20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

[ ] 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, 2007

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 000-51141

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

DRYSHIPS INC.

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(Exact name of Registrant as specified in its charter)

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(Translation of Registrant’s name into English)

Republic of the Marshall Islands

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(Jurisdiction of incorporation or organization)

i

80 Kifissias Avenue

GR 15125 Amaroussion

Greece

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(Address of principal executive offices)

George Economou, Chairman, Chief Executive Officer and

Interim Chief Financial Officer,

Tel No. 011 30 210 809 0570,

80 Kifissias Avenue, GR 15125, Amaroussion, Greece

(Name, Telephone, E-mail and/or Facsimile number and

Address of Company Contact Person

Securities registered or to be registered pursuant to Section 12(b)

of the Act:

Common stock, $0.01 par value

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Title of class

Nasdaq Global Market

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Name of exchange on which registered

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, 2007, there were 36,681,097 shares of the Registrant’s common stock, $0.01 par value, outstanding.

ii

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[X] Yes [_] 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  [X]	Accelerated filer  [_]
Non-accelerated filer (Do not check if a smaller reporting company)  [_]	Smaller reporting company  [_]

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

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FORWARD-LOOKING STATEMENTS

DryShips Inc., 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 therewith. This document and any other written or oral statements made by the Company or on its behalf may include forward-looking statements, which reflect its current views with respect to future events and financial performance. The words “believe,” “except,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “plan,” “potential,” “will,” “may,” “should,” “expect” and similar expressions identify forward-looking statements.

Please note in this annual report, “we,” “us,” “our,” and “the Company,” all refer to DryShips Inc. and its subsidiaries.

The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management’s examination of historical operating trends, data contained in our records, and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.

In addition, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include; (i) the strength of world economies; (ii) fluctuations in currencies and interest rates; (iii) general market conditions, including fluctuations in charterhire rates and vessel values; (iv) changes in demand in the drybulk shipping industry; (v) changes in the Company’s operating expenses, including bunker prices, drydocking and insurance costs; (vi) changes in governmental rules and regulations or actions taken by regulatory authorities; (vii) potential liability from pending or future litigation; (viii) general domestic and international political conditions; (ix) potential disruption of shipping routes due to accidents or political events; and (x) other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission.

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TABLE OF CONTENTS
PART I
Item  1.	Identity of Directors, Senior Management and Advisers		1
Item  2.	Offer Statistics and Expected Timetable		1
Item  3.	Key Information		1
Item  4.	Information on the Company		24
Item  4A.	Unresolved Staff Comments		44
Item  5.	Operating and Financial Review and Prospects		44
Item  6.	Directors and Senior Management		67
Item  7.	Major Shareholders and Related Party Transactions		73
Item  8.	Financial Information		78
Item  9.	The Offer and Listing		80
Item  10.	Additional Information		80
Item  11.	Quantitative and Qualitative Disclosures about Market Risk		87
Item  12.	Description of Securities Other than Equity Securities		89
PART II
Item  13.	Defaults, Dividend Arrearages and Delinquencies		90
Item  14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	90
Item  15.	Controls and Procedures		90
Item  16A.	Audit Committee Financial Expert		92
Item  16B.	Code of Ethics		92
Item  16C.	Principal Accountant Fees and Services		92
Item  16D.	Exemptions from the Listing Standards for Audit Committees		93
Item  16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		93
PART III
Item  17.	Financial Statements		94
Item  18.	Financial Statements		94
Item  19.	Exhibits		95

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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 sets forth the selected consolidated financial data and other operating data for DryShips Inc. as of and for the years ended October 31, 2003 and 2004, as of and for the two-month period ended December 31, 2004, and for the years ended December 31, 2005, 2006 and 2007. The following information should be read in conjunction with Item 5 – “Operating and Financial Review and Prospects” and the consolidated financial statements and related notes included herein. The following selected consolidated financial data of DryShips Inc. is derived from our audited consolidated financial statements and the notes thereto which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

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  3.A. (i) INCOME STATEMENT

	Year Ended October 31,						Two Months Ended December 31,			Year Ended December 31,
(In thousands of Dollars,
except per share and share data)	2003			2004			2004			2005			2006			2007
INCOME STATEMENT
Voyage revenues		25,060			63,458			15,599			228,913			248,431			582,561
Loss on Forward Freight Agreements		-			-			-			-			22,473			-
Voyage expenses		3,998			6,371			1,153			13,039			19,285			39,114
Gain on sale of bunkers		(372	)		(890	)		(17	)		(3,447	)		(3,320	)		(7,467	)
Vessel operating expenses		6,739			9,769			1,756			36,722			47,889			61,409
Depreciation and amortization		5,244			6,451			1,134			42,610			61,605			79,304
Gain on sale of vessel		-			-			-			-			(8,583	)		(134,963	)
Management fees charged by a related party		1,101			1,261			240			4,962			6,609			9,579
General & administrative expenses (1)		240			221			114			4,186			5,931			7,493
Operating Income		8,110			40,275			11,219			130,841			96,542			528,092
Interest and finance costs		(1,119	)		(1,515	)		(508	)		(20,668	)		(42,392	)		(51,231	)
Interest income		4			12			8			749			1,691			5,073
Other, net		194			341			(6	)		95			890			(7,018	)
Income before equity in loss of investees		7,189			39,113			10,713			111,017			56,731			474,916
Equity in loss of investees		-			-			-			-			-			(299	)
Net Income		7,189			39,113			10,713			111,017			56,731			474,617
Basic and fully diluted earnings
per share	$	0.47		$	2.54		$	0.70		$	3.83		$	1.75		$	13.29
Weighted average basic and
diluted shares outstanding		15,400,000			15,400,000			15,400,000			28,957,397			32,348,194			35,700,182
Dividends declared per share	$	0.15		$	4.48		$	0.00		$	0.40		$	0.80		$	0.80

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3.A. (ii) BALANCE SHEET AND OTHER FINANCIAL DATA

(In thousands of Dollars,	Year Ended October 31,						Two Months Ended December 31,			Year Ended December 31,
except per share and share data)
	2003			2004			2004			2005			2006			2007
Current assets		17,943			69,344						18,777			25,875			153,035
Total assets		73,902			183,259						910,559			1,168,173			2,346,924
Current liabilities, including current
portion of long-term debt		11,889			98,124						135,745			129,344			239,304
Total long-term debt, including current portion		46,479			114,908						525,353			658,742			1,243,778
Number of shares					15,400						30,350			35,490			36,681
Stockholders’ (deficit) / equity		25,513			(4,374	)					356,501			450,892			1,024,221
OTHER FINANCIAL DATA
Net cash provided by operating
activities		2,489			7,309			55,207			163,806			99,082			407,899
Net cash used in investing activities		(2,200	)		(20,119	)		0			(847,649	)		(287,512	)		(955,749	)
Net cash provided by (used in)
financing activities		416			15,985			(53,007	)		680,656			185,783			656,381
EBITDA (2)		13,548			47,067			12,347			173,546			159,037			600,079
FLEET DATA
Average number of vessels (3)		5			5.9			6			21.6			29.76			33.67
Total voyage days for fleet (4)		1,780			2,066			366			7,710			10,606			12,130
Total calendar days for fleet (5)		1,825			2,166			366			7,866			10,859			12,288
Fleet utilization (6)		97.50	%		95.40	%		100.00	%		98.00	%		97.70	%		98.71	%
(In Dollars)
AVERAGE DAILY RESULTS
Time charter equivalent (7)		12,042			28,062			39,516			28,446			21,918			45,417
Vessel operating expenses (8)		3,693			4,510			4,798			4,668			4,410			4,998
Management fees		603			582			655			631			609			780
General and administrative expenses (9)		131			102			311			532			546			610
Total vessel operating expenses (10)		4,427			5,194			5,764			5,831			5,565			6,388

(1) We did not pay any compensation to members of our senior management or our directors in the years ended October 31, 2003 and 2004, and for the two-month period ended December 31, 2004. Compensation to members of our senior management and directors amounted to $1.4, $1.4 and $1.5 million for each of the years ended December 31, 2005, 2006 and 2007, respectively.

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(2) EBITDA represents net income before interest, taxes, depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined by U.S. GAAP and our calculation of EBITDA may not be comparable to that reported by other companies. EBITDA is included in this annual report because it is a basis upon which we assess our liquidity position, because it is used by our lenders as a measure of our compliance with certain loan covenants, and because we believe that it presents useful information to investors regarding our ability to service and/or incur indebtedness. The following table reconciles net cash from operating activities, as reflected in the consolidated statements of cash flows, to EBITDA:

(In thousands of Dollars)	Year Ended October 31,						Two Months Ended December 31,			Year Ended December 31,
	2003			2004			2004			2005			2006			2007
Net Cash provided by Operating Activities	2,489			7,309			55,207			163,806			99,082			407,899
Net increase / (decrease) in current assets		8,403			36,925			(42,322	)		4,560			5,067			23,291
Net (increase) / decrease in current liabilities, excluding current portion of long-term debt		357			(1,815	)		(927	)		(21,914	)		2,015			(18,463	)
Gain on sale of vessels		-			-			-			-			8,583			134,963
Payments for drydocking costs		1,322			3,277			-			3,153			6,275			1,406
Amortization of deferred / prepaid charter revenue		-			-			-			5,224			2,967			7,185
(Recognition) / amortization of free lubricants benefit		-			-			-			(928	)		119			257
Interest on Credit Facility from related parties		-			-			-			-			(77)			-
Equity in loss of investess		-			-			-			-			-			(299	)
Change in fair values of derivatives		-			-			-			270			(1,910	)		(128)
Interest and finance costs, net		1,115			1,503			500			19,919			40,701			46,158
Amortization and write-off of deferred financing costs included in interest and finance costs, net		(138	)		(132	)		(111	)		(544	)		(3,785	)		(2,190	)
EBITDA		13,548			47,067			12,347			173,546			159,037			600,079

(3) Average number of vessels is the number of vessels that constituted the fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of the fleet during the period divided by the number of calendar days in that period.

(4) Total voyage days for the fleet are the total days the vessels were in the Company’s possession for the relevant period net of off-hire days associated with major repairs, drydockings or special or intermediate surveys.

(5) Calendar days are the total days the vessels were in the Company’s possession for the relevant period including off-hire days associated with major repairs, drydockings or special or intermediate surveys.

(6) Fleet utilization is the percentage of time that the vessels were available for revenue-generating voyage days, and is determined by dividing voyage 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. The Company’s method of calculating TCE is consistent with industry standards and is determined by dividing voyage revenues (net of voyage expenses) by voyage days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract, as well as commissions. TCE is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rates for the periods presented.

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(In thousands of Dollars,	Year Ended October 31,						Two Months Ended December 31,			Year Ended December 31,
except for TCE rates, which are expressed in Dollars and voyage days)
	2003			2004			2004			2005			2006			2007
Voyage revenues		25,060			63,458			15,599			228,913			248,431			582,561
Voyage expenses		(3,998	)		(6,371	)		(1,153	)		(13,039	)		(19,285	)		(39,114	)
Net gain on sale of bunkers		372			890			17			3,447			3,320			7,467
Time charter equivalent revenues		21,434			57,977			14,463			219,321			232,466			550,914
Total voyage days for fleet		1,780			2,066			366			7,710			10,606			12,130
Time charter equivalent (TCE) rate		12,042			28,062			39,516			28,446			21,918			45,417

(8) Daily vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, are calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period.

(9) Daily general and administrative expense is calculated by dividing general and administrative expense 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, management fees and general and administrative expenses. Daily TVOE is calculated by dividing TVOE by fleet calendar days for the relevant time period.

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B. Capitalization and Indebtedness

   Not Applicable.

C.        Reasons for the Offer and Use of Proceeds

   Not Applicable.

D.        Risk factors

Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our common stock. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results or cash available for dividends or the trading price of our common stock.

Industry - - Specific Risk Factors

Charterhire rates for drybulk carriers are volatile and may decrease in the future, which would adversely affect our earnings.

The drybulk shipping industry is cyclical with attendant volatility in charterhire rates and profitability. The degree of charterhire rate volatility among different types of drybulk carriers has varied widely. Although charterhire rates decreased slightly during 2005 and the first half of 2006, since July 2006, charter rates have risen sharply and are currently near their historical highs reached during October and November of 2007. Charterhire rates for Panamax and Capesize drybulk carriers have declined from their historically high levels. Because we generally charter our vessels pursuant to short-term time charters, we are exposed to changes in spot market rates for drybulk carriers and such changes may affect our earnings and the value of our drybulk carriers at any given time. We may be unable to successfully charter our vessels in the future or renew existing charters at rates sufficient to allow us to meet our obligations or to pay dividends to our stockholders. 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:

 · demand for and production of drybulk products,

 · global and regional economic and political conditions,

 · the distance drybulk is to be moved by sea, and

 · changes in seaborne and other transportation patterns.

The factors that influence the supply of vessel capacity include:

 · the number of new building deliveries,

 · port and canal congestion,

 · the scrapping rate of older vessels,

 · vessel casualties, and

 · the number of vessels that are out of service.

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In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance and insurance coverage, the efficiency and age profile of the existing fleet in the market and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. The factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.

We anticipate that the future demand for our drybulk carriers will be dependent upon continued economic growth in the world's economies, including China and India, seasonal and regional changes in demand, changes in the capacity of the global drybulk carrier fleet and the sources and supply of drybulk cargo to be transported by sea. The capacity of the global drybulk carrier fleet seems likely to increase and economic growth may not continue.  Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.

The market values of our vessels may decrease, which could limit the amount of funds that we can borrow under our credit facility.

The fair market values of our vessels have generally experienced high volatility. The market prices for secondhand Panamax and Capesize drybulk carriers have declined from historically high levels. You should expect the market value of our vessels to fluctuate depending on general economic and market conditions affecting the shipping industry and prevailing charterhire rates, competition from other shipping companies and other modes of transportation, types, sizes and age of vessels, applicable governmental regulations and the cost of newbuildings. If the market value of our fleet declines, we may not be able to draw down the full amount of our credit facility and we may not be able to obtain other financing or incur debt on terms that are acceptable to us or at all.

The market values of our vessels may decrease, which could cause us to breach covenants in our credit facility and adversely affect our operating results.

If the market values of our vessels decrease and such decrease is more than temporary, we may breach some of the covenants contained in the financing agreements relating to our indebtedness at the time, including covenants in our credit facilities. Under our credit facility, the Company is required to hold bank deposits which are used to fund the loan installments when due.  The funds may only be used for purposes of loan repayments and are shown on the Company’s balance sheet as restricted cash.  Restricted cash also includes additional minimum cash deposits required to be maintained with certain banks under our borrowing arrangements.

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If we do breach such covenants and we are unable to remedy the relevant breach, our lenders could accelerate our debt and foreclose on our fleet. 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.

World events could affect our results of operations and financial condition.

Terrorist attacks such as those in New York on September 11, 2001 and in London on July 7, 2005 and the continuing response of the United States to these attacks, as well as the threat of future terrorist attacks in the United States or elsewhere, continue to cause uncertainty in the world's financial markets and may affect our business, operating results and financial condition. The continuing conflict in Iraq may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.

Terrorist attacks, such as the October 2002 attack on the VLCC Limburg, a vessel not related to us, may in the future also negatively affect our operations and financial condition and directly impact our vessels or our customers. 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 affecting the United States or the entire world. Any of these occurrences could have a material adverse impact on our revenues and costs.

Our revenues are subject to seasonal fluctuations, which could affect our operating results and the amount of available cash with which we can pay dividends.

We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charterhire rates. This seasonality may result in quarter-to-quarter volatility in our operating results, which could affect the amount of dividends that we pay to our stockholders from quarter to quarter. The drybulk carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues have historically been weaker during the fiscal quarters ended June 30 and September 30, and, conversely, our revenues have historically been stronger in fiscal quarters ended December 31 and March 31. This seasonality may adversely affect our operating results and cash available for distribution to our stockholders as dividends in the future.

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Rising fuel prices may adversely affect our profits.

While we do not bear the cost of fuel (bunkers) under our time charters, fuel is a significant, if not the largest, expense in our shipping operations when vessels are under spot 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, such as truck or rail.

We are subject to international safety regulations and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.

Our business and the operation of our vessels are materially affected by government regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration.  Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels.  Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations.  We are required by various governmental and quasi- governmental agencies to obtain certain permits, licenses, certificates, and financial assurances with respect to our operations.

The operation of our vessels is affected by the requirements set forth in the United Nations' International Maritime Organization's International Management Code for the Safe Operation of Ships and Pollution Prevention, or “ISM Code.” The ISM Code requires shipowners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.  If we are subject to increased liability for noncompliance or if our insurance coverage is adversely impacted as a result of noncompliance, we may have less cash available for distribution to our stockholders as dividends.  If any of our vessels is denied access to, or is detained in, certain ports, this may decrease our revenues.

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Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.

International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures may result in the seizure of contents of our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us.

It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, financial condition and results of operations.

Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow.

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek to obtain security for its claim by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant's maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could attempt to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our vessels.

Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings.

A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes her owner, while 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 periods of war or emergency, although governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain.  Government requisition of one or more of our vessels may negatively impact our revenues and reduce the amount of cash we have available for distribution as dividends to our stockholders.

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An economic slowdown in the Asia Pacific region could materially reduce the amount and/or profitability of our business.

A significant number of the port calls made by our vessels involve the loading or discharging of raw materials and semi-finished products in ports in the Asia Pacific region. As a result, a negative change in economic conditions in any Asia Pacific country, particularly in China, may have an adverse effect on our business, financial position and results of operations, as well as our future prospects. In particular, in recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product. Such growth may not be sustained and the Chinese economy may experience contraction in the future. Moreover, any slowdown in the economies of the United States of America, the European Union or certain Asian countries may adversely effect economic growth in China and elsewhere. Our business, financial position and results of operations, as well as our future prospects, will likely be materially and adversely affected by an economic downturn in any of these countries.

Changes in the economic and political environment in China and policies adopted by the government to regulate its economy may have a material adverse effect on our business, financial condition and results of operations.

The Chinese economy differs from the economies of 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. The Chinese government may not continue to pursue a policy of economic reform. The level of imports to and exports from China could be adversely affected by changes to these economic reforms by the Chinese government, 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. A reduction in the level of commodities imported into and exported from China would reduce the demand for drybulk carrier capacity and the drybulk charter rates, which could adversely affect our business, operating results and financial condition.

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Company - - Specific Risk Factors

We are dependent on time charters in a volatile shipping industry and a decline in charterhire rates would affect our results of operations and ability to pay dividends.

We charter our vessels primarily pursuant to long-term or short-term time charters.  The short-term time charter market is highly competitive and spot market charterhire rates (which affect time charter rates) may fluctuate significantly based upon available charters and the supply of, and demand for, seaborne shipping capacity. While our focus on the short-term time charter market may enable us to benefit in periods of increasing charterhire rates, we must consistently renew our charters and this dependence makes us vulnerable to declining charter rates. As a result of the volatility in the drybulk carrier charter market, we may not be able to employ our vessels upon the termination of their existing charters at their current charterhire rates. The drybulk carrier charter market is volatile, and in the past short-term time charter and spot market charter rates for drybulk carriers have declined below operating costs of vessels. Future charterhire rates may not enable us to operate our vessels profitably or to pay you dividends.

Our earnings may be adversely affected if we are not able to take advantage of favorable charter rates.

We charter our drybulk carriers to customers primarily pursuant to long-term or short-term (spot) time charters, which generally last from several days to several weeks, and long-term time charters, which can last up to several years. We may in the future extend the charter periods for additional vessels in our fleet. Our vessels that are committed to longer -term charters may not be available for employment on short-term charters during periods of increasing short-term charter hire rates when these charters may be more profitable than long-term charters.

Investment in derivative instruments such as freight forward agreements could result in losses.

From time to time, we may take positions in derivative instruments including freight forward agreements, or FFAs. FFAs and other derivative instruments may be used to hedge a vessel owner's exposure to the charter market by providing for the sale of a contracted charter rate along a specified route and period of time. Upon settlement, if the contracted charter rate is less than the average of the rates, as reported by an identified index, for the specified route and period, the seller of the FFA is required to pay the buyer an amount equal to the difference between the contracted rate and the settlement rate, multiplied by the number of days in the specified period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. If we take positions in FFAs or other derivative instruments and do not correctly anticipate charter rate movements over the specified route and time period, we could suffer losses in the settling or termination of the FFA. This could adversely affect our results of operations and cash flows.

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We depend entirely on Cardiff to manage and charter our fleet.

We currently have two employees, our Chief Executive Officer who also acts as the Interim Chief Financial Officer, and our Internal Auditor. Following the resignation of our Chief Financial Officer on May 29, 2007, we are seeking to employ a Chief Financial Officer. We have no plans to hire additional employees. We subcontract the commercial and technical management of our fleet, including crewing, maintenance and repair to Cardiff Marine Inc. (“Cardiff”), an affiliated company.  70% of the issued and outstanding capital stock of Cardiff is owned by a foundation which is controlled by Mr. Economou, our Chairman and Chief Executive Officer and a director of our Company. The remaining 30% of the issued and outstanding capital stock of Cardiff is owned by a company controlled by the sister of Mr. Economou. The loss of Cardiff’s services or its failure to perform its obligations to us could materially and adversely affect the results of our operations. Although we may have rights against Cardiff if it defaults on its obligations to us, you will have no recourse against Cardiff. Further, we are required to seek approval from our lenders to change our manager.

Cardiff is a privately held company and there is little or no publicly available information about it.

The ability of Cardiff to continue providing services for our benefit will depend in part on its own financial strength. Circumstances beyond our control could impair Cardiff’s financial strength, and because it is privately held it is unlikely that information about its financial strength would become public unless Cardiff began to default on its obligations. As a result, an investor in our shares might have little advance warning of problems affecting Cardiff, even though these problems could have a material adverse effect on us.

Our Chairman and Chief Executive Officer has affiliations with Cardiff which could create conflicts of interest.

Our majority shareholder is controlled by Mr. George Economou who controls two companies that, in aggregate, own 29.7% of us and a foundation that owns 70% of Cardiff. Mr. Economou is also our Chairman and Chief Executive Officer, Interim Chief Financial Officer and a director of our Company. These responsibilities and relationships could create conflicts of interest between us, on the one hand, and Cardiff, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus drybulk carriers managed by other companies affiliated with Cardiff and Mr. Economou. In particular, Cardiff may give preferential treatment to vessels that are beneficially owned by related parties because Mr. Economou and members of his family may receive greater economic benefits.

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Companies affiliated with Cardiff own and may acquire vessels that compete with our fleet which may create conflicts of interest between Cardiff as our fleet manager and us.

Erato Owning Company Limited is a company affiliated with Cardiff that owns a Capesize drybulk carrier. Mentor Owning Company Limited and Iris Owning Company Limited are companies affiliated with Cardiff that each own a Handymax drybulk carrier. The three vessels owned by those companies, or the “Bareboat Charter Vessels,” are currently employed under bareboat charters that end in September 2014. Subject to the obligations of Mr. Economou set forth in a letter agreement between him and the Company to use commercially reasonable efforts to cause the sale of the Bareboat Charter Vessels, and to give us a right of first refusal to acquire them, when the Bareboat Charter Vessels are redelivered to the owners, they may be managed by Cardiff in competition with our fleet. In addition, Cardiff’s affiliates may acquire additional drybulk carriers in the future, subject to a right of first refusal that Mr. Economou has granted to us in that letter agreement. Furthermore, Panatrade Shipping and Management S.A., Calypso Marine Corp., Oil Transport Investments Limited, Innovative Investments Limited and Ambassador Shipping Corporation, companies affiliated with Cardiff, each own a Capesize drybulk carrier. These vessels also could be in competition with our fleet and Cardiff and other companies affiliated with Cardiff might be faced with conflicts of interest with respect to their own interests and their obligations to us.  Cardiff may give preferential treatment to other companies affiliated with it, which may adversely affect our results of operations.

We may not be able to pay dividends.

Our current dividend policy is to declare quarterly distributions to stockholders of $0.20 per share by each January, April, July and October.  The timing and amount of dividends will depend on our earnings, financial condition, cash requirements and availability, restrictions in our loan agreements, the provisions of Marshall Islands law affecting the payment of dividends and other factors. The declaration and payment of dividends, if any, will always be subject to the discretion of our board of directors.  The timing and amount of any dividends declared will depend on, among other things, our earnings, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy and provisions of Marshall Islands law affecting the payment of dividends. The international drybulk shipping industry is highly volatile, and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period. Also, there may be a high degree of variability from period to period in the amount of cash that is available for the payment of dividends.

We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including as a result of the risks described in this annual report. Our growth strategy contemplates that we will finance the acquisition of additional vessels through a combination of debt and equity financing on terms acceptable to us. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions with cash from operations, which would reduce or even eliminate the amount of cash available for the payment of dividends.

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Marshall Islands law generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. We may not have sufficient surplus in the future to pay dividends. We may be unable to pay dividends in the amounts contemplated by our dividend policy, or at all.

We may have difficulty managing our planned growth properly.

We intend to continue to grow our fleet. Our future growth will primarily depend on our ability to:

 · locate and acquire suitable vessels,

 · identify and consummate acquisitions or joint ventures,

 · enhance our customer base,

 · manage our expansion, and

 · obtain required financing on acceptable terms.

Growing any business by acquisition presents numerous risks, such as undisclosed liabilities and obligations, the possibility that indemnification agreements will be unenforceable or insufficient to cover potential losses and difficulties associated with imposing common standards, controls, procedures and policies; obtaining additional qualified personnel; managing relationships with customers and integrating newly acquired assets and operations into existing infrastructure. We may be unable to successfully execute our growth plans or we may incur significant expenses and losses in connection with our future growth which would have an adverse impact on our financial condition and results of operations.

Our credit facilities impose operating and financial restrictions on us.

In addition to certain financial covenants relating to the Company’s financial position, operating performance and liquidity, the following restrictions limit our ability to, among other things:

 · pay dividends to investors or make capital expenditures if we do not repay amounts drawn under the credit facilities, if there is a default under the credit facilities or if the payment of the dividend or capital expenditure would result in a default or breach of a loan covenant,

 · incur additional indebtedness, including through the issuance of guarantees,

 · change the flag, class or management of our vessels,

 · create liens on our assets,

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 · sell or otherwise change the ownership of our vessels,

 · merge or consolidate with, or transfer all or substantially all our assets to, another person,

· drop below certain minimum cash deposits, as defined in our credit facilities,

 · maintain a place of business in the United States or the United Kingdom,

 · receive dividends from certain subsidiaries, and/or

 · enter into a new line of 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 may not be able to obtain our lenders' permission when needed. This may limit our ability to pay dividends to you, finance our future operations, make acquisitions or pursue business opportunities.

Our loan agreements may prohibit or impose certain conditions on the payment of dividends to investors.

Under our credit facilities we are restricted in our payments of dividends to investors. For example, we agreed that we would not pay dividends in 2006 in excess of $18.0 million; however, we were permitted to request our lender’s consent for additional dividend payments. On November 15, 2006 we requested and received consent from our lender for the payment of third-quarter dividends of $7.0 million, which exceeded the $18.0 million threshold for 2006. Under our credit facility in 2007, we have agreed not to pay dividends to investors in any year that exceed 50% of our net income for that year, as evidenced by the relevant annual audited financial statements.

Purchasing and operating secondhand vessels may result in increased operating costs and reduced fleet utilization.

While we have the right to inspect previously owned vessels prior to our purchase of them and we intend to inspect all secondhand vessels that we acquire in the future, such an inspection does not provide us with the same knowledge about their condition that we would have if these vessels had been built for and operated exclusively by us. A secondhand vessel may have conditions or defects that we were not aware of when we bought the vessel and which may require us to incur costly repairs to the vessel. These repairs may require us to put a vessel into drydock which would reduce our fleet utilization. Furthermore, we usually do not receive the benefit of warranties on secondhand vessels.

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In the highly competitive international shipping industry, we may not be able to compete for charters with new entrants or established companies with greater resources and, as a result, we may be unable to employ our vessels profitably.

 We employ our vessels in a highly competitive market that is capital-intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of drybulk cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources could enter the drybulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and higher quality vessels than we are able to offer. If we are unable to successfully compete with other drybulk shipping companies, this would have an adverse impact on our results of operations.

We may be unable to attract and 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. The loss of any of these individuals, difficulty in hiring and retaining personnel could adversely affect our business prospects, financial condition and results of operations. We have entered into a contract for the services of our Chairman, Chief Executive Officer and interim Chief Financial Officer, George Economou. Our success will depend upon our ability to retain key members of our management team and to hire new members as may be necessary. 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 currently, nor do we intend to, maintain “key man” life insurance on any of our officers.

Risks associated with operating ocean-going vessels could affect our business and reputation, which could adversely affect our revenues and stock price.

The operation of ocean-going vessels carries inherent risks. These risks include the possibility of:

 · marine disaster,

 · environmental accidents,

 · cargo and property losses or damage,

 · business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions, and

 · piracy.

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The involvement of our vessels in an environmental disaster may harm our reputation as a safe and reliable vessel owner and operator. Any of these circumstances or events could increase our costs or lower our revenues.

The shipping industry has inherent operational risks that may not be adequately covered by our insurance.

We procure insurance for our fleet against risks commonly insured against by vessel owners and operators. Our current insurance includes hull and machinery insurance, war risks insurance and protection and indemnity insurance (which includes environmental damage and pollution insurance). We may not be adequately insured against all risks or our insurers may not pay a particular claim. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs.

The operation of drybulk carriers has certain unique operational risks.

The operation of certain ship types, such as drybulk carriers, has certain unique risks. With a drybulk carrier, the cargo itself and its interaction with the ship can be a risk factor. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, drybulk carriers are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures may be more susceptible to breach to the sea. Hull breaches in drybulk carriers may lead to the flooding of the vessels holds. If a drybulk carrier suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel's bulkheads leading to the loss of a vessel. If we are unable to adequately maintain our vessels we may be unable to prevent these events. Any of these circumstances or events could negatively impact our business, financial condition, results of operations and ability to pay dividends. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.

If our vessels fail to maintain their class certification and/or fail any annual survey, intermediate survey, dry-docking or special survey, that vessel would be unable to carry cargo, thereby reducing our revenues and profitability and violating certain covenants under our credit facility.

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The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention (“SOLAS”).  All of our vessels are certified as being “in class” by all the major Classification Societies (e.g., American Bureau of Shipping, Lloyd’s Register of Shipping).

A vessel must undergo annual surveys, intermediate surveys, dry-dockings and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be dry-docked every two to three years for inspection of the underwater parts of such vessel.

If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, dry-docking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our credit facility. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations. That status could cause us to be in violation of certain covenants in our credit facility.

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. As of December 31, 2007, the 38 vessels in our fleet had an average age of 8.0 years.  Although during the year ended 2007 our fleet age dropped significantly, in general terms, 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 increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our vessels may engage. 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.

Because we generate all of our revenues in dollars but incur a significant portion of our expenses in other currencies, exchange rate fluctuations could have an adverse impact on our results of operations.

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We generate all of our revenues in dollars but we incur a portion of our expenses in currencies other than the dollar. This difference could lead to fluctuations in net income due to changes in the value of the dollar relative to the other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the dollar falls in value can increase, decreasing our net income. For example, between January 1, 2007 and December 31, 2007, the value of the dollar declined by approximately 9.5% as compared to the Euro. Further declines in the value of the dollar could lead to higher expenses payable by us.

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 any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.

We expect that we and each of our subsidiaries qualify for this statutory tax exemption and we have taken and intend to continue to take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source income.  Due to the factual nature of the issues involved, it is possible that our tax-exempt status or that of any of our subsidiaries may change.

If we or our subsidiaries are not entitled to this exemption under Section 883 for any taxable year, we or our subsidiaries could be subjected for those years to an effective 2% (i.e., 50% of 4%) United States federal income tax on United States-source gross shipping income. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders. For the 2007 taxable year, we estimate that our maximum United States federal income tax liability would be $1.13 million if we were to be subject to this taxation.

Our vessels may suffer damage and we may face unexpected drydocking costs, which could adversely 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.  The loss of earnings while our vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings and reduce the amount of cash that we have available for dividends.  We may not have insurance that is sufficient to cover all or any of these costs or losses and may have to pay drydocking costs not covered by our insurance.

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We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments.

We are a holding company and our subsidiaries, which are all wholly-owned by us either directly or indirectly, 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 make dividend payments depends on our subsidiaries and their ability to distribute funds to us. Under our credit facilities, we are restricted in our payments of dividends. If we are unable to obtain funds from our subsidiaries, our board of directors may exercise its discretion not to declare or pay dividends. We do not intend to obtain funds from other sources to pay dividends. In addition, the declaration and payment of dividends will depend on the provisions of Marshall Islands law affecting the payment of dividends. Marshall Islands law generally prohibits the payment of dividends if the company is insolvent or would be rendered insolvent upon payment of such dividend and dividends may be declared and paid out of our operating surplus; but in this case, there is no such surplus.  Dividends may be declared or paid out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year.  Our ability to pay dividends will also be subject to our satisfaction of certain financial covenants contained in our credit facilities. We may be unable to pay dividends in the anticipated amounts or at all. Under our credit facility with HSH Nordbank, we have agreed not to pay dividends in any year that exceed 50% of our net income for that year, as evidenced by the relevant annual audited financial statements.

As we expand our business, we may need to improve our operating and financial systems and will need to recruit suitable employees and crew for our vessels.

Our current operating and financial systems may not be adequate as we expand the size of our fleet and our attempts to improve those systems may be ineffective. In addition, as we expand our fleet, we will need to recruit suitable additional seafarers and shoreside administrative and management personnel. We may be unable to hire suitable employees as we expand our fleet. If we or our crewing agent encounters 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 financial performance may be adversely affected and, among other things, the amount of cash available for distribution as dividends to our shareholders may be reduced.

Our investment in Ocean Rig ASA carries with it certain obligations that may require us to pay additional consideration, purchase additional shares or prevent us from exercising our rights in the shares acquired.

On December 20, 2007, the Company acquired 51,778,647 shares in Ocean Rig ASA, or Ocean Rig, which represents 30.4% of the issued and outstanding shares.  Mr. George Economou, our Chairman and Chief Executive Officer, purchased in a seperate transaction approximately 4.4% of the outstanding shares of Ocean Rig.  The sale and purchase agreement executed in conjunction with this acquisition imposes certain obligations on the Company.  For instance, if the Company, its nominee, or a third party makes a bid for all of the issued shares of Ocean Rig within three months of the settlement of the December 20, 2007 transaction at a greater per share price, it will trigger an obligation on behalf of the Company to pay an additional purchase price in respect of the 51,778,647 acquired shares.  The additional purchase price will be in an amount sufficient to make the per share purchase price in the December 20, 2007 transaction equal to the per share purchase price in the subsequent transaction.  This provision expires on March 30, 2008.  

In addition, the Norwegian Securities Trading Act requires that any purchaser of more than 33% of a public company make a bid for all other outstanding shares of the target company at the highest price paid per share.  The Company's shares and Mr. Economou's shares are aggregated for these purposes.  If the Company or any “close affiliate” (as such term is defined in the act) further acquires one or more shares of Ocean Rig, then the Company shall be required to bid for all outstanding shares of Ocean Rig at the highest price paid per share in the period six months prior to the point at which the mandatory offer obligation was triggered.  Once such an obligation is triggered, the Company cannot exercise any rights (such as voting rights), other than the right to take out dividends and the exercise of pre-emption rights in the event of a capital increase, with respect to the portion of the shares which exceeds the mandatory bid threshold in Ocean Rig until the required bid has been made.  In the alternative, the Company would be permitted to sell shares to reduce its ownership below the threshold that triggered the mandatory bid obligation.

A requirement to pay additional capital for shares already acquired or to acquire further shares in Ocean Rig, or an inability to exercise voting or other rights with respect to the shares, may result in decreased earnings available for distribution to our shareholders.

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Risks Relating to Our Common Stock

There is no guarantee of a continuing public market for you to resell our common stock.

Our common shares commenced trading on the Nasdaq National Market, now the Nasdaq Global Market, in February 2005. An active and liquid public market for our common shares may not continue. The price of our common stock may be volatile and may fluctuate due to factors such as:

· actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry,

· mergers and strategic alliances in the drybulk shipping industry,

· market conditions in the drybulk shipping industry and the general state of the securities markets,

· changes in government regulation,

· shortfalls in our operating results from levels forecast by securities analysts, and

· announcements concerning us or our competitors.

You may not be able to sell your shares of our common stock in the future at the price that you paid for them or at all.

We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law and, as a result, shareholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States.

Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or “BCA.” The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain United States jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.

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A small number of our stockholders effectively control the outcome of matters on which our stockholders are entitled to vote.

Entities affiliated with Mr. Economou, our Chairman, Chief Executive Officer and interim Chief Financial Officer, currently own, directly or indirectly, approximately 29.7% of our outstanding common stock. While those stockholders have no agreement, arrangement or understanding relating to the voting of their shares of our common stock, they will effectively control the outcome of matters on which our stockholders are entitled to vote, including the election of directors and other significant corporate actions. The interests of these stockholders may be different from your interests.

Future sales of our common stock could cause the market price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, may depress the market price for our common stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future.

We may issue additional shares of our common stock in the future and our stockholders may elect to sell large numbers of shares held by them from time to time. Our amended and restated articles of incorporation authorize us to issue 1,000,000,000 common shares with par value $0.01 per share of which 40,890,097 shares are outstanding as of March 11, 2008.

We may issue registered preferred stock in the future. Our amended and restated articles of incorporation authorize us to issue 500,000,000 registered preferred shares with par value $0.01 per share of which none have been issued.

Anti-takeover provisions in our organizational documents could make it difficult for our stockholders to replace or remove our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock.

Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our stockholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable.

These provisions include:

· authorizing our board of directors to issue “blank check” preferred stock without stockholder approval,

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· providing for a classified board of directors with staggered, three-year terms,

· prohibiting cumulative voting in the election of directors,

· authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote for the directors,

· prohibiting stockholder action by written consent,

· limiting the persons who may call special meetings of stockholders, and

· establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

In addition, we have adopted a stockholders rights agreement pursuant to which our board of directors may cause the substantial dilution of the holdings of any person that attempts to acquire us without the approval of our board of directors.

These anti-takeover provisions, including provisions of our stockholder rights agreement, could substantially impede the ability of public stockholders 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.

Item 4. Information on the Company

A.        History and development of the Company

We are a Marshall Islands company that was formed in September 2004. Prior to our initial public offering we issued 15,400,000 shares of our common stock to our shareholders in October 2004. In February 2005, we completed our initial public offering and issued an additional 14,950,000 common shares with a par value of $0.01 at a price of $18.00 per share. The net proceeds of the initial public offering amounted to $251.3 million.

On May 10, 2006, the Company filed its universal shelf registration statement and related prospectus for the issuance of 5,000,000 of common shares. From May 2006 through August 2006, 4,650,000 shares of common stock with a par value $0.01 were issued. The net proceeds after underwriting commissions of 2.5% and other issuance fees were $56.5 million.

Our shareholders voted to adopt a resolution at our annual general shareholders’ meeting on July 11, 2006, which increased the aggregate number of shares of common stock that the Company is authorized to issue from 45,000,000 registered shares with par value of $0.01 to 75,000,000 registered shares with par value $0.01.

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On October 24, 2006, the Company’s Board of Directors agreed to the request of the Company’s major shareholders (Elios Investments Inc., Advice Investments S.A. and Magic Management Inc.) following the declaration of our $0.20 quarterly dividend per share in September 2006, to receive their dividend payment in the form of our common shares in lieu of cash. One of these shareholders, Elios Investments Inc., is controlled by our Chairman and Chief Executive Officer, Mr. George Economou. In addition, the Board of Directors also agreed on that date to the request of a company related to Mr. Economou to accept repayment of the outstanding balance of a seller’s credit in respect of a vessel purchased by us (as discussed in Note 3(e) of our consolidated financial statements) in our common shares. As a result of the agreement, an aggregate of $3,080,000 in dividends and the seller’s credit together with interest amounting to $3,327,000 was settled with 235,585 and 254,512 of our common shares, respectively. The price used as consideration for issuance of the above common shares was equal to the average closing price of our common stock on the Nasdaq Global Market over the eight trading days ended October 24, 2006, which was $13.07 per share.

In December 2006, the Company filed a registration statement on Form F-3 on behalf of the Company’s major shareholders registering for resale an aggregate of 15,890,097 of our common shares.

In October 2007, the Company filed a prospectus supplement pursuant to Rule 424(b) relating to the offer and sale of up to 6,000,000 shares of common stock, par value $0.01 per share, pursuant to the Company’s Registration Statement on Form F-3 ASR. From October2007 through December 2007, we issued an aggregate of 1,191,000 shares of common stock with par value $0.01 per share. The net proceeds, after underwriting commissions ranging between 2% to 2.5% and other issuance fees, amounted to $127.1 million. From January2008 through March 2008, we issued an aggregate of 4,759,000 shares of common stock with par value $0.01 per share. The net proceeds, after underwriting commissions ranging between 1.5% to 2% and other issuance fees, amounted to $352.75 million.

In January 2008, the Company increased the aggregate number of authorized shares of common stock of the Company from 75,000,000 registered shares with par value of $0.01 to 1,000,000,000 registered shares with a par value of $0.01 and increased the aggregate number of authorized shares of preferred stock from 30,000,000 registered shares; par value $0.01 per share to 500,000,000 registered preferred shares with a par value of $0.01 per share.

In March 2008, the Company filed a prospectus supplement pursuant to Rule 424(b) relating to the offer and sale of up to 6,000,000 shares of common stock, par value $0.01 per share, pursuant to the Company’s Registration Statement on Form F-3 ASR.

Our executive offices are located at Omega Building, 80 Kifissias Avenue, Amaroussion GR 15125 Greece. Our telephone number is 011-30-210-809-0570.

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B.           Business overview

Our Fleet

We currently own and operate a fleet of thirty-eight vessels and eight newbuildings consisting of nine Capesize drybulk carriers including four newbuilding Capesize drybulk carriers, thirty-three Panamax drybulk carriers including two newbuilding Panamax drybulk carriers, two newbuilding Kamsarmax drybulk carriers, and two Supramax drybulk carriers.  Our fleet carries a variety of drybulk commodities including major bulks such as coal, iron ore, and grains, and minor bulks such as bauxite, phosphate, fertilizers and steel products. In addition to our owned fleet, we have also chartered-in a 2000 built Panamax drybulk carrier for a period of three years ending in December 2008. The average age of the vessels in our fleet is 8.8 years (10.0 years, 8.6 years and 5.5 years for the Capesize, the Panamax and the Supramax vessels, respectively). The expected date of delivery of the eight newbuilding vessels are between the second quarter of 2008 and second quarter of 2010, respectively.

During 2005 and subsequent to the completion of our initial public offering in February 2005 we took delivery of twenty-one secondhand drybulk carrier vessels. During 2006 and 2007 we took delivery of eight and fifteen secondhand drybulk carrier vessels, respectively, and we disposed of one and eleven drybulk carrier vessels, respectively.

We employ our vessels primarily in the short-term, or spot, charter market, under period time charters, in drybulk carrier pools, and on bareboat charters. Three of the Panamax drybulk carriers in our fleet are currently operated in a drybulk carrier pool. Pools have the size and scope to combine spot market voyages, time charters and contracts of affreightment with FFAs for hedging purposes and to perform more efficient vessel scheduling, thereby increasing fleet utilization. Thirty-two of our vessels are currently on time charter. Our chartered-in vessel is on period time charter that runs concurrently with the time charter-in period. Three of our vessels are on bareboat charter. Each of our vessels is owned through a separate wholly-owned subsidiary established under the laws of Malta or the Marshall Islands.

Ocean Rig Investment

On December 20, 2007, the Company acquired 51,778,647 shares of Ocean Rig ASA, or Ocean Rig, for the purchase price of $406,024 which represents 30.4% of Ocean Rig’s issued and outstanding shares.

Ocean Rig, incorporated on September 26, 1996, is a public limited company incorporated and domiciled in Norway whose shares are publicly traded on the Oslo Stock Exchange. Ocean Rig has been established as a drilling contractor in the area of offshore exploration, development and production and operates two ultra deep-water drilling rigs “Leiv Eiriksson” and “Eirik Raude.”

The Company accounted for its investment in Ocean Rig using the equity method of accounting. The Company’s equity in the loss of Ocean Rig is shown in the Company’s consolidated statements of income as “Equity in loss of investees” and amounted to approximately $0.3 million for the period ended December 31, 2007.

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Recent Developments

Vessel Acquisitions

Vessel	M.O.A. date	Delivery date
Samsara (ex Cape Venture)	December 14, 2006	February 14, 2007
Primera (ex Sea Epoch)	December 15, 2006	April 11, 2007
Marbella (ex Restless)	February 27, 2007	April 27, 2007
Bargara (ex Songa Hua)	April 11, 2007	May 14, 2007
Brisbane (ex Spring Brave)	January 10, 2007	May 23, 2007
Capitola (ex Songa Hui)	April 11, 2007	June 1, 2007
Menorca (ex Oinoussian Legend)	January 18, 2007	June 7, 2007
Majorca (ex Maria G.O.)	March 26, 2007	June 11, 2007
Heinrich Oldendorff	March 23, 2007	June 11, 2007
Ecola (ex Zella Oldendorff)	November 23, 2006	August 28, 2007
Clipper Gemini	June 8, 2007	October 9, 2007
Samatan (ex Trans Atlantic)	August 15, 2007	October 17, 2007
VOC Galaxy	August 8, 2007	November 27, 2007
Saldanha (ex Shinyo Brilliance)	August 6, 2007	December 13, 2007
Oregon (ex Athina Zafirakis)	July 13, 2007	December 31, 2007
Avoca (ex Nord Mercury)	July 26, 2007	January 29, 2008

Vessel Disposals

Vessel	M.O.A. date	Delivery date
Panormos	September 8, 2006	January 8, 2007
Striggla	December 18, 2006	January 22, 2007
Daytona	December 15, 2006	January 23, 2007
Estepona	February 9, 2007	April 10, 2007
Shibumi	November 20, 2006	April 12, 2007
Delray	January 16, 2007	May 8, 2007
Hille Oldendorff	March 26, 2007	June 8, 2007
Alona	March 2, 2007	June 12, 2007
Mostoles	March 26, 2007	July 3, 2007
Lanikai	March 13, 2007	July 27, 2007
Formentera	August 7, 2007	December 14, 2007
Matira	October 1, 2007	February 25, 2008

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As of March 27, 2008, our fleet is comprised of the following drybulk carrier vessels:

		Year
		Built	DWT
	Capesize:
1	Manasota	2004	171,061
2	Alameda	2001	170,269
3	Samsara	1996	150,393
4	Netadola	1993	149,475
5	Brisbane	1995	151,066
	Average age / total dwt	10.0	792,264
	Panamax:
6	Heinrich Oldendorff	2001	73,931
7	Ligari	2004	75,583
8	Padre	2004	73,601
9	Mendocino	2002	76,623
10	Maganari	2001	75,941
11	Coronado	2000	75,706
12	Ocean Crystal	1999	73,688
13	Primera	1998	72,495
14	La Jolla	1997	72,126
15	Lanzarote	1996	73,008
16	Iguana	1996	70,349
17	Waikiki	1995	75,473
18	Sonoma	2001	74,786
19	Toro	1995	73,034
20	Lacerta	1994	71,862
21	Catalina	2005	74,432
22	Majorca	2005	74,364
23	Bargara	2002	74,832
24	Capitola	2001	74,832
25	Samatan	2001	74,823
26	Ecola	2001	73,931
27	Redondo	2000	74,716
28	Marbella	2000	72,561
29	Xanadu	1999	72,270
30	Menorca	1997	71,662
31	Saldahna	2004	75,500
32	Oregon	2002	74,204
33	Solana	1995	75,100
34	Paragon	1995	71,259
35	Avoca	2004	76,500
36	Tonga	1984	66,798
	Average age / total dwt	8.6	2,285,990

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	Supramax
37	Clipper Gemini	2003	51,201
38	VOC Galaxy	2002	51,201
	Average age / total dwt	5.5	102,402
	Newbuildings:
	TBN	2007	170,000
	TBN	2009	180,000
	TBN	2009	180,000
	TBN	2010	180,000
	TBN	2010	82,000
	TBN	2010	82,000
	TBN	2009	75,000
	TBN	2010	75,000
	Total dwt		1,024,000
	Total fleet Average age / dwt	8.8	4,204,656

We actively manage the deployment of our fleet between long-term and short-term (spot market) voyage charters, which generally last from several days to several weeks, and long-term time charters and bareboat charters, which can last up to several years. A voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for a specified total price. Under spot market voyage charters, we pay voyage expenses such as port, canal and fuel costs. A time charter is generally a contract to charter a vessel for a fixed period of time at a set daily rate. Under time charters, the charterer pays voyage expenses such as port, canal and fuel costs. Under both types of charters, we pay for vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, as well as for commissions. We are also responsible for the drydocking costs relating to each vessel. Under a bareboat charter, the vessel is chartered for a stipulated period of time, which gives the charterer possession and control of the vessel including the right to appoint the master and the crew. Under bareboat charters, all voyage costs are paid by the Company’s customers.

Our vessels operate worldwide within the trading limits imposed by our insurance terms and do not operate in areas where United States, European Union or United Nations sanctions have been imposed.

Competition

Demand for drybulk carriers fluctuates in line with the main patterns of trade of the major drybulk cargoes and varies according to changes in the supply and demand for these items. We compete with other owners of drybulk carriers in the Capesize, Panamax and Handymax size sectors. Ownership of drybulk carriers is highly fragmented and is divided among approximately 1,500 independent drybulk carrier owners. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an owner and operator.

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Customers

During the year ended December 31, 2007, one of our customers accounted for more than ten percent of our voyage revenue: Baumarine AS (12%). During the year ended December 31, 2006, two of our customers accounted for more than ten percent of our voyage revenues: Baumarine AS (25%) and Oldendorff Carriers Gmbh (13%). During the year ended December 31, 2005, two of our customers accounted for more than ten percent of our voyage revenues: Baumarine AS (25%) and Cargill International Ltd. (12%). During the year ended October 31, 2004 three of our customers accounted for more than ten percent of our voyage revenues: Transfield Shipping ER (11%), Brave Bulk Transport Ltd. (11%) and Baumarine AS (16%). During the two-month period ended December 31, 2004, three of our customers accounted for more than ten percent of our voyage revenues: Baumarine AS (42%), Cargill International Ltd. (18%) and Clearlake Shipping Ltd. (12%). Baumarine AS is a pool operator; therefore we do not consider Baumarine as representative of any single “customer” that charters vessels in the vessel charter markets. Given our exposure to, and focus on, the long-term  and short-term, or spot, time charter markets, we do not foresee any one client providing a significant percentage of our income over an extended period of time.

Management of the Fleet

We do not employ personnel to run our vessel operating and chartering business on a day-to-day basis. All of our vessels are managed by Cardiff. The Entrepreneurial Spirit Foundation, a family foundation of Vaduz Liechtenstein, of which our Chief Executive Officer and members of his family are beneficiaries, owns 70% of the issued and outstanding capital stock of Cardiff. The remaining 30% of the issued and outstanding capital stock of Cardiff is held by Prestige Finance S.A., a Liberian corporation that is wholly owned by the sister of our Chief Executive Officer. Cardiff, or our Manager, performs all of our technical and commercial functions relating to the operation and employment of our vessels pursuant to management agreements concluded between the Manager and our vessel-owning subsidiaries that have an initial term of five years and will automatically be extended to successive five-year terms, unless at least 30 days’ advance notice of termination is given by either party. Our Chief Executive Officer and Chief Financial Officer, under the guidance of our board of directors, manage our business as a holding company, including our own administrative functions, and we monitor Cardiff’s performance under the fleet management agreement.

The management fee we pay to the Manager is Euro 530 per day, per vessel. In addition, we pay the Manager a fee of $100 per day, per vessel for services in connection with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, the Manager charges us a fee of $550 for superintendent visits on board vessels in excess of five days per annum, per vessel, for each additional day, per superintendent. Until September 30, 2006, under the management agreement with Cardiff, Drybulk S.A. was acting as the chartering broker and sales and purchase broker for the Company in exchange for a commission of 1.25% on all freight, hire, demurrage revenues and a commission of 1.00% on all gross sale proceeds of, or purchase prices paid for, vessels. Since October 1, 2006 the Manager has acted as the Company’s chartering broker and sales and purchase broker. Management fees for the periods before year ended December 31, 2007 were based at a daily fixed fee of $650 per vessel which was based on the Dollar/Euro exchange rate of $1.30 per Euro. At the beginning of each calendar quarter, the daily fixed per vessel fee was adjusted upwards or downwards according to the Dollar/Euro exchange rate as quoted by EFG Eurobank Ergasias S.A. two business days before the end of the immediately preceding calendar quarter.

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In addition, we have agreed in a separate contract of ongoing services with the Manager to pay to the Manager a quarterly fee of $250,000 for services rendered by the Manager in relation to the financial reporting requirements of the Company under the Securities Exchange Act of 1934, and the establishment and monitoring of internal controls over financial reporting. During the years ended December 31, 2006 and 2007, the Company incurred costs of $750,000 and $1,369,000, respectively, to reimburse the Manager for additional services not covered by the contract for ongoing services that related to the Manager’s services in connection with compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Crewing and Employees

Cardiff employs approximately 180 people, all of whom are shore-based. In addition, Cardiff is responsible for recruiting, either directly or through a crewing agent, the senior officers and all other crew members for our vessels. We believe the streamlining of crewing arrangements will ensure that all our vessels will be crewed with experienced seamen that have the qualifications and licenses required by international regulations and shipping conventions.

The International Drybulk Shipping Industry

Drybulk cargo is cargo that is shipped in large quantities and can be easily stowed in a single hold with little risk of cargo damage. In 2007, approximately 2,990 million tons of drybulk cargo were transported by sea, comprising more than one-third of all international seaborne trade.

The demand for drybulk carrier capacity is determined by the underlying demand for commodities transported in drybulk carriers, which in turn is influenced by trends in the global economy. Between 2001 and 2007, trade in all drybulk commodities increased from 2,142 million tons to 2,990 million tons, an increase of 39.6%.  One of the main reasons for the resurgence in drybulk trade has been the growth in imports by China of iron ore, coal and steel products during the last eight years. Chinese imports of iron ore alone increased from 55.3 million tons in 1999 to more than 380 million tons in 2007. Demand for drybulk carrier capacity is also affected by the operating efficiency of the global fleet, with port congestion, which has been a feature of the market in 2004, absorbing additional tonnage.

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 The global drybulk carrier fleet may be divided into four categories based on a vessel’s carrying capacity. These categories consist of:

 · Capesize vessels, which have carrying capacities of more than 85,000 dwt. These vessels generally operate along long-haul iron ore and coal trade routes. There are relatively few ports around the world with the infrastructure to accommodate vessels of this size.

 · Panamax vessels have a carrying capacity of between 60,000 and 85,000 dwt. These vessels carry coal, grains, and, to a lesser extent, minor bulks, including steel products, forest products and fertilizers. Panamax vessels are able to pass through the Panama Canal making them more versatile than larger vessels.

 · Handymax vessels have a carrying capacity of between 35,000 and 60,000 dwt. The subcategory of vessels that have a carrying capacity of between 45,000 and 60,000 dwt is called Supramax.  These vessels operate along a large number of geographically dispersed global trade routes mainly carrying grains and minor bulks. Vessels below 60,000 dwt are sometimes built with on-board cranes enabling them to load and discharge cargo in countries and ports with limited infrastructure.

 · Handysize vessels have a carrying capacity of up to 35,000 dwt. These vessels carry exclusively minor bulk cargo. Increasingly, these vessels have operated along regional trading routes. Handysize vessels are well suited for small ports with length and draft restrictions that may lack the infrastructure for cargo loading and unloading.

The supply of drybulk carriers is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or loss. The orderbook of new drybulk vessels scheduled to be delivered in 2008 represents approximately 7% of the world drybulk fleet.  The level of scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs.  Drybulk carriers at or over 25 years old are considered to be scrapping candidate vessels.

Charterhire Rates

Charterhire rates paid for drybulk carriers are primarily a function of the underlying balance between vessel supply and demand, although at times other factors may play a role. Furthermore, the pattern seen in charter rates is broadly mirrored across the different charter types and between the different drybulk carrier categories. However, because demand for larger drybulk carriers is affected by the volume and pattern of trade in a relatively small number of commodities, charterhire rates (and vessel values) of larger ships tend to be more volatile than those for smaller vessels.

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In the time charter market, rates vary depending on the length of the charter period and vessel specific factors such as age, speed and fuel consumption. In the voyage charter market, rates are influenced by cargo size, commodity, port dues and canal transit fees, as well as delivery and redelivery regions. In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals generally command higher rates than routes with low port dues and no canals to transit.

Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port within a region with ports where vessels load cargo also are generally quoted at lower rates because such voyages generally increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return charter to a loading area.

Within the drybulk shipping industry, the charterhire rate references most likely to be monitored are the freight rate indices issued by the Baltic Exchange. These references are based on actual charterhire rates under charter entered into by market participants as well as daily assessments provided to the Baltic Exchange by a panel of major shipbrokers. The Baltic Panamax Index is the index with the longest history. The Baltic Capesize Index and Baltic Handymax Index are of more recent origin. In 2007, rates for all sizes of drybulk carriers strengthened appreciably to historically high levels, primarily due to the high level of demand for raw materials imported by China.  Demand is also expected to be strong for the years 2008 and 2009.

Vessel Prices

Vessel prices, both for new-buildings and secondhand vessels, have increased significantly during the past two years as a result of the strength of the drybulk shipping industry. Because sectors of the shipping industry (drybulk carrier, tanker and container ships) are in a period of prosperity, newbuilding prices for all vessel types have increased significantly due to a reduction in the number of berths available for the construction of new vessels in shipyards.

ENVIRONMENTAL AND OTHER REGULATIONS

Government regulations and laws significantly affect the ownership and operation of our fleet. We are subject to various international conventions and treaties, laws and regulations in force in the countries in which our vessels may operate or are registered, relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources.

A variety of government, quasi-governmenatal and private organizations subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the United States Coast Guard and harbor masters), classification societies, flag state administration (country of registry) and charterers.  Some of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Our failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet.

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In recent periods, heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards.  We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements or the impact of these requirements on the resale value or useful lives of our vessels.  In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.

International Maritime Organization

The United Nations International Maritime Organization, or IMO, has negotiated international conventions that impose liability for oil pollution in international waters and a signatory’s territorial waters. In September 1997, the IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships to address air pollution from ships. Annex VI was ratified in May 2004 and became effective in May 2005. Annex VI set limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. 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. Compliance with these regulations could require the installation of expensive emission control systems and could have an adverse financial impact on the operation of our vessels.  Our vessel manager has informed us that a plan to conform with the Annex VI resolutions is in place and we believe we are in substantial compliance with Annex VI.

The operation of our vessels is also affected by the requirements set forth in the IMO’s Management Code for the Safe Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code requires shipowners 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 operations and describing procedures for dealing with emergencies. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. As of the date of this prospectus, each of our vessels is ISM code-certified. However, there can be no assurance that these certifications will be maintained indefinitely.

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Safety Management System Requirements

IMO also adopted SOLAS and the International Convention on Load Line, 1996, or LL Convention, which impose a variety of standards that regulate the design and operational features of ships. IMO periodically revises the SOLAS Convention and LL Convention standards. We believe that all our vessels are in substantial compliance with SOLAS Convention and LL Convention standards.

Under Chapter IX of SOLAS, our operations are also subject to environmental standards and requirements contained in the ISM Code promulgated by the IMO also affect our operations. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We intend to rely upon the safety management system that we and our technical manager will develop for compliance with the ISM Code.

The ISM Code requires that vessel operators also obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with code requirements for a safety management system. No vessel can obtain a certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We will obtain documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. As required, we renew these documents of compliance and safety management certificates annually.

Pollution Control and Liability Requirements

IMO has negotiated international conventions that impose liability for oil pollution in international waters and the territorial waters of the signatory to such conventions. For example, IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be replaced in time with mandatory concentration limits. The BWM Convention will not become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping.

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Although the United States is not a party to these conventions, many countries have ratified and follow the liability plan adopted by the IMO and set out in the CLC. Under this convention and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain defenses.  The limits on liability outlined in the 1992 Protocol use the International Monetary Fund currency unit of Special Drawing Rights, or SDR. Under an amendment to the 1992 Protocol that became effective on November 1, 2003, for vessels between 5,000 and 140,000 gross tons (a unit of measurement for the total enclosed spaces within a vessel), liability is limited to approximately 4.51 million SDR plus 631 SDR for each additional gross ton over 5,000. For vessels of over 140,000 gross tons, liability is limited to 89.77 million SDR.  The exchange rate between SDRs and dollars was 0.632372 SDR per dollar on February 15, 2008. As the convention calculates liability in terms of a basket of currencies, these figures are based on currency exchange rates on February 15, 2008. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the shipowner’s intentional or reckless conduct. Vessels trading with states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that of the convention. We believe that our protection and indemnity insurance will cover the liability under the plan adopted by the IMO.

Compliance Enforcement

The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility for the implementation and enforcement of international maritime regulations for all ships granted the right to fly its flag. The “Shipping Industry Guidelines on Flag State Performance” evaluates flag states based on factors such as sufficiency of infrastructure, ratification of international maritime treaties, implementation and enforcement of international maritime regulations, supervision of surveys, casualty investigations and participation at IMO meetings. Our vessels will be flagged in the Marshall Islands. Marshall Islands-flagged vessels have historically received a good assessment in the shipping industry.

Noncompliance with the ISM Code or other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The United States Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code by the applicable deadlines will be prohibited from trading in United States and European Union ports, respectively.

The United States Oil Pollution Act of 1990

The United States Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States' territorial sea and its 200 nautical mile exclusive economic zone.

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:

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 · natural resources damage and the costs of assessment thereof,

 · real and personal property damage,

 · net loss of taxes, royalties, rents, fees and other lost revenues,

 · lost profits or impairment of earning capacity due to property or natural resources damage, and

 · net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.

Under amendments to OPA that became effective on July 11, 2006, the liability of responsible parties is limited to the greater of $950 per gross ton or $0.8 million per drybulk vessel that is over 300 gross tons (subject to possible adjustment for inflation). These limits of liability do not apply if an incident was directly caused by violation of applicable United States 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 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 requires owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under OPA. Current United States Coast Guard regulations require evidence of financial responsibility in the amount of $900 per gross ton for non-tank vessels, which includes the OPA limitation on liability of $600 per gross ton and the United States Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, liability limit of $300 per gross ton. We expect the United States Coast Guard to increase the amounts of financial responsibility to reflect the July 2006 increases in liability. Under the regulations, vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance or guaranty. Under OPA, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessels in the fleet having the greatest maximum liability under OPA.

The United States Coast Guard's regulations concerning certificates of financial responsibility provide, in accordance with OPA, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of financial responsibility. In the event that such insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Certain organizations, which had typically provided certificates of financial responsibility under pre-OPA laws, including the major protection and indemnity organizations, have declined to furnish evidence of insurance for vessel owners and operators if they are subject to direct actions or are required to waive insurance policy defenses.

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The United States Coast Guard's financial responsibility regulations may also be satisfied by evidence of surety bond, guaranty or by self-insurance. Under the self-insurance provisions, the shipowner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the United States Coast Guard regulations by providing a certificate of responsibility from third-party entities that are acceptable to the United States Coast Guard evidencing sufficient self-insurance.

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. We intend to comply with all applicable state regulations in the ports where our vessels call.

The United States Clean Water Act

The U.S. Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in navigable waters 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.

Currently, under U.S. Environmental Protection Agency, or EPA, regulations that have been in place since 1978, vessels are exempt from the requirement to obtain CWA permits for the discharge in U.S. ports of ballast water and other substances incidental to their normal operation. However, on March 30, 2005, the United States District Court for the Northern District of California ruled in Northwest Environmental Advocate v. EPA, 2005 U.S. Dist. LEXIS 5373, that EPA exceeded its authority in creating an exemption for ballast water. On September 18, 2006, the court issued an order invalidating the blanket exemption in EPA's regulations for all discharges incidental to the normal operation of a vessel as of September 30, 2008 and directing EPA to develop a system for regulating all discharges from vessels by that date. Under the court's ruling, owners and operators of vessels visiting U.S. ports would be required to comply with any CWA-permitting program to be developed by EPA or face penalties. Although EPA has appealed the decision to the Ninth Circuit Court of Appeals, we cannot predict the outcome of the litigation. If the District Court's order is ultimately upheld, we will incur certain costs to obtain CWA permits for our vessels and meet any treatment requirements, although we do not expect that these costs would be material.

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Additional Environmental Requirements

The European Union is considering legislation that will affect the operation of vessels and the liability of owners for oil pollution. It is difficult to predict what legislation, if any, may be promulgated by the European Union or any other country or authority.

The U.S. National Invasive Species Act, or NISA, was enacted in 1996 in response to growing reports of harmful organisms being released into U.S. ports through ballast water taken on by ships in foreign ports. The United States Coast Guard adopted regulations under NISA in July 2004 that impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering U.S. waters. These requirements can be met by performing mid-ocean ballast exchange, by retaining ballast water on board the ship, or by using environmentally sound alternative ballast water management methods approved by the United States Coast Guard. (However, mid-ocean ballast exchange is mandatory for ships heading to the Great Lakes or Hudson Bay, or vessels engaged in the foreign export of Alaskan North Slope crude oil.) Mid-ocean ballast exchange is the primary method for compliance with the United States Coast Guard regulations, since holding ballast water can prevent ships from performing cargo operations upon arrival in the United States, and alternative methods are still under development. Vessels that are unable to conduct mid-ocean ballast exchange due to voyage or safety concerns may discharge minimum amounts of ballast water (in areas other than the Great Lakes and the Hudson River), provided that they comply with recordkeeping requirements and document the reasons they could not follow the required ballast water management requirements. The United States Coast Guard is developing a proposal to establish ballast water discharge standards, which could set maximum acceptable discharge limits for various invasive species, and/or lead to requirements for active treatment of ballast water. A number of bills relating to regulation of ballast water management have been recently introduced in the U.S. Congress but it is difficult to predict which, if any, will be enacted into law.

At the international level, the IMO adopted the BWM Convention in February 2004. The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be replaced in time with mandatory concentration limits. The BWM Convention will not 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. As of May 31, 2007, the BWM Convention has been adopted by ten states, representing 3.42% of world tonnage.

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 MTSA came into effect.  To implement certain portions of the MTSA, in July 2003, the United States Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States.  Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security.  The new chapter became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created International Ship and Port 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 onboard showing a vessel’s history, including name of the ship and 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 United States Coast Guard regulations, intended to align with international maritime security standards, exempt from MTSA vessel security measures non-United States 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 have implemented the various security measures addressed by MTSA, SOLAS and the ISPS Code.

Inspection by Classification Societies

Every seagoing vessel must be ‘‘classed’’ by a classification society.  The classification society certifies that the vessel is ‘‘in class,’’ signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member.  In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.

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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.

· Intermediate Surveys:  Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal.  Intermediate surveys may be carried out on the occasion of the second or third annual survey.

· Class Renewal Surveys:  Class renewal surveys, also known as special surveys, are carried out for the ship’s hull, machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated by the character of classification for the hull.  At the special survey, the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures.  Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals.  The classification society may grant a one-year grace period for completion of the special survey.  Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear.  In lieu of the special survey every four or five years, depending on whether a grace period was granted, a shipowner has the option of arranging with the classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle.

Upon a shipowner’s request, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class.  This process is referred to as continuous class renewal.

All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere.  The period between two subsequent surveys of each area must not exceed five years.

Most vessels are also drydocked every 30 to 36 months for inspection of the underwater parts and for repairs related to inspections.  If any defects are found, the classification surveyor will issue a ‘‘recommendation’’ which must be rectified by the shipowner within prescribed time limits.

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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 all the major Classification Societies (e.g., American Bureau of Shipping, 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 memorandum of agreement.  If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel.

Risk of Loss and Liability Insurance

The operation of any drybulk vessel includes risks such as mechanical failure, hull damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental incidents, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market.

We maintain hull and machinery insurance, war risks insurance, protection and indemnity cover, and freight, demurrage and defense cover for our fleet in amounts that we believe to be prudent to cover normal risks in our operations. However, we may not be able to achieve or maintain this level of coverage throughout a vessel's useful life. Furthermore, while we believe that the insurance coverage that we will obtain is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.

Hull & Machinery and War Risks Insurance

We maintain marine hull and machinery and war risks insurance, which includes the risk of actual or constructive total loss, for all of our vessels. Our vessels are each covered up to at least fair market value with deductibles of $100,000 - $ 150,000 per vessel per incident. We also maintain increased value coverage for most of our vessels. Under this increased value coverage, in the event of total loss of a vessel, we will be able to recover the sum insured under the increased value policy in addition to the sum insured under the hull and machinery policy. Increased value insurance also covers excess liabilities which are not recoverable under our hull and machinery policy by reason of under insurance.

Protection and Indemnity Insurance

Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which insure liabilities to third parties in connection with our shipping activities. This includes third-party liability and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Our P&I coverage is subject to and in accordance with the rules of the P&I association in which the vessel is entered. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.” Our coverage is limited to approximately $4.25 billion, except for pollution which is limited to $1 billion and passenger and crew which  is limited to $3 billion.

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Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The fourteen P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. Each P&I Association has capped its exposure to this pooling agreement at $4.25 billion. As a member of a P&I Association that is a member of the International Group, we are subject to calls payable to the associations based on the group’s claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group.

Permits and Authorizations

We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel’s crew and the age of a vessel. We have been able to obtain all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of our doing business.

C.        Organizational structure

As of December 31, 2007, the Company is the sole owner of all of the outstanding shares of the subsidiaries listed in Note 1 of our consolidated financial statements under item 18.

D.        Property, plant and equipment

We do not own any real property. We lease office space in Athens, Greece from our Chief Executive Officer. Our interests in the vessels in our fleet are our only material properties. See “Our Fleet” in this section.

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Item 4A. Unresolved Staff Comments

 None.

Item 5. Operating and Financial Review and Prospects

 The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and accompanying notes included elsewhere in this report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in the section entitled “Risk Factors” and elsewhere in this report.

Factors Affecting Our Results of Operations

We charter our drybulk carriers to customers primarily pursuant to short-term time charters. Under our time charters, the charterer typically pays us a fixed daily charter hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses, and we also pay commissions to one or more unaffiliated ship brokers and to in-house brokers associated with the charterer for the arrangement of the relevant charter. Although the vessels in our fleet are primarily employed on short-term time charters ranging from two to twelve months, we may employ additional vessels on longer-term time charters in the future. Under a bareboat charter, the vessel is chartered for a stipulated period of time which gives the charterer possession and control of the vessel, including the right to appoint the master and the crew. Under bareboat charters all voyage costs are paid by the Company’s customers.

We believe that the important measures for analyzing trends in the results of our operations consist of the following:

 · Calendar days. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period.

 · Voyage days. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with major repairs, drydockings or special or intermediate surveys. The shipping industry uses voyage days (also referred to as available days) to measure the number of days in a period during which vessels actually generate revenues.

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 · Fleet utilization. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our calendar days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-hire for reasons such as scheduled repairs, vessel upgrades, drydockings or special or intermediate surveys.

 · Spot Charter Rates. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes.

 · TCE rates. We define TCE rates as our voyage and time charter revenues less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. TCE rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts.

The following table reflects our voyage days, calendar days, fleet utilization and TCE rates for the periods indicated.

(Dollars in thousands, except  Average Daily Results) Year Ended October 31, Two Months Ended December 31, Year Ended December 31,

	2004	2004	2005	2006	2007
Average number of vessels	5.9	6	21.6	29.76	33.67
Total voyage days for fleet	2,066	366	7,710	10,606	12,130
Total calendar days for fleet	2,166	366	7,866	10,859	12,288
Fleet Utilization	95.40%	100.00%	98.00%	97.70%	98.71%
Time charter equivalent	28,062	39,516	28,446	21,918	45,417

Voyage Revenues

Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charterhire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals; the amount of time that we spend positioning our vessels; the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work; the age, condition and specifications of our vessels; levels of supply and demand in the drybulk transportation market, and other factors affecting spot market charter rates for drybulk carriers.

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Vessels operating on period time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the short-term, or spot, charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in charter rates although we are exposed to the risk of declining charter rates, which may have a materially adverse impact on our financial performance. If we employ vessels on period time charters, future spot market rates may be higher or lower than the rates at which we have employed our vessels on period time charters.

