co., Candy Enterprises Inc., Fountain Services Ltd., Harvey Development Corp., Teagan Shipholding S.A., Minta Holdings S.A., Odell International Ltd., Ingram Limited, Snapper Marine ltd., Barland Holdings Inc. and Castalia Services Ltd.  In addition, Point is the parent company (100%) of the following five Liberian non ship-owning companies, Magalie Investments Corp., Melba Management Ltd., Naia Development Corp., Pisces Shipholding Ltd and Liegh Jane Navigation S.A., as well as of the Liberian company Thurman International Ltd. which is the parent company (100% owner) of Centel Shipping Company Ltd., the owner of vessel Lady.

 
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(2)
Bird is the parent company (100%) of the following Marshall Islands ship-owning subsidiaries, each of which owns one vessel: Lowlands Beilun Shipco LLC, Iron Miner Shipco LLC, Kirmar Shipco LLC, Iron Beauty Shipco LLC, Iron Manolis Shipco LLC, Iron Brooke Shipco LLC, Iron Lindrew Shipco LLC, Coal Hunter Shipco LLC, Pascha Shipco LLC, Coal Gypsy Shipco LLC, Iron Anne Shipco LLC, Iron Vassilis Shipco LLC, Iron Bill Shipco LLC, Santa Barbara Shipco LLC, Ore Hansa Shipco LLC, Iron Kalypso Shipco LLC, Iron Fuzeyya Shipco LLC, Iron Bradyn Shipco LLC, Grain Harvester Shipco LLC, Grain Express Shipco LLC, Iron Knight Shipco LLC, Coal Pride Shipco LLC, Sandra Shipco LLC (formerly Iron Endurance Shipco LLC), and Hope Shipco LLC. In addition, Bird is the parent company (100%) of the following seven Marshall Islands non ship-owning companies, Iron Man Shipco LLC, Coal Age Shipco LLC, Fearless Shipco LLC, Barbara Shipco LLC, Linda Leah Shipco LLC, King Coal Shipco LLC and Coal Glory Shipco LLC, each of which sold its vessel to a third party in July 2007 and subsequently leased the vessel back under a bareboat charter. Bird is also a joint venture partner in five Marshall Islands ship-owning companies, four of which are 50% owned by Bird (Fritz Shipco LLC, Benthe Shipco LLC, Gayle Frances Shipco LLC and Iron Lena Shipco LLC.) and one of which is 71.4% owned by Bird (Christine Shipco LLC). Each of the foregoing subsidiaries has been formed to be the owner of respective newbuilding Capesize dry bulk carriers. For more information, please see below under "Item 10, Additional Information – C. Material Contracts – Newbuilding Contracts".We have guaranteed the performance of one of these joint ventures obligations under a contract for a newbuilding vessel with purchase price of $72.4 million.
 
Following our acquisition of Quintana, we also own Quintana Management LLC, which was the management company for Quintana's vessels prior to the merger on April 15, 2008 but has not provided management services to any of our vessels nor to any third party vessels, and Quintana Logistics, which was incorporated in 2005 to engage in chartering operations, including contracts of affreightment, and which has had no operations during the period from the merger on April 15, 2008 to March 9, 2010. On December 24, 2008 Quintana Management LLC closed its Greek office which was established under the provisions of Law 89/1967 and the company is in the process of being dissolved.
 
D. Property, Plant and Equipment
 
We do not own any real estate property. Our management agreement with Maryville includes terms under which we and our subsidiaries are being offered office space, equipment and secretarial services at 17th km National Road Athens-Lamia & Finikos Str., Nea Kifisia, Athens, Greece. Maryville has a rental agreement with an unrelated party for the rental of these office premises.
 
ITEM 4A – UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
The following management's discussion and analysis of the results of our operations and our financial condition should be read in conjunction with the financial statements and the notes to those statements included in "Item 18, Financial Statements". This discussion includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, such as those set forth in the "Risk Factors" section and elsewhere in this report.
 
A. Results of Operations
 
Factors Affecting Our Results of Operations
 
Voyage revenues
 
Gross revenues from vessels consist primarily of (i) hire earned under time charter contracts, where charterers pay a fixed daily hire or (ii) amounts earned under voyage charter contracts, where charterers pay a fixed amount per ton of cargo carried. Gross revenues are also affected by the proportion between voyage and time charters, since revenues from voyage charters are generally higher than equivalent time charter hire revenues, as they are of a shorter duration and cover all costs relating to a given voyage, including port expenses, canal dues and fuel (bunker) costs. Accordingly, year-to-year comparisons of gross revenues are not necessarily indicative of the fleet's performance. The time charter equivalent per vessel, or TCE, which is defined as gross revenue per day less commissions and voyage costs, provides a more accurate measure for comparison.
 

 
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Voyage expenses and commissions to a related party
 
Voyage expenses consist of all costs relating to a given voyage, including port expenses, canal dues, fuel costs, net of gains or losses from the sale of bunkers to charterers, and commissions. Under voyage charters, the owner of the vessel pays such expenses whereas under time charters the charterer pays such expenses excluding commissions. Therefore, voyage expenses can fluctuate significantly from period to period depending on the type of charter arrangement.
 
Time charter amortization-revenue and Charter hire amortization-expense
 
Where we identify any assets or liabilities associated with the acquisition of a vessel, we record all such identified assets or liabilities at fair value. Fair value is determined by reference to market data. We value any asset or liability arising from the market value of the time charters assumed when a vessel is acquired. The amount to be recorded as an asset or liability at the date of vessel delivery is based on the difference between the current fair value of a charter with similar characteristics as the time charter assumed and the net present value of future contractual cash flows from the time charter contract assumed.  When the present value of the time charter assumed is greater than the current fair value of such charter, the difference is recorded as an asset; otherwise, the difference is recorded as liability. Such assets and liabilities are amortized as an expense or revenue, respectively over the remaining period of the time charters acquired.
 
Vessel operating expenses
 
Vessel operating expenses consist primarily of crewing, repairs and maintenance, lubricants, victualling, stores, spares and insurance expenses. The vessel owner is responsible for all vessel operating expenses under voyage charters and time charters. Our vessel operating expenses have historically been increased as a result of the enlargement of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance and crew wages, may also cause these expenses to increase.
 
Depreciation
 
Vessel acquisition cost and subsequent improvements are depreciated on a straight-line basis over the remaining useful life of each vessel, estimated to be 28 years from the date of construction. In computing vessel depreciation, the estimated salvage value is also taken into consideration. Effective October 1, 2008 and following management's reassessment of the residual value of the vessels, the estimated salvage value per light weight ton (LWT) was increased to $200 from $120. Management's estimate was based on the average demolition prices prevailing in the market during the last five years for which historical data were available. We do not expect these assumptions to change in the near future. Our depreciation charges have increased in recent periods due to the enlargement of our fleet and will continue to grow as our fleet expands.
 