We placed seven of our vessels in a pool during 2007, of which three remained in the pool at December 31, 2007. We are paid a percentage of revenues generated by the pool calculated in accordance with a “pool point formula,” which is determined by points awarded to each vessel based on the vessel’s age, dwt, speed, fuel consumption and certain other factors. For example, a younger vessel with higher carrying capacity and greater fuel efficiency would earn higher pool points than an older vessel with lower carrying capacity and lesser fuel efficiency. Revenues are paid every 15 days in arrears based on the points earned by each vessel.

We believe that by placing our vessels in a pool of similar vessels, we benefit from certain economies of scale available to the pool relating to negotiations with major charterers and flexibility in positioning vessels to obtain maximum utilization.

Revenue from these pooling arrangements is accounted for on the accrual basis and is recognized when the collectability has been reasonably assured. Revenue from the pooling arrangements for the years ended December 31, 2005, 2006 and 2007 accounted for 25%, 25% and 12%, respectively, of our voyage revenues.

A standard maritime industry performance measure used to evaluate performance is the daily time charter equivalent, or “Daily TCE.” Daily TCE revenues are voyage revenues minus voyage expenses (including net gain or loss on sale of bunkers) divided by the number of voyage days during the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter, as well as commissions. We believe that the Daily TCE neutralizes the variability created by unique costs associated with particular voyages or the employment of vessels on time charter or on the spot market and presents a more accurate representation of the revenues generated by our vessels.

Voyage Expenses and Voyage Expenses-related party

Voyage expenses and voyage expenses-related party primarily consist of commissions.

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Vessel Operating Expenses

Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically increased as a result of the increase in the size 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, may also cause these expenses to increase.

Depreciation and Amortization

We depreciate our vessels on a straight-line basis over their estimated useful lives determined to be 25 years from the date of their initial delivery from the shipyard. Depreciation is based on cost less the estimated residual value. We capitalize the costs associated with a drydocking and amortize these costs on a straight-line basis over the period when the next drydocking becomes due, which is typically 30 months. Regulations and/or incidents may change the estimated dates of next drydockings.

Management Fees-Related Party

The management fee we pay to the Manager is Euro 530 per day, per vessel. In addition, we pay the Manager a fee of $100 per day, per vessel for services in connection with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, the Manager charges us a fee of $550 for superintendent visits on board vessels in excess of five days per annum, per vessel, for each additional day, per superintendent. Until September 30, 2006, under the management agreement with Cardiff, Drybulk S.A. was acting as the chartering broker and sales and purchase broker for the Company in exchange for a commission of 1.25% on all freight, hire, demurrage revenues and a commission of 1.00% on all gross sale proceeds of, or purchase prices paid for, vessels. Since October 1, 2006 the Manager has acted as the Company’s chartering broker and sales and purchase broker. Management fees for the periods before year ended December 31, 2007 were based at a daily fixed fee of $650 per vessel which was based on the Dollar/Euro exchange rate of $1.30 per Euro. At the beginning of each calendar quarter, the daily fixed per vessel fee was adjusted upwards or downwards according to the Dollar/Euro exchange rate as quoted by EFG Eurobank Ergasias S.A. two business days before the end of the immediately preceding calendar quarter.

In addition, we have agreed in a separate contract of ongoing services with the Manager to pay to the Manager a quarterly fee of $250,000 for services rendered by the Manager in relation to the financial reporting requirements of the Company under the Securities Exchange Act of 1934, and the establishment and monitoring of internal controls over financial reporting.  During the years ended December 31, 2006 and 2007, the Company incurred costs of $750,000 and $1,369,000, respectively, to reimburse the Manager for additional services not covered by the contract for ongoing services that related to the Manager’s services in connection with compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

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General and Administrative Expenses and General Administrative Expenses-Related Party

Our general and administrative expenses mainly include executive compensation and the fees paid to Fabiana Services S.A. (“Fabiana”), a related party entity incorporated in the Marshall Islands. Fabiana provides the services of the individuals who serve in the positions of Chief Executive Officer and Chief Financial Officer. Fabiana is beneficially owned by our Chief Executive Officer.

Interest and Finance Costs

We have historically incurred interest expense and financing costs in connection with vessel-specific debt of our subsidiaries. We used a portion of the proceeds of our initial public offering in February 2005 to repay all of our then-outstanding debt. We have incurred financing costs and we also expect to incur interest expenses under our credit facilities in connection with debt incurred to finance future acquisitions. However, we intend to limit the amount of these expenses and costs by repaying our outstanding indebtedness from time to time with the net proceeds of future equity issuances.

Inflation

Inflation has not had a material effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and financing costs.

Lack of Historical Operating Data for Vessels before Their Acquisition

Although vessels are generally acquired free of charter, we have acquired (and may in the future acquire) some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is usually delivered to the buyer free of charter. It is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer’s consent and the buyer's entering into a separate direct agreement (called a “novation agreement”) with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter because it is a separate service agreement between the vessel owner and the charterer.

Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market data and the discounted amount of expected future cash flows. Where we have assumed an existing charter obligation or entered into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are less than market charter rates, we record a liability, based on the difference between the assumed charter rate and the market charter rate for an equivalent vessel to the extent the vessel’s capitalized cost would not exceed its fair value without a time charter. 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 an asset, based on the difference between the market charter rate for an equivalent vessel and the contracted charter rate. 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.

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During 2006, from April to October, we took delivery of seven secondhand vessels, the Lanzarote, Delray, Estepona, Ligari, Formentera, Maganari and Hille Oldendorff, with charter party arrangements attached, which we agreed to assume through arrangements with the respective charterers. Upon delivery of the vessels we evaluated the charter contract assumed and recognized (a) an asset of $5.5 million for two of the vessels, with a corresponding decrease in the vessels’ purchase price and (b) a liability of $11.5 million for the other five vessels, with a corresponding increase in the vessels ’ purchase price. The fair value of the assumed charters was determined based on reference to current market rates for similar contracts considering the remaining time charter period. Of the above mentioned vessels, all were acquired from third parties.

During 2007, the Company acquired three drybulk carrier vessels for $193.1 million which were under existing bareboat time charter contracts that the Company agreed to assume through arrangements with the respective charterers. The Company, upon delivery of the above vessels, evaluated the charter contracts and assumed and recognized a liability of $38.7 million representing the fair value of below market acquired time charters, which is an equivalent of a present value of the excess of market rates equivalent time charters prevailing at the time the foregoing vessels were delivered over existing rates of time charters assumed.

When we purchase a vessel and assume or renegotiate a related time charter, we must take the following steps before the vessel will be ready to commence operations:

 · obtain the charterer’s consent to us as the new owner;

 · obtain the charterer’s consent to a new technical manager;

 · in some cases, obtain the charterer’s consent to a new flag for the vessel;

 · arrange for a new crew for the vessel and, where the vessel is on charter, in some cases, the crew must be approved by the charterer;

 · replace all hired equipment on board, such as gas cylinders and communication equipment;

 · negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;

 · register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;

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 · implement a new planned maintenance program for the vessel; and

 · ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.

The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations.

Our business is comprised of the following main elements:

 · employment and operation of our drybulk vessels, and

 · management of the financial, general and administrative elements involved in the conduct of our business and ownership of our drybulk vessels.

The employment and operation of our vessels require the following main components:

 

 · vessel maintenance and repair,

 · crew selection and training,

 · vessel spares and stores supply,

 · contingency response planning,

 · onboard safety procedures auditing,

 · accounting,

 · vessel insurance arrangement,

 · vessel chartering,

 · vessel security training and security response plans (ISPS),

 · obtain ISM certification and audit for each vessel within the six months of taking over a vessel,

 · vessel hire management,

 · vessel surveying, and

 · vessel performance monitoring.

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The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires the following main components:

 · management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts,

 · management of our accounting system and records and financial reporting,

 · administration of the legal and regulatory requirements affecting our business and assets, and

 · management of the relationships with our service providers and customers.

The principal factors that affect our profitability, cash flows and shareholders’ return on investment include:

 · rates and periods of charterhire,

 · levels of vessel operating expenses,

 · depreciation and amortization expenses,

 · financing costs, and

 · fluctuations in foreign exchange rates.

Critical Accounting Policies

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 generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods of their application. For a description of all of the Company’s significant accounting policies, see Note 2 to the Company’s consolidated financial statements.

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Impairment of long-lived assets: We evaluate the carrying amounts of vessels to determine if events have occurred which would require modification to their carrying values. In evaluating carrying values of vessels, we review certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. We determine undiscounted projected net operating cash flows for each vessel and compare it to the vessel’s carrying value. If our estimate of undiscounted future cash flows for any vessel is lower than the vessel’s carrying value plus any unamortized drydocking costs, 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. We estimate fair market value primarily through the use of third-party valuations performed on an individual vessel basis. As vessel values are volatile, the actual fair market value of a vessel may differ significantly from estimated fair market values within a short period of time. To date, no impairment loss indicators have arisen.

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. We depreciate our vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years, with the exception of vessel Tonga, from date of initial delivery from the shipyard. We believe that a 25-year depreciable life is consistent with that of other shipowners. The useful life of Tonga is estimated to 26 years, which coincides with the validity of the class certificate. Depreciation is based on cost less the estimated residual scrap value. A decrease in the useful life of a drybulk vessel or in its residual value would have the effect of increasing the annual depreciation charge. When regulations place limitations on the ability of a vessel to trade on a worldwide basis, the vessel’s useful life is adjusted at the date such regulations are adopted.

Deferred drydock costs: Our vessels are required to be drydocked approximately every 30 months for major repairs and maintenance that cannot be performed while the vessel is operating. We capitalize the costs associated with the drydocks as they occur and amortize these costs on a straight-line basis over the period between drydocks. Costs capitalized as part of the drydock include actual costs incurred at the drydock yard and the cost of hiring a third party to oversee a drydock. We believe that these criteria are consistent with industry practice and that our policy of capitalization reflects the economics and market values of the vessels.

Accounting for Revenue and Related Expenses: The Company generates its revenues from charterers for the charterhire of its vessels.  Vessels are chartered using time and bareboat 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, price is fixed, service is provided and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably on a straight-line basis over the duration of the period of each time charter as adjusted for the off-hire days that the vessel spends undergoing repairs, maintenance and upgrade work depending on the condition and specification of the vessel.

Deferred revenue includes cash received prior to the balance sheet date and is related to revenue earned after such date. Deferred revenue for 2006 also includes the unamortized balance of the liability associated with the acquisition of second-hand vessels with time charters attached which were acquired at values below fair market value at the date the acquisition agreements were consummated, which in 2007 is shown separately.

For vessels operating in pooling arrangements, the Company earns a portion of total revenues generated by the pool, net of expenses incurred by the pool. The amount allocated to each pool participant vessel, including the Company’s vessels, is determined in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel’s age, design and other performance characteristics. Revenue under pooling arrangements is accounted for on the accrual basis and is recognized when the collectability has been reasonably assured, an agreement with the pool exists, price is fixed and service is provided. The allocation of such net revenue may be subject to future adjustments by the pool.  However, historically, such changes have not been material.

Voyage related and vessel operating costs are expensed as incurred.  Under time charter, specified voyage costs such as fuel and port charges are paid by the charterer, and other non-specified voyage expenses such as commission are paid by the Company. Vessel operating costs including crews, maintenance and insurance are paid by the Company. Under bareboat charter, the charterer assumes responsibility for all voyage and vessel operating expenses and risk of operation.

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Fair value of acquired time charter:Where the Company identifies any assets or liabilities associated with the acquisition of a vessel, the Company records all such identified assets or liabilities at fair value. Fair value is determined by reference to market data. The Company values 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 “Fair value of above market acquired time charter” (“Prepaid charter revenue” in 2006). When the opposite situation occurs, the difference is recorded as “Fair value of below market acquired time charter” (“Deferred revenue” in 2006). Such assets and liabilities, respectively, are amortized as a reduction of, or an increase in, revenue over the period of the time charter assumed.

Recent Accounting Pronouncements:

(i)           In September 2006 the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this pronouncement beginning in fiscal year 2008. The adoption of the standard is not expected to have a material effect on the Company’s financial position or results of operations, and cash flows.

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(ii)           In September 2006, the FASB issued Staff Position (FSP) AUG AIR-1, “Accounting for Planned Major Maintenance Activities.” FSP AUG AIR-1 addresses the accounting for planned major maintenance activities. Specifically, the FSP prohibits the practice of the accrue-in-advance method of accounting for planned major maintenance activities. FSP AUG AIR-1 was effective for fiscal years beginning after December 15, 2006. Because the Group does not use the accrue-in-advance method, the adoption of FSP AUG AIR-1 had no material impact on its results of operations, cash flows and financial position.

(iii)           In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”) “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits the entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, “Fair Value Measurements.” This statement will not be effective for the Company for the fiscal year beginning on January 1, 2008. The Company has not opted to fair value any of its financial instruments.

(iv)           In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No.

141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008, and will be adopted by us in the first quarter of fiscal 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 141(R) on the Company’s consolidated results of operations, cash flows and financial condition.

(v)           In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS No. 160”).” SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, and will be adopted by us in the first quarter of fiscal 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on the Company’s consolidated results of operations, cash flows and financial condition.

(vi) In March 2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Acitivities” (“SFAS No. 161”).  The new standard is intended to improve financial reporting about derivative instruments and heding activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows.  It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 161 on the Company's consolidated results of operations, cash flows and financial condition.

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RESULTS OF OPERATIONS

Year ended December 31, 2007 compared to the year ended December 31, 2006

VOYAGE REVENUES

Voyage revenues increased by $334.2 million, or 134.5%, to $582.6 million for 2007, compared to $248.4 million for 2006. The increase is attributable to the substantial increase in charterhire rates for the year ended December 31, 2007 as compared to December 31, 2006, and the increase in the average number of vessels operated from 29.76 during the year ended December 31, 2006 to 33.67 during the year ended December 31, 2007.  In 2007 we had total voyage days of 12,130 compared to 10,606 in 2006.  The increase in our voyage revenues discussed above was also due to the increase of the average fleet time charter equivalent rate from $21,918 in 2006 to $45,417 in 2007.

VOYAGE EXPENSES

Voyage expenses (including gains from sale of bunkers) increased by $15.6 million, or 97.5%, to $31.6 million for 2007, compared to $16.0 million for 2006. This increase is attributable to the increase in our voyage revenues discussed above, which results in a substantial increase in commissions payable.

VESSEL OPERATING EXPENSES

Vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, and maintenance and repairs, increased by $13.5 million, or 28.2%, to $61.4 million for 2007 compared to $47.9 million for 2006.  This increase is primary attributable to an increase in the number of calendar days. In 2007, we had 12,288 calendar days compared to 10,859 in 2006.  The increase in calendar days during 2007 resulted from the enlargement of our fleet from an average of 29.76 vessels for the year ended December 31, 2006 to 33.67 vessels for the year ended December 31, 2007.  Daily vessel operating expenses per vessel increased by $588, or 13.3%, to $4,998 for 2007 compared to $4,410 for 2006. This increase was mainly attributable to increased stores, spares and repairs.

GAIN ON SALE OF VESSELS

Gain on sale of vessels increased to $135.0 million for the year ended December 31, 2007, compared to $8.6 million for the year ended December 31, 2006. The increase is attributable to the disposal of twelve vessels during the year ended December 31, 2007 as compared to one vessel during the year ended December 31, 2006.

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DEPRECIATION AND AMORTIZATION

	Year Ended December 31,
(In thousands of Dollars)	2006		2007
Vessels' depreciation expense	$	58,011	$	76,511
Amortization of drydocking costs		3,594		2,793
Total	$	61,605	$	79,304

Depreciation and amortization, which includes depreciation of vessels as well as amortization of drydocking, increased by $17.7 million, or 28.7%, to $79.3 million for 2007 compared to $61.6 million for 2006.  This increase is primary attributable to an increase in the number of calendar days we achieved due to the enlargement of our fleet as described above. The amount of amortization of drydocking costs was slightly decreased due to a decreased number of vessels that underwent drydock in 2007 (four vessels in 2007 compared to seven in 2006).

MANAGEMENT FEES

The fees paid to Cardiff for the management of our vessels increased by $3.0 million, or 45.5%, to $9.6 million in 2007 from $6.6 million in 2006 as a direct result of the increase in the number of fleet calendar days from 10,859 in the year ended December 31, 2006 to 12,288 in the year ended December 31, 2007 due to the growth of the fleet.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased by $1.6 million, or 27.1%, to $7.5 million for 2007 compared to $5.9 million for 2006.  This increase is due mainly to the increase in audit fees and fees related to compliance with the requirements of the Sarbanes-Oxley Act of 2002, Section 404.

INTEREST AND FINANCE COSTS

Interest and finance costs increased by $8.8 million, or 20.8%, to $51.2 million for 2007 compared to $42.4 million for 2006. This increase resulted primarily from the increase in interest expense due to the increased amount of average indebtedness outstanding and the increased interest rates during the year ended December 31, 2007 compared to the year ended December 31, 2006.

INTEREST INCOME

Interest income was $5.1 million during 2007 compared to $1.7 million during 2006. This increase is attributable to the increased liquidity of the Company and interest rates in 2007. Cash and cash equivalents increased from $2.5 million for the year ended December 31, 2006 to $111.1 million for the year ended December 31, 2007.

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OTHER NET

A loss of $7.0 million was realized during 2007 compared to a gain of $0.9 million during 2006. The loss in 2007 reflects losses on the valuation of interest rate swaps amounting to $4 million and the commission of $4 million payable to Cardiff Marine in connection with the acquisition of 30.4% of the issued and outstanding shares of Ocean Rig ASA.

NET INCOME

Net income was $474.6 million for 2007 compared to net income of $56.7 million for 2006. This increase is mainly attributable to the increase in our voyage revenues due to the increase of the average fleet time charter equivalent rate from $21,918 in 2006 to $45,417 in 2007.  This increase in our voyage revenues was partly offset by the increase in our voyage and operating expenses by $29.1 million over 2006.

Year ended December 31, 2006 compared to the year ended December 31, 2005

VOYAGE REVENUES

Voyage revenues increased by $19.5 million, or 8.5%, to $248.4 million for 2006, compared to $228.9 million for 2005. This increase is primary attributable to an increase in the number of voyage days we achieved. The increase in voyage days during 2006 resulted from the enlargement of our fleet following our acquisition of eight vessels during the period from April to December 2006 and the full operation of the 21 vessels we acquired during 2005 following the completion of our initial public offering in February 2005. In 2006 we had total voyage days of 10,606 compared to 7,710 in 2005. The increase in our voyage revenues discussed above was partially offset by the decrease of the average fleet time charter equivalent rate from $28,446 in 2005 to $21,918 in 2006.

VOYAGE EXPENSES

Voyage expenses (including gains from sale of bunkers) increased by $6.4 million, or 66.7%, to $16.0 million for 2006, compared to $9.6 million for 2005. This increase is attributable to the increase in our voyage revenues discussed above and to the hire we paid for the charter-in of the vessel Darya Tara in 2006 of $6.0 million compared to $0.2 million in 2005 as the charter-in agreement was concluded in November 2005.

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VESSEL OPERATING EXPENSES

Vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, and maintenance and repairs, increased by $11.2 million, or 30.5%, to $47.9 million for 2006 compared to $36.7 million for 2005. This increase is primary attributable to an increase in the number of calendar days we achieved. The increase in calendar days during 2006 resulted from the enlargement of our fleet as described above. In 2006 we had total calendar days of 10,859 compared to 7,866 in 2005. Daily vessel operating expenses per vessel decreased by $258, or 5.5%, to $4,410 for 2006 compared to $4,668 for 2005. This decrease was mainly attributable to decreased stores, spares and repairs.

DEPRECIATION AND AMORTIZATION

	Year Ended December 31,
(In thousands of Dollars)	2005		2006
Vessels' depreciation expense	$	40,231	$	58,011
Amortization of drydocking costs		2,379		3,594
Total	$	42,610	$	61,605

Depreciation and amortization, which includes depreciation of vessels as well as amortization of drydocking, increased by $19.0 million, or 44.6%, to $61.6 million for 2006 compared to $42.6 million for 2005. This increase is primarily attributable to an increase in the number of calendar days we achieved due to the enlargement of our fleet as described above and the increase in the number of vessels that underwent drydock in 2006 (seven vessels in 2006 compared to six in 2005).

MANAGEMENT FEES

The fees paid to Cardiff for the management of our vessels increased by $1.6 million, or 32%, to $6.6 million in 2006 from $5.0 million in 2005. This increase is due to the increase in number of vessels from an average of 21.60 in 2005 to 29.76 in 2006 and a corresponding increase in number of calendar days from 7,866 in 2005 to 10,859 days in 2006.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased by $1.7 million to $5.9 million for 2006 compared to $4.2 million for 2005. This increase is due mainly to increases in legal and audit fees of $0.5 million and $0.4 million, respectively, as well as the increase in foreign exchange differences of $0.4 million.

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INTEREST AND FINANCE COSTS

Interest and finance costs increased by $21.7 million, or 104.8%, to $42.4 million for 2006 compared to $20.7 million for 2005. This increase is primarily the result of (i) the increase in the average debt principal outstanding during 2006, as in 2005 our debt was gradually increased in line with the timing of the delivery of the 21 vessels we acquired following the completion of our initial public offering in February 2005; (ii) the new debt we obtained in 2006 to finance acquisition cost of 8 additional vessels; (iii) the write -off of deferred financing fees of $3.1 million due to the extinguishment of existing debt; and (iv) the increase in weighted average interest rate of 6.85% in 2006 compared to 4.60% in 2005.

INTEREST INCOME

Interest income was $1.7 million during 2006 compared to $0.7 million during 2005. This increase is attributable to the increased liquidity of the Company and the increase in interest rates in 2006.

OTHER NET

We recognized a gain of $0.9 million during 2006 compared to a gain of $0.1 million during 2005. These gains mainly reflect gains on financial instruments' valuations.

NET INCOME

Net income was $56.7 million for 2006 compared to net income of $111.0 million for 2005. This decrease is mainly attributable to the loss incurred in 2006 on the forward freight agreements of $22.5 million, the increase in vessel operating expenses and depreciation and amortization by $30.2 million over 2005 and the increase of interest and finance costs by $21.3 million over 2005. This decrease was partly offset by the increase in our voyage revenues by $19.5 million over 2005.

B.        Liquidity and Capital Resources

Historically our principal source of funds has been equity provided by our shareholders, operating cash flow and long-term borrowing. Our principal use of funds has been capital expenditures to establish and grow our fleet, maintain the quality of our drybulk carriers, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, make principal repayments on outstanding loan facilities, and pay dividends. We expect to rely upon operating cash flow, long-term borrowing, and future equity financing to implement our growth plan.

We believe that our current cash balance, as well as operating cash flow, will be sufficient to meet our liquidity needs for the next two to three years, assuming the charter market does not deteriorate to the low-rate environment that prevailed subsequent to the Asian financial crisis in 1999. If we do acquire additional vessels, we will rely on new debt, proceeds from future offerings and revenue from operations to meet our liquidity needs going forward.

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Our practice has been to acquire drybulk carriers using a combination of funds received from equity investors and bank debt secured by mortgages on our drybulk carriers. Our business is capital-intensive and its future success will depend on our ability to maintain a high-quality fleet through the acquisition of newer drybulk carriers and the selective sale of older drybulk carriers. These acquisitions will be principally subject to management’s expectation of future market conditions as well as our ability to acquire drybulk carriers on favorable terms.

On March 31, 2006, the Company borrowed an amount of up to $628.8 million (the “March 2006 Financing”), which included (i) a term loan of up to $557.5 million, in order to refinance the then outstanding balance of the Company's prior indebtedness ($528.3 million as at December 31, 2005), to provide the Company with working capital and to finance the acquisition cost of the secondhand vessel Hille Oldendorff and (ii) a short-term credit facility of up to $71.3 million, in order to partially finance the acquisition cost of additional vessels acceptable to the lenders. The credit facility was available for 364 days after the signing of the agreement and each amount drawn down would be included in the term loan. The credit facility has been used to partially finance the acquisition cost of the secondhand vessels Maganari, Ligari and Lanzarote and was included in the term loan.

On September 7, 2006 (the “September 2006 Financing”), the Company borrowed an amount of up to $61.5 million in order to partly finance the acquisition cost of vessels Delray, Estepona and Formentera. The full amount of $61.5 million was drawn down in September and October 2006 and was fully repaid in November 2006.

On November 28, 2006, the Company entered into a supplemental agreement to the March 2006 Financing, increasing the aggregate amount of the loan by $82.3 million (the term loan by up to $11.6 million and the short-term credit facility by up to $70.8 million) to $711.1 million. The amount of $82.3 million was used to repay the September 2006 Financing, to partially finance the acquisition cost of vessel Redondo ($11.6 million) and to provide the Company with working capital ($9.3 million).

On February 13, 2007, the Company borrowed an amount of $43.4 million in order to partly finance the acquisition cost of vessel Samsara (ex Cape Venture).  The loan bore interest at LIBOR plus a margin and was repaid in one installment on May 29, 2007.

On April 5, 2007, we concluded a short-term bridge loan of $33.0 million with a related party to partly finance the acquisition cost of the vessel Primera. The facility was fully repaid on April 23, 2007.

On April 19, 2007, the Company entered into a bridge facility of $181 million with HSH Nordbank in connection with the acquisition of the vessels Marbella, Bargara, Brisbane, Capitola, Primera and Menorca.

On May 23, 2007, we obtained a short-term credit facility of $30.0 million from Elios Investments Inc. to partly finance the acquisition of the vessels Menorca, Bargara, Capitola, Primera, Marbella, Ecola, Majorca and Brisbane, in addition to the amendment of the credit facility discussed below, repayable by August 2007.

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On May 23, 2007, we amended our credit facility with HSH Nordbank concluded in March 2006 and amended in November 2006 to increase the amount available under the loan by up to $181.0 million and to include a re-borrowing option for mandatory repayment due to sale of vessels of up to $200.0 million in order to partly finance the acquisition cost of the secondhand vessels Samsara, Bargara, Marbella, Primera, Brisbane, Menorca, Capitola and Ecola, and any additional vessels. The loan bears interest at LIBOR plus a margin and is repayable in 37 quarterly variable installments from May 2007 through May 2016 and a balloon installment of $157.5 million payable together with the last installment.

On August 30, 2007, the Company concluded a bridge facility of up to $30.1 million with HSH Nordbank. The loan bears interest at LIBOR plus 1.5% and was repaid in one installment during the first quarter of 2008.

On October 2, 2007, the Company concluded a loan agreement of up to $35 million with Deutsche Schiffsbank in order to partly finance the acquisition cost of the secondhand vessel MV Clipper Gemini. The loan bears interest at LIBOR plus 0.9% and will be repaid in 36 quarterly installments starting in the first quarter of 2008.

On October 5, 2007, the Company concluded a loan agreement of up to $90 million with Piraeus Bank in order to partly finance the acquisition cost of the secondhand vessels MV Samatan and MV VOC Galaxy. The loan bears interest at LIBOR plus between 0.95% and 1.05% depending on corporate leverage and will be repaid in 32 quarterly installments starting in the first quarter of 2008.

On November 16, 2007, the Company concluded a loan agreement of up to $47 million in order to partly finance the acquisition cost of the secondhand vessel Oregon (ex Athina Zafirakis). The loan bears interest at LIBOR plus a margin and will be repaid in 32 quarterly installments through December 2015.

On December 4, 2007, the Company concluded a loan agreement of up to $101.2 million (the “December 4, 2007 Financing”) in order to partly finance the acquisition cost of the secondhand vessels Saldahna (ex Shino Brilliance) and Nord Mercury.  The loan bears interest at LIBOR plus a margin and will be repaid in twenty-eight quarterly installments through January 2015.

On December 17, 2007, our subsidiary, Primelead Limited, concluded a loan agreement of up to $260 million in order to partly finance the acquisition cost of 51,778,647 shares in the common stock of Ocean Rig ASA. The loan bears interest at LIBOR plus a margin and will be repaid in eight quarterly installments through December 2009.

As of December 31, 2006 and 2007, the Company’s unutilized line of credit totalled to $4.2 million with HSH Nordbank, and $48.7 million with respect to the December 4, 2007 Financing, and the Company is required to pay a quarterly commitment fee of 0.40% per annum of the unutilized portion of the term loan and 0.25% of the unutilized portion of the credit facility, with respect to the HSH Nordbank credit facility, and a quarterly commitment fee of 0.40%, with respect to the December 4, 2007 Financing. Furthermore, the Company is required to pay a draw-down fee of 0.075% on each amount drawn down under the HSH Nordbank credit facility.

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As of March 27, 2008 the Company had a total of $718.35 million in debt outstanding under its main credit facility with HSH Nordbank.

The above loans are secured by a first priority mortgage over the vessels, corporate guarantee, a first assignment of all freights, earnings, insurances and requisition compensation. The loans contain covenants including restrictions, without the bank's prior consent, as to changes in management and ownership of the vessels, additional indebtedness and mortgaging of vessels, change in the general nature of the Company’s business, an established place of business in the United States or the United Kingdom, and the payment of dividends from certain subsidiaries to the parent company. The loans also contain certain financial covenants relating to the Company's financial position, operating performance and liquidity. In addition, the Company must maintain minimum cash deposits, as defined in the loan agreements, which at December 31, 2006 and 2007, amounted to $20,000 and $20,000, respectively and are classified as “Restricted cash”, under other non-current assets in the accompanying consolidated balance sheets. Furthermore, the Company will be permitted to pay dividends under the loans so long as such amount of dividends does not exceed 50% of the Company’s net income as evidenced by its relevant annual financial statements. The loan obtained by Primelead has a restriction that no dividends can be declared by this subsidiary.

The Company’s weighted average interest rate (including the margin) for the years ended December 31, 2005, 2006 and 2007, was 5.42%, 6.59% and 6.48%, respectively, as at year-end.

Derivatives

Interest rate cap and floor agreements:As of December 31, 2006 and 2007, the Company had outstanding six and eight, respectively, interest rate cap and floor agreements in order to hedge its exposure to interest rate fluctuations with respect to its borrowings. Such agreements did not qualify for hedge accounting; therefore changes in their fair value are reflected in earnings. The terms of the agreements outstanding as of December 31, 2007 are as follows:

(1) From May 2005, for a period of nine years through February 2014, for a notional amount of $154.2 million. Under the cap and floor provisions of the agreement the Company pays interest at 5.59% if three-month LIBOR is between 5.59% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.59%;

(2) From May 2005, for a period of ten years through May 2015, for a notional amount of $120.6 million. Under the cap provisions of the agreement the Company pays interest at 5.8% if three-month LIBOR is between 5.8% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.8%;

(3) From June 2005, for a period of eight years through March 2013, for a notional amount of $22.0 million. Under the cap provisions of the agreement the Company pays interest at 5.66% if three-month LIBOR is between 5.66% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.66%;

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(4) From June 2005, for a period of six years through March 2011, for a notional amount of $194.3 million. Under the cap provisions of the agreement the Company pays interest at 5.85% if three-month LIBOR is between 5.85% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.85%;

(5) From July 2005, for a period of ten years through April 2015, for a notional amount of $42.4 million. Under the cap provisions of the agreement the Company pays interest at 5.66% if three-month LIBOR is between 5.66% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.66%;

(6) From July 2005, for a period of seven years through April 2012, for a notional amount of $22.3 million. Under the cap provisions of the agreement the Company pays interest at 5.64% if three-month LIBOR is between 5.64% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.64%;

Under the floor provisions of all the above agreements, the Company pays 3.0% if three-month LIBOR is equal or less than 3.0%.

(7) From August 2007, for a period of four years through November 2011, for a notional amount of $60 million. Under the cap provisions of the agreement the Company pays interest at 5.34% if three-month LIBOR is between 5.34% and 7.0% and at three-month LIBOR if LIBOR exceeds 7.0%. Under the floor provisions of the agreement the Company pays interest at 2.75% if three-month LIBOR is equal or less than 1.75%; and

(8) From August 2007, for a period of four years through November 2011, for a notional amount of $75 million. Under the cap provisions of the agreement the Company pays interest at 5.25% if three-month LIBOR is between 5.25% and 7.0% and at three-month LIBOR if LIBOR exceeds 7.0%. Under the floor provisions of the agreement the Company pays interest at 2.75% if three-month LIBOR is equal or less than 1.75%.

Foreign exchange transactions:In January 2006, the Company engaged in a total of 12 foreign currency call options, maturing in monthly intervals from February 2006 to January 2007, under one foreign exchange transaction involving the USD against the Euro. As of December 31, 2006, the Company had one open foreign currency call option which matured in January 2007. The strike rate under this option is 1.21 USD per Euro, for an amount of Euro 200,000.

In January 2006, the Company engaged in a total of 12 forward foreign exchange contracts, maturing in monthly intervals from February 2006 to January 2007.  As of December 31, 2006 the Company had one open forward foreign exchange contract which matured in January 2007. The forward rate was 1.2320 USD per Euro for an amount of Euro 200,000.

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Forward freight agreements:During the year ended December 31, 2006, the Company entered into seventeen forward freight agreements (“FFAs”) with the objective to utilize them as economic hedging instruments in order to reduce its exposure to market price fluctuations with respect to its fleet. Such agreements did not qualify for hedge accounting; therefore changes in their fair value were reflected in earnings.  As of December 31, 2007, no FFAs remain open.

Cash Flows

Year ended December 31, 2007 compared to the year ended December 31, 2006:

Our cash and cash equivalents increased to $111.1 million as of December 31, 2007, compared to $2.5 million as of December 31, 2006. Working capital is current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $86.3 million as of December 31, 2007 compared to $103.5 million as of December 31, 2006. This decrease is mainly due to the increase in the cash and cash equivalents as already discussed.  We consider our liquidity sufficient for our operations. We expect to finance all our working capital requirements from cash generated from operations and proceeds from our common stock offering program.

NET CASH FROM OPERATING ACTIVITIES was $407.9 million during 2007 compared to $99.1 million for 2006. This change is primarily attributable to an increase in net income of $474.6 million for 2007, as compared to $56.7 million for 2006, which is primarily attributable to an increase in the number of voyage days we achieved and an increase of the average fleet time charter equivalent rate from $21,918 in 2006 to $45,417 in 2007.  This increase in voyage revenues was partly offset by an increase in voyage and operating expenses, in depreciation and amortization expenses and in interest and finance costs by $59.9 million over 2006. Gain on sale of vessels increased from $8.6 million for the year ended December 31, 2006 as compared to $135.0 million for the year ended December 31, 2007.

NET CASH USED IN INVESTING ACTIVITIES was $955.7 million during 2007. This reflects the amount of $406.0 million invested in Ocean Rig ASA for the acquisition of 30.4% or 51,778,647 of the issued share capital, the acquisition cost of the fifteen vessels delivered during the period from February to December 2007 amounting to $799.5 less an amount of $102.6 million representing advances for vessels’ acquisitions made during 2007, and the amount of $38.7 that represents the attached charter parties debited to vessel cost.  Furthermore, an amount of $351.8 million represents the proceeds from the sale of eleven vessels during 2007.  In 2006, the balance of $287.5 million reflects the acquisition cost of the eight vessels delivered during the period from April to December 2006, the advances paid for three vessels of which two were delivered in February and April 2007, respectively, and the remaining is expected to be delivered during the fourth quarter of 2007, the advances to the shipyard for the two newbuildings we expect to take delivery in 2009 and 2010, and the proceeds from the sale of the vessel Flecha.

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NET CASH FROM FINANCING ACTIVITIES

In 2007, the balance of $656.4 million consisted of the following:

· Net proceeds of $559.0 million from borrowing under long-term debt, consisting of $787.3 of proceeds and $228.3 million of payments, in connection with the acquisition of the fifteen vessels delivered to us between February and December 2007 and the loan obtained to finance the investment in Ocean Rig ASA.

· Net proceeds of $5.1 million from borrowing under short-term credit facilities consisting of $73.5 million of proceeds in connection with two short-term loans and $68.4 million of payments, in connection with the payment of one of the two short-term loans previously mentioned and the payment of another short-term credit facility obtained during 2006.

· Net proceeds from the issuance of 1,191,000 shares of our common stock of $127.1 million.

· Dividends and financing costs paid of $28.4 million and $6.3 million, respectively.

In 2006 the balance of $185.8 million consisted of the following:

· Net proceeds of $133.3 million from borrowing under long-term debt, consisting of $706.9 million of proceeds and $573.6 million of payments, in connection with the acquisition of the eight vessels delivered to us between April and December 2006 and the refinancing of our debt outstanding as of December 31, 2005, in connection with the acquisition of the 21 vessels delivered to us from February through August 2005.

· Net proceeds of $25.0 million from borrowing under short-term credit facilities consisting of $95.3 million of proceeds and $70.3 million of payments, in connection with the acquisition of the vessels Delray, Estepona, Formentera, Maganari and Redondo.

· Net proceeds from the issuance of 4,650,000 shares of our common stock of $56.5 million.

· Dividends and financing costs paid of $22.2 million and $3.7 million, respectively.

C.       Research and Development, Patents and Licenses

 Not Applicable

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D.      Trend Information

Not Applicable

E.      Off-balance Sheet Arrangements

 We do not have any off-balance sheet arrangements.

F.  Contractual Obligations

 The following table sets forth our contractual obligations and their maturity dates as of December 31, 2007:

Obligations	Total		1 year		2-3 years		4-5 years		More than 5 years
(In thousands of Dollars)
Long-term debt (1)		1,250,681		197,574		379,587		173,054		500,466
Interest and borrowing fees (2)		293,236		67,230		96,337		65,921		63,748
Shipbuilding contracts (3)		53,200		6,650		46,550				-
Newbuilding purchases (4)		500,650		132,750		367,900
Chartering agreements (5)		6,851		6,040		811		-		-
Office space rent (6)		45		12		24		9		-
Total		2,104,663		410,256		891,209		238,984		564,214

(1) As further discussed in Note 10 to our audited consolidated financial statements, the outstanding balance of our long-term debt at December 31, 2007, was $1,220.6 million (gross of unamortized deferred financing fees of $6.9 million), which were used to partially finance the expansion of our fleet following the completion of our initial public offering in February 2005. The loans bear interest at LIBOR plus a margin. The amounts in the table above do not include any projected interest payments. Also as further discussed under “Recent Developments” in this section, subsequent to December 31, 2007, we concluded agreements for additional debt of approximately $130 million to finance the acquisition of four vessels.

(2) Our long term debt outstanding as of December 31, 2007 bears variable interest at margin over LIBOR. The calculation of variable interest payments is based on the one month LIBOR as of December 31, 2007 plus the applicable margins.  The weighted average interest rate is 5.74%.

(3) In September 2006, the Company entered into two shipbuilding contracts with a Chinese shipyard for the construction of two Panamax dry-bulk vessels for a contract price of $33.25 million each. As of December 31, 2007, an amount of $13.3 million was paid to the shipyard representing the first and second installment for the construction cost of the two vessels which are expected to be delivered from the shipyard in the last quarter of 2009 and the first quarter of 2010.

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(4) On July 27, 30, 31 and on October 1, 2007 the Company concluded six Memoranda of Agreement for the construction of three 180,000 dwt and one 170,000 dwt Capesize Bulk Carriers, and two 82,000 dwt Kamsarmax Bulk Carriers for a total consideration of $581.0 million.  As of December 31, 2007, an amount of $80.35 million was paid to the sellers representing a portion of the total purchase price of the six newbuilding vessels varying from 10% to 20% which are expected to be delivered from the shipyard in the last quarter of 2009 and the first quarter of 2010.

(5) In November 2005 we entered into an agreement with Tara Shipping Limited to charter-in the vessel “Darya Tara” for a minimum period of 36 months and a maximum of 38 months at a daily rate of $16,550. Concurrently with the aforementioned agreement, the Company concluded a charter party agreement with an unrelated party for the charter-out of the vessel Darya Tara over the same period and at a daily rate of $16,750.

(6) We lease office space in Athens, Greece, from Mr. George Economou, our Chairman and CEO.

Dividend Payments

On January 4, April 4, July 3 and September 24, 2007 the Company declared dividends amounting to $28.4 million ($7.1 million ($0.20 per share, paid on January 31, 2007 to the stockholders of record as of January 17, 2007), $7.1 million ($0.20 per share, paid on April 30, 2007 to the stockholders of record as of April 16, 2007), $7.1 million ($0.20 per share, paid on July 31, 2007 to the stockholders of record as of July 16, 2007), $7.1 million ($0.20 per share, paid on October 31, 2007 to the stockholders of record as of October 15, 2007), respectively).

G.           Safe Harbor

See section “forward looking statements” at the beginning of this annual report.

Item 6. Directors and Senior Management

A.           Directors and Senior Management

Set forth below are the names, ages and positions of our directors, executive officers and key employees. Our board of directors is elected annually on a staggered basis. Each director elected holds office until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal, or the earlier termination of his term of office. Officers are elected from time to time by vote of our board of directors and hold office until a successor is elected.

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Name	Age	Position
George Economou	55	Chairman, President and Chief Executive Officer and interim Chief Financial Officer; Class A Director
Angelos Papoulias	54	Class B Director
George Xiridakis	44	Class B Director
Chryssoula Kandylidis	54	Class C Director
George Demathas	53	Class C Director
Olga Lambrianidou	52	Secretary

Biographical information with respect to each of our directors, executives and key personnel is set forth below:

George Economou has over 25 years of experience in the maritime industry. He has served as Chairman, President and Chief Executive Officer of DryShips Inc since its inception in 2004. He successfully took the Company public in February, 2005 on NASDAQ under the trading symbol: DRYS. Economou has overseen the Company's growth into the largest US listed drybulk company in fleet size and revenue and the second largest Panamax owner in the world. Mr. Economou began his career in 1976 when he commenced working as a Superintendent Engineer in Thenamaris Ship Management in Greece. From 1981-1986 he held the position of General Manager of Oceania Maritime Agency in New York. Between 1986 and 1991 he invested and participated in the formation of numerous individual shipping companies and in 1991 he founded Cardiff Marine Inc., Group of Companies. Mr. Economou is a member of ABS Council, Intertanko Hellenic Shipping Forum, and Lloyds Register Hellenic Advisory Committee. Economou was born and raised in Athens, Greece. He is a graduate of Athens College, and completed his higher education in the United States at the Massachusetts Institute of Technology in Boston, in 1976.  He earned both a Bachelor of Science and a Master of Science degree in Naval Architecture and Marine Engineering, and a Master of Science in Shipping and Shipyard Management. Effective May 30, 2007, Mr. Economou has been appointed by the DryShips Board as the Interim Chief Financial Officer.

Angelos Papoulias has been our Director since the inception of our Company and as of April 2005, he is also the Chairman of our Audit Committee. Mr. Papoulias has been the Managing Director of Investments and Finance Ltd., a financial consulting firm specializing in financial services to the Greek maritime industry, since 1989.   Prior to that Mr. Papoulias was the Director of Finance at Eletson Holdings Inc., a product tanker company, from 1987 to 1988. From 1980 to 1987, Mr. Papoulias was with the Chase Manhattan Bank N.A., in their corporate and shipping finance division. Mr. Papoulias holds a Bachelor of Science degree in Mathematics/Economics from Whitman College in Washington State, and a Master of Science degree in International Management from American Graduate School of International Management in Phoenix, Arizona.

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George Demathas was appointed to our Board of Directors of DryShips Inc. on July 18, 2006 to fill the vacancy resulting from the resignation of Mr. Nikolas Tsakos. Mr. Demathas has a Bachelor of Arts degree in Mathematics and Physics (Hamilton College, NY) and a Master of Science degree in Electrical Engineering and Computer Science (Columbia University). As a principal in Marketing Systems Ltd, he supplied turnkey manufacturing equipment to industries in the USSR. From 1991, he was involved in Malden Investment Trust Inc. in association with Lukoil, working in the Russian petrochemical industry. Since 1996 he has invested in natural gas trunk pipelines in Central Asia. He is based in Moscow and travels widely in Europe and the USA.

George Xiradakis has served on our Board of Directors since 2006. Since 1999, George Xiradakis has been the Managing Director of XRTC Business Consultants Ltd., a consulting firm providing financial advice to the maritime industry, including financial and state institutions; XRTC is the commercial representative of the French banking group NATIXIS in Greece. He is also the advisor of various shipping companies, as well as international and state organizations. Mr. Xiradakis has served as a President of the Hellenic Real Estate Corporation from June 2004 to October 2006. As of March 2007 he is the President of the National Centre of Port Development in Greece. At present he also serves as the General Secretary of the Association of Banking and Shipping Executives of Hellenic Shipping. Mr. Xiradakis has a certificate as a Deck Officer from the Hellenic Merchant Marine and he is a graduate of the Nautical Marine Academy of Aspropyrgos, Greece. He also holds a postgraduate Diploma in Commercial Operation of Shipping from London Guildhall University, formerly known as City of London Polytechnic, in London. Mr. Xiradakis holds a Master of Science in Maritime Studies from the University of Wales.

Chryssoula Kandylidis was appointed to our Board of Directors on March 5, 2008, to fill the vacancy resulting from the resignation of Mr. Aristidis Ioannidis. Mrs. Chryssoula Kandylidis is the sister of Mr. George Economou and is the beneficial owner of all the issued and outstanding capital stock of Prestige Finance S.A., a Liberian corporation which owns 30% of the outstanding capital stock of Cardiff. Mrs. Kandylidis has served as an Advisor to the Minister of Transport and Communications in Greece for matters concerning People with Special Abilities for the past three years on a voluntary basis. Mrs. Kandylidis graduated from Pierce College in Athens and from the Institut Francais d’ Athenes. She is also a Graduate of the University of Geneva holding a degree in Economics.

Olga Lambrianidou serves as our Corporate Secretary since February 28, 2007. Prior to joining us, Ms. Lambrianidou had 6 years of shipping experience with OSG Ship Management (GR) Ltd., formerly known as Stelmar Shipping Ltd., as a Human Resources Manager, Corporate Secretary, and Investor Relations Officer. She has additionally worked in the banking and the insurance fields in United States.  Ms. Lambrianidou studied in the United States and has a Bachelor of Business Administration degree in Marketing/English Literature and a Master of Business Administration in Banking Finance from Pace University in NY.

Aristidis Ioannidis was appointed to our Board of Directors on May 29, 2007 until February 25, 2008, to fill the vacancy resulting from the resignation of Mr. Gregory Zikos. Since 1998, Mr. Ioannidis has been the General Manager of Cardiff Marine Inc., the ship management company for DryShips Inc. He has worked in the shipping industry for over thirty years and has held senior executive management positions in both shipyards and shipping companies. Mr. Ioannidis holds a Bachelors of Science degree with honors in Naval Architecture from Newcastle University in Newcastle, U.K., and a Master of Science degree in Naval Architecture & Marine Engineering and Shipyard & Shipbuilding Management from the Massachusetts Institute of Technology in the USA.

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B.      Compensation of Directors and Senior Management

 We paid an aggregate amount of $1.4 million as compensation to our executive directors for the fiscal year ended December 31, 2007. Non-executive directors received annual compensation in the aggregate amount of $85,000 plus reimbursement of their out-of-pocket expenses. We do not have a retirement plan for our officers or directors.

In March 2008, the Board of Directors of the Company approved the terms of an agreement with Fabiana, a related-party entity incorporated in the Marshall Islands. Fabiana is beneficially owned by the Company’s Chief Executive Officer. Under the agreement, Fabiana provides the services of the individuals who serve in the positions of Chief Executive and Chief Financial Officer of the Company. The term of the agreement will be for five years, and end, unless terminated earlier on the basis of any other provisions as may be defined in the agreement, on the day before the fifth anniversary of execution.  Pursuant to the agreement, the Company will be obligated to pay (i) annual remuneration to Fabiana in the amount of $2,000,000; (ii) potential bonus compensation for the services provided at the end of each year with any such bonus to be determined by the Compensation Committee; and (iii) a grant to Fabiana of one million (1,000,000) shares of common stock out of the 1,834,055 shares reserved in the Company’s 2008 Equity Incentive Plan. Subject shares will vest quarterly in eight equal installments.   Our Chief Executive Officer also serves as our interim Chief Financial Officer.

Equity Incentive Plan

We have adopted an equity incentive plan, or the “Plan,” which permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock units and unrestricted stock awards with respect to our common stock to officers, key employees (including prospective officers and employees) and directors of, and consultants and service providers to, DryShips and its subsidiaries and affiliates.  Under the Plan, a total of 1,834,055 shares of common stock have been reserved for issuance under the Plan, subject to adjustment for changes in capitalization as provided in the Plan. The Plan is administered by our board of directors. Unless terminated earlier by our board of directors, the plan will expire after January 16, 2018, which is the tenth anniversary of the date the Plan was adopted. As of December 31, 2007, no awards had been granted under the Plan.

Stock options and stock appreciation rights may be granted under the Plan with a per share exercise price equal to the per share fair market value of our common stock on the date of grant, unless otherwise determined by the Plan’s administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of grant. Options and stock appreciation rights may be exercisable at times and under conditions as determined by the Plan’s administrator, but in no event will they be exercisable later than ten years from the date of grant. Awards of restricted stock, restricted stock units and phantom stock units may be granted under the Plan subject to vesting and forfeiture provisions and other terms and conditions as determined by the Plan’s administrator. The Plan’s administrator may grant dividend equivalents with respect to grants of restricted stock units and phantom stock units.

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Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization or other extraordinary event. In the event of a ‘‘change in control’’ (as defined in the Plan), unless otherwise provided by the Plan’s administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.

C.         Board Practices

The term of our Class A director expires at the annual shareholders meeting in 2008.  Our Class A director is Mr. George Economou.  The term of our Class B directors expires at the annual shareholders meeting in 2009.  Our Class B directors are Messrs. Papoulias and Xiridakis.  The term of our Class C directors expires at the annual general shareholders meeting in 2010. Our Class C directors are George Demathas and Chryssoula Kandylidis.

Exemptions from Nasdaq corporate governance rules

As a foreign private issuer, the Company is exempt from many of the corporate governance requirements other than the requirements regarding the disclosure of a going concern audit opinion, notification of material non -compliance with Nasdaq corporate governance practices, the establishment and composition of an audit committee that complies with SEC Rule 10A-3 and a formal audit committee charter. The practices followed by the Company in lieu of Nasdaq's corporate governance rules are described below.

 · In lieu of obtaining shareholder approval prior to the issuance of designated securities, the Company complies with provisions of the Marshall Islands Business Corporations Act, or BCA, providing that the Board of Directors approves share issuances.

 · The Company's Board does not hold regularly scheduled meetings at which only independent directors are present.

Other than as noted above, we are in full compliance with all other applicable Nasdaq corporate governance standards.

Committees of the Board of Directors

The Board has established an audit committee comprised of three independent directors: Angelos Papoulias, George Demathas and George Xiridakis. The Audit Committee is governed by a written charter, which is approved by the Board. The Board has determined that the members of the Audit Committee meet the applicable independence requirements of the U.S. Securities and Exchange Commission (the “SEC”), that all members of the Audit Committee fulfill the requirement of being financially literate and that George Xiradakis is the audit committee financial expert as defined under current SEC regulations. The Audit Committee is appointed by the Board and is responsible for, among other matters:

 · engaging the Company’s external and internal auditors,

 · approving in advance all audit and non-audit services provided by the auditors,

 · approving all fees paid to the auditors,

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 · reviewing the qualification and independence of the Company’s external auditors,

 · reviewing the Company’s relationship with external auditors, including considering audit fees which should be paid as well as any other fees which are payable to auditors in respect of non-audit activities, discussing with the external auditors such issues as compliance with accounting principles and any proposals which the external auditors have made vis-à-vis the Company’s accounting principles and standards and auditing standards,

 · overseeing the Company’s financial reporting and internal control functions,

 · overseeing the Company’s whistleblower’s process and protection, and

 · overseeing general compliance with related regulatory requirements.

In March 2008, the board of directors appointed a compensation committee consisting of two independent directors, Mr. George Xiradakis and Mr. George Demathas, who serves as Chairman.  The compensation committee is responsible for determining the compensation of the Company’s executive officers.  Previously, the full board of directors performed the function of the compensation committee.  In March 2008, the board of directors appointed a nominating committee consisting of two independent directors, Mr. George Demathas and Mr. George Xiradakis, who serves as Chairman.  The nominating committee is responsible for identifying, evaluating and recommending to the board individuals for membership on the board, as well as considering nominees proposed by shareholders in accordance with the Company’s by-laws.  Previously, the full board of directors performed the functions of the nominating committee.

D.         Employees

As of December 31, 2007, the Company employed two persons: our Chairman, Chief Executive Officer and Interim Chief Financial Officer, Mr. Economou, and our internal auditor, both of whom are located in Athens, Greece. Mr. Zikos, our previous Chief Financial Officer, resigned from his position on May 29, 2007.

E.         Share Ownership

With respect to the total amount of common stock owned by all of our officers and directors, individually and as a group, see Item 7 “Major Shareholders and Related Party Transactions”.

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Item 7. Major Shareholders and Related Party Transactions

A.         Major Shareholders

The following table sets forth information regarding the owners of more than five percent of our common stock as at March 11, 2008. All of our shareholders, including the shareholders listed in this table, are entitled to one vote for each share of common stock held.

Title of Class	Identity of Person or Group	Amount Owned		Percentage of Common Stock
Common Stock, par value $0.01	Elios Investments Inc. *		10,944,910		26.8	%
	George Economou **		12,163,089		29.7	%

* Based on a share exchange agreement entered into as of February 14, 2006, Entrepreneurial Spirit Foundation (former owner of 10,780,000 of the issued and outstanding shares of the Company) transferred all of its shares to Elios Investments Inc. (“Elios”), a corporation organized under the laws of the Republic of the Marshall Islands, in exchange for all of the shares of common stock of Elios. Following the transfer and exchange, Entrepreneurial Spirit Foundation owns 100% of the issued and outstanding shares of Elios.

** Mr. Economou may be deemed to beneficially own 10,944,910 of these shares through Elios Investments Inc., which is a wholly-owned subsidiary of the Entrepreneurial Spirit Foundation, a Lichtenstein foundation, the beneficiaries of which are Mr. Economou and members of his family. Mr. Economou may be deemed to beneficially own 963,667 of these shares through Sphinx Investment Corp., a Marshall Islands corporation, of which Mr. Economou is the controlling person. Mr. Economou may be deemed to beneficially own 254,512 of these shares through Goodwill Shipping Company Limited, a Malta corporation, of which Mr. Economou is the controlling person.

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B.        Related Party Transactions

Mr. George Economou, our Chairman and Chief Executive Officer and a director, controls the Entrepreneurial Spirit Foundation (the “Foundation”), a Liechtenstein foundation that owns 70.0% of the issued and outstanding capital stock of Cardiff, our manager. The other shareholder of Cardiff is Prestige Finance S.A., a Liberian corporation, all of the issued and outstanding capital of which is beneficially owned by Mr. Economou’s sister. The Foundation also owns 100% of the common stock of Elios Investments Inc. which holds 30.8% of our common stock.

In October 2004, we issued 15,400,000 shares of our common stock to the Foundation as consideration for causing certain of its affiliates to contribute to us the capital stock of our subsidiaries. In particular the following wholly-owned subsidiaries of the Foundation contributed to our Company the shares of the companies that own our vessel-owning subsidiaries and, effectively, their respective shipping assets:

Tradewinds Shipping Co. Ltd. of the Marshall Islands contributed all of the shares of the two registered shareholders of Silicon Shipping Co. Ltd. of Malta (registered owner of Flecha), all of the shares of the two registered shareholders of Oxygen Shipping Co Ltd. of Malta (registered owner of Shibumi) and all the shares of the two registered shareholders of Blueberry Shipping Co. Ltd. of Malta (registered owner of Panormos) in October 2004;

Norge Investment Funds Co. S.A. of Panama contributed all of the shares of the two registered shareholders of Helium Shipping Co. Ltd of Malta (registered owner of Striggla) and all of the shares of the two registered shareholders of Hydrogen Shipping Co. Ltd. of Malta (registered owner of Mostoles) in October 2004; and

Solid Shipping and Trading Inc. of Liberia contributed all of the shares of the two registered shareholders of Annapolis Shipping Co. Ltd. of Malta (registered owner of Lacerta).

Subsequently the Foundation instructed us to distribute 4,620,000 of these shares to our two other shareholders prior to our initial public offering.

Prior to our initial public offering, the Foundation transferred 2,772,000 shares to Advice Investments S.A. and 1,848,000 shares to Magic Management Inc.

On February 14, 2006, the Foundation transferred its shares to its wholly-owned subsidiary, Elios.

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On October 31, 2006, we issued an aggregate of 235,585 common shares to Elios Investment Co. (“Elios”), Advice Investment S.A. (“Advice”) and Magic Management S.A. (“Magic”) pursuant to share purchaser agreements whereby each of Elios, Advice and Magic agreed to invest such stockholder's $0.20 per share dividend payment in respect of the third quarter of 2006 which was paid on October 31, 2006 to stockholders of record on September 29, 2006. In addition, under the same agreement, we issued 254,512 common shares to Goodwill Shipping Company Limited (“Goodwill”) a corporation organized under the laws of Malta and controlled by Mr. Economou, in payment of $3,327,000 of principal and interest due under a seller's credit agreement in connection with the acquisition of the vessel Hille Oldendorf. The common shares issued to the selling stockholders and Goodwill were issued at a price of $13.07 per share, which is the average closing price of the Company's common stock on the Nasdaq Global Market for the eight trading days ended October 24, 2006. In December 2006, the Company filed a registration statement on Form F-3 on behalf of Elios, Advice and Magic registering for resale an aggregate of 15,890,097 of our common shares held by them.

On May 29, 2007, Mr. Aristidis Ioannidis, the General Manager of Cardiff, was appointed to our board of directors.

The management fee we pay to the Manager is Euro 530 per day, per vessel. In addition, we pay the Manager a fee of $100 per day per vessel for services in connection with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, the Manager charges us a fee of $550 for superintendent visits on board vessels in excess of five days per annum, per vessel, for each additional day, per superintendent. Until September 30, 2006, under the management agreement with Cardiff, Drybulk S.A. was acting as the chartering broker and sales and purchase broker for the Company in exchange for a commission of 1.25% on all freight, hire, demurrage revenues and a commission of 1.00% on all gross sale proceeds of, or purchase prices paid for, vessels. Since October 1, 2006, the Manager has acted as the Company’s chartering broker and sales and purchase broker. Management fees for the periods before year ended December 31, 2007 were based at a daily fixed fee of $650 per vessel which was based on the Dollar/Euro exchange rate of $1.30 per Euro. At the beginning of each calendar quarter, the daily fixed per vessel fee was adjusted upwards or downwards according to the Dollar/Euro exchange rate as quoted by EFG Eurobank Ergasias S.A. two business days before the end of the immediately preceding calendar quarter.

In addition, we have agreed in a separate contract of ongoing services with the Manager to pay to the Manager a quarterly fee of $250,000 for services rendered by the Manager in relation to the financial reporting requirements of the Company under the Securities Exchange Act of 1934, and the establishment and monitoring of internal controls over financial reporting. During the years ended December 31, 2006 and 2007 the Company incurred costs of $750,000 and $1,369,000, respectively, to reimburse the Manager for additional services not covered by the contract for ongoing services that related to the Manager’s services in connection with compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

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We outsource substantially all of our technical and commercial functions relating to the operation and employment of our vessels to Cardiff pursuant to management agreements which were renewed on October 18, 2004, with an initial term of five years, and will automatically be extended to successive five year terms. Notice to terminate shall not be effective until 30 days following its having been delivered, unless otherwise mutually agreed in writing. 70% of the issued and outstanding capital stock of Cardiff is owned by a foundation which is controlled by Mr. Economou, our Chairman and Chief Executive Officer, and a director of our Company. The remaining 30% of the issued and outstanding capital stock of Cardiff is owned by a company controlled by the sister of Mr. Economou, Mrs. Chryssoula Kandylidis, also a director of our Company. Cardiff provides the Company a wide range of shipping services such as technical support and maintenance, insurance consulting, chartering, and financial and accounting services, in exchange for a daily fixed fee of Euro 530 per day, per vessel. In addition, we pay the Manager a fee of $100 per day per vessel for services in connection with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, the Manager charges us a fee of $550 for superintendent visits on board vessels in excess of five days per annum, per vessel, for each additional day, per superintendent. Until September 30, 2006, under the management agreement with Cardiff, Drybulk S.A. was acting as the chartering broker and sales and purchase broker for the Company in exchange for a commission of 1.25% on all freight, hire, demurrage revenues and a commission of 1.00% on all gross sale proceeds of, or purchase prices paid for, vessels. Since October 1, 2006 the Manager has acted as the Company’s chartering broker and sales and purchase broker. Management fees for the periods before year ended December 31, 2007 were based at a daily fixed fee of $650 per vessel which was based on the Dollar/Euro exchange rate of $1.30 per Euro. At the beginning of each calendar quarter, the daily fixed per vessel fee was adjusted upwards or downwards according to the Dollar/Euro exchange rate as quoted by EFG Eurobank Ergasias S.A. two business days before the end of the immediately preceding calendar quarter.

We lease office space in Athens, Greece, from Mr. George Economou, our Chairman, CEO, and interim CFO. On October 1, 2005 and effective as of the same date, we entered into a rental agreement with our Chief Executive Officer to lease office space in Athens, Greece. The agreement is for duration of 5 years beginning October 1, 2005 and expires on September 30, 2010. The annual rental for the first two years is Euro 9,000 and thereafter it will be adjusted annually for inflation increases.

In March 2008, the Board of Directors of the Company approved the terms of an agreement with Fabiana, a related-party entity incorporated in the Marshall Islands. Fabiana is beneficially owned by the Company’s Chief Executive Officer. Under the agreement, Fabiana provides the services of the individuals who serve in the positions of Chief Executive and Chief Financial Officer of the Company. The term of the agreement will be for five years, and end, unless terminated earlier on the basis of any other provisions as may be defined in the agreement, on the day before the fifth anniversary of execution.  Pursuant to the agreement, the Company will be obligated to pay (i) annual remuneration to Fabiana in the amount of $2,000,000; (ii) potential bonus compensation for the services provided at the end of each year with any such bonus to be determined by the Compensation Committee; and (iii) a grant to Fabiana of one million (1,000,000) shares of common stock out of the 1,834,055 shares reserved in the Company’s 2008 Equity Incentive Plan. Subject shares will vest quarterly in eight equal installments.   Our Chief Executive Officer also serves as our interim Chief Financial Officer.

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Further, Mr. Economou has entered into a letter agreement which includes a provision requiring Mr. Economou to (i) use commercially reasonable efforts to cause each company affiliated with Cardiff that owns a bareboat chartered vessel (meaning a vessel for which the charterer bears all operating expense and risk) to sell its vessels upon redelivery from its bareboat charterer and allow the Company to exercise a right of first refusal to acquire that bareboat chartered vessel once an agreement that sets forth the terms of the sale is entered into, and (ii) allow the Company to exercise a right of first refusal to acquire any drybulk carrier, after Mr. Economou, or any of his other affiliates, enters into an agreement that sets forth terms upon which he or it would acquire that drybulk carrier. Pursuant to this letter agreement, Mr. Economou will notify our audit committee of any agreement that he or his other affiliates have entered into to purchase a drybulk carrier (or to sell the bareboat chartered vessel) and will provide the audit committee a 7 calendar day period in respect of a single vessel transaction, or a 14 calendar day period in respect of a multi-vessel transaction, from the date that he delivers such notice to our audit committee of that opportunity, within which to decide whether or not to accept the opportunity and nominate a subsidiary of the Company to become the purchaser of such drybulk carrier, before Mr. Economou will accept the opportunity or offer it to any of his other affiliates. Our audit committee, which consists of our independent directors, will require a simple majority vote to accept or reject this offer.

Transactions with Cardiff in Euros are settled on the basis of the average EURO/USD exchange rate calculated internally for each quarter which was EURO/USD 1.23, 1.23. and 1.34 for the years ended December 31, 2005, 2006 and 2007, respectively.

Purchase of derivatives from related parties:In order to maintain the minimum hedging ratio of the loan amendment with HSH Nordbank, on June 22, 2007 the Company acquired the following interest rate derivatives which were valued on that date by the financial institutions which were counterparties to these agreements at an amount of $1.3 million (asset), from the following two related companies:

(i)       Sea Glory Navigation Ltd. which originally entered into an interest rate cap and floor agreement on November 3, 2004 for a period of seven years through November 2011, for a notional amount of $60 million. Under the cap leg of the agreement interest rate is 5.34% if three-month USD LIBOR lies between 5.34% and 7%. If three-month USD LIBOR is above 7% the interest rate is three-month USD LIBOR. Under the floor leg of the agreement interest rate is 2.75% if the three-month USD LIBOR is equal to or less than 1.75%.

(ii)      River Camel Shipping Co which originally entered into an interest rate cap and floor agreement for a period of seven years through November 2011, for a notional amount of $75 million. Under the cap leg of the agreement interest rate is 5.25% if three-month USD LIBOR is within the range of 5.25% and 7%. If three-month USD LIBOR exceeds 7%, then interest rate is three-month USD LIBOR. Under the floor leg of the agreement interest rate is 2.75%, if the three-month USD LIBOR is equal to or less than 1.75%.

Commission on purchase of Ocean Rig ASA shares :On December 20, 2007 Primelead, a wholly owned subsidiary of DryShips acquired 51,778,647 shares in Ocean Rig ASA following its nomination as a buyer from Cardiff. This represents 30.4% of the issued shares in Ocean Rig.A commission was paid to Cardiff amounting to $ 4.0 million. The commission was treated as an internal cost and is included in “Other, net” in the Company’s consolidated statements of income.

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C.       Interests of Experts and Counsel

 Not Applicable.

Item 8. Financial Information

A.       Consolidated statements and other financial information.

 See Item 18.

Legal Proceedings

We have not been involved in any legal proceedings which may have, or have had, a significant effect on our business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. These claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

Dividend Policy

Our current dividend policy is to declare and pay quarterly dividends from our net profits of $0.20 per common share to shareholders each January, April, July and October. However, we may in the future determine to set aside amounts for vessel acquisition and other liabilities that would reduce or eliminate the cash available for distribution as dividends. However, we may incur other expenses or liabilities that would reduce or eliminate the cash available for distribution as dividends. Also, from time to time, the Board of Directors may determine to declare and pay quarterly dividends in an amount up to 50% of our net quarterly income as the Board of Directors deems appropriate.

Declaration and payment of any dividend is subject to the discretion of our Board of Directors. The timing and amount of dividend payments will be dependent upon our earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in our loan agreements, the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors.

The payment of dividends is not guaranteed or assured, and may be discontinued at any time at the discretion of our Board of Directors. Because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends will depend on the earnings and cash flow of our subsidiaries and their ability to pay dividends to us. If there is a substantial decline in the drybulk charter market, our earnings would be negatively affected thus limiting our ability to pay dividends. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividend.

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We believe that, under current law, our dividend payments from earnings and profits will constitute “qualified dividend income” and as such will generally be subject to a 15% United States federal income tax rate with respect to non-corporate individual stockholders. Distributions in excess of our earnings and profits will be treated first as a non-taxable return of capital to the extent of a United States stockholder’s tax basis in its common stock on a dollar-for-dollar basis and thereafter as capital gain. Please see the section of this report entitled “Tax Considerations” for additional information relating to the tax treatment of our dividend payments.

The drybulk shipping industry is highly volatile, and we cannot accurately predict the amount of cash distributions that we may make in any period. Factors beyond our control may affect the charter market for our vessels and our charterers’ ability to satisfy their contractual obligations to us, and we cannot assure you that we will pay dividends.

B.       Significant Changes

 See note 19 of item 18.

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Item 9. The Offer and Listing

A.        Offer and Listing Details

Our common stock currently trades on The NASDAQ Global Market under the symbol “DRYS”. Since our initial public offering in February 2005, the price history of our common stock was as follows:

	High		Low
January 2008	$	79.57	$	52.18
February 2008	$	87.45	$	65.42
2007	High		Low
1st Quarter ended March 31, 2007	$	23.61	$	16.85
2nd Quarter ended June 30, 2007	$	43.38	$	23.24
3rd Quarter ended September 30, 2007	$	91.40	$	44.14
4th Quarter ended December 31, 2007	$	130.97	$	69.67
Year ended December 31, 2007	$	130.97	$	16.85
2006	High		Low
1st Quarter ended March 31, 2006	$	13.84	$	8.50
2nd Quarter ended June 30, 2006	$	11.25	$	8.50
3rd Quarter ended September 30, 2006	$	14.89	$	10.28
4th Quarter ended December 31, 2006	$	18.06	$	12.63
Year ended December 31, 2006	$	18.06	$	8.50
2005	High		Low
1st Quarter ended March 31, 2005	$	23.39	$	19.36
2nd Quarter ended June 30, 2005	$	19.50	$	15.46
3rd Quarter ended September 30, 2005	$	17.35	$	13.95
4th Quarter ended December 31, 2005	$	17.22	$	12.11
February 3, 2005 to December 31, 2005	$	23.90	$	11.81

Item 10. Additional Information

A. Share Capital

 Not Applicable.

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B.       Memorandum and Articles of Association

Directors

Our directors are elected by a plurality of the votes cast by stockholders entitled to vote in an election. Our articles of incorporation provide that cumulative voting shall not be used to elect directors. Our board of directors must consist of at least three members. The exact number of directors is fixed by a vote of at least 66 2/3% of the entire board. Our bylaws provide for a staggered board of directors whereby directors shall be divided into three classes: Class A, Class B and Class C, which shall be as nearly equal in number as possible. Shareholders, acting as at a duly constituted meeting, or by unanimous written consent of all shareholders, initially designated directors as Class A, Class B or Class C. Class A directors served for a term expiring at the 2005 annual meeting of shareholders. Directors designated as Class B directors served for a term expiring at the 2006 annual meeting. Directors designated Class C directors served for a term expiring at the 2007 annual meeting. At annual meetings for each initial term, directors to replace those whose terms expire at such annual meetings will be elected to hold office until the third succeeding annual meeting. For instance, the current Class C directors were elected to hold office at the 2007 annual meeting and therefore their terms do not expire until the 2010 annual meeting. Each director serves his respective term of office until his successor has been elected and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office. Our board of directors has the authority to fix the amounts which shall be payable to the members of the board of directors for attendance at any meeting or for services rendered to us.

Stockholder Meetings

Under our bylaws, annual stockholder meetings will be held at a time and place selected by our board of directors. The meetings may be held in or outside of the Marshall Islands. Special meetings may be called by the board of directors, chairman of the board or by the president. Our board of directors may set a record date between 15 and 60 days before the date of any meeting to determine the stockholders that will be eligible to receive notice and vote at the meeting.

Dissenters’ Rights of Appraisal and Payment

Under the BCA, our stockholders have the right to dissent from various corporate actions, including any merger or consolidation, sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of the fair value of their shares. In the event of any further amendment of our amended and restated articles of incorporation, a stockholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting stockholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting stockholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which the Company’s shares are primarily traded on a local or national securities exchange.

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Stockholders’ Derivative Actions

Under the BCA, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of common stock both at the time the derivative action is commenced and at the time of the transaction to which the action relates.

Indemnification of Officers and Directors

Our bylaws include a provision that entitles any director or officer of the Corporation to be indemnified by the Corporation upon the same terms, under the same conditions and to the same extent as authorized by the BCA if he acted in good faith and in a manner reasonably believed to be in and not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

We are also authorized to carry directors’ and officers’ insurance as a protection against any liability asserted against our directors and officers acting in their capacity as directors and officers regardless of whether the Company would have the power to indemnify such director or officer against such liability by law or under the provisions of our bylaws. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.

The indemnification provisions in our bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

Anti-takeover Provisions of our Charter Documents

Several provisions of our articles of incorporation and bylaws may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize stockholder value in connection with any unsolicited offer to acquire us. However, these anti -takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise, that a stockholder may consider in its best interest and (2) the removal of incumbent officers and directors.

Blank Check Preferred Stock

Under the terms of our articles of incorporation, our board of directors has authority, without any further vote or action by our stockholders, to issue up to 500 million shares of blank check preferred stock. Our board of directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of our company or the removal of our management.