Depreciation of office, furniture and equipment is calculated on a straight line basis over the estimated useful life of the specific asset placed in service, which ranges from three to nine years.
 
Dry-docking and Special Survey costs
 
Dry-docking and special survey relates to our regularly scheduled maintenance program necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Management anticipates that vessels will undergo dry-dock and special survey every two and a half years and five years, respectively.  Effective January 1, 2009, these costs are expensed as incurred. In accordance with ASC 250, "Accounting Changes and Error Corrections", this change has been retrospectively applied in the accompanying consolidated financial statements.
 

 
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General and Administrative Expenses
 
Our general and administrative expenses include onshore vessel administrative related expenses such as legal and professional expenses and payroll and expenses relating to our executive officers and office staff, office rent and expenses, directors' fees, and directors and officers insurance.  General and administrative expenses include also the amortization of our stock based compensation.
 
Fiscal Year ended December 31, 2009 Compared to Fiscal Year ended December 31, 2008
 
Voyage revenues from vessels
 
Voyage revenues decreased by $69.5 million, or 15.1%, to $391.7 million in the year ended December 31, 2009, compared to $461.2 million for the year ended December 31, 2008.  The decrease is attributable to the market conditions prevailing during the year which resulted in lower rates earned by our vessels operating in the spot market, while the average number of operating vessels increased from 38.6 during the year ended December 31, 2008 to 47.2 during the year ended December 31, 2009. Time charter equivalent per ship per day for the year ended December 31, 2009 amounted to $21,932 compared to time charter equivalent per ship per day of $31,291 for the year ended December 31, 2008.
 
Time charter amortization
 
Time charter amortization, which relates to the amortization of unfavorable time charters that were fair valued upon the acquisition of Quintana Maritime Ltd., amounted to $364.4 million in the year ended December 31, 2009 as compared to $234.0 million for the year ended December 31, 2008. Included in the time charter amortization for the year ended December 31, 2009 is also an amount of $63.1 million related to the accelerated amortization of the time charter liability related to vessels Sandra, Coal Pride and Grain Harvester due to the termination of the time charters that were assumed by us upon acquiring Quintana.
 
Voyage expenses and commissions to a related party
 
Voyage expenses decreased by $8.8 million, or 31.3%, to $19.3 million for the year ended December 31, 2009, compared to $28.1 million for the year ended December 31, 2008.  The decrease was driven by lower commissions due to decreased voyage revenues which also account for the decrease of $1.3 million, or 36.1%, in Commissions to a related party for the year ended December 31, 2009 as compared with the respective period in 2008. 
 
Charter hire expense
 
Charter hire expense, representing bareboat hire for the bareboat vessels amounted to $32.8 million for the year ended December 31, 2009 as compared with $23.4 million for the year ended December 31, 2008.
 
Charter hire amortization
 
Charter hire amortization, which relates to the favorable bareboat charters that were fair valued upon the acquisition of Quintana Maritime Ltd, amounted to $40.0 million in the year ended December 31, 2009 as compared to $28.4 million for the year ended December 31, 2008.
 
Vessel operating expenses
 
Vessel operating expenses increased by $13.5 million, or 19.4%, to $83.2 million in the year ended December 31, 2009 compared to $69.7 million for the year ended December 31, 2008. The increase is mainly attributable to the increase in the number of vessels operated from an average of 38.6 vessels for the year ended December 31, 2008 to 47.2 vessels for the year ended December 31, 2009. Daily vessel operating expenses per vessel slightly decreased by $101 or 2.0%, to $4,829 for 2009, compared to $4,930 for 2008.
 

 
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Depreciation
 
Depreciation expense, which includes depreciation of vessels and depreciation of office furniture and equipment increased by $24.6 million, or 24.9%, to $123.4 million for the year ended December 31, 2009, compared to $98.8 million for the year ended December 31, 2008. The increase is mainly attributable to the increase in the number of vessels operated from an average of 38.6 vessels for the year ended December 31, 2008 to 47.2 vessels for the year ended December 31, 2009. 
 
Dry-docking and special survey costs
 
During the year ended December 31, 2009, the Company incurred dry-docking and special survey costs of approximately $11.4 million as compared to $13.5 million in the year ended December 31, 2008.
 
General and Administrative Expenses
 
General and administrative expenses increased by $10.1 million, or 30.7%, to $43.0 million for the year ended December 31, 2009 compared to $32.9 million for the year ended December 31, 2008. Our general and administrative expenses include salaries and other related costs of the executive officers and other employees, office rent, legal and auditing costs, regulatory compliance costs and other miscellaneous office expenses.
 
Stock-based compensation for the year ended December 31, 2009 was $19.8 million as compared to $8.6 million for the corresponding year in 2008 and is included in the above amounts. As at December 31, 2009, the total unrecognized cost related to these awards was $3.8 million which will be recognized through December 31, 2012.
 
Excluding those amounts, general and administrative expenses decreased by $1.1 million or 4.5% to $23.2 million in the year ended December 31, 2009 from $24.3 million for the respective period in 2008. Since the majority of such expenses are paid in Euro, the decrease presented was due to improved exchange rates between Euro and USD during the year ended December 31, 2009 compared to the year ended December 31, 2008.
 
Loss on disposal of Joint venture ownership interest
 
During the year ended December 31, 2009, we recognized a loss of $3.7 million relating to the disposal of our subsidiary Lillie ShipCo due to the exchange of ownership interests in joint ventures which are discussed in Note 5 to our consolidated financial statements included in Item 18, Financial Statements.
 
Interest and finance costs, net
 
Interest and finance costs, net, which include interest and finance costs and interest income, increased by $1.4 million, or 2.6%, to $56.3 million in the year ended December 31, 2009 compared to $54.9 million for the respective year in 2008. The increase is primarily attributable to the decrease of interest income by $6.2 million from $7.1 million in the year ended December 31, 2008 to $0.8 million in the year ended December 31, 2009. On the other hand, interest costs decreased by $4.8 million from $61.9 million in the year ended December 31, 2008 to $57.1 million in the year ended December 31, 2009. The decrease was due to the decrease in the average outstanding debt balances during the year ended December 31, 2009 following loan prepayments and loan payments amounting to $216.9 million and the decrease in LIBOR rates prevailing during the year ended December 31, 2009.
 
Interest rate swap losses
 
Interest rate swap losses decreased by $34.8 million to $1.1 million in the year ended December 31, 2009 as compared to $35.9 million in the year ended December 31, 2008. Realized interest rate swap losses for the year ended December 31, 2009 increased by $18.3 million to $28.4 million as compared to realized interest rate swap losses of $10.1 in the year ended December 31, 2008. In addition, included in interest rate swaps losses for the years ended December 31, 2008 and 2009 are unrealized losses of $25.8 million and unrealized gains of $27.2 million, respectively, attributable to the mark- to- market valuation of interest rate swaps that do not qualify for hedge accounting.
 

 
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Other net
 
Other net amounted to an income of $0.4 million for the year ended December 31, 2009 compared to an income of $1.6 million in the respective period in 2008.
 
U.S. source income taxes
 
U.S. source income taxes amounted to $0.8 million and $0.7 million for the years ended December 31, 2008 and 2009, respectively.
 
Loss assumed by non-controlling interests
 
Loss assumed by non-controlling interests in the years ended December 31, 2008 and 2009 represents the joint ventures partners' share of the loss of the joint ventures.
 
Fiscal Year ended December 31, 2008 Compared to Fiscal Year ended December 31, 2007
 
Voyage revenues from vessels
 
Voyage revenues increased by $284.5 million, or 161.0%, to $461.2 million in the year ended December 31, 2008, compared to $176.7 million for the year ended December 31, 2007.  The increase is attributable to the increased hire rates earned over the year and the increase in the average number of vessels operated from 16.5 during the year ended December 31, 2007 to 38.6 during the year ended December 31, 2008. Time charter equivalent per ship per day for the year ended December 31, 2008 amounted to $31,291 compared to time charter equivalent per ship per day of $28,942 for the year ended December 31, 2007.
 
Time charter amortization
 
Time charter amortization, which relates to the amortization of unfavorable time charters that were fair valued upon the acquisition of Quintana Maritime Ltd., amounted to $234.0 million for the year ended December 31, 2008. There was no such amortization recorded in the corresponding period in 2007.
 
Voyage expenses and commissions to a related party
 
Voyage expenses increased by $17.0 million, or 153.2%, to $28.1 million for the year ended December 31, 2008, compared to $11.1 million for the year ended December 31, 2007.  The increase was driven by higher commissions due to increased voyage revenues which also account for the increase by $1.4 million, or 63.6%, in Commissions to a related party for the year ended December 31, 2008 as compared with the respective period in 2007. 
 
Charter hire expense
 
Charter hire expense amounted to $23.4 million representing bareboat hire for the bareboat vessels.  No charter hire expense existed in the year ended December 31, 2007.
 
Charter hire amortization
 
Charter hire amortization of $28.4 million relates to the favorable bareboat charters that were fair valued upon the acquisition of Quintana Maritime Ltd. There was no such charter hire amortization in the corresponding period in 2007.
 
Vessel operating expenses
 
Vessel operating expenses increased by $36.1 million, or 107.4%, to $69.7 million in the year ended December 31, 2008 compared to $33.6 million for the year ended December 31, 2007. The increase is mainly attributable to the increase in the number of vessels operated from an average of 16.5 vessels for the year ended December 31, 2007 to 38.6 vessels for the year ended December 31, 2008.
 

 
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 Daily vessel operating expenses per vessel decreased by $668 or 11.9%, to $4,930 for 2008, compared to $5,598 for 2007. This decrease was mainly attributed to the economies of scale from our merging with Quintana, which reduced the average age of the combined fleet and the application of joint fleet management processes that resulted in significant savings.
 
Depreciation
 
Depreciation expense, which includes depreciation of vessels and depreciation of office furniture and equipment increased by $70.9 million, or 254.1%, to $98.8 million for the year ended December 31, 2008, compared to $27.9 million for the year ended December 31, 2007. The increase is mainly attributable to the increase in the number of vessels operated from an average of 16.5 vessels for the year ended December 31, 2007 to 38.6 vessels for the year ended December 31, 2008. 
 
Vessel impairment loss
 
Vessel impairment loss amounted to $2.2 million and relates to the loss determined on vessel Swift following our impairment analysis at December 31, 2008. No impairment loss was recognized in the year ended December 31, 2007.
 
Dry-docking and special survey costs
 
During the year ended December 31, 2008, the Company incurred dry-docking and special survey costs of approximately $13.5 million as compared to $6.8 million in the year ended December 31, 2007.
 
General and Administrative Expenses
 
General and administrative expenses increased by $20.3 million, or 161.1%, to $32.9 million for the year ended December 31, 2008 compared to $12.6 million for the year ended December 31, 2007. Our general and administrative expenses include salaries and other related costs of the executive officers and other employees, office rent, legal and auditing costs, regulatory compliance costs and other miscellaneous office expenses. The general and administrative costs were higher during the year ended December 31, 2008 compared to the respective year in 2007 due to the increase in our shore-based personnel following the acquisition of Quintana Maritime Ltd. and the increased costs of operating a larger fleet. Stock-based compensation for the year ended December 31, 2008 was $8.6 million as compared to $0.8 million for the corresponding year in 2007. As at December 31, 2008, the total unrecognized cost related to the above awards was $25.6 million which will be recognized through December 31, 2012. Out of this amount, $14.7 million was forfeited subsequently to December 31, 2008.
 
In addition, since the majority of such expenses are paid in Euro, the significant increase in the average exchange rate between USD and Euro for the year ended December 31, 2008 compared to the year ended December 31, 2007 also contributed to the increase in our general and administrative expenses.
 
Write-down of Goodwill
 
During the year ended December 31, 2008, we recognized an impairment of $335.4 million to write-off the goodwill that resulted from Quintana's acquisition.
 
Loss from vessel purchase cancellation
 
Loss from vessel purchase cancellation amounted to approximately $15.6 million and represents the costs to terminate the agreement for the acquisition of the Medi Cebu, entered into in connection with a proposed transaction by Oceanaut. No contracts to purchase vessels were cancelled in the year ended December 31, 2007.
 
Interest and finance costs, net
 
Interest and finance costs, net, which include interest and finance costs and interest income, increased by $46.8 million, or 577.8%, to $54.9 million in the year ended December 31, 2008 compared to $8.1 million for the respective year in 2007. The increase is primarily attributable to increased interest costs due to the increase in the average outstanding debt balances during the year ended December 31, 2008 following the loan obtained to partly finance the acquisition of Quintana.
 