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Stockholders Rights Agreement

We entered into a Stockholders Rights Agreement with American Stock Transfer & Trust Company, as Rights Agent, as of January 18, 2008. Under this Agreement, we declared a dividend payable of one preferred share purchase right, or Right, to purchase one one-thousandth of a share of the Company’s Series A Participating Preferred Stock for each outstanding share of DryShips Inc. common stock, par value U.S.$0.01 per share. The Right will separate from the common stock and become exercisable after (1) a person or group acquires ownership of 15% or more of the company's common stock or (2) the 10th business day (or such later date as determined by the company’s board of directors) after a person or group announces a tender or exchange offer which would result in that person or group holding 15% or more of the company's common stock. On the distribution date, each holder of a right will be entitled to purchase for $250 (the “Exercise Price”) a fraction (1/1000th) of one share of the company’s preferred stock which has similar economic terms as one share of common stock. If an acquiring person (an “Acquiring Person”) acquires more than 15% of the company's common stock then each holder of a right (except that acquiring person) will be entitled to buy at the exercise price, a number of shares of the company's common stock which has a market value of twice the exercise price. Any time after the date an Acquiring Person obtains more than 15% of the company's common stock and before that Acquiring Person acquires more than 50% of the company's outstanding common stock, the company may exchange each right owned by all other rights holders, in whole or in part, for one share of  the company's common stock. The rights expire on the earliest of (1) February 4, 2018 or (2) the exchange or redemption of the rights as described above. The company can redeem the rights at any time prior to a public announcement that a person has acquired ownership of 15% or more of the company's common stock. The terms of the rights and the Stockholders Rights Agreement may be amended without the consent of the rights holders at any time on or prior to the Distribution Date. After the Distribution Date, the terms of the rights and the Stockholders Rights Agreement may be amended to make changes that do not adversely affect the rights of the rights holders (other than the Acquiring Person). The rights do not have any voting rights. The rights have the benefit of certain customary anti-dilution protections.

Classified Board of Directors

Our articles of incorporation provide for a board of directors serving staggered, three-year terms. Approximately one-third of our board of directors will be elected each year. The classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of our company. It could also delay stockholders who do not agree with the policies of the board of directors from removing a majority of the board of directors for two years.

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Election and Removal of Directors

Our articles of incorporation prohibit cumulative voting in the election of directors. Our bylaws require shareholders to give advance written notice of nominations for the election of directors. Our bylaws also provide that our directors may be removed only for cause and only upon affirmative vote of the holders of at least 66 2/3% of the outstanding voting shares of the Company. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.

Limited Actions by Stockholders

Our bylaws provide that if a quorum is present, and except as otherwise expressly provided by law, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the shareholders. Shareholders may act by way of written consent in accordance with the provisions of Section 67 of the BCA.

Advance Notice Requirements for Shareholder Proposals and Director Nominations

Our bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder’s notice must be received at our principal executive offices not less than 150 days nor more than 180 days prior to the one year anniversary of the preceding year’s annual meeting. Our bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede shareholders’ ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.

C.         Material Contracts

We have no other material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any member of the group is a party.

D.         Exchange Controls

Under Marshall Islands and Greek law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common stock.

E.         Taxation

United States Taxation

 The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury Department regulations, administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report.  This discussion assumes that we do not have an office or other fixed place of business in the United States.

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Taxation of the Company’s Shipping Income: In General

The Company anticipates that it will derive substantially all of its gross income from the use and operation of vessels in international commerce and that this income will principally consist of freights from the transportation of cargoes, hire or lease from time or voyage charters and the performance of services directly related thereto, which the Company refers to as “shipping income.”

Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. The Company is not permitted by law to engage in transportation that gives rise to 100% U.S. source income. Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping Income derived from sources outside the United States will not be subject to U.S. federal income tax.

Based upon the Company’s anticipated shipping operations, the Company’s vessels will operate in various parts of the world, including to or from U.S. ports. Unless exempt from U.S. taxation under Section 883 of the Code, the Company will be subject to U.S. federal income taxation, in the manner discussed below, to the extent its shipping income is considered derived from sources within the United States.

Application of Code Section 883

Under the relevant provisions of Section 883 of the Code and the final regulations interpreting Section 883, as promulgated by the U.S. Treasury Department, the Company will be exempt from U.S. taxation on its U.S. source shipping income if:

 (i)           It is organized in a “qualified foreign country” which is one that grants an equivalent exemption from tax to corporations organized in the United States in respect of each category of shipping income for which exemption is being claimed under Section 883 and which the Company refers to as the “country of organization requirement”; and

 (ii)          It can satisfy any one of the following two (2) stock ownership requirements:

 · more than 50% of the Company’s stock, in terms of value, is beneficially owned by individuals who are residents of a qualified foreign country, which the Company refers to as the “50% Ownership Test”; or

 · the Company’s stock is “primarily and regularly” traded on an established securities market located in the United States or in a qualified foreign country, which the Company refers to as the “Publicly Traded Test”.

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The U.S. Treasury Department has recognized (i) the Marshall Islands, the country of incorporation of the Company and of thirty-four of its ship-owning subsidiaries and (ii) Malta, the country of incorporation of twenty-seven of the Company’s ship-owning subsidiaries, as qualified foreign countries. Accordingly, the Company and its subsidiaries satisfy the country of organization requirement.

Therefore, the Company’s eligibility to qualify for exemption under Section 883 is wholly dependent upon being able to satisfy one of the stock ownership requirements. For the 2007 taxable year, the Company believes that it satisfied the Publicly-Traded Test since, for more than half the days of the Company’s 2007 taxable year, the Company’s stock was “primarily and regularly traded” on the Nasdaq Global Market which is an “established securities market” in the United States within the meaning of the Section 883 regulations and intends to take this position on its 2007 United States income tax returns.

Taxation in Absence of Internal Revenue Code Section 883 Exemption

To the extent the benefits of Section 883 are unavailable with respect to any item of U.S. source income, the Company’s U.S. source shipping income would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions. Since under the sourcing rules described above, no more than 50% of the Company ’s shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on the Company’s shipping income would never exceed 2% under the 4% gross basis tax regime.

Based on the U.S. source Shipping Income for 2006 and 2007, the Company would be subject to U.S. federal income tax of approximately $0.4 and $1.13 million respectively under section 887 in the absence of an exemption under Section 883.

Gain on Sale of Vessels

Regardless of whether we qualify for exemption under Section 883, we will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.

Marshall Islands Tax Considerations

We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our stockholders.

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F.       Dividends and paying agents

 Not Applicable

G.       Statement by experts

 Not Applicable

H.       Documents on display

We file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC’s website http://www.sec.gov. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330 and you may obtain copies at prescribed rates.

I.        Subsidiary information

 Not Applicable

Item 11. Quantitative and Qualitative Disclosures about Market Risk

Our risk management policy

Our primary market risks relate to adverse movements in the charterhire rates for the Panamax and Capesize drybulk carrier sector and any declines that may occur in the value of our assets which are made up primarily of Panamax and Capesize vessels. Our policy is to also continuously monitor our exposure to other business risks, including the impact of changes in interest rates, currency rates, and bunker prices on earnings and cash flows. We intend to assess these risks and, when appropriate, enter into derivative contracts with credit-worthy counter parties to minimize our exposure to the risks. In regard to bunker prices, as our employment policy for our vessels has continued to be and is expected to continue with a high percentage of our fleet on period employment, we are not directly exposed to increases in bunker fuel prices as these are the responsibility of the charterer under period charter arrangements.

Under the terms of our loan agreements, we are required to maintain compliance with minimum valuation covenants in regard to the vessels that are mortgaged to those banks. As such, to monitor on a regular basis the current market value of our fleet and thus to highlight any downturn in its value, we obtain on a semi-annual basis two independent valuations of all of our vessels from two international sale and purchase brokers to determine the ongoing market value of our fleet. These valuations are made available to our auditors and are used in the assessment regarding the necessary ongoing level of depreciation that we are recording in the books of the company in terms of its adequacy.

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Interest Rates

The international drybulk industry is a capital intensive industry, requiring significant amounts of investment. Much of this investment is provided in the form of long term debt. Our debt usually contains interest rates that fluctuate with LIBOR. Increasing interest rates could adversely impact future earnings.

Historically, we have been subject to market risks relating to changes in interest rates, because we have had significant amounts of floating rate debt outstanding. During 2005 and 2006, we paid interest on this debt based on LIBOR plus an average spread of one and one-quarter percent (1.25%) on our bank loans.  The Company has entered into various interest rate cap and floor agreements in order to hedge its exposure to interest rate fluctuations with respect to its borrowings.  Interest rate fluctuations at all times during 2006 and 2007 were within the cap and floor range, thus the Company paid-month LIBOR.  A one percent (1%) increase in LIBOR would have increased our interest expense for the year ended December 31, 2007 from $48.3 million to $56.3 million.

Our interest expense is affected by changes in the general level of interest rates. As an indication of the extent of our sensitivity to interest rate changes, an increase of 100 basis points would have decreased our net income and cash flows in the current year by approximately $8 million based upon our debt level at December 31, 2007.

Currency and Exchange Rates

We generate all of our revenues in Dollars but currently incur approximately 24% of our operating expenses and the majority of our management expenses in currencies other than the U.S. dollar, primarily the Euro. For accounting purposes, expenses incurred in Euros are converted into Dollars at the exchange rate prevailing on the date of each transaction. Because a significant portion of our expenses are incurred in currencies other than the U.S. dollar, our expenses may from time to time increase relative to our revenues as a result of fluctuations in exchange rates, particularly between the U.S. dollar and the Euro, which could affect the amount of net income that we report in future periods. While we historically have not mitigated the risk associated with exchange rate fluctuations through the use of financial derivatives, in 2006 we employed such instruments (see below) in order to minimize this risk. Our use of financial derivatives involve certain risks, including the risk that losses on a hedged position could exceed the nominal amount invested in the instrument and the risk that the counterparty to the derivative transaction may be unable or unwilling to satisfy its contractual obligations, which could have an adverse effect on our results.

Foreign Exchange Transactions

In January 2006, the Company engaged in a total of 12 call options, maturing in monthly intervals from February 2006 to January 2007, under one foreign exchange transaction involving the US dollar against the Euro. As of December 31, 2006, the Company had one open call option, which matured in January 2007. The strike rate under this option was 1.21 Dollars per Euro, for an amount of Euro 0.2 million.

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In January 2006, the Company engaged in a total of 12 Forward Foreign Exchange Contracts, in monthly intervals from February 2006 to January 2007. As of December 31, 2006, the Company had one open Forward Foreign Exchange Contract which matured in January 2007. The forward rate under this forward transaction was 1.2320 Dollars per Euro for an amount of Euro 0.2 million after the contract date.

The Company engaged in such agreements in order to hedge its exposure to fluctuations between the U.S. Dollar and the Euro with respect to certain expenses incurred in Euros. Such agreements did not qualify for hedge accounting and therefore changes in their fair value are reflected in earnings.

Item 12. Description of Securities Other than Equity Securities

A.       Debt securities

 Not Applicable

B.       Warrants and rights

 Not Applicable

C.       Other securities

 Not Applicable

D.       American depository shares

 Not Applicable

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

(a)     Evaluation of Disclosure Controls and Procedures

 Pursuant to Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s management, under the supervision and with the participation of the Chief Executive Officer/Interim Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2007. The term disclosure controls and procedures are defined under SEC rules as controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based on that evaluation, our Chief Executive Officer/Interim Chief Financial Officer has concluded that our disclosure controls and procedures are effective, as of December 31, 2007.

(b)     Management’s Annual Report on Internal Control over Financial Reporting

 The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is identified in Exchange Act Rule 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorization of its management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its consolidated financial statements.

90

 Our management, with the participation of Chief Executive Officer/Interim Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, the Company used the control criteria framework of the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") published in its report entitled Internal Control-Integrated Framework. As a result of its assessment, the Chief Executive Officer/Interim Chief Financial Officer concluded that the Company’s internal controls over financial reporting are effective as of December 31, 2007.

(c)Report of Independent Registered Public Accounting Firm

 Deloitte, Hadjipavlou, Sofianos and Cambanis S.A., or Deloitte., an independent registered public accounting firm, as auditors of our consolidated financial statements for the year ended December 31, 2007, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2007. Such report appears on page F-4.

(d)      Changes in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer/Interim Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

91

Item 16A. Audit Committee Financial Expert

The Board of Directors of the Company has determined that Mr. Xiradakis, a member of our Audit Committee whose biographical details are included in Item 6,  qualifies as a financial expert and is considered to be independent according to the SEC rules.

Item 16B. Code of Ethics

The Company has adopted a code of ethics that applies to its directors, officers and employees. In March 2008, the Board of Directors adopted an amendment to our code of ethics that would permit officers, directors and employees of the Company who own common shares to transact in the Company’s securities pursuant to trading plans adopted in reliance upon Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. A copy of our code of ethics is posted in the “Investor Relations” section of the Dryships Inc. website, and may be viewed at http://www.dryships.com. We will also provide a hard copy of our code of ethics free of charge upon written request of a shareholder. Shareholders may direct their requests to the attention of Investor Relations, DryShips Inc., 80, Kifissias Avenue., 151 25 Amaroussion, Greece.

Item 16C. Principal Accountant Fees and Services

Ernst and Young (Hellas), Certified Auditors Accountants S.A, or Ernst & Young, have audited our annual financial statements acting as our independent auditor for the fiscal years ended December 31, 2006 and 2005, the two -month period ended December 31, 2004 and the year ended October 31, 2004. On June 28, 2007 the Company retained Deloitte, Hadjipavlou, Sofianos and Cambanis S.A., or Deloitte, as auditors of the Company for the fiscal year ended December 31, 2007.

The table below sets forth the total fees for the services performed by Ernst & Young and Deloitte in 2005, 2006 and 2007 and identifies these amounts by category of services (in Euros).

(Stated in Euro)	2005		2006		2007
Audit fees		350,175		633,937		1,028,925
Audit-related fees -­		-		-		-
Tax fees		-		-		-
All other fees		-		-		108,688
Total fees		350,175		633,937		1,137,613

92

Audit fees

The 2007 amount of Euro 1,028,925 relates to audit services provided in connection with the audit of our consolidated financial statements, SAS 100 reviews and the issuance of 6,000,000 shares of our common stock from October through December 2007 under a controlled equity offering sales agreement. The audit-related fees billed relate to a potential offering which was not pursued.  There were no tax or  other related fees billed in 2007.

The 2006 amount of Euro 633,937 relates to audit services provided in connection with the audit of our consolidated financial statements, SAS 100 reviews and the issuance of 4,650,000 shares of our common stock from May through August 2006 under a controlled equity offering sales agreement. There were no tax, audit-related, or other fees billed in 2006.

The 2005 amount of Euro 350,175 relates to the audit of the two month period ended December 31, 2004 and the year ended December 31, 2005. There were no tax, audit-related, or other fees billed in 2005.

Item 16D. Exemptions from the Listing Standards for Audit Committees

 Not Applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 Not Applicable.

93

PART III

Item 17. Financial Statements

See Item 18

Item 18. Financial Statements

The following financial statements, beginning on page F -1, together with the report of Deloitte, Hadjipavlou, Sofianos and Cambanis S.A. thereon, are filed as a part of this report.

The following financial statements, beginning on page F -1, together with the report of Ernst and Young (Hellas) Certified Auditors and Accountants S.A. thereon, are filed as a part of this report.

94

Item 19. Exhibits

(a)  Exhibits, Exhibit Number, Description

1.1	Articles of Amendment to Articles of Incorporation of DryShips Inc. (1)
1.2	Amended and restated bylaws of the Company (2)
2.1	Form of Share Certificate (3)
4.1	2008 Stock Incentive Plan (4)
4.2	Loan Agreement with Commerzbank (5)
4.3	Senior Loan Agreement with HSH Nordbank AG (6)
4.4	Junior Loan Agreement with HSH Nordbank AG (7)
4.5	November 2006 Supplemental Agreement to HSH Nordbank Senior Loan Agreement
4.6	November 2006 Supplemental Agreement to HSH Nordbank Junior Loan Agreement
4.7	April 19, 2007 Bridge Facility Agreement
4.8	May 2007 Amendment to Senior Credit Facility with HSH Nordbank
4.9	May 2007 Amendment to Junior Credit Facility with HSH Nordbank
4.10	October 2007 Loan Agreement with Deutsche Schiffsbank
4.11	November 2007 Loan Agreement
4.12	December 2007 Loan Agreement
4.13	December 2007 Primelead Limited Loan Agreement
4.14	Sale and Purchase Agreement, dated December 7, 2007, relating to purchase of shares of Ocean Rig ASA
8.1	Subsidiaries of the Company
12.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
12.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
13.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2	2005 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1	Consent of Independent Registered Public Accounting Firm (Ernst & Young)
15.2	Consent of Independent Registered Public Accounting Firm (Deloitte)

(1)  Filed as Exhibit 3.1 to the Company’s Registration Statement on Form 8-A (File No. 001-33922) on January 18, 2008.

(2)  Filed as Exhibit 3.2 to the Company’s Registration Statement on Form 8-A (File No. 001-33922) on January 18, 2008.

(3)  Filed as Exhibit 4 to the Company’s Amended Registration Statement (File No. 333-122008) on January 31, 2005.

95

(4)  Filed as Exhibit 1 to the Company’s Form 6-K filed on January 24, 2008.

(5)  Filed as Exhibit 10.2 to the Company’s Registration Statement (File No. 333-122008) on January 13, 2005.

(6)  Filed as Exhibit 4.4 to the Company’s Annual Report on Form 20-F on April 21, 2007.

(7)  Filed as Exhibit 4.5 to the Company’s Annual Report on Form 20-F on April 21, 2007.

96

DRYSHIPS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm (Ernst & Young)	F-2
Report of Independent Registered Public Accounting Firm (Deloitte)	F-3
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	F-4
Consolidated Balance Sheets as of December 31, 2006 and 2007	F-6
Consolidated Statements of Income for the years ended December 31, 2005, 2006 and 2007	F-7
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2006 and 2007	F-8
Consolidated Statements of Cash Flows for the for the years ended December 31, 2005, 2006 and 2007	F-9
Notes to Consolidated Financial Statements	F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of DRYSHIPS INC.

We have audited the accompanying consolidated balance sheet of DryShips Inc. (the “Company”) as of December 31, 2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of DryShips Inc. at December 31, 2006, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.

Athens, Greece

April 27, 2007

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of DryShips Inc.

We have audited the accompanying consolidated balance sheet of DryShips Inc. and subsidiaries (the "Company") as of December 31, 2007, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on the financial statements based on our audit.  The consolidated financial statements of the Company for the years ended December 31, 2006 and December 31, 2005 were audited by other auditors whose report, dated April 27, 2007, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such 2007 consolidated financial statements present fairly, in all material respects, the financial position of DryShips Inc. and subsidiaries as of December 31, 2007, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee, of Sponsoring Organizations of the Treadway Commission, and our report dated March 28, 2008 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte, Hadjipavlou, Sofianos & Cambanis S.A.

Athens, Greece

March 28, 2008

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of DryShips Inc.

We have audited the internal control over financial reporting of DryShips Inc. and subsidiaries (the "Company") as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F-4

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007 of the Company and our report dated March 28, 2008 expressed an unqualified opinion on those financial statements.

/s/ Deloitte, Hadjipavlou, Sofianos & Cambanis S.A.

Athens, Greece

March 28, 2008

F-5

DRYSHIPS INC.
Consolidated Balance Sheets
December 31, 2006 and 2007
(Expressed in thousands of U.S. Dollars – except for share and per share data)
	2006		2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,537	$	111,068
Restricted cash (Note 10)		6,614		6,791
Trade accounts receivable		3,187		9,185
Insurance claims		671		4,807
Due from related parties (Note 3)		3,353		9,963
Inventories (Note 4)		2,571		3,912
Prepayments and advances		5,568		7,309
Fair value of above market acquired time charter (Note 7)		1,335		-
Financial instruments (Note 18)		39		-
Total current assets		25,875		153,035
FIXED ASSETS, NET:
Advances for vessels under construction and acquisitions (Note 6)		27,380		118,652
Vessels, net (Note 5)		1,084,924		1,643,867
Total fixed assets, net		1,112,304		1,762,519
OTHER NON CURRENT ASSETS:
Long term investments (Note 9)		-		405,725
Deferred charges, net (Note 8)		6,200		2,492
Restricted cash (Note 10)		20,000		20,000
Financial instruments (Note 18)		946		-
Other		2,848		3,153
Total non current assets, net		29,994		431,370
Total assets	$	1,168,173	$	2,346,924
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 10)	$	71,412	$	194,999
Accounts payable		11,423		7,166
Due to related parties (Note 3)		25,086		-
Accrued liabilities (Note 11)		6,326		20,014
Deferred revenue		12,270		16,916
Financial instruments (Note 18)		2,625		-
Other current liabilities		202		209
Total current liabilities		129,344		239,304
NON CURRENT LIABILITIES
Fair value of below market acquired time charter (Note 7)		-		32,509
Long term debt, net of current portion (Note 10)		587,330		1,048,779
Financial instruments (Note 18)		-		1,768
Other		607		343
Total non current liabilities		587,937		1,083,399
COMMITMENTS AND CONTINGENCIES (Note 13)		-		-
STOCKHOLDERS' EQUITY:
Preferred stock, $ 0.01 par value; 30,000,000 shares authorized, none issued		-		-
Common stock, $0.01 par value; 75,000,000 shares authorized at December 31, 2006 and 2007; 35,490,097 and 36,681,097 shares issued and outstanding at December 31, 2006 and 2007, respectively (Note 12)		355		367
Additional paid-in capital (Note 12)		327,446		454,538
Retained earnings		123,091		569,316
Total stockholders' equity		450,892		1,024,221
Total liabilities and stockholders' equity	$	1,168,173	$	2,346,924
The accompanying notes are an integral part of these consolidated statements.

F-6

DRYSHIPS INC.
Consolidated Statements of Income
For the years ended December 31, 2005, 2006 and 2007
(Expressed in thousands of U.S. Dollars – except for share and per share data)
	Year ended December 31,
	2005			2006			2007
REVENUES:
Voyage revenues	$	228,913		$	248,431		$	582,561
EXPENSES:
Loss on forward freight agreements (Note 18)		-			22,473			-
Voyage expenses (Note 15)		10,185			16,229			31,955
Voyage expenses – related party (Note 3 and 15)		2,854			3,056			7,159
Gain on sale of bunkers (Note 16)		(3,447	)		(3,320	)		(7,467	)
Vessel operating expenses (Note 15)		36,722			47,889			61,409
Depreciation (Note 5)		40,231			58,011			76,511
Amortization of deferred drydocking costs (Note 8)		2,379			3,594			2,793
Gain on sale of vessels (Note 5)		-			(8,583	)		(134,963	)
Management fees - related party (Note 3)		4,962			6,609			9,579
General and administrative expenses		1,218			2,737			3,664
General and administrative expenses – related party (Note 3)		2,968			3,194			3,829
Operating income		130,841			96,542			528,092
OTHER INCOME / (EXPENSES):
Interest and finance costs (Note 17)		(20,668	)		(41,999	)		(50,617	)
Interest and finance costs – related parties (Note 3 and 17)		-			(393	)		(614	)
Interest income		749			1,691			5,073
Other, net		95			890			(7,018	)
Total other (expenses), net		(19,824	)		(39,811	)		(53,176	)
Income before equity in income of investees		111,017			56,731			474,916
Equity in loss of investees (Note 9)		-			-			(299	)
Net income	$	111,017		$	56,731		$	474,617
Net income per share, basic and diluted		3.83			1.75			13.29
Weighted average number of shares, basic and diluted		28,957,397			32,348,194			35,700,182

The accompanying notes are an integral part of these consolidated statements.

F-7

	DRYSHIPS INC.
	Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2005, 2006 and 2007
(Expressed in thousands of U.S. Dollars – except for share and per share data)

			Capital Stock
	Comprehensive Income		# of Shares		Par Value		Additional Paid-in Capital		Retained Earnings / (Accumulated Deficit)			Total Stockholders’ Equity
BALANCE, December 31, 2004			15,400,000	$	154	$	13,465	$	(7,280	)	$	6,339
Net income	$	111,017	-		-		-		111,017			111,017
Issuance of common stock		-	14,950,000		150		251,135		-			251,285
Dividends declared and paid ($0.40 per share)		-	-		-		-		(12,140	)		(12,140	)
Comprehensive income	$	111,017
BALANCE, December 31, 2005			30,350,000	$	304	$	264,600	$	91,597		$	356,501
Net income		56,731	-		-		-		56,731			56,731
Issuance of common stock		-	4,650,000		46		56,444		-			56,490
Issuance of common stock to settle dividends		-	235,585		2		3,078		-			3,080
Issuance of common stock to settle liabilities		-	254,512		3		3,324		-			3,327
Dividends declared and paid ($0.80 per share)		-	-		-		-		(25,237	)		(25,237	)
Comprehensive income	$	56,731
BALANCE, December 31, 2006			35,490,097	$	355	$	327,446	$	123,091		$	450,892
Net income		474,617	-		-		-		474,617			474,617
Issuance of common stock		-	1,191,000		12		127,092		-			127,104
Dividends declared and paid ($0.80 per share)		-	-		-		-		(28,392	)		(28,392	)
Comprehensive income	$	474,617
BALANCE, December 31, 2007			36,681,097	$	367	$	454,538	$	569,316		$	1,024,221

The accompanying notes are an integral part of these consolidated statements.

F-8

DRYSHIPS INC
Consolidated Statements of Cash Flows
For the years ended December 31, 2005, 2006 and 2007
(Expressed in thousands of U.S. Dollars)
	Year ended December 31,
	2005			2006			2007
Cash Flows from Operating Activities:
Net income	$	111,017		$	56,731		$	474,617
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		40,231			58,011			76,511
Amortization of deferred drydocking costs		2,379			3,594			2,793
Payments for drydocking		(3,153	)		(6,275	)		(1,406	)
Amortization and write-off of deferred financing costs		544			3,785			2,190
Gain on sale of vessels					(8,583	)		(134,963	)
Equity in loss of investees		-			-			299
Amortization of fair value of acquired time charter revenue		(5,224	)		(2,967	)		(7,185	)
Change in fair value of derivatives		(270	)		1,910			128
Interest on credit facility from related parties		-			77			-
Recognition / (amortization) of free lubricants benefit		928			(119	)		(257	)
Changes in operating assets and liabilities:
Trade accounts receivable		(4,407	)		2,327			(6,303	)
Insurance claims		(94	)		(564	)		(7,296	)
Due from related parties		4,000			(3,353	)		(6,610	)
Inventories		(917	)		(1,245	)		(1,341	)
Prepayments and advances		(3,142	)		(2,232	)		(1,741	)
Accounts payable		7,011			2,944			(4,257	)
Due to related parties		6,262			(6,374	)		(86	)
Accrued liabilities		5,848			(203	)		12,607
Deferred income		2,793			1,618			10,199
Net Cash Provided by Operating Activities		163,806			99,082			407,899
Cash Flows from Investing Activities:
Insurance proceeds		-			-			3,160
Long term investment		-			-			(406,024	)
Advances for vessel acquisitions		-			(27,380	)		(105,242	)
Vessels acquisitions and improvements		(847,649	)		(270,993	)		(799,456	)
Proceeds from sale of vessels		-			10,861			351,813
Net Cash Used in Investing Activities		(847,649	)		(287,512	)		(955,749	)
Cash Flows from Financing Activities:
Proceeds from long-term debt		577,585			706,875			787,298
Principal payments of long-term debt		(90,010	)		(573,612	)		(228,278	)
Proceeds from short-term credit facility		-			95,337			73,476
Payments of  short-term credit facility		-			(70,337	)		(68,400	)
Change in restricted cash		(23,588	)		(2,563	)		(177	)
Advances to Baumarine Pool		(1,232	)		(591	)		-
Net proceeds from common stock issuance		251,285			56,490			127,104
Dividends paid		(30,133	)		(22,157	)		(28,392	)
Payment of financing costs		(3,251	)		(3,659	)		(6,250	)
Net Cash Provided by Financing Activities		680,656			185,783			656,381
Net (decrease) / increase in cash and cash equivalents		(3,187	)		(2,647	)		108,531
Cash and cash equivalents at beginning of year		8,371			5,184			2,537
Cash and cash equivalents at end of year	$	5,184		$	2,537		$	111,068
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year/period for:
Interest payments, net of amounts capitalized	$	17,636		$	39,321		$	47,342
Non cash financing activities:
Liabilities assumed in connection with joint and several borrowings with related parties	$	68,109		$	-		$
Settlement of sellers’ credit in Company’s common stock	$	-		$	(3,327	)	$	-
Settlement of dividends in Company’s common stock	$	-		$	(3,080	)	$	-
Fair value of below market charter acquired	$	-		$	(11,492	)	$	(38,687	)
Amounts owed for capital expenditures	$	-		$	-		$	(671	)

The accompanying notes are an integral part of these consolidated statements.

F-9

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

1.	Basis of Presentation and General Information:
	The accompanying consolidated financial statements include the accounts of DryShips Inc. and its wholly owned subsidiaries (collectively, the “Company” or DryShips). DryShips Inc. was formed on September 9, 2004, under the laws of Marshall Islands. On October 18, 2004, all of the outstanding shares of the vessel-owning companies listed under 1 through 6 in the table below (collectively, the “Contributed Companies”), were contributed to the Company through Entrepreneurial Spirit Foundation (the “Foundation”), a family foundation of Vaduz, Liechtenstein. The Company’s Chief Executive Officer, Mr. George Economou and members of his immediate family (the “Family”) control and are beneficiaries of the Foundation. The transaction described above constituted a reorganization of companies under common control, and has been accounted for in a manner similar to a pooling of interests and the Contributed Companies are presented at historical cost as the control of the Contributed Companies before and after the reorganization was with the Family.
	Effective November 1, 2004, the Company changed its fiscal reporting year-end from October 31 to December 31. In February 2005 the Company completed its initial public offering in the United States under the United States Securities Act of 1933 (Note 12). After the consummation of its initial public offering and through December 31, 2005, the Company took delivery of twenty-one secondhand drybulk carrier vessels, through then newly-established wholly-owned subsidiaries.
	During 2006 the Company (a) took delivery of eight secondhand drybulk carrier vessels through newly established wholly-owned subsidiaries, (b) concluded the sale of five drybulk carrier vessels of which one was delivered to her new owners in 2006 while four were delivered in January 2007, (c) concluded agreements to purchase three secondhand drybulk carriers which were delivered in  the first, second and third quarters of 2007, and (d) concluded two contracts for the construction of two drybulk carrier vessels with expected delivery dates in the last quarter of 2009 and the first quarter of 2010, respectively.
	During 2007 the Company (a) took delivery of fifteen secondhand drybulk carrier vessels through newly established wholly-owned subsidiaries, (b) concluded the sale of eleven drybulk carrier vessels of which four were contracted during 2006 and other two contracted during 2007, with expected delivery between the first and the second quarter of 2008 (c) concluded agreements to purchase three secondhand drybulk carriers which are expected to be delivered during the first and second quarter of 2008, respectively, (d) concluded six contracts for the construction of six drybulk carrier newbuildings with expected delivery dates between the second quarter of 2008 and second quarter of 2010, and (e) the Company acquired 51,778,647 shares in Ocean Rig ASA which represents 30.4% of the issued shares in Ocean Rig..
	The Company is engaged in the ocean transportation services of drybulk cargoes worldwide through the ownership and operation of the drybulk carrier vessels mentioned below.
	The Company’s wholly-owned subsidiaries as of December 31, 2007, are listed below:

F-10

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

1. Basis of Presentation and General Information– (continued):

	Ship-owning Company	Country of Incorporation	Vessel
1.	Hydrogen Shipping Company Limited (“Hydrogen”)	Malta	Mostoles (sold - July 2007)
2.	Oxygen Shipping Company Limited (“Oxygen”)	Malta	Shibumi (sold – April 2007)
3.	Annapolis Shipping Company Limited (“Annapolis”)	Malta	Lacerta
4.	Helium Shipping Company Limited (“Helium”)	Malta	Striggla (sold – January 2007)
5.	Blueberry Shipping Company Limited (“ Blueberry “)	Malta	Panormos (sold – January 2007)
6.	Silicon Shipping Company Limited (“Silicon”)	Malta	Flecha (sold – December 2006)
7.	Lancat Shipping Company Limited (“Lancat”)	Malta	Matira (Note 5)
8.	Tolan Shipping Company Limited (“Tolan”)	Malta	Tonga
9.	Malvina Shipping Company Limited (“Malvina”)	Malta	Coronado
10.	Arleta Navigation Company Limited (“Arleta”)	Malta	Xanadu
11.	Selma Shipping Company Limited (“Selma”)	Malta	La Jolla
12.	Royerton Shipping Company Limited (“Royerton”)	Malta	Netadola (Note 5)
13.	Samsara Shipping Company Limited (“Samsara”)	Malta	Ocean Crystal
14.	Lansat Shipping Company Limited (“Lansat”)	Malta	Paragon
15.	Farat Shipping Company Limited (“Farat”)	Malta	Toro
16.	Madras Shipping Company Limited (“Madras”)	Malta	Alona (sold – June 2007)
17.	Iguana Shipping Company Limited (“Iguana”)	Malta	Iguana
18.	Borsari Shipping Company Limited (“Borsari”)	Malta	Catalina
19.	Onil Shipping Company Limited (“Onil”)	Malta	Padre
20.	Zatac Shipping Company Limited (“Zatac”)	Malta	Waikiki
21.	Fabiana Navigation Company Limited (“Fabiana”)	Malta	Alameda
22.	Fago Shipping Company Limited (“Fago”)	Malta	Lanikai (sold -July 2007)
23.	Felicia Navigation Company Limited (“Felicia”)	Malta	Solana
24.	Karmen Shipping Company Limited (“Karmen”)	Malta	Sonoma
25.	Thelma Shipping Company Limited (“Thelma”)	Malta	Manasota
26.	Celine Shipping Company Limited (“Celine”)	Malta	Mendocino
27.	Seaventure Shipping Limited (“Seaventure”)	Marshall Islands	Hille Oldendorff (sold June 2007)
28.	Tempo Marine Co. (“Tempo”)	Marshall Islands	Maganari
29.	Star Record Owning Company Limited (‘Star”)	Marshall Islands	Ligari
30.	Human Owning Company Limited (“Human”)	Marshall Islands	Estepona (sold – April 2007)
31.	Classical Owning Company Limited (“Classical”)	Marshall Islands	Delray (sold – May 2007)
32.	Maternal Owning Company Limited (“Maternal”)	Marshall Islands	Lanzarote
33.	Paternal Owning Company Limited (“Paternal”)	Marshall Islands	Formentera (sold – December 2007)
34.	Argo Owning Company Limited (“Argo”)	Marshall Islands	Redondo
35.	Rea Owning Company Limited (“Rea”)	Marshall Islands	Ecola (ex Zella Oldendorff)
36.	Gaia Owning Company Limited (“Gaia”)	Marshall Islands	Samsara (ex Cape Venture)
37.	Kronos Owning Company Limited (“Kronos”)	Marshall Islands	Primera (ex Sea Epoch)
38.	Trojan Maritime Co. (“Trojan”)	Marshall Islands	Brisbane (ex Spring Brave)
39.	Atlas Owning Company Limited (“Atlas”)	Marshall Islands	Menorca (ex Oinoussian Legend)
40.	Dione Owning Company Limited (“Dione”)	Marshall Islands	Marbella (ex Restless)
41.	Phoebe Owning Company Limited (“Phoebe”)	Marshall Islands	Majorca (ex Maria G.O.)
42.	Uranus  Owning Company Limited (“Uranus”)	Marshall Islands	Heinrich Oldendorff
43.	Platan Shipping  Company Limited (“Platan”)	Malta	Daytona (sold – January 2007)
44.	Selene Owning  Company Limited (“Selene”)	Marshall Islands	Bargara (ex Songa Hua)
45.	Tethys Owning Company Limited (“Tethys”)	Marshall Islands	Capitola (ex Songa Hui)
46.	Ioli Owning Company Limited (“Ioli”)	Marshall Islands	Clipper Gemini
47.	Iason Owning Company Limited (“Iason”)	Marshall Islands	Oregon (ex Athina Zafirakis)
48.	Orpheus Owning Company Limited (“Orpheus”)	Marshall Islands	Nord Mercury (tbr Avoca)
49.	Team up Owning Company Limited (“Team-up”)	Marshall Islands	Saldanha (ex Shinyo Brilliance)
50.	Iokasti Owning Company Limited (“Iokasti”)	Marshall Islands	VOC Galaxy
51.	Boone Star Owners Inc. (“Boone”)	Marshall Islands	Samatan (ex Trans Atlantic)
52	Norwalk Star Owners Inc. (“Norwalk”)	Marshall Islands	Capri (ex Gran Trader)
53.	Roscoe Marine Ltd. (“Roscoe”)	Marshall Islands	Hull 1518A
54.	Monteagle Shipping S.A. (“Monteagle”)	Marshall Islands	Hull 1519A
55.	Iktinos Owning Company Limited (“Iktinos”)	Marshall Islands	Hull SS058
56.	Kallikrates Owning Company Limited (“Kallikrates”)	Marshall Islands	Hull SS059
57.	Mensa Enterprises Inc. (“Mensa”)	Marshall Islands	Hull 0002

F-11

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

1. Basis of Presentation and General Information– (continued):

	Ship-owning Company	Country of Incorporation	Vessel
58.	Mandarin Shipholding Company (“Mandarin”)	Marshall Islands	Hull 0003
59.	Faedon Owning Company Limited (“Faedon”)	Marshall Islands	Hull 2089
60.	Dalian Star Owners Inc. (“Dalian”)	Marshall Islands	Hull HN-1001
61.	NT LLC Investors Ltd.	Marshall Islands	Conquistador (ex Kookabura)
	Other companies		Activity
62.	Wealth Management Inc. (“Wealth”)	Marshall Islands	Cash Manager
63.	Primelead Limited (“Primelead”)	Cyprus	Investment Company

The operations of the Company’s vessels are managed by Cardiff Marine Inc. (the “Manager”), a related-party entity incorporated in Liberia.  Furthermore, Drybulk S.A., (Note 3(a)) a related-party Liberian corporation, acted as the charter and sales and purchase broker for the Company until September 30, 2006. Effective October 1, 2006 the Manager acts as the Company’s charter and sales and purchase broker.  The majority shareholding (70%) of the Manager and Drybulk S.A., is owned by the Foundation. The 30% shareholding of the Manager and Drybulk S.A. is held by Prestige Finance S.A., a Liberian corporation which is wholly-owned by the sister of the Company’s Chief Executive Officer.

Charterers individually accounting for more than 10% of the Company’s voyage revenues during the years ended December 31, 2005, 2006 and 2007 are as follows:

	Year ended December 31,
Charterer	2005			2006			2007
Oldendorff Carriers Gmbh		-			13	%		-
Cargill International Ltd.		12	%		-			-

In addition, of the Company’s voyage revenues during years ended December 31, 2005, 2006 and 2007, revenues amounting to 25%, 25% and 12%, respectively, were derived from the participation of certain of the Company’s vessels in a drybulk pool.

F-12

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

2.	Significant Accounting Policies:
	(a)	Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include in the years ended December 31, 2005, 2006 and 2007, the accounts and operating results of DryShips Inc. and its wholly-owned subsidiaries referred to in Note 1 above. Intercompany balances and transactions have been eliminated on consolidation.
	(b)	Equity method investments: Investments in entities that the Company does not control, but over which it has the ability to exercise significant influence in regard to operations and financial policies, are accounted for using the equity method. The Company’s ownership interest is recorded in “Long term investments” in the consolidated balance sheets. Earnings or losses from equity method investments are recorded in “Equity in income of investees” in the accompanying consolidated statements of income.
	(c)	Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
	(d)	Other Comprehensive Income: The Company follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income”, which requires separate presentation of certain transactions, which are recorded directly as components of stockholders’ equity. The Company has no such transactions which affect comprehensive income and, accordingly, comprehensive income equals net income for all periods presented.
	(e)	Concentration of Credit Risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, trade accounts receivable and derivative contracts (interest rate swaps, foreign currency contracts and forward freight agreements). The Company places its cash and cash equivalents, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions. The Company is exposed to credit risk in the event of non-performance by counter parties to derivative instruments; however, the Company limits its exposure by diversifying among counter parties with high credit ratings. The Company limits its credit risk with trade accounts receivable by performing ongoing credit evaluations of its customers’ financial condition and generally does not require collateral for its trade accounts receivable.

F-13

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

2.	Significant Accounting Policies– (continued):
	(f)	Foreign Currency Translation: The functional currency of the Company is the U.S. Dollar since the Company’s vessels operate in international shipping markets, and therefore primarily transact business in U.S. Dollars. The Company’s books of accounts are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies, are translated into U.S. Dollars at the year-end exchange rates. Resulting gains or losses are included in “General and administrative expenses” in the accompanying consolidated statements of income.
	(g)	Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents.
	(h)	Restricted Cash: Restricted cash is largely additional minimum cash deposits required to be maintained with certain banks under the Company’s borrowing arrangements. Restricted cash includes bank deposits that are required under the Company’s borrowing arrangements which are used to fund the loan installments coming due. The funds can only be used for the purposes of loan repayment.
	(i)	Trade Accounts Receivable: The amount shown as accounts receivable, trade, at each balance sheet date, includes receivables from charterers for hire, freight and demurrage billings, net of a provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts. No provision for doubtful accounts has been established as of December 31, 2006 and 2007.
	(j)	Insurance Claims: The Company records insurance claim recoveries for insured losses incurred on damage to fixed assets and for insured crew medical expenses. Insurance claim recoveries are recorded, net of any deductible amounts, at the time the Company’s fixed assets suffer insured damages or when crew medical expenses are incurred, recovery is probable under the related insurance policies, and the claim is not subject to litigation.
	(k)	Inventories: Inventories consist of consumable bunkers (if any), lubricants and victualling stores, which are stated at the lower of cost or market value. Cost is determined by the first in, first out method.

F-14

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

2.	Significant Accounting Policies– (continued):
	(l)	Vessels, Net: Vessels are stated at cost, which consists of the contract price and any material expenses incurred upon acquisition (initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for its initial voyage). Subsequent expenditures for major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Otherwise these amounts are charged to expense as incurred.
		The cost of each of the Company’s vessels is depreciated beginning when the vessel is ready for its intended use, on a straight-line basis over the vessel’s remaining economic useful life, after considering the estimated residual value (vessel’s residual value is equal to the product of its lightweight tonnage and estimated scrap rate per ton). With the exception of vessel Tonga, management estimates the useful life of the Company’s vessels to be 25 years from the date of initial delivery from the shipyard. The useful life of vessel Tonga is estimated to 26 years, which coincides with the validity of the class certificate. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations are adopted.
	(m)	Vessels held for sale: It is the Company's policy to dispose of vessels when suitable opportunities occur and not necessarily to keep them until the end of their useful life. The Company classifies vessels as being held for sale when: management has committed to a plan to sell the vessels; the vessels are available for immediate sale in their present condition; an active program to locate a buyer and other actions required to complete the plan to sell the vessels has been initiated; the sale of the vessels is probable, and transfer of the asset is expected to qualify for recognition as a completed sale within one year; the vessels are being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Vessels classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These vessels are not depreciated once they meet the criteria to be classified as held for sale.
		When the Company concludes a Memorandum of Agreement for the sale of a vessel which has yet to complete a time charter contract, it is considered that the “held for sale” criteria discussed under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS 144”), paragraph 30 is not met as vessel is not available for immediate sale in its present condition. As a result such vessels are not classified as held for sale.
		When the Company concludes a Memorandum of Agreement for the sale of a vessel which has no time charter contract to complete, such vessel is considered as available for immediate sale in its present condition. When all other criteria in SFAS 144 paragraph 30 are met, such vessels are classified as held for sale.

F-15

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

2.	Significant Accounting Policies– (continued):
		None of Company’s vessels met these criteria to be classified as held for sale at December 31, 2006 and 2007.
	(n)	Fair value of above/below market acquired time charter: Where the Company identifies any assets or liabilities associated with the acquisition of a vessel, the Company records all such identified assets or liabilities at fair value. Fair value is determined by reference to market data. The Company values 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 “Fair value of above market acquired time charter” When the opposite situation occurs, the difference is recorded as “Fair value of below market acquired time charter” (“Deferred revenue” in 2006). Such assets and liabilities, respectively, are amortized as a reduction of, or an increase in, revenue over the period of the time charter assumed.
	(o)	Impairment of Long-Lived Assets: The Company follows SFAS 144, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company should evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset as provided by third parties. In this respect, management regularly reviews the carrying amount of the vessels in comparison with the fair value of the asset as provided by third parties for each of the Company’s vessels. The Company reviews its vessels for impairment on a vessel by vessel basis when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. No impairment losses were recorded in the years ended December 31, 2005, 2006 and 2007. Furthermore, in the period a long-lived asset meets the “held for sale” criteria of SFAS 144, a loss is recognized for any reduction of the long-lived asset’s carrying amount to its fair value less cost to sell. No such adjustments were identified for the years ended December 31, 2005, 2006 and 2007.
	(p)	Accounting for Drydocking Costs: The Company follows the deferral method of accounting for drydocking costs whereby actual costs incurred are deferred and are amortized on a straight-line basis over the period through the date the next drydocking is scheduled to become due. Unamortized drydocking costs of vessels that are sold are written off and included in the calculation of the resulting gain or loss in the period of the vessel’s sale.

F-16

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

2.	Significant Accounting Policies– (continued):
	(q)	Financing Costs: Fees paid to lenders or required to be paid to third parties on the lender’s behalf for obtaining new loans or refinancing existing ones are recorded as deferred charges and classified as a contra to debt. Such fees are deferred and amortized to interest and finance costs over the life of the related debt using the effective interest rate method. Unamortized fees relating to loans repaid or refinanced as debt extinguishment are expensed as interest and finance costs in the period the repayment or extinguishment is made.
	(r)	Accounting for Revenue and Related Expenses: The Company generates its revenues from charterers for the charterhire of its vessels. Vessels are chartered using time and bareboat 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, price is fixed, service is provided and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably on a straight-line basis over the duration of the period of each time charter as adjusted for the off-hire days that the vessel spends undergoing repairs, maintenance and upgrade work depending on the condition and specification of the vessel.  Deferred revenue includes cash received prior to the balance sheet date and is related to revenue earned after such date. Deferred revenue for 2006 also includes the unamortized balance of the liability associated with the acquisition of secondhand vessels with time charters attached which were acquired at values below fair market value at the date the acquisition agreements were consummated which in 2007 is shown separately.
		For vessels operating in pooling arrangements, the Company earns a portion of total revenues generated by the pool, net of expenses incurred by the pool. The amount allocated to each pool participant vessel, including the Company’s vessels, is determined in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel’s age, design and other performance characteristics. Revenue under pooling arrangements is accounted for on the accrual basis and is recognized when the collectibility has been reasonably assured, an agreement with the pool exists, price is fixed and service is provided. The allocation of such net revenue may be subject to future adjustments by the pool however, historically, such changes have not been material.
		Voyage related and vessel operating costs are expensed as incurred.  Under time charter, specified voyage costs, such as fuel and port charges are paid by the charterer and other non-specified voyage expenses, such as commission are paid by the Company. Vessel operating costs including crews, maintenance and insurance are paid by the Company. Under bareboat charter, the charterer assumes responsibility for all voyage and vessel operating expenses and risk of operation.

F-17

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

2.	Significant Accounting Policies– (continued):
	(s)	Earnings per Common Share: Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised. The Company had no dilutive securities during the years ended December 31, 2005, 2006 and 2007.
	(t)	Segment Reporting: The Company reports financial information and evaluates its operations by charter revenues and not by the length of ship employment for its customers, i.e. spot or time charters. The Company does not use discrete financial information to evaluate the operating results for each such type of charter. Although revenue can be identified for these types of charters, management cannot and does not identify expenses, profitability or other financial information for these charters. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet and thus the Company has determined that it operates under one reportable segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable.
	(u)	Derivatives: Financial Accounting Standards Board (FASB) Statement No. 133 “Accounting for Derivative Instruments and Certain Hedging Activities”, requires all derivative instruments be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognised currently in earnings unless specific hedge accounting criteria are met. As derivative instruments have not been designated as hedging instruments, changes in their fair values are reported in current period earnings. The off-balance sheet risk in outstanding derivative agreements involves the risk of a counter party not performing under the terms of the contract. The Company monitors its positions, the credit ratings of counterparties and the level of contracts it enters into with any one party. The Company has a policy of entering into contracts with parties that meet stringent qualifications and, given the high level of credit quality of its derivative counterparty, the Company does not believe it is necessary to obtain collateral arrangements.
	(v)	Variable Interest Entities: In December 2003, the FASB issued Interpretation No. 46R, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (the “Interpretation” or “FIN 46R”), which revised Interpretation No. 46, issued in January 2003. The Interpretation addresses the consolidation of business enterprises (variable interest entities) to which the usual condition (ownership of a majority voting interest) of consolidation does not apply. The Interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company’s exposure (variable interest) to the economic risks and potential rewards from the variable interest entity’s assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the value of the variable interest entity’s assets and liabilities. Variable interests may arise from financial instruments, service contracts, and other arrangements. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary would be required to include assets, liabilities, and the results of operations of the variable interest entity in its financial statements. The Company was required to adopt the provisions of FIN 46R for entities created prior to February 2003, in 2004. The adoption of FIN 46R did not have any impact on the Company’s consolidated financial position, results of operations or cash flows.

F-18

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

2.	Significant Accounting Policies– (continued):
	(w)	Recent Accounting Pronouncements:
		(i)	In September 2006 the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS No. 157or the Standard). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. The Standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the Standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Under the Standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this pronouncement beginning in fiscal year 2008. The adoption of the Standard is not expected to have a material effect on the Company’s financial position or results of operations and cash flows.
		(ii)	In September 2006, the FASB issued Staff Position (FSP) AUG AIR-1, “Accounting for Planned Major Maintenance Activities.” FSP AUG AIR-1 addresses the accounting for planned major maintenance activities. Specifically, the FSP prohibits the practice of the accrue-in-advance method of accounting for planned major maintenance activities. FSP AUG AIR-1 was effective for fiscal years beginning after December 15, 2006. Because the Group does not use the accrue-in-advance method, the adoption of FSP AUG AIR-1 had no material impact on its results of operations, cash flows and financial position.
		(iii)	In February 2007, the FASB issued SFAS No. 159 (“SFAS 159” or the Standard) “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS 159 permits the entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This Standard is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Standard also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, “Fair Value Measurements”. This standard will be effective for the Company for the fiscal year beginning on January 1, 2008. The Company has not opted to fair value any of its financial instruments.

F-19

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

2.	Significant Accounting Policies– (continued):
	(w)	Recent Accounting Pronouncements:
		(iv)	In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008, and will be adopted by the Company in the first quarter of fiscal 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 141(R) on the Company’s consolidated results of operations, cash flows and financial condition.
		(v)	In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS No. 160”)”. SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, and will be adopted by the Company in the first quarter of fiscal 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on the Company’s consolidated results of operations and financial condition.
		(vi)	In March 2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Acitivities”  (“FASB No. 161”).  The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows.  It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 161 on the Company's consolidated results of operations, cash flows and financial condition.

F-20

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

(x)	Reclassifications
	Certain amounts in the 2006 consolidated financial statements have been reclassified to conform to the current year’s audited consolidated financial statements. The reclassifications had no impact on the results of operations of the Company.

3.	Transactions with Related Parties:
	Transactions and balances with related parties are analyzed as follows:

	As of December 31,
	2006		2007
Current assets:
Cardiff Marine Inc. (a)	$	3,353	$	9,963
		3,353		9,963
Accrued liabilities:
Cardiff Marine Inc. (a)		-		4,050
Current liabilities:
Fabiana Services S.A. (b)		86		-
Elios Investments Inc. (e)		25,000		-
	$	25,086	$	-

(a)

Cardiff Marine Inc. and Drybulk S.A. (“the Manager”): The Manager provides the Company a wide range of shipping services such as technical support and maintenance, insurance consulting, chartering, financial and accounting services, in exchange for a daily fixed management fee of Euro 530 per day, per vessel.  In addition the Manager charges the Company with: (i) a fee of $100 per day per vessel for compliance with section 404 of Sarbanes-Oxley Act of 2002; (ii) $550 for superintendent visits on board vessels in excess of five days per annum, per vessel, for each additional day, per superintendent; (iii)  chartering commission of 1.25% on all freight, hire and demurrage revenues;  (iv) a commission of 1.00% on all gross sale proceeds or purchase price paid of vessels since October 1, 2006; and (v) a quarterly fee of  $250 for services in relation to the financial reporting requirements of the Company under the Securities and Exchange Commission Rules and the establishment and monitoring of internal controls over financial reporting. Transactions with Cardiff in Euros are settled on the basis of the average EURO/USD exchange rate calculated internally for each quarter which was EURO/USD 1.23, 1.23. and 1.34 for the years ended 31, 2005, 2006 and 2007, respectively.

The management agreements concluded between the Manager and the Company’s vessel-owning subsidiaries have an initial term of five years and will automatically be extended for successive five-year terms. Notice to terminate shall not be effective until 30 days following its delivery, unless otherwise mutually agreed in writing.

F-21

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

3.	Transactions with Related Parties– (continued):
		The fees charged by the Manager for the years ended December 31, 2005, 2006 and 2007, amounted to $4,962, $6,609 and $9,579 respectively. Chartering commissions charged by Drybulk S.A. for the years ended December 31, 2005 and 2006, totaled $2,854 and $2,117, respectively, and by Cardiff for the years ended December 31, 2006 and 2007, totaled $939 and $7,160, respectively. Such commissions are separately reflected as “Voyage expenses - related party” in the accompanying consolidated statements of income. In addition, during the years ended December 31, 2005 and 2006, amounts of $8,400 and $2,011, respectively were charged by Drybulk S.A. and during the years ended December 31, 2006 and 2007 amounts of $698 and $8,060 respectively, were charged by Cardiff, relating to the acquisition of vessels. These amounts are capitalized as a vessel acquisition cost and included in “Vessels, net” in the accompanying consolidated balance sheets. During the years ended December 31, 2006 and 2007 amounts $117 and $3,629 respectively were charged by Cardiff, relating to the disposal of vessels.
		During the year ended December 31, 2005, the Company also paid $600 to the Manager as remuneration for additional services not contemplated by the management agreement which were carried out during the pre-delivery period of the twenty-one newly acquired vessels. During the years ended December 31, 2006, and 2007 the Company also paid to the Manager $750 and $1,369 for additional services not contemplated by the contract for ongoing services discussed above with respect to the Manager’s compliance with the Sarbanes Oxley Act of 2004 Section 404 requirements.  The above amounts, totaling $1,600, $1,750 and $2,369 for 2005, 2006 and 2007, respectively, are included in “General and administrative expenses - related party” in the accompanying 2005, 2006 and 2007 consolidated statements of income. At December 31, 2006 and 2007, the amounts due from the Manager were $3,353 and $9,963, respectively, representing payments in advance by the Company to the Manager.
	(b)	Consultancy Agreements: On February 3, 2005, the Company concluded two agreements with Fabiana Services S.A. (“Fabiana”) a related party entity incorporated in Marshall Islands. Fabiana is beneficially owned by the Company’s Chief Executive Officer. Under the agreements, Fabiana provides the services of the individuals who serve in the positions of Chief Executive and Chief Financial Officers of the Company. The duration of the agreements is for three years beginning February 3, 2005 and ending, unless terminated earlier on the basis of any other provisions as may be defined in the agreement, on the day before the third anniversary of such date. The Company pays Euro 1,066,600 (Euro 1,126,000 until November 21, 2006) per annum payable monthly on the last working day of every month in twelve installments for the services of the Chief Executive and Chief Financial Officers, respectively.  The related expense for 2005, 2006 and 2007 amounted to $1,351, $1,383 and $1,448 respectively, and is included in “General and administrative expenses - related party” in the accompanying 2005, 2006 and 2007 consolidated statements of income.  No amounts were payable to or receivable from Fabiana at December 31, 2005. At December 31, 2006 and 2007 an amount of $86 and $0, respectively was payable to Fabiana.

F-22

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

3.	Transactions with Related Parties– (continued):
	(c)	Lease Agreement: On October 1, 2005 and effective as of the same date, the Company entered into a rental agreement with its Chief Executive Officer to lease office space in Athens, Greece. The agreement is for duration of 5 years beginning October 1, 2005 and expires on September 30, 2010. The annual rental for the first two years is Euro 9,000 and thereafter it will be adjusted annually for inflation increases. Prior to entering the above agreement both parties agreed to cancel without penalties a previously existing rental agreement for leased office space. That agreement had been effective for a five years period beginning January 1, 2005 at an annual rental of Euro 14,000 before any annual inflation increases. The related expense for 2005, 2006 and 2007 amounted to $15, $12 and $12 respectively, and is included in “General and administrative expenses - related party” in the accompanying 2005, 2006 and 2007 consolidated statements of income.
	(d)	Acquisition of vessels: In March 2006, the Company concluded a Memorandum of Agreement with a company controlled by the Company’s Chief Executive Officer for the acquisition of the vessel Hille Oldendorff for $40,760 which was delivered to the Company in April 2006. Upon her acquisition, the vessel was under an existing bareboat charter contract at the rate of $593 net of commission per month until March 31, 2007 with a two-month extension at charterer’s option. The purchase price was partly financed by an unsecured sellers’ credit of $3,250 as provided by the Memorandum of Agreement. The sellers’ credit bore interest at Libor plus a margin of 1.5% and was initially repayable in one installment not earlier than December 2006 but not later than March 2007. In October 2006, the sellers’ credit was fully settled with common stock (Note 12).  Interest expense for the above credit for 2006 amounted to $77 and is included in “Interest and finance costs – related parties” in the accompanying 2006 consolidated statements of income.
	(e)	Short-term credit facilities: During 2006, the Company borrowed an amount of $33,837 in aggregate from Elios Investments Inc. (“Elios”), a wholly-owned subsidiary of the Foundation as follows (a) in May 2006 an amount of $8,837 in order to partially finance the acquisition cost of vessel Maganari, repayable within six months from drawdown and bearing interest of $100 per month. The amount was fully repaid in cash in August 2006 and (b) in December 2006 an amount of $25,000 in order to partially finance the acquisition cost of vessel Redondo. The facility bore interest at three month Libor plus a margin of 1.3% and was repayable in one installment not later than March 31, 2007.  Furthermore, the Company paid a non-refundable arrangement fee of 0.425% on the aggregate facility amount.  In January 2007 the facility was fully repaid in cash.  Interest and finance costs for the above two facilities for 2006 amounted to $316 and are separately reflected as “Interest and finance costs - related party” in the accompanying 2006 consolidated statements of income.

F-23

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

3.	Transactions with Related Parties – (continued):
		During 2007, the Company borrowed an amount of $63,000 in aggregate from Elios as follows: (a) in April 5, 2007 an amount of $33,000 in order to partially finance the acquisition cost of the vessel Primera (ex Sea Epoch) (Note 5). The loan was fully repaid on April 23, 2007 (b) on May 23, 2007 an amount of $30,000, in addition to the amendment of the loan facility discussed in Note 10(c) below, to partially finance the acquisition cost of the vessels Bargara (ex Songa Hua), Marbella (ex Restless), Primera (ex Sea Epoch), Brisbane (ex Spring Brave), Menorca (ex Oinoussian Legend), Capitola (ex Songa Hui), Ecola (ex Zella Oldendorff) and Majorca (ex Maria G.O.). The facility was fully repaid on June 15, 2007. Interest and finance costs paid by the Company for the above facility during the year ended December 31, 2007 totaled $614 and are separately reflected as “Interest and finance costs - related party” in the accompanying consolidated statements of income.
	(f)	Purchase of derivatives from related parties:In order to maintain the minimum hedging ratio of the loan amendment (Note 10a), on June 22, 2007 the Company acquired the following interest rate derivatives which were valued on that date by the financial institutions which were counterparties to these agreements at an amount of $1,290 (asset), from the following two related companies, that are managed by Cardiff:
		(i) Sea Glory Navigation Ltd. which originally entered into an interest rate cap and floor agreement on November 3, 2004 for a period of seven years through November 2011, for a notional amount of $60 million. Under the cap leg of the agreement interest rate is 5.34% if three-month USD LIBOR lies between 5.34% and 7%. If three-month USD LIBOR is above 7% the interest rate is three-month USD LIBOR. Under the floor leg of the agreement interest rate is 2.75% if the three-month USD LIBOR is equal or less than 1.75%.
		(ii) River Camel Shipping Co which originally entered into an interest rate cap and floor agreement for a period of seven years through November 2011, for a notional amount of $75 million. Under the cap leg of the agreement interest rate is 5.25% if three-month USD LIBOR is within the range of 5.25% and 7%. If three-month USD LIBOR exceeds 7%, then interest rate is three-month USD LIBOR. Under the floor leg of the agreement interest rate is 2.75%, if the three-month USD LIBOR is equal or less than 1.75%.
	(g)	Purchase of Ocean Rig ASA from a related party:On December 20, 2007 Primelead, a wholly-owned subsidiary of Dryships acquired 51,778,647 shares in Ocean Rig ASA from Cardiff, for a consideration of $406,024.This represents 30.4% of the issued shares in Ocean Rig. A commission was paid to Cardiff amounting to $ 4,050. The commission was treated as an internal cost and is included in “Other, net” in the accompanying 2007 consolidated statements of income (Note 9).

F-24

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

4.	Inventories:
	The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:

	As of December 31,
	2006		2007
Lubricants	$	2,328	$	2,647
Victualling stores		243		324
Bunkers		-		941
	$	2,571	$	3,912

5.	Vessels, Net:
	As at December 31, 2007 the Company owned thirty-eight drybulk carriers that have a total carrying value of $1,643,867.  The amounts in the accompanying consolidated balance sheets are analyzed as follows:

	Vessel cost			Accumulated depreciation			Net Book Value
Balance, December 31, 2005	$	923,890		$	(59,157	)	$	864,733
- Vessel acquisitions		280,218			-			280,218
- Vessel disposals		(7,055	)		5,039			(2,016	)
- Depreciation		-			(58,011	)		(58,011	)
Balance, December 31, 2006		1,197,053			(112,129	)		1,084,924
- Vessel acquisitions		851,006			-			851,006
- Vessel disposals		(253,875	)		38,323			(215,552	)
- Depreciation		-			(76,511	)		(76,511	)
Balance, December 31, 2007	$	1,794,184			(150,317	)	$	1,643,867

F-25

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

5.	Vessels, Net– (continued):
	During the year ended December 31, 2007 the following vessels were disposed, to unaffiliated third parties:

Vessel disposals
Vessel	M.O.A. date	Delivery date	M.O.A. price	Gain on sale
Panormos	September 8, 2006	January 8, 2007	$  35,000	$  15,256
Striggla	December 18, 2006	January 22, 2007	12,120	9,184
Daytona	December 15, 2006	January 23, 2007	25,300	6,058
Estepona	February 9, 2007	April 10, 2007	36,735	7,585
Shibumi	November 20, 2006	April 12, 2007	24,600	17,813
Delray	January 16, 2007	May 8, 2007	36,735	8,172
Hille Oldendorff	March 26, 2007	June 8, 2007	50,500	12,873
Alona	March 2, 2007	June 12, 2007	39,500	7,323
Mostoles	March 26, 2007	July 3, 2007	13,260	10,312
Lanikai	March 13, 2007	July 27, 2007	26,100	8,936
Formentera	August 7, 2007	December 14, 2007	63,000	31,451
		Total:	$ 362,850	$  134,963

The aggregate gain resulting from the sale of the above vessels is separately reflected in the accompanying consolidated statements of income for the year ended December 31, 2007.

On October 1, and November 26, 2007, respectively, the Company concluded two Memoranda of Agreement (MOA) for the disposal of the vessels Matira and Netadola to unaffiliated third parties for $46,500 and $93,900, respectively, with expected delivery dates ranging between the first and the second quarter of 2008. The vessels aggregate carrying value at December 31, 2007, amounted to $21,335 and $30,176 respectively.  The resulting gain from the sale of the above vessels will be approximately $24,515 and $63,496, respectively, and will be included in the Company’s consolidated statements of income for the year ending December 31, 2008 (Note 20(k)).

F-26

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

5.	Vessels, Net– (continued):
	During the year ended December 31, 2007 the following vessels were acquired:

Vessel acquisitions

Vessel	M.O.A. date	Delivery date	Acquisition price
Samsara, (ex Cape Venture)	December 14, 2006	February 14, 2007	$62,620
Primera (ex Sea Epoch)	December 15, 2006	April 11, 2007	38,380
Marbella (ex Restless)	February 27, 2007	April 27, 2007	46,460
Bargara (ex Songa Hua)	April 11, 2007	May 14, 2007	49,490
Brisbane (ex Spring Brave)	January 10, 2007	May 23, 2007	60,600
Capitola (ex Songa Hui)	April 11, 2007	June 1, 2007	49,490
Menorca (ex Oinoussian Legend)	January 18, 2007	June 7, 2007	41,410
Majorca (ex Maria G.O.)	March 26, 2007	June 11, 2007	54,035
Heinrich Oldendorff	March 23, 2007	June 11, 2007	52,785
Ecola (ex Zella Oldendorff)	November 23, 2006	August 29, 2007	40,097
Clipper Gemini	June 8, 2007	October 9, 2007	62,421
Samatan (ex Trans Atlantic)	August 15, 2007	October 17, 2007	71,710
VOC Galaxy	August 8, 2007	November 27, 2007	77,912
Saldanha (ex Shinyo Brilliance)	August 6, 2007	December 13, 2007	75,750
Oregon (ex Athina Zafirakis)	July 13, 2007	December 31, 2007		67,846
		Total:		$851,006

On July 26, and November 13 and 29, 2007 the Company concluded three Memoranda of Agreement with unaffiliated third parties for the acquisition of three vessels, two secondhand Panamaxes, Nord Mercury and Kookabura, and a secondhand Capesize, Gran Trader, for a purchase price of $69,500, $85,000 and $152,250, respectively. The vessels are expected to be delivered during the first and second quarter of 2008 (Note 20(g)).

On July 27, 30, 31 and on October 1, 2007 the Company concluded six Memoranda of Agreement for the acquisition of three 180,000 dwt and one 170,000 dwt Capesize Bulk Carriers and another two 82,000 dwt Kamsarmax Bulk Carriers for a total consideration of $581,000. The vessels’ expected delivery dates range between the second quarter of 2008 and second quarter of 2010.

During 2007 the Company entered into 21 MOAs, for the acquisition of 15 Bulk Carriers in the water for an amount of $851,006 discussed above, while the other six are being built for a total consideration of $581,000. As of December 31, 2007 an amount of $ 80,350 was paid out of committed $581,000 to the sellers representing a portion of the purchase price for hulls (ranging between 10% and 20%). The repayment of the remaining balance of $500,650 is as follows:

F-27

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

5. Vessels, Net– (continued):

Year ending December 31,
2008	$	132,750
2009		197,000
2010		170,900
	$	500,650

	During 2006, the Company acquired eight secondhand drybulk carrier vessels (including the one discussed in Note 3 (d)), for an aggregate consideration of $274,243.
	During 2006, the Company entered into five Memoranda of Agreements (MOA) with unrelated third parties for the sale of five of its vessels, the Flecha, Panormos, Shibumi, Daytona and Striggla. The vessel Flecha was delivered to her new owners in late December 2006 and her sale resulted in a gain of $8,583, which is separately reflected in the accompanying 2006 consolidated statement of income. The gain for the vessels Panormos, Shibumi, Daytona and Striggla, which were delivered to their new owners, free of charter, during the first and second quarter of 2007, amounted to $15,256, $17,813, $6,058 and $9,184 respectively and are separately reflected in the accompanying consolidated statements of income.
	All Company’s vessels have been pledged as collateral to secure the bank loans discussed in Note 10. As of December 31, 2007, three vessels were operating under a drybulk pool (Note 1) while the remaining vessels, except for MV Heinrich Oldendorff, Clipper Gemini and VOC Galaxy which are employed under bareboat charters, were operating under time charters, the last of which expire in February 2011.
6.	Advances for Vessels Under Construction and Acquisitions:
	During the year ended December 31, 2006 the Company made advances amounting to $27,380 for the vessels Ecola ($3,970), Primera ($3,800) and Samsara ($6,200) and for the Hulls 1518A and 1519A ($6,650 each), and capitalized interest of $110.
	During the year ended December 31, 2007 the Company made advances amounting to $105,242 for the Nord Mercury ($6,950), Gran Trader ($15,225), Hulls 0002 and 0003 ($10,550 each), Hulls SS058 and SS059 ($10,850 each), Hull 2089 ($22,800), Hull HN-1001 ($14,750), incurred various pretrading expenses to be capitalized ($120) and capitalized interest for 2007 amounting to $2,597. The vessels Samsara, Primera and Ecola were delivered during 2007.

F-28

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

6.	Advances for Vessels Under Construction and Acquisitions– (continued):
	The Hulls 1518A and 1519A are being built for a total consideration of $66,500. As of December 31, 2006 an amount of $ 13,300 was paid to the shipyard representing the advance payment for the shipbuilding contracts. The repayment of the balance outstanding of $53,200 is as follows:

Year ending December 31,
2008	$	6,650
2009		46,550
	$	53,200

7.	Fair Value of Acquired Time Charter:
	During 2006, the Company acquired seven drybulk carrier vessels for $233,085, which were under existing time charter contracts which the Company agreed to assume through arrangements with the respective charterers. Upon delivery of each of the above vessels the Company evaluated the charter contracts assumed and recognized (a) an asset of $5,517 for two of the vessels with a corresponding decrease in the vessels’ purchase price and (b) a liability of $11,492 for the other five vessels with a corresponding increase in the vessels’ purchase price.
	During 2007, the Company acquired three drybulk carrier vessels for $193,118, which were under existing bareboat time charter contracts which the Company agreed to assume through arrangements with the respective charterers. Upon delivery of the above vessels the Company evaluated the charter contracts assumed and recognized a liability of $ 38,687, representing the fair value of below market acquired time charters, which is an equivalent of a present value of the excess of market rates equivalent time charters prevailing at the time the foregoing vessels were delivered over existing rates of time charters assumed.
	These amounts are amortized on a straight-line basis to the end of the charter period. As of December 31, 2006 and 2007, the unamortized balance of the fair value of below market acquired time, charter in the accompanying consolidated balance sheets amounted to $5,553 and $32,509, respectively and are reflected in “Deferred revenue” and “Fair value of below market acquired time charters”, respectively in the accompanying consolidated balance sheets. As of December 31, 2006 and 2007, the unamortized balance of the “Fair value of above market acquired time charters” in the accompanying consolidated balance sheets amounted to $1,335 and $0, respectively.

F-29

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

8.	Deferred Charges, Net:
	The unamortized amounts included in the accompanying consolidated balance sheets represent drydocking costs, and are analyzed as follows:

Balance, December 31, 2004	$	3,007
- Additions		3,153
- Amortization		(2,379	)
Balance, December 31, 2005	$	3,781
- Additions		6,275
- Amortization		(3,594	)
- Write-off due to sale of vessels		(262	)
Balance, December 31, 2006		6,200
- Additions		1,816
- Amortization		(2,793	)
- Write-off due to sale of vessels		(2,731	)
Balance, December 31, 2007	$	2,492

9.	Long-term Investment
	On December 20, 2007 Primelead Limited, a wholly-owned subsidiary of DryShips Inc., acquired 51,778,647 or 30.4% of the issued shares in Ocean Rig ASA (“Ocean Rig”).
	Ocean Rig, incorporated on September 26, 1996, is a public limited company incorporated and domiciled in Norway whose shares are publicly traded on the Oslo Stock Exchange. Ocean Rig has been established as a drilling contractor in the area of offshore exploration, development and production and operates two ultra deep-water drilling rigs “Leiv Eiriksson” and “Eirik Raude”.
	The Company accounted for its investment in Ocean Rig using the equity method of accounting. The Company’s equity in the income of Ocean Rig is shown in the accompanying consolidated statements if income as “Equity in loss of investees” and for the period ended December 31, 2007 amounted to a loss of $299.
	The carrying amount of the Company’s investment in Ocean Rig as of December 31, 2007 is $405,725 and is reflected as “Long term investments” in the accompanying consolidated balance sheets as at December 31, 2007.
	The Company’s share of the underlying reported net assets of Ocean Rig exceeded the carrying value Company’s investment as of December 31, 2007.
	The aggregate fair value of the investment in Ocean Rig as at December 31, 2007 is $377,984.