 
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Interest rate swap losses
 
Interest rate swap losses increased by $35.5 million to $35.9 million in the year ended December 31, 2008 as compared to $0.4 million in the year ended December 31, 2007. Realized interest rate swap losses for the year ended December 31, 2008 increased by $10.4 million to $10.1 million as compared to realized interest rate swap gains of $0.3 in the year ended December 31, 2007. In addition, included in interest rate swaps losses for the years ended December 31, 2007 and 2008 are unrealized losses of $0.7 million and $25.8 million, respectively attributable to the mark- to- market valuation of interest rate swaps that do not qualify for hedge accounting.
 
Other net
 
Other net amounted to an income of $1.6 million for the year ended December 31, 2008 compared to a loss of $0.1 million in the respective period in 2007.
 
U.S. source income taxes
 
U.S. source income taxes amounted to $0.5 million and $0.8 million for the years ended December 31, 2007 and 2008, respectively.
 
Income from investment
 
Income from investment relates to our share (18.9%) of the earnings of Oceanaut. During the years ended December 31, 2007 and 2008, income from this investment amounted to $0.9 million and $0.5 million, respectively.
 
Loss in value of investment
 
Loss in value of investment amounted to approximately $11.0 million and represents the unrecoverable amount of our investment in Oceanaut on the basis of its liquidation. No such loss existed in the year ended December 31, 2007.
 
Loss assumed by non-controlling interests
 
Loss assumed by non-controlling interests in the year ended December 31, 2008 represents the joint ventures partners' share of the net income of the joint ventures. Non controlling interests in the year ended December 31, 2007 represents the 25% share held by certain of the Company's officers and directors in Oceanaut's results prior to its initial public offering on March 6, 2007.
 
Accounting changes

During the year ended December 31, 2009 the Company performed the following accounting changes:

 
·
adopted the  amendments in the accounting for Non-controlling Interest in a Subsidiary provided in ASC Topic 810-10-45;

 
·
adopted ASC Topic 470-20 which requires the issuer of certain convertible debt instruments that may be settled in cash on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible borrowing rate;

 
·
changed the method of accounting for dry docking and special survey costs from the deferral method, under which costs associated with the dry-docking and special survey of a vessel are deferred and charged to expense over the period to a vessel's next scheduled dry-docking, to the direct expense method, under which the dry-docking and special survey costs will be expensed as incurred.

 
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With the exception of the amendments made in accordance with ASC 810 which require retrospective application only in the presentation and disclosure requirements, the other two accounting changes require retrospective application for all periods presented and were effected in the accompanying consolidated financial statements in accordance with ASC Topic 250 "Accounting Changes and Error Corrections", which requires that an accounting change should be retrospectively applied to all prior periods presented, unless it is impractical to determine the prior period impacts.  The effect of the above changes is presented in Note 3 to our consolidated financial statements in "Item 18, Financial Statements".

Critical Accounting Policies
 
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions. Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies, because they generally involve a comparatively higher degree of judgment in their application. For a description of all our significant accounting policies, see Note 2 to our consolidated financial statements included under "Item 18, Financial Statements".
 
Vessels' Depreciation
 
We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation. Depreciation begins 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). Second hand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. We estimate the useful life of our vessels to be 28 years from the date of initial delivery from the shipyard and the residual value of our vessels to be $120 per lightweight ton. A decrease in the useful life of a dry bulk vessel or in its residual value would have the effect of increasing the annual depreciation charge. Effective October 1, 2008 and following management's reassessment of the residual value of the vessels, the estimated salvage value per light weight ton (LWT) was increased to $200 from $120. Management's estimate was based on the average demolition prices prevailing in the market during the last five years for which historical data were available. The effect of this change in accounting estimate, which did not require retrospective application as per ASC Topic 250 "Accounting Changes and Error Corrections," was to decrease net loss for the year ended December 31, 2008 by $0.5 million or $0.01 per weighted average number of share, both basic and diluted. 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 become effective.
 
Impairment of Long-Lived Assets
 
We evaluate the carrying amounts of our vessels to determine if events have occurred that would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, we review certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions.
 
The current economic and market conditions, including the significant disruptions in the global credit markets, are having broad effects on participants in a wide variety of industries. Since mid-August 2008, the charter rates in the dry bulk charter market have declined significantly, and dry bulk vessel values have also declined both as a result of a slowdown in the availability of global credit and the significant deterioration in charter rates, conditions that we consider indicators of impairment.
 
In developing estimates of future undiscounted cash flows, we make assumptions and estimates about the vessels' future performance, with the significant assumptions being related to charter rates, fleet utilization, vessels' operating expenses, vessels' capital expenditures, vessels' residual value and the estimated remaining useful life of each vessel. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations and taking into consideration growth rates.
 
We determine undiscounted projected net operating cash flows for each vessel and compare it to the vessel's carrying value. Consistent with prior years and to the extent impairment indicators were present, the projected net operating cash flows are determined by considering the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days (based on the most recent ten year historical average and utilizing available market data for time charter and spot market rates and forward freight agreements) over the remaining estimated life of the vessel assumed to be 28 years from the delivery of the vessel from the shipyard, net of brokerage commissions, expected outflows for vessels' maintenance and vessel operating expenses (including planned drydocking and special survey expenditures), assuming an average annual inflation rate of 3.5% and fleet utilization of 95% to 97%. The salvage value used in the impairment test is estimated to be $200 per light weight ton (LWT) in accordance with our vessels' depreciation policy discussed above.
 
 
 
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If our estimate of undiscounted future cash flows 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 if the fair market value is lower than the vessel's carrying value.
 
Our analysis for the year ended December 31, 2009, which also involved sensitivity tests on the time charter rates and fleet utilization (being the most sensitive inputs to variances), allowing for variances of up to 23% depending on vessel type on time charter rates and 1.0% on fleet utilization from the Company's base scenario, indicated no impairment on any of our vessels. Based on the same set of significant assumptions and estimates, management also believes it is probable that we will meet, at future covenant measurement dates, the financial covenants of our loan agreements as such agreements were amended in March 2009 to comply with the financial covenants that make use of the vessels' market values following the significant decline in the vessel market. See Item 10C "Material Contracts" for a detailed description of our loan agreements.
 
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or whether they will improve by any significant degree. Charter rates may remain at depressed levels for some time which could adversely affect our revenue and profitability, and future assessments of vessel impairment.
 