F-30

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated

9.	Long-term Investment– (continued):
	Summarized financial information of the Company’s equity method investees, that represent 100% of the investees financial information, is as follows:

Financial Position as of December 31, 2007
	USD
Current assets		93,648
Noncurrent assets		1,168,672
Current liabilities		145,115
Noncurrent liabilities		656,524
Results of Operations for the 12 day period of ownership ended December 31, 2007:
	USD
Net revenues		8,227
Operating loss		(927	)
Net loss		(985	)

10.	Long-term Debt:
	The amount of the long-term debt shown in the accompanying consolidated balance sheets are analyzed as follows:

	As of December 31,
	2006			2007
Term loans	$	661,586		$	1,220,605
Bridge loan		-			30,076
Less deferred financing fees		(2,844	)		(6,903	)
Total		658,742			1,243,778
Less: Current portion		(71,412	)		(194,999	)
Long-term portion	$	587,330		$	1,048,779

F-31

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

10.	Long-term Debt– (continued):
	The individual loans at terms relating to these are described below:
	Loan (a): In March 2006 the Company concluded an agreement to borrow an amount of up to $628,750 and in November 2006 entered into a supplemental agreement to the loan concluded in March 2006 to increase the line of credit to $711,093.  The purpose of the loan was to refinance prior indebtedness, to partially finance the acquisition cost of eight vessels acquired during the year ended December 31, 2006 and to provide the Company with working capital.  On May 23, 2007 the Company amended the loan to increase the amount available under the loan by up to $ 181,000 and to include a re-borrowing option for mandatory repayment due to sale of vessels of up to $200,000 in order to partly finance the acquisition cost of the secondhand vessels Samsara (ex Cape Venture), Bargara (ex Songa Hua), Marbella (ex Restless), Primera (ex Sea Epoch), Brisbane (ex Spring Brave), Menorca (ex Oinoussian Legend), Capitola (ex Songa Hui) and Ecola (ex Zella Oldendorff), Majorca (ex Maria G.O.), Heinrich Oldendorff and any additional vessels. The loan bears interest at LIBOR plus a margin.  The interest rate, including the margin, at December 31, 2006 was 6.35% for $550,154 and 7.78% for $111,432 and at December 31, 2007 was 5.88% for $627,577 and 7.23% for $125,426.  The outstanding balance of $753,003 (gross of unamortized deferred financing fees of $3,385 at December 31, 2007) is repayable in thirty four variable consecutive quarterly installments commencing on February 2008 and through May 2016 plus a balloon payment of $157,533 payable together with the last installment.
	Loan (b): On February 13, 2007, the Company borrowed an amount of $43,400 in order to partly finance the acquisition cost of vessel Samsara (ex Cape Venture).  The loan bore interest at Libor plus a margin and was repaid in one installment on May 29, 2007.
	Loan (c): On April 19, 2007 the Company concluded a bridge facility of up to $ 181,000 in order to partly finance the acquisition cost of the secondhand vessels Primera (ex Sea Epoch), Menorca (ex Oinoussian Legend), Marbella (ex Restless), Brisbane (ex Spring Brave), Capitola (ex Songa Hui) and Bargara (ex Songa Hua).  The loan bore interest at Libor plus a margin and was repaid in one single installment on May 29, 2007.
	Loan (d): On August 30, 2007 the Company concluded a bridge facility of up to $ 30,076 in order to partly finance the acquisition cost of the secondhand vessels Oregon (ex Athina Zafirakis), Nord Mercury, Saldahna (ex Shinyo Brilliance), and VOC Galaxy.  The loan bears interest at Libor plus a margin and will be repaid in one installment during the first quarter of 2008 (Note 20(j)).
	Loan (e): On October 2, 2007 the Company concluded a loan agreement of up to $ 35,000 in order to partly finance the acquisition cost of the secondhand vessel Clipper Gemini.  The loan bears interest at Libor plus a margin and will be repaid in thirty-six quarterly installments through July 2016.

F-32

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

10.	Long-term Debt– (continued):
	Loan (f): On October 5, 2007 the Company concluded a loan agreement of up to $ 90,000 in order to partly finance the acquisition cost of the secondhand vessels Samatan (ex Trans Atlantic) and VOC Galaxy.  The loan bears interest at Libor plus a margin and will be repaid in thirty-two quarterly installments through July 2015.
	Loan (g): On November 16, 2007 the Company concluded a loan agreement of up to $ 47,000 in order to partly finance the acquisition cost of the secondhand vessel Oregon (ex Athina Zafirakis). The loan bears interest at Libor plus a margin and will be repaid in thirty-two quarterly installments through December 2015.
	Loan (h): On December 4, 2007 the Company concluded a loan agreement of up to $ 101,150 in order to partly finance the acquisition cost of the secondhand vessels Saldahna (ex Shinyo Brilliance) and Nord Mercury.  The loan bears interest at Libor plus a margin and will be repaid in twenty-eight quarterly installments through January 2015.
	Loan (i): On December 17, 2007, Primelead Limited concluded a loan agreement of up to $ 260,000 in order to partly finance the acquisition cost of 51,778,647 shares in the common stock of Ocean Rig ASA (Note 9).  The loan bears interest at Libor plus a margin and will be repaid in eight quarterly installments through December 2009.
	As of December 31, 2006 and 2007 the Company’s unutilized line of credit totaled to $4,219 (Loan (a)) and $48,650 (Loan (h)) respectively and the Company is required to pay a quarterly commitment fee of 0.40% per annum of the unutilized portion of the term loan and 0.25% of the unutilized portion of the credit facility (Loan (a)) and a quarterly commitment fee of 0.40% (Loan (h)). Furthermore, the Company is required to pay a draw-down fee of 0.075% on each amount drawn down under Loan (a).
	The above loans are secured by a first priority mortgage over the vessels, corporate guarantee, a first assignment of all freights, earnings, insurances and requisition compensation.  The loans contain covenants including restrictions, without the bank's prior consent, as to changes in management and ownership of the vessels, additional indebtedness and mortgaging of vessels, change in the general nature of the Company's business, an established place of business in the United States or the United Kingdom, and the payment of dividends from certain subsidiaries to the parent company.  The loans also contain certain financial covenants relating to the Company’s financial position, operating performance and liquidity. In addition, the Company must maintain minimum cash deposits, as defined in the loan agreements, which at December 31, 2006 and 2007, amounted to $20,000 and $20,000, respectively and are classified as “Restricted cash”, under other non-current assets in the accompanying consolidated balance sheets. Furthermore, the Company will be permitted to pay dividends under the loans so long as such amount of dividends does not exceed 50% of the Company’s net income as evidenced by its relevant annual audited financial statements. The loan obtained by Primelead has a restriction that no dividends can be declared by this subsidiary.

F-33

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

10.	Long-term Debt – (continued):
	In terms of the loan agreement, the Company is required to hold bank deposits which are used to fund the loan installments coming due. The fund can only be used for the purposes of loan repayments and are shown as “Restricted cash”, current assets which at December 31, 2006 and 2007, amounted to $6,614 and $6,791, respectively, in the accompanying consolidated balance sheets. Restricted cash also includes additional minimum cash deposits required to be maintained with certain banks under the company’s borrowing arrangements. The Company was in compliance with all debt covenants as of December 31, 2006 and 2007.
	Total interest incurred on long-term debt for the years ended December 31, 2005, 2006 and 2007 amounted to $19,797, $37,364 and $48,290, respectively.  During year ended December 31, 2005, 2006 and 2007 an amount of $0, $110 and $2,597 respectively was capitalized as part of the vessel cost for advances paid for vessels under construction.  Interest expense, net of interest capitalized, is included in “Interest and finance costs” in the accompanying consolidated statements of income.  The Company’s weighted average interest rate (including the margin) for the years ended December 31, 2005, 2006 and 2007, was 5.42%, 6.59% and 6.48%, respectively, as at year end.
	The principal payments required to be made after December, 2007, for the loans discussed above are as follows:

Year ending December 31,
2008	$	197,574
2009		164,030
2010		215,556
2011		87,027
2012		86,027
2013 and thereafter		500,467
		1,250,681
Less Financing fees		(6,903	)
		1,243,778

F-34

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

11.	Accrued liabilities:
	The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:

	As of December 31,
	2006		2007
Accrued expenses	$	5,309	$	11,527
Cardiff commission		-		4,050
Accrued financial expenses		453		1,692
Accrued commissions		371		1,566
Baumarine pool adjustment		-		1,000
Provision for back calls		193		179
	$	6,326	$	20,014

12.	Common Stock and Additional Paid-In Capital:
	In December 2004 and within the context of the initial public offering discussed below, the Company, after obtaining the consents from its respective lending banks, declared dividends totaling $69,000 ($4.48 per share) which were paid in three tranches, in December 2004 ($51,007), in February 2005 ($10,743) and in May 2005 ($7,250). Furthermore, the Company during 2005, 2006 and 2007 declared and paid dividends of $12,140 ($0.40 per share), $25,237 ($0.80 per share) and $28,392 ($0.80 per share), respectively.
	In January 2005, the Company adopted an equity incentive plan, or the Plan, which will entitle its officers, key employees and directors to receive options to acquire common stock. Under the Plan, a total of 1,000,000 shares of common stock have been reserved for issuance under the Plan. The Plan is administered by Company’s Board of Directors. Under the terms of the Plan, the Board of Directors may grant new options exercisable at a price per share equal to the average daily closing price for our common stock over the 20 trading days prior to the date of issuance of the shares. Under the terms of the Plan, no options can be exercised until at least two years after the closing of the Company’s initial public offering in February 2005. Any shares received on exercise of the options may not be sold until three years after the closing of the offering. All options will expire 10 years from the date of grant. The Plan will expire 10 years from the closing of the offering. As of December 31, 2007, no options were granted under the Plan.
	In February 2005, the Company completed its initial public offering in the United States under the United States Securities Act of 1933, as amended. In this respect, 14,950,000 shares of common stock at par value $0.01 were issued for $18.00 per share. The net proceeds of the initial public offering amounted to $251,285.
	In May 2006, the Company filed its universal shelf registration statement and related Prospectus for the issuance of 5,000,000 of common shares. From May 2006 through August 2006, an amount of 4,650,000 shares of common stock with par value $0.01 were issued. The net proceeds after underwriting commissions of 2.5% and other issuance fees amounted to $56,490.

F-35

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

12.	Common Stock and Additional Paid-In Capital– (continued):
	Based on a resolution adopted at the General Shareholders meeting on July 11, 2006, the aggregate number of shares of common stock that the Company is authorized to issue increased from 45,000,000 registered shares with par value of $0.01 to 75,000,000 registered shares with the same par value.
	On October 24, 2006, the Company’s Board of Directors agreed to the request of the Company’s major shareholders (Elios Investments Inc., Advice Investments S.A. and Magic Management Inc.), to receive their dividend payment, following the declaration of U.S. Dollar 0.20 quarterly dividend per share in September 2006, in Dryships Inc. common shares. In addition, the Board of Directors agreed on that date to the request of a related party for the settlement of the sellers credit discussed in Note 3(e) in Dryships’ common shares. As a result, the Board of Directors resolved to issue 235,585 and 254,512 shares, at a price of $13.07 per share, the average closing price of Dryships Inc. common stock on the Nasdaq Global Market over the eight trading days ended October 24, 2006 to settle an aggregate of $3,080 in dividends and the seller’s credit together with interest amounting to $3,327, respectively.
	In October 2007, the Company filed its universal shelf registration statement of securities of well-known seasoned issuers and related Prospectus for the issuance of 6,000,000 of common shares. From October 2007 through December 2007, an amount of 1,191,000 shares of common stock with par value $0.01 were issued. The net proceeds, after underwriting commissions ranging between 2% to 2.5% and other issuance fees, amounted to $127,104.
	The amounts shown in the accompanying consolidated balance sheets, as “Additional paid-in capital”, represent (i) payments made by the stockholders at various dates to finance vessel acquisitions in excess of the amounts of bank loans obtained and advances for working capital purposes, (ii) payments made by the stockholders in excess of the par value of common stock purchased by them and (iii) the difference between the par value of the shares issued for the settlement of liabilities and the amount of the liabilities extinguished.
13.	Commitments and Contingencies:
	Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Company’s vessels. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements.

F-36

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

13.	Commitments and Contingencies – (continued):
	The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. A minimum of up to $1 billion of the liabilities associated with the individual vessels actions, mainly for sea pollution, are covered by the Protection and Indemnity (P&I) Club insurance.
	Future minimum contractual charter revenue, based on vessels committed to noncancelable, long-term time and bareboat charter contracts as of December 31, 2007, will be $200,461 during 2008, $7,022 during 2009, and $4,944 during 2010.  These amounts do not include any assumed off-hire.
14.	Income taxes:
	Neither the Marshall Islands nor Malta imposes a tax on international shipping income earned by a “non-resident” corporation thereof. Under the laws of the Marshall Islands and Malta, the countries in which the vessels owned by subsidiaries of the Company are registered, the Company’s subsidiaries (and their vessels) are subject to registration fees and tonnage taxes, as applicable, which have been included in Vessels’ operating expenses in the accompanying consolidated statements of income.
	Pursuant to Section 883 of the United States Internal Revenue Code (the “Code”) and the regulations thereunder, a foreign corporation engaged in the international operation of ships is generally exempt from U.S. federal income tax on its U.S.-source shipping income if the foreign corporation meets both of the following requirements:  (a) the foreign corporation is organized in a foreign country that grants an “equivalent exemption” to corporations organized in the United States for the types of shipping income (e.g., voyage, time, bareboat charter) earned by the foreign corporation and (b) more than 50% of the value of the foreign corporation’s stock is owned, directly or indirectly, by individuals who are “residents” of the foreign corporation’s country of organization or of another foreign country that grants an “equivalent exemption” to corporations organized in the United States (the “50% Ownership Test”).  For purposes of the 50% Ownership Test, stock owned in a foreign corporation by a foreign corporation whose stock is “primarily and regularly traded on an established securities market” in the United States (the “Publicly-Traded Test”) will be treated as owned by individuals who are “residents” in the country of organization of the foreign corporation that satisfies the Publicly-Traded Test.
	The Marshall Islands and Malta, the jurisdictions where the Company’s ship-owning subsidiaries are incorporated, each grants an “equivalent exemption” to United States corporations with respect to each type of shipping income earned by the Company’s ship-owning subsidiaries.  Therefore, the ship-owning subsidiaries will be exempt from United States federal income taxation with respect to U.S.-source shipping income if they satisfy the 50% Ownership Test.

F-37

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

14.	Income taxes– (continued):
	The Company believes that it satisfied the Publicly-Traded Test for its 2006 and 2007 Taxable Years and therefore 100% of the stock of its Marshall Islands and Malta ship-owning subsidiaries will be treated as owned by individuals “resident” in the Marshall Islands.  As such, each of the Company’s Marshall Islands and Malta ship-owning subsidiaries will be entitled to exemption from U.S. federal income tax in respect of their U.S. source shipping income.  The Company’s ship-owning subsidiaries intend to take such position on their U.S. federal income tax returns for the 2006 and 2007 Taxable Years.
15.	Voyage and Vessel Operating Expenses:
	The amounts in the accompanying consolidated statements of income are analyzed as follows:

		Year ended December 31,
		2005		2006		2007
Voyage Expenses
Port charges	$	1,407	$	1,231	$	748
Bunkers		851		729		717
Commissions charged by third parties		7,719		8,229		24,450
Charter in – hire expense		208		6,040		6,040
		10,185		16,229		31,955
Commissions charged by a related party		2,854		3,056		7,159
	$	13,039	$	19,285	$	39,114

	Year ended December 31,
	2005		2006		2007
Vessel Operating Expenses
Crew wages and related costs	$	15,194	$	21,444	$	28,187
Insurance		3,853		4,698		5,636
Repairs and maintenance		5,864		6,364		8,431
Spares and consumable stores		11,616		15,155		18,856
Tonnage taxes		195		228		299
	$	36,722	$	47,889	$	61,409

F-38

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

15. Voyage and Vessel Operating Expenses– (continued):

Voyage expenses for 2005, 2006 and 2007 include $208, $6,040 and $6,040 respectively, representing hire paid to an unrelated party for the charter-in of the vessel Darya Tara. Based on the charter party agreement concluded in November 2005, the vessel was chartered-in by the Company for a period of thirty six to thirty eight months at a daily hire rate of $16.5.

As of December 31, 2007, the annual charter hire to be paid by the Company under this agreement for the years ending December 31, 2008 and 2009 is estimated to be $6,057 and $794, respectively. Concurrently with the aforementioned agreement, the Company concluded a charter party agreement with an unrelated party for the charter-out of the vessel Darya Tara over the same period and at a daily rate of $16.7. The revenue recognized on the above agreement for 2005, 2006 and 2007 amounted to $211, $6,114 and $6,114 respectively, and is included in “Voyage revenues” in the accompanying consolidated statements of income.

	In 2005, the Manager concluded twenty-one agreements with an unrelated, international supplier for the exclusive supply of lubricants to certain fleet vessels. Under the terms of this agreement a fixed quantity of main engine oils for each vessel will be supplied free of charge. The above discount offer assumes that the Company will remain exclusively supplied by the specific supplier for at least four to five years following the date of the first supply. In the event contract does not run for its full contractual term, the free lubricants acquired until the date of the premature termination will be charged at market prices to the Company at 100% of their volume if the contract is terminated within the first year, then reducing by 20% each year until the fourth or fifth year, the year the contract expires. The Company classifies lubricants expense in spares and consumable stores in the aforementioned table of “Voyage and Vessel Operating Expenses”. During free lubricant periods, the Company records the market value of the lubricants consumed as an expense and amortizes the benefit of the free lubricants consumed on a straight-line basis to vessel operating expenses over the periods from the first supply through the date of their expiration as provided in the related contracts. The unamortized balance of the above benefits at December 31, 2006 and 2007 amounted to $809 and $552, respectively, and is reflected in “Other current liabilities” ($202 and $209 as of December 31, 2006 and 2007, respectively) and “Non-current liabilities” ($607 and $343 as of December 31, 2006 and 2007, respectively) in the accompanying consolidated balance sheets.
16.	Gain on sale of bunkers:
	The amounts in the accompanying consolidated statements of income represent the net gain or loss arising from the purchase and sale of bunkers on board vessels employed under time charter agreements, between the Company and the charterers.

F-39

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

17.	Interest and Finance Costs:
	The amounts in the accompanying consolidated statements of income are analyzed as follows:

	Year ended December 31,
	2005		2006			2007
Interest on long-term debt	$	19,797	$	37,254		$	48,290
Long-term debt commitment fees		261		995			223
Bank charges		66		110			238
Amortization and write-off of financing fees		544		3,785			1,869
Other		-		(145	)		(3	)
		20,668		41,999			50,617
Interest on short-term credit facilities – related parties		-		393			293
Amortization and write-off of financing fees - related parties		-		-			321
	$	20,668	$	42,392		$	51,231

18.	Derivatives:
	(a)	Interest rate cap and floor agreements: As of December 31, 2006 and 2007, the Company had outstanding six and eight,interest rate cap and floor agreements in order to hedge its exposure to interest rate fluctuations with respect to its borrowings. Such agreements did not qualify for hedge accounting and therefore changes in their fair value are reflected in earnings. More specifically:
		(1)	In May 2005, for a period of nine years through February 2014, for a notional amount of $154.2. Under the cap and floor provisions of the agreement the Company pays interest at 5.59% if three-month LIBOR is between 5.59% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.59%, if LIBOR is below or equal to 3%, then Company pays 3%;
		(2)	In May 2005, for a period of ten years through May 2015, for a notional amount of $120.6 million. Under the cap provisions of the agreement the Company pays interest at 5.8% if three-month LIBOR is between 5.8% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.8%, if LIBOR is below or equal to 3%, then Company pays 3%;
		(3)	In June 2005, for a period of eight years through March 2013, for a notional amount of $22.0 million. Under the cap provisions of the agreement the Company pays interest at 5.66% if three-month LIBOR is between 5.66% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.66%, if LIBOR is below or equal to 3%, then Company pays 3%;

F-40

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

18.	Derivatives– (continued):
		(4)	In June 2005, for a period of six years through March 2011, for a notional amount of $194.3 million. Under the cap provisions of the agreement the Company pays interest at 5.85% if three-month LIBOR is between 5.85% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.85%, if LIBOR is below or equal to 3%, then Company pays 3%;
		(5)	In July 2005, for a period of ten years through April 2015, for a notional amount of $42.4 million. Under the cap provisions of the agreement the Company pays interest at 5.66% if three-month LIBOR is between 5.66% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.66%, if LIBOR is below or equal to 3%, then Company pays 3%;
		(6)	In July 2005, for a period of seven years through April 2012, for a notional amount of $22.3 million. Under the cap provisions of the agreement the Company pays interest at 5.64% if three-month LIBOR is between 5.64% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.64%, if LIBOR is below or equal to 3%, then Company pays 3%;
		(7)	In August 2007, for a period of four years through November 2011, for a notional amount of $60 million. Under the cap provisions of the agreement the Company pays interest at 5.34% if three-month LIBOR is between 5.34% and 7.0% and at three-month LIBOR if LIBOR exceeds 7.0%. Under the floor provisions of the agreement the Company pays interest at 2.75% if three-month LIBOR is equal or less than 1.75%; and
		(8)	In August 2007, for a period of four years through November 2011, for a notional amount of $75 million. Under the cap provisions of the agreement the Company pays interest at 5.25% if three-month LIBOR is between 5.25% and 7.0% and at three-month LIBOR if LIBOR exceeds 7.0%. Under the floor provisions of the agreement the Company pays interest at 2.75% if three-month LIBOR is equal or less than 1.75%.
		The fair value of each of these eight interest rate cap and floor agreements equates to the amount that would be received or paid by the Company if the agreements were cancelled.  The aggregate fair value of all such agreements at December 31, 2006 was an asset of $946 and at December 31, 2007 was a liability of $1,768 and is included in “Financial instruments” in the accompanying consolidated balance sheets. A gain of $ 270 and $676 and a loss of $3,981, respectively, are included in “Other, net” in the accompanying consolidated statements of income for the years ended December 31, 2005, 2006 and 2007.

F-41

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

18.	Derivatives– (continued):
	(b)	Foreign exchange transactions: In January 2006, the Company engaged in a total of 12 foreign currency call options, maturing in monthly intervals from February 2006 to January 2007, under one foreign exchange transaction involving the USD against the Euro. As of December 31, 2006 the Company had one open foreign currency call option which matured in January 2007. The strike rate under this option is 1.21 USD per Euro, for an amount of Euro 200,000.
		In January 2006, the Company engaged in a total of 12 forward foreign exchange contracts, maturing in monthly intervals from February 2006 to January 2007.  As of December 31, 2006 the Company had one open forward foreign exchange contract which matured in January 2007. The forward rate was 1.2320 USD per Euro for an amount of Euro 200,000.
		As of December 31, 2006, the fair market values of the open foreign currency call option and open forward foreign exchange contract discussed above were $22 and $17, respectively. A gain of $206 and a loss of $8 respectively, have been included in “General and administrative expenses” in the accompanying consolidated statements of income for the years ended December 31, 2006 and 2007.
	(c)	Forward freight agreements:  During the year ended December 31, 2006, the Company entered into seventeen forward freight agreements (“FFAs”) with the objective to utilize them as economic hedging instruments in order to reduce its exposure to market price fluctuations with respect to its fleet. Such agreements did not qualify for hedge accounting and therefore changes in their fair value were reflected in earnings.  During the year ended December 31, 2006, and 2007 the loss on FFAs amounted to $22,473 and $0 respectively.  As of December 31, 2006 the fair value of the FFAs resulted in a liability of $2,625.  As of December 31, 2007, no FFAs remain open.
19.	Financial Instruments:
	The carrying values of temporary cash investments, accounts receivable, accounts payable and derivatives are reasonable estimates of their fair value due to the short-term nature of these financial instruments. The fair values of long-term bank loans approximate the recorded values, due to their variable interest rates.
20.	Subsequent Events:
	(a)	Declaration of dividends: On January 9 the Company declared dividends amounting to $7,336 ($0.20 per share) paid on January 31, 2008 to the stockholders of record as of January 18, 2008).

F-42

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

20.	Subsequent Events– (continued):
	(b)	Authorised shares: Increase in the aggregate number of authorized shares of common stock of the Company from 75,000,000 registered shares with par value of $0.01 to 1,000,000,000 registered shares with a par value of $0.01 made through a resolution adopted at the Special Shareholders meeting on January 16, 2008.
	(c)	Authorised preference shares: Authorisation of the Company to issue 500,000,000 registered preferred shares with a par value of $0.01 per share made through a resolution adopted at the Special Shareholders meeting on January 16, 2008.
	(d)	Equity incentive plan: The Company adopted the Equity Incentive Plan which was approved by the Board of Directors (“BoD”) of the Company on January 16, 2008. Under this Plan officers, key employees, and directors will be able to receive options to acquire common stock, with respect to our common stock, awards of stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock units and unrestricted stock.
	(e)	Stockholders Rights Agreement: We entered into a Stockholders Rights Agreement as of January 18, 2008. Under this Agreement, we declared a dividend payable of one preferred share purchase right, or Right, to purchase one one-thousandth of a share of the Company’s Series A Participating Preferred Stock for each outstanding share of DryShips Inc. common stock, par value U.S.$0.01 per share
	(f)	Newbuildings: On January 17 and 23, 2008, respectively, the BoD of the Company acquired the right to purchase two drillships for an aggregate purchase price of $1.3 billion from a major Korean shipyard, for an amount of $20 million. Under the agreement with the shipyard, the Company can exercise its right purchase to the drillships by March 24, 2008.  The contract was amended and the right to purchase the two drillships was extended to April 24, 2008 for an additional amount of $20 million.
	(g)	Purchase of vessel - delivery: In January 29, 2008, the vessel Avoca (ex Nord Mercury) (Note 5) was delivered to her new owner.
	(h)	Loan drawdown: On January 29, 2008, the Company drew down the amount of $48,650 (Note 10h) in order to partly finance the acquisition cost of vessel Avoca (ex Nord Mercury).
	(i)	Commission to Cardiff: The commission due to Cardiff of $4,050 was paid on February 1, 2008 (Note 3g).

F-43

DRYSHIPS INC.

Notes to Consolidated Financial Statements

December 31, 2006 and 2007

(Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated)

20.	Subsequent Events– (continued):
	(j)	Loan repayments: On February 19, 2008, the Company repaid the bridge loan facility of $30,076 (Note 10d).
	(k)	Sale of vessel - delivery: The vessel Matira was delivered to her new owners on February 25, 2008 (Note 5).
	(l)	Sale of shares: During 2008 the Company has sold 4,759 shares and the net proceeds, after underwriting commissions ranging between 1.5% to 2% and other issuance fees, amounted to $352,748.
	(m)	Vessel acquisition: On March 12, 2008 the Company concluded a Memorandum of Agreement for the acquisition of the vessel Nord Luna for a price of $72,000.  The vessel is expected to be delivered during the second quarter of 2008.
	(n)	Vessel disposals: On March 13 and 15, 2008 the Company concluded two Memoranda of Agreement for the disposal of the vessel Lanzarote and Lacerta to unaffiliated third parties for $65,000 and $55,500 respectively with expected delivery date between the second and fourth quarter of 2008.  The vessels aggregate carrying value at December 31, 2007, amounted to $27,437 and $9,910 respectively. The resulting gain from the sale of the above vessels will be approximately $37,815 and $45,704 respectively and will be included in the Company’s consolidated statements of income for the year ending December 31, 2008.
	(o)	New Loan: On March 14, 2008 the Company concluded a loan agreement of up to $130,000 with Piraeus Bank A.E. in order to provide additional liquidity.  The vessels Lacerta, Menorca, Toro, Paragon were released from their previous loan and were provided as mortgage for this new loan facility. The loan bears interest at LIBOR plus a margin and will be repaid in twenty-eight quarterly installments through March 2015.
	(p)	CEO compensation:   In March 2008, the Board of Directors of the Company approved a new agreement with Fabiana whereby the annual remuneration will be (i) annual remuneration to Fabiana in the amount of $2,000,000; (ii) potential bonus compensation for the services provided at the end of each year with any such bonus to be determined by the Compensation Committee; and (iii) a grant to Fabiana of one million (1,000,000) shares of common stock out of the 1,834,055 shares reserved in the Company’s 2008 Equity Incentive Plan.

F-44

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.

	DryShips Inc.
Dated: March 28, 2008	(Registrant)
	/s/ George Economou
	George Economou
	Chief Executive Officer and Interim Chief Financial Officer

EX-4.5

EXHIBIT 4.5

Date                   November 2006

DRYSHIPS INC.

as Borrower

- and -

THE BANKS AND FINANCIAL INSTITUTIONS

listed in Part A of Schedule 1

as Lenders

- and -

HSH NORDBANK AG

as Agent and Security Trustee

- and -

HSH NORDBANK AG

as Lead Arranger and Lead Bookrunner

- and -

THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND

as Joint Bookrunner

- and -

HSH NORDBANK AG

and

THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND

as Joint Underwriters

- and -

THE BANKS AND FINANCIAL INSTITUTIONS

listed at Part B of Schedule 1

as Swap Banks

_______________________________________

SUPPLEMENTAL AGREEMENT

_______________________________________

relating to revolving credit and term loan facilities

of (originally) up to US$518,750,000 in aggregate

INDEX

Clause

Page

1	INTERPRETATION	2
2	AGREEMENT OF THE CREDITOR PARTIES	3
3	CONDITIONS PRECEDENT	3
4	REPRESENTATIONS AND WARRANTIES	4
5	AMENDMENTS TO LOAN AGREEMENT AND OTHER FINANCE DOCUMENTS	4
6	FURTHER ASSURANCES	10
7	FEES AND EXPENSES	10
8	COMMUNICATIONS	11
9	SUPPLEMENTAL	11
10	LAW AND JURISDICTION	11
	REPAYMENT OF TERM LOAN	13
	EXECUTION PAGES	15

THIS AGREEMENT is made on                        November 2006

BETWEEN

(1) DRYSHIPS INC.  as Borrower;

(2) THE BANKS AND FINANCIAL INSTITUTIONS  listed in Part A of Schedule 1, as Lenders;

(3) HSH NORDBANK AG, acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Federal Republic of Germany, as Agent;

(4) HSH NORDBANK AG, acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Federal Republic of Germany, as Security Trustee;

(5) HSH NORDBANK AG, acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Federal Republic of Germany, as Lead Arranger;

(6) HSH NORDBANK AG, acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Federal Republic of Germany, as Lead Bookrunner;

(7) THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND, acting through its office at New Uberior House, 11 Earl Grey Street, Edinburgh, EH2 9BN, Scotland, as Joint Bookrunner;

(8) HSH NORDBANK AG, acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Federal Republic of Germany and THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND, acting through its office at New Uberior House, 11 Earl Grey Street, Edinburgh, EH2 9BN, Scotland, as Joint Underwriters; and

(9) THE BANKS AND FINANCIAL INSTITUTIONS listed at Part B of Schedule 1, as Swap Banks.

BACKGROUND

(A) By a loan agreement dated 31 March 2006 (as supplemented and amended by a supplemental letter dated 15 May 2006, the “Loan Agreement”)and made between (i) the Borrower, (ii) the Lenders, (iii) the Agent, (iv) the Security Trustee, (v) the Lead Arranger, (vi) the Lead Bookrunner, (vii) the Joint Bookrunner, (vii) the Joint Underwriters and (ix) the Swap Banks, the Lenders agreed to make available to the Borrower both term loan and short-term credit facilities of (originally) up to US$518,750,000 in aggregate.

(B) The Borrower has made a request to the Creditor Parties to:

(i) increase the amount of the Term Loan by US$9,942,042 and to allow the Borrower to use the increase to part-finance the acquisition of m.v. “REDONDO” by the wholly-owned subsidiary of the Borrower, Argo Owning Company Limited, being a corporation incorporated in, and existing under the laws of, the Marshall Islands; and

(ii) increase the amount of the Credit Facility by US$60,541,000 and to allow the Borrower to use the increase to (a) refinance the existing indebtedness secured on  m.v.s “DELRAY”, “ESTEPONA” and “FORMENTERA” owned by the wholly-owned subsidiaries of the Borrower, Classical Owning Company Limited, Human Owning Company Limited and Paternal Owning Company Limited (each being a corporation incorporated in and existing under the laws of the Republic of the

Marshall Islands) and (b) provide working capital for its general corporate purposes.

(C) Following the drawdown of the increase to the Term Loan and the Credit Facility referred to in Recital (B) above the consolidated Term Loan will be secured on the Ships listed in Appendix III.

(D) This Agreement sets out the terms and conditions on which the Creditor Parties agree, with effect on and from the Effective Date, to amend the Loan Agreement.

IT IS AGREED as follows:

1 INTERPRETATION

1.1 Defined expressions.  Words and expressions defined in the Loan Agreement and the other Finance Documents shall have the same meanings when used in this Agreement unless the context otherwise requires.

1.2 Definitions.  In this Agreement, unless the contrary intention appears:

“Argo” means Argo Owning Company Limited, a corporation incorporated and existing under the laws of the Republic of the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960;

“Effective Date”  means the date on which the conditions precedent in Clause 3 are satisfied;

“Loan Agreement”  means the loan agreement dated 31 March 2006 (as supplemented and amended by a supplemental letter dated 15 May 2006) referred to in Recital (A);

“Mortgage Amendment”  means, in relation to each Mortgage, an amendment to such Mortgage, to be in such form and on such terms as may be acceptable to the Lenders and in the plural, means all of them;

“Named Ships” means each of:

(a) the 1994-built bulk carrier of 38,267 gross registered tons and 23,975 net registered tons registered in the ownership of Classical under Maltese flag with the name “DELRAY”;

(b) the 1994-built bulk carrier 38,267 gross registered tons and 23,975 net registered tons registered in the ownership of Human under Maltese flag with the name “ESTEPONA”; and

(c) the 1996-built bulk carrier 38,267 gross registered tons and 23,975 net registered tons registered in the ownership of Paternal under Maltese flag with the name “FORMENTERA”;

“Replacement Ship” means the 2000-built bulk carrier of 40,562 gross registered tons and 26,139 net registered tons currently registered in the ownership of the Replacement Ship Seller under Bahamas flag with the name “LIBERTY ONE” which is to be acquired by Argo pursuant to the Replacement Ship MOA and registered in its ownership under Maltese flag with the name “REDONDO”;

“Replacement Ship Advance” means an amount of up to the lesser of (a) $9,942,041.56 and (b) 63 per cent. of the Market Value of the Replacement Ship (determined in accordance with the valuation referred to in Schedule 5, Part D, Paragraph 5 of the Loan Agreement) which is to be made available in accordance with and pursuant to Clauses 2.3 and 4.2(g) of the Loan Agreement;

“Replacement Ship MOA”  means a memorandum of agreement dated 11 September 2006 made between the Replacement Ship Seller and Argo as buyer in respect of the sale and purchase of the Replacement Ship for a price of $40,750,000; and

“Replacement Ship Seller”  means Liberty Maritime International Ltd. a company incorporated in and existing under the laws of the Bahamas.

1.3 Application of construction and interpretation provisions of Loan Agreement.  Clauses 1.2 and 1.5 of the Loan Agreement apply, with any necessary modifications, to this Agreement.

2 AGREEMENT OF THE CREDITOR PARTIES

2.1 Agreement of the Lenders.  The Lenders agree, subject to and upon the terms and conditions of this Agreement:

(a) to increase the Term Loan by $9,942,042;

(b) to allow the Borrower to use the Replacement Ship Advance for the purpose of financing part of the acquisition cost of the Replacement Ship;

(c) to increase the Credit Facility by $60,541,000;

(d) to allow the Borrower to draw down an Additional Advance for the purpose of refinancing the existing indebtedness secured on the Named Ships and to provide the Borrower with working capital for its general corporate purposes; and

(e) to (i) waive the prepayment of the Loan required to be made pursuant to Clause 8.9 of the Loan Agreement in connection with the sale of “PANORMOS” (such prepayment being in an amount of $15,730,458.44) and (ii) allow the Borrower to apply such amount towards part-financing the acquisition of “LIBERTY ONE” (tbr “REDONDO”) by Argo

Provided that following the drawdown of the Additional Advance referred to in paragraph (d) above and the increase to the Term Loan referred to in paragraph (a) above, the Loan will be fully drawn and no further amounts will be available to the Borrower pursuant to the Loan Agreement.

2.2 Agreement of the Creditor Parties.  The Creditor Parties agree, subject to and upon the terms and conditions of this Agreement, to the consequential amendment of the Loan Agreement and the other Finance Documents in connection with the matters referred to in Clause 2.1.

2.3 Effective Date. The agreement of the Lenders and the other Creditor Parties contained in Clauses 2.1 and 2.2 shall have effect on and from the Effective Date.

3 CONDITIONS PRECEDENT

3.1 General.  The agreement of the Lenders and the other Creditor Parties contained in Clauses 2.1 and 2.2 is subject to the fulfilment of the conditions precedent in Clause 3.2.

3.2 Conditions precedent.  The conditions referred to in Clause 3.1 are that the Agent shall have received the following documents and evidence in all respects in form and substance satisfactory to the Agent and its lawyers on or before the Effective Date:

(a) documents of the kind specified in Schedule 5, Part A, paragraphs 3, 4 and 5 of the Loan Agreement in relation to the Borrower, updated with appropriate modifications to refer to this Agreement;

(b) an original of this Agreement duly executed by the parties to it;

(c) a duly executed original of each Mortgage Amendment;

(d) evidence that each Mortgage Amendment has been duly registered against the Ship to which it relates in accordance with the laws of Malta;

(e) the fees referred to in Clause 7 of this Agreement have been received in full by the Agent; and

(f) favourable legal opinions from lawyers appointed by the Agent on such matters concerning the laws of the Malta, the Marshall Islands and such other relevant jurisdictions as the Agent may require.

4 REPRESENTATIONS AND WARRANTIES

4.1 Repetition of Loan Agreement representations and warranties.  The Borrower represents and warrants to the Creditor Parties that the representations and warranties in clause 10 of the Loan Agreement remain true and not misleading if repeated on the date of this Agreement.

4.2 Repetition of Finance Document representations and warranties.  The Borrower and each of the other Security Parties represents and warrants to the Creditor Parties that the representations and warranties in the Finance Documents (other than the Loan Agreement) to which it is a party remain true and not misleading if repeated on the date of this Agreement.

5 AMENDMENTS TO LOAN AGREEMENT AND OTHER FINANCE DOCUMENTS

5.1 Specific amendments to Loan Agreement.  With effect on and from the Effective Date the Loan Agreement shall be amended as follows:

(a) by re-designating Clauses 1.2, 1.3, 1.4, 1.5 and 1.6 of the Loan Agreement as Clauses 1.1, 1.2, 1.3, 1.4 and 1.5 respectively;

(b) by adding in clause 1.1 of the Loan Agreement, the definitions of “Argo”, “Mortgage Amendment”, “Named Ships”, “Replacement Ship”, “Replacement Ship Advance”, “Replacement Ship MOA” and “Replacement Ship Seller” included in Clause 1.2 hereof;

(c) by adding in clause 1.1 of the Loan Agreement all of the following new definitions;

“Classical” means Classical Owning Company Limited, a corporation incorporated and existing under the laws of the Republic of the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960;

“Consolidation Date” has the meaning given to it in Clause 8.3;

“Human” means Human Owning Company Limited, a corporation incorporated and existing under the laws of the Republic of the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960;

“Named Ship Earnings Account Pledge” means, in relation to each Named Ship, a pledge agreement creating security in favour of the Creditor Parties in respect of the Earnings Account for that Named Ship, in such form as the Lenders may approve or require and in the plural means all of them;

“Named Ship Owner” means:

(a)           in the case of “DELRAY”, Classical;

(b)           in the case of “ESTEPONA”, Human; and

(c)           in the case of “FORMENTERA”, Paternal,

and in the plural means all of them;

“Paternal” means Paternal Owning Company Limited, a corporation incorporated and existing under the laws of the Republic of the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960;

“Replacement Ship Advance Commitment” means, in relation to a Lender, the amount set opposite its name in the fourth column of Schedule 1, Part A, or, as the case may require, the amount specified in the relevant Transfer Certificate, as that amount may be reduced, cancelled or terminated in accordance with this Agreement (and “Total Replacement Ship Advance Commitments” means the aggregate of the Replacement Ship Advance Commitments of all the Lenders);

“Replacement Ship Earnings Account” means an account in the name of Argo, with the Agent in Hamburg designated “Liberty One - Earnings Account”, or any other account (with that or another office of the Agent) which is designated by the Agent as the Replacement Ship Earnings Account for that Ship for the purposes of this Agreement;

“Replacement Ship Earnings Account Pledge” means a pledge agreement creating security in favour of the Creditor Parties in respect of the Replacement Ship Earnings Account, in such form as the Lenders may approve or require;

“Total Participation” means, in relation to a Lender on or after the Consolidation Date, the amount set opposite its name in the fifth column of Schedule 1, Part A, representing the consolidated total participation of that Lender in the Loan;”

(d) by adding in the second line of the definition of “Additional Advance” in Clause 1.1 of the Loan Agreement, after the words “purchase price of an Additional Ship” the words “or a Named Ship”;

(e) by adding a new subparagraph (iii) in paragraph (a) of the definition of “Availability Period” in Clause 1.1 of the Loan Agreement as follows:

“(iii)           the Replacement Ship Advance, 31 December 2006; and”,

and re-designating the current subparagraph (iii) as subparagraph (iv);

(f) by replacing the figure “$81,273,542.60” in paragraph (a) of the definition of “Balloon Instalment” in Clause 1.1 of the Loan Agreement with the figure “$99,371,911.72”;

(g) by replacing in the second line of the definition of “Credit Facility Commitment” in Clause 1.1 of the Loan Agreement the word “fourth” with the word “fifth”;

(h) by adding in paragraph (a) of the definition of “Deed of Covenant” in Clause 1.1 of the Loan Agreement after the words “in relation to each Existing Ship” the words “, the Replacement Ship, each Named Ship”;

(i) by adding to the definition of “Finance Documents” in Clause 1.1 of the Loan Agreement the following paragraphs:

“(t)           the Named Ship Earnings Account Pledges;

(u)           the Replacement Ship Earnings Account Pledge;

(v)           the Mortgage Amendments;”

and re-designating the current paragraph (t) as paragraph (w);

(j) by adding in paragraph (a) of the definition of “Mortgage” in Clause 1.1 of the Loan Agreement after the words “in relation to each Existing Ship” the words “, the Replacement Ship, each Named Ship”;

(k) by adding to the definition of “Owner” in Clause 1.1 of the Loan Agreement the following additional paragraphs:

“(c)           the Replacement Ship, Argo;

(d)           a Named Ship, the Named Ship Owner of that Ship; and”

and re-designating the current paragraph (c) as paragraph (e) and removing the words “(h)” from the start of the final paragraph of the definition;

(l) by adding to the definition of “Ships” in Clause 1.1 of the Loan Agreement after the words “together, the Existing Ships,” the words “the Replacement Ship, the Named Ships,”;

(m) by deleting the definition of “Term Loan” in Clause 1.1 of the Loan Agreement and replacing it with the following new definition:

“Term Loan” means an amount of up to $438,607,456.66 (representing the maximum aggregate principal amount of the Refinancing Advance, the Replacement Ship Advance and the Identified Ship Advance) or the aggregate principal amount of the Refinancing

Advance, the Replacement Ship Advance and the Identified Ship Advance for the time being outstanding under this Agreement;”;

(n) by replacing the figure “$518,750,000” in Clause 2.1 of the Loan Agreement with the figure “$555,860,680.62”;

(o) by adding a new paragraph (c) to Clause 2.2 of the Loan Agreement as follows:

“(c) the Replacement Ship Advance in the proportion which, as at the Drawdown Date for such Advance, its Replacement Ship Advance Commitment bears to the Total Replacement Ship Advance Commitments.”;

(p) by deleting paragraph (e) of Clause 4.2 of the Loan Agreement and replacing it with the following new paragraph:

“(e) the Refinancing Advance, the Identified Ship Advance and the Replacement Ship Advance shall not in aggregate exceed 63 per cent. of the aggregate Market Values of the Existing Ships, the Identified Ship and the Replacement Ship (determined in accordance with the valuations referred to in Schedule 5, Part A, paragraph 12 (in the case of the Existing Ships), Schedule 5, Part B, paragraph 9 (in the case of the Identified Ship) and Schedule 5, Part D, paragraph 5 (in the case of the Replacement Ship));”

(q) by adding a new paragraph (g) in Clause 4.2 of the Loan Agreement as follows:

“(g) the Replacement Ship Advance shall not exceed the lesser of (i) $9,942,042 and (ii) 63 per cent. of the aggregate Market Value of the Replacement Ship (as determined in accordance with the valuations referred to in Schedule 5, Part D, paragraph 5) and shall be applied in financing part of the purchase price of the Replacement Ship;”

and re-designating the current paragraph (g) as paragraph (h), and the current paragraph (h) as paragraph (i);

(r) by replacing the figure “$460,000,000” in subparagraph (i) of Clause 8.1(a) of the Loan Agreement with  the figure “$438,607,456.66”;

(s) by adding in the third line of the hanging paragraph below Clause 8.1(a)(ii) of the Loan Agreement after the words “the acquisition of an Additional Ship” the words “or a Named Ship”;

(t) by adding to the definition of “B” in Clause 8.1(b) of the Loan Agreement after the words “in the case of an Additional Ship” the words “or a Named Ship”;

(u) by converting the text of Clause 8.3 of the Loan Agreement into paragraph (a) of that Clause, and by adding the following new paragraph (b) to that Clause:

“(b) On the Consolidation Date, the Agent shall send to all the Creditor Parties and the Borrower a schedule specifying the Total Participation of each Lender in the Loan and this schedule shall thereafter be substituted for, and replace, the schedule listing the Lenders and their Commitments set out in Schedule 1, Part A.

For the purpose of paragraph (b) of this Clause 8.3, “Consolidation Date” means the earlier of (i) the Drawdown Date relating to the Additional Advance for the final Named Ship to be refinanced and (ii) 30 March 2007.”

such new Schedule 1, Part A to be in the form set out in the Appendix I to this Agreement;

(v) by adding to the end of Clause 9.1(c) of the Loan Agreement the following words:

“Provided that in the case of a Drawdown Date relating to an Additional Advance for a Named Ship, paragraphs 4, 5 and 7(a) of Schedule 5, Part C, shall not apply.”;

(w) by adding to Clause 9.1 of the Loan Agreement a new paragraph (d) as follows:

“(d) that, on or before the Drawown Date relative to the Replacement Ship Advance, the Agent receives the documents described in Part D of Schedule 5 in form and substance satisfactory to the Agent and its lawyers;”

and re-designating the existing paragraphs (d), (e), (f), (g) and (h) of Clause 9.1 as paragraphs (e), (f), (g), (h) and (i) respectively;

(x) by adding in the third line of Clause 14.2 of the Loan Agreement after the words “in the case of each Existing Ship” the words “, the Replacement Ship, each Named Ship”;

(y) by adding in the second line of paragraph (c) of Clause 14.3 of the Loan Agreement after the words “in the case of each Existing Ship” the words “, the Replacement Ship, each Named Ship”;

(z) by replacing Schedule 4 of the Loan Agreement with a new schedule in the form set out in Appendix II to this Agreement;

(aa) by adding a new Part D to Schedule 5 to the Loan Agreement as follows:

“PART D

The following are the documents referred to in Clause 9.1(d).

1 A duly executed original of:

(a) the Mortgage, the Deed of Covenant and the General Assignment relating to the Replacement Ship (and of each document to be delivered under each of them);

(b) the Replacement Ship Earnings Account Pledge; and

(c) the Management Agreement Assignment relating to the Replacement Ship.

2 A copy of the Replacement Ship MOA and documentary evidence that:

(a) the Replacement Ship has been unconditionally delivered to and accepted by Argo under the Replacement Ship MOA and the full purchase price payable under that MOA (in addition to the part to be financed by the Replacement Ship Advance) has been duly paid, together with a copy of the bill of sale and the other documents delivered by the Replacement Ship Seller thereunder;

(b) the Replacement Ship is definitively and permanently registered in the name of Argo under Maltese flag at the port of Valletta;

(c) the Replacement Ship is in the absolute and unencumbered ownership of Argo, save as contemplated by the Finance Documents relative to the Replacement Ship;

(d) the Replacement Ship maintains the highest available class with Lloyd’s Register of Shipping (or such other first-class classification society which is a member of IACS as the Agent may approve) free of all overdue recommendations and conditions of such classification society;

(e) the Mortgage relating to the Replacement Ship has been duly registered against that Ship as a valid first priority Maltese statutory ship mortgage in accordance with the laws of Malta; and

(f) the Replacement Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of insurances have been complied with.

3 A copy of the Management Agreement and a duly executed original of the Manager’s Undertaking in relation to the Replacement Ship.

4 Copies of:

(a) the document of compliance (DOC) and safety management  certificate (SMC) referred to in paragraph (a) of the definition of the ISM Code Documentation in respect of the Replacement Ship and the applicable Approved Manager certified as true and in effect by Argo; and

(b) the ISPS Code Documentation in respect of the Replacement Ship certified as true and in effect by Argo.

5 Two valuations (at the cost of the Borrower) of the Replacement Ship, addressed to the Agent, stated to be for the purpose of this Agreement and dated not earlier than 15 days before the Drawdown Date for the Replacement Ship Advance, each from an Approved Broker.

6 Favourable legal opinions from lawyers appointed by the Agent on such matters concerning the laws of Malta and such other relevant jurisdictions as the Agent may require.

7 A favourable opinion from an independent insurance consultant acceptable to the Agent on such matters relating to the insurances of the Replacement Ship as the Agent may require.”

(bb) by replacing the figure “$518,750,000” in paragraph 1 of the form of Transfer Certificate set out in Schedule 6 of the Loan Agreement with the figure “$555,860,680.62”;

(cc) by replacing the figure “$518,750,000” in the form of Designation Notice set out in Schedule 7 of the Loan Agreement with the figure “$555,860,680.62”;

(dd) by replacing the figure “$518,750,000” in the first paragraph of the form of Compliance Certificate set out in Schedule 7 of the Loan Agreement with the figure “$555,860,680.62”;

(ee) the definition of, and references throughout to, each Finance Document shall be construed as if the same referred to that Finance Document as amended and supplemented by this Agreement; and

(ff) by construing references throughout to “this Agreement”, “hereunder” and other like expressions as if the same referred to the Loan Agreement as amended and supplemented by this Agreement.

5.2 Amendments to Finance Documents.  With effect on and from the Effective Date each of the Finance Documents other than the Loan Agreement shall be, and shall be deemed by this Agreement to have been, amended as follows:

(a) the definition of, and references throughout each of the Finance Documents to, the Loan Agreement and any of the other Finance Documents shall be construed as if the same referred to the Loan Agreement and those Finance Documents as amended and supplemented by this Agreement; and

(b) by construing references throughout each of the Finance Documents to “this Agreement”, “this Deed”, “hereunder and other like expressions as if the same referred to such Finance Documents as amended and supplemented by this Agreement.

5.3 Finance Documents to remain in full force and effect.  The Finance Documents shall remain in full force and effect as amended and supplemented by:

(a) the amendments to the Finance Documents contained or referred to in Clauses 5.1 and 5.2; and

(b) such further or consequential modifications as may be necessary to give full effect to the terms of this Agreement.

6 FURTHER ASSURANCES

6.1 Borrower’s and each Security Party’s obligation to execute further documents etc.  The Borrower and each Security Party shall:

(a) execute and deliver to the Security Trustee (or as it may direct) any assignment, mortgage, power of attorney, proxy or other document, governed by the law of England or such other country as the Security Trustee may, in any particular case, specify;

(b) effect any registration or notarisation, give any notice or take any other step,

which the Agent may, by notice to the Borrower, specify for any of the purposes described in Clause 6.2 or for any similar or related purpose.

6.2 Purposes of further assurances.  Those purposes are:

(a) validity and effectively to create any Security Interest or right of any kind which the Security Trustee intended should be created by or pursuant to the Loan Agreement or any other Finance Document, each as amended and supplemented by this Agreement, and

(b) implementing the terms and provisions of this Agreement.

6.3 Terms of further assurances.  The Security Trustee may specify the terms of any document to be executed by the Borrower or any Security Party under Clause 6.1, and those terms may include any covenants, powers and provisions which the Security Trustee considers appropriate to protect its interests.

6.4 Obligation to comply with notice.  The Borrower or any Security Party shall comply with a notice under Clause 6.1 by the date specified in the notice.

7 FEES AND EXPENSES

7.1 Fee.  On the date of this Agreement, the Borrower shall pay to the Agent certain facility fees set out in the letter addressed to the Agent from the Borrower and dated the same date as this Agreement.

7.2 Expenses.  The provisions of clause 20 (fees and expenses) of the Loan Agreement shall apply to this Agreement as if they were expressly incorporated in this Agreement with any necessary modifications.

8 COMMUNICATIONS

8.1 General.  The provisions of clause 28 (notices) of the Loan Agreement, as amended and supplemented by this Agreement, shall apply to this Agreement as if they were expressly incorporated in this Agreement with any necessary modifications.

9 SUPPLEMENTAL

9.1 Counterparts.  This Agreement may be executed in any number of counterparts.

9.2 Third Party rights.  A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement.

10 LAW AND JURISDICTION

10.1 Governing law.  This Agreement shall be governed by and construed in accordance with English law.

10.2 Incorporation of the Loan Agreement provisions.  The provisions of clause 30 (law and jurisdiction) of the Loan Agreement, as amended and supplemented by this Agreement, shall apply to this Agreement as if they were expressly incorporated in this Agreement with any necessary medications.

THIS AGREEMENT has been duly executed as a Deed on the date stated at the beginning of this Agreement.

APPENDIX I

LENDERS, COMMITMENTS AND FINAL PARTICIPATIONS

Lender	Lending Office	Replacement Ship Advance Commitement (US Dollars)	Credit Facility Commitment (US Dollars)	Total Participation in Loan (US Dollars)
HSH Nordbank AG	Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany	4,971,020.78	34,385,219.34	174,248,216.48
The Governor and Company of the Bank of Scotland	11 Earl Grey Street Edinburgh EH3 9BN Scotland	4,971,020.78	11,461,739.78	49,152,429.16
Alliance & Leicester Commercial Finance plc	Carlton Park Narborough Leicester LE19 0AL England		9,067,462.21	42,217,147.31
Bayerische Hypo-und Vereinsbank AG	Alter Wall 22 20457 Hamburg Germany		12,467,760.54	58,048,577.55
Commerzbank AG	Ness 7-9 D-20457 Hamburg Germany		22,668,655.53	105,542,868.27
Dresdner Bank AG in Hamburg	Jungfernstieg 22 20349 Hamburg Germany		11,334,327.77	52,771,434.14
Natixis	115 rue Reaumur BP 4 - 75002 Paris - Cedex 02 France		7,934,029.44	36,940,003.90
Sumitomo Mitsui Banking Corporation, Brussels Branch	Avenue des Arts 58 Box 18 1000 Brussels Belgium		7,934,029.44	36,940,003.90

APPENDIX II

REPAYMENT OF TERM LOAN

	Repayment Date	Amount of Repayment Instalment ($)	Maximum Outstanding Amount of Term Loan following repayment ($)
1	28 February 2007	16,520,612.90	539,340,067.72
2	31 May 2007	16,520,612.90	522,819,454.82
3	31 August 2007	13,764,906.47	509,054,548.35
4	30 November 2007	13,764,906.47	495,289,641.87
5	29 February 2008	13,764,906.47	481,524,735.40
6	31 May 2008	13,764,906.47	467,759,828.93
7	31 August 2008	13,611,343.47	454,148,485.46
8	30 November 2008	13,611,343.47	440,537,141.99
9	28 February 2009	13,611,343.47	426,925,798.52
10	31 May 2009	13,611,343.47	413,314,455.04
11	31 August 2009	12,127,501.55	401,186,953.50
12	30 November 2009	12,127,501.55	389,059,451.95
13	28 February 2010	12,127,501.55	376,931,950.40
14	31 May 2010	12,127,501.55	364,804,448.85
15	31 August 2010	12,127,501.55	352,676,947.31
16	30 November  2010	12,127,501.55	340,549,445.76
17	28 February 2011	12,127,501.55	328,421,944.21
18	31 May 2011	12,127,501.55	316,294,442.67
19	31 August 2011	12,127,501.55	304,166,941.12
20	30 November 2011	12,127,501.55	292,039,439.57
21	29 February 2012	12,127,501.55	279,911,938.02
22	31 May 2012	12,127,501.55	267,784,436.48
23	31 August 2012	12,127,501.55	255,656,934.93
24	30 November 2012	12,127,501.55	243,529,433.38
25	28 February 2013	12,127,501.55	231,401,931.83
26	31 May 2013	12,127,501.55	219,274,430.29
27	31 August 2013	12,127,501.55	207,146,928.74
28	30 November 2013	11,475,001.55	195,671,927.19
29	28 February 2014	9,630,001.55	186,041,925.64
30	31 May 2014	9,630,001.55	176,411,924.10
31	31 August 2014	9,630,001.55	166,781,922.55
32	30 November 2014	9,630,001.55	157,151,921.00
33	28 February 2015	9,630,001.55	147,521,919.46
34	31 May 2015	9,630,001.55	137,891,917.91
35	31 August 2015	9,630,001.55	128,261,916.36
36	30 November 2015	9,630,001.55	118,631,914.81
37	29 February 2016	9,630,001.55	109,001,913.27
38	31 May 2016	9,630,001.55	99,371,911.72
Balloon Instalment	31 May 2016	99,371,911.72	0

APPENDIX III

LIST OF SHIPS (FOLLOWING THE CONSOLIDATION OF THE TERM LOAN)

Number	Name of vessel	Deadweight	Year Built
1	Manasota	171,061	2004
2	Alameda	170,662	2001
3	Shibumi	166,058	1984
4	Netadola	149,475	1993
5	Mendocino	76,623	2002
6	Coronado	75,706	2000
7	Waikiki	75,473	1995
8	Mostoles	75,395	1981
9	Solana	75,100	1995
10	Sonoma	74,786	2001
11	Catalina	74,432	2005
12	Samsara	73,688	1999
13	Padre	73,601	2004
14	Toro	73,035	1995
15	Xanadu	72,270	1999
16	La Jolla	72,126	1997
17	Lacerta	71,862	1994
18	Redondo	74,716	2000
19	Paragon	71,259	1995
20	Iguana	70,349	1996
21	Daytona	69,703	1989
22	Lanikai	68,676	1998
23	Tonga	66,798	1984
24	Flecha	65,081	1982
25	Striggla	64,747	1982
26	Alona	48,640	2002
27	Matira	45,863	1994
28	Hille Oldendorff	55,566	2005
29	Maganari	75,941	2001
30	Estepona	70,003	1994
31	Delray	70,029	1994
32	Formentera	70,015	1996
33	Lanzarote	73,008	1996
34	Ligari	75,583	2004

EXECUTION PAGES

THE BORROWERS

SIGNED by                                                                           )

for and on behalf of                                                                 )

DRYSHIPS INC.                                                                  )

THE LENDERS

LENDERS

SIGNED by                                                                           )

for and on behalf of                                                                  )

HSH NORDBANK AG                                                       )

SIGNED by                                                                           )

for and on behalf of                                                                  )

THE GOVERNOR AND COMPANY OF                          )

THE BANK OF SCOTLAND                                              )

SIGNED by                                                                           )

for and on behalf of                                                                  )

ALLIANCE & LEICESTER                                                )

COMMERCIAL FINANCE PLC                                        )

SIGNED by                                                                           )

for and on behalf of                                                                  )

BAYERISCHE HYPO-UND                                                )

VEREINSBANK AG                                                           )

SIGNED by                                                                           )

for and on behalf of                                                                  )

COMMERZBANK                                                              )

AKTIENGESELLSCHAFT                                                 )

SIGNED by                                                                           )

for and on behalf of                                                                  )

DRESDNER BANK AG IN HAMBURG                          )

SIGNED by                                                                           )

for and on behalf of                                                                  )

NATIXIS (formerly known as                                                 )

NATEXIS BANQUES POPULAIRES)                               )

SIGNED by                                                                           )

for and on behalf of                                                                  )

SUMITOMO MITSUI BANKING                                     )

CORPORATION                                                                  )

AGENT

SIGNED by                                                                           )

for and on behalf of                                                                  )

HSH NORDBANK AG                                                        )

SECURITY TRUSTEE

SIGNED by                                                                           )

for and on behalf of                                                                  )

HSH NORDBANK AG                                                        )

LEAD ARRANGER/LEAD BOOKRUNNER

SIGNED by                                                                           )

for and on behalf of                                                                  )

HSH NORDBANK AG                                                        )

JOINT BOOKRUNNNER

SIGNED by                                                                           )

for and on behalf of                                                                  )

THE GOVERNOR AND COMPANY                                )

OF THE BANK OF SCOTLAND                                        )

JOINT UNDERWRITERS

SIGNED by                                                                           )

for and on behalf of                                                                  )

HSH NORDBANK AG                                                        )

SIGNED by                                                                           )

for and on behalf of                                                                  )

THE GOVERNOR AND COMPANY OF                          )

THE BANK OF SCOTLAND                                              )

SWAP BANKS

SIGNED by                                                                           )

for and on behalf of                                                                 )

HSH NORDBANK AG                                                       )

SIGNED by                                                                           )

for and on behalf of                                                                  )

HBOS TREASURY SERVICES PLC                                 )

SIGNED by                                                                           )

for and on behalf of                                                                  )

COMMERZBANK                                                              )

AKTIENGESELLSCHAFT                                                 )

Witness to all the                                                                     )

above signatures                                                                      )

Name:

Address:

COUNTERSIGNED  this day      of November 2006 for and on behalf of the below companies each of which, by its execution hereof, confirms and acknowledges that it has read and understood the terms and conditions of this supplemental letter, that it agrees in all respects to the same and that the Finance Documents to which it is a party shall remain in full force and effect and shall continue to stand as security for the obligations of the Borrower under the Loan Agreement.

__________________________________                                        __________________________________

for and on behalf of                                                                           for and on behalf of

WEALTH MANAGEMENT INC.                                                     HELIUM SHIPPING COMPANY

                                    LIMITED

__________________________________                                        __________________________________

for and on behalf of                                                                           for and on behalf of

HYDROGEN SHIPPING COMPANY                                               SILICON SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                        __________________________________

for and on behalf of                                                                           for and on behalf of

OXYGEN SHIPPING COMPANY                                                    ANNAPOLIS SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                         __________________________________

for and on behalf of                                                                           for and on behalf of

LANCAT SHIPPING COMPANY                                                    TOLAN SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                         __________________________________

for and on behalf of                                                                           for and on behalf of

MALVINA SHIPPING COMPANY                                                  ARLETA NAVIGATION COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                        __________________________________

for and on behalf of                                                                           for and on behalf of

SELMA SHIPPING COMPANY                                                       ROYERTON SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                         __________________________________

for and on behalf of                                                                           for and on behalf of

SAMSARA SHIPPING COMPANY                                                  LANSAT SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                         __________________________________

for and on behalf of                                                                           for and on behalf of

FARAT SHIPPING COMPANY                                                       MADRAS SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                         __________________________________

for and on behalf of                                                                           for and on behalf of

IGUANA SHIPPING COMPANY                                                     BORSARI SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                        __________________________________

for and on behalf of                                                                           for and on behalf of

ONIL SHIPPING COMPANY                                                           ZATAC SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                        __________________________________

for and on behalf of                                                                           for and on behalf of

FABIANA NAVIGATION COMPANY                                            FAGO SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                        __________________________________

for and on behalf of                                                                           for and on behalf of

FELICIA NAVIGATION COMPANY                                              PLATAN SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                        __________________________________

for and on behalf of                                                                           for and on behalf of

KARMEN SHIPPING COMPANY                                                   THELMA SHIPPING COMPANY

LIMITED                                                                                           LIMITED

__________________________________                                                                                     

for and on behalf of

CELINE SHIPPING COMPANY                                                                           

LIMITED

EX-4.6

  
    d867882_4-6.htm




    
    

EX-4.7

  
    d864185_ex4-7.htm




    
    

EX-4.8

Exhibit 4.8

Dated      May 2007

DRYSHIPS INC.

as Borrower

- and - -

THE BANKS AND FINANCIAL INSTITUTIONS

listed in Schedule 1

as Lenders

- and - -

HSH NORDBANK AG

as Agent and Security Trustee

- and - -

HSH NORDBANK AG

as Lead Arranger and Lead Bookrunner

- and - -

THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND

as Joint Bookrunner

- and-

HSH NORDBANK AG and

THE GOVERNOR AND COMPANY

OF THE BANK OF SCOTLAND

as Joint Underwriters

- and - -

THE BANKS AND FINANCIAL INSTITUTIONS

listed in Part B of Schedule 1

as Swap Banks

AMENDING AND RESTATING AGREEMENT

relating to a term loan and short-term credit facilities of up to US$692,051,350.33

in aggregate to refinance certain existing indebtedness, to provide working

capital and to finance part of the purchase price of certain additional vessels

WATSON, FARLEY & WILLIAMS

Piraeus

INDEX

Clause		Page
1	INTERPRETATION	2
2	AGREEMENT OF ALL PARTIES TO THE AMENDMENT OF THE LOAN AGREEMENT, MASTER AGREEMENTS AND EXISTING FINANCE DOCUMENTS	2
3	CONDITIONS PRECEDENT	3
4	REPRESENTATIONS AND WARRANTIES	3
5	AMENDMENT OF LOAN AGREEMENT, MASTER AGREEMENTS AND EXISTING FINANCE DOCUMENTS	4
6	FURTHER ASSURANCES	5
7	FEES AND EXPENSES	5
8	NOTICES	5
9	SUPPLEMENTAL	6
10	LAW AND JURISDICTION	6
SCHEDULE 1		7
PART A		7
LENDERS AND COMMITMENTS		7
PART B		8
SWAP BANKS		8
EXECUTION PAGES		9
SECURITY PARTIES’ CONFIRMATION		12
APPENDIX FORM OF AMENDED AND RESTATED LOAN AGREEMENT MARKED TO INDICATE AMENDMENTS TO THE LOAN AGREEMENT		15

THIS AGREEMENT is made on         May 2007

BETWEEN

(1)   DRYSHIPS INC. a corporation incorporated in the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960 as Borrower;

(2)   THE BANKS AND FINANCIAL INSTITUTIONS  listed in Part A of Schedule 1, as Lenders;

(3)   HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Germany, as Agent;

(4)   HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Germany, as Security Trustee;

(5)   HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platz 50, D-20092, Germany, as Lead Arranger and as Lead Bookrunner;

(6)   THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND acting through its office at Pentland House, 8 Lochside Avenue, Edinburgh EH12 9DJ, Scotland, as Joint Bookrunner;

(7)   HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Germany and THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND acting through its office at Pentland House, 8 Lochside Avenue, Edinburgh EH12 9DJ, Scotland, as Joint Underwriters; and

(8)   THE BANKS AND FINANCIAL INSTITUTIONS  listed in Part B of Schedule 1, as Swap Banks.

BACKGROUND

(A)   By a loan agreement dated 31 March 2006 (as supplemented and amended by a supplemental letter dated 15 May 2006 and as further amended and supplemented by a supplemental agreement dated 29 November 2006, the “Loan Agreement”)and made between (i) the Borrower, (ii) the Lenders, (iii) the Agent, (iv) the Security Trustee, (v) the Lead Arranger, (vi) the Lead Bookrunner, (vii) the Joint Bookrunner, (vii) the Joint Underwriters and (ix) the Swap Banks, the Lenders agreed to make available to the Borrower both term loan and short-term credit facilities of up to US$555,860,680.62 in aggregate.

(B)   The aggregate principal amount outstanding under the Loan Agreement as at the date of this Agreement is US$476,188,110.

(C)   By two ISDA master agreements (each on the 1992 ISDA Master Agreement (Multicurrency-crossborder) form) and each dated 31 March 2006 (the “Master Agreement”) made between the Borrower and a Swap Bank, the Borrower has entered into or will enter into certain Designated Transactions (as such term is defined in the said Loan Agreement) pursuant to separate Confirmations (as such term is defined in the said Loan Agreement).

(D)   Subject to the terms and conditions of this Agreement, the Lenders have agreed:

(i)   to an increase in the Credit Facility of up to $152,040,000 in order to assist the Borrower in part-financing the purchase price of certain Additional Ships and certain Identified Ships; and

(ii)   to grant an option to the Borrower allowing mandatory prepayment amounts of up to $165,600,000 (of which an amount of $63,823,240.33 represents the aggregate mandatory prepayment amounts made on or prior to the date of this Agreement) in aggregate (which amounts are due and payable upon the sale of any Existing Ship) to be re-borrowed.

IT IS AGREED as follows:

1   INTERPRETATION

1.1   Defined expressions.  Words and expressions defined in the Loan Agreement shall have the same meanings when used in this Agreement unless the context otherwise requires.

1.2   Definitions.  In this Agreement, unless the contrary intention appears:

“Amended and Restated Loan Agreement”  means the Loan Agreement as amended and restated by this Agreement in the form set out in the Appendix;

“Effective Date”  means the date on which the Agent notifies the Borrower and the Creditor Parties that the conditions precedent in Clause 3 have been fulfilled;

“Existing Finance Documents”  means the Finance Documents to which the Borrower is a party which have been executed prior to the date hereof;

“Loan Agreement”  means the loan agreement dated 31 March 2006 (as supplemented and amended by a supplemental letter dated 15 May 2006 and as further amended and supplemented by a supplemental agreement dated 29 November 2006) referred to in Recital (A);

“Mortgage Amendment”  means, in relation to each Existing Ship which is the subject of a Mortgage as at the date of this Agreement, the amendment to the Mortgage relating to that Existing Ship, executed or to be executed by the relevant Owner in favour of the Security Trustee in such form as the Lenders may approve or require; and

“Security Parties’ Confirmation”  means the confirmation set out at the end of this Agreement executed or to be executed by the Security Parties.

1.3   Application of construction and interpretation provisions of Loan Agreement.  Clauses 1.2, 1.5 and 1.6 of the Loan Agreement apply, with any necessary modifications, to this Agreement.

2   AGREEMENT OF ALL PARTIES TO THE AMENDMENT OF THE LOAN AGREEMENT, MASTER AGREEMENTS AND EXISTING FINANCE DOCUMENTS

2.1   Agreement of the parties to this Agreement.  The parties to this Agreement agree, subject to and upon the terms and conditions of this Agreement, to the amendment of the Loan Agreement, the Master Agreements and the Existing Finance Documents to be made pursuant to Clauses 5.1, 5.2, 5.3 and 5.4.

2.2   Effective Date. The agreement of the parties to this Agreement contained in Clause 2.1 shall have effect on and from the Effective Date.

3   CONDITIONS PRECEDENT

3.1   General.  The agreement of the parties to this Agreement contained in Clause 2.1 is subject to the fulfilment of the conditions precedent in Clause 3.2.

3.2   Conditions precedent.  The conditions referred to in Clause 3.1 are that the Agent shall have received the following documents and evidence in all respects in form and substance satisfactory to the Agent and its lawyers on or before 15 April 2007 or such later date as the Joint Underwriters may agree with the Borrower:

(a)   in relation to the Borrower and each Owner of an Existing Ship, documents of the kind specified in paragraphs 2, 3, 4 and 5 of Part A of Schedule 5 of the Loan Agreement with appropriate modifications to refer to this Agreement, the Security Parties’ Confirmation and each Mortgage Amendment insofar as each is a party thereto;

(b)   a duly executed original of this Agreement duly executed by the parties to it;

(c)   evidence that an amount of not less than $5,000,000 is standing to the credit of the Debt Service Reserve Account;

(d)   all documentation required by each Creditor Party in relation to the Borrower and any Security Party pursuant to that Creditor Party’s “know your customer” requirements;

(e)   a compliance certificate (in the form set out in Schedule 8 of the Loan Agreement) demonstrating the compliance by the Borrower (or not, as the case may be) with the provisions of Clause 12.4 of the Loan Agreement (such compliance to be determined by reference to the audited annual consolidated accounts of the Group for the Financial Year ended 31 December 2006) signed by the chief financial officer of the Borrower;

(f)   documentary evidence that the agent for service of process named in Clause 30 of the Loan Agreement has accepted its appointment under this Agreement and the other Finance Documents;

(g)   favourable legal opinions from lawyers appointed by the Agent on such matters concerning the laws of the Marshall Islands, Malta, England, Germany and such other relevant jurisdictions as the Agent may require;

(h)   if the Agent so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Agent;

(i)   a duly executed original of each Mortgage Amendment;

(j)   documentary evidence that each Mortgage Amendment has been duly registered against the relevant Existing Ship as a valid amendment to the Mortgage over that Existing Ship according to the laws of Malta;

(k)   a duly executed original of the Security Parties’ Confirmation;

(l)   any further opinions, consents, agreements and documents in connection with this Agreement and the Finance Documents which the Lender may request by notice to the Borrower prior to the Effective Date; and

(m)   evidence that the Agent has received the fees payable under Clause 7.1.