Intangibles
 
Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market data and the amount of expected future cash flows. We value any asset or liability arising from the market value of the time charters assumed when an acquired vessel is delivered to us. Where we have assumed 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 less than market charter rates, we record a deferred liability based on the difference between the assumed charter rate and the market charter rate for an equivalent vessel. Conversely, where we assume an existing charter obligation or enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are above market charter rates, we record a deferred asset, based on the difference between the market charter rate and the 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. The determination of the fair value of acquired assets and assumed liabilities requires us to make significant assumptions and estimates of many variables including market charter rates, expected future charter rates, and our weighted average cost of capital. The use of different assumptions could result in a material change in the fair value of these items, which could have a material impact on our financial position and results of operations. In the event that the market charter rates relating to the acquired vessels are lower than the contracted charter rates at the time of their respective deliveries to us, our net earnings for the remainder of the terms of the charters may be adversely affected although our cash flows will not be so affected. Although management believes that the assumptions used to evaluate the present and fair values discussed above are reasonable and appropriate, such assumptions are highly subjective.
 
Accounting for Revenue and Expenses
 
Vessels are chartered using either voyage charters, where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified charter rate, or time charters, where a contract is entered into for the use of a vessel for a specific period of time and a specified daily charterhire rate. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized, as it is earned ratably over the duration of the period of each voyage or time charter. A voyage is deemed to commence upon the completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of discharge of the current cargo. Demurrage income represents payments by the charterer to the vessel owner when loading or discharging time exceeded the stipulated time in the voyage charter and is recognized as it is earned ratably over the duration of the period of each voyage charter. Deferred revenue includes cash received prior to the balance sheet date for which all criteria to recognize as revenue have not been met, including any deferred revenue resulting from charter agreements providing for varying annual rates, which are accounted for on a straight line basis. Deferred revenue also includes the unamortized balance of the liability associated with the acquisition of second-hand vessels with time charters attached which are acquired at values below fair market value at the date the acquisition agreement is consummated.
 
Voyage expenses, primarily consisting of port, canal and bunker expenses net of gains or losses from the sales of bunkers to time charterers are paid for by the charterer under the time charter arrangements or by us under voyage charter arrangements, except for commissions, which are always paid for by us regardless of charter type. All voyage and vessel operating expenses are expensed as incurred, except for commissions.
 
Commissions paid to brokers are deferred and amortized over the related voyage charter period to the extent revenue has been deferred since commissions are earned as our revenues are earned.
 

 
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Derivatives
 
We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on earnings and cash flows of our borrowings. We use interest rate swaps to manage net exposure to interest rate changes related to our borrowings and to lower our overall borrowing costs. Such swap agreements, designated as "economic hedges" are recorded at fair value in accordance with the provisions of ASC 815 "Derivatives and Hedging" which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value, with changes in the derivatives' fair value recognized currently in earnings unless specific hedge accounting criteria are met. None of our outstanding derivative contracts meet hedge accounting criteria and the change in their fair value is recognized through earnings.
 
Convertible Senior Notes

Effective January 1, 2009, we adopted ASC Topic 470-20, "Debt with Conversion and Other Options," which requires the issuer of certain convertible debt instruments that may be settled in cash on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate and is applied retrospectively.
 
We have currently one outstanding convertible debt instrument that is impacted by ASC Topic 470-20. The new standard requires that a fair value be assigned to the equity conversion option of our $150 million, 1.875% convertible notes as of October 16, 2007, the date of their issuance. This change resulted in a corresponding decrease in the value assigned to the carrying value of the debt portion of the instrument.
 
The value assigned to the debt portion of the convertible notes was determined based on market interest rate for similar debt instrument without the conversion feature as of the issuance date of the convertible notes. The difference in market interest rate versus the coupon rate on the convertible notes results in non-cash interest that is amortized into interest expense over the expected terms of the convertible notes. For purposes of the valuation, we used an expected term of seven years since the convertible notes contain an embedded put option that allows the holder to require us to purchase the notes at the option of the holder on specified dates with the first such put option date on October 15, 2014.
 
ASC Topic 470-20 requires retrospective restatement of all periods presented with the cumulative effect of the change in accounting principle on prior periods being recognized as of the beginning of the first period presented. The adoption of ASC Topic 470-20 had an effect on the accounting, both retrospectively and prospectively, for the notes. Aside from a reduction of debt balances and an increase to shareholders' equity by $44.7 million and $38.5 million on the 2008 and 2009 consolidated balance sheets and a non- cash increase to our annual historical interest expense, net of amounts capitalized, of approximately $1.1 million, $5.6 million and $6.2 million for 2007, 2008 and 2009, respectively, we expect that the adoption will result in a non-cash increase to our projected annual interest expense, net of amounts expected to be capitalized, of approximately $6.7 million, $7.4 million and $8.1 million  for each of the three years ending December 31, 2010, 2011 and 2012, respectively.

Equity Infusion>
 
On March 31, 2009, we proceeded with amending our loan agreements with our lenders, modifying certain of the loan terms under our Nordea and Credit Suisse credit facilities in order to address and cure loan covenant breaches with respect to the leverage ratio and the collateral vessels' market values, as well as any probable future events of non-compliance with certain of our loan covenants (including the minimum liquidity covenant) as a result of the sharp decline in vessel values and the significant fluctuations in the charter rates. See Item 10C "Material Contracts" for a detailed description of our loan agreements.
 
As a result of negotiations with the lending banks and as a condition precedent imposed by our lenders to favorably amend the aforementioned credit facilities in order for us to be brought into compliance with our covenants and repayment schedule under the credit facilities, it was agreed that by March 31, 2009, entities affiliated with the family of the Chairman of our Board of Directors would inject not less than $50 million of new equity in exchange for Class A common stock and warrants exercisable no later than twelve months after their issuance. On March 31, 2009, we received from two entities affiliated with the family of the Chairman of our Board of Director $45.0 million in exchange for 25,714,286 Class A shares and 5,500,000 warrants with an exercise price of $3.50 per warrant and an initial term of twelve months from their issuance date (March 31, 2009). Our lenders agreed that the remaining $5.0 million of equity infusion required by them could be generated by the exercise of the warrants by such entities in the future, with the understanding that the exercise of warrants was at the option of these entities. The $45.0 million proceeds were then applied against the future balloon payment under the Nordea credit facility on April 1, 2009. The shares, the warrants and the shares issuable upon exercise of the warrants were subject to a 12-month lock-up period beginning with March 31, 2009.
 
  
 
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Prior to entering into these amendments, we had evaluated the possibility of a potential public equity offering but this alternative was abandoned due to the distressed market conditions at the time and because we, after consulting with our financial advisors, concluded that such a   transaction would likely be unsuccessful given that we were in breach of our loan covenants at the time and the transaction would likely not be completed within the timeframe required to remediate such covenants' breach. Given the facts and circumstances discussed above, and in line with the guidance outlined in Accounting Standards Codification ASC 820-10-35-51E "Fair Value Measurements and Disclosures", we considered the sale of the securities in connection with the equity infusion to be a distressed (disorderly) transaction; accordingly, the quoted market price of the Company's shares, which ranged from $3.53 in February 2009 (when the negotiations with our lenders were initiated) to $4.52 in March 2009 (the date of issuance), was not deemed to be a representative measure for the fair value of the securities granted in that transaction.
 