4   REPRESENTATIONS AND WARRANTIES

4.1   Repetition of Loan Agreement representations and warranties.  The Borrower represents and warrants to the Agent that the representations and warranties in Clause 10 of the Loan Agreement, as amended and restated by this Agreement and updated with appropriate modifications to refer to this Agreement and, where appropriate, each Mortgage Amendment, remain true and not misleading if repeated on the date of this Agreement with reference to the circumstances now existing.

4.2   Repetition of representations and warranties under Existing Finance Documents.  The Borrower represents and warrants to the Agent that the representations and warranties in the Existing Finance Documents to which it is a party, as amended and restated by this Agreement and updated with appropriate modifications to refer to this Agreement and, where appropriate, each Mortgage Amendment, remain true and not misleading if repeated on the date of this Agreement with reference to the circumstances now existing.

5   AMENDMENT OF LOAN AGREEMENT, MASTER AGREEMENTS AND EXISTING FINANCE DOCUMENTS

5.1   Amendments to Loan Agreement.

(a)   With effect on and from the Effective Date the Loan Agreement shall be, and shall be deemed by this Agreement to be, amended and restated in the form of the Amended and Restated Loan Agreement.

(b)   As so amended and restated pursuant to (a) above, the Loan Agreement shall continue to be binding on each of the parties to it in accordance with its terms as so amended and restated save that for the avoidance of doubt Sumitomo Mitsui Banking Corporation shall not participate in any Identified Ship Advances to be made available after the date of this Agreement.

5.2   Amendments to the agreed form of Finance Documents yet to be executed.  With effect on and from the Effective Date any agreed form Finance Documents shall be amended with such logical changes as are necessary to reflect the arrangements hereunder.

5.3   Amendments to Master Agreements.  With effect on and from the Effective Date each Master Agreement shall be, and shall be deemed by this Agreement to be, amended so that the definition of, and references throughout to, the Loan Facility and the Credit Support Documents shall be construed as if the same referred to the Loan Agreement and those Credit Support Documents as amended and restated or supplemented by this Agreement and each Mortgage Amendment.

5.4   Amendments to Existing Finance Documents.  With effect on and from the Effective Date each of the Existing Finance Documents (other than the Mortgage on each Existing Ship which shall be amended and supplemented by the relevant Mortgage Amendment) shall be, and shall be deemed by this Agreement to be, amended as follows:

(a)   the definition of, and references throughout each of the Existing Finance Documents to, the Loan Agreement, the Master Agreements and any of the Existing Finance Documents shall be construed as if the same referred to the Loan Agreement, the Master Agreements and those Existing Finance Documents as amended and restated or supplemented by this Agreement;

(b)   the definition of, and references throughout each of the Existing Finance Documents to, each Mortgage, shall be construed as if the same referred to each such Mortgage as amended and supplemented by the relevant Mortgage Amendment; and

(c)   by construing references throughout each of the Existing Finance Documents to “this Agreement”, “this Deed”, “hereunder” and other like expressions as if the same referred to such Existing Finance Documents as amended and supplemented by this Agreement.

5.5   The Master Agreements and the Existing Finance Documents to remain in full force and effect.  Each Master Agreement and the Existing Finance Documents shall remain in full force and effect, as amended by:

(a)   the amendments contained or referred to in Clause 5.3 and 5.4and each Mortgage Amendment; and

(b)   such further or consequential modifications as may be necessary to give full effect to the terms of this Agreement.

6   FURTHER ASSURANCES

6.1   Borrower’s obligations to execute further documents etc.  The Borrower shall:

(a)   execute and deliver to the Agent (or as it may direct) any assignment, mortgage, power of attorney, proxy or other document, governed by the law of England or such other country as the Agent may, in any particular case, specify;

(b)   effect any registration or notarisation, give any notice or take any other step;

which the Agent may, by notice to the Borrower, specify for any of the purposes described in Clause 6.2 or for any similar or related purpose.

6.2   Purposes of further assurances.  Those purposes are:

(a)   validly and effectively to create any Security Interest or right of any kind which the Agent intended should be created by or pursuant to the Loan Agreement or any other Finance Document, each as amended and restated or supplemented by this Agreement, or by the relevant Mortgage Amendment; and

(b)   implementing the terms and provisions of this Agreement.

6.3   Terms of further assurances.  The Agent may specify the terms of any document to be executed by the Borrower under Clause 6.1, and those terms may include any covenants, powers and provisions which the Agent considers appropriate to protect its interests.

7   FEES AND EXPENSES

7.1   Facility fees.  The Borrower shall pay to the Agent any fees previously agreed in writing between the Agent and the Borrower.

7.2   Expenses.  The Borrower shall reimburse to the Agent on demand all costs, fees and expenses (including, but not limited to, legal fees and expenses) and taxes thereon incurred by the Agent or any other Creditor Party in connection with the negotiation, preparation and execution of this Agreement, each Mortgage Amendment and the Security Parties’ Confirmation.

8   NOTICES

8.1   General.  The provisions of Clause 28 (Notices) of the Loan Agreement, as amended and restated by this Agreement, shall apply to this Agreement as if they were expressly incorporated in this Agreement with any necessary modifications.

9   SUPPLEMENTAL

9.1   Counterparts.  This Agreement may be executed in any number of counterparts.

9.2   Third party rights.  Other than a Creditor Party, no person who is not a party to this Agreement has any right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement.

10   LAW AND JURISDICTION

10.1   Governing law.  This Agreement shall be governed by and construed in accordance with English law.

10.2   Incorporation of the Loan Agreement provisions.  The provisions of clause 30 (Law and Jurisdiction) of the Loan Agreement, as amended and restated by this Agreement, shall apply to this Agreement as if they were expressly incorporated in this Agreement with any necessary modifications.

THIS AGREEMENT has been duly executed as a Deed on the date stated at the beginning of this Agreement.

SCHEDULE 1

PART A

LENDERS AND COMMITMENTS

Lender	Lending Office	Term Loan Commitment (US Dollars)		Re-borrowing Commitment (in addition to Term Loan Commitment) (US Dollars)		Credit Facility Commitment (US Dollars)		Total Participation (US Dollars)
HSH Nordbank AG	Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany		149,273,641		22,127,767.03		52,712,862.59		224,114,270.62
The Governor and Company of the Bank of Scotland	Pentland House 8 Lochside Avenue Edinburgh EH12 9DJ Scotland		42,106,971		7,764,274.82		18,496,089.19		68,367,335.01
Alliance & Leicester Commercial Finance plc	Carlton Park Narborough Leicester LE19 0AL England		36,166,032		4,847,314.07		11,547,292.61		52,560.638.68
Bayerische Hypo-und Vereinsbank AG	Alter Wall 22 20457 Hamburg Germany		49,728,293		6,665,056.85		15,877,527.33		72,270,877.18
Commerzbank Aktiengesellschaft	Ness 7-9 D-20457 Hamburg Germany		90,415,079		12,118,285.17		28,868,231.50		131,401,595.67
Natixis	45 rue Saint Dominique 75007 Paris France		31,645,277		4,241,399.81		10,103,881.03		45,990,557.84
Sumitomo Mitsui Banking Corporation, Brussels Branch	Avenue des Arts 58 Box 18 1000 Brussels Belgium		31,645,277		0.00		0.00		31,645,277
Dresdner Bank AG	Jungfernstieg 22 20349 Hamburg Germany		45,207,539		6,059,142.58		14,434,115.75		65,700,797.33

PART B

SWAP BANKS

HSH Nordbank AG	Martensdamm 6 D-24103 Kiel Germany
HBOS Treasury Services Plc	33 Old Broad Street London EC2N 1HZ England

EXECUTION PAGES

BORROWER
SIGNED by	)
For and on behalf of	)
DRYSHIPS INC.	)
LENDERS
SIGNED by	)
For and on behalf of	)
HSH NORDBANK AG	)
SIGNED by	)
For and on behalf of	)
THE GOVERNOR AND COMPANY OF	)
THE BANK OF SCOTLAND	)
SIGNED by	)
For and on behalf of	)
ALLIANCE & LEICESTER	)
COMMERCIAL FINANCE PLC	)
SIGNED by	)
For and on behalf of	)
BAYERISCHE HYPO-UND	)
VEREINSBANK AG	)
SIGNED by	)
For and on behalf of	)
COMMERZBANK	)
AKTIENGESELLSCHAFT	)

SIGNED by	)
For and on behalf of	)
NATIXIS (formerly NAXTEXIS BANQUES	)
POPULARIES)	)
SIGNED by	)
For and on behalf of	)
DRESDNER BANK AG	)
SIGNED by	)
For and on behalf of	)
SUMITOMO MITSUI BANKING	)
CORPORATION	)

AGENT
SIGNED by	)
For and on behalf of	)
HSH NORDBANK AG	)

SECURITY TRUSTEE
SIGNED by	)
For and on behalf of	)
HSH NORDBANK AG	)

LEAD ARRANGER/LEAD BOOKRUNNER
SIGNED by	)
For and on behalf of	)
HSH NORDBANK AG	)

JOINT BOOKRUNNER
SIGNED by	)
For and on behalf of	)
THE GOVERNOR AND COMPANY	)
OF THE BANK OF SCOTLAND	)
JOINT UNDERWRITERS
SIGNED by	)
For and on behalf of	)
HSH NORDBANK AG	)
SIGNED by	)
For and on behalf of	)
THE GOVERNOR AND COMPANY OF	)
THE BANK OF SCOTLAND	)
SWAP BANKS
SIGNED by	)
For and on behalf of	)
HSH NORDBANK AG	)
SIGNED by	)
For and on behalf of	)
HSH NORDBANK AG	)
SIGNED by	)
For and on behalf of	)
HBOS TREASURY SERVICES PLC	)
Witness to all the	)
above signatures	)
Name:
Address:

SECURITY PARTIES’ CONFIRMATION

COUNTERSIGNED  this day      of May 2007 for and on behalf of the below companies each of which, by its execution hereof, confirms and acknowledges that it has read and understood the terms and conditions of this Amendment and Restatement Agreement, that it agrees in all respects to the same and that the Finance Documents to which it is a party shall remain in full force and effect and shall continue to stand as security for the obligations of the Borrower under the Loan Agreement.

for and on behalf of	for and on behalf of
WEALTH MANAGEMENT INC.	CELINE SHIPPING COMPANY LIMITED
for and on behalf of	for and on behalf of
HYDROGEN SHIPPING COMPANY LIMITED	TEMPO MARINE CO.
for and on behalf of	for and on behalf of
ANNAPOLIS SHIPPING COMPANY LIMITED	LANCAT SHIPPING COMPANY LIMITED
for and on behalf of	for and on behalf of
TOLAN SHIPPING COMPANY LIMITED	MALVINA SHIPPING COMPANY LIMITED
for and on behalf of	for and on behalf of
ARLETA NAVIGATION COMPANY LIMITED	SELMA SHIPPING COMPANY LIMITED

for and on behalf of	for and on behalf of
ROYERTON SHIPPING COMPANY LIMITED	SAMSARA SHIPPING COMPANY LIMITED
for and on behalf of	for and on behalf of
LANSAT SHIPPING COMPANY LIMITED	FARAT SHIPPING COMPANY LIMITED
for and on behalf of	for and on behalf of
MADRAS SHIPPING COMPANY LIMITED	IGUANA SHIPPING COMPANY LIMITED
for and on behalf of	for and on behalf of
BORSARI SHIPPING COMPANY LIMITED	FELICIA NAVIGATION LIMITED
for and on behalf of	for and on behalf of
ZATAC SHIPPING COMPANY LIMITED	ONIL SHIPPING COMPANY LIMITED
for and on behalf of	for and on behalf of
FAGO SHIPPING COMPANY LIMITED	FABIANA NAVIGATION COMPANY LIMITED
for and on behalf of	for and on behalf of
KARMEN SHIPPING COMPANY LIMITED	THELMA SHIPPING COMPANY LIMITED

for and on behalf of	for and on behalf of
ARGO OWNING COMPANY LIMITED	MATERNAL OWNING COMPANY LIMITED
for and on behalf of	for and on behalf of
PATERNAL OWNING COMPANY LIMITED	STAR RECORD OWNING LIMITED
for and on behalf of
SEAVENTURE SHIPPING COMPANY LIMITED

APPENDIX

FORM OF AMENDED AND RESTATED LOAN AGREEMENT MARKED TO INDICATE AMENDMENTS TO THE LOAN AGREEMENT

Amendments are indicated as follows:

1   additions are indicated by underlined text; and

2   deletions are shown by the relevant text being struck out.

EX-4.9

Exhibit 4.9

Dated     May 2007

DRYSHIPS INC.

as Borrower

- and - -

THE BANKS AND FINANCIAL INSTITUTIONS

listed in Schedule 1

as Lenders

- and - -

HSH NORDBANK AG

as Agent and Security Trustee

- and - -

HSH NORDBANK AG

as Lead Arranger and Lead Bookrunner

- and - -

THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND

as Joint Bookrunner

- and - -

THE BANKS AND FINANCIAL INSTITUTIONS

listed in Part B of Schedule 1

as Swap Banks

AMENDING AND RESTATING AGREEMENT

relating to a term loan and short-term credit facilities of up to US$138,335,751.40

in aggregate to refinance certain existing indebtedness, to provide working

capital and to finance part of the purchase price of certain additional vessels

INDEX

Clause Page

EX-4.10

Exhibit 4.10

DATED                                                            2007

IOLI OWNING COMPANY LIMITED

(as Borrower)

- and -

DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT

(as Lender)

___________________________________

US$35,000,000 SECURED

LOAN AGREEMENT

___________________________________

STEPHENSON HARWOOD

One St. Paul’s Churchyard

London EC4M 8SH

Tel: 020 7329 4422

Fax: 020 7329 7100

Ref: 09.195

CONTENTS

Page

1	Definitions and Interpretation	1
2	The Loan and its Purpose	11
3	Conditions of Utilisation	11
4	Advance	12
5	Repayment	12
6	Prepayment	13
7	Interest	14
8	Indemnities	16
9	Fees  .	20
10	Security and Application of Moneys	20
11	Representations	22
12	Undertakings and Covenants	25
13	Events of Default	33
14	Assignment and Sub-Participation	37
15	The Master Agreement	38
16	Set-Off	39
17	Payments	40
18	Notices	41
19	Partial Invalidity	43
20	Remedies and Waivers	43
21	Miscellaneous	43
22	Law and Jurisdiction	44
SCHEDULE 1: Conditions Precedent and Subsequent		46
Part I:  Conditions precedent		46
Part II: Conditions subsequent		51
SCHEDULE 2: Form of Drawdown Notice		53

LOAN AGREEMENT

Dated: 2007

BETWEEN:

(1) IOLI OWNING COMPANY LIMITED, a company incorporated under the laws of the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960 (the”Borrower”); and

(2) DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT acting through its office at 17, Domshof, 28195, Bremen, Federal Republic of Germany (the “Lender”).

WHEREAS:

(A) The Borrower has agreed to purchase the Vessel from the Seller on the terms of the MOA and intends to register the Vessel under the flag of Malta.

(B) The Lender has agreed to advance to the Borrower an amount not exceeding the lesser of (i) seventy per cent (70%) of the Purchase Price and (ii) thirty five million Dollars ($35,000,000) in order to assist the Borrower to finance part of the Purchase Price of the Vessel.

(C) Upon acquisition of the Vessel, the Borrower would bareboat charter the Vessel to the Bareboat Charterer, who would bareboat register the Vessel under the flag of Antigua, following the expiry of which the Borrower would redeliver the Vessel to the Borrower.

IT IS AGREED  as follows:

1   Definitions and Interpretation

1.1       In this Agreement:

“Administration” has the meaning given to it in paragraph 1.1.3 of the ISM Code.

“Annex VI” means Annex VI (Regulations for the Prevention of Air Pollution from Ships) to the International Convention for the Prevention of Pollution from Ships 1973 (as modified in 1978 and 1997).

“Assignments” means the deed or deeds of assignment from the Borrower, the Bareboat Charterer and any Charterer referred to in Clause 10.1.2 (Security Documents).

“Availability Termination Date” means 31 October 2007 or such later date as the Lender may in its discretion agree.

“Bareboat Charter” means the bareboat charter dated 8 June 2007 on the terms and subject to the conditions of which the Borrower will bareboat charter the Vessel to the Bareboat Charterer for a period scheduled to expire in January 2009 at a daily net rate of hire of not less than twenty six thousand Dollars ($26,000), as amended and/or supplemented from time to time.

“Bareboat Charterer” means MIT Maritime or its nominee, Harpa, or Harpa’s sub-charterer, Pamini, in its capacity as bareboat charterer or any other bareboat charterer proposed by the Borrower and accepted by the Lender in its absolute discretion.

“Break Costs” means all sums payable by the Borrower from time to time under Clause 8.3 (Break Costs).

“Business Day” means a day (other than a Saturday or Sunday) on which banks are open for general business in New York, London, Bremen, Hamburg and Piraeus.

“Cardiff” means Cardiff Marine Inc. of 80 Broad Street, Monrovia, Republic of Liberia.

“Charter” means any charterparty or any contract of employment other than the Bareboat Charter in respect of the Vessel.

“Charterer” means any charterer other than the Bareboat Charterer who shall at any time during the Facility Period enter into a Charter.

“Confirmation” means a confirmation exchanged, or deemed exchanged, between the Lender and the Borrower as contemplated by the Master Agreement.

“Credit Support Document” means any document providing security for the obligations of the Borrower under the Master Agreement and, where the context permits, any other document referred to in any Credit Support Document which has the effect of creating an Encumbrance in favour of the Lender.

“Credit Support Provider” means any person (other than the Borrower) providing security for the obligations of the Borrower under the Master Agreement.

“Currency of Account” means, in relation to any payment to be made to the Lender under a Finance Document, the currency in which that payment is required to be made by the terms of that Finance Document.

“Deed of Covenants” means the deed of covenants referred to in Clause 10.1.1 (Security Documents).

“Default” means an Event of Default or any event or circumstance specified in Clause 13.1 (Events of Default)which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default.

“DOC” means, in relation to the ISM Company, a valid Document of Compliance issued for the ISM Company by the Administration under paragraph 13.2 of the ISM Code.

“Dollars” and “$” each means available and freely transferable and convertible funds in lawful currency of the United States of America.

“Drawdown Date” means the date on which the Loan is advanced under Clause 4 (Advance).

“Drawdown Notice” means a notice substantially in the form set out in Schedule 2 (Form of Drawdown Notice).

2

“Earnings” means all hires, freights, pool income and other sums payable to or for the account of the Borrower, the Bareboat Charterer and/or any Charterer in respect of the Vessel including (without limitation) all remuneration for salvage and towage services, demurrage and detention moneys, contributions in general average, compensation in respect of any requisition for hire, and damages and other payments (whether awarded by any court or arbitral tribunal or by agreement or otherwise) for breach, termination or variation of any contract for the operation, employment or use of the Vessel and the benefit of the Performance Guarantees.

“Encumbrance” means a mortgage, charge, assignment, pledge, lien, or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.

“Event of Default” means any of the events or circumstances set out in Clause 13.1 (Events of Default).

“Facility Period” means the period beginning on the date of this Agreement and ending on the date when the whole of the Indebtedness has been paid in full and the Security Parties and the Bareboat Charterer have ceased to be under any further actual or contingent liability to the Lender under or in connection with the Finance Documents.

“Finance Documents” means this Agreement, the Master Agreement,the Security Documents and any other document designated as such by the Lender and the Borrower and “Finance Document” means any one of them.

“Financial Indebtedness” means any obligation for the payment or repayment of money, whether present or future, actual or contingent, in respect of:

(a)        moneys borrowed;

(b)        any acceptance credit;

(c)        any bond, note, debenture, loan stock or similar instrument;

(d)        any finance or capital lease;

(e)        receivables sold or discounted (other than on a non-recourse basis);

(f)         deferred payments for assets or services;

(g) any derivative transaction protecting against or benefiting from fluctuations in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);

(h) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing;

(i) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and

3

(j) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (i) above.

“GAAP” means generally accepted accounting principles in the United States of America.

“Guarantee” means the guarantee and indemnity referred to in Clause 10.1.3 (Security Documents).

“Guarantor” means DryShips Inc. of the Marshall Islands and/or (where the context permits) any other person who shall at any time during the Facility Period give to the Lender a guarantee and/or indemnity for the repayment of all or part of the Indebtedness.

“Harpa” means Harpa Shipping & Chartering GmbH & CO. Kommanditgesellschaft of the Federal Republic of Germany.

“Hedging Transaction” means a Transaction entered into between the Lender and the Borrower pursuant to the Master Agreement for the express purpose of hedging all or part of the Borrower’s interest rate risk under this Agreement.

“IAPPC” means a valid international air pollution prevention certificate for the Vessel issued under Annex VI.

“Indebtedness” means the aggregate from time to time of: the amount of the Loan outstanding; all accrued and unpaid interest on the Loan; and all other sums of any nature (together with all accrued and unpaid interest on any of those sums) payable to the Lender under all or any of the Finance Documents.

“Insurances” means all policies and contracts of insurance (including all entries in protection and indemnity or war risks associations) which are from time to time taken out or entered into in respect of or in connection with the Vessel or her increased value or the Earnings and (where the context permits) all benefits under such contracts and policies, including all claims of any nature and returns of premium.

“Interest Period” means each period for the determination and payment of interest selected by the Borrower or agreed or selected by the Lender pursuant to Clause 7 (Interest).

4

“ISM Code” means the International Management Code for the Safe Operation of Ships and for Pollution Prevention.

“ISM Company” means, at any given time, the company responsible for the Vessel’s compliance with the ISM Code under paragraph 1.1.2 of the ISM Code.

“ISPS Code” means the International Ship and Port Facility Security Code.

“ISPS Company” means, at any given time, the company responsible for the Vessel’s compliance with the ISPS Code.

“ISSC” means a valid international ship security certificate for the Vessel issued under the ISPS Code.

“LIBOR” means:

(a)        the applicable Screen Rate; or

(b) (if no Screen Rate is available for any Interest Period) the arithmetic mean of the rates (rounded upwards to four decimal places) quoted to the Lender in the London interbank market,

at 11.00 a.m. two (2) Business Days before the first day of the relevant Interest Period for the offering of deposits in Dollars in an amount comparable to the Loan (or any relevant part of the Loan) and for a period comparable to the relevant Interest Period.

“Loan” means the aggregate amount advanced or to be advanced by the Lender to the Borrower under Clause 4 (Advance) or, where the context permits, the amount advanced and for the time being outstanding.

“Management Agreement” means the agreement(s) for the commercial and/or technical management of the Vessel (during the period in which the Bareboat Charter is in force) between the Bareboat Charterer and the relevant Managers and the agreement(s) for the commercial and/or technical management of the Vessel (during the remainder of the Facility Period when the Bareboat Charter is not in force) dated 24 September 2007 between the Borrower and the relevant Managers.

5

“Managers” means Harren & Partner Ship Management GmbH & Co. KG, Haren (Ems), Federal Republic of Germany during the period that the Bareboat Charter is in force and Cardiff during the remainder of the Facility Period or such other commercial and/or technical managers of the Vessel nominated by the Borrower as the Lender may approve.

“Margin” means zero point nine per cent (0.9%) per annum.

“Master Agreement” means any master agreement in Deutscher Rahmenvertrag (Rahmenvertrag Für Finanztermingeschäfte) form (or any other form of master agreement relating to interest or currency exchange transactions agreed between the parties hereto) entered into between the Lender and the Borrower during the Facility Period, including each Schedule to any Master Agreement and each Confirmation exchanged pursuant to any Master Agreement.

“Maximum Loan Amount” means thirty five million Dollars ($35,000,000).

“MIT Maritime” meansMIT Maritime Investment & Trading GmbH & Co. KG, Haren/Ems, a company incorporated under the laws of Germany with its place of business at Garten Str. 2 49733 Haren/EMS, Germany.

“MOA” means the memorandum of agreement dated 8 June 2007 on the terms and subject to the conditions of which the Seller will sell the Vessel to the Borrower for the Purchase Price (as amended and/or novated and/or supplemented from time to time).

“Mortgage” means the statutory mortgage referred to in Clause 10.1.1 (Security Documents) together with the Deed of Covenants.

“Mortgagee’s Insurances” means all policies and contracts of mortgagee’s interest insurance, mortgagee’s additional perils (oil pollution) insurance and any other insurance from time to time taken out by the Lender in relation to the Vessel.

“Notional Amount”, in respect of any Hedging Transaction, means the Notional Amount as defined in the Confirmation relating to that Hedging Transaction.

6

“Original Financial Statements” means the audited consolidated financial statements of the Borrower, Cardiff and the Guarantor for the financial year ended 2006.

“Pamini” means Pamini Shipping Limited of Antigua and Barbuda.

“Performance Guarantees” means the guarantee to be granted in favour of the Borrower by MIT Marine in respect of Harpa’s performance and obligations under the Bareboat Charter, including but not limited to payment obligations and redelivery obligations of Harpa, and the guarantee to be granted in favour of the Borrower by Harpa in respect of Pamini’s performance and obligations under the Bareboat Charter and any sub-charter agreements, including but not limiting to payment obligations and redelivery obligations of Pamini.

“Purchase Price” means the amount of fifty million one hundred and sixty one thousand eight hundred and fifty six Dollars ($50,161,856).

“Relevant Documents” means the Finance Documents, the MOA, the Bareboat Charter, any Charter, the Performance Guarantees, the Management Agreement, the Managers’ confirmations specified in Part I of Schedule 1 (Conditions precedent) and Part II of Schedule 1 (Conditions subsequent).

“Repayment Date” means the date for payment of any Repayment Instalment in accordance with Clause 5.1 (Repayment of Loan).

“Repayment Instalment” means any instalment of the Loan to be repaid by the Borrower under Clause 5.1 (Repayment of Loan).

“Requisition Compensation” means all compensation or other money which may from time to time be payable to the Borrower, the Bareboat Charterer and/or any Charterer as a result of the Vessel being requisitioned for title or in any other way compulsorily acquired (other than by way of requisition for hire).

“Screen Rate” means in relation to LIBOR, the British Bankers’ Association Interest Settlement Rate for the relevant currency and perioddisplayed on the appropriate page of the Reuters screen.  If the agreed page is replaced or the service ceases to be available, the Lender may specify another page or service displaying the appropriate rate after consultation with the Borrower. 

7

“Security Documents” means the Mortgage, the Deed of Covenants, the Assignments, the Guarantee, any other Credit Support Documents or (where the context permits) any one or more of them and any other agreement or document which may at any time be executed by any person as security for the payment of all or any part of the Indebtedness and “Security Document” means any one of them. 

“Security Parties” means the Borrower, the Guarantor, any other Credit Support Provider and any other person who may at any time during the Facility Period be liable for, or provide security for, all or any part of the Indebtedness, and “Security Party” means any one of them.

“Seller” means MIT Maritime in its capacity as seller.

“SMC” means a valid safety management certificate issued for the Vessel by or on behalf of the Administration under paragraph 13.7 of the ISM Code.

“SMS” means a safety management system for the Vessel developed and implemented in accordance with the ISM Code.

“Tax” means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).

“Total Loss” means:

(a) an actual, constructive, arranged, agreed or compromised total loss of the Vessel; or

(b) the requisition for title or compulsory acquisition of the Vessel by any government or other competent authority (other than by way of requisition for hire); or

(c) the capture, seizure, arrest, detention or confiscation of the Vessel by any government or by persons acting or purporting to act on behalf of any government, unless the Vessel is released and returned to the possession of the Borrower, the Bareboat Charterer and/or any Charterer within one month after the capture, seizure, arrest, detention or confiscation in question.

8

“Transaction” means a transaction entered into between the Lender and the Borrower governed by the Master Agreement.

“Vessel” means the dry cargo bulk carrier vessel m.v. “CLIPPER GEMINI” of approximately 51,201 dwt, built in 2003, currently registered under the flag of Antigua in the ownership of the Seller and intended to be sold by the Seller to the Borrower on the terms of the MOA, and everything now or in the future belonging to her on board and ashore.

1.2       In this Agreement:

1.2.1 words denoting the plural number include the singular and vice versa;

1.2.2 words denoting persons include corporations, partnerships, associations of persons (whether incorporated or not) or governmental or quasi-governmental bodies or authorities and vice versa;

1.2.3 references to Recitals, Clauses and Schedules are references to recitals, clauses and schedules to or of this Agreement;

1.2.4 references to this Agreement include the Recitals and the Schedules;

1.2.5 the headings and contents page(s) are for the purpose of reference only, have no legal or other significance, and shall be ignored in the interpretation of this Agreement;

1.2.6 references to any document (including, without limitation, to all or any of the Relevant Documents) are, unless the context otherwise requires, references to that document as amended, supplemented, novated or replaced from time to time;

1.2.7 references to statutes or provisions of statutes are references to those statutes, or those provisions, as from time to time amended, replaced or re-enacted;

1.2.8 references to the Lender include its successors, transferees and assignees;

1.2.9 a time of day (unless otherwise specified) is a reference to London time; and

9

1.2.10 words and expressions defined in the Master Agreement, unless the context otherwise requires, have the same meaning.

1.3       Offer letter

This Agreement supersedes the terms and conditions contained in any correspondence relating to the subject matter of this Agreement exchanged between the Lender and the Borrower or their representatives prior to the date of this Agreement.

2   The Loan and its Purpose

2.1 Amount   Subject to the terms of this Agreement, the Lender agrees to make available to the Borrower a term loan not exceeding the Maximum Loan Amount.

2.2 Purpose   The Borrower shall apply the Loan for the purposes referred to in Recital (B).

2.3 Monitoring   The Lender shall not be bound to monitor or verify the application of any amount borrowed under this Agreement.

3   Conditions of Utilisation

3.1 Conditions precedent   The Borrower is not entitled to have the Loan advanced unless the Lender has received all of the documents and other evidence listed in Part I of Schedule 1 (Conditions precedent).

3.2 Further conditions precedent   The Lender will only be obliged to advance the Loan if on the date of the Drawdown Notice and on the proposed Drawdown Date:

3.2.1 no Default is continuing or would result from the advance of the Loan; and

3.2.2 the representations made by the Borrower under Clause 11 (Representations) are true in all material respects.

3.3 Conditions subsequent   The Borrower undertakes to deliver or to cause to be delivered to the Lender on, or as soon as practicable after, the Drawdown Date the additional documents and other evidence listed in Part II of Schedule 1 (Conditions subsequent).

10

3.4 No Waiver   If the Lender in its sole discretion agrees to advance all or any part of the Loan to the Borrower before all of the documents and evidence required by Clause 3.1 (Conditions precedent)have been delivered to or to the order of the Lender, the Borrower undertakes to deliver all outstanding documents and evidence to or to the order of the Lender no later than the date specified by the Lender.

The advance of all or any part of the Loan under this Clause 3.4 shall not be taken as a waiver of the Lender’s right to require production of all the documents and evidence required by Clause 3.1 (Conditions precedent).

3.5 Form and content   All documents and evidence delivered to the Lender under this Clause 3 shall:

3.5.1    be in form and substance acceptable to the Lender; and

3.5.2 if required by the Lender, be certified, notarised, legalised or attested in a manner acceptable to the Lender.

4   Advance

The Borrower may request the Loan to be advanced in one amount on any Business Day prior to the Availability Termination Date by delivering to the Lender a duly completed Drawdown Notice not more than ten (10) and not fewer than three (3) Business Day (or fewer than three (3) Business Days subject to the Lender’s prior written consent) before the proposed Drawdown Date.

5   Repayment

5.1 Repayment of Loan   The Borrower agrees to repay the Loan to the Lender by thirty six (36) consecutive quarterly Repayment Instalments.  The first six (6) Repayment Instalments each in the amount of one million five hundred thousand Dollars ($1,500,000), the next twenty nine (29) Repayment Instalments each in the amount of five hundred thousand Dollars ($500,000) and the thirty sixth and final Repayment Instalment in the amount of eleven million five hundred thousand Dollars ($11,500,000) (comprising an instalment of five hundred thousand Dollars ($500,000) and a balloon payment of eleven million Dollars ($11,000,000)), the first Repayment Instalment falling due on the date which is three (3) calendar months after the Drawdown Date and subsequent Repayment Instalments falling due at consecutive intervals of three (3) calendar months thereafter.

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5.2 Reduction of Repayment Instalments   If the aggregate amount advanced to the Borrower is less than the Maximum Loan Amount, the amount of each Repayment Instalment shall be reduced pro rata to the amount actually advanced.

5.3 Reborrowing   The Borrower may not reborrow any part of the Loan which is repaid or prepaid.

6 Prepayment

6.1 Illegality   If it becomes unlawful in any jurisdiction for the Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain the Loan:

6.1.1 the Lender shall promptly notify the Borrower of that event; and

6.1.2 the Borrower shall repay the Loan (to the extent already advanced) on the last day of the current Interest Period or, if earlier, the date specified by the Lender in the notice delivered to the Borrower (being no earlier than the last day of any applicable grace period permitted by law).

6.2 Voluntary prepayment of Loan   The Borrower may prepay the whole or any part of the Loan (but, if in part, being an amount that reduces the Loan by a minimum amount of five hundred thousand Dollars ($500,000)) subject as follows:

6.2.1 it gives the Lender not less than five (5) Business Days’ (or such shorter period as the Lender may agree) prior notice;

6.2.2 no prepayment may be made until after the Availability Termination Date; and

6.2.3 any prepayment under this Clause 6.2 shall satisfy the obligations under Clause 5.1 (Repayment of Loan) in inverse order of maturity.

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6.3 Mandatory prepayment on sale or Total Loss   If the Vessel is sold by the Borrower or becomes a Total Loss, the Borrower shall, simultaneously with any such sale or within one hundred and twenty (120) days after any such Total Loss, prepay the whole of the Loan.

6.4 Restrictions   Any notice of prepayment given under this Clause 6 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant prepayment is to be made and the amount of that prepayment.

Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs and subject to Clause 6.2 (Voluntary prepayment of Loan) and Clause 6.3 (Mandatory prepayment on sale or Total Loss), without premium or penalty.

7   Interest

7.1 Interest Periods   The period during which the Loan shall be outstanding under this Agreement shall be divided into consecutive Interest Periods of one (1), three (3), six (6) or twelve (12) months’ duration, as selected by the Borrower by written notice to the Lender not later than 11.00 a.m. on the third Business Day before the beginning of the Interest Period in question, or such other duration as may be agreed by the Lender.

7.2 Beginning and end of Interest Periods   Each Interest Period shall start on the Drawdown Date or (if the Loan is already made) on the last day of the preceding Interest Period and end on the date which numerically corresponds to the Drawdown Date or the last day of the preceding Interest Period in the relevant calendar month except that, if there is no numerically corresponding date in that calendar month, the Interest Period shall end on the last Business Day in that month.

7.3 Interest Periods to meet Repayment Dates   If an Interest Period would otherwise expire after the next Repayment Date, there shall be a separate Interest Period for a part of the Loan equal to the relevant Repayment Instalment which shall expire on the next Repayment Date and the Interest Period determined shall apply only to the balance of the Loan.

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7.4 Non-Business Days   If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).

7.5 Interest rate   During each Interest Period interest shall accrue on the Loan at the rate determined by the Lender to be the aggregate of (a) the Margin and (b) LIBOR.

7.6 Failure to select Interest Period   If the Borrower at any time fails to select or agree an Interest Period in accordance with Clause 7.1 (Interest Periods), the interest rate applicable shall be the rate determined by the Lender in accordance with Clause 7.5 (Interest rate)for an Interest Period of such duration (not exceeding three (3) months) as the Lender may select.

7.7 Accrual and payment of interest   Interest shall accrue from day to day, shall be calculated on the basis of a 360 day year and the actual number of days elapsed (or, in any circumstance where market practice differs, in accordance with the prevailing market practice) and shall be paid by the Borrower to the Lender on the last day of each Interest Period and, if the Interest Period is longer than three (3) months, on the dates falling at three (3) monthly intervals after the first day of that Interest Period.

7.8 Default interest   If the Borrower fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the overdue amount from the due date up to the date of actual payment (both before and after judgment) at a rate which is two per cent (2%) higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted the Loan in the currency of the overdue amount for successive Interest Periods, each selected by the Lender (acting reasonably).  Any interest accruing under this Clause 7.8 shall be immediately payable by the Borrower on demand by the Lender.  If unpaid, any such interest will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable.

7.9 Changes in market circumstances   If at any time the Lender determines (which determination shall be final and conclusive and binding on the Borrower) that, by reason of changes affecting the London interbank market, adequate and fair means do not exist for determining the rate of interest on the Loan for any Interest Period:

7.9.1 the Lender shall give notice to the Borrower of the occurrence of such event; and

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7.9.2 the rate of interest on the Loan for that Interest Period shall be the rate per annum which is the sum of:

(a) the Margin; and

(b) the rate which expresses as a percentage rate per annum the cost to the Lender of funding the Loan from whatever source it may reasonably select

PROVIDED THAT if the resulting rate of interest is not acceptable to the Borrower:

7.9.3 the Lender will negotiate with the Borrower in good faith with a view to modifying this Agreement to provide a substitute basis for determining the rate of interest which is financially a substantial equivalent to the basis provided for in this Agreement;

7.9.4 any substitute basis agreed pursuant to Clause 7.9.3 shall be binding on the parties to this Agreement; and

7.9.5 if, within thirty (30) days of the giving of the notice referred to in Clause 7.9.1, the Borrower and the Lender fail to agree in writing on a substitute basis for determining the rate of interest, the Borrower will immediately prepay the Loan, together with any Break Costs.

7.10 Determinations conclusive   The Lender shall promptly notify the Borrower of the determination of a rate of interest under this Clause 7 and each such determination shall (save in the case of manifest error) be final and conclusive.

8   Indemnities

8.1 Transaction expenses   The Borrower will, within fourteen (14) days of the Lender’s written demand, pay the Lender the amount of all costs and expenses (including legal fees and Value Added Tax or any similar or replacement tax if applicable) incurred by the Lender in connection with:

8.1.1 the negotiation, preparation, printing, execution and registration of the Finance Documents (whether or not any Finance Document is actually executed or registered and whether or not all or any part of the Loan is advanced);

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8.1.2 any amendment, addendum or supplement to any Finance Document (whether or not completed); and

8.1.3 any other document which may at any time be required by the Lender to give effect to any Finance Document or which the Lender is entitled to call for or obtain under any Finance Document.

8.2 Funding costs   The Borrower shall indemnify the Lender on the Lender’s written demand against all losses and costs incurred or sustained by the Lender if, for any reason, the Loan is not advanced to the Borrower after the relevant Drawdown Notice has been given to the Lender, or is advanced on a date other than that requested in the Drawdown Notice (unless, in either case, as a result of any default by the Lender).

8.3 Break Costs   The Borrower shall indemnify the Lender on the Lender’s written demand against all costs, losses, premiums or penalties incurred by the Lender as a result of its receiving any prepayment of all or any part of the Loan (whether pursuant to Clause 6 (Prepayment)or otherwise) on a day other than the last day of an Interest Period for the Loan or relevant part of the Loan, or any other payment under or in relation to the Finance Documents on a day other than the due date for payment of the sum in question, including (without limitation) any losses or costs incurred in liquidating or re-employing deposits from third parties acquired to effect or maintain all or any part of the Loan, and any liabilities, expenses or losses incurred by the Lender in terminating or reversing, or otherwise in connection with, any Transaction or any other interest rate and/or currency swap, transaction or arrangement entered into by the Lender to hedge any exposure arising under this Agreement, or in terminating or reversing, or otherwise in connection with, any open position arising under this Agreement or the Master Agreement.

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8.4 Currency indemnity   In the event of the Lender receiving or recovering any amount payable under a Finance Document in a currency other than the Currency of Account, and if the amount received or recovered is insufficient when converted into the Currency of Account at the date of receipt to satisfy in full the amount due, the Borrower shall, on the Lender’s written demand, pay to the Lender such further amount in the Currency of Account as is sufficient to satisfy in full the amount due and that further amount shall be due to the Lender as a separate debt under this Agreement.

8.5 Increased costs (subject to Clause 8.6 (Exceptions to increased costs))   If, by reason of the introduction of any law, or any change in any law, or any change in the interpretation or administration of any law, or compliance with any request or requirement from any central bank or any fiscal, monetary or other authority occurring after the date of this Agreement:

8.5.1 the Lender (or the holding company of the Lender) shall be subject to any Tax with respect to payment of all or any part of the Indebtedness (other than Tax on overall net income); or

8.5.2 the basis of Taxation of payments to the Lender in respect of all or any part of the Indebtedness shall be changed; or

8.5.3 any reserve requirements shall be imposed, modified or deemed applicable against assets held by or deposits in or for the account of or loans by any branch of the Lender; or

8.5.4 the manner in which the Lender allocates capital resources to its obligations under this Agreement and/or the Master Agreement or any ratio (whether cash, capital adequacy, liquidity or otherwise) which the Lender is required or requested to maintain shall be affected; or

8.5.5 there is imposed on the Lender (or on the holding company of the Lender) any other condition in relation to the Indebtedness or the Finance Documents;

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and the result of any of the above shall be to increase the cost to the Lender (or to the holding company of the Lender) of the Lender making or maintaining the Loan, or its obligations under the Master Agreement, or to cause the Lender to  suffer (in its opinion) a material reduction in the rate of return on its overall capital below the level which it reasonably anticipated at the date of this Agreement and which it would have been able to achieve but for its entering into this Agreement or the Master Agreement, and/or performing its obligations under this Agreement or the Master Agreement, then, subject to Clause 8.6 (Exceptions to increased costs), the Lender shall notify the Borrower and the Borrower shall from time to time pay to the Lender on demand the amount which shall compensate the Lender (or the holding company of the Lender) for such additional cost or reduced return.  A certificate signed by an authorised signatory of the Lender setting out the amount of that payment and the basis of its calculation shall be submitted to the Borrower and shall be conclusive evidence of such amount save for manifest error or on any question of law.

8.6 Exceptions to increased costs   Clause 8.5 (Increased costs)does not apply to the extent any additional cost or reduced return referred to in that Clause is:

8.6.1 compensated for by a payment made under Clause 8.10 (Taxes); or

8.6.2 compensated for by a payment made under Clause 17.3 (Grossing-up); or

8.6.3 attributable to the wilful breach by the Lender (or the holding company of the Lender) of any law or regulation.

8.7 Events of Default   The Borrower shall indemnify the Lender from time to time on the Lender’s written demand against all losses, costs and liabilities incurred or sustained by the Lender as a consequence of any Event of Default.

8.8 Enforcement costs   The Borrower shall pay to the Lender on the Lender’s written demand the amount of all costs and expenses (including legal fees) incurred by the Lender in connection with the enforcement of, or the preservation of any rights under, any Finance Document including (without limitation) any losses, costs and expenses which the Lender may from time to time sustain, incur or become liable for by reason of the Lender being mortgagee of the Vessel and/or a lender to the Borrower, or by reason of the Lender being deemed by any court or authority to be an operator or controller, or in any way concerned in the operation or control, of the Vessel.

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8.9 Other costs   The Borrower shall pay to the Lender on the Lender’s written demand the amount of all sums which the Lender may pay or become actually or contingently liable for on account of the Borrower in connection with the Vessel (whether alone or jointly or jointly and severally with any other person) including (without limitation) all sums which the Lender may pay or guarantees which it may give in respect of the Insurances, any expenses incurred by the Lender in connection with the maintenance or repair of the Vessel or in discharging any lien, bond or other claim relating in any way to the Vessel, and any sums which the Lender may pay or guarantees which it may give to procure the release of the Vessel from arrest or detention.

8.10 Taxes   The Borrower shall pay all Taxes to which all or any part of the Indebtedness or any Finance Document may be at any time subject (other than Tax on the Lender’s overall net income) and shall indemnify the Lender on the Lender’s written demand against all liabilities, costs, claims and expenses resulting from any omission to pay or delay in paying any such Taxes.

9  Fees  The Borrower shall pay to the Lender an arrangement fee in the amount of zero point twenty five per cent (0.25%) of the Maximum Loan Amount on the Drawdown Date.

10   Security and Application of Moneys

10.1 Security Documents   As security for the payment of the Indebtedness, the Borrower shall execute and deliver to the Lender or cause to be executed and delivered to the Lender the following documents in such forms and containing such terms and conditions as the Lender shall require:

10.1.1 a first statutory mortgage over the Vessel together with a collateral deed of covenants;

10.1.2 first priority deeds of assignment of the Insurances, Earnings, Bareboat Charter (or Charter) and Requisition Compensation of the Vessel from the Borrower, the Bareboat Charterer (or Charterer) including (in the case of the Bareboat Charterer) an agreement whereby the interests of the Bareboat Charterer under the Bareboat Charter are subordinated to the interests of the Lender under the Mortgage; and

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10.1.3 a guarantee and indemnity from the Guarantor.

10.2 General application of moneys   The Borrower, subject to Clause 10.3 (Application of moneys on sale or Total Loss), irrevocably authorises the Lender to apply all sums which the Lender may receive:

10.2.1 pursuant to a sale or other disposition of the Vessel or any right, title or interest in the Vessel; or

10.2.2 by way of payment of any sum in respect of the Insurances, Earnings or Requisition Compensation; or

10.2.3 otherwise arising under or in connection with any Security Document,

in or towards satisfaction, or by way of retention on account, of the Indebtedness, in such manner as the Lender may in its discretion determine PROVIDED THAT any part of the Indebtedness arising out of the Master Agreement shall be satisfied, or retained for, on a pari passu basis with the remainder of the Indebtedness.

10.3  Application of moneys on sale or Total Loss   TheBorrower irrevocably authorises the Lender to apply all sums which the Lender may receive pursuant to a sale by the Borrower of the Vessel or a Total Loss in or towards satisfaction of the prepayment due and payable by virtue of that sale or Total Loss under Clause 6.3 (Mandatory prepayment on sale or Total Loss), but the Borrower’s obligation to make that prepayment shall not be affected if those sums are insufficient to satisfy that obligation. 

10.4 Additional security   If at any time the aggregate of the market value of the Vessel (such market value to be conclusively determined by a reputable, independent and first class firm of shipbrokers appointed by the Lender on the basis of a charter-free sale for prompt delivery for cash at arm’s length on normal commercial terms as between a willing seller and a willing buyer) and the value of any additional security (such value to be the face amount of the deposit (in the case of cash), determined conclusively by appropriate advisers appointed by the Lender (in the case of other charged assets), and determined by the Lender in its discretion (in all other cases) for the time being provided to the Lender under this Clause 10.4 is less than one hundred and twenty five per cent (125%) of the Loan the Borrower shall, within thirty (30) days of the Lender’s request, at the Borrower’s option:

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10.4.1 pay to the Lender or to its nominee a cash deposit in the amount of the shortfall to be secured in favour of the Lender as additional security for the payment of the Indebtedness; or

10.4.2 give to the Lender other additional security in amount and form acceptable to the Lender in its discretion; or

10.4.3 prepay the amount of the Indebtedness which will ensure that the aggregate of the market value of the Vessel (determined as stated above) and the value of any such additional security is not less than one hundred and twenty five per cent (125%) of the Loan.

Clauses 5.3 (Reborrowing), 6.2 (Voluntary prepayment of Loan) and 6.4 (Restrictions) shall apply, mutatis mutandis, to any prepayment made under this Clause 10.4 and the value of any additional security provided shall be determined as stated above. 

11   Representations

11.1 Representations   The Borrower makes the representations and warranties set out in this Clause 11.1 to the Lender on the date of this Agreement.

11.1.1 Status   Each Security Party (which is not an individual) is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation and has the power to own its assets and carry on its business as it is being conducted.

11.1.2 Binding obligations   The obligations expressed to be assumed by each Security Party in each Finance Document to which it is a party are legal, valid, binding and enforceable obligations.

11.1.3 Non-conflict with other obligations   The entry into and performance by each Security Party of, and the transactions contemplated by, the Finance Documents do not conflict with:

(a) any law or regulation applicable to that Security Party;

(b) the constitutional documents of that Security Party; or

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(c) any document binding on that Security Party or any of its assets,

and in borrowing the Loan, the Borrower is acting for its own account.

11.1.4 Power and authority   Each Security Party has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.

11.1.5 Validity and admissibility in evidence   All consents, licences, approvals, authorisations, filings and registrations required or desirable:

(a) to enable each Security Party lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party or to enable the Lender to enforce and exercise all its rights under the Finance Documents; and

(b) to make the Finance Documents to which any Security Party is a party admissible in evidence in its jurisdiction of incorporation,

 have been obtained or effected and are in full force and effect.

11.1.6 Governing law and enforcement   The choice of English law as the governing law of any Finance Document expressed to be governed by English law will be recognised and enforced in the jurisdiction of incorporation of each relevant Security Party, and any judgment obtained in England in relation to any such Finance Document will be recognised and enforced in the jurisdiction of incorporation of each relevant Security Party.

11.1.7 Deduction of Tax   No Security Party is required under the law of its jurisdiction of incorporation to make any deduction for or on account of Tax from any payment it may make under any Finance Document.

11.1.8 No filing or stamp taxes   Under the law of jurisdiction of incorporation of each relevant Security Party it is not necessary that the Finance Documents (other than the Security Documents) be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents.

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11.1.9 No default   No Event of Default is continuing or might reasonably be expected to result from the advance of the Loan.

11.1.10 No misleading information   Any factual information provided by any Security Party to the Lender was true and accurate in all material respects as at the date it was provided.

11.1.11 Pari passu ranking   The payment obligations of each Security Party and the Bareboat Charterer under the Finance Documents to which it is a party rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.

11.1.12 No proceedings pending or threatened   No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency have been started or (to the best of the Borrower’s knowledge threatened) which, if adversely determined, might reasonably be expected to have a materially adverse effect on the business, assets, financial condition or credit worthiness of any Security Party.

11.1.13 Disclosure of material facts   The Borrower is not aware of any material facts or circumstances which have not been disclosed to the Lender and which might, if disclosed, have adversely affected the decision of a person considering whether or not to make loan facilities of the nature contemplated by this Agreement available to the Borrower.

11.1.14 No established place of business in the UK or US   No Security Party (other than the Guarantor) has an established place of business in the United Kingdom or the United States of America.

11.1.15 Completeness of Relevant Documents   The copies of any Relevant Documents provided or to be provided by the Borrower to the Lender in accordance with Clause 3 (Conditions of Utilisation)are, or will be, true and accurate copies of the originals and represent, or will represent, the full agreement between the parties to those Relevant Documents in relation to the subject matter of those Relevant Documents and there are no commissions, rebates, premiums or other payments due or to become due in connection with the subject matter of those Relevant Documents other than in the ordinary course of business or as disclosed to, and approved in writing by, the Lender.

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11.1.16 Indirect subsidiary of the Guarantor  The Borrower is and shall remain an indirect subsidiary of the Guarantor.

11.2 Repetition   Each representation and warranty in Clause 11.1 (Representations) is deemed to be repeated by the Borrower by reference to the facts and circumstances then existing on the date of the Drawdown Notice and the first day of each Interest Period.

12   Undertakings and Covenants

The undertakings and covenants in this Clause 12 remain in force for the duration of the Facility Period.

12.1    Information Undertakings

12.1.1 Financial statements   The Borrower shall supply to the Lender, and shall procure that Cardiff and the Guarantor supply to the Lender, as soon as the same become available, but in any event within one hundred and eighty (180) days after the end of each of their respective financial years, the audited consolidated financial statements for that financial year, containing (amongst other things) the Borrower’s or, as the case may be, Cardiff’s and the Guarantor’s profit and loss account for, and balance sheet at the end of, each such financial year.

12.1.2 Requirements as to financial statements   Each set of financial statements delivered by the Borrower under Clause 12.1.1 (Financial statements):

(a) shall be certified by a director or an authorised signatory of the Borrower, Cardiff and the Guarantor, respectively, as fairly representing their financial condition as at the date as at which those financial statements were drawn up; and

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(b) shall be prepared using GAAP, accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements unless, in relation to any set of financial statements, the Borrower, Cardiff or the Guarantor notifies the Lender that there has been a change in GAAP, the accounting practices or reference periods and the Borrower’s, Cardiff’s or the Guarantor’s auditors, respectively, deliver to the Lender:

(i) a description of any change necessary for those financial statements to reflect the GAAP, accounting practices and reference periods upon which the Original Financial Statements were prepared; and

(ii) sufficient information, in form and substance as may be reasonably required by the Lender, to enable the Lender to make an accurate comparison between the financial position indicated in those financial statements and that indicated in the Original Financial Statements.

12.1.3 Interim financial statements   The Borrower shall supply to the Lender, and shall procure that Cardiff supply to the Lender, as soon as the same become available, but in any event within ninety (90) days after the end of each six (6) month period during each of their respective financial years, the unaudited semi-annual financial statements and management accounts for that six-month period.

12.1.4 Information: miscellaneous   The Borrower shall supply to the Lender:

(a) all documents dispatched by the Borrower to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched;

(b) promptly upon becoming aware of them, details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against any Security Party, and which might, if adversely determined, have a materially adverse effect on the business, assets, financial condition or credit worthiness of that Security Party and/or the Bareboat Charterer; and

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(c) promptly, such further information regarding the financial condition, business and operations of any Security Party as the Lender may reasonably request including, without limitation, cash flow analyses and details of the operating costs of the Vessel.

12.1.5 Notification of default

(a) The Borrower shall notify the Lender of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence.

(b) Promptly upon a request by the Lender, the Borrower shall supply to the Lender a certificate signed by two of its directors or senior officers or an authorised signatory on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it).

12.1.6 “Know your customer” checks   If:

(a) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;

(b) any change in the status of the Borrower after the date of this Agreement; or

(c) a proposed assignment or transfer by the Lender of any of its rights and obligations under this Agreement,

obliges the Lender (or, in the case of (c) above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall promptly upon the request of the Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Lender (for itself or, in the case of (c) above, on behalf of any prospective new Lender) in order for the Lender (or, in the case of (c) above, any prospective new Lender) to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents. 

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12.2 General undertakings

 12.2.1 Authorisations   The Borrower shall promptly: 

12.2.1.1 obtain, comply with and do all that is necessary to maintain in full force and effect; and

12.2.1.2 supply certified copies to the Lender of,

any consent, licence, approval or authorisation required under any law or regulation to enable each Security Party to perform its obligations under the Finance Documents to which it is a party and to ensure the legality, validity, enforceability or admissibility in evidence in the jurisdiction of incorporation of each relevant Security Party of any Finance Document.

12.2.2 Compliance with laws   The Borrower shall comply in all respects with all laws to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Finance Documents.

12.2.3 Conduct of business   The Borrower shall carry on and conduct its business ina proper and efficient manner, file all requisite tax returns and pay all tax which becomes due and payable (except where contested in good faith).

12.2.4 Evidence of good standing   The Borrower will from time to time if requested by the Lender provide the Lender with evidence in form and substance satisfactory to the Lender that the Security Parties and all corporate shareholders of any Security Party remain in good standing.

12.2.5 Negative pledge and no disposals   The Borrower shall not without the prior written consent of the Lender create nor permit to subsist any Encumbrance or other third party rights over any of its present or future assets or undertaking nor dispose of any those assets or of all or part of that undertaking.

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12.2.6 Merger   The Borrower shall not without the prior written consent of the Lender enter into any amalgamation, demerger, merger or corporate reconstruction.

12.2.7 Change of business   The Borrower shall not without the prior written consent of the Lender make any substantial change to the general nature of its business from that carried on at the date of this Agreement.

12.2.8 No other business   The Borrower shall not without the prior written consent of the Lender engage in any business other than the ownership, operation, chartering and management of the Vessel.

12.2.9 No place of business in UK or US   The Borrower shall not have an established place of business in the United Kingdom or the United States of America at any time during the Facility Period.

12.2.10 No borrowings   The Borrower shall not without the prior written consent of the Lender borrow any money (except for the Loan and unsecured Financial Indebtedness subordinated to the Loan) nor incur any obligations under leases.

12.2.11 No substantial liabilities   Except in the ordinary course of business, the Borrower shall not incur any liability to any third party which is in the Lender’s opinion of a substantial nature.

12.2.12 No loans or other financial commitments   The Borrower shall not without the prior written consent of the Lender make any loan nor enter into any guarantee or indemnity or otherwise voluntarily assume any actual or contingent liability in respect of any obligation of any other person except for loans made in the ordinary course of business in connection with the chartering, operation or repair of the Vessel.

12.2.13 No dividends   Upon the occurrence of an Event of Default,the Borrower shall not without the prior written consent of the Lender pay any dividends or make any other distributions to shareholders or issue any new shares.

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12.2.14 Inspection of records   The Borrower will permit the inspection of its financial records and accounts from time to time by the Lender or its nominee.

12.2.15 No change in Relevant Documents   The Borrower shall procure that, without the prior written consent of the Lender, there shall be no termination of, alteration to, or waiver of any term of, any of the Relevant Documents which are not Finance Documents.

12.2.16 No dealings with Master Agreement   The Borrower shall not assign, novate or encumber or in any other way transfer any of its rights or obligations under the Master Agreement, nor enter into any interest rate exchange or hedging agreement with anyone other than the Lender.

12.2.17 No change in shareholding  The Borrower shall not, without the Lender’s prior written consent, permit any change in its beneficial ownership or control.

12.2.18 No delivery into Bareboat Charter or Charter  The Borrower shall not permit the Vessel to be delivered into service under the Bareboat Charter or any Charter or other contract of employment until either the Borrower has received written confirmation from the Lender that the Mortgage has been registered against the Vessel or the Bareboat Charterer or Charterer (as applicable) has given to the Lender a subordination letter in a form and substance acceptable to the Lender, in its discretion, confirming that the Lender’s rights as mortgagee under the Mortgage rank before any maritime lien which the Bareboat Charterer or Charterer (as applicable) may have for its claims under or in connection with the Bareboat Charter or Charter respectively.

12.3 Vessel undertakings

12.3.1 No sale of Vessel   The Borrower shall not sell or otherwise dispose of the Vessel or any shares in the Vessel nor agree to do so without the prior written consent of the Lender.

12.3.2 No chartering after Event of Default   Following the occurrence and during the continuation of an Event of Default the Borrower shall not without the prior written consent of the Lender let the Vessel on charter or renew or extend any charter or other contract of employment of the Vessel (nor agree to do so).

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12.3.3 No change in management   The Borrower shall procure that, without the prior written consent of the Lender, there shall be no termination of, alteration to, or waiver of any term of, the Management Agreement(s) and the Borrower shall not, and shall procure that the Bareboat Charterer does not, without the prior written consent of the Lender, permit the Managers to sub-contract or delegate the commercial or technical management of the Vessel to any third party.

12.3.4 Registration of Vessel   The Borrower undertakes to maintain the registration of the Vessel under the flag stated in Recital (A) for the duration of the Facility Period unless the Lender agrees otherwise in writing.

12.3.5 Evidence of current COFR   The Borrower will, if and for so long as the Vessel trades in the United States of America and Exclusive Economic Zone (as defined in the United States Oil Pollution Act 1990), obtain, retain and provide the Lender with a copy of, a valid Certificate of Financial Responsibility for the Vessel under that Act and will comply strictly with the requirements of that Act.

12.3.6 ISM Code compliance   The Borrower will:

(a) procure that the Vessel remains for the duration of the Facility Period subject to a SMS;

(b) maintain a valid and current SMC for the Vessel throughout the Facility Period and provide a copy to the Lender;

(c) procure that the ISM Company maintains a valid and current DOC throughout the Facility Period and provide a copy to the Lender; and

(d) immediately notify the Lender in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the SMC of the Vessel or of the DOC of the ISM Company.

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12.3.7 ISPS Code compliance   The Borrower will:

(a) for the duration of the Facility Period comply with the ISPS Code in relation to the Vessel and procure that the Vessel and the ISPS Company comply with the ISPS Code;

(b) maintain a valid and current ISSC for the Vessel throughout the Facility Period and provide a copy to the Lender; and

(c) immediately notify the Lender in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the ISSC.

12.3.8 Annex VI compliance   The Borrower will:

(a) for the duration of the Facility Period comply with Annex VI in relation to the Vessel and procure that the Vessel’s master and crew are familiar with, and that the Vessel complies with, Annex VI;

(b) maintain a valid and current IAPPC for the Vessel throughout the Facility Period and provide a copy to the Lender; and

(c) immediately notify the Lender in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the IAPPC.

12.3.9 Physical condition survey   The Borrower will permit the Lender to conduct, and will procure that the Bareboat Charterer and/or any other Charterer permits the Lender to conduct, a physical condition survey of the Vessel and to conduct a comprehensive inspection of the class and other records of the Vessel by a surveyor appointed by the Lender (in its discretion) at any reasonable time and from time to time during the Facility Period, at the Borrower’s expense and without interruption of the operation of the Vessel.

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12.3.10 Financial covenants  The Borrower undertakes to, and shall procure that the Guarantor, immediately informs the Lender of any financial covenants given to any other bank or financial institution by the Guarantor or any financial covenants which evidence, in the opinion of the Lender, a stronger financial position in favour of such banks or other financial institutions and shall procure that the Guarantor undertakes to comply with any such financial covenants.

13   Events of Default

13.1 Events of Default   Each of the events or circumstances set out in this Clause 13.1 is an Event of Default.

13.1.1 Non-payment   The Borrower does not pay on the due date any amount payable by it under a Finance Document at the place at and in the currency in which it is expressed to be payable.

13.1.2 Other obligations   A Security Party or any other person (except the Lender) does not comply with any provision of any of the Relevant Documents to which that Security Party or person is a party (other than as referred to in Clause 13.1.1 (Non-payment)).

No Event of Default under this Clause 13.1.2 will occur if the failure to comply is capable of remedy and is remedied within ten (10) Business Days of the Lender giving notice to the Borrower or the Borrower becoming aware of the failure to comply.

13.1.3 Misrepresentation   Any representation, warranty or statement made or deemed to be repeated by a Security Party in any Finance Document or any other document delivered by or on behalf of a Security Party under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be repeated.

13.1.4 Cross default   Any Financial Indebtedness of a Security Party:

(a) is not paid when due or within any originally applicable grace period; or

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(b) is declared to be, or otherwise becomes, due and payable before its specified maturity as a result of an event of default (however described); or

(c) is capable of being declared by a creditor to be due and payable before its specified maturity as a result of such an event.

13.1.5 Insolvency

(a) A Security Party is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its Financial Indebtedness.

(b) The value of the assets of a Security Party is less than its liabilities (taking into account contingent and prospective liabilities).

(c) A moratorium is declared in respect of any Financial Indebtedness of a Security Party.

13.1.6 Insolvency proceedings   Any corporate action, legal proceedings or other procedure or step is taken for:

(a) the suspension of payments, a moratorium of any Financial Indebtedness, winding-up, dissolution, administration, bankruptcy or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of a Security Party (other than a solvent liquidation or reorganisation of a Security Party which is not the Borrower);

(b) a composition, compromise, assignment or arrangement with any creditor of a Security Party;

(c) the appointment of a liquidator (other than in respect of a solvent liquidation of a Security Party which is not the Borrower), receiver, administrative receiver, administrator, compulsory manager, or trustee or other similar officer in respect of any Security Party or any of its assets; or

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(d) enforcement of any Encumbrance over any assets of a Security Party,

or any analogous procedure or step is taken in any jurisdiction. 

13.1.7 Creditors’ process   Any expropriation, attachment, sequestration, distress or execution affects any asset or assets of a Security Party and is not discharged within fourteen (14) days.

13.1.8 Change in ownership or control of the Borrower   There is any change in the beneficial ownership or control of the Borrower from that advised to the Lender by the Borrower at the date of this Agreement.

13.1.9 Repudiation   A Security Party or any other person (except the Lender) repudiates any of the Relevant Documents to which that Security Party or person is a party or evidences an intention to do so.

13.1.10 Impossibility or illegality   Any event occurs which would, or would with the passage of time, render performance of any of the Relevant Documents by a Security Party or any other party to any such document impossible, unlawful or unenforceable by the Lender or a Security Party.

13.1.11 Conditions subsequent   Any of the conditions referred to in Clause 3.3 (Conditions subsequent)is not satisfied within the time reasonably required by the Lender.

13.1.12 Revocation or modification of authorisation   Any consent, licence, approval, authorisation, filing, registration or other requirement of any governmental, judicial or other public body or authority which is now, or which at any time during the Facility Period becomes, necessary to enable a Security Party or any other person (except the Lender) to comply with any of its obligations under any of the Relevant Documents is not obtained, is revoked, suspended, withdrawn or withheld, or is modified in a manner which the Lender considers is, or may be, prejudicial to the interests of the Lender, or ceases to remain in full force and effect.

13.1.13 Curtailment of business   A Security Party ceases, or threatens to cease, to carry on all or a substantial part of its business or, as a result of intervention by or under the authority of any government, the business of a Security Party is wholly or partially curtailed or suspended, or all or a substantial part of the assets or undertaking of a Security Party is seized, nationalised, expropriated or compulsorily acquired.

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13.1.14  Reduction of capital   A Security Party reduces its authorised or issued or subscribed capital. 

13.1.15 Loss of Vessel   The Vessel suffers a Total Loss or is otherwise destroyed, abandoned, confiscated, forfeited or condemned as prize, or a similar event occurs in relation to any other vessel which may from time to time be mortgaged to the Lender as security for the payment of all or any part of the Indebtedness, except that a Total Loss, or event similar to a Total Loss in relation to any other vessel, shall not be an Event of Default if:

(a) the Vessel or other vessel is insured in accordance with the Security Documents; and

(b) no insurer has refused to meet or has disputed the claim for Total Loss and it is not apparent to the Lender in its discretion that any such refusal or dispute is likely to occur; and

(c) payment of all insurance proceeds in respect of the Total Loss is made in full to the Lender within one hundred and twenty (120) days of the occurrence of the casualty giving rise to the Total Loss in question or such longer period as the Lender may in its discretion agree.

13.1.16 Challenge to registration   The registration of the Vessel or the Mortgage is contested or becomes void or voidable or liable to cancellation or termination, or the validity or priority of the Mortgage is contested.

13.1.17 War   The country of registration of the Vessel becomes involved in war (whether or not declared) or civil war or is occupied by any other power and the Borrower does not, within thirty (30) days of such war or civil war, change the flag of the Vessel to a flag acceptable to the Lender in its absolute discretion and the Lender in its discretion considers that, as a result, the security conferred by the Security Documents is materially prejudiced.

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13.1.18 Master Agreement termination   The Master Agreement is for any reason terminated, cancelled, suspended, rescinded, revoked or otherwise ceases to remain in full force and effect, unless any such event occurs subject to an agreement between the Lender and the Borrower.

13.1.19 Notice of termination   The Guarantor gives notice to the Lender to determine its obligations under the Guarantee.

13.1.20 Material adverse change   Any event or series of events occurs which, in the opinion of the Lender, is likely to have a materially adverse effect on the business, assets, financial condition or credit worthiness of a Security Party.

13.2 Acceleration   If an Event of Default is continuing the Lender may by notice to the Borrower:

13.2.1 declare that the Loan, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents are immediately due and payable, whereupon they shall become immediately due and payable; and/or

13.2.2 declare that the Loan is payable on demand, whereupon it shall immediately become payable on demand by the Lender.

14   Assignment and Sub-Participation

14.1 Lender’s rights   With prior written notice to the Borrower, the Lender may assign any of its rights under this Agreement or transfer by novation any of its rights and obligations under this Agreement to any other branch of the Lender or to any other bank or financial institution, and may grant sub-participations in all or any part of the Loan.

14.2 Borrower’s co-operation   The Borrower will co-operate fully with the Lender in connection with any assignment, transfer or sub-participation; will execute and procure the execution of such documents as the Lender may require in that connection; and irrevocably authorises the Lender to disclose to any proposed assignee, transferee or sub-participant (whether before or after any assignment, transfer or sub-participation and whether or not any assignment, transfer or sub-participation shall take place) all information relating to the Security Parties, the Loan, the Relevant Documents and the Vessel which the Lender may in its discretion consider necessary or desirable.

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14.3 Rights of assignee or transferee   Any assignee or transferee of the Lender shall (unless limited by the express terms of the assignment or novation) take the full benefit of every provision of the Finance Documents benefiting the Lender.

14.4 No assignment or transfer by the Borrower   The Borrower may not assign any of its rights or transfer any of its rights or obligations under the Finance Documents.

15   The Master Agreement

15.1 Applicability   The following provisions of this Clause 15 will apply if the Lender and the Borrower have entered, or enter during the Facility Period, at the Lender’s discretion, into one or more Transactions to hedge interest rate risks in respect of the Loan or any part thereof.

15.2 Additional Termination   If the Loan is for any reason not advanced to the Borrower on or before the Availability Termination Date, and the Lender and the Borrower have entered into any Transactions on or before the Availability Termination Date, these Transactions shall terminate on the Availability Termination Date.

15.3 Adjustment of Notional Amounts   If:

15.3.1 the amount of the Loan actually advanced by the Lender to the Borrower is less than the Notional Amount (or the aggregate Notional Amounts) of the Hedging Transactions entered into on or before the Drawdown Date; or

15.3.2 the Borrower prepays part of the Loan under any provision of this Agreement, and the amount of the Loan remaining outstanding after that prepayment is less than the Notional Amount (or the aggregate Notional Amounts) of the Hedging Transactions then in effect,

the Borrower’s obligations under those Hedging Transactions shall (unless otherwise agreed by the Lender) be calculated (so far as the Lender considers it practicable to do so) by reference to a Notional Amount (or aggregate Notional Amounts) equal to the amount of the Loan actually advanced or remaining outstanding after that prepayment, as reduced on each Repayment Date by the amount of the Repayment Instalment then due, and adjusted if necessary in accordance with Clause 5.2 (Reduction of Repayment Instalments). 

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15.4 Authority   In order to give effect to Clause 15.3 (Adjustments of Notional Amounts), or in the event of voluntary or mandatory prepayment by the Borrower of the whole of the Loan, the Borrower irrevocably authorises the Lender to amend, restructure, unwind, cancel, net out, terminate, liquidate, transfer or assign any of the rights or obligations under any Hedging Transaction, and/or to enter into any other interest rate exchange and/or hedging transaction or commitment with any other counterparty.

15.5 Termination of Transactions   If the exercise of the Lender’s rights under Clause 15.2 (Additional Termination) and/or Clause 15.4 (Authority) results in the termination of any Transaction, that Transaction shall, for the purposes of the Master Agreement (including, without limitation, section 7.1 of the Master Agreement) be treated as a terminated transaction resulting from an Event of Default by the Borrower.

15.6 Indemnity   The Borrower will indemnify the Lender from time to time on demand in respect of all liabilities, losses, costs or expenses suffered, incurred or sustained by the Lender arising in any way in relation to the exercise by the Lender of its rights under this Clause 15, or arising in any way from any other termination, cancellation, unwinding or restructuring of any Transaction.

16   Set-Off

16.1 Set-off   The Lender may set off any matured obligation due from the Borrower under any Finance Document against any matured obligation owed by the Lender to the Borrower, regardless of the place of payment, booking branch or currency of either obligation.  If the obligations are in different currencies, the Lender may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

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16.2 Master Agreement rights   The rights conferred on the Lender by this Clause 16 shall be in addition to, and without prejudice to or limitation of, the rights of netting and set off conferred on the Lender by the Master Agreement.

17   Payments

17.1 Payments   Each amount payable by the Borrower under a Finance Document shall be paid to such account at such bank as the Lender may from time to time direct to the Borrower in the Currency of Account and in such funds as are customary at the time for settlement of transactions in the relevant currency in the place of payment.  Payment shall be deemed to have been received by the Lender on the date on which the Lender receives authenticated advice of receipt, unless that advice is received by the Lender on a day other than a Business Day or at a time of day (whether on a Business Day or not) when the Lender in its discretion considers that it is impossible or impracticable for the Lender to utilise the amount received for value that same day, in which event the payment in question shall be deemed to have been received by the Lender on the Business Day next following the date of receipt of advice by the Lender.

17.2 No deductions or withholdings   Each payment (whether of principal or interest or otherwise) to be made by the Borrower under a Finance Document shall, subject only to Clause 17.3 (Grossing-up), be made free and clear of and without deduction for or on account of any Taxes or other deductions, withholdings, restrictions, conditions or counterclaims of any nature.

17.3 Grossing-up   If at any time any law requires (or is interpreted to require) the Borrower to make any deduction or withholding from any payment, or to change the rate or manner in which any required deduction or withholding is made, the Borrower will promptly notify the Lender and, simultaneously with making that payment, will pay to the Lender whatever additional amount (after taking into account any additional Taxes on, or deductions or withholdings from, or restrictions or conditions on, that additional amount) is necessary to ensure that, after making the deduction or withholding, the Lender receives a net sum equal to the sum which the Lender would have received had no deduction or withholding been made.

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17.4 Evidence of deductions   If at any time the Borrower is required by law to make any deduction or withholding from any payment to be made by it under a Finance Document, the Borrower will pay the amount required to be deducted or withheld to the relevant authority within the time allowed under the applicable law and will, no later than thirty (30) days after making that payment, deliver to the Lender an original receipt issued by the relevant authority, or other evidence acceptable to the Lender, evidencing the payment to that authority of all amounts required to be deducted or withheld.

17.5 Adjustment of due dates   If any payment or transfer of funds to be made under a Finance Document, other than a payment of interest on the Loan or a payment under the Master Agreement, shall be due on a day which is not a Business Day, that payment shall be made on the next succeeding Business Day (unless the next succeeding Business Day falls in the next calendar month in which event the payment shall be made on the next preceding Business Day).  Any such variation of time shall be taken into account in computing any interest in respect of that payment.

17.6 Control Account   The Lender shall open and maintain on its books a control account in the name of the Borrower showing the advance of the Loan and the computation and payment of interest and all other sums due under this Agreement and the Master Agreement.  The Borrower’s obligations to repay the Loan and to pay interest and all other sums due under this Agreement and the Master Agreementshall be evidenced by the entries from time to time made in the control account opened and maintained under this Clause 17.6 and those entries will, in the absence of manifest error, be conclusive and binding.

18   Notices

18.1 Communications in writing   Any communication to be made under or in connection with this Agreement shall be made in writing and, unless otherwise stated, may be made by fax or letter.

18.2 Addresses   The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each party to this Agreement for any communication or document to be made or delivered under or in connection with this Agreement are:

18.2.1 in the case of the Borrower, c/o Cardiff Marine Inc. of 80 Kifissias Avenue, 151 25 Amaroussion, Greece (fax no: +30 210 809 0585) marked for the attention of Mr. A. Ioannidis; and

18.2.2 in the case of the Lender, at the address at the head of this Agreement (fax no: +49 40 3333 34118) marked for the attention of Timo Kühl;

 or any substitute address, fax number, department or officer as either party may notify to the other by not less than five (5) Business Days’ notice.

18.3   Delivery   Any communication or document made or delivered by one party to this Agreement to the other under or in connection this Agreement will only be effective: 

18.3.1 if by way of fax, when received in legible form; or

18.3.2 if by way of letter, when it has been left at the relevant address or five (5) Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address;

and, if a particular department or officer is specified as part of its address details provided under Clause 18.2 (Addresses), if addressed to that department or officer. 

Any communication or document to be made or delivered to the Lender will be effective only when actually received by the Lender. 

18.4 English language   Any notice given under or in connection with this Agreement must be in English.  All other documents provided under or in connection with this Agreement must be:

18.4.1 in English; or

18.4.2 if not in English, and if so required by the Lender, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.

19   Partial Invalidity

If, at any time, any provision of a Finance Document is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.

20   Remedies and Waivers

No failure to exercise, nor any delay in exercising, on the part of the Lender, any right or remedy under a Finance Document shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy.  The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.

21   Miscellaneous

21.1 No oral variations   No variation or amendment of a Finance Document shall be valid unless in writing and signed on behalf of the Lender.

21.2 Further Assurance   If any provision of a Finance Document shall be invalid or unenforceable in whole or in part by reason of any present or future law or any decision of any court, or if the documents at any time held by or on behalf of the Lender are considered by the Lender for any reason insufficient to carry out the terms of this Agreement, then from time to time the Borrower will promptly, on demand by the Lender, execute or procure the execution of such further documents as in the opinion of the Lender are necessary to provide adequate security for the repayment of the Indebtedness.

21.3 Rescission of payments etc.   Any discharge, release or reassignment by the Lender of any of the security constituted by, or any of the obligations of a Security Party and/or the Bareboat Charterer contained in, a Finance Document shall be (and be deemed always to have been) void if any act (including, without limitation, any payment) as a result of which such discharge, release or reassignment was given or made is subsequently wholly or partially rescinded or avoided by operation of any law.

21.4 Certificates   Any certificate or statement signed by an authorised signatory of the Lender purporting to show the amount of the Indebtedness (or any part of the Indebtedness) or any other amount referred to in any Finance Document shall, save for manifest error or on any question of law, be conclusive evidence as against the Borrower of that amount.

21.5 Counterparts   This Agreement may be executed in any number of counterparts each of which shall be original but which shall together constitute the same instrument.

21.6 Contracts (Rights of Third Parties) Act 1999   A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement.

22   Law and Jurisdiction

22.1 Governing law   This Agreement shall in all respects be governed by and interpreted in accordance with English law.

22.2 Jurisdiction   For the exclusive benefit of the Lender, the parties to this Agreement irrevocably agree that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that any proceedings may be brought in those courts.

22.3 Alternative jurisdictions   Nothing contained in this Clause 22 shall limit the right of the Lender to commence any proceedings against the Borrower in any other court of competent jurisdiction nor shall the commencement of any proceedings against the Borrower in one or more jurisdictions preclude the commencement of any proceedings in any other jurisdiction, whether concurrently or not.

22.4 Waiver of objections   The Borrower irrevocably waives any objection which it may now or in the future have to the laying of the venue of any proceedings in any court referred to in this Clause 22, and any claim that those proceedings have been brought in an inconvenient or inappropriate forum, and irrevocably agrees that a judgment in any proceedings commenced in any such court shall be conclusive and binding on it and may be enforced in the courts of any other jurisdiction.

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22.5 Service of process   Without prejudice to any other mode of service allowed under any relevant law, the Borrower:

22.5.1  irrevocably appoints Ince & Co. of International House, 1 St. Katharine’s Way, London E1W 1AY, United Kingdom, c/o Mr. M. Volikas as its agent for service of process in relation to any proceedings before the English courts in connection with this Agreement; and 

22.5.2 agrees that failure by a process agent to notify the Borrower of the process will not invalidate the proceedings concerned.

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SCHEDULE 1: Conditions Precedent and Subsequent

Part I: Conditions precedent

1   Security Parties

(a) Constitutional Documents   Copies of the constitutional documents of each Security Party and/or the relevant Bareboat Charterer and its general partner (as applicable) together with such other evidence as the Lender may reasonably require that each Security Party and/or the relevant Bareboat Charterer (as applicable) is duly incorporated in its country of incorporation and remains in existence with power to enter into, and perform its obligations under, the Relevant Documents to which it is or is to become a party.

(b) Certificates of good standing   A certificate of good standing in respect of each Security Party.

(c) Board resolutions   A copy of a resolution of the board of directors of each Security Party and the relevant Bareboat Charterer (if applicable):

(i) approving the terms of, and the transactions contemplated by, the Relevant Documents to which it is a party and resolving that it execute those Relevant Documents; and

(ii) authorising a specified person or persons to execute those Relevant Documents (and all documents and notices to be signed and/or despatched under those documents) on its behalf.

(d) Shareholder resolutions   A copy of a resolution signed by all the holders of the issued shares in each Security Party and the relevant Bareboat Charterer (if applicable), approving the terms of, and the transactions contemplated by, the Relevant Documents to which that Security Party and the relevant Bareboat Charterer (if applicable) is a party.

(e) Officer’s certificates   A certificate of a duly authorised officer of each Security Party and the relevant Bareboat Charterer (if applicable) certifying that each copy document relating to it specified in this Part I of Schedule 1 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement and setting out the names of the directors, officers and shareholders of that Security Party and the relevant Bareboat Charterer and the proportion of shares held by each shareholder.

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(f) Evidence of registration   Where such registration is required or permitted under the laws of the relevant jurisdiction, evidence that the names of the directors, officers and shareholders of each Security Party are duly registered in the companies registry or other registry in the country of incorporation of that Security Party and certified register excerpts of the relevant Bareboat Charterer and its general partner of recent date.

(g) Powers of attorney   The notarially attested and legalised power of attorney of each Security Party and the relevant Bareboat Charterer (if applicable) under which any documents are to be executed or transactions undertaken by that Security Party and the relevant Bareboat Charterer and its general partner (if applicable).

2  Security and related documents

(a) Vessel documents   Photocopies, certified as true, accurate and complete by a director or the secretary or the legal advisers of the Borrower, of:

(i) the MOA;

(ii) the bill of sale transferring title in the Vessel to the Borrower free of all encumbrances, maritime liens or other debts;

(iii) the protocol of delivery and acceptance evidencing the unconditional physical delivery of the Vessel by the Seller to the Borrower pursuant to the MOA;

(iv) any charterparty or other contract of employment of the Vessel which will be in force on the Drawdown Date including, without limitation, the Bareboat Charter or any Charter (as applicable) together with any addenda thereto;

(v) the Management Agreements;

(vi) the Vessel’s current Safety Construction, Safety Equipment, Safety Radio and Load Line Certificates;

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(vii) the Vessel’s current SMC;

(viii) the ISM Company’s current DOC;

(ix) the Vessel’s current ISSC;

(x) the Vessel’s current IAPPC;

(xi) the Vessel’s current Tonnage Certificate;

in each case together with all addenda, amendments or supplements.

(b) Evidence of Seller’s title   Certificate of ownership and encumbrance (or equivalent) issued by the Registrar of Ships (or equivalent official) of the Vessel’s current flag confirming that the Vessel is owned by the Seller and free of registered Encumbrances and an undertaking by the Seller to delete the Vessel from its current flag.

(c) Evidence of Borrower’s title   Evidence that on the Drawdown Date (i) the Vessel will be at least provisionally registered under the flag stated in Recital (A) in the ownership of the Borrower and (ii) the Mortgage will be capable of being registered against the Vessel with first priority.

(d) Evidence of insurance   Evidence that the Vessel is insured in the manner required by the Security Documents and that letters of undertaking will be issued in the manner required by the Security Documents, together with (if required by the Lender) the written approval of the Insurances by an insurance adviser appointed by the Lender.

(e) Confirmation of class   A Certificate of Confirmation of Class for hull and machinery confirming that the Vessel is classed with the highest class applicable to vessels of her type with Lloyd’s Register or such other classification society as may be acceptable to the Lender free of overdue recommendations affecting class.

(f) Survey report   Areport by a surveyor (at the expense of the Borrower) instructed by the Lender to inspect the Vessel confirming that the condition of the Vessel is in all respects acceptable to the Lender.

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(g) Valuation   A valuation of the Vessel addressed to the Lender from a broker acceptable to the Lender certifying a value for the Vessel, assessed in such manner as the Lender may require, acceptable to the Lender.

(h) Security Documents   The Security Documents, together with all other documents required by any of them, including, without limitation, all notices of assignment and/or charge and evidence that those notices will be duly acknowledged by the recipients together with an acknowledgement in respect of the Vessel containing, inter alia, a confirmation that there does not exist any prior notice of assignment in respect of the Vessel and stating that the relevant Bareboat Charterer or the Charterer (as applicable) fully subordinates its rights in respect of the Vessel and the Borrower to the rights of the Lender under the Security Documents.

(i) Managers’ confirmation   The written confirmation of the relevant Managers that, throughout the Facility Period during which the Bareboat Charter is in effect, unless otherwise agreed by the Lender, they will remain the commercial and technical managers of the Vessel and that they will not, without the prior written consent of the Lender, sub-contract or delegate the commercial or technical management of the Vessel to any third party and confirming in terms acceptable to the Lender that, following the occurrence of an Event of Default, all claims of the Managers against the relevant Bareboat Charterer shall be subordinated to the claims of the Lender under the Finance Documents.

(j) No disputes   The written confirmation of the Borrower that there is no dispute under any of the Relevant Documents as between the parties to any such document.

(k) Other Relevant Documents   Copies of each of the Relevant Documents not otherwise comprised in the documents listed in this Part I of Schedule 1.

3 Legal opinions

If a Security Party and the Bareboat Charterer is incorporated in a jurisdiction other than England and Wales or if any Finance Document is governed by the laws of a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Lender in each relevant jurisdiction, substantially in the form or forms provided to the Lender prior to signing this Agreement or confirmation satisfactory to the Lender that such an opinion will be given.

45

4 Other documents and evidence

(a) Drawdown Notice   A duly completed Drawdown Notice.

(b) Process agent   Evidence that any process agent referred to in Clause 22.5 (Service of process) and any process agent appointed under any other Finance Document has accepted its appointment.

(c) Other authorisations   A copy of any other consent, licence, approval, authorisation or other document, opinion or assurance which the Lender considers to be necessary or desirable (if it has notified the Borrower accordingly) in connection with the entry into and performance of the transactions contemplated by any of the Relevant Documents or for the validity and enforceability of any of the Relevant Documents.

(d) Financial statements   Copies of the Original Financial Statements.

(e) Fees   Evidence that the fees, costs and expenses then due from the Borrower under Clause 8 (Indemnities) and Clause 9 (Fees) have been paid or will be paid by the Drawdown Date.

(f) “Know your customer” documents   Such documentation and other evidence as is reasonably requested by the Lender in order for the Lender to comply with all necessary “know your customer” or similar identification procedures in relation to the transactions contemplated in the Finance Documents.

(g) Mortgagee’s Insurances Fees Payment to the Lender of all fees in relation to inspections, valuations, legal fees and premiums for Mortgagee’s Insurances (MII and MAP).

46

Part II: Conditions subsequent

1   Evidence of Borrower’s title   Certificate of ownership and encumbrance (or equivalent) issued by the Registrar of Ships (or equivalent official) of the flag stated in Recital (A) confirming that (a) the Vessel is permanently registered under that flag in the ownership of the Borrower, (b) the Mortgage has been registered with first priority against the Vessel and (c) there are no further Encumbrances registered against the Vessel.

2 Deletion by Seller   Evidence that the Vessel has been deleted from its current flag.

3 Letters of undertaking   Letters of undertaking in respect of the Insurances as required by the Security Documents together with copies of the relevant policies or cover notes or entry certificates duly endorsed with the interest of the Lender.

4 Acknowledgements of notices   Acknowledgements of all notices of assignment and/or charge given pursuant to the Security Documents.

5 Legal opinions   Such of the legal opinions specified in Part I of this Schedule 1 as have not already been provided to the Lender.

6 Companies Act registrations   Evidence that the prescribed particulars of the Security Documents have been delivered to the Registrar of Companies of England and Wales within the statutory time limit.

7 Managers’ confirmation   The written confirmation of the relevant Managers that, throughout the Facility Period during which any other Charter other than the Bareboat Charter is in effect, unless otherwise agreed by the Lender, they will remain the commercial and technical managers of the Vessel and that they will not, without the prior written consent of the Lender, sub-contract or delegate the commercial or technical management of the Vessel to any third party and confirming in terms acceptable to the Lender that, following the occurrence of an Event of Default, all claims of the Managers against the  Owner shall be subordinated to the claims of the Lender under the Finance Documents.

8 Certificate of Financial Responsibility  A photocopy, certified as true, accurate and complete by a director or the secretary or the legal advisers of the Borrower of the Vessel’s current Certificate of Financial Responsibility issued pursuant to the United States Oil Pollution Act 1990 to be provided by the Borrower by 31 October 2007.

9 Carrier Initiative Agreement  A photocopy, certified as true, accurate and complete by a director or the secretary or the legal advisers of the Borrower of the Borrower’s current Carrier Initiative Agreement with the United States’ Customs Service to be provided by the Borrower by 31 October 2007.

47

SCHEDULE 2: Form of Drawdown Notice

To: DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT

From:  IOLI OWNING COMPANY LIMITED 

[Date]

Dear Sirs

Drawdown Notice

We refer to the Loan Agreement dated                      200  made between ourselves and yourselves (the“Agreement”).

Words and phrases defined in the Agreement have the same meaning when used in this Drawdown Notice.

Pursuant to Clause 4 of the Agreement, we irrevocably request that you advance the sum of [                                    ] to us on                                         200  , which is a Business Day, by paying the amount of the advance in accordance with the MOA.

We warrant that the representations and warranties contained in Clause 11.1 of the Agreement are true and correct at the date of this Drawdown Notice and will be true and correct on               200 , that no Default has occurred and is continuing, and that no Default will result from the advance of the sum requested in this Drawdown Notice.

We select the period of [       ] months as the first Interest Period.

Yours faithfully

...................................

For and on behalf of

IOLI OWNING COMPANY LIMITED

48

IN WITNESS of which the parties to this Agreement have executed this Agreement the day and year first before written.

SIGNED by	)
duly authorised for and on behalf	)
of IOLI OWNING COMPANY LIMITED	)
SIGNED by	)
duly authorised for and on behalf	)
of DEUTSCHE SCHIFFSBANK	)
AKTIENGESELLSCHAFT	)

49

SK 23113 0002 867882

EX-4.11

Exhibit 4.11

Private & Confidential

LOAN AGREEMENT

for a Loan of up to

US$47,000,000

to

IASON OWNING COMPANY LIMITED

provided by

EFG EUROBANK ERGASIAS S.A.

Contents

Clause		Page
1	Purpose and definitions	1
2	The Commitment and the Loan	8
3	Interest and Interest Periods	9
4	Repayment and prepayment	11
5	Fees, commitment commission and expenses	12
6	Payments and taxes; accounts and calculations	13
7	Representations and warranties	14
8	Undertakings	18
9	Conditions	24
10	Events of Default	24
11	Indemnities	28
12	Unlawfulness and increased costs	29
13	Security and set-off	30
14	Accounts	31
15	Assignment, transfer and lending office	33
16	Notices and other matters	34
17	Governing law and jurisdiction	35
Schedule 1 Form of Drawdown Notice		36
Schedule 2 Documents and evidence required as conditions precedent to the  Loan being made		37
Schedule 3 Form of Corporate Guarantee		41
Schedule 4 Form of Mortgage		42
Schedule 5 Form of Deed of Covenant		43
Schedule 6 Form of Manager’s Undertaking		44
Schedule 7 Form of Master Swap Agreement		45
Schedule 8 Form of Master Agreement Security Deed		46

THIS AGREEMENT is dated 16 November 2007 and made BETWEEN:

(1)   IASON OWNING COMPANY LIMITED as Borrower; and

(2)   EFG EUROBANK ERGASIAS S.A. as Bank.

IT IS AGREED as follows:

1   Purpose and definitions

1.1   Purpose

This Agreement sets out the terms and conditions upon and subject to which the Bank agrees to make available to the Borrower a loan of up to Forty seven million Dollars ($47,000,000) to be used for the purpose of financing part of the cost of the purchase of the Ship.

1.2   Definitions

In this Agreement, unless the context otherwise requires:

“Accounts” means, together, the Earnings Account and the Retention Account and “Account” means either of them;

“Accounts Pledges” means, together, the Earnings Account Pledge and the Retention Account Pledge and “Account Pledge” means either of them;

“Applicable Accounting Principles” means the most recent and up-to-date US GAAP at any relevant time;

“Assignee” has the meaning ascribed thereto in clause 15.3;

“Balloon Instalment” has the meaning ascribed thereto in clause 4.1;

“Bank” means EFG Eurobank Ergasias S.A. whose registered office is at 8 Othonos Street, Athens 105 57, Greece acting (a) for the purposes of this Agreement through its office at 83 Akti Miaouli & Flessa Street, Piraeus 185 38, Greece (or of such other address as may last have been notified to the Borrower pursuant to clause 15.6) and (b) for the purposes of the Master Swap Agreement through its head office at 8 Othonos Street, Athens 105 57, Hellenic Republic and/or its branch at 24 Grafton Street, London W1S 4EZ, England and includes its successors in title, Assignees or Transferees;

“Banking Day” means a day on which dealings in deposits in Dollars are carried on in the London Interbank Market and (other than Saturday or Sunday) on which banks are open for business in London, Piraeus and New York City (or any other relevant place of payment under clause 6);

“Borrowed Money” means Indebtedness incurred in respect of (i) money borrowed or raised and debit balances at banks, (ii) any bond, note, loan stock, debenture or similar debt instrument, (iii) acceptance or documentary credit facilities, (iv) receivables sold or discounted (otherwise than on a non-recourse basis), (v) deferred payments for assets or services acquired, (vi) leases and hire purchase contracts, (vii) swaps, forward exchange contracts, futures and other derivatives, (viii) any other transaction (including without limitation forward sale or purchase agreements) having the commercial effect of a borrowing or raising of money or of any of (ii) to (vii) above and (ix) guarantees in respect of Indebtedness of any person falling within any of (i) to (vii) above;

“Borrower” means Iason Owning Company Limited of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Republic of the Marshall Islands MH96960 and includes its successors in title;

1

“Borrower's Security Documents” means, at any relevant time, such of the Security Documents as shall have been executed by the Borrower at such time;

“Charter” means any time or voyage charterparty for a term which exceeds or by virtue of any optional extensions therein contained might exceed twelve (12) months’ duration which may be entered into by the Borrower with a Charterer during the Security Period;

“Charter Assignment” means an assignment of any Charter executed or (as the context may require) to be executed by the Borrower in favour of the Bank in such form as the Bank may require in its sole discretion if a Charter is entered into by the Borrower with a Charterer;

“Charterer” means such person as shall be acceptable to the Bank which shall enter into a charterparty in respect of the Ship with the Borrower;

“Classification” means the classification +A1, Bulk Carrier, +AMS, +ACCU, SH, HCS with the Classification Society or such other classification as the Bank shall, at the request of the Borrower, have agreed in writing shall be treated as the Classification for the purposes of the Security Documents;

“Classification Society” means American Bureau of Shipping or such other classification society which the Bank shall, at the request of the Borrower, have agreed in writing shall be treated as the Classification Society for the purposes of the Security Documents;

“Code” means the International Management Code for the Safe Operation of Ships and for Pollution Prevention constituted pursuant to Resolution A.741(18) of the International Maritime Organization and incorporated into the International Convention for the Safety of Life at Sea 1974 (as amended) and includes any amendments or extensions thereto and any regulation issued pursuant thereto;

“Commitment” means the amount which the Bank has agreed to lend to the Borrower under clause 2.1 as reduced by any relevant term of this Agreement;

“Compulsory Acquisition” means requisition for title or other compulsory acquisition, requisition, appropriation, expropriation, deprivation, forfeiture or confiscation for any reason of the Ship by any Government Entity or other competent authority, whether de jure or de facto, but shall exclude requisition for use or hire not involving requisition of title;

“Confirmation” shall have, in relation to any continuing Designated Transaction, the meaning ascribed to it in the Master Swap Agreement;

“Contract” means the memorandum of agreement dated 13 July 2007, made between (inter alios) the Seller and the Corporate Guarantor, as amended and supplemented by an Addendum No. 1 thereto dated 17 July 2007 and made between the Seller, the Corporate Guarantor and the Borrower (pursuant to which the Corporate Guarantor has nominated the Borrower as buyer) and by an Addendum No. 2 thereto dated 15 October 2007 and as may be further amended and supplemented from time to time, relating to the sale by the Seller, and the purchase by the Borrower, of the Ship;

“Contract Price” means the price payable by the Borrower to the Seller for the Ship in accordance with the Contract, being the purchase sum of Sixty seven million one hundred and seventy five thousand Dollars ($67,175,000) or such other sum as is determined in accordance with the terms and conditions of the Contract to be the purchase price for the Ship thereunder;

“Corporate Guarantee” means the corporate guarantee executed or (as the context may require) to be executed by the Corporate Guarantor in favour of the Bank in the form or substantially the form set out in schedule 3;

“Corporate Guarantor” means DryShips Inc. of Trust Company Complex, Ajeltake Island, P.O.Box 1405, Majuro, Marshall Islands MH96960, and includes its successors in title;

2

“Deed of Covenant” means the deed of covenant collateral to the Mortgage executed or (as the context may require) to be executed by the Borrower in favour of the Bank in the form or substantially the form set out in schedule 5;

“Default” means any Event of Default or any event or circumstance which with the giving of notice or lapse of time or the satisfaction of any other condition (or any combination thereof) would constitute an Event of Default;

“Delivery” means the delivery of the Ship by the Seller to the Borrower, and the acceptance of the Ship by the Borrower pursuant to the Contract;

“Delivery Date” means the date upon which Delivery occurs;

“Designated Transaction” means any Transaction which is entered into by the Borrower pursuant to the Master Swap Agreement with the Bank as contemplated by clause 2.7;

“DOC” means a document of compliance issued to an Operator in accordance with rule 13 of the Code;

“Dollars” and “$” mean the lawful currency of the United States of America and in respect of all payments to be made under any of the Security Documents mean funds which are for same day settlement in the New York Clearing House Interbank Payments System (or such other U.S. dollar funds as may at the relevant time be customary for the settlement of international banking transactions denominated in U.S. dollars);

“Drawdown Date” means the date, being a Banking Day falling not later than the Termination Date, on which the Loan is, or is to be, drawn down;

“Drawdown Notice” means a notice substantially in the form of schedule 1;

“Early Termination Date” shall have, in relation to any continuing Designated Transaction, the meaning ascribed to it in the Master Swap Agreement;

“Earnings” means all money whatsoever from time to time due or payable to the Borrower during the Security Period (as such term is defined in the Deed of Covenant) arising out of the use or operation of the Ship including (but without limiting the generality of the foregoing) all freight, hire and passage moneys, income arising out of pooling arrangements, compensation payable to the Borrower in the event of requisition of the Ship for hire, remuneration for salvage or towage services, demurrage and detention moneys and damages for breach (or payment for variation or termination) of any charterparty or other contract for the employment of the Ship and any sums recoverable under any loss of earnings insurance;

“Earnings Account” means an interest bearing Dollar account of the Borrower opened or (as the context may require) to be opened by the Borrower with the Bank and includes any sub-accounts thereof and any other account designated in writing by the Bank to be an “Earnings Account” for the purposes of this Agreement;

“Earnings Account Pledge” means the pledge executed or (as the context may require) to be executed by the Borrower in favour of the Bank, in respect of the Earnings Account, in such form as the Bank may require in its sole discretion;

“Encumbrance” means any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest or other encumbrance of any kind securing any obligation of any person or any type of preferential arrangement (including without limitation title transfer and/or retention arrangements having a similar effect);

“Environmental Affiliate” means any agent or employee of the Borrower or any other Relevant Party or any person having a contractual relationship with the Borrower or any other Relevant Party in connection with any Relevant Ship or its operation or the carriage of cargo and/or passengers thereon and/or the provision of goods and/or services on or from such Relevant Ship;

3

“Environmental Approval” means any consent, authorisation, licence or approval of any governmental or public body or authorities or courts applicable to any Relevant Ship or its operation or the carriage of cargo and/or passengers thereon and/or the provision of goods and/or services on or from such Relevant Ship required under any Environmental Law;

“Environmental Claim” means any and all enforcement, clean-up, removal or other governmental or regulatory actions or orders instituted or completed pursuant to any Environmental Law or any Environmental Approval together with claims made by any third party relating to damage, contribution, loss or injury, resulting from any actual or threatened emission, spill, release or discharge of a Material of Environmental Concern from any Relevant Ship;

“Environmental Laws” means all national, international and state laws, rules, regulations, treaties and conventions applicable to any Relevant Ship pertaining to the pollution or protection of human health or the environment including, without limitation, the carriage of Materials of Environmental Concern and actual or threatened emissions, spills, releases or discharges of Materials of Environmental Concern;

“Event of Default” means any of the events or circumstances described in clause 10.1;

“Flag State” means the Malta or such other state or territory designated in writing by the Bank, at the request of the Borrower, as being the “Flag State” of the Ship for the purposes of the Security Documents;

“Government Entity” means and includes (whether having a distinct legal personality or not) any national or local government authority, board, commission, department, division, organ, instrumentality, court or agency and any association, organisation or institution of which any of the foregoing is a member or to whose jurisdiction any of the foregoing is subject or in whose activities any of the foregoing is a participant;

“Group” means, together, the Corporate Guarantor and its Subsidiaries from time to time and “member of the Group” shall be constructed accordingly;

“Indebtedness” means any obligation for the payment or repayment of money, whether as principal or as surety and whether present or future, actual or contingent;

“Interest Payment Date” means the last day of an Interest Period;

“Interest Period” means each period for the calculation of interest in respect of the Loan ascertained in accordance with clauses 3.2 and 3.3;

“ISPS Code” means the International Ship and Port Facility Security Code constituted pursuant to resolution A.924(22) of the International Maritime Organisation now set out in Chapter XI-2 of the International Convention for the Safety of Life at Sea (SOLAS) 1974 (as amended) and the mandatory ISPS Code as adopted by a Diplomatic Conference of the International Maritime Organisation on Maritime Security in December 2002 and includes any amendments or extensions to it and any regulation issued pursuant to it;

“ISSC” means an International Ship Security Certificate issued in respect of the Ship pursuant to the ISPS Code;

“LIBOR” means, in relation to a particular period, the rate determined by the Bank to be that at which deposits in Dollars and in an amount comparable with the amount in relation to which LIBOR is to be determined and for a period equal to the relevant period were being offered by the Bank to prime banks in the London Interbank Market at or about 11:00 a.m. on the second Banking Day before the first day of such period;

4

“Loan” means the principal amount borrowed by the Borrower on the Drawdown Date or (as the context may require) the principal amount owing to the Bank under this Agreement at any relevant time;

“Management Agreement” means the agreement dated 15 November 2007 made between the Borrower and the Manager in respect of the Ship or any other agreement previously approved in writing by the Bank between the Borrower and the Manager providing for the Manager to manage the Ship;

“Manager” means Cardiff Marine Inc. of 80 Broad Street, Monrovia, Liberia or any other person appointed by the Borrower, with the prior written consent of the Bank, as the manager of the Ship, and includes its successors in title;

“Manager’s Undertaking” means the first priority manager’s undertaking and assignment executed or (as the context may require) to be executed by the Manager in favour of the Bank in the form or substantially the form set out in schedule 6;

“Margin” means zero point eight five per cent (0.85%) per annum;

“Master Agreement Security Deed” means a security deed executed or (as the context may require) to be executed by the Borrower in favour of the Bank in relation to certain of the rights of the Borrower under the Master Swap Agreement in the form or substantially the form set out in schedule 8;

“Master Swap Agreement” means the agreement made or (as the context may require) to be made between the Bank and the Borrower comprising a 1992 ISDA Master Agreement (Multicurrency-Crossborder) (including the schedule thereto) in the form or substantially the form set out in schedule 7 and includes any Designated Transactions from time to time entered into and any Confirmations (as defined therein) from time to time exchanged thereunder and governed thereby;

“Material of Environmental Concern” means and includes pollutants, contaminants, toxic substances, oil as defined in the United States Oil Pollution Act of 1990 and all hazardous substances as defined in the United States Comprehensive Environmental Response, Compensation and Liability Act 1980;

“month” means a period beginning in one calendar month and ending in the next calendar month on the day numerically corresponding to the day of the calendar month on which it started, provided that (i) if the period started on the last Banking Day in a calendar month or if there is no such numerically corresponding day, it shall end on the last Banking Day in such next calendar month and (ii) if such numerically corresponding day is not a Banking Day, the period shall end on the next following Banking Day in the same calendar month but if there is no such Banking Day it shall end on the preceding Banking Day and “months” and “monthly” shall be construed accordingly;

“Mortgage” means the first priority statutory Maltese mortgage of the Ship executed or (as the context may require) to be executed by the Borrower in favour of the Bank in the form or substantially the form set out in schedule 4;

“Operator” means any person who is from time to time during the Security Period (as defined in the Deed of Covenant) concerned in the operation of the Ship and falls within the definition of “Company” set out in rule 1.1.2 of the Code;

“Permitted Encumbrance” means any Encumbrance in favour of the Bank created pursuant to the Security Documents and Permitted Liens;

“Permitted Liens” means any lien on the Ship for master's, officer's or crew's wages outstanding in the ordinary course of trading, any lien for salvage and any ship repairer's or outfitter's possessory lien for a sum not (except with the prior written consent of the Bank) exceeding the Casualty Amount (as defined in the Ship Security Documents);

5

“Registry” means the offices of the Maltese Ship Registry in Valletta, Malta or such other registrar, commissioner or representative of the Flag State who is duly authorised and empowered to register the Ship, the Borrower's title to the Ship and the Mortgage under the laws and flag of the Flag State through the Registry;

“Related Company” of a person means any Subsidiary of such person, any company or other entity of which such person is a Subsidiary and any Subsidiary of any such company or entity;

“Relevant Jurisdiction” means any jurisdiction in which or where any Security Party is incorporated, resident, domiciled, has a permanent establishment, carries on, or has a place of business or is otherwise effectively connected;

“Relevant Party” means the Borrower, any other Security Party and any other member of the Group;

“Relevant Ship” means the Ship and any other vessel owned, operated, managed or crewed by any Relevant Party;

“Repayment Dates” means, subject to clause 6.3, each of the dates falling at three (3) monthly intervals after the Drawdown Date up to and including the date falling ninety six (96) months after the Drawdown Date;

“Retention Account” means a Dollar account of the Borrower opened or (as the context may require) to be opened by the Borrower with the Bank and includes any sub-accounts thereof and any other account designated in writing by the Bank to be a Retention Account for the purposes of this Agreement;

“Retention Account Pledge” means a first priority pledge of the Retention Account executed or (as the context may require) to be executed by the Borrower in favour of the Bank, in such form as the Bank may in it sole discretion require;

“Retention Amount” means, in relation to any Retention Date, such sum as shall be the aggregate of:

(a)   one-third (1/3rd) of the repayment instalment falling due for payment pursuant to clause 4.1 (as the same may have been reduced by any prepayment) on the next Repayment Date after the relevant Retention Date; and

(b)  the applicable fraction (as hereinafter defined) of the aggregate amount of interest falling due for payment in respect of each part of the Loan during and at the end of each Interest Period current at the relevant Retention Date and, for this purpose, the expression “applicable fraction” in relation to each Interest Period shall mean a fraction having a numerator of one and a denominator equal to the number of Retention Dates falling within the relevant Interest Period;

“Retention Dates” means the date falling thirty (30) days after the Drawdown Date and each of the dates falling at monthly intervals after such date and prior to the final Repayment Date;

“Security Documents” means this Agreement, the Corporate Guarantee, the Mortgage, the Deed of Covenant, the Manager’s Undertaking, the Account Pledges, the Master Swap Agreement, the Master Agreement Security Deed, any Charter Assignment and any other documents as may have been or shall from time to time after the date of this Agreement be executed to secure all or any part of the Loan, interest thereon and other moneys from time to time owing by the Borrower or any other Security Party pursuant to this Agreement or the Master Swap Agreement or any other Security Documents (whether or not any such document also secures moneys from time to time owing pursuant to any other document or agreement);

“Security Party” means the Borrower, the Corporate Guarantor, the Manager or any other person who may at any time be a party to any of the Security Documents (other than the Bank);

6

“Security Requirement” means the amount in Dollars (as certified by the Bank whose certificate shall, in the absence of manifest error, be conclusive and binding on the Borrower and the Bank) which is, at any relevant time, one hundred and thirty per cent (130%) of the aggregate of (a) the Loan and (b) the Swap Exposure at such time;

“Security Value” means the amount in Dollars (as certified by the Bank whose certificate shall, in the absence of manifest error, be conclusive and binding on the Borrower and the Bank) which is, at any relevant time, the aggregate of (a) the market value of the Ship as most recently determined in accordance with clause 8.3.2 and (b) the market value of any additional security for the time being actually provided to the Bank pursuant to clause 8.3;

“Seller” means Immortality Shipping Co. Ltd. of Monrovia, Liberia and includes its successors in title;

“Ship” means the 74.205 dwt, 2002-built bulk carrier owned on the date of this Agreement by the Seller and registered under the laws and flag of The Commonwealth of the Bahamas under IMO No. 9214123 and to be registered on the Delivery Date in the ownership of the Borrower through the Registry under the laws and flag of the Flag State with the name Oregon;

“Ship Security Documents” means the Mortgage, the Deed of Covenant, any Charter Assignment and the Manager’s Undertaking;

“SMC” means a safety management certificate issued in respect of the Ship in accordance with rule 13 of the Code;

“Subsidiary” of a person means any company or entity directly or indirectly controlled by such person, and for this purpose “control” means either the ownership of more than fifty per cent (50%) of the voting share capital (or equivalent rights of ownership) of such company or entity or the power to direct its policies and management, whether by contract or otherwise;

“Swap Exposure” means, as at any relevant time, the amount certified by the Bank to be the aggregate net amount in Dollars which would be payable by the Borrower to the Bank under (and calculated in accordance with) section 6(e) (Payments on Early Termination) of the Master Swap Agreement if an Early Termination Date had occurred at the relevant time in relation to all continuing Designated Transactions;

“Taxes” includes all present and future taxes, levies, imposts, duties, fees or charges of whatever nature together with interest thereon and penalties in respect thereof and “Taxation” shall be construed accordingly;

“Termination Date” means 25 February 2008 or such later date as the Bank may in its absolute discretion agree in writing;

“Total Loss” means:

(a)   actual, constructive, compromised or arranged total loss of the Ship; or

(b)   the Compulsory Acquisition of the Ship; or

(c)   the hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation of the Ship (other than where the same amounts to the Compulsory Acquisition of the Ship) by any Government Entity, or by persons acting or purporting to act on behalf of any Government Entity, unless the Ship be released and restored to the Borrower from such hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation within thirty (30) days after the occurrence thereof;

“Transaction” has the meaning ascribed thereto in the Master Swap Agreement;

7

“Transferee” has the meaning ascribed thereto in clause 15.4; and

“Underlying Documents” means, together, the Contract and the Management Agreement.

1.3   Headings

Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Agreement.

1.4   Construction of certain terms

In this Agreement, unless the context otherwise requires:

1.4.1   references to clauses and schedules are to be construed as references to clauses of, and schedules to, this Agreement and references to this Agreement include its schedules;

1.4.2   references to (or to any specified provision of) this Agreement or any other document shall be construed as references to this Agreement, that provision or that document as in force for the time being and as amended in accordance with terms thereof, or, as the case may be, with the agreement of the relevant parties;

1.4.3   references to a “regulation” include any present or future regulation, rule, directive, requirement, request or guideline (whether or not having the force of law) of any agency, authority, central bank or government department or any self-regulatory or other national or supra-national authority;

1.4.4   words importing the plural shall include the singular and vice versa;

1.4.5   references to a time of day are to Greek time;

1.4.6   references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any Government Entity;

1.4.7   references to a “guarantee” include references to an indemnity or other assurance against financial loss including, without limitation, an obligation to purchase assets or services as a consequence of a default by any other person to pay any Indebtedness and “guaranteed” shall be construed accordingly; and

1.4.8   references to any enactment shall be deemed to include references to such enactment as re-enacted, amended or extended.

2   The Commitment and the Loan

2.1   Agreement to lend

The Bank, relying upon each of the representations and warranties in clause 7, agrees to lend to the Borrower, upon and subject to the terms of this Agreement, the principal sum of up to Forty seven million Dollars ($47,000,000).

2.2   Drawdown

Subject to the terms and conditions of this Agreement, the Loan shall be advanced in full in one amount on the Drawdown Date following receipt by the Bank from the Borrower of a Drawdown Notice not later than 10:00 a.m. one (1) Banking Day before the proposed Drawdown Date.  A Drawdown Notice shall be effective on actual receipt by the Bank and, once given, shall, subject as provided in clause 3.6.1, be irrevocable.

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2.3   Amount

The principal amount specified in the Drawdown Notice for borrowing on the Drawdown Date shall, subject to the terms and conditions of this Agreement, not exceed the lower of (a) Forty seven million Dollars ($47,000,000) and (b) the amount in Dollars which is equal to seventy per cent (70%) of the market value of the Ship as shown in the valuation obtained pursuant to Schedule 2, Part 2.

2.4   Availability

Upon receipt of a Drawdown Notice complying with the terms of this Agreement the Bank shall, subject to the provisions of clause 9, on the Drawdown Date make the Loan available to the Borrower in accordance with clause 6.2.  The Borrower acknowledges that payment of the Loan or part thereof to the Seller in accordance with clause 6.2 shall satisfy the obligation of the Bank to lend the Commitment to the Borrower under this Agreement.

2.5   Termination of Commitment

Any undrawn amount of the Commitment by the Termination Date shall thereupon be automatically cancelled.

2.6   Application of proceeds

Without prejudice to the Borrower's obligations under clause 8.1.3, the Bank shall have no responsibility for the application of the proceeds of the Loan or any part thereof by the Borrower.

2.7   Derivative transactions

2.7.1   If, at any time during the Security Period (as defined in the Ship Security Documents), the Borrower wishes to enter into any derivative transaction for any purpose whatsoever (including, without limitation, interest rate swap transactions so as to hedge all or any part of its exposure under this Agreement to interest rate fluctuations), it shall advise the Bank in writing.

2.7.2   Any such derivative transaction shall be concluded with the Bank under the Master Swap Agreement provided however that no such derivative transaction shall be concluded unless the Bank first agrees to it in writing.  If and when any such derivative transaction has been concluded, it shall constitute a Designated Transaction, and the Borrower shall sign a Confirmation with the Bank.

3   Interest and Interest Periods

3.1   Normal Interest Rate

The Borrower shall pay interest on the Loan in respect of each Interest Period relating thereto on each Interest Payment Date (or, in the case of Interest Periods of more than six (6) months, by instalments, the first such instalment being payable three (3) months from the commencement of the Interest Period and the subsequent instalments at intervals of three (3) months or, if shorter, the period from the date of the preceding instalment until the Interest Payment Date relative to such Interest Period) at the rate per annum determined by the Bank to be the aggregate of (a) the Margin and (b) LIBOR for such Interest Period.

3.2   Selection of Interest Periods

The Borrower may by notice received by the Bank not later than 10:00 a.m. on the second Banking Day before the beginning of each Interest Period specify whether such Interest Period shall have a duration of one (1) month, three (3) months, six (6) months, nine (9) months or twelve (12) months or such other period (shorter than twelve (12) months) as the Borrower may select and the Bank may, in its absolute discretion, agree.

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3.3   Determination of Interest Periods

Every Interest Period shall be of the duration specified by the Borrower pursuant to clause 3.2 but so that:

3.3.1   the initial Interest Period shall commence on the Drawdown Date and each subsequent Interest Period shall commence on the last day of the previous Interest Period;

3.3.2   if any Interest Period would otherwise overrun a Repayment Date, then, in the case of the last Repayment Date, such Interest Period shall end on such Repayment Date, and, in the case of any other Repayment Date or Repayment Dates, the Loan shall be divided into parts so that there is one part in the amount of the repayment instalment due on each Repayment Date falling during that Interest Period and having an Interest Period ending on the relevant Repayment Date and another part in the amount of the balance of the Loan having an Interest Period ascertained in accordance with clause 3.2 and the other provisions of this clause 3.3; and

3.3.3   if the Borrower fails to specify the duration of an Interest Period in accordance with the provisions of clause 3.2 and this clause 3.3 such Interest Period shall have a duration of three (3) months or such other period as shall comply with this clause 3.3.

3.4   Default interest

If the Borrower fails to pay any sum (including, without limitation, any sum payable pursuant to this clause 3.4) on its due date for payment under any of the Security Documents, the Borrower shall pay interest on such sum on demand from the due date up to the date of actual payment (as well after as before judgement) at a rate determined by the Bank pursuant to this clause 3.4.  The period beginning on such due date and ending on such date of payment shall be divided into successive periods of not more than six (6) months as selected by the Bank each of which (other than the first, which shall commence on such due date) shall commence on the last day of the preceding such period.  The rate of interest applicable to each such period shall be the aggregate (as determined by the Bank) of (a) two per cent (2%) per annum, (b) the Margin and (c) LIBOR for such period.  Such interest shall be due and payable on the last day of each such period as determined by the Bank and each such day shall, for the purposes of this Agreement, be treated as an Interest Payment Date, provided that if such unpaid sum is an amount of principal which became due and payable by reason of a declaration by the Bank under clause 10.2.2 or a prepayment pursuant to clauses 4.3, 8.3.1(a) or 12.1, on a date other than an Interest Payment Date relating thereto, the first such period selected by the Bank shall be of a duration equal to the period between the due date of such principal sum and such Interest Payment Date and interest shall be payable on such principal sum during such period at a rate of two per cent (2%) above the rate applicable thereto immediately before it shall have become so due and payable.  If, for the reasons specified in clause 3.6.1, the Bank is unable to determine a rate in accordance with the foregoing provisions of this clause 3.4, interest on any sum not paid on its due date for payment shall be calculated at a rate determined by the Bank to be two per cent (2%) per annum above the aggregate of the Margin and the cost of funds to the Bank.

3.5   Notification of Interest Periods and interest rate

The Bank shall notify the Borrower promptly of the duration of each Interest Period and of each rate of interest determined by it under this clause 3.

3.6   Market disruption; non-availability

3.6.1   If and whenever, at any time prior to the commencement of any Interest Period, the Bank shall have determined (which determination shall, in the absence of manifest error, be conclusive):

(a)   that adequate and fair means do not exist for ascertaining LIBOR during such Interest Period; or

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(b)   that deposits in Dollars are not available to the Bank in the London Interbank Market in the ordinary course of business in sufficient amounts to fund the Loan for such Interest Period,

the Bank shall forthwith give notice (a “Determination Notice”) thereof to the Borrower.  A Determination Notice shall contain particulars of the relevant circumstances giving rise to its issue.  After the giving of any Determination Notice the undrawn amount of the Commitment shall not be borrowed until notice to the contrary is given to the Borrower by the Bank. 

3.6.2   During the period of ten (10) days after any Determination Notice has been given by the Bank under clause 3.6.1, the Bank shall certify an alternative basis (the “Substitute Basis”) for maintaining the Loan.  The Substitute Basis may (without limitation) include alternative interest periods, alternative currencies or alternative rates of interest but shall include a margin above the cost of funds to the Bank equivalent to the Margin.  Each Substitute Basis so certified shall be binding upon the Borrower and shall take effect in accordance with its terms from the date specified in the Determination Notice until such time as the Bank notifies the Borrower that none of the circumstances specified in clause 3.6.1 continues to exist whereupon the normal interest rate fixing provisions of the Agreement shall apply.

4   Repayment and prepayment

4.1   Repayment

The Borrower shall repay the Loan by thirty two (32) instalments, one such instalment to be repaid on each of the Repayment Dates.  Subject to the provisions of this Agreement, the amount of each of the first to eighth instalments (inclusive) shall be Two million two hundred and fifty thousand Dollars ($2,250,000), the amount of each of the ninth to twelfth instalments (inclusive) shall be One million five hundred thousand Dollars ($1,500,000), the amount of each of the thirteenth to the sixteenth instalments (inclusive) shall be Seven hundred and fifty thousand Dollars ($750,000) and the amount of each of the seventeenth to thirty first instalments (inclusive) shall be Five hundred thousand Dollars ($500,000) and the amount of the final instalment shall be Twelve million five hundred thousand Dollars ($12,500,000) (comprising a repayment instalment of Five hundred thousand Dollars ($500,000) and a balloon payment of Twelve million Dollars ($12,000,000) (the “Balloon Instalment”)).

4.2   Voluntary prepayment

The Borrower may prepay the Loan in whole or part (being Two million Dollars ($2,000,000) or any larger sum which is an integral multiple of Two million Dollars ($2,000,000)) on any Interest Payment Date relating to the part of the Loan to be repaid without premium or penalty.

4.3   Prepayment on Total Loss

On the Ship becoming a Total Loss (or suffering damage or being involved in an incident which, in the opinion of the Bank, may result in the Ship subsequently being determined to be a Total Loss), before the Loan is drawn down, the obligation of the Bank to advance the Loan shall immediately cease and the Commitment shall be reduced to zero.

On the date falling one hundred and twenty (120) days after that on which the Ship became a Total Loss or, if earlier, on the date upon which the insurance proceeds are, or Requisition Compensation (as defined in the Ship Security Documents) is, received by the Borrower (or the Bank pursuant to the Security Documents), the Borrower shall prepay the Loan in full.

For the purpose of this Agreement, a Total Loss shall be deemed to have occurred:

4.3.1   in the case of an actual total loss of the Ship, on the actual date and at the time the Ship was lost or, if such date is not known, on the date on which the Ship was last reported;

4.3.2   in the case of a constructive total loss of the Ship, upon the date and at the time notice of abandonment of the Ship is given to the insurers of the Ship for the time being;

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4.3.3   in the case of a compromised or arranged total loss, on the date upon which a binding agreement as to such compromised or arranged total loss has been entered into by the insurers of the Ship;

4.3.4   in the case of Compulsory Acquisition, on the date upon which the relevant requisition of title or other compulsory acquisition occurs; and

4.3.5   in the case of hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation of the Ship (other than where the same amounts to Compulsory Acquisition of the Ship) by any Government Entity, or by persons purporting to act on behalf of any Government Entity, which deprives the Borrower of the use of the Ship for more than sixty (60) days, upon the expiry of the period of thirty (30) days after the date upon which the relevant hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation occurred.

4.4   Amounts payable on prepayment

4.5   Any prepayment of all or part of the Loan under this Agreement shall be made together with (a) accrued interest on the Loan, (b) any additional amount payable under clauses 6.6 or 12.2 and (c) all other sums payable by the Borrower to the Bank under this Agreement or any of the other Security Documents including, without limitation, any accrued commitment commission and amounts payable under clause 11.

4.6   Notice of prepayment; reduction of repayment instalments

No prepayment may be effected under clause 4.2 unless the Borrower shall have given the Bank at least three (3) Banking Days' notice in writing of its intention to make such prepayment.  Every notice of prepayment shall be effective only on actual receipt by the Bank, shall be irrevocable, shall specify the amount to be prepaid and shall oblige the Borrower to make such prepayment on the date specified.  No amount prepaid may be reborrowed and any amount prepaid pursuant to clauses 4.2 or 8.3.1(a) shall be applied in reducing the repayment instalments under clause 4.1 (including the Balloon Instalment) in inverse order of their due dates for payment.  The Borrower may not prepay the Loan or any part thereof save as expressly provided in this Agreement.

4.7   Unwinding of Designated Transactions

On or prior to any repayment or prepayment of all or part of the Loan (including, without limitation, pursuant to clause 4.3 following a Total Loss, pursuant to clauses 4.2 or 8.3 or any other provision of this Agreement), the Borrower shall upon the request of the Bank wholly or partially reverse, offset, unwind, cancel, close out, net out or otherwise terminate one or more of the continuing Designated Transactions so that the notional principal amount of the continuing Designated Transactions thereafter remaining does not and will not in the future (taking into account the scheduled amortisation) exceed the amount of the Loan as reducing from time to time thereafter pursuant to clause 4.1.

5   Fees, commitment commission and expenses

5.1   Fees

The Borrower shall pay to the Bank:

5.1.1   on the Drawdown Date an arrangement fee of One hundred and twenty thousand Dollars ($120,000); and

5.1.2   on the earlier of (a) the Drawdown Date and (b) the Termination Date, commitment commission computed from 23 October 2007 at the rate of zero point two five per cent (0.25%) per annum on the daily undrawn amount of the Commitment.

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The fee referred to in clause 5.1.1 and the commitment commission referred to in clause 5.1.2 shall be non-refundable and the commitment commission referred to in clause 5.1.2 shall be payable by the Borrower to the Bank whether or not any part of the Commitment is ever advanced. 

5.2   Expenses

The Borrower shall pay to the Bank on a full indemnity basis on demand all expenses (including legal, printing and out-of-pocket expenses) incurred by the Bank (whether or not any part of the Commitment is ever advanced):

5.2.1   in connection with the negotiation, preparation, execution and, where relevant, registration of the Security Documents and of any amendment or extension of or the granting of any waiver or consent under, any of the Security Documents; and

5.2.2   in contemplation of, or otherwise in connection with, the enforcement of, or preservation of any rights under, any of the Security Documents or otherwise in respect of the moneys owing under any of the Security Documents,

together with interest at the rate referred to in clause 3.4 from the date on which such expenses were incurred to the date of payment (as well after as before judgement).

5.3   Value Added Tax

All fees and expenses payable pursuant to this clause 5 shall be paid together with value added tax or any similar tax (if any) properly chargeable thereon.

5.4   Stamp and other duties

The Borrower shall pay all stamp, documentary, registration or other like duties or taxes (including any such duties or taxes payable by the Bank) imposed on or in connection with any of the Underlying Documents, Security Documents or the Loan and shall indemnify the Bank against any liability arising by reason of any delay or omission by the Borrower to pay such duties or taxes.

6   Payments and taxes; accounts and calculations

6.1   No set-off or counterclaim

The Borrower acknowledges that in performing its obligations under this Agreement, the Bank will be incurring liabilities to third parties in relation to the funding of amounts to the Borrower, such liabilities matching the liabilities of the Borrower to the Bank and that it is reasonable for the Bank to be entitled to receive payments from the Borrower gross on the due date in order that the Bank is put in a position to perform its matching obligations to the relevant third parties.  Accordingly, all payments to be made by the Borrower under any of the Security Documents shall be made in full, without any set-off or counterclaim whatsoever and, subject as provided in clause 6.6, free and clear of any deductions or withholdings, in Dollars on the due date to such account of the Bank at such bank in such place as the Bank may from time to time specify for this purpose.

6.2   Payment by the Bank

All sums to be advanced by the Bank to the Borrower under this Agreement in respect of the Loan shall be remitted in Dollars on the Drawdown Date to the account specified in the Drawdown Notice.

6.3   Non-Banking Days

When any payment under any of the Security Documents would otherwise be due on a day which is not a Banking Day, the due date for payment shall be extended to the next following Banking Day unless such Banking Day falls in the next calendar month in which case payment shall be made on the immediately preceding Banking Day.

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6.4   Calculations

All interest and other payments of an annual nature under any of the Security Documents shall accrue from day to day and be calculated on the basis of actual days elapsed and a three hundred and sixty (360) day year.

6.5   Certificates conclusive

Any certificate or determination of the Bank as to any rate of interest or any other amount pursuant to and for the purposes of any of the Security Documents shall, in the absence of manifest error, be conclusive and binding on the Borrower.

6.6   Grossing-up for Taxes

6.6.1   If at any time the Borrower is required to make any deduction or withholding in respect of Taxes from any payment due under any of the Security Documents, the sum due from the Borrower in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the Bank receives on the due date for such payment (and retains, free from any liability in respect of such deduction or withholding), a net sum equal to the sum which it would have received had no such deduction or withholding been required to be made and the Borrower shall indemnify the Bank against any losses or costs incurred by it by reason of any failure of the Borrower to make any such deduction or withholding or by reason of any increased payment not being made on the due date for such payment.  The Borrower shall promptly deliver to the Bank any receipts, certificates or other proof evidencing the amounts (if any) paid or payable in respect of any deduction or withholding as aforesaid.

6.6.2   For the avoidance of doubt, clause 6.6.1 does not apply in respect of sums due from the Borrower to the Bank under or in connection with the Master Swap Agreement as to which sums the provisions of section 2(d) (Deduction or Withholding for Tax) of the Master Swap Agreement shall apply.

6.7   Loan account

The Bank shall maintain, in accordance with its usual practice, an account (which shall be the “Account Current” referred to in the Mortgage) evidencing the amounts from time to time lent by, owing to and paid to it under the Security Documents.  Such account shall, in the absence of manifest error, be conclusive as to the amount from time to time owing by the Borrower under the Security Documents.

7   Representations and warranties

7.1   Continuing representations and warranties

The Borrower represents and warrants to the Bank that:

7.1.1   Due incorporation

the Borrower and each of the other Security Parties are duly incorporated and validly existing in good standing under the laws of the Marshall Islands as Marshall Islands corporations and have power to carry on their respective businesses as they are now being conducted and to own their respective property and other assets; 

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7.1.2   Corporate power

the Borrower has power to execute, deliver and perform its obligations under the Underlying Documents and the Borrower's Security Documents and to borrow the Commitment and each of the other Security Parties has power to execute and deliver and perform its obligations under the Security Documents and the Underlying Documents to which it is or is to be a party; all necessary corporate, shareholder and other action has been taken to authorise the execution, delivery and performance of the same and no limitation on the powers of the Borrower to borrow will be exceeded as a result of borrowing the Loan; 

7.1.3   Binding obligations

the Security Documents and the Underlying Documents constitute or will, when executed, constitute valid and legally binding obligations of the relevant Security Parties enforceable in accordance with their respective terms; 

7.1.4   No conflict with other obligations

the execution and delivery of, the performance of their obligations under, and compliance with the provisions of the Underlying Documents and the Security Documents by the relevant Security Parties will not (i) contravene any existing applicable law, statute, rule or regulation or any judgement, decree or permit to which the Borrower or any other Security Party is subject, (ii) conflict with, or result in any breach of any of the terms of, or constitute a default under, any agreement or other instrument to which the Borrower or any other Security Party is a party or is subject or by which it or any of its property is bound, (iii) contravene or conflict with any provision of the constitutional documents of the Borrower or any other Security Party or (iv) result in the creation or imposition of or oblige the Borrower or any other member of the Group or any other Security Party to create any Encumbrance (other than a Permitted Encumbrance) on the undertakings, assets, rights or revenues of the Borrower or any other member of the Group or any other Security Party; 

7.1.5   No litigation

no litigation, arbitration or administrative proceeding is taking place, pending or, to the knowledge of the officers of the Borrower, threatened against the Borrower or any other member of the Group or any other Security Party which could have a material adverse effect on the business, assets or financial condition of the Borrower or any other member of the Group or any other Security Party; 

7.1.6   No filings required

save for the registration of the Mortgage with the Registry, it is not necessary to ensure the legality, validity, enforceability or admissibility in evidence of any of the Underlying Documents or any of the Security Documents that they or any other instrument be notarised, filed, recorded, registered or enrolled in any court, public office or elsewhere in any Relevant Jurisdiction or that any stamp, registration or similar tax or charge be paid in any Relevant Jurisdiction on or in relation to the Underlying Documents or the Security Documents and the Underlying Documents and each of the Security Documents is in proper form for its enforcement in the courts of each Relevant Jurisdiction; 

7.1.7   Choice of law

the choice of English law to govern the Underlying Documents and the Security Documents (other than the Mortgage and the Account Pledges), the choice of Maltese law to govern the Mortgage and the choice of Greek law to govern the Account Pledges, and the submissions by the Security Parties to the non-exclusive jurisdiction of the English courts or, as the case may be, the courts of Piraeus, are valid and binding; 

7.1.8   No immunity

neither the Borrower nor any other Security Party nor any of their respective assets is entitled to immunity on the grounds of sovereignty or otherwise from any legal action or proceeding (which shall include, without limitation, suit, attachment prior to judgement, execution or other enforcement); 

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7.1.9   Consents obtained

every consent, authorisation, licence or approval of, or registration with or declaration to, governmental or public bodies or authorities or courts required by any Security Party to authorise, or required by any Security Party in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of each of the Underlying Documents and each of the Security Documents or the performance by each Security Party of its obligations under the Underlying Documents and the Security Documents to which it is a party has been obtained or made and is in full force and effect and there has been no default in the observance of any of the conditions or restrictions (if any) imposed in, or in connection with, any of the same; and 

7.1.10   Shareholdings

the Borrower is a wholly-owned direct Subsidiary of the Corporate Guarantor, all of the issued shares in the Manager are legally and ultimately beneficially owned by the person or persons disclosed by the Borrower to the Bank in the negotiation of this Agreement and no less than 25% of the total issued voting share capital of the Corporate Guarantor is ultimately beneficially owned by Mr George Economou and/or trusts or foundations of which Mr. George Economou is a beneficiary. 

7.2   Initial representations and warranties

The Borrower further represents and warrants to the Bank that:

7.2.1   Pari passu

the obligations of the Borrower under this Agreement are direct, general and unconditional obligations of the Borrower and rank at least pari passu with all other present and future unsecured and unsubordinated Indebtedness of the Borrower except for obligations which are mandatorily preferred by law and not by contract; 

7.2.2   No default under other Indebtedness

neither the Borrower nor any other Security Party nor any other member of the Group is (nor would with the giving of notice or lapse of time or the satisfaction of any other condition or combination thereof be) in breach of or in default under any agreement relating to Indebtedness to which it is a party or by which it may be bound; 

7.2.3   Information

the information, exhibits and reports furnished by any Security Party to the Bank in connection with the negotiation and preparation of each of the Security Documents are true and accurate in all material respects and not misleading, do not omit material facts and all reasonable enquiries have been made to verify the facts and statements contained therein; there are no other facts the omission of which would make any fact or statement therein misleading; 

7.2.4   No withholding Taxes

no Taxes are imposed by withholding or otherwise on any payment to be made by any Security Party under the Underlying Documents or the Security Documents or are imposed on or by virtue of the execution or delivery by the Security Parties of the Underlying Documents or the Security Documents or any other document or instrument to be executed or delivered under any of the Security Documents; 

7.2.5   No Default

no Default has occurred and is continuing; 

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7.2.6   The Ship

the Ship is and will on the Delivery Date be: 

(a)   in the absolute ownership of the Borrower who will on and after the Delivery Date be the sole, legal and beneficial owner of the Ship;

(b)   registered in the name of the Borrower through the offices of the Registry as a ship under the laws and flag of the Flag State;

(c)   operationally seaworthy and in every way fit for service; and

(d)   classed with the Classification free of all requirements and recommendations of the Classification Society;

7.2.7   Ship's employment

the Ship is not and will not, on or before the Delivery Date, be subject to any charter or contract or to any agreement to enter into any charter or contract which, if entered into after the date of the Ship Security Documents would have required the consent of the Bank and, on or before the Delivery Date, there will not be any agreement or arrangement whereby the Earnings (as defined in the Ship Security Documents) may be shared with any other person; 

7.2.8   Freedom from Encumbrances

neither the Ship, nor her Earnings, Insurances or Requisition Compensation (each as defined in the Ship Security Documents) nor the Accounts nor any other properties or rights which are, or are to be, the subject of any of the Security Documents nor any part thereof will be, on the Delivery Date, subject to any Encumbrance; 

7.2.9   Compliance with Environmental Laws and Approvals

except as may already have been disclosed by the Borrower in writing to, and acknowledged in writing by, the Bank: 

(a)   the Borrower and the other Relevant Parties and, to the best of the Borrower's knowledge and belief (having made due enquiry), their respective Environmental Affiliates have complied with the provisions of all Environmental Laws;

(b)   the Borrower and the other Relevant Parties and, to the best of the Borrower's knowledge and belief (having made due enquiry), their respective Environmental Affiliates have obtained all Environmental Approvals and are in compliance with all such Environmental Approvals; and

(c)   neither the Borrower nor any other Relevant Party nor, to the best of the Borrower's knowledge and belief (having made due enquiry), any of their respective Environmental Affiliates has received notice of any Environmental Claim that the Borrower or any other Relevant Party or any such Environmental Affiliate is not in compliance with any Environmental Law or any Environmental Approval;

7.2.10   No Environmental Claims

except as may already have been disclosed by the Borrower in writing to, and acknowledged in writing by, the Bank, there is no Environmental Claim pending or, to the best of the Borrower's knowledge and belief, threatened against the Borrower or the Ship or any other Relevant Party or any other Relevant Ship or, to the best of the Borrower's knowledge and belief (having made due enquiry), any of their respective Environmental Affiliates; 

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7.2.11   No potential Environmental Claims

except as may already have been disclosed by the Borrower in writing to, and acknowledged in writing by, the Bank, there has been no emission, spill, release or discharge of a Material of Environmental Concern from the Ship or any other ship owned by, managed or crewed by or chartered to the Borrower nor, (having made due enquiry) to the best of the Borrower's knowledge and belief, from any other Relevant Ship owned by, managed or crewed by or chartered to any other Relevant Party which could give rise to an Environmental Claim; 

7.2.12   ISPS Code

with effects from the Delivery Date, the Borrower has a valid and current ISSC in respect of the Ship and the Ship is in compliance with the ISPS Code; 

7.2.13   No material adverse change

there has been no material adverse change in the financial position of the Borrower or any Security Party or any other member of the Group or the consolidated financial position of the Group from that described by or on behalf of the Borrower or any other Security Party to the Bank in the negotiation of this Agreement; and 

7.2.14   Copies true and complete

the copies of the Underlying Documents delivered or to be delivered to the Bank pursuant to clause 9.1 are, or will when delivered be, true and complete copies of such documents; such documents constitute valid and binding obligations of the parties thereto enforceable in accordance with their respective terms and there will have been no amendments or variations thereof or defaults thereunder. 

7.3   Repetition of representations and warranties

On and as of the Drawdown Date and (except in relation to the representations and warranties in clause 7.2) on each Interest Payment Date, the Borrower shall (a) be deemed to repeat the representations and warranties in clause 7.1 as if made with reference to the facts and circumstances existing on such day and (b) be deemed to further represent and warrant to the Bank that the then latest audited financial statements delivered to the Bank (if any) have been prepared in accordance with the Applicable Accounting Principles which have been consistently applied and present fairly and accurately the financial position of the Borrower and the consolidated financial position of the Group, respectively, as at the end of the financial period to which the same relate and the results of the operations of the Borrower and the consolidated operations of the Group, respectively, for the financial period to which the same relate and, as at the end of such financial period, neither the Borrower nor the Corporate Guarantor nor any other member of the Group had any significant liabilities (contingent or otherwise) or any unrealised or anticipated losses which are not disclosed by, or reserved against or provided for in, such financial statements.

8   Undertakings

8.1   General

The Borrower hereby undertakes with the Bank that, from the date of this Agreement and so long as any moneys are owing under any of the Security Documents and while all or any part of the Commitment remains outstanding, it will:

8.1.1   Notice of Default

promptly inform the Bank of any occurrence of which it becomes aware which might adversely affect the ability of any Security Party to perform its obligations under any of the Security Documents and, without limiting the generality of the foregoing, will inform the Bank of any Default forthwith upon becoming aware thereof and will from time to time, if so requested by the Bank, confirm to the Bank in writing that, save as otherwise stated in such confirmation, no Default has occurred and is continuing; 

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8.1.2   Consents and licences

without prejudice to clauses 7.1 and 9, obtain or cause to be obtained, maintain in full force and effect and comply in all material respects with the conditions and restrictions (if any) imposed in, or in connection with, every consent, authorisation, licence or approval of governmental or public bodies or authorities or courts and do, or cause to be done, all other acts and things which may from time to time be necessary or desirable under applicable law for the continued due performance of all the obligations of the Security Parties under each of the Security Documents; 

8.1.3   Use of proceeds

use the Loan exclusively for the purpose specified in clause 1.1; 

8.1.4   Pari passu

ensure that its obligations under this Agreement shall, at all times rank at least pari passu with all its other present and future unsecured and unsubordinated Indebtedness with the exception of any obligations which are mandatorily preferred by law and not by contract; 

8.1.5   Financial statements

prepare or cause to be prepared financial statements of the Borrower and consolidated financial statements of the Group in accordance with the Applicable Accounting Principles consistently applied in respect of each financial year and cause the same to be reported on by their respective auditors and prepare or cause to be prepared unaudited financial statements of the Borrower and unaudited consolidated financial statements of the Group for each financial half-year on the same basis as the annual statements and deliver as many copies of the same as the Bank may reasonably require as soon as practicable but not later than one hundred and eighty (180) days (in the case of the audited financial statements) or ninety (90) days (in the case of the unaudited financial statements) after the end of the financial period to which they relate; 

8.1.6   Delivery of reports

deliver to the Bank as many copies as the Bank may reasonably require at the time of issue thereof of every report, circular, notice or like document issued by the Borrower to its shareholders or creditors generally; 

8.1.7   Provision of further information

provide the Bank with such financial and other information concerning the Borrower, the other Security Parties, any other member of the Group, the Group as a whole and their respective affairs as the Bank may from time to time reasonably require, including, without limitation, regarding their financial standing, commitments, operations, vessel sales or purchases, any new borrowings and all major financial developments in relation to each Security Party, any other member of the Group and the Group as a whole; 

8.1.8   Know your customer information

deliver to the Bank such documents and evidence as the Bank shall from time to time require relating to the verification of identity and knowledge of the Bank’s customers and the compliance by the Bank with all necessary “know your customer” or similar checks, always on the basis of applicable laws and regulations or the Bank's own internal guidelines in each case as such laws, regulations or internal guidelines apply from time to time; 

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8.1.9   Obligations under Security Documents

duly and punctually perform each of the obligations expressed to be assumed by it under the Security Documents; 

8.1.10   Compliance with Code

and will procure that the Manager or any Operator will, comply with and ensure that the Ship and the Manager or any Operator comply with the requirements of the Code, including (but not limited to) the maintenance and renewal of valid certificates pursuant thereto throughout the Security Period (as defined in the Deed of Covenant) and will procure that each member of the Group and each vessel thereof complies with the requirements of the Code; 

8.1.11	Withdrawal of DOC and SMC
	and will procure that the Manager or any Operator will, immediately inform the Bank if there is any threatened or actual withdrawal of its Operator’s DOC or the SMC in respect of the Ship;

8.1.12   Issuance of DOC and SMC

and will procure that the Manager or any Operator will, promptly inform the Bank upon the issue to the Borrower, the Manager or any Operator of a DOC and to the Ship of an SMC or the receipt by the Borrower, the Manager or any Operator of notification that its application for the same has been refused; 

8.1.13	ISPS Code Compliance
	and will procure that the Manager or any Operator will:

(a)   maintain at all times a valid and current ISSC respect of the Ship;

(b)   immediately notify the Bank in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the ISSC in respect of the Ship; and

(c)   procure that the Ship and any other vessel of the Group will comply at all times with the ISPS Code;

8.1.14   Charters

without prejudice to the rights of the Bank under the provisions of the relevant Ship Security Documents, advise the Bank promptly of any Charter in respect of the Ship and forthwith after its execution (a) deliver a certified copy of each such Charter to the Bank, (b) execute a Charter Assignment in relation to such Charter, (c) execute a notice of assignment (in such form as the Bank may require in its discretion) of such Charter, (d) procure that such notice of assignment is served on the relevant Charterer and that the relevant Charterer signs an acknowledgement of such notice (in such form as the Bank may require in its discretion), (e) provide the Bank with any documents or evidence of the type specified in schedule 2 relating to the Charter, the Charter Assignment, the notice of assignment and its acknowledgment (including, but without limitation the valid execution and binding effect thereof) as the Bank may require in its sole discretion and (f) pay on the Bank’s demand all legal and other costs incurred by the Bank in connection with or in relation to any such Charter Assignment, notice of assignment and the acknowledgement thereof; and 

8.1.15   Minimum liquidity

maintain at all times in accounts held in its name with the Bank (which for the purposes of this clause shall include the Accounts but shall exclude any other accounts of the Borrower with the Bank which are subject to an Encumbrance) a fair share of the Borrower’s liquidity. 

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8.2   Negative undertakings

The Borrower undertakes with the Bank that, from the date of this Agreement and so long as any moneys are owing under the Security Documents, it will not, without the prior written consent of the Bank:

8.2.1   Negative Pledge

permit any Encumbrance (other than a Permitted Encumbrance) by the Borrower to subsist, arise or be created or extended over all or any part of its present or future undertaking, assets, rights or revenues to secure or prefer any present or future Indebtedness of any Security Party or any other person; 

8.2.2	No merger
	merge or consolidate with any other person or enter into a demerger, amalgamation, corporate reconstruction or corporate redomicilation;

8.2.3   Disposals

sell, transfer, abandon, lend or otherwise dispose of or cease to exercise direct control over any part (being either alone or, when aggregated with all other disposals falling to be taken into account pursuant to this clause 8.2.3, material in the opinion of the Bank in relation to the undertaking, assets, rights and revenues of the Borrower taken as a whole) of its present or future undertaking, assets, rights or revenues (otherwise than by transfers, sales or disposals for full consideration in the ordinary course of trading, but which for the avoidance of doubt does not include the Ship) whether by one or a series of transactions related or not;

8.2.4   Other business

undertake any business other than the ownership and operation of the Ship and the chartering of the Ship to third parties and will procure that no other Security Party undertakes, without the prior written consent of the Bank, any business other than that conducted by such Security Party at the date of this Agreement;

8.2.5   Acquisitions

acquire any further assets other than the Ship and rights arising under contracts entered into by or on behalf of the Borrower in the ordinary course of its business of owning, operating and chartering the Ship;

8.2.6   Other obligations

incur any obligations except for obligations arising under the Underlying Documents or the Security Documents or contracts entered into in the ordinary course of its business of owning, operating and chartering the Ship;

8.2.7	No borrowing
	incur any Borrowed Money except for Borrowed Money pursuant to the Security Documents;

8.2.8	Repayment of borrowings
	repay the principal of, or pay interest on, or any other sum in connection with, any of its Borrowed Money except for Borrowed Money pursuant to the Security Documents;

8.2.9   Guarantees

issue any guarantees or indemnities or otherwise become directly or contingently liable for the obligations of any person, firm, or corporation except pursuant to the Security Documents (except for guarantees or indemnities from time to time required in the ordinary course by any protection and indemnity or war risks association with which the Ship is entered, guarantees required to procure the release of the Ship from any arrest, detention, attachment or levy or guarantees or undertakings required for the salvage of the Ship);

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8.2.10	Loans
	make any loans or grant any credit (save for normal trade credit in the ordinary course of business) to any person or agree to do so;

8.2.11   Sureties

permit any of its Indebtedness to be guaranteed or otherwise assured against financial loss by any person (save for guarantees or indemnities from time to time required in the ordinary course by any protection and indemnity or war risks association with which the Ship is entered, guarantees required to procure the release of the Ship from any arrest, detention, attachment or levy or guarantees or undertakings required for the salvage of the Ship);

8.2.12   Share capital and distribution

purchase or otherwise acquire for value any shares of its capital or, following the occurrence of an Event of Default, distribute any of its present or future assets, undertakings, rights or revenues to any of its shareholders;

8.2.13   Subsidiaries

form or acquire any Subsidiaries;

8.2.14   Shareholdings

change, cause or permit any change in (a) the legal and/or ultimate beneficial ownership of any of the shares in the Borrower or the Manager from that set out in clause 7.1.10 or (b) the ultimate beneficial ownership of the issued voting share capital of the Corporate Guarantor such that Mr George Economou and/or any trusts and/or foundations of which Mr. George Economou is a beneficiary, cease to be the ultimate beneficial owners of at least 25% of the total issued voting share capital of the Corporate Guarantor;

8.2.15   Change of management of the Ship

appoint any person to manage the Ship other than the Manager or terminate the Management Agreement or vary or amend the terms thereof;

8.2.16   Constitutional documents

permit, cause or agree to any material amendment or variation of its constitutional documents;

8.2.17   Auditors and financial year

remove or permit the removal of its auditors or appoint new ones or change its financial year end; or

8.2.18   Designated Transactions

enter into any derivative transactions other than Designated Transactions.