We established a special committee of independent directors of our Board of Directors to address issues in connection with the mandated equity infusion required by our lenders and to negotiate with the entities discussed above through which the equity infusion would ultimately be made.
 
The special committee determined its best estimate of fair value of the securities to be issued in connection with the equity infusion by using multiple inputs from different sources, including: (a) analyst target prices, (b) multiples-based valuation, (c) option value approach, (d) and net assets value method. In addition, the special committee considered the results of such analyses as well as the following factors in developing its estimate of the fair value of the securities: (1) the 12-month lock-up period imposed on the securities to be issued, which resulted in the securities to be issued being illiquid for a period of one year, (2) the importance of the equity infusion, which was a mandatory requirement for lenders to amend the Company's credit facilities in order to avoid the consequences of a continued breach of the Company's credit facilities, (3) the relationship between the market value of the Company's assets and the level of its indebtedness, (4) the size of the equity infusion vs. the limited market liquidity, and (5) the opportunity cost of the capital contribution for other similar investment opportunities.
 
In order to assist the special committee with its estimate of the fair value of the securities to be issued in connection with the equity infusion, the special committee also retained an independent consulting firm to provide information for the special committee's use. The information provided by the independent firm included examples of equity placements where compliance with bank covenants, liquidity squeeze or similar circumstances made equity infusions necessary in order to "rescue" a company, which were completed at a significant issue discount. The conclusion reached by the special committee was that the fair value of the securities to be issued in this specific transaction should not be predominately based on the Company's quoted market price, as this was deemed not to be a representative measure of fair value of the securities to be issued based on the specific facts and circumstances of the transaction. Based on the various inputs discussed above, the special committee determined its best estimate of the fair value of the shares of $1.70 given the specific circumstances of the equity infusion and given the factors described above.
 
Recent Developments

Fortis Loan
 
On February 11, 2010, our subsidiary Hope Shipco entered into a loan agreement for the financing of Hope in the amount of maximum $42.0 million but in any event not more than 75% of the fair value of the vessel upon delivery. The loan will be drawdown in various installments following the vessel construction progress through November 2010.
 
The first drawdown, amounting to $13.9 million, took place on March 9, 2010 to partly finance the second payment installment to the shipyard upon completion of the steel cutting as provided in the relevant shipbuilding contract. The loan is repayable in twenty quarterly installments and a balloon payment through January 2016. The first installment will commence three months from the vessel delivery.
 

 
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Payments to shipyards and loan drawdowns
 
On March 8, 2010, an amount of $7.3 million representing Christine Shipco's scheduled installment to the shipyard was paid. The installment was financed through the final drawdown of $5.1 million of the company's borrowing facility and $1.1 million contribution made by each joint venture partner.
 
On March 9, 2010, Hope Shipco paid $15.6 million to the shipyard, representing the second installment due on the steel cutting.

On March 9, 2010, Hope Shipco repaid its then-outstanding debt under its RBS credit facility amounting to $10.9 million.
 

B. Liquidity and Capital Resources
 
We operate in a capital-intensive industry, which requires extensive investment in revenue-producing assets. We have historically financed our capital requirements with cash flow from operations, equity contributions from stockholders and long-term bank debt. Our principal use of funds has been capital expenditures to grow our fleet, maintain the quality of our dry bulk vessels, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, make principal repayments on outstanding loan facilities, and pay dividends.
 
Our liquidity requirements relate to servicing our debt, funding investments in vessels, funding working capital and maintaining cash reserves. Working capital, which is current assets minus current liabilities, including the current portion of long-term debt, amounted to a deficit of $69.1 million at December 31, 2009 compared to a working capital deficit of $187.9 million at December 31, 2008.
 
This significant decrease in the working capital deficit was primarily due to our equity raisings during 2009, through the equity infusion performed by entities affiliated with the family of the Chairman of our Board of Directors and our equity offering in August 2009, together amounting to approximately $90.1 million of net proceeds, out of which $67.6 million were applied against the balloon payment of the Nordea credit facility as part of the loan amendment discussed below.     
 
We believe that based upon current levels of revenue generated from vessel employment and cash flows from operations, we will have adequate liquidity to make the required payments of principal and interest on our  debt and fund working capital requirements at least through December 31, 2010.
 
Loan amendments

On March 31, 2009 we amended the Nordea credit facility, in which Nordea Bank acts as administrative agent for secured parties comprising itself and certain other lenders, and the Credit Suisse credit facility and modified certain of the loan terms in order to comply with the financial covenants related to our vessels' market values following the significant decline in the vessel market. In particular, the amended terms of each of the credit facilities which are valid until January 2011 contain financial covenants requiring us to maintain minimum liquidity of $25.0 million, maintain a leverage ratio based on book values of not greater than 70%, maintain a net worth of not less than $750.0 million, maintain a ratio of EBITDA to gross interest of not less than 1.75:1.0 and maintain an aggregate fair market value of vessels serving as collateral for each of the loans at all times of not less than 65% of the outstanding principal amount of the respective loan. Additionally, under the terms of the amended Nordea credit facility, we have deferred principal debt repayments of $150.5 million originally scheduled for 2009 and 2010 to the balloon payment at the end of the facility's term in 2016. During the waiver and deferral periods, the applicable credit facility margins will increase to 2.5% and 2.25%, for the Nordea credit facility and the Credit Suisse credit facility, respectively.
 
On July 31, 2009, we amended the loan agreement between Hope ShipCo and RBS by extending the repayment to August 21, 2009 and increasing the interest margin to 2.25% from August 1, 2009.  The loan agreement was further amended following the restructuring of the ownership interests in the joint ventures and its repayment was extended to March 15, 2010. See Item 10C "Material Contracts" for detailed description of our loan agreements.
 
Equity Infusion

As part of the loan amendments discussed above, entities affiliated with the family of the Chairman of our Board of Directors injected $45.0 million in the Company, which was applied against the balloon payment of the Nordea credit facility. In exchange for their contribution, the entities received an aggregate of 25,714,286 Class A shares and 5,500,000 warrants, with an exercise price of $3.50 per warrant. The shares, the warrants and the shares issuable on exercise of the warrants are subject to 12-month lock-ups from March 31, 2009.  See Item 5.A, Operating and Financial Review and Prospects – Results of Operations – Equity Infusion.
 