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8.3   Security value maintenance

8.3.1   Security shortfall

If at any time the Security Value shall be less than the Security Requirement, the Bank may give notice to the Borrower requiring that such deficiency be remedied and then the Borrower shall either:

(a)   prepay within a period of thirty (30) days of the date of receipt by the Borrower of the Bank's said notice such sum in Dollars as will result in the relevant Security Requirement after such prepayment (taking into account any other repayment of the Loan made between the date of the notice and the date of such prepayment) being equal to the Security Value; or

(b)   within thirty (30) days of the date of receipt by the Borrower of the Bank's said notice constitute to the satisfaction of the Bank such further security for the Loan as shall be acceptable to the Bank having a value for security purposes (as determined by the Bank in its absolute discretion) at the date upon which such further security shall be constituted which, when added to the Security Value, shall not be less than the relevant Security Requirement as at such date.

The provision of clauses 4.4 and any relevant provisions of clause 4.5 shall apply to prepayments made under clause 8.3.1(a).

8.3.2   Valuation of Ship

The Ship shall, for the purposes of this clause 8.3, be valued as and when the Bank shall in its absolute discretion require, by an independent firm of shipbrokers appointed by the Bank in its sole discretion.  Each such valuation shall be made without, unless required by the Bank, physical inspection and on the basis of a sale for prompt delivery, for cash at arm’s length, on normal commercial terms as between a willing buyer and a willing seller without taking into account the benefit of any charter-party or other engagement concerning the Ship.  Such valuation shall constitute the value of the Ship for the purposes of this clause 8.3.

The value of the Ship determined in accordance with the provisions of this clause 8.3 shall be binding upon the parties hereto until such time as any such further valuations shall be obtained.

8.3.3   Information

The Borrower undertakes to the Bank to supply to the Bank and to any such shipbrokers such information concerning the Ship and its condition as such shipbrokers may reasonably require for the purpose of making any such valuations.

8.3.4   Costs

All costs in connection with the Bank obtaining any valuation of the Ship referred to in clause 8.3.2 or in schedule 2, Part 2, and any valuation either of any additional security for the purposes of ascertaining the Security Value at any time or necessitated by the Borrower electing to constitute additional security pursuant to clause 8.3.1(b) shall be borne by the Borrower.

8.3.5   Valuation of additional security

For the purpose of this clause 8.3, the market value of any additional security provided or to be provided to the Bank shall be determined by the Bank in its absolute discretion without any necessity for the Bank assigning any reason thereto.

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8.3.6   Documents and evidence

In connection with any additional security provided in accordance with this clause 8.3, the Bank shall be entitled to receive such evidence and documents of the kind referred to in schedule 2 as may in the Bank's opinion be appropriate and such favourable legal opinions as the Bank shall in its absolute discretion require.

9   Conditions

9.1   Documents and evidence

 The obligation of the Bank to make the Commitment available shall be subject to the condition that:

9.1.1   the Bank, or its duly authorised representative, shall have received, not later than three (3) Banking Days before the day on which the Drawdown Notice for the Loan is given, the documents and evidence specified in Part 1 of schedule 2 in form and substance satisfactory to the Bank; and

9.1.2   the Bank, or its duly authorised representative, shall have received, on or prior to the Drawdown Date, the documents and evidence specified in Part 2 of schedule 2 in form and substance satisfactory to the Bank.

9.2   General conditions precedent

The obligation of the Bank to advance the Loan shall be subject to the further condition that, at the time of the giving of the Drawdown Notice, and at the time of the making of the Loan:

9.2.1 the representations and warranties contained in clauses 7.1, 7.2 and 7.3(b) are true and correct on and as of each such time as if each was made with respect to the facts and circumstances existing at such time; and

9.2.2   no Default shall have occurred and be continuing or would result from the making of the Loan.

9.3   Waiver of conditions precedent

The conditions specified in this clause 9 are inserted solely for the benefit of the Bank and may be waived by the Bank in whole or in part and with or without conditions.

9.4   Further conditions precedent

Not later than five (5) Banking Days prior to the Drawdown Date and not later than five (5) Banking Days prior to each Interest Payment Date, the Bank may request and the Borrower shall, not later than two (2) Banking Days prior to such date, deliver to the Bank on such request further favourable certificates and/or opinions as to any or all of the matters which are the subject of clauses 7, 8, 9 and 10 of this Agreement.

10   Events of Default

10.1   Events

 There shall be an Event of Default if:

10.1.1   Non-payment: the Borrower or any other Security Party fails to pay any sum payable by it under any of the Security Documents at the time, in the currency and in the manner stipulated in the Security Documents (and so that, for this purpose, sums payable on demand shall be treated as having been paid at the stipulated time if paid within three (3) Banking Days of demand); or

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10.1.2   Master Swap Agreement: (a) an Event of Default or Potential Event of Default (in each case as defined in the Master Swap Agreement) has occurred and is continuing with the Borrower as the Defaulting Party (as defined in the Master Swap Agreement) under the Master Swap Agreement or (b) an Early Termination Date has occurred or been or become capable of being effectively designated under the Master Swap Agreement by the Bank or (c) the Master Swap Agreement is terminated, cancelled, suspended, rescinded or revoked or otherwise ceases to remain in full force and effect for any reason; or

10.1.3   Breach of insurance obligations: the Borrower or the Manager fails to obtain and/or maintain the Insurances (as defined in, and in accordance with the requirements of, the Ship Security Documents) or if any insurer in respect of such Insurances cancels the Insurances or disclaims liability by reason, in either case, of mis-statement in any proposal for the Insurances or for any other failure or default on the part of the Borrower or any other person or the Borrower commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under clauses 8.2, 8.3 or 8.4 or the Corporate Guarantor commits any breach or fails to observe any of the obligations or undertakings expressed to be assumed by it under clauses 5.2 or 5.3 of the Corporate Guarantee; or

10.1.4   Breach of other obligations: the Borrower or any other Security Party commits any breach of or omits to observe any of its obligations or undertakings expressed to be assumed by it under any of the Security Documents (other than those referred to in clauses 10.1.1, 10.1.2 and 10.1.3 above) and, in respect of any such breach or omission which in the opinion of the Bank is capable of remedy, such action as the Bank may require shall not have been taken within fourteen (14) days of the Bank notifying the relevant Security Party of such default and of such required action; or

10.1.5   Misrepresentation: any representation or warranty made or deemed to be made or repeated by or in respect of the Borrower or any other Security Party in or pursuant to any of the Security Documents or in any notice, certificate or statement referred to in or delivered under any of the Security Documents is or proves to have been incorrect or misleading in any material respect; or

10.1.6   Cross-default: any Indebtedness of the Borrower or any other Security Party or any other member of the Group is not paid when due or any Indebtedness of any Security Party or other member of the Group becomes (whether by declaration or automatically in accordance with the relevant agreement or instrument constituting the same) due and payable prior to the date when it would otherwise have become due (unless as a result of the exercise by the relevant Security Party or other member of the Group of a voluntary right of prepayment), or any creditor of any Security Party or other member of the Group becomes entitled to declare any such Indebtedness due and payable or any facility or commitment available to any Security Party or other member of the Group relating to Indebtedness is withdrawn, suspended or cancelled by reason of any default (however described) of the person concerned unless the relevant Security Party or other member of the Group shall have satisfied the Bank that such withdrawal, suspension or cancellation will not affect or prejudice in any way the ability of the relevant Security Party or the relevant member of the Group to pay its debts as they fall due and fund its commitments, or any guarantee given by any Security Party or other member of the Group in respect of Indebtedness is not honoured when due and called upon and, in the case of the Corporate Guarantor only, the amount or aggregate amount at any one time of all Indebtedness of the Corporate Guarantor in relation to which any of the foregoing events shall have occurred is equal to or greater than One million Dollars ($1,000,000) or its equivalent in the currency in which same is denominated and payable; or

10.1.7   Legal process: any judgement or order made against the Borrower or any other Security Party or other member of the Group is not stayed or complied with within fifteen (15) days or a creditor attaches or takes possession of, or a distress, execution, sequestration or other process is levied or enforced upon or sued out against, any of the undertakings, assets, rights or revenues of the Borrower or any other Security Party or other member of the Group and is not discharged within fifteen (15) days; or

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10.1.8   Insolvency: any Security Party or other member of the Group is unable or admits inability to pay its debts as they fall due; suspends making payments on any of its debts or announces an intention to do so; becomes insolvent; has assets the value of which is less than the value of its liabilities (taking into account contingent and prospective liabilities); or suffers the declaration of a moratorium in respect of any of its Indebtedness; or

10.1.9   Reduction or loss of capital: a meeting is convened by the Borrower or any other Security Party or other member of the Group for the purpose of passing any resolution to purchase, reduce or redeem any of its share capital; or

10.1.10   Winding up: any corporate action, legal proceedings or other procedure or step is taken for the purpose of winding up the Borrower or any other Security Party or other member of the Group or an order is made or resolution passed for the winding up of the Borrower or any other Security Party or other member of the Group or a notice is issued convening a meeting for the purpose of passing any such resolution; or

10.1.11   Administration: any petition is presented, notice given or other step is taken for the purpose of the appointment of an administrator of the Borrower or any other Security Party or other member of the Group or the Bank believes that any such petition or other step is imminent or an administration order is made in relation to the Borrower or any other Security Party or other member of the Group; or

10.1.12   Appointment of receivers and managers: any administrative or other receiver is appointed of the Borrower or any other Security Party or other member of the Group or any part of its assets and/or undertaking or any other steps are taken to enforce any Encumbrance over all or any part of the assets of the Borrower or any other Security Party or other member of the Group; or

10.1.13   Compositions: any corporate action, legal proceedings or other procedures or steps are taken, or negotiations commenced, by the Borrower or any other Security Party or other member of the Group or by any of its creditors with a view to the general readjustment or rescheduling of all or part of its Indebtedness or to proposing any kind of composition, compromise or arrangement involving such company and any of its creditors; or

10.1.14   Analogous proceedings: there occurs, in relation to the Borrower or any other Security Party or other member of the Group, in any country or territory in which any of them carries on business or to the jurisdiction of whose courts any part of their assets is subject, any event which, in the opinion of the Bank, appears in that country or territory to correspond with, or have an effect equivalent or similar to, any of those mentioned in clauses 10.1.7 to 10.1.13 (inclusive) or the Borrower or any other Security Party or other member of the Group otherwise becomes subject, in any such country or territory, to the operation of any law relating to insolvency, bankruptcy or liquidation; or

10.1.15   Cessation of business: the Borrower or any other Security Party or other member of the Group suspends or ceases or threatens to suspend or cease to carry on its business; or

10.1.16   Invalidity: any of the Security Documents shall at any time and for any reason become invalid or unenforceable or otherwise cease to remain in full force and effect, or if the validity or enforceability of any of the Security Documents shall at any time and for any reason be contested by the Borrower or any other Security Party which is a party thereto, or if the Borrower or any such Security Party shall deny that it has any, or any further, liability thereunder or shall otherwise repudiate any of the Security Documents or do or cause or permit to be done any act or thing evidencing an intention to repudiate any of the Security Documents; or

10.1.17   Seizure: all or a material part of the undertakings, assets, rights or revenues of, or shares or other ownership interests in, the Borrower or any other Security Party or any other member of the Group are seized, nationalised, expropriated or compulsorily acquired by or under the authority of any Government Entity; or

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10.1.18   Unlawfulness: it becomes impossible or unlawful at any time for the Borrower or any other Security Party, to fulfil any of the covenants and obligations expressed to be assumed by it in any of the Security Documents or for the Bank to exercise the rights or any of them vested in it under any of the Security Documents or otherwise; or

10.1.19   Repudiation: the Borrower or any other Security Party repudiates any of the Security Documents or does or causes or permits to be done any act or thing evidencing an intention to repudiate any of the Security Documents; or

10.1.20   Encumbrances enforceable: any Encumbrance in respect of any of the property (or part thereof) which is the subject of any of the Security Documents becomes enforceable; or

10.1.21   De-listing etc.: the shares of the Corporate Guarantor are de-listed or suspended from, or cease to trade (whether permanently or temporarily) on, NASDAQ unless they are in the meantime listed and trading on any other stock exchange of the U.S.A.; or

10.1.22   Material adverse change: there occurs, in the opinion of the Bank, a material adverse change in the financial condition of the Borrower or any other Security Party or any other member of the Group or the consolidated financial condition of the Group by reference to the financial position of the Borrower or any other Security Party or any other member of the Group or, as the case may be, the consolidated financial position of the Group, respectively, as described by or on behalf of the Borrower or any other Security Party to the Bank in the negotiation of this Agreement; or

10.1.23   Flag State: the Flag State becomes involved in hostilities or civil war or there is a seizure of civil power in the Flag State by unconstitutional means if, in any such case such event could in the opinion of the Bank reasonably be expected to have a material adverse effect on the security constituted by any of the Security Documents; or

10.1.24   Environmental Claim: the Borrower and/or any other Relevant Party and/or any of their respective Environmental Affiliates fails to comply with any Environmental Law or any Environmental Approval or the Ship or any other Relevant Ship is involved in any incident which gives rise or which may give rise to an Environmental Claim, if in any such case, such non compliance or incident or the consequences thereof could (in the opinion of the Bank) reasonably be expected to have a material adverse effect on the business, assets, operations, property or financial condition of the Borrower or any other Security Party or on the security created by any of the Security Documents; or

10.1.25   Insurance requirements: the Borrower or any other person fails or omits to comply with any requirements of the protection and indemnity association or other insurer with which the Ship is entered for insurance or insured against protection and indemnity risks (including oil pollution risks) to the effect that any cover (including, without limitation, liability for Environmental Claims arising in jurisdictions where the Ship operates or trades) is or may be liable to cancellation, qualification or exclusion at any time; or

10.1.26   Arrest: the Ship is arrested, confiscated, seized, taken in execution, impounded, forfeited, detained in the exercise or purported exercise of any possessory lien or other claim or otherwise taken from the possession of the Borrower and the Borrower shall fail to procure the release of the Ship within a period of three (3) days; or

10.1.27   Registration: the registration of the Ship under the laws and flag of the Flag State is cancelled or terminated; or

10.1.28   Shareholdings: there is any change in (a) the legal and/or ultimate beneficial ownership of any of the shares in the Borrower and/or the Manager from that existing on the date of this Agreement as specified in clause 7.1.10 or (b) the ultimate beneficial ownership of the issued voting share capital of the Corporate Guarantor such that Mr George Economou and/or trusts and/or foundations of which Mr. George Economou is a beneficiary, cease to be the ultimate beneficial owners of at least 25% of the total issued voting share capital of the Corporate Guarantor; or

27

10.1.29   Accounts: any moneys are withdrawn from the Accounts other than in accordance with clause 14; or

10.1.30   Material events: any other event occurs or circumstance arises which, in the opinion of the Bank, is likely materially and adversely to affect either (i) the ability of the Borrower or any other Security Party to perform all or any of their respective obligations under or otherwise to comply with the terms of any of the Security Documents or (ii) the security created by any of the Security Documents.

10.2   Acceleration

The Bank may, without prejudice to any other rights of the Bank, at any time after the happening of an Event of Default by notice to the Borrower declare that:

10.2.1   the obligation of the Bank to make the Commitment available shall be terminated, whereupon the Commitment shall be reduced to zero forthwith; and/or

10.2.2   the Loan and all interest and commitment commission accrued and all other sums payable under the Security Documents have become due and payable, whereupon the same shall, immediately or in accordance with the terms of such notice, become due and payable.

10.3   Demand basis

If, pursuant to clause 10.2.2, the Bank declares the Loan to be due and payable on demand, the Bank may by written notice to the Borrower (a) call for repayment of the Loan on such date as may be specified whereupon the Loan shall become due and payable on the date so specified together with all interest and commitment commission accrued and all other sums payable under this Agreement or (b) withdraw such declaration with effect from the date specified in such notice.

11   Indemnities

11.1	Miscellaneous indemnities
	The Borrower shall on demand indemnify the Bank, without prejudice to any of the Bank's other rights under any of the Security Documents against any loss (including loss of Margin) or expense which the Bank shall certify as sustained or incurred by it as a consequence of:

11.1.1   any default in payment by the Borrower of any sum under any of the Security Documents when due; or

11.1.2   the occurrence of any other Event of Default; or

11.1.3   any prepayment of the Loan or part thereof being made under clauses 4.3, 8.3.1(a) or 12.1, or any other repayment or prepayment of the Loan or part thereof being made otherwise than on an Interest Payment Date relating to the part of the Loan prepaid or repaid; or

11.1.4   the Loan not being made for any reason (excluding any default by the Bank) after the Drawdown Notice for the Loan has been given,

including, in any such case, but not limited to, any loss or expense sustained or incurred in maintaining or funding the Loan or any part thereof or in liquidating or re-employing deposits from third parties acquired to effect or maintain the Loan or any part thereof.

11.2   Currency indemnity

If any sum due from the Borrower under any of the Security Documents or any order or  judgement given or made in relation thereto has to be converted from the currency (the “first currency”) in which the same is payable under the relevant Security Document or under such order or judgement into another currency (the “second currency”) for the purpose of (a) making or filing a claim or proof against the Borrower, (b) obtaining an order or judgement in any court or other tribunal or (c) enforcing any order or judgement given or made in relation to any of the Security Documents, the Borrower shall indemnify and hold harmless the Bank from and against any loss suffered as a result of any difference between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which the Bank may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgement, claim or proof.  Any amount due from the Borrower under this clause 11.2 shall be due as a separate debt and shall not be affected by judgement being obtained for any other sums due under or in respect of any of the Security Documents and the term “rate of exchange” includes any premium and costs of exchange payable in connection with the purchase of the first currency with the second currency.

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11.3   Environmental indemnity

The Borrower shall indemnify the Bank on demand and hold the Bank harmless from and against all costs, expenses, payments, charges, losses, demands, liabilities, actions, proceedings (whether civil or criminal), penalties, fines, damages, judgements, orders, sanctions or other outgoings of whatever nature which may be suffered, incurred or paid by, or made or asserted against the Bank at any time, whether before or after the repayment in full of principal and interest under this Agreement, relating to, or arising directly or indirectly in any manner or for any cause or reason whatsoever out of an Environmental Claim made or asserted against the Bank if such Environmental Claim would not have been, or been capable of being, made or asserted against the Bank if it had not entered into any of the Security Documents and/or exercised any of its rights, powers and discretions thereby conferred and/or performed any of its obligations thereunder and/or been involved in any of the transactions contemplated by the Security Documents.

11.4   Central Bank or European Central Bank reserve requirements indemnity

The Borrower shall on demand promptly indemnify the Bank against any cost incurred or loss suffered by it as a result of its complying with the minimum reserve requirements of the European Central Bank and/or with respect to maintaining required reserves with the relevant national Central Bank to the extent that such compliance relates to the Commitment or the Loan or deposits obtained by it to fund or maintain the whole or part of the Loan and such cost or loss is not recoverable by the Bank under clause 12.2.

12   Unlawfulness and increased costs

12.1   Unlawfulness

If it is or becomes contrary to any law or regulation for the Bank to advance the Loan or to maintain the Commitment or fund the Loan, the Bank shall promptly give notice to the Borrower whereupon (a) the Commitment shall be reduced to zero and (b) the Borrower shall be obliged to prepay the Loan either (i) forthwith or (ii) on a future specified date not being earlier than the latest date permitted by the relevant law or regulation together with interest accrued to the date of prepayment and all other sums payable by the Borrower under this Agreement and/or the Master Swap Agreement.

12.2   Increased costs

If the result of any change in, or in the interpretation or application of, or the introduction of, any law or any regulation, request or requirement, including (without limitation) those relating to Taxation, capital adequacy, liquidity, reserve assets, cash ratio deposits and special deposits, is to:

12.2.1   subject the Bank to Taxes or change the basis of Taxation of the Bank with respect to any payment under any of the Security Documents (other than Taxes or Taxation on the overall net income, profits or gains of the Bank imposed in the jurisdiction in which its principal or lending office under this Agreement is located); and/or

29

12.2.2   increase the cost to, or impose an additional cost on, the Bank in making or keeping the Commitment available or maintaining or funding all or part of the Loan; and/or

12.2.3   reduce the amount payable or the effective return to the Bank under any of the Security Documents; and/or

12.2.4   reduce the Bank's rate of return on its overall capital by reason of a change in the manner in which it is required to allocate capital resources to the Bank's obligations under any of the Security Documents; and/or

12.2.5	require the Bank to make a payment or forego a return on or calculated by reference to any amount received or receivable by the Bank under any of the Security Documents,
	then and in each such case:

(a)   the Bank shall notify the Borrower in writing of such event promptly upon its becoming aware of the same; and

(b)   the Borrower shall on demand pay to the Bank the amount which the Bank specifies (in a certificate setting forth the basis of the computation of such amount but not including any matters which the Bank regards as confidential) is required to compensate the Bank for such liability to Taxes, cost, reduction, payment, foregone return or loss.

For the purposes of this clause 12.2, the Bank may in good faith allocate or spread costs and/or losses among its assets and liabilities (or any class thereof) on such basis as it considers appropriate.

12.3   Exception

Nothing in clause 12.2 shall entitle the Bank to receive any amount in respect of compensation for any such liability to Taxes, increased or additional cost, reduction, payment, foregone return or loss to the extent that the same is the subject of an additional payment under clause 6.6.

13   Security and set-off

13.1   Application of moneys

All moneys received by the Bank under or pursuant to any of the Security Documents and expressed to be applicable in accordance with the provisions of this clause 13.1 shall be applied by the Bank in the following manner:

13.1.1   first in or toward payment of all unpaid fees, commissions and expenses which may be owing to the Bank under any of the Security Documents;

13.1.2   secondly in or towards payment of any arrears of interest owing in respect of the Loan or any part thereof;

13.1.3   thirdly in or towards repayment of the Loan (whether the same is due and payable or not);

13.1.4   fourthly in or towards payment of any sums owing under the Master Swap Agreement;

13.1.5   fifthly in or towards payment to the Bank for any loss suffered by reason of any such payment in respect of principal not being effected on an Interest Payment Date relating to the part of the Loan repaid;

13.1.6   sixthly in or towards payment to the Bank of any other sums owing to it under any of the Security Documents; and

30

13.1.7   seventhly the surplus (if any) shall be paid to the Borrower or to whomsoever else may be entitled to receive such surplus.

13.2   Set-off

13.2.1   The Borrower authorises the Bank (without prejudice to any of the Bank's rights at law, in equity or otherwise), at any time and without notice to the Borrower, to apply any credit balance to which the Borrower is then entitled standing upon any account of the Borrower with any branch of the Bank in or towards satisfaction of any sum due and payable from the Borrower to the Bank under any of the Security Documents.  For this purpose, the Bank is authorised to purchase with the moneys standing to the credit of such account such other currencies as may be necessary to effect such application.

13.2.2   Without prejudice to its rights hereunder, the Bank may at the same time as, or at any time after, any Default occurs under this Agreement, set-off any amount due now or in the future from the Borrower to the Bank under this Agreement against any amount due from the Bank to the Borrower under the Master Swap Agreement and apply the second amount in discharging the first amount. The effect of any set-off under this sub-clause 13.2.2 shall be effective to extinguish or, as the case may require, reduce the liabilities of the Bank under the Master Swap Agreement.

13.2.3   The Bank shall not be obliged to exercise any right given to it by this clause 13.2.  The Bank shall notify the Borrower forthwith upon the exercise or purported exercise of any right of set-off giving full details in relation thereto.

13.2.4   Nothing in this clause 13.2 shall be effective to create a charge or other Encumbrance.

13.3   Further assurance

The Borrower undertakes that the Security Documents shall both at the date of execution and delivery thereof and so long as any moneys are owing under any of the Security Documents be valid and binding obligations of the respective parties thereto and rights of the Bank enforceable in accordance with their respective terms and that it will, at its expense, execute, sign, perfect and do, and will procure the execution, signing, perfecting and doing by each of the other Security Parties of, any and every such further assurance, document, act or thing as in the reasonable opinion of the Bank may be necessary or desirable for perfecting the security contemplated or constituted by the Security Documents.

13.4   Conflicts

In the event of any conflict between this Agreement and any of the other Borrower's Security Documents, the provisions of this Agreement shall prevail.

14   Accounts

14.1   General

The Borrower undertakes that it will:

14.1.1   on or before the Drawdown Date, open each of the Accounts; and

14.1.2   procure that all moneys payable to the Borrower in respect of the Earnings and any moneys payable to the Borrower pursuant to the Master Swap Agreement shall, unless and until the Bank directs to the contrary pursuant to clause 2.1.1 of the Deed of Covenant, be paid to the Earnings Account.

14.2   Account terms

Amounts standing to the credit of the Accounts shall (unless otherwise agreed between the Bank and the Borrower), bear interest at the rates from time to time offered by the Bank to its prime customers for Dollar deposits in comparable amounts for comparable periods.  Interest shall accrue on the Accounts from day to day and be calculated on the basis of actual days elapsed and a three hundred and sixty (360) day year and shall be credited to the Accounts at such times as the Bank and the Borrower shall agree.

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14.3   Earnings Account: withdrawals

Unless the Bank otherwise agrees in writing, the Borrower shall not be entitled to withdraw any moneys from the Earnings Account at any time from the date of this Agreement and so long as any moneys are owing under the Security Documents save that, unless and until a Default shall occur and the Bank shall direct to the contrary, the Borrower may withdraw moneys from the Earnings Account for the following purposes:

14.3.1   to transfer any Retention Amounts to the Retention Account;

14.3.2   to pay any amount to the Bank in or towards payments of any instalments of interest or principal or any other amounts then payable pursuant to the Security Documents;

14.3.3   to pay the proper and reasonable operating expenses of the Ship;

14.3.4   to pay the proper and reasonable expenses of administering the affairs of the Borrower; and

14.3.5   to make any payment of dividends declared in accordance with clause 8.2.12.

14.4   Retention Account: credits and withdrawals

14.4.1   The Borrower hereby undertakes with the Bank that it will, from the date of this Agreement and so long as any moneys are owing under the Security Documents, on each Retention Date pay to the Bank for credit to the Retention Account, the Retention Amount for such Retention Date provided however that, to the extent that there are moneys standing to the credit of the Earnings Account, such moneys shall, up to an amount equal to the Retention Amount, be transferred to the Retention Account on that Retention Date (and the Borrower hereby irrevocably and unconditionally instructs and authorises the Bank to effect each such transfer) and to that extent the Borrower’s obligations to make the payments referred to in this clause 14.4.1 shall have been fulfilled upon such transfer being effected.

14.4.2   Unless and until there shall occur an Event of Default (whereupon the provisions of clause 14.5 shall apply), all Retention Amounts credited to the Retention Account together with interest from time to time accruing or at any time accrued thereon shall be applied by the Bank (and the Borrower hereby irrevocably and unconditionally instructs and authorises the Bank so to apply the same) upon each Repayment Date, and on each day that interest is payable pursuant to clause 3.1, in or towards payment to the Bank of the instalment then falling due for repayment or (as the case may be) the amount of interest then due.  Each such application by the Bank shall constitute a payment in or towards satisfaction of the Borrower’s corresponding payment obligations under this Agreement but shall be strictly without prejudice to the obligations of the Borrower to make any such payment to the extent that the aforesaid application by the Bank is insufficient to meet the same.

14.4.3   Unless the Bank otherwise agrees in writing and subject to clause 14.3.2, the Borrower shall not be entitled to withdraw any moneys from the Retention Account at any time from the date of this Agreement and so long as any moneys are owing under the Security Documents.

14.5   Application of Accounts

At any time after the occurrence of an Event of Default, the Bank may, without notice to the Borrower, apply all moneys then standing to the credit of the Accounts (together with interest from time to time accruing or accrued thereon) in or towards satisfaction of any sums due to the Bank under the Security Documents in the manner specified in clause 13.1.

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14.6   Pledging of accounts

The Accounts and all amounts from time to time standing to the credit thereof shall be subject to the security constituted and the rights conferred by the Account Pledges.

15   Assignment, transfer and lending office

15.1   Benefit and burden

This Agreement shall be binding upon, and shall enure for the benefit of, the Bank and the Borrower and their respective successors in title.

15.2   No assignment by Borrower

The Borrower may not assign or transfer any of its rights or obligations under this Agreement.

15.3   Assignment by Bank

The Bank may assign all or any part of its rights under this Agreement or under any of the other Security Documents to any other bank or financial institution (an “Assignee”) with the prior consent of the Borrower (such consent not to be unreasonably withheld and the request for which shall be promptly responded to) except if the Assignee is a Related Company of the Bank in which case no such prior consent is required, the Borrower consenting to any such assignment by its execution of this Agreement.

15.4   Transfer

The Bank may transfer all or any part of its rights, benefits and/or obligations under this Agreement and/or any of the other Security Documents to any one or more banks or other financial institutions (a “Transferee”):

15.4.1   with the prior written consent of the Borrower (such consent not to be unreasonably withheld and the request for which shall be promptly responded to), unless the Transferee shall be a Related Company of the Bank (in which case no such consent shall be required, the Borrower consenting to any such transfer by its execution of this Agreement); and

15.4.2   if the Transferee, by delivery of such undertaking as the Bank may approve, becomes bound by the terms of this Agreement and agrees to perform all or, as the case may be, part of the Bank’s obligations under this Agreement.

15.5   Documenting assignments and transfers

If the Bank assigns all or any part of its rights or transfers all or any part of its rights, benefits and/or obligations as provided in clause 15.3 or clause 15.4, the Borrower undertakes, immediately on being requested to do so by the Bank and at the cost of the Bank, to enter into, and procure that the other Security Parties shall enter into, such documents as may be necessary or desirable to transfer to the Assignee or Transferee all or the relevant part of the Bank's interest in the Security Documents and all relevant references in this Agreement to the Bank shall thereafter be construed as a reference to the Bank and/or its Assignee or Transferee (as the case may be) to the extent of their respective interests.

15.6   Lending office

The Bank shall lend through its office at the address specified in the definition of “Bank” in clause 1.2 or through any other office of the Bank selected from time to time by it through which the Bank wishes to lend for the purposes of this Agreement.  If the office through which the Bank is lending is changed pursuant to this clause 15.6, the Bank shall notify the Borrower promptly of such change.

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15.7   Disclosure of information

The Bank may disclose to a prospective assignee, transferee or to any other person who may propose entering into contractual relations with the Bank in relation to this Agreement such information about the Borrower as the Bank shall consider appropriate.

16   Notices and other matters

16.1   Notices

Every notice, request, demand or other communication under this Agreement or (unless otherwise provided therein) under any of the other Security Documents shall:

16.1.1   be in writing delivered personally or by first-class prepaid letter (airmail if available) or facsimile transmission or other means of telecommunication in permanent written form;

16.1.2   be deemed to have been received, subject as otherwise provided in the relevant Security Document, in the case of a letter, when delivered personally or three (3) days after it has been put in the post and, in the case of a facsimile transmission or other means of telecommunication in permanent written form, at the time of despatch (provided that if the date of despatch is not a business day in the country of the addressee or if the time of despatch is after the close of business in the country of the addressee it shall be deemed to have been received at the opening of business on the next such business day); and

16.1.3   be sent:

(a)   if to the Borrower at:

c/o DryShips Inc. (Athens office)

Omega Building

80 Kifissias Avenue

151 25 Maroussi

Greece

Fax no:    +30 210 8090 275

Attention: Mr Aristidis Ioannidis

(b)   if to the Bank at:

EFG Eurobank Ergasias S.A.

83 Akti Miaouli & Flessa Street

185 38 Piraeus

Greece

Fax No:    +30 210 458 7877

Attention: The Shipping Manager

or to such other address and/or numbers as is notified by one party to the other party under this Agreement. 

16.2   No implied waivers, remedies cumulative

No failure or delay on the part of the Bank to exercise any power, right or remedy under any of the Security Documents shall operate as a waiver thereof, nor shall any single or partial exercise by the Bank of any power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy.  The remedies provided in the Security Documents are cumulative and are not exclusive of any remedies provided by law.

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16.3   English language

All certificates, instruments and other documents to be delivered under or supplied in connection with any of the Security Documents shall be in the English language or shall be accompanied by a certified English translation upon which the Bank shall be entitled to rely.

17   Governing law and jurisdiction

17.1   Law

This Agreement is governed by, and shall be construed in accordance with, English law.

17.2   Submission to jurisdiction

The Borrower agrees, for the benefit of the Bank, that any legal action or proceedings arising out of or in connection with this Agreement against the Borrower or any of its assets may be brought in the English courts.  The Borrower irrevocably and unconditionally submits to the jurisdiction of such courts and irrevocably designates, appoints and empowers Ince & Co at present of International House, 1 St. Katharine’s Way, London E1W 1AY, England to receive for it and on its behalf, service of process issued out of the English courts in any such legal action or proceedings.  The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of the Bank to take proceedings against the Borrower in the courts of any other competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.  The parties further agree that only the Courts of England and not those of any other State shall have jurisdiction to determine any claim which the Borrower may have against the Bank arising out of or in connection with this Agreement.

17.3   Contracts (Rights of Third Parties) Act 1999

No term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement.

IN WITNESS whereof the parties to this Agreement have caused this Agreement to be duly executed on the date first above written.

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Schedule 1

Form of Drawdown Notice

(referred to in clause 2.2)

To: EFG Eurobank Ergasias S.A.

83 Akti Miaouli & Flessa Street

185 38 Piraeus

Greece

[·] 200[·]

U.S.$47,000,000 Loan

Loan Agreement dated [·] 2007 (the “Loan Agreement”)

We refer to the above Loan Agreement and hereby give you notice that we wish to draw down the Loan, namely $[47,000,000] on [·] 200[·] and select a first Interest Period in respect thereof of [·] months.  The funds should be credited as follows: [insert details]

We confirm that:

(a)   no event or circumstance has occurred and is continuing which constitutes a Default;

(b)   the representations and warranties contained in clauses 7.1, 7.2 and 7.3(b) of the Loan Agreement are true and correct at the date hereof as if made with respect to the facts and circumstances existing at such date;

(c)   the borrowing to be effected by the drawdown of the Loan will be within our corporate powers, has been validly authorised by appropriate corporate action and will not cause any limit on our borrowings (whether imposed by statute, regulation, agreement or otherwise) to be exceeded; and

(d)   there has been no material adverse change in our financial position or in that of any Security Party or any other member of the Group nor in the consolidated financial position of the Group from that described by us or any other Security Party to the Bank in the negotiation of the Loan Agreement.

Words and expressions defined in the Loan Agreement shall have the same meanings where used herein.

………………………………………………………

For and on behalf of

IASON OWNING COMPANY LIMITED

36

Schedule 2

 Documents and evidence required as conditions precedent to the

Loan being made

(referred to in clause 9.1)

Part 1

1   Constitutional documents

Copies, certified by an officer or a legal advisor of each Security Party as true, complete and up to date copies of all documents which contain or establish or relate to the constitution of that Security Party;

2   Corporate authorisations

copies of resolutions of the directors and certificates of resolutions of the stockholders of each Security Party approving such of the Underlying Documents and the Security Documents to which such Security Party is, or is to be, a party and authorising the signature, delivery and performance of such Security Party's obligations thereunder, certified (in a certificate dated no earlier than fifteen (15) Banking Days prior to the date of this Agreement) by an officer or a legal advisor of such Security Party as:

2.1   being true and correct;

2.2   being duly passed at meetings of the directors of such Security Party and of the stockholders of such Security Party each duly convened and held;

2.3   not having been amended, modified or revoked; and

2.4   being in full force and effect,

together with originals or certified copies of any powers of attorney issued by any Security Party pursuant to such resolutions;

3   Specimen signatures

copies of the signatures of the persons who have been authorised on behalf of each Security Party to sign such of the Underlying Documents and the Security Documents to which such Security Party is, or is to be, party and to give notices and communications, including notices of drawing, under or in connection with the Security Documents, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) by an officer or a legal advisor of such Security Party as being the true signatures of such persons;

4   Certificate of incumbency

a list of directors and officers of each Security Party specifying the names and positions of such persons, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) by an officer or a legal advisor of such Security Party to be true, complete and up to date;

5   Borrower's consents and approvals

a certificate (dated no earlier than five (5) Banking Days prior to the date of this Agreement) from an officer of the Borrower that no consents, authorisations, licences or approvals are necessary for the Borrower to authorise or are required by the Borrower in connection with the borrowing by the Borrower of the Loan pursuant to this Agreement or the other Borrower's Security Documents;

37

6   Due diligence

evidence that all information required in relation to any Security Party in order for the Bank to complete its “know your customer” and other due diligence formalities in connection with this Agreement and the other Security Documents has been provided and is satisfactory in all respects to the Bank;

7   Other consents and approvals

a certificate (dated no earlier than five (5) Banking Days prior to the date of this Agreement) from an officer of each Security Party (other than the Borrower) that no consents, authorisations, licences or approvals are necessary for such Security Party to guarantee and/or grant security for the borrowing by the Borrower of the Commitment pursuant to this Agreement and execute, deliver and perform the Security Documents insofar as such Security Party is a party thereto;

8   Security Documents

the Master Swap Agreement, the Account Pledges, the Corporate Guarantee and the Master Agreement Security Deed each duly executed;

9   Certified Underlying Documents

a copy, certified (in a certificate dated no earlier than fifteen (15) Banking Days prior to the date of this Agreement) as a true and complete copy by an officer or a legal advisor of the Borrower of the Contract and the Management Agreement;

10   Borrower’s process agent

a letter from the Borrower’s agent for receipt of service of proceedings referred to in clause 17.2 accepting its appointment under the said clause and under each of the other Security Documents in which it is or is to be appointed as the Borrower’s agent; 

11   Security Parties’ process agent

a letter from each Security Party’s agent for receipt of service of proceedings accepting its appointment under each of the Security Documents in which it is or is to be appointed as such Security Party’s agent; 

12   Accounts

evidence that each of the Accounts have been opened, together with duly completed mandate forms in respect thereof; and

13   Further matters or opinions

any such other matter or further opinion as may be required by the Bank.

38

Part 2

14   Drawdown notice

The Drawdown Notice duly executed;

15   Ship conditions

   Evidence that the Ship:

15.1   Registration and Encumbrances

is registered in the name of the Borrower through the Registry under the laws and flag of the Flag State and that the Ship and its Earnings, Insurances and Requisition Compensation (each such term as defined in the Deed of Covenant) are free of Encumbrances;

15.2   Classification

maintains the Classification free of all requirements and recommendations of the Classification Society; and

15.3   Insurance

is insured in accordance with the provisions of the Ship Security Documents and all requirements of the Ship Security Documents in respect of such insurances have been complied with (including without limitation, confirmation from the protection and indemnity association or other insurer with which the Ship is, or is to be, entered for insurance or insured against protection and indemnity risks (including oil pollution risks) that any necessary declarations required by the association or insurer for the removal of any oil pollution exclusion have been made and that any such exclusion does not apply to the Ship);

16   Ship Security Documents

the Ship Security Documents duly executed;

17   Title and deletion

evidence that the transfer of title to the Shipfrom the Seller to the Borrower has been duly recorded at the Registry free of Encumbrances and that the prior registration of the Ship (if any) in the name of the Seller has been cancelled;

18   Mortgage registration

evidence that the Mortgage over the Ship has been registered against the Ship through the Registry under the laws and flag of the Flag State;

19   Notices of assignment

copies of duly executed notices of assignment required by the terms of the Ship Security Documents and in the forms prescribed by the Ship Security Documents;

20   Valuation

a valuation of the Ship made in accordance with clause 8.3.2 at the Borrower’s cost and dated not more than 10 days prior to the Drawdown Date, evidencing the market value of the Ship;

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21   Fees

evidence that any fees and commission due under clause 5 have been paid in full;

22   Marshall Islands opinion

an opinion of Poles, Tublin, Stratakis, Gonzalez & Weichert, LLP special legal advisers on matters of Marshall Islands law, to the Bank;

23   Maltese opinion

an opinion of Fenech & Fenech, special legal advisers on matters of Maltese law to the Bank;

24   Security Parties’ process agent

a letter from each Security Party’s agent for receipt of service of proceedings accepting its appointment under each of the Security Documents in which it is or is to be appointed as such Security Party’s agent;

25   Bill of sale and delivery documents

a copy, certified as a true and complete copy by an officer or a legal advisor of the Borrower, of a duly executed and notarised/legalised bill of sale in respect of the Ship evidencing the full Contract Price and the other delivery documents duly executed and exchanged pursuant to the Contract;

26   Readiness and payment of Contract Price

evidence that the Ship is in all respects ready for Delivery and that the Contract Price has been paid in full;

27   Insurance opinion

an opinion (at the expense of the Borrower) of insurance consultants to the Bank on the insurances effected or to be effected in respect of the Ship upon and following the Drawdown Date;

28   SMC/DOC

a copy, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) as a true and complete copy by an officer or a legal advisor of the Borrower of the DOC issued to the Operator and the SMC for the Ship (or an application for the issuance thereof shortly after Delivery);

29   ISPS Code compliance

29.1   evidence satisfactory to the Bank that the Ship is subject to a ship security plan which complies with the ISPS Code; and

29.2   a copy certified (in a certificate dated no earlier than five (5) Banking Days prior to the Drawdown Date) as a true and complete copy by an officer or a legal advisor of the Borrower of the ISSC for the Ship (or an application for the issuance thereof shortly after Delivery) and the continuous synopsis record required by the ISPS Code in respect of the Ship; and

30   Further matters or opinions

any such other matter or further opinion as may be required by the Bank.

40

Schedule 3

Form of Corporate Guarantee

41

Schedule 4

Form of Mortgage

42

Schedule 5

Form of Deed of Covenant

43

Schedule 6

Form of Manager’s Undertaking

44

Schedule 7

Form of Master Swap Agreement

45

Schedule 8

Form of Master Agreement Security Deed

46

SIGNED by for and on behalf of IASON OWNING COMPANY LIMITED	) ) )	...................................... Attorney-in-Fact
SIGNED by and by for and on behalf of EFG EUROBANK ERGASIAS S.A.	) ) ) ) )	...................................... Authorised signatory ...................................... Authorised signatory

47

SK 23113 0002 867877

EX-4.12

EXHIBIT 4.12

Private & Confidential

LOAN AGREEMENT

for a Loan of up to US$101,150,000

to

TEAM-UP OWNING COMPANY LIMITED

and

ORPHEUS OWNING COMPANY LIMITED

provided by

THE BANKS AND FINANCIAL INSTITUTIONS SET OUT IN SCHEDULE 1

Arranger, Agent, Security Agent

and Account Bank

DNB NOR BANK ASA

Swap Provider

DNB NOR BANK ASA

Contents

Clause		Page
1	Purpose and definitions	1
2	The Total Commitment and the Advances	13
3	Interest and Interest Periods	15
4	Repayment and prepayment	17
5	Fees and expenses	19
6	Payments and taxes; accounts and calculations	20
7	Representations and warranties	22
8	Undertakings	27
9	Conditions	32
10	Events of Default	33
11	Indemnities	37
12	Unlawfulness and increased costs	38
13	Security, set-off and pro-rata payments	40
14	Operating Accounts	42
15	Assignment, transfer and lending office	43
16	Arranger, Agent and Security Agent	45
17	Notices and other matters	54
18	Governing law and jurisdiction	57

Schedule 1 The Banks and their Commitments	58
Schedule 2 Form of Drawdown Notice	59
Schedule 3 Documents and evidence required as conditions precedent to the Loan being made	60
Schedule 4 Form of Transfer Certificate	66
Schedule 5 Form of Trust Deed	70
Schedule 6 Mandatory Cost formula	71
Schedule 7 Form of Mortgage	73
Schedule 8 Form of Deed of Covenant	74
Schedule 9 Form of Corporate Guarantee	75
Schedule 10 Form of Manager’s Undertakings	76
Schedule 11 Form of Master Swap Agreement	77
Schedule 12 Form of Swap Assignment	78
Schedule 13 Form of Operating Account Assignment	79

THIS AGREEMENT is dated         December 2007 and made BETWEEN:

(1) TEAM-UP OWNING COMPANY LIMITED and ORPHEUS OWNING COMPANY LIMITEDas joint and several Borrowers;

(2) DNB NOR BANK ASA as Arranger, Agent, Security Agent and Account Bank;

(3) DNB NOR BANK ASA as Swap Provider; and

(4) THE BANKS AND FINANCIAL INSTITUTIONS whose names are set out in schedule 1 as Banks.

IT IS AGREED as follows:

1 Purpose and definitions

1.1 Purpose

This Agreement sets out the terms and conditions upon and subject to which the Banks agree, according to their several obligations, to make available to the Borrowers, jointly and severally, in two (2) Advances, a loan of up to One hundred and one million one hundred and fifty thousand Dollars ($101,150,000) for the purpose of assisting the Borrowers to finance part of the acquisition cost of the Ships.

1.2 Definitions

In this Agreement, unless the context otherwise requires:

“Account Bank” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) or such other person as may be appointed as Account Bank by the Agent for the purposes of this Agreement and includes its successors in title;

“Agent” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) or such other person as may be appointed as agent by the Banks and the Swap Provider pursuant to clause 16.13 and includes its successors in title;

“Advance” means each borrowing of a proportion of the Total Commitment by the Borrowers or (as the context may require) the principal amount of such borrowing and means:

(a) in relation to Saldanha, the Saldanha Advance; and

(b) in relation to Avoca, the Avoca Advance,

and “Advances” means either or both of them;

“Applicable Accounting Principles” means the most recent and up-to-date US GAAP at any relevant time;

“Approved Shipbrokers” means, together, H. Clarkson and Company Ltd of London, England, Arrow Research Ltd. of London, England, Astrup Fearnley A/S of Oslo, Norway, R.S. Platou Shipbrokers of Oslo, Norway and any other independent firm of shipbrokers nominated by the Borrowers and approved by the Agent in its absolute discretion and “Approved Shipbroker”means any of them;

1

“Arranger” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum, N-0107 Oslo, Norway acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) and includes its successors in title;

“Available Commitment” means, in relation to a Bank, the amount of its Commitment less the amount of its Contribution;

“Avoca” means the motor vessel Nord Mercury to be purchased by the relevant Seller and registered under the laws and flag of Panama with IMO Number 9310446 and to be registered on its Delivery Date under the name and in the ownership of the Avoca Borrower through the relevant Registry and under the laws and flag of the relevant Flag State with the name Avoca;

“Avoca Advance” means an Advance of up to Forty eight million six hundred and fifty thousand Dollars ($48,650,000) made or (as the context may require) to be made available to the Borrowers for the purpose of financing part of the acquisition cost of Avoca by the Avoca Borrower pursuant to the Avoca Contract;

“Avoca Borrower” means Orpheus Owning Company Limited of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH96960 and includes its successors in title;

“Avoca Contract” means the memorandum of agreement dated 26 July 2007 made between the relevant Seller, the Manager and the Corporate Guarantor, as novated in favour of the Avoca Borrower pursuant to an Addendum No. 1 thereto dated 26 July 2007 and as may be further amended and supplemented from time to time, relating to the sale by the relevant Seller and the purchase by the Avoca Borrower, of Avoca;

“Avoca Contract Price” means the purchase price payable by the Avoca Borrower to the relevant Seller for Avoca under the Avoca Contract, being Sixty nine million five hundred thousand Dollars ($69,500,000) or such other sum as is determined under the terms of the Avoca Contract to be the purchase price of Avoca thereunder;

“Avoca Deed of Covenant” means the deed of covenant collateral to the Avoca Mortgage executed or (as the context may require) to be executed by the Avoca Borrower in favour of the Security Agent in the form set out in schedule 8;

“Avoca Management Agreement” means the agreement dated as of 10 January 2008 made between the Avoca Borrower, the Corporate Guarantor and the Manager or any other agreement previously approved in writing by the Agent between the Avoca Borrower and the Manager, providing (inter alia) for the Manager to manage Avoca;

“Avoca Manager’s Undertaking” means the undertaking and assignment in respect of Avoca executed or (as the context may require) to be executed by the Manager in favour of the Security Agent in the form set out in schedule 10;

“Avoca Mortgage” means the first priority statutory Maltese mortgage of Avoca executed or (as the context may require) to be executed by the Avoca Borrower in favour of the Security Agent in the form set out in schedule 7;

“Avoca Operating Account” means an interest bearing Dollar account of the Avoca Borrower opened or (as the context may require) to be opened with the Account Bank and includes any sub-accounts thereof and any other account designated in writing by the Agent to be an Avoca Operating Account for the purposes of this Agreement;

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“Avoca Operating Account Assignment” means a first priority assignment executed or (as the context may require) to be executed by the Avoca Borrower in favour of the Security Agent in respect of the Avoca Operating Account in the form set out in schedule 13;

“Balloon Instalment” shall have the meaning ascribed thereto in clause 4.1;

“Banks” means the banks and financial institutions listed in schedule 1 and includes their respective successors in title and Transferee Banks and “Bank” means any of them;

“Banking Day” means a day on which dealings in deposits in Dollars are carried on in the London Interbank Eurocurrency Market and (other than Saturday or Sunday) on which banks are open for business in London, Athens and New York City (or any other relevant place of payment under clause 6);

“Borrower”:

(a) in relation to Avoca and/or the Avoca Advance, means the Avoca Borrower; or

(b) in relation to Saldanha and/or the Saldanha Advance, means the Saldanha Borrower,

and “Borrowers” means either or both of them;

“Borrowed Money” means Indebtedness in respect of (i) money borrowed or raised and debit balances at banks, (ii) any bond, note, loan stock, debenture or similar debt instrument, (iii) acceptance or documentary credit facilities, (iv) receivables sold or discounted (otherwise than on a non-recourse basis), (v) deferred payments for assets or services acquired, (vi) finance leases and hire purchase contracts, (vii) swaps, forward exchange contracts, futures and other derivatives, (viii) any other transaction (including without limitation forward sale or purchase agreements) having the commercial effect of a borrowing or raising of money or of any of (ii) to (vii) above and (ix) guarantees in respect of Indebtedness of any person falling within any of (i) to (viii) above;

“Borrowers' Security Documents” means, at any relevant time, such of the Security Documents as shall have been executed by either of the Borrowers at such time;

“Classification” means, in relation to each Ship, the highest class available to a vessel of such Ship’s type with the relevant Classification Society or such other classification as the Agent shall, at the request of a Borrower, have agreed in writing shall be treated as the Classification in relation to such Borrower's Ship for the purposes of the relevant Ship Security Documents;

“Classification Society” means such classification society (being a member of the International Association of Classification Societies (“IACS”)) which the Agent shall, at the request of a Borrower, have agreed in writing shall be treated as the Classification Society in relation to such Borrower's Ship for the purposes of the relevant Ship Security Documents;

“Code” means the International Management Code for the Safe Operation of Ships and for Pollution Prevention constituted pursuant to Resolution A. 741 (18) of the International Maritime Organisation and incorporated into the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto;

“Commitment” means, in relation to each Bank, the amount set out opposite its name in the column headed “Commitment” in schedule 1, and/or, in the case of a Transferee Bank, the amount transferred as specified in the relevant Transfer Certificate, as reduced in each case by any relevant term of this Agreement;

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“Compliance Certificate” means each certificate received or (as the context may require) to be received by the Agent pursuant to clause 5.1 of the Corporate Guarantee in the form set out in the schedule to the Corporate Guarantee;

“Compulsory Acquisition” means requisition for title or other compulsory acquisition, requisition, appropriation, expropriation, deprivation, forfeiture or confiscation for any reason of a Ship by any Government Entity or other competent authority, whether de jure or de facto, but shall exclude requisition for use or hire not involving requisition of title;

“Confirmation” shall have, in relation to any continuing Designated Transaction, the meaning ascribed to it in the Master Swap Agreement;

“Contracts” means, together, the Saldanha Contract and the Avoca Contract and “Contract” means either of them;

“Contribution” means, in relation to each Bank, the principal amount of the Loan owing to such Bank at any relevant time;

“Corporate Guarantee” means the corporate guarantee issued or (as the context may require) to be issued by the Corporate Guarantor in favour of the Security Agent in the form set out in schedule 9;

“Corporate Guarantor” means DryShips Inc. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960, and includes its successors in title;

“Creditors” means, together, the Arranger, the Agent, the Security Agent, the Swap Provider, the Account Bank and the Banks and “Creditor” means any of them;

“Deed of Covenant” means:

(a) in relation to Saldanha, the Saldanha Deed of Covenant; or

(b) in relation to Avoca, the Avoca Deed of Covenant,

and “Deeds of Covenant” means either or both of them;

“Default” means any Event of Default or any event or circumstance which with the giving of notice or lapse of time or the satisfaction of any other condition (or any combination thereof) would constitute an Event of Default;

“Delivery Date” means, in relation to each Ship, the date on which such Ship is delivered to, and accepted by, the relevant Borrower in accordance with the relevant Contract;

“Designated Transaction” means a Transaction which fulfils the following requirements:

(a) it is entered into by the Borrowers pursuant to the Master Swap Agreement with the Swap Provider as contemplated by clause 2.9; and

(b) its purpose is the hedging of the Borrowers’ exposure under this Agreement to fluctuations of LIBOR arising from the funding of the Loan (or any part thereof) for a period expiring no later than the final Repayment Date for the Loan or the relevant part thereof;

“DOC” means a document of compliance issued to an Operator in accordance with rule 13 of the Code;

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“Dollars” and “$” mean the lawful currency of the United States of America and, in respect of all payments to be made under any of the Security Documents, mean funds which are for same day settlement in the New York Clearing House Interbank Payments System (or such other U.S. dollar funds as may at the relevant time be customary for the settlement of international banking transactions denominated in U.S. dollars);

“Drawdown Date” means any date, being a Banking Day falling during the Drawdown Period, on which an Advance is, or is to be, made available;

“Drawdown Notice” means, in relation to each Advance, a notice substantially in the form of schedule 2 in respect of such Advance;

“Drawdown Period” means, in relation to each Advance, the period from the date of this Agreement and ending on the earlier of (a) the Termination Date, (b) the date on which the aggregate amount of the Advances is equal to the Total Commitment and (c) the date on which the Total Commitment is reduced to zero pursuant to clauses 4.3, 10.2 or 12;

“Early Termination Date” shall have, in relation to any continuing Designated Transaction, the meaning ascribed to it in the Master Swap Agreement;

“Encumbrance” means any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest or other encumbrance of any kind securing any obligation of any person or any type of preferential arrangement (including without limitation title transfer and/or retention arrangements) having a similar effect;

“Environmental Affiliate” means any agent or employee of either Borrower or any other Relevant Party or any person having a contractual relationship with either Borrower or any other Relevant Party in connection with any Relevant Ship or its operation or the carriage of cargo and/or passengers thereon and/or the provision of goods and/or services on or from such Relevant Ship;

“Environmental Approval” means any consent, authorisation, licence or approval of any governmental or public body or authorities or courts applicable to any Relevant Ship or its operation or the carriage of cargo and/or passengers thereon and/or the provision of goods and/or services on or from such Relevant Ship required under any Environmental Law;

“Environmental Claim” means any and all enforcement, clean-up, removal or other governmental or regulatory actions or orders instituted or completed pursuant to any Environmental Law or any Environmental Approval together with claims made by any third party relating to damage, contribution, loss or injury, resulting from any actual or threatened emission, spill, release or discharge of a Pollutant from any Relevant Ship;

“Environmental Laws” means all national, international and state laws, rules, regulations, treaties and conventions applicable to any Relevant Ship pertaining to the pollution or protection of human health or the environment including, without limitation, the carriage of Pollutants and actual or threatened emissions, spills, releases or discharges of Pollutants;

“Equity Ratio” in relation to a Measurement Period, has the meaning given to it in the Corporate Guarantee for the Accounting Period (as defined in the Corporate Guarantee) corresponding to such Measurement Period;

“Event of Default” means any of the events or circumstances described in clause 10.1;

“Fee Letter” means the letter of even date herewith made between the Arranger, the Agent, the Borrowers and the Corporate Guarantor in respect of certain of the fees payable under clause 5.1;

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“First Repayment Date” means, subject to clause 6.3, the date falling three (3) months after the earlier of (a) the Drawdown Date of the second Advance to be drawn down under this Agreement and (b) the Termination Date;

“Flag State” means, in relation to a Ship, Malta or such other state or territory designated in writing by the Agent, at the request of the Borrower owning such Ship, as being the “Flag State” of such Ship for the purposes of the relevant Ship Security Documents;

“Government Entity” means and includes (whether having a distinct legal personality or not) any national or local government authority, board, commission, department, division, organ, instrumentality, court or agency and any association, organisation or institution of which any of the foregoing is a member or to whose jurisdiction any of the foregoing is subject or in whose activities any of the foregoing is a participant;

“Group” means, together, the Corporate Guarantor and its Subsidiaries from time to time (including, for the avoidance of doubt, the Borrowers) and “member of Group” shall be constructed accordingly;

“Indebtedness” means any obligation for the payment or repayment of money, whether as principal or as surety and whether present or future, actual or contingent;

“Interest Payment Date” means the last day of an Interest Period;

“Interest Period” means, in relation to an Advance or (as the case may be) the Loan, each period for the calculation of interest in respect of such Advance or (as the case may be) the Loan, ascertained in accordance with clauses 3.2 and 3.3;

“ISPS Code” means the International Ship and Port Facility Security Code constituted pursuant to resolution A.924(22) of the International Maritime Organization now set out in Chapter XI-2 of the International Convention for the Safety of Life at Sea 1974 (as amended) as adopted by a Diplomatic conference of the International Maritime Organisation on Maritime Security in December 2002 and includes any amendments or extensions thereto and any regulation issued pursuant thereto;

“ISSC” means, in relation to each Ship, an International Ship Security Certificate issued in respect of that Ship pursuant to the ISPS Code;

“LIBOR” means in relation to a particular period:

(a) the rate for deposits of the relevant currency for a period equivalent to such period at or about 11:00 a.m. on the Quotation Date for such period as displayed on Reuters page LIBOR 01 (British Bankers’ Association Interest Settlement Rates) (or such other page as may replace such page LIBOR 01 on such system or on any other system of the information vendor for the time being designated by the British Bankers’ Association to calculate the BBA Interest Settlement Rate (as defined in the British Bankers’ Association’s Recommended Terms and Conditions (“BBAIRS” terms) applicable at the relevant time)); or

(b) provided that if on such date no such rate is so displayed, LIBOR for such period shall be the arithmetic mean of the rates quoted to the Agent by the Reference Banks at the request of the Agent as the Reference Banks’ offered rate for deposits of the relevant currency in an amount approximately equal to the amount in relation to which LIBOR is to be determined for a period equivalent to such period to prime banks in the London Interbank Market at or about 11:00 a.m. on the Quotation Date for such period;

“Loan” means the aggregate principal amount owing to the Banks under this Agreement at any relevant time;

6

“Majority Banks” means, at any relevant time, Banks (a) the aggregate of whose Contributions exceeds Sixty-six point six per cent (66.6%) of the Loan or (b) (if no principal amounts are outstanding under this Agreement) the aggregate of whose Commitments exceeds Sixty-six point six per cent (66.6%) of the Total Commitment;

“Manager” means Cardiff Marine Inc. of 80 Broad Street, Monrovia, Liberia or any other person appointed by a Borrower, with the prior written consent of the Majority Banks as the technical and commercial manager of such Borrower’s Ship and includes its successors in title;

“Management Agreement” means:

(a) in relation to Saldanha, the Saldanha Management Agreement; or

(b) in relation to Avoca, the Avoca Management Agreement,

and “Management Agreements” means either or both of them;

“Manager’s Undertaking” means:

(a) in relation to Saldanha, the Saldanha Manager’s Undertaking; or

(b) in relation to Avoca, the Avoca Manager’s Undertaking,

and “Manager’s Undertakings” means either or both of them;

“Mandatory Cost” means, in relation to any period, a percentage calculated by the Agent for such period at an annual rate determined by the application of the formula set out in schedule 6;

“Margin” means (as calculated by the Agent pursuant to clause 3.1.2):

(a) (subject to paragraph (b) below) in relation to each Margin Period:

(i) if the Equity Ratio for the relevant Measurement Period shall be lower than 0.45:1.00, one point two zero per cent (1.20%) per annum; or

(ii) if the Equity Ratio for the relevant Measurement Period shall be equal to or higher than 0.45:1.00 but equal to or lower than 0.55:1.00, one point one zero per cent (1.10%) per annum; or

(iii) if (A) the Equity Ratio for the relevant Measurement Period shall be higher than 0.55:1.00 or (B) an Event of Default has occurred and is continuing, one per cent (1%) per annum; or

(b) notwithstanding paragraph (a) above, Margin for any Margin Periods falling between the first Drawdown Date and 31 December 2008, shall be the higher of (i) one point one zero per cent (1.10%) per annum and (ii) the interest rate per annum determined for that period by the application of paragraph (a);

“Margin Calculation Date” means each 1 January (commencing with 1 January 2009) and 1 July (commencing with 1 July 2009) of each calendar year;

“Margin Period” means each period commencing on a Margin Calculation Date and ending on the day prior to the subsequent Margin Calculation Date and “Margin Periods” means any or all of them;

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“Master Swap Agreement” means the agreement made or (as the context may require) to be made between the Swap Provider and the Borrowers comprising an ISDA Master Agreement (including the Schedule) in the form set out in schedule 11 and includes any Designated Transactions from time to time entered into and any Confirmations (as defined therein) from time to time exchanged thereunder and governed thereby;

“Measurement Period” means:

(a) in relation to each Margin Period commencing on 1 January of any calendar year, the nine-month period ending on 30 September of the immediately preceding calendar year; and

(b) in relation to each Margin Period commencing on 1 July of any calendar year, the twelve-month period ending on 31 December of the immediately preceding calendar year;

“month” means a period beginning in one calendar month and ending in the next calendar month on the day numerically corresponding to the day of the calendar month on which it started, provided that (a) if the period started on the last Banking Day in a calendar month or if there is no such numerically corresponding day, it shall end on the last Banking Day in such next calendar month and (b) if such numerically corresponding day is not a Banking Day, the period shall end on the next following Banking Day in the same calendar month but if there is no such Banking Day it shall end on the preceding Banking Day and “months” and “monthly” shall be construed accordingly;

“Mortgage” means:

(a) in relation to Saldanha, the Saldanha Mortgage; or

(b) in relation to Avoca, the Avoca Mortgage,

and “Mortgages” means either or both of them;

“Mortgaged Ship” means, at any relevant time, any Ship which is at such time subject to a Mortgage and/or the Earnings, Insurances and Requisition Compensation (as defined in the relevant Ship Security Documents) of which are subject to an Encumbrance pursuant to the relevant Ship Security Documents and a Ship shall for the purposes of this Agreement be deemed to be a Mortgaged Ship as from whichever shall be the earlier of (a) the drawdown of the Advance relating to that Ship and (b) the date that the Mortgage of that Ship shall have been executed and registered in accordance with this Agreement until whichever shall be the earlier of (i) the payment in full of the amount required by the Agent to be paid pursuant to clause 4.3 following the sale or Total Loss of such Ship and (ii) the date on which all moneys owing under the Security Documents have been repaid in full;

“Operating Account” means:

(a) in relation to Saldanha, the Saldanha Operating Account; or

(b) in relation to Avoca, the Avoca Operating Account,

and “Operating Accounts” means either or both of them;

“Operating Account Assignment” means:

(a) in relation to Saldanha, the Saldanha Operating Account Assignment; or

(b) in relation to Avoca, the Avoca Operating Account Assignment,

8

and “Operating Account Assignments” means either or both of them;

“Operator” means any person who is from time to time during the Security Period (as defined in each Mortgage) concerned in the operation of a Ship and falls within the definition of “Company” set out in rule 1.1.2 of the Code;

“Permitted Encumbrance” means any Encumbrance in favour of the Security Agent created pursuant to the Security Documents and Permitted Liens;

“Permitted Liens” means, in respect of each Ship:

(a) any lien on such Ship for master's, officer's or crew's wages outstanding in the ordinary course of trading;

(b) any lien for salvage; and

(c) any ship repairer's or outfitter's possessory lien for a sum not (except with the prior written consent of the Agent) exceeding the Casualty Amount (as defined in the relevant Ship Security Documents) for such Ship;

“Pollutant” means and includes pollutants, contaminants, toxic substances, oil as defined in the United States Oil Pollution Act of 1990 and all hazardous substances as defined in the United States Comprehensive Environmental Response, Compensation and Liability Act 1980;

“Quotation Date” means, in respect of any period for which LIBOR falls to be determined under this Agreement, the second Banking Day before the first day of such period;

“Reference Banks” means the Agent and any other bank or financial institution appointed as a Reference Bank by the Agent from time to time;

“Registry” means, in respect of a Ship, such registrar, commissioner or representative of the relevant Flag State who is duly authorised and empowered to register such Ship, the relevant Borrower's title to such Ship and the relevant Mortgage under the laws and flag of the relevant Flag State;

“Related Company” of a person means any Subsidiary of such person, any company or other entity of which such person is a Subsidiary and any Subsidiary of any such company or entity;

“Relevant Jurisdiction” means any jurisdiction in which or where any Security Party is incorporated, resident, domiciled, has a permanent establishment, carries on, or has a place of business or is otherwise effectively connected;

“Relevant Party” means each of the Borrowers, any other Security Party and any other member of the Group;

“Relevant Ship” means the Ships and any other vessel from time to time (whether before or after the date of this Agreement) owned, managed or crewed by, or chartered to, any Relevant Party;

“Repayment Dates” means, subject to clause 6.3, the First Repayment Date and each of the dates falling at three (3) monthly intervals thereafter up to and including the earlier of (a) 31 January 2015 and (b) the date falling eighty one (81) months after the First Repayment Date;

“Saldanha” means the motor vessel Shinyo Brilliance to be purchased by the relevant Seller and registered under the laws and flag of Panama with IMO Number 9268992 and to be registered on its Delivery Date under the name and in the ownership of the Saldanha Borrower through the relevant Registry and under the laws and flag of the relevant Flag State with the name Saldanha;

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“Saldanha Advance” means an Advance of up to Fifty two million five hundred thousand Dollars ($52,500,000) made or (as the context may require) to be made available to the Borrowers for the purpose of financing part of the acquisition cost of Saldanha by the Saldanha Borrower pursuant to the Saldanha Contract;

“Saldanha Borrower” means Team-Up Owning Company Limited of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH96960 and includes its successors in title;

“Saldanha Contract” means the memorandum of agreement dated 6 August 2007 made between the relevant Seller and the Manager, as novated in favour of the Saldanha Borrower pursuant to an Addendum No. 1 thereto dated 7 August 2007 and as may be further amended and supplemented from time to time, relating to the sale by the relevant Seller, and the purchase by the Saldanha Borrower, of Saldanha;

“Saldanha Contract Price” means the purchase price payable by the Saldanha Borrower to the relevant Seller for Saldanha under the Saldanha Contract, being Seventy five million Dollars ($75,000,000) or such other sum as is determined under the terms and conditions of the Saldanha Contract to be the purchase price of Saldanha thereunder;

“Saldanha Deed of Covenant” means the deed of covenant collateral to the Saldanha Mortgage executed or (as the context may require) to be executed by the Saldanha Borrower in favour of the Security Agent in the form set out in schedule 8;

“Saldanha Management Agreement” means the agreement dated 24 November 2007 made between the Saldanha Borrower, the Corporate Guarantor and the Manager or any other agreement previously approved in writing by the Agent between the Saldanha Borrower and the Manager providing (inter alia) for the Manager to manage Saldanha;

“Saldanha Manager’s Undertaking” means the undertaking and assignment in respect of Saldanha executed or (as the context may require) to be executed by the Manager in favour of the Security Agent in the form set out in schedule 10;

“Saldanha Mortgage” means the first priority statutory Maltese mortgage of Saldanha executed or (as the context may require) to be executed by the Saldanha Borrower in favour of the Security Agent in the form set out in schedule 7;

“Saldanha Operating Account” means an interest bearing Dollar account of the Saldanha Borrower opened or (as the context may require) to be opened with the Account Bank and includes any sub-accounts thereof and any other account designated in writing by the Agent to be a Saldanha Operating Account for the purposes of this Agreement;

“Saldanha Operating Account Assignment” means a first priority assignment executed or (as the context may require) to be executed by the Saldanha Borrower in favour of the Security Agent in respect of the Saldanha Operating Account in the form set out in schedule 13;

“Security Agent” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum N-0107 Oslo, Norway, acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) or such other person as may be appointed as security agent and trustee by the Banks, the Agent and the Swap Provider pursuant to clause 16 and includes its successors in title;

10

“Security Documents” means this Agreement, the Fee Letter, the Master Swap Agreement, the Mortgages, the Deeds of Covenant, the Operating Account Assignments, the Corporate Guarantee, the Manager’s Undertakings and the Swap Assignment and any other documents as may have been or shall from time to time after the date of this Agreement be executed to guarantee and/or secure all or any part of the Loan, interest thereon and other moneys from time to time owing by the Borrowers and/or any other Security Party pursuant to this Agreement and/or any other Security Document (whether or not any such document also secures moneys from time to time owing pursuant to any other document or agreement);

“Security Party” means the Borrowers, the Manager, the Corporate Guarantor or any other person who may at any time be a party to any of the Security Documents (other than the Creditors);

“Security Requirement” means the amount in Dollars (as certified by the Agent whose certificate shall, in the absence of manifest error, be conclusive and binding on the Borrowers and the other Creditors) which is at any relevant time, one hundred and twenty five per cent (125%) of the aggregate of (a) the Loan and (b) the Swap Exposure, as at the relevant time;

“Security Value” means the amount in Dollars (as certified by the Agent whose certificate shall, in the absence of manifest error, be conclusive and binding on the Borrowers and the other Creditors) which is, at any relevant time, the aggregate of (a) the market value of the Mortgaged Ships as most recently determined in accordance with clause 8.2.2 and (b) the market value of any additional security for the time being actually provided to the Creditors pursuant to clause 8.2.1(b);

“Seller” means:

(a) in respect of Saldanha, Golden Ocean Group Limited of Hamilton, Bermuda and includes its successors in title; or

(b) in respect of Avoca, Dampskibsselskabet Norden A/S of 49 Amaliegade, DK-1256 Copenhagen, Denmark and includes its successors in title,

and “Sellers” means either or both of them;

“Ship”:

(a) in relation to the Saldanha Borrower and/or the Saldanha Advance, means Saldanha; or

(b) in relation to the Avoca Borrower and/or the Avoca Advance, means Avoca,

and “Ships” means either or both of them;

“Ship Security Documents”:

(a) in respect of Saldanha, means the Saldanha Mortgage, the Saldanha Deed of Covenant and the Saldanha Manager’s Undertaking; or

(b) in respect of Avoca, means the Avoca Mortgage, the Avoca Deed of Covenant and the Avoca Manager’s Undertaking;

“SMC” means a safety management certificate issued in respect of a Ship in accordance with rule 13 of the Code;

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“Subsidiary” of a person means any company or entity directly or indirectly controlled by such person, and for this purpose “control” means either the ownership of more than fifty per cent (50%) of the voting share capital (or equivalent rights of ownership) of such company or entity or the power to direct its policies and management, whether by contract or otherwise;

“Swap Assignment” means the assignment executed or (as the context may require) to be executed by the Borrowers in favour of the Security Agent in relation to certain of the rights of the Borrowers under the Master Swap Agreement in the form set out in schedule 12;

“Swap Exposure” means, as at any relevant time, the amount certified by the Swap Provider to the Agent to be the aggregate net amount in Dollars which would be payable by the Borrowers to the Swap Provider under (and calculated in accordance with) section 6(e) (Payments on Early Termination) of the Master Swap Agreement if an Early Termination Date had occurred at the relevant time in relation to all continuing Designated Transactions;

“Swap Provider” means DnB NOR Bank ASA, a company incorporated in Norway with its registered office at Stranden 21, P.O. Box 1171 Sentrum, N-0107 Oslo, Norway acting for the purposes of this Agreement through its branch at 20 St. Dunstan’s Hill, London EC3R 8HY, England (or of such other address as may last have been notified to the other parties to this Agreement pursuant to clause 17.1.3) and includes its successors in title;

“Taxes” includes all present and future taxes, levies, imposts, duties, fees or charges of whatever nature together with interest thereon and penalties in respect thereof and “Taxation” shall be construed accordingly;

“Termination Date” means 31 March 2008 or such later date as the Agent (acting on the instructions of all the Banks) may in its absolute discretion agree in writing;

“Total Commitment” means, at any relevant time, the total of the Commitments of all the Banks at such time as reduced by any relevant term of this Agreement;

“Total Loss” in relation to a Ship means:

(a) actual, constructive, compromised or arranged total loss of such Ship; or

(b) the Compulsory Acquisition of such Ship; or

(c) the hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation of such Ship (other than where the same amounts to the Compulsory Acquisition of such Ship) by any Government Entity, or by persons acting or purporting to act on behalf of any Government Entity, unless such Ship be released and restored to the relevant Borrower from such hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation within thirty (30) days after the occurrence thereof;

“Transaction” has the meaning given in the Master Swap Agreement;

“Transferee Bank” has the meaning ascribed thereto in clause 15.3;

“Transferor Bank” has the meaning ascribed thereto in clause 15.3;

“Transfer Certificate” means a certificate in substantially the form set out in schedule 4;

“Trust Deed” means a trust deed in the form, or substantially in the form, set out in schedule 5;

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“Trust Property” means (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Security Agent under or pursuant to the Security Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to the Security Agent in the Security Documents), (ii) all moneys, property and other assets paid or transferred to or vested in the Security Agent or any agent of the Security Agent or any receiver or received or recovered by the Security Agent or any agent of the Security Agent or any receiver pursuant to, or in connection with, any of the Security Documents whether from any Security Party or any other person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by the Security Agent or any agent of the Security Agent in respect of the same (or any part thereof); and

“Underlying Documents” means, together, the Management Agreements and the Contracts and “Underlying Document” means any of them.