 
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We have the option to defer, again to the balloon payment in 2016, additional principal debt repayments in an amount of up to 100% of the equity contributed, meaning the $45.0 million already received as well as any other equity infusion by the above-mentioned entities during 2009 and 2010.
 
Equity Offering

On August 11, 2009, we completed an offering to the public of 6,000,000 shares of our Class A common stock. Total net proceeds to us from the offering were approximately $45.1 million. We used the net offering proceeds for repayment of debt as well as to build up our committed capital expenditure reserve account, which we may utilize for future capital expenditure requirements.
 
Suspension of Dividends
 
In February 2009, our Board of Directors suspended the payment of dividends, so as to retain cash from operations and use it either to fund our operations or vessel acquisitions or service our debt, depending on market conditions and opportunities. We believe that this suspension will enhance our future flexibility by permitting cash flow that would have been devoted to dividends to be used for opportunities that may arise in the current marketplace. For legal and economic restrictions on the ability of the Company's subsidiaries to transfer funds to the company in the form of dividends, loans, or advances and the impact of such restrictions, see "Risk Factors–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 above.
 
Cash Flows

Our cash and cash equivalents decreased to $100.1 million as of December 31, 2009 compared to $109.8 million as of December 31, 2008. The decrease was primarily due to decreased net cash provided by operating activities ($147.3 million) and the net cash of $154.7 million used in financing activities.
 
Operating Activities
 
The net cash from operating activities decreased by $116.6 million to $147.3 million during the year ended December 31, 2009, compared to net cash from operating activities of $263.9 million during the same period of 2008. This decrease in net cash from operating activities is primarily attributable to the decrease in voyage revenues driven by lower hire rates earned under our spot charter contracts.
 
Investing Activities
 
Net cash used in investing activities was $2.3 million during the year ended December 31, 2009 which is mainly a result of (i) $1.6 million, representing the net cash consideration paid to one of our joint venture partners in a transaction to acquire additional equity interests in two of our subsidiaries described in Note 1 and Note 5 to the consolidated financial statements, (ii) $9.6 million, representing installments paid to shipyards for our new-building vessels and other capital expenditures for vessel improvements and furniture and equipment as offset by (iii) $8.9 million, representing proceeds received from Oceanaut's liquidation and from the sale of vessel Swift. Net cash used in investing activities during the year ended December 31, 2008 amounted to $785.3 million and is mainly a result of (i) $692.4 million, representing the cash consideration paid for the acquisition of Quintana, net of cash acquired (ii) $84.9 million, representing installments paid to shipyards for our new-building vessels and (iii) $7.3 million advance payment for vessel Medi Cebu.
 
Financing Activities
 
Net cash used in financing activities was $154.7 million for the year ended December 31, 2009, which is mainly attributed to $216.9 million of loan repayments and principal payments partly made from the equity offering proceeds of $90.1 million. Proceeds from long-term debt amounted to $5.1 million in the year ended December 31, 2009 and capital contributions from non-controlling interest owners amounted to $3.3 million.
 

 
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Net cash from financing activities was $387.5 million for the year ended December 31, 2008, which is mainly attributed to $1.4 billion of new loan proceeds partly offset by $944.9 million of loan repayments and principal payments accompanied by the payment of related financing costs of $15.3 million, mainly in connection with our acquisition of Quintana. In addition during the year ended December 31, 2008, we paid $48.5 million of dividends.
 
 Summary of Contractual Obligations
 
The following table sets forth our contractual obligations and their maturity dates as of December 31, 2009 (in millions):
 
   
Total
   
Less than 1 year
   
1-3 years
   
3-5 years
   
More than 5 years
 
                               
Long-term obligations (1)
    1,310.7       137.7       201.4       358.4       613.2  
Interest expense (2)
    169.2       47.5       56.3       43.5       21.9  
Operating lease obligations (Bareboat charters) (3)
    180.2       32.8       65.7       64.7       17.0  
Vessels under construction (4)
    108.6       108.6       -       -       -  
Property leases (5)
    4.1       0.7       1.6       1.7       0.1  
Total
    1,772.8       327.3       325.0       468.3       652.2  
 
(1) As of December 31, 2009, we had two term loans outstanding maturing on April 2016 and December 2022 respectively and an amount of $150.0 million of un-secured Convertible Senior Notes due 2027. The above table also includes the loans outstanding under the joint venture's borrowing arrangements.
 
 (2) With the exception of the Convertible Senior Notes due in 2027 which bear interest at an annual rate of 1.875%, all other debt bears interest at LIBOR plus a margin. For the calculation of the contractual interest expense obligations in the table above, for all years a LIBOR rate of  0.25603% was used, based on the 3 months LIBOR as at December 31, 2009 plus the applicable margin. The interest rate of 1.875% was used for the Convertible Senior Notes due in 2027. Derivative contracts were also included in calculations. The above table does not reflect the effect of a counterparty swap option to be declared on December 31, 2010.
 
 (3) The amount relates to the bareboat hire to be paid for seven vessels chartered-in under bareboat charter agreements expiring in July 2015.
 
(4) The amount relates to the total contractual obligations for the installments due on two Capesize newbuildings, one wholly owned and one owned by the joint venture discussed in Note 1 above. Of these amounts, the Company will contribute $105.0 million in the year ending December 31, 2010. The above table does not reflect the purchase price of $310.8 million ($155.4 million of which represents the Company's participation in the joint ventures) for the construction of four Capesize vessels of the joint ventures for which no refund guarantee has been provided by the shipyard and the construction of which has not yet commenced. Therefore, these vessels may be delivered late or not delivered at all. Until the refund guarantee is received, no installments will be made and therefore the commitments under the agreements have not been incorporated into the table above.
 
(5) The amount relates to the rental of office premises by an unrelated party. The monthly rental payment is approximately $0.06 million and the agreement expires in February 2015.
 
C. Research and Development, Patents and Licenses, etc.
 
We incur from time to time expenditures relating to inspections for acquiring new vessels that meet our standards. Such expenditures are insignificant and they are expensed as they incur.
 
D. Trend Information
 
Our results of operations depend primarily on the charter hire rates that we are able to realize.  Charter hire rates paid for dry bulk carriers are primarily a function of the underlying balance between vessel supply and demand.

 
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Since early 2009, the charter rates in the dry bulk charter market have increased significantly, albeit on average only representing approximately 40% of the average 2008 values as gauged by the Baltic Dry Index (BDI). The dry bulk vessel values have recovered somewhat, however, remain inferior to the values seen in 2008. The liquidity of the asset market is still impaired as a result of a slowdown in the availability of global credit and the significant relative deterioration in charter rates. Although improving market conditions have already affected our quarter on quarter earnings for 2009 we expect our earnings growth to be subdued in 2010, if deterioration of rates remerges. Although, charter rates have increased from their low levels experienced at the end of 2008 and beginning of 2009, they are well below the average daily charter rates we achieved in 2008 and we can not assure investors that we will be able to employ our vessels at rates similar to their current employments.

E. Off Balance Sheet Arrangements
 
We have not engaged in off-balance sheet arrangements.
 
F. Tabular Disclosure of Contractual Obligations
 
See "Item 5 – Operating and Financial Review and Prospects – Summary of Contractual Obligations".
 
G. Safe Harbor
 
See Cautionary Statement Regarding Forward Looking Statements at the beginning of this annual report.
 
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
A. Directors and Senior Management
 
The following table sets forth the name, age and position within the Company of each of its current executive officers and directors. On December 30, 2002, the shareholders voted to amend the Company's Articles of Incorporation to eliminate the classification of the Company's directors. Accordingly, all directors serve for one year terms. On September 24, 2009, the Company's shareholders voted to set the Board's composition at six directors. The following table sets forth the name, age and position of each of the current executive officers, executive and non-executive directors of the Company.
 
Name
Age
Position
Gabriel Panayotides
55
Chairman, President and Director
George Agadakis
57
Chief Operating Officer
Eleftherios Papatrifon
40
Chief Financial Officer
Frithjof Platou
72
Independent Non – Executive Director
Evangelos Macris
59
Independent Non – Executive Director
Apostolos Kontoyannis
61
Independent Non – Executive Director
Trevor J. Williams
67
Independent Non – Executive Director
Hans J. Mende
66
Non – Executive Director
 
Biographical information with respect to each of our directors and executive officers is set forth below.
 
Gabriel Panayotides> has been the Chairman of the Board since February 1998. Mr. Panayotides has participated in the ownership and management of ocean going vessels since 1978. He is also a member of the Greek Committee of Bureau Veritas, an international classification society. He holds a Bachelors degree from the Piraeus University of Economics. Mr. Panayotides is also a member of the Board of Directors of D/S Torm. Mr. Panayotides acted as the Company's Chief Executive Officer from February 2008 to April 2008.
 
George Agadakis> has been Chief Operating Officer since the Company's inception. He is the Shipping Director of Maryville and was General Manager of Maryville from January 1992 to January 2001. From 1983 to 1992 he served as Insurance and Claims Manager for Maryville. He has held positions as Insurance and Claims Manager and as a consultant with three other shipping companies since 1976. He holds diplomas in Shipping and Marine Insurance from the Business Centre of Athens, the London School of Foreign Trade Ltd and the London Chamber of Commerce.
 

 
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Eleftherios (Lefteris) A. Papatrifon> has served as our Chief Financial Officer since January 1, 2005. Mr. Papatrifon has 15 years of experience in Corporate Finance and Asset Management. From February 2002 to December 2004, Mr. Papatrifon was the head of the investment banking division at Geniki Bank of Greece, a subsidiary of Société Générale. From July 2000 to February 2002, Mr. Papatrifon was the Head of Asset Management at National Securities, S.A., in Greece. From June 1995 to September 1998, Mr. Papatrifon held various asset management positions at The Prudential Insurance Company of America. Mr. Papatrifon holds undergraduate (BBA) and graduate (MBA) degrees from Baruch College (CUNY). He is also a member of the CFA Institute and a CFA charterholder.
 
Frithjof Platou>, a Norwegian citizen, has broad experience in shipping and project finance, ship broking, ship agency and trading and has served on the Boards of several companies in the U.K. and Norway. Since 1984, he has managed his own financial consulting and advisory company, Stoud & Co Limited, specializing in corporate and project finance for the shipping, offshore oil & gas and various other industries. He was head of the shipping and offshore departments at Den Norske Creditbank and Nordic Bank as well as at American Express Bank. Mr. Platou holds a degree in Business Administration from the University of Geneva, speaks and writes fluent Norwegian, English, French and German, has a reasonable knowledge of Spanish and a basic understanding of Japanese.
 
Evangelos Macris> is a member of the Bar Association of Athens and is the founding partner of Evangelos S. Macris Law Office, a Piraeus based office specializing in Shipping Law. He holds a degree in Economics and Political Science from the Pantion University in Athens and a Law Degree from the University of Athens, as well as a post graduate degree in Shipping Law from the University of London, University College.
 
Apostolos Kontoyannis> is the Chairman of Investments and Finance Ltd., a financial consultancy firm he founded in 1987, that specializes in financial and structuring issues relating to the Greek maritime industry, with offices in Piraeus and London. Previously, he was employed by Chase Manhattan Bank N.A. in Frankfurt (Corporate Bank), London (Head of Shipping Finance South Western European Region) and Piraeus (Manager, Ship Finance Group) from 1975 to 1987. Mr. Kontoyannis holds a bachelors degree in Finance and Marketing and an M.B.A. in Finance from Boston University.
 
Trevor J. Williams> served as a Director of the Company from November 1988 to April 2008. In September 2008, Mr. Williams was elected to our Board once again. Since 1985, Mr. Williams has been principally engaged as President and Director of Consolidated Services Limited, a Bermuda-based firm providing management services to the shipping industry.
 
Hans J. Mende> has been a member of our Board since April 2008 and was formerly a director of Quintana. Mr. Mende also serves as Chairman of the Board of Directors of Alpha Natural Resources, Inc. and is a director of Foundation Coal Holdings, Inc., both of which are coal companies. Since 1986, when he co-founded AMCI International, Inc., or AMCI, a mining and trading company, he has served as AMCI's President and Chief Operating Officer. Prior to founding AMCI, Mr. Mende was employed by the Thyssen Group, one of the largest German multinational companies with interests in steel making and general heavy industrial production, in various senior executive positions. At the time of his departure from Thyssen Group, Mr. Mende was President of its international trading company.
 
No family relationships exist among any of the executive officers and directors.
 
B. Compensation
 
For the years ended December 31, 2008 and 2009, we paid aggregate directors fees of $0.3 million and $0.4 million, respectively. The aggregate compensation to the executive officers and directors for the years ended December 31, 2008 and 2009 was $3.3 million and $2.6 million, respectively, inclusive of annual bonuses as approved by the Compensation Committee. We have consulting agreements with companies affiliated with certain officers and directors of our company in order to compensate them for services rendered outside Greece. The consulting agreements do not have an expiration date. We do not have a retirement plan for our executive officers or directors.