1.3 Headings

Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Agreement.

1.4 Construction of certain terms

In this Agreement, unless the context otherwise requires:

1.4.1 references to clauses and schedules are to be construed as references to clauses of, and schedules to, this Agreement and references to this Agreement include its schedules;

1.4.2 references to (or to any specified provision of) this Agreement or any other document shall be construed as references to this Agreement, that provision or that document as in force for the time being and as amended in accordance with terms thereof, or, as the case may be, with the agreement of the relevant parties;

1.4.3 references to a “regulation” include any present or future regulation, rule, directive, requirement, request or guideline (whether or not having the force of law) of any agency, authority, central bank or government department or any self-regulatory or other national or supra-national authority;

1.4.4 words importing the plural shall include the singular and vice versa;

1.4.5 references to a time of day are to London time;

1.4.6 references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any Government Entity;

1.4.7 references to a “guarantee” include references to an indemnity or other assurance against financial loss including, without limitation, an obligation to purchase assets or services as a consequence of a default by any other person to pay any Indebtedness and “guaranteed” shall be construed accordingly; and

1.4.8 references to any enactment shall be deemed to include references to such enactment as re-enacted, amended or extended.

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1.5 Majority Banks

Where this Agreement provides for any matter to be determined by reference to the opinion of the Majority Banks or to be subject to the consent or request of the Majority Banks or for any action to be taken on the instructions in writing of the Majority Banks, such opinion, consent, request or instructions shall (as between the Banks) only be regarded as having been validly given or issued by the Majority Banks if all the Banks shall have received prior notice of the matter on which such opinion, consent, request or instructions are required to be obtained and the relevant majority of Banks shall have given or issued such opinion, consent, request or instructions but so that (as between the Borrowers and the Creditors) the Borrowers shall be entitled (and bound) to assume that such notice shall have been duly received by each Bank and that the relevant majority shall have been obtained to constitute Majority Banks whether or not this is in fact the case.

1.6 Banks’ Commitment

For the purposes of the definition of “Majority Banks” in clause 1.2 and the relevant provisions of the Security Documents, references to the Commitment of a Bank shall, if the Total Commitment has, at any relevant time, been reduced to zero, be deemed to be a reference to the Commitment of that Bank immediately prior to such reduction to zero.

2 The Total Commitment and the Advances

2.1 Agreement to lend

The Banks, relying upon each of the representations and warranties in clause 7, agree to lend to the Borrowers, jointly and severally, in two (2) Advances upon and subject to the terms of this Agreement the aggregate principal sum of up to One hundred and one million one hundred and fifty thousand Dollars ($101,150,000).  The obligation of each Bank under this Agreement shall be to contribute that proportion of each Advance which, as at the Drawdown Date of such Advance, such Bank’s Commitment bears to the Total Commitment.

2.2 Obligations several

The obligations of the Banks under this Agreement are several according to their respective Commitments and/or Contributions; the failure of any Bank to perform such obligations or the failure of the Swap Provider to perform its obligations under the Master Swap Agreement shall not relieve any other Creditor or the Borrowers or either of them of any of their respective obligations or liabilities under this Agreement or, as the case may be, the Master Swap Agreement nor shall any Creditor be responsible for the obligations of any Creditors (except for its own obligations, if any, as a Bank or Swap Provider) under this Agreement or the Master Swap Agreement.

2.3 Interests several

Notwithstanding any other term of this Agreement (but without prejudice to the provisions of this Agreement relating to or requiring action by the Majority Banks) the interests of the Creditors are several and the amount due to any Creditor is a separate and independent debt.  Each Creditor shall have the right to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Creditor to be joined as an additional party in any proceedings for this purpose.

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2.4 Drawdown

Subject to the terms and conditions of this Agreement, each Advance shall be made to the Borrowers following receipt by the Agent from the Borrowers of a Drawdown Notice not later than 10:00 a.m. on the third Banking Day before the proposed Drawdown Date which shall be a Banking Day falling within the Drawdown Period.  A Drawdown Notice shall be effective on actual receipt by the Agent and, once given, shall, subject as provided in clause 3.6.1, be irrevocable.

2.5 Timing and limitation of Advances

2.5.1 The aggregate of both Advances shall not exceed the Total Commitment.

2.5.2 The Saldanha Advance shall not exceed the lower of (a) Fifty two million five hundred thousand Dollars ($52,500,000) and (b) seventy per cent (70%) of the Saldanha Contract Price.

2.5.3 The Avoca Advance shall not exceed the lower of (a) Forty eight million six hundred and fifty thousand Dollars ($48,650,000) and (b) seventy per cent (70%) of the Avoca Contract Price.

2.5.4 Each Advance shall be made solely for the purpose of financing part of the acquisition cost of the Ship relevant to such Advance pursuant to the relevant Contract.

2.6 Availability

Upon receipt of a Drawdown Notice complying with the terms of this Agreement the Agent shall promptly notify each Bank and, subject to the provisions of clause 9, on the Drawdown Date for the relevant Advance, each Bank shall make available to the Agent its portion of such Advance for payment by the Agent in accordance with clause 6.2.  The Borrowers acknowledge that payment of each Advance or part thereof to the relevant Seller, in accordance with clause 6.2, shall satisfy the obligations of the Banks to lend such Advance or part thereof to the Borrowers.

2.7 Termination of Total Commitment

Any part of the Total Commitment which remains undrawn and uncancelled by the Termination Date shall thereupon be automatically cancelled.

2.8 Application of proceeds

Without prejudice to the Borrowers’ obligations under clause 8.1.3, none of the Creditors shall have any responsibility for the application of the proceeds of the Loan or part thereof by the Borrowers.

2.9 Derivative transactions

2.9.1 If, at any time during the Security Period, the Borrowers wish to enter into interest rate swap or other derivative transactions so as to hedge all or any part of their exposure under this Agreement to interest rate fluctuations, they shall advise the Swap Provider in writing.

2.9.2 Any such swap or other derivative transaction shall be concluded with the Swap Provider under the Master Swap Agreement provided however that no such swap or other derivative transaction shall be concluded unless the Swap Provider first agrees to it in writing.  For the avoidance of doubt, other than the Swap Provider’s agreement in writing referred to in the preceding sentence no prior approval is required by the Borrowers from any other Creditor before concluding any such transaction.  If and when any such swap or other derivative transaction has been concluded, it shall constitute a Designated Transaction, and the Borrowers shall sign a Confirmation with the Swap Provider and advise the Banks through the Agent promptly after concluding any Designated Transaction.

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3 Interest and Interest Periods

3.1 Normal interest rate

3.1.1 General

The Borrowers shall pay interest on each Advance in respect of each Interest Period relating thereto on each Interest Payment Date (or, in the case of Interest Periods of more than three (3) months, by instalments, the first instalment three (3) months from the commencement of the Interest Period and the subsequent instalments at intervals of three (3) months or, if shorter, the period from the date of the preceding instalment until the Interest Payment Date relative to such Interest Period) at the rate per annum determined by the Agent to be the aggregate of (a) the Margin, (b) LIBOR for such Interest Period and (c) Mandatory Cost (if any).

3.1.2 Calculation of Margin

The Agent shall, on or before each Margin Calculation Date (such Margin Calculation Date for the purposes of this clause 3.1, the “calculation day”), calculate, based on the then latest consolidated financial statements of the Group and the Compliance Certificate delivered to it pursuant to clause 5.1 of the Corporate Guarantee, the Equity Ratio in respect of the Measurement Period relevant to the Margin Period commencing on such calculation day and, based on such calculation, the Agent shall determine, and notify the Borrower and the Banks of, the Margin that shall apply during the Margin Period commencing on such calculation day.

3.2 Selection of Interest Periods

The Borrowers may by notice received by the Agent not later than 10:00 a.m. on the third Banking Day before the beginning of each Interest Period specify whether such Interest Period shall have a duration of one (1), three (3), six (6) or twelve (12) months or such other period (shorter than twelve (12) months) as the Borrowers may select and the Agent (acting on the instructions of the Majority Banks) may agree.

3.3 Determination of Interest Periods

Every Interest Period shall be of the duration specified by the Borrowers pursuant to clause 3.2 but so that:

3.3.1 the initial Interest Period in respect of each Advance shall commence on the Drawdown Date for such Advance and each subsequent Interest Period for such Advance shall commence on the last day of the previous Interest Period for such Advance;

3.3.2 the initial Interest Period for the second Advance to be drawn down shall end on the last day of the then current Interest Period for the first Advance drawn down and, on such day, both drawn Advances shall be consolidated into, and shall thereafter constitute the Loan;

3.3.3 if any Interest Period would otherwise overrun a Repayment Date, then, in the case of the last Repayment Date, such Interest Period shall end on such Repayment Date, and in the case of any other Repayment Date or Repayment Dates, the Loan shall be divided into parts so that there is one part in the amount of the repayment instalment due on each Repayment Date falling during that Interest Period and having an Interest Period ending on the relevant Repayment Date and another part in the amount of the balance of the Loan having an Interest Period ascertained in accordance with clause 3.2 and the other provisions of this clause 3.3; and

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3.3.4 if the Borrowers fail to specify the duration of an Interest Period in accordance with the provisions of clause 3.2 and this clause 3.3 such Interest Period shall have a duration of three (3) months or such other period as shall comply with this clause 3.3.

3.4 Default interest

If the Borrowers or either of them fail to pay any sum (including, without limitation, any sum payable pursuant to this clause 3.4) on its due date for payment under any of the Security Documents (except the Master Swap Agreement), the Borrowers shall pay interest on such sum on demand from the due date up to the date of actual payment (as well after as before judgment) at a rate determined by the Agent pursuant to this clause 3.4.  The period beginning on such due date and ending on such date of payment shall be divided into successive periods of not more than six (6) months as selected by the Agent each of which (other than the first, which shall commence on such due date) shall commence on the last day of the preceding such period.  The rate of interest applicable to each such period shall be the aggregate (as determined by the Agent) of (a) two per cent (2%) per annum, (b) the Margin, (c) LIBOR for such period and (d) the Mandatory Cost (if any).  Such interest shall be due and payable on the last day of each such period as determined by the Agent and each such day shall, for the purposes of this Agreement, be treated as an Interest Payment Date, provided that if such unpaid sum is an amount of principal which became due and payable by reason of a declaration by the Agent under clause 10.2.2 or a prepayment pursuant to clauses 4.3, 8.2.1 or 12.1, on a date other than an Interest Payment Date relating thereto, the first such period selected by the Agent shall be of a duration equal to the period between the due date of such principal sum and such Interest Payment Date and interest shall be payable on such principal sum during such period at a rate of ) two per cent (2%) above the rate applicable thereto immediately before it shall have become so due and payable.  If, for the reasons specified in clause 3.6.1, the Agent is unable to determine a rate in accordance with the foregoing provisions of this clause 3.4, each Bank shall promptly notify the Agent of the cost of funds to such Bank and interest on any sum not paid on its due date for payment shall be calculated at a rate determined by the Agent to be ) two per cent (2%) per annum above the aggregate of the Margin and the cost of funds to such Bank (including Mandatory Costs, if any).

3.5 Notification of Interest Periods and interest rate

The Agent shall notify the Borrowers and the Banks promptly of the duration of each Interest Period and of each rate of interest (or, as the case may be default interest) determined by it under this clause 3.

3.6 Market disruption; non-availability

3.6.1 If and whenever, at any time prior to the commencement of any Interest Period:

(a) the Agent shall have determined (which determination shall, in the absence of manifest error, be conclusive) that adequate and fair means do not exist for ascertaining LIBOR during such Interest Period; or

(b) where applicable, none of the Reference Banks supplies the Agent with a quotation for the purpose of calculating LIBOR; or

(c) the Agent shall have received notification from Banks whose aggregate Contributions are not less than one-third (1/3rd) of the Loan (or, prior to the first Drawdown Date, whose aggregate Commitments are not less than one-third (1/3rd) of the Total Commitment), that deposits in Dollars are not available to such Banks in the London Interbank Market in the ordinary course of business in sufficient amounts to fund their Commitments or their Contributions for such Interest Period or that LIBOR does not accurately reflect the cost to such Banks of obtaining such deposits,

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the Agent shall forthwith give notice (a “Determination Notice”) thereof to the Borrowers and to each of the Banks and the Swap Provider.  A Determination Notice shall contain particulars of the relevant circumstances giving rise to its issue.  After the giving of any Determination Notice the undrawn amount of the Total Commitment shall not be borrowed until notice to the contrary is given to the Borrowers by the Agent.

3.6.2 During the period of ten (10) days after any Determination Notice has been given by the Agent under clause 3.6.1, each Bank shall certify an alternative basis (the “Alternative Basis”) for funding its Commitment or for maintaining its Contribution.  The Alternative Basis may at the Bank’s sole and unfettered discretion (without limitation) include alternative interest periods, alternative currencies or alternative rates of interest but shall include a margin above the cost of funds to such Bank equivalent to the Margin.  The Agent shall calculate the arithmetic mean of the Alternative Basis provided by the relevant Banks (the “Substitute Basis”) and certify the same to the Borrowers, the Banks and the Swap Provider.  The Substitute Basis so certified shall be binding upon the Borrowers and shall take effect in accordance with its terms from the date specified in the Determination Notice until such time as the Agent notifies the Borrowers that none of the circumstances specified in clause 3.6.1 continues to exist whereupon the normal interest rate fixing provisions of this Agreement shall apply.

3.7 Reference Bank quotations

If any Reference Bank is unable or otherwise fails to furnish a quotation for the purposes of calculating LIBOR, the interest rate shall be determined, subject to clause 3.6, on the basis of quotations furnished by the other Reference Banks (if any).

4 Repayment and prepayment

4.1 Repayment

The Borrowers shall repay the Loan by twenty eight (28) instalments, one such instalment to be repaid on each of the Repayment Dates.  Subject to the provisions of this Agreement, the amount of each of the first to eighth instalments (inclusive) shall be Three million one hundred and twenty five thousand Dollars ($3,125,000), the amount of each of the ninth to twenty seventh instalments (inclusive) shall be Two million two hundred thousand Dollars ($2,200,000) and the amount of the twenty eighth and final instalment shall be Thirty four million three hundred and fifty thousand Dollars ($34,350,000) (comprising a repayment instalment of Two million two hundred thousand Dollars ($2,200,000) and a balloon payment of Thirty two million one hundred and fifty Dollars ($32,150,000) (such balloon payment, the “Balloon Instalment”)).

If the Total Commitment is not drawn down in full, the amount of each repayment instalment (including the relevant Balloon Instalment) shall be reduced proportionately.

4.2 Voluntary prepayment

The Borrowers may prepay the Loan in whole or part (being One million Dollars or any larger sum which is an integral multiple of One million Dollars), on any Interest Payment Date relating to the part of the Loan to be prepaid without premium or penalty.

4.3 Cancellation of Commitments and prepayment on Total Loss

4.3.1 Before drawdown

On a Ship becoming a Total Loss (or suffering damage or being involved in an incident which in the opinion of the Agent may result in such Ship being subsequently determined to be a Total Loss) before the Advance in respect of such Ship is drawn down, the obligations of the Banks to make such Advance available shall immediately cease and the Total Commitment shall be reduced by the amount of such Advance.

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4.3.2 Thereafter

On the date one hundred and twenty (120) days after that on which a Mortgaged Ship became a Total Loss or, if earlier, on the date upon which the insurance proceeds in respect of such Total Loss are, or Requisition Compensation (as defined in the relevant Ship Security Documents) is, received by the relevant Borrower (or the Security Agent pursuant to the relevant Ship Security Documents), the Borrowers shall prepay such part of the Loan as is equal to the Relevant Amount.

4.3.3 Relevant Amount

For the purposes of clause 4.3.2, “Relevant Amount” means, at any relevant time and in relation to a Mortgaged Ship which has become a Total Loss or is sold:

(a) 50% of the Loan, if there is another Mortgaged Ship at that time; or

(b) 100% of the Loan, if there is no other Mortgaged Ship at that time.

4.3.4 Total Loss

For the purpose of this Agreement, a Total Loss shall be deemed to have occurred:

(a) in the case of an actual total loss of a Ship, on the actual date and at the time such Ship was lost or, if such date is not known, on the date on which such Ship was last reported;

(b) in the case of a constructive total loss of a Ship, upon the date and at the time notice of abandonment of such Ship is given to the insurers of such Ship for the time being;

(c) in the case of a compromised or arranged total loss of a Ship, on the date upon which a binding agreement as to such compromised or arranged total loss has been entered into by the insurers of such Ship;

(d) in the case of Compulsory Acquisition, on the date upon which the relevant requisition of title or other compulsory acquisition occurs; and

(e) in the case of hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation of a Ship (other than where the same amounts to Compulsory Acquisition of such Ship) by any Government Entity, or by persons purporting to act on behalf of any Government Entity, which deprives the relevant Borrower of the use of such Ship for more than thirty (30) days, upon the expiry of the period of thirty (30) days after the date upon which the relevant hijacking, theft, condemnation, capture, seizure, arrest, detention or confiscation occurred.

4.4 Amounts payable on prepayment

Any prepayment of all or part of the Loan under this Agreement shall be made together with:

(a) accrued interest on the amount to be prepaid to the date of such prepayment;

(b) any additional amount payable under clauses 6.6 or 12.2; and

(c) all other sums payable by the Borrowers to the Creditors under this Agreement or any of the other Security Documents including, without limitation, any amounts payable under clause 11.1.

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4.5 Notice of prepayment; reduction of repayment instalments

No prepayment may be effected under clause 4.2 unless the Borrowers shall have given the Agent at least three (3) Banking Days’ prior written notice of their intention to make such prepayment.  Every notice of prepayment shall be effective only on actual receipt by the Agent, shall be irrevocable, shall specify the amount to be prepaid and shall oblige the Borrowers to make such prepayment on the date specified.  No amount prepaid under this Agreement may be re-borrowed.  Any amount prepaid pursuant to clauses 4.2, 4.3 or 8.2.1 shall be applied in reducing the repayment instalments under clause 4.1 (including the Balloon Instalment) proportionately.  The Borrowers may not prepay the Loan or any part thereof save as expressly provided in this Agreement.

4.6 Unwinding of Designated Transactions

On or prior to any repayment or prepayment of all or part of the Loan (including, without limitation, pursuant to clauses 4.2, 4.3 or 8.2.1), the Borrowers shall upon the request of the Swap Provider wholly or partially reverse, offset, unwind, cancel, close out, net out or otherwise terminate one or more of the continuing Designated Transactions so that the notional principal amount of the continuing Designated Transactions thereafter remaining does not and will not in the future (taking into account the scheduled amortisation) exceed the amount of the Loan as reducing from time to time thereafter pursuant to clause 4.1.

5 Fees and expenses

5.1 Fees

The Borrowers shall pay to the Agent:

5.1.1 for the account of the Arranger, on the date of this Agreement, an underwriting fee of such amount as is specified in the Fee Letter;

5.1.2 if more than one Bank becomes a party to this Agreement as a Transferee Bank at any time, for the account of the Agent on the date when each such Transferee Bank becomes a party hereto and at twelve (12) monthly intervals thereafter, until all moneys owing under the Security Documents have been repaid in full, an annual agency fee in respect of each such Transferee Bank, of such amount per annum as is specified in the Fee Letter; and

5.1.3 for the account of each Bank pro rata in accordance with its Commitment, on each of the dates falling at three (3) monthly intervals after the date of this Agreement until the last day of the last Drawdown Period and on such day, commitment commission computed from the date of this Agreement (in the case of the first payment of commission) and from the due date of the preceding payment of commission (in the case of each subsequent payment), at the rate of zero point four zero per cent (0.40%) per annum on the daily undrawn amount of the Total Commitment.

The fees referred to in clauses 5.1.1 and 5.1.2 and the commission referred to in clause 5.1.3 shall be payable by the Borrowers, whether or not any part of the Total Commitment is ever advanced and shall be non-refundable.

5.2 Expenses

The Borrowers shall pay to the Agent on a full indemnity basis on demand all expenses (including legal, printing and out-of-pocket expenses) incurred by the Creditors or any of them:

5.2.1 in connection with the negotiation, preparation, execution and, where relevant, registration of the Security Documents and of any amendment or extension of or the granting of any waiver or consent under, any of the Security Documents and the syndication of the Loan; and

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5.2.2 in contemplation of, or otherwise in connection with, the enforcement of, or preservation of any rights under, any of the Security Documents, or otherwise in respect of the moneys owing under any of the Security Documents,

together with interest at the rate referred to in clause 3.4 from the date on which such expenses were incurred to the date of payment (as well after as before judgment).

5.3 Value added tax

All fees and expenses payable pursuant to this clause 5 and/or pursuant to the Security Documents shall be paid together with value added tax or any similar tax (if any) properly chargeable thereon.  Any value added tax chargeable in respect of any services supplied by the Creditors or any of them under this Agreement shall, on delivery of the value added tax invoice, be paid in addition to any sum agreed to be paid hereunder.

5.4 Stamp and other duties

The Borrowers shall pay all stamp, documentary, registration or other like duties or taxes (including any duties or taxes payable by, or assessed on, the Creditors or any of them) imposed on or in connection with any of the Underlying Documents, the Security Documents or the Loan and shall indemnify the Creditors or any of them against any liability arising by reason of any delay or omission by the Borrowers to pay such duties or taxes.

6 Payments and taxes; accounts and calculations

6.1 No set-off or counterclaim

The Borrowers acknowledge that in performing their respective obligations under this Agreement, the Banks will be incurring liabilities to third parties in relation to the funding of amounts to the Borrowers, such liabilities matching the liabilities of the Borrowers to the Banks and that it is reasonable for the Banks to be entitled to receive payments from the Borrowers gross on the due date in order that each of the Banks is put in a position to perform its matching obligations to the relevant third parties.  All payments to be made by the Borrowers under any of the Security Documents shall be made in full, without any set-off or counterclaim whatsoever and, subject as provided in clause 6.6, free and clear of any deductions or withholdings, in Dollars on the due date to such account at such bank and in such place as the Agent may from time to time specify for this purpose.  Save for payments which are for the account of the Swap Provider and save as otherwise provided in this Agreement or any relevant Security Documents such payments shall be for the account of all Banks and the Agent or, as the case may be, the Security Agent shall distribute such payments in like funds as are received by the Agent or, as the case may be, the Security Agent to the Banks rateably in accordance with their respective Commitment or (if after the first drawdown) Contribution, as the case may be.

6.2 Payment by the Banks

All sums to be advanced by the Banks to the Borrowers under this Agreement shall be remitted in Dollars on the Drawdown Date for the relevant Advance to the account of the Agent at such bank as the Agent may have notified to the Banks and shall be paid by the Agent to the account of the relevant Seller specified in the Drawdown Notice for such Advance.

6.3 Non-Banking Days

When any payment under any of the Security Documents would otherwise be due on a day which is not a Banking Day, the due date for payment shall be extended to the next following Banking Day unless such Banking Day falls in the next calendar month in which case payment shall be made on the immediately preceding Banking Day.

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6.4 Calculations

All interest and other payments of an annual nature under any of the Security Documents shall accrue from day to day and be calculated on the basis of actual days elapsed and a three hundred and sixty (360) day year.

6.5 Certificates conclusive

Any certificate or determination of the Agent or the Security Agent or any Bank or the Swap Provider as to any rate of interest or any other amount pursuant to and for the purposes of any of the Security Documents shall, in the absence of manifest error, be conclusive and binding on the Borrowers and (in the case of a certificate or determination by the Agent or the Security Agent) on the other Creditors.

6.6 Grossing-up for Taxes

6.6.1 If at any time the Borrowers are required to make any deduction or withholding in respect of Taxes from any payment due under any of the Security Documents for the account of any Creditor (or if the Agent or, as the case may be, the Security Agent is required to make any such deduction or withholding from a payment to a Bank), the sum due from the Borrowers in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the relevant Creditor receives on the due date for such payment (and retains, free from any liability in respect of such deduction or withholding), a net sum equal to the sum which it would have received had no such deduction or withholding been required to be made and the Borrowers shall indemnify each Creditor against any losses or costs incurred by it by reason of any failure of the Borrowers to make any such deduction or withholding or by reason of any increased payment not being made on the due date for such payment.  The Borrowers shall promptly deliver to the Agent any receipts, certificates or other proof evidencing the amounts (if any) paid or payable in respect of any deduction or withholding as aforesaid.

6.6.2 For the avoidance of doubt, clause 6.6.1 does not apply in respect of sums due from the Borrowers to the Swap Provider under or in connection with the Master Swap Agreement as to which sums the provisions of section 2(d) (Deduction or Withholding for Tax) of the Master Swap Agreement shall apply.

6.7 Loan account

Each Bank shall maintain, in accordance with its usual practice, an account evidencing the amounts from time to time lent by, owing to and paid to it under the Security Documents. The Security Agent shall maintain a control account (which shall be the account current referred to in each Mortgage) showing the Loan, interest and other sums owing and/or payable by the Borrowers under the Security Documents.  The control account shall, in the absence of manifest error, be conclusive as to the amount from time to time owing by the Borrowers under the Security Documents.

6.8 Agent may assume receipt

Where any sum is to be paid under this Agreement to the Agent for the account of another person, the Agent may assume that the payment will be made when due and may (but shall not be obliged to) make such sum available to the person so entitled.  If it proves to be the case that such payment was not made to the Agent, then the person to whom such sum was so made available shall on request refund such sum to the Agent together with interest thereon sufficient to compensate the Agent for the cost of making available such sum up to the date of such repayment and the person by whom such sum was payable shall indemnify the Agent for any and all loss or expense which the Agent may sustain or incur as a consequence of such sum not having been paid on its due date.

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6.9 Partial payments

If, on any date on which a payment is due to be made by the Borrowers under any of the Security Documents, the amount received by the Agent from the Borrowers falls short of the total amount of the payment due to be made by the Borrowers on such date then, without prejudice to any rights or remedies available to the Creditors or any of them under the Security Documents, the Agent shall apply the amount actually received from the Borrowers in or towards discharge of the obligations of the Borrowers under the Security Documents in the following order, notwithstanding any appropriation made, or purported to be made, by the Borrowers:

6.9.1 firstly, in or towards payment, on a pro rata basis, of any unpaid costs and expenses of the Agent and the Security Agent under, or in relation to, the Security Documents;

6.9.2 secondly, in or towards payment of any fees payable to the Agent or any other Creditor under, or in relation to, the Security Documents which remain unpaid;

6.9.3 thirdly, in or towards payment to the Banks, on a pro rata basis, of any accrued interest which shall have become due under any of the Security Documents but remains unpaid;

6.9.4 fourthly, in or towards payment to the Banks, on a pro rata basis, of any principal in respect of the Loan which shall have become due but remains unpaid;

6.9.5 fifthly, in or towards payment to any Bank for any loss suffered by reason of any payment in respect of principal not being effected on an Interest Payment Date relating to the part of the Loan repaid and which amounts are so payable under this Agreement;

6.9.6 sixthly, in or towards payment to the Swap Provider of any amounts owing to it under the Master Swap Agreement; and

6.9.7 seventhly, in or towards payment to the relevant person of any other sum which shall have become due under any of the Security Documents but remains unpaid (and, if more than one such sum so remains unpaid, on a pro rata basis).

The order of application set out in this clause 6.9.3 to 6.9.7 may be varied by the Agent if the Majority Banks so direct, without any reference to, or consent or approval from, the Borrowers.

7 Representations and warranties

7.1 Continuing representations and warranties

The Borrowers jointly and severally represent and warrant to each Creditor that:

7.1.1 Due incorporation

the Borrowers and each of the other Security Parties are duly incorporated and validly existing in good standing under the laws of their respective countries of incorporation as limited liabilities companies or (as the case may be) corporations, and have power to carry on their respective businesses as they are now being conducted and to own their respective property and other assets;

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7.1.2 Corporate power

each of the Borrowers has power to execute, deliver and perform its obligations under the Underlying Documents and the Borrowers' Security Documents to which it is or is to be a party and to borrow the Total Commitment and each of the other Security Parties has power to execute and deliver and perform its obligations under the Security Documents and the Underlying Documents to which it is or is to be a party; all necessary corporate, shareholder and other action has been taken to authorise the execution, delivery and performance of the same and no limitation on the powers of either Borrower to borrow will be exceeded as a result of borrowing the Loan;

7.1.3 Binding obligations

the Security Documents constitute or will, when executed, constitute valid and legally binding obligations of the relevant Security Parties enforceable in accordance with their respective terms;

7.1.4 No conflict with other obligations

the execution and delivery of, the performance of their obligations under, and compliance with the provisions of, the Underlying Documents and the Security Documents by the relevant Security Parties will not (i) contravene any existing applicable law, statute, rule or regulation or any judgment, decree or permit to which either of the Borrowers or any other Security Party is subject, (ii) conflict with, or result in any breach of any of the terms of, or constitute a default under, any agreement or other instrument to which either of the Borrowers or any other Security Party is a party or is subject or by which it or any of its property is bound, (iii) contravene or conflict with any provision of the constitutional documents of either of the Borrowers or any other Security Party or (iv) result in the creation or imposition of or oblige either of the Borrowers or any other member of the Group or any other Security Party to create any Encumbrance (other than a Permitted Encumbrance) on any of the undertakings, assets, rights or revenues of either of the Borrowers or any other member of the Group or any other Security Party;

7.1.5 No litigation

no litigation, arbitration or administrative proceeding is taking place, pending or, to the knowledge of the officers of either of the Borrowers, threatened against either of the Borrowers or any other member of the Group or any other Security Party which could have a material adverse effect on the business, assets, management prospects, performance, operations, results of operations, properties or the condition (financial or otherwise) of either of the Borrowers or any other member of the Group or any other Security Party or the Group as a whole;

7.1.6 No filings required

save for the registration of the Mortgages under the laws of the Flag State through the Registry, it is not necessary to ensure the legality, validity, enforceability or admissibility in evidence of any of the Underlying Documents or the Security Documents that they or any other instrument be notarised, filed, recorded, registered or enrolled in any court, public office or elsewhere in any Relevant Jurisdiction or that any stamp, registration or similar tax or charge be paid in any Relevant Jurisdiction on or in relation to any of the Underlying Documents or the Security Documents and each of the Underlying Documents and the Security Documents is in proper form for its enforcement in the courts of each Relevant Jurisdiction;

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7.1.7 Choice of law

the choice of English law to govern the Underlying Documents and the Security Documents (other than the Mortgages) and the choice of Maltese law to govern the Mortgages, and the submissions by the Security Parties therein to the non-exclusive jurisdiction of the English courts are valid and binding;

7.1.8 No immunity

neither of the Borrowers nor any other Security Party nor any of their respective assets is entitled to immunity on the grounds of sovereignty or otherwise from any legal action or proceeding (which shall include, without limitation, suit, attachment prior to judgement, execution or other enforcement);

7.1.9 Consents obtained

every consent, authorisation, licence or approval of, or registration with or declaration to, governmental or public bodies or authorities or courts required by any Security Party to authorise, or required by any Security Party in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of each of the Underlying Documents and each of the Security Documents to which it is a party or the performance by each Security Party of its obligations under the Security Documents to which it is a party, respectively, has been obtained or made and is in full force and effect and there has been no default in the observance of any of the conditions or restrictions (if any) imposed in, or in connection with, any of the same;

7.1.10 Financial statements correct and complete

the unaudited consolidated financial statements of the Group in respect of the financial half-year ended on 30 September 2007 as delivered to the Agent, have been prepared in accordance with the Applicable Accounting Principles which have been consistently applied and present fairly and accurately the consolidated financial position of the Group as at the date they were prepared and the consolidated results of the operations of the Group for the financial period ended on such date and, as at such date no member of the Group had any significant liabilities (contingent or otherwise) or any unrealised or anticipated losses which are not disclosed by, or reserved against or provided for in, such financial statements;

7.1.11 Compliance with laws and regulations

each of the Borrowers is in compliance with the terms and conditions of all laws, regulations, agreements, licences and concessions material to the carrying on of its business (including in relation to Taxation); and

7.1.12 No material adverse change

there has been no material adverse change in the business, management, assets, operations, results of operations, properties, performance, prospects or the condition (financial or otherwise) of any of the Borrowers or the Manager or the Corporate Guarantor or the Group as a whole from that existing on the date of this Agreement as described by or on behalf of the Borrowers and/or any other Security Party to the Agent and/or the Arranger in the negotiation of this Agreement.

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7.2 Initial representations and warranties

The Borrowers jointly and severally further represent and warrant to each Creditor that:

7.2.1 Pari passu

the obligations of each Borrower under this Agreement are direct, general and unconditional obligations of such Borrower and rank at least pari passu with all other present and future unsecured and unsubordinated Indebtedness of such Borrower with the exception of any obligations which are mandatorily preferred by law and not by contract;

7.2.2 No default under other Indebtedness

neither of the Borrowers nor any other member of the Group nor any other Security Party is (nor would with the giving of notice or lapse of time or the satisfaction of any other condition or combination thereof be) in breach of or in default under any agreement relating to Indebtedness to which it is a party or by which it may be bound;

7.2.3 Information

the information, exhibits and reports furnished by any Security Party to the Agent and/or the Arranger in connection with the negotiation and preparation of the Security Documents are true and accurate in all material respects and not misleading, do not omit material facts and all reasonable enquiries have been made to verify the facts and statements contained therein; there are no other facts the omission of which would make any fact or statement therein misleading;

7.2.4 No withholding Taxes

no Taxes are imposed by withholding or otherwise on any payment to be made by any Security Party under the Underlying Documents or the Security Documents or are imposed on or by virtue of the execution or delivery by the Security Parties of the Underlying Documents or the Security Documents or any other document or instrument to be executed or delivered under any of the Security Documents;

7.2.5 No Default

no Default has occurred and is continuing;

7.2.6 The Ships

each Ship will, on the Drawdown Date of the Advance relevant to such Ship, be:

(a) in the absolute ownership of the relevant Borrower who will, on and after such Drawdown Date, be the sole, legal and beneficial owner of such Ship;

(b) permanently registered through the Registry as a ship under the laws and flag of the relevant Flag State;

(c) operationally seaworthy and in every way fit for service; and

(d) classed with the relevant Classification free of all requirements and recommendations of the relevant Classification Society;

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7.2.7 Ships' employment

neither Ship is nor will, on or before the Drawdown Date of the Advance relevant to such Ship, be subject to any charter or contract or to any agreement to enter into any charter or contract which, if entered into after the date of the relevant Ship Security Documents, would have required the consent of the Agent or, as the context may require, the Security Agent and on or before the Drawdown Date of the Advance relevant to such Ship, there will not be any agreement or arrangement whereby the Earnings (as defined in the Deed of Covenant for such Ship) of such Ship may be shared with any other person;

7.2.8 Freedom from Encumbrances

neither of the Ships, nor its Earnings, Insurances or Requisition Compensation (each as defined in the relevant Ship Security Documents) nor the Operating Account for such Ship nor any other properties or rights which are, or are to be, the subject of any of the Security Documents nor any part thereof will be, on the Drawdown Date of the Advance relevant to such Ship, subject to any Encumbrance;

7.2.9 Compliance with Environmental Laws and Approvals

except as may already have been disclosed by the Borrowers in writing to, and acknowledged in writing by, the Agent:

(a) the Borrowers and the other Relevant Parties and, to the best of the Borrowers' knowledge and belief (having made due enquiry), their respective Environmental Affiliates have complied with the provisions of all Environmental Laws;

(b) the Borrowers and the other Relevant Parties and, to the best of the Borrowers' knowledge and belief (having made due enquiry), their respective Environmental Affiliates have obtained all Environmental Approvals and are in compliance with all such Environmental Approvals; and

(c) neither the Borrowers nor any other Relevant Party nor, to the best of the Borrowers' knowledge and belief (having made due enquiry), any of their respective Environmental Affiliates have received notice of any Environmental Claim that the Borrowers or any other Relevant Party or any such Environmental Affiliate is not in compliance with any Environmental Law or any Environmental Approval;

7.2.10 No Environmental Claims

except as may already have been disclosed by the Borrowers in writing to, and acknowledged in writing by, the Agent, there is no Environmental Claim pending or, to the best of the Borrowers' knowledge and belief, threatened against the Borrowers or either of the Ships or any other Relevant Party or any other Relevant Ship or, to the best of the Borrowers' knowledge and belief (having made due enquiry), any of their respective Environmental Affiliates;

7.2.11 No potential Environmental Claims

except as may already have been disclosed by the Borrowers in writing to, and acknowledged in writing by, the Agent, there has been no emission, spill, release or discharge of a Pollutant from either of the Ships or any other Relevant Ship owned by, managed or crewed by or chartered to the Borrowers nor, to the best of the Borrowers' knowledge and belief (having made due enquiry), from any Relevant Ship owned by, managed or crewed by or chartered to any other Relevant Party which could give rise to an Environmental Claim;

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7.2.12 Copies true and complete

the copies of the Underlying Documents delivered or to be delivered to the Agent pursuant to clause 9.1 are or will, when delivered, be true and complete copies of such documents; such documents constitute valid and binding obligations of the parties thereto enforceable in accordance with their terms and there have been no amendments or variations thereof or defaults thereunder; and

7.2.13 Shareholdings

(a) each of the Borrowers is a wholly-owned direct Subsidiary of the Corporate Guarantor and all of the issued shares in the Manager are legally and ultimately beneficially owned by the person or persons disclosed by or on behalf of the Borrowers or any other Security Party to the Agent and/or the Arranger in the negotiation of this Agreement;

(b) no less than 30% of the total issued voting share capital of the Corporate Guarantor is ultimately beneficially owned by Mr George Economou and/or family trusts and/or foundations of which Mr George Economou is a beneficiary; and

(c) no person or persons acting in concert (other than Mr George Economou and/or family trusts or foundations of Mr George Economou) are the ultimate beneficial owners of more than 50% of the total issued voting share capital of the Corporate Guarantor or have the control of the Corporate Guarantor or of its board of directors (and “control” shall have the meaning given to it in the definition of “Subsidiary” in clause 1.2).

7.3 Repetition of representations and warranties

On and as of each Drawdown Date and (except in relation to the representations and warranties in clause 7.2) on each Interest Payment Date, the Borrowers shall (a) be deemed to repeat the representations and warranties in clauses 7.1 and 7.2 as if made with reference to the facts and circumstances existing on such day and (b) be deemed to further represent and warrant to each of the Creditors that the then latest financial statements delivered to the Agent by the Borrowers (if any) under clause 8.1.5 have been prepared in accordance with the Applicable Accounting Principles which have been consistently applied and present fairly and accurately the consolidated financial position of the Group, as at the end of the financial period to which the same relate and the consolidated results of the operations of the Group, for the financial period to which the same relate and, as at the end of such financial period, neither the Corporate Guarantor nor any other member of the Group had any significant liabilities (contingent or otherwise) or any unrealised or anticipated losses which are not disclosed by, or reserved against or provided for in, such financial statements.

8 Undertakings

8.1 General

The Borrowers jointly and severally undertake with each Creditor that, from the date of this Agreement and so long as any moneys are owing under any of the Security Documents and while all or any part of the Total Commitment remains outstanding, they will:

8.1.1 Notice of Default

promptly inform the Agent of any occurrence of which either of them becomes aware which might adversely affect the ability of any Security Party to perform its obligations under any of the Security Documents and, without limiting the generality of the foregoing, will inform the Agent of any Default forthwith upon becoming aware thereof and will from time to time, if so requested by the Agent, confirm to the Agent in writing that, save as otherwise stated in such confirmation, no Default has occurred and is continuing;

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8.1.2 Consents and licences

without prejudice to clauses 7.1 and 9, obtain or cause to be obtained, maintain in full force and effect and comply in all material respects with the conditions and restrictions (if any) imposed in, or in connection with, every consent, authorisation, licence or approval of governmental or public bodies or authorities or courts and do, or cause to be done, all other acts and things which may from time to time be necessary or desirable under applicable law for the continued due performance of all the obligations of the Security Parties under each of the Security Documents;

8.1.3 Use of proceeds

use the Loan or, as the case may be, the Advances for their benefit and under their full responsibility and exclusively for the purposes specified in clauses 1.1 and 2.5;

8.1.4 Pari passu and subordination

(a) ensure that their obligations under this Agreement shall, without prejudice to the provisions of clause 8.3 and the security intended to be created by the Security Documents, at all times rank at least pari passu with all their other present and future unsecured and unsubordinated Indebtedness with the exception of any obligations which are mandatorily preferred by law and not by contract; and

(b) ensure that the obligations (if any) of the Borrowers to repay any loan advanced to them by their shareholders or any other member of the Group are at all times fully subordinated towards their obligations to the Creditors under this Agreement and the other Security Documents and that any such loans or advances are and remain at all times on terms and conditions acceptable to the Banks in all respects;

8.1.5 Financial statements and valuations

(a) prepare or cause to be prepared consolidated financial statements of the Group in accordance with the Applicable Accounting Principles consistently applied in respect of each financial year (but commencing with the financial year ending 31 December 2007) and cause the same to be reported on by their auditors and prepare unaudited consolidated financial statements of the Group on the same basis as the annual statements in respect of each financial quarter (including on a year to date basis) period (but commencing with the financial quarter period ending 30 September 2007) and deliver as many copies of the same as the Agent may reasonably require as soon as practicable but not later than one hundred and eighty (180) days (in the case of audited financial statements) or ninety (90) days (in the case of unaudited financial statements) after the end of the financial period to which they relate;

(b) deliver or cause to be delivered to the Agent a valuation (dated not earlier than 30 days previously) of each Fleet Vessel (as defined in the Corporate Guarantee) prepared in accordance with, and in the manner specified in, clause 8.2.2 (at the expense of the Borrowers) at the time when any audited annual and unaudited nine-monthly consolidated financial statements of the Group are delivered to the Agent in accordance with clause 8.1.5(a) and clause 5.1 of the Corporate Guarantee; and

(c) deliver to the Agent in sufficient copies for all the Banks, a Compliance Certificate for the relevant period executed by the Corporate Guarantor and counter-signed by the Chief Financial Officer or an authorised Director or other Officer of the Corporate Guarantor at the time when any unaudited or audited consolidated financial statements of the Group delivered to the Agent in accordance with clause 8.1.5(a) and clause 5.1 of the Corporate Guarantee;

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8.1.6 Delivery of reports

deliver to the Agent sufficient copies for all the Banks of every report, circular, notice or like document issued by the Borrowers or any member of the Group to its shareholders or creditors generally, at the same time if is issued or given;

8.1.7 Provision of further information

provide the Agent with such financial and other information concerning the Borrowers, the other Security Parties, any other member of the Group, the Group as a whole and their respective affairs as the Agent may from time to time reasonably require, including, without limitation, regarding their financial standing, commitments, operations, vessel sales or purchases, any new borrowings, any material litigation, arbitration and administrative proceedings and all major financial developments in relation to each Security Party, any other member of the Group and the Group as a whole;

8.1.8 Know your customer information

deliver to the Agent such documents and evidence as the Agent shall from time to time require relating to the verification of identity and knowledge of the Agent’s or any Bank’s or the  Swap Provider’s customers and the compliance by the Agent or any Bank or the Swap Provider with all necessary “know your customer” or similar checks, always on the basis of applicable laws and regulations or the Agent's or any Bank’s or any Swap Provider’s own internal guidelines, in each case as such laws, regulations or internal guidelines apply from time to time;

8.1.9 Obligations under Security Documents

and will procure that each of the other Security Parties will, duly and punctually perform each of the obligations expressed to be assumed by them under the Security Documents;

8.1.10 Compliance with Code

and will procure that the Manager or any Operator will, comply with and ensure that each Ship and the Manager or any Operator at all times complies with the requirements of the Code, including (but not limited to) the maintenance and renewal of valid certificates pursuant thereto throughout the Security Period (as defined in the Deeds of Covenant) and will procure that each member of the Group and each vessel thereof complies with the requirements of the Code;

8.1.11 Withdrawal of DOC and SMC

and will procure that the Manager or any Operator will, immediately inform the Agent if there is any threatened or actual withdrawal of its Operator’s DOC or the SMC in respect of any Ship;

8.1.12 Issuance of DOC and SMC

and will procure that the Manager or any Operator will, promptly inform the Agent upon the issue to either of the Borrowers, the Manager or any Operator of a DOC and to each Ship of an SMC or the receipt by either of the Borrowers, the Manager or any Operator of notification that its application for the same has been refused;

8.1.13 ISPS Code Compliance

and will procure that the Manager or any Operator will:

(a) maintain at all times a valid and current ISSC respect of each Ship;

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(b) immediately notify the Agent in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the ISSC in respect of each Ship; and

(c) procure that each Ship and any other vessel of the Group will comply at all times with the ISPS Code;

8.1.14 Charters

advise the Agent promptly of any charter of either Ship having a term of twelve (12) months or more (including any options to extend or renew) and (i) forthwith after its execution deliver a certified copy of each such charter to the Agent, (ii) forthwith following demand by the Agent execute a specific assignment (in such form as the Agent may require) of any such charter in favour of the Security Agent and any notice of assignment required in connection therewith and promptly procure the service of any such notice of assignment on the relevant charterer and the acknowledgement of such notice by the relevant charterer and (iii) pay all legal and other costs incurred by the Agent or any other Creditor in connection with any such specific charter assignments; and

8.1.15 Intra-Group transactions

ensure that any transactions, agreements or other arrangements (if any) entered into by it with any members of the Group, are entered into on an arm’s length basis and for full value and consideration.

8.2 Security value maintenance

8.2.1 Security shortfall

If at any time the Security Value shall be equal to or less than the Security Requirement, the Agent (acting on the instructions of the Majority Banks) shall give notice to the Borrowers requiring that such deficiency be remedied and then the Borrowers shall either:

(a) prepay within a period of ten (10) days of the date of receipt by the Borrowers of the Agent's said notice, such sum in Dollars as will result in the Security Requirement after such prepayment (taking into account any other repayment made between the date of the notice and the date of such prepayment) being higher than the Security Value; or

(b) within ten (10) days of the date of receipt by the Borrowers of the Agent's said notice constitute to the satisfaction of the Agent such further security for the Loan as shall be acceptable to the Banks, having a value for security purposes (as determined by the Agent in its absolute discretion) at the date upon which such further security shall be constituted which, when added to the Security Value, shall not be higher than the Security Requirement as at such date.

The provisions of clause 4.4 and any relevant provisions of clause 4.5 shall apply to prepayments made under clause 8.2.1(a).

8.2.2 Valuation of Mortgaged Ships

Each of the Mortgaged Ships shall, for the purposes of this Agreement, be valued in Dollars as and when the Agent (acting on instructions of the Majority Banks) shall require by one of the Approved Shipbrokers nominated by the Borrowers (or, failing this, by the Agent) and appointed by the Agent and the Borrowers. Each such valuation shall be addressed to the Agent and made without, unless required by the Agent, physical inspection and on the basis of a sale for prompt delivery for cash at arm’s length on normal commercial terms as between a willing buyer and a willing seller without taking into account the benefit of any charterparty or other engagement concerning such Mortgaged Ship. Such valuation shall constitute the value of such Mortgaged Ship for the purposes of this clause 8.2.

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The value of each Mortgaged Ship determined in accordance with the provisions of this clause 8.2 shall be binding upon the parties hereto until such time as any such further valuation shall be obtained.

8.2.3 Information

The Borrowers jointly and severally undertake with each Creditor to supply to the Agent and to any such Approved Shipbrokers such information concerning each Mortgaged Ship and its condition as such Approved Shipbroker may require for the purpose of making any such valuation.

8.2.4 Costs

All costs in connection with the Agent obtaining any valuation of the Mortgaged Ships referred to in clause 8.2.2, any valuation of the Fleet Vessels referred to in clause 8.1.5(b), the valuations of the Ships referred to in schedule 3, and any valuation either of any additional security for the purposes of ascertaining the Security Value at any time or necessitated by the Borrowers electing to constitute additional security pursuant to clause 8.2.1(b), shall be borne by the Borrowers.

8.2.5 Valuation of additional security

For the purpose of this clause 8.2, the market value of any additional security provided or to be provided to the Security Agent shall be determined by the Agent in its absolute discretion without any necessity for the Agent assigning any reason thereto.

8.2.6 Documents and evidence

In connection with any additional security provided in accordance with this clause 8.2, the Agent shall be entitled to receive such evidence and documents of the kind referred to in schedule 3 as may in the Agent's opinion be appropriate and such favourable legal opinions as the Agent shall in its absolute discretion require.

8.3 Negative undertakings

The Borrowers jointly and severally undertake with each Creditor that, from the date of this Agreement and so long as any moneys are owing under the Security Documents and while all or any part of the Total Commitment remains outstanding, the Borrowers will not, without the prior written consent of the Agent:

8.3.1 Negative pledge

permit any Encumbrance (other than a Permitted Encumbrance) to subsist, arise or be created or extended over all or any part of their present or future undertakings, assets, rights or revenues to secure or prefer any present or future Indebtedness or other liability or obligation of any Security Party (other than the Corporate Guarantor) or any other person;

8.3.2 No merger

merge or consolidate with any other person or enter into any demerger, amalgamation or corporate reconstruction or redomiciliation of any type;

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8.3.3 Disposals

sell, transfer, abandon, lend or otherwise dispose of or cease to exercise direct control over any part (being, either alone or when aggregated with all other disposals falling to be taken into account pursuant to this clause 8.3.3, material in the opinion of the Agent in relation to their respective undertakings, assets, rights and revenues taken as a whole) of their respective present or future undertakings, assets, rights or revenues (otherwise than by transfers, sales or disposals for full consideration in the ordinary course of trading but in any event exclusively the Ships) whether by one or a series of transactions related or not;

8.3.4 Other business

undertake any business other than the ownership, chartering and operation of the Ships and the chartering of the Ships to third parties;

8.3.5 Acquisitions

acquire any further assets other than the Ships and rights arising under contracts entered into by or on behalf of the Borrowers in the ordinary course of their businesses of owning, operating and chartering the Ships;

8.3.6 Other obligations

incur any obligations except for obligations arising under the Underlying Documents or the Security Documents or contracts entered into in the ordinary course of their business of owning, operating and chartering the Ships;

8.3.7 No borrowing

incur any Borrowed Money except for Borrowed Money pursuant to the Security Documents;

8.3.8 Repayment of borrowings

repay or prepay the principal of, or pay interest on or any other sum in connection with, any of their Borrowed Money except for Borrowed Money pursuant to the Security Documents;

8.3.9 Guarantees

issue any guarantees or indemnities or otherwise become directly or contingently liable for the obligations of any person, firm, or corporation except pursuant to the Security Documents and except for guarantees or indemnities from time to time required in the ordinary course by any protection and indemnity or war risks association with which a Ship is entered, guarantees required to procure the release of a Ship from any arrest, detention, attachment or levy or guarantees or undertakings required for the salvage of a Ship;

8.3.10 Loans

make any loans or grant any credit (save for normal trade credit in the ordinary course of business) to any person or agree to do so;

8.3.11 Sureties

permit any Indebtedness of either Borrower to any person (other than the Creditors) to be guaranteed by any person (save for guarantees or indemnities from time to time required in the ordinary course by any protection and indemnity or war risks association with which a Ship is entered, guarantees required to procure the release of a Ship from any arrest, detention, attachment or levy or guarantees or undertakings required for the salvage of a Ship);

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8.3.12 Share capital and distribution

purchase or otherwise acquire for value any shares of their capital or declare or pay any dividends or distribute any of their present or future assets, undertakings, rights or revenues to any of their shareholders Provided however that each Borrower may declare or pay dividends to the Corporate Guarantor, if no Event of Default has occurred and is continuing at the time of declaration or payment of such dividends or would occur as a result thereof;

8.3.13 Change of management of a Ship

appoint any person to carry out the commercial and technical management of the Ship other than the Manager or terminate a Management Agreement or vary or amend the terms thereof;

8.3.14 Designated Transactions

enter into any derivative transactions other than Designated Transactions; or

8.3.15 Subsidiaries

form or acquire any Subsidiaries; or

8.3.16 Financial year, auditors and constitutional documents

(a) change, cause, permit or agree to any change in, the way of computation of their financial year;

(b) change, permit or agree to any change of, their auditors from those existing on the date of this Agreement; or

(c) change, amend or vary, or agree to or permit any change, amendment or variation of or to, their constitutional documents.

9 Conditions

9.1 Documents and evidence

The obligation of each Bank to make its Commitment available shall be subject to the condition that:

9.1.1 the Agent, or its duly authorised representative, shall have received, not later than the day on which the Drawdown Notice for the first Advance is given, the documents and evidence specified in Part 1 of schedule 3 in form and substance satisfactory to the Agent; and

9.1.2 the Agent, or its duly authorised representative, shall have received, on or prior to the drawdown of each Advance, the documents and evidence specified in Part 2 of schedule 3 in respect of such Advance and the Ship relevant to it, in form and substance satisfactory to the Agent.

9.2 General conditions precedent

The obligation of each Bank to contribute to either Advance shall be subject to the further conditions that, at the time of the giving of the Drawdown Notice for such Advance, and at the time of the making of such Advance:

9.2.1 the representations and warranties contained in (a) clauses 7.1, 7.2 and 7.3(b) and (b) clause 4 of the Corporate Guarantee, are true and correct on and as of each such time as if each was made with respect to the facts and circumstances existing at such time; and

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9.2.2 no Default shall have occurred and be continuing or would result from the making of such Advance.

9.3 Waiver of conditions precedent

The conditions specified in this clause 9 are inserted solely for the benefit of the Banks and may be waived by the Agent (acting on the instructions of the Majority Banks) in whole or in part and with or without conditions.

9.4 Further conditions precedent

Not later than five (5) Banking Days prior to each Drawdown Date and not later than five (5) Banking Days prior to each Interest Payment Date, the Agent (acting on the instructions of the Majority Banks) may request and the Borrowers shall, not later than two (2) Banking Days prior to such date, deliver to the Agent on such request further favourable certificates and/or favourable opinions as to any or all of the matters which are the subject of clauses 7, 8, 9 and 10.

10 Events of Default

10.1 Events

There shall be an Event of Default if:

10.1.1 Non-payment: any Security Party fails to pay any sum payable by it under any of the Security Documents at the time, in the currency and in the manner stipulated in the Security Documents (and so that, for this purpose, sums payable on demand shall be treated as having been paid at the stipulated time if paid within three (3) Banking Days of demand); or

10.1.2 Master Swap Agreement: (a) an Event of Default or Potential Event of Default (in each case as defined in the Master Swap Agreement) has occurred and is continuing with the Borrowers or either of them as the Defaulting Party (as defined in the Master Swap Agreement) under the Master Swap Agreement or (b) an Early Termination Date has occurred or been or become capable of being effectively designated under the Master Swap Agreement by the Swap Provider or (c) the Master Swap Agreement is terminated, cancelled, suspended, rescinded or revoked or otherwise ceases to remain in full force and effect for any reason; or

10.1.3 Breach of Insurance and certain other obligations: either of the Borrowers or, as the context may require, the Manager fails to obtain and/or maintain the Insurances (as defined in, and in accordance with the requirements of, the Ship Security Documents) for either of the Mortgaged Ships or if any insurer in respect of such Insurances cancels such Insurances or disclaims liability by reason, in either case, of mis-statement in any proposal for such Insurances or for any other failure or default on the part of either of the Borrowers or any other person or either of the Borrowers commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by them under clauses 8.1.5, 8.2 or 8.3 or the Corporate Guarantor commits any breach or fails to observe any of the obligations or undertakings expressed to be assured by it under clauses 5.1.4, 5.2 or 5.3 of the Corporate Guarantee; or

10.1.4 Breach of other obligations: any Security Party commits any breach of or omits to observe any of its obligations or undertakings expressed to be assumed by it under any of the Security Documents (other than those referred to in clauses 10.1.1 and 10.1.3 above) and, in respect of any such breach or omission which in the opinion of the Agent (following consultation with the Banks) is capable of remedy, such action as the Agent (acting on the instructions of the Majority Banks) may require shall not have been taken within thirty (30) days of the Agent notifying the relevant Security Party of such default and of such required action; or

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10.1.5 Misrepresentation: any representation or warranty made or deemed to be made or repeated by or in respect of any Security Party in or pursuant to any of the Security Documents or in any notice, certificate or statement referred to in or delivered under any of the Security Documents is or proves to have been incorrect or misleading in any material respect; or

10.1.6 Cross-default: any Indebtedness of any Security Party or any other member of the Group is not paid when due or any Indebtedness of any Security Party or any other member of the Group becomes (whether by declaration or automatically in accordance with the relevant agreement or instrument constituting the same) due and payable prior to the date when it would otherwise have become due (unless as a result of the exercise by the relevant Security Party or any other member of the Group of a voluntary right of prepayment), or any creditor of any Security Party or any other member of the Group becomes entitled to declare any such Indebtedness due and payable or any facility or commitment available to any Security Party or other member of the Group relating to Indebtedness is withdrawn, suspended or cancelled by reason of any default (however described) of the person concerned unless the relevant Security Party or any other member of the Group shall have satisfied the Agent that such withdrawal, suspension or cancellation will not affect or prejudice in any way the ability of the relevant Security Party or of the relevant member of the Group to pay its debts as they fall due and fund its commitments, or any guarantee given by any Security Party or any other member of the Group in respect of Indebtedness is not honoured when due and called upon and, in the case of the Corporate Guarantor only and/or any other member of the Group which is not a Security Party, the amount or aggregate amount at any one time of all Indebtedness of the Corporate Guarantor and/or such other member of the Group, in relation to which any of the foregoing events shall have occurred is equal to or greater than Three million Dollars ($3,000,000) or its equivalent in the currency in which same is denominated and payable; or

10.1.7 Legal process: any judgment or order made against any Security Party or other member of the Group is not stayed or complied with within fifteen (15) days or a creditor attaches or takes possession of, or a distress, execution, sequestration or other process is levied or enforced upon or sued out against, any of the undertakings, assets, rights or revenues of any Security Party or other member of the Group and is not discharged within fifteen (15) days; or

10.1.8 Insolvency: any Security Party or other member of the Group is unable or admits inability to pay its debts as they fall due; suspends making payments on any of its debts or announces an intention to do so; becomes insolvent; has assets the value of which is less than the value of its liabilities (taking into account contingent and prospective liabilities); or suffers the declaration of a moratorium in respect of any of its Indebtedness; or

10.1.9 Reduction or loss of capital: a meeting is convened by any Security Party or other member of the Group for the purpose of passing any resolution to purchase, reduce or redeem any of its share capital; or

10.1.10 Winding up: any corporate action, legal proceedings or other procedure or step is taken for the purpose of winding-up any Security Party or other member of the Group or an order is made or resolution passed for the winding up of any Security Party or other member of the Group or a notice is issued convening a meeting for the purpose of passing any such resolution; or

10.1.11 Administration: any petition is presented, notice given or other step is taken for the purpose of the appointment of an administrator of any Security Party or other member of the Group or the Agent believes that any such petition or other step is imminent or an administration order is made in relation to any Security Party or other member of the Group; or

10.1.12 Appointment of receivers and managers: any administrative or other receiver is appointed of any Security Party or other member of the Group or any part of its assets and/or undertaking or any other steps are taken to enforce any Encumbrance over all or any part of the assets of any Security Party or other member of the Group; or

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10.1.13 Compositions: any corporate action, legal proceedings or other procedures or steps are taken, or negotiations commenced, by any Security Party or other member of the Group or by any of its creditors with a view to the general readjustment or rescheduling of all or part of its indebtedness or to proposing any kind of composition, compromise or arrangement involving such person and any of its creditors; or

10.1.14 Analogous proceedings: there occurs, in relation to any Security Party or other member of the Group, in any country or territory in which any of them carries on business or to the jurisdiction of whose courts any part of their assets is subject, any event which, in the reasonable opinion of the Agent, appears in that country or territory to correspond with, or have an effect equivalent or similar to, any of those mentioned in clauses 10.1.7 to 10.1.13 (inclusive) or any Security Party or other member of the Group otherwise becomes subject, in any such country or territory, to the operation of any law relating to insolvency, bankruptcy or liquidation; or

10.1.15 Cessation of business: any Security Party or any other member of the Group suspends or ceases or threatens to suspend or cease to carry on its business; or

10.1.16 Seizure: all or a material part of the undertaking, assets, rights or revenues of, or shares or other ownership interests in, any Security Party or any other member of the Group are seized, nationalised, expropriated or compulsorily acquired by or under the authority of any government; or

10.1.17 Invalidity: any of the Security Documents shall at any time and for any reason become invalid or unenforceable or otherwise cease to remain in full force and effect, or if the validity or enforceability of any of the Security Documents shall at any time and for any reason be contested by any Security Party which is a party thereto, or if any such Security Party shall deny that it has any, or any further, liability thereunder; or

10.1.18 Unlawfulness: it becomes impossible or unlawful at any time for any Security Party, to fulfil any of the covenants and obligations expressed to be assumed by it in any of the Security Documents or for a Creditor to exercise the rights or any of them vested in it under any of the Security Documents or otherwise; or

10.1.19 Repudiation: any Security Party repudiates any of the Security Documents or does or causes or permits to be done any act or thing evidencing an intention to repudiate any of the Security Documents; or

10.1.20 Encumbrances enforceable: any Encumbrance (other than Permitted Liens) in respect of any of the property (or part thereof) which is the subject of any of the Security Documents becomes enforceable; or

10.1.21 De-listing etc.: the shares of the Corporate Guarantor are de-listed from or suspended from trading on, or cease to trade (whether permanently or temporarily for longer than ten (10) consecutive days) on, NASDAQ at any time, unless at that time they trade on another comparable stock exchange acceptable to the Agent in its sole discretion; or

10.1.22 Material adverse change: there occurs, in the opinion of the Agent, a material adverse change in the business, management, assets, operations, results of operations, properties, performances, prospects or the condition (financial or otherwise) of either Borrower or any other Security Party or any other member of the Group from that existing on the date of this Agreement, as described by or on behalf of the Borrowers or any other Security Party to the Agent and/or the Arranger in the negotiation of this Agreement which in the reasonable opinion of the Agent (following consultation with the Banks) is likely, materially and adversely, to affect the ability of any Security Party to perform all or any of its obligations under, or otherwise to comply with the terms of, any of the Security Documents; or

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10.1.23 Arrest: either Ship is arrested, confiscated, seized, taken in execution, impounded, forfeited, detained in exercise or purported exercise of any possessory lien or other claim or otherwise taken from the possession of the relevant Borrower and such Borrower shall fail to procure the release of such Ship within a period of ten (10) days thereafter; or

10.1.24 Registration: the registration of either Ship under the laws and flag of the relevant Flag State is cancelled or terminated without the prior written consent of the Agent (acting on the instructions of the Majority Banks) or if such registration of such Ship is not renewed at least thirty (30) days prior to the expiry of such registration; or

10.1.25 Unrest: the Flag State of either Ship becomes involved in hostilities or civil war or there is a seizure of power in the Flag State of either Ship by unconstitutional means if, in any such case such event could in the opinion of the Agent reasonably be expected to have a material adverse effect on the security constituted by any of the Security Documents; or

10.1.26 Environment: either Borrower and/or any other Relevant Party and/or any of their respective Environmental Affiliates fails to comply with any Environmental Law or any Environmental Approval or either of the Ships or any other Relevant Ship is involved in any incident which gives rise or may give rise to an Environmental Claim; or

10.1.27 P&I: either Borrower or any other person fails or omits to comply with any requirements of the protection and indemnity association or other insurer with which such Borrower’s Ship is entered for insurance or insured against protection and indemnity risks (including oil pollution risks) to the effect that any cover (including, without limitation, any cover in respect of liability for Environmental Claims arising in jurisdictions where such Ship operates or trades) is or may be liable to cancellation, qualification or exclusion at any time; or

10.1.28 Shareholdings: there is any change in the legal and/or ultimate beneficial ownership of any of the shares in any of the Borrowers, the Corporate Guarantor, the Manager or any of them such that:

(a) either of the Borrower ceases to be a wholly-owned direct Subsidiary of the Corporate Guarantor; or

(b) all of the shares of the Manager cease to be ultimately beneficially owned by the person or persons being the ultimate beneficial owners of all such shares on the date of this Agreement, as disclosed to the Agent pursuant to clause 7.2.13; or

(c) any person or persons acting in concert (other than Mr George Economou and/or family trusts and/or foundations of which Mr George Economou is a beneficiary) become the ultimate beneficial owners of more than 50% of the total issued voting share capital of the Corporate Guarantor or have the control of the Corporate Guarantor or of its board of directors at any relevant time (and “control” shall have the meaning given to it in the definition of “Subsidiary” in clause 1.2); or

10.1.29 Accounts: moneys are withdrawn from either of the Operating Accounts other than in accordance with clause 14 or as otherwise provided in this Agreement; or

10.1.30 Manager: either Ship ceases to be managed by the Manager; or

10.1.31 Licenses, etc:  any license, authorisation, consent or approval at any time necessary to enable any Security Party to comply with its obligations under the Security Documents is revoked or withheld or modified or is otherwise not granted or fails to remain in full force and effect or if any exchange control or other law or regulation shall exist which would make any transaction under the Security Documents or the continuation thereof, unlawful or would prevent the performance by any Security Party of any term of any of the Security Documents; or

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10.1.32 Material events: any other event occurs or circumstance arises which, in the reasonable opinion of the Agent (following consultation with the Banks), is likely materially and adversely to affect either (a) the ability of any Security Party to perform all or any of its obligations under or otherwise to comply with the terms of any of the Security Documents or (b) the security created by any of the Security Documents.

10.2 Acceleration

The Agent may, and if so requested by the Majority Banks shall, without prejudice to any other rights of the Banks, at any time after the happening of an Event of Default by notice to the Borrowers declare that:

10.2.1 the obligation of each Bank to make its Commitment available shall be terminated, whereupon the Total Commitment shall be reduced to zero forthwith; and/or

10.2.2 the Loan and all interest and commitment commission accrued and all other sums payable under the Security Documents have become due and payable, whereupon the same shall, immediately or in accordance with the terms of such notice, become due and payable.

10.3 Demand basis

If, pursuant to clause 10.2.2, the Agent declares the Loan to be due and payable on demand, the Agent may (and if so instructed by the Majority Banks shall) by written notice to the Borrowers (a) call for repayment of the Loan on such date as may be specified whereupon the Loan shall become due and payable on the date so specified together with all interest and commitment commission accrued and all other sums payable under this Agreement or (b) withdraw such declaration with effect from the date specified in such notice.

10.4 Position of Swap Provider

Neither the Agent nor the Security Agent shall be obliged, in connection with any action taken or proposed to be taken under or pursuant to the foregoing provisions of this clause 10, to have any regard to the requirements of the Swap Provider except to the extent that the Swap Provider is also a Bank.

11 Indemnities

11.1 Miscellaneous indemnities

The Borrowers shall on demand indemnify each Creditor, without prejudice to any of such Creditor's other rights under any of the Security Documents, against any loss (including loss of Margin) or expense which such Creditor shall certify as sustained or incurred by it as a consequence of:

11.1.1 any default in payment of any sum under any of the Security Documents when due;

11.1.2 the occurrence of any other Event of Default;

11.1.3 any prepayment of the Loan or part thereof being made under clauses 4.2, 4.3, 4.4, 8.2.1 or 12.1, or any other repayment or prepayment of the Loan or part thereof being made otherwise than on an Interest Payment Date relating to the part of the Loan prepaid or repaid; or

11.1.4 either Advance not being made for any reason (excluding any default by any Creditor) after the Drawdown Notice for such Advance has been given,

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including, in any such case, but not limited to, any loss or expense sustained or incurred by the relevant Creditor in maintaining or funding its Contribution or, as the case may be, Commitment or any part thereof or in liquidating or re-employing deposits from third parties acquired to effect or maintain its Contribution or, as the case may be, Commitment or any part thereof or any other amount owing to such Creditor.

11.2 Currency indemnity

If any sum due from the Borrowers or either of them under any of the Security Documents or any order or judgment given or made in relation thereto has to be converted from the currency (the “first currency”) in which the same is payable under the relevant Security Document or under such order or judgment into another currency (the “second currency”) for the purpose of (a) making or filing a claim or proof against the Borrowers or either of them, (b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order or judgment given or made in relation to any of the Security Documents, the Borrowers shall indemnify and hold harmless each Creditor from and against any loss suffered as a result of any difference between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which the relevant Creditor may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof.

Any amount due from the Borrowers under this clause 11.2 shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of any of the Security Documents and the term “rate of exchange” includes any premium and costs of exchange payable in connection with the purchase of the first currency with the second currency.

11.3 Environmental indemnity

The Borrowers shall indemnify each Creditor on demand and hold it harmless from and against all costs, expenses, payments, charges, losses, demands, liabilities, actions, proceedings (whether civil or criminal), penalties, fines, damages, judgements, orders, sanctions or other outgoings of whatever nature which may be suffered, incurred or paid by, or made or asserted against such Creditor at any time, whether before or after the repayment in full of principal and interest under this Agreement, relating to, or arising directly or indirectly in any manner or for any cause or reason whatsoever out of an Environmental Claim made or asserted against such Creditor if such Environmental Claim would not have been, or been capable of being, made or asserted against such Creditor if it had not entered into any of the Security Documents and/or exercised any of its rights, powers and discretions thereby conferred and/or performed any of its obligations thereunder and/or been involved in any of the transactions contemplated by the Security Documents.

12 Unlawfulness and increased costs

12.1 Unlawfulness

If it is or becomes contrary to any law or regulation for any Bank to contribute to an Advance or to maintain its Commitment or fund its Contribution, such Bank shall promptly, through the Agent, give notice to the Borrowers whereupon (a) such Bank’s Commitment shall be reduced to zero and (b) the Borrowers shall be obliged to prepay such Bank’s Contribution either (i) forthwith or (ii) on a future specified date not being earlier than the latest date permitted by the relevant law or regulation together with interest accrued to the date of prepayment and all other sums payable by the Borrowers under this Agreement and/or the Master Swap Agreement.

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12.2 Increased costs

If the result of any change in, or in the interpretation or application of, or the introduction of, any law or any regulation, request or requirement (whether or not having the force of law, but, if not having the force of law, with which a Bank or, as the case may be, its holding company habitually complies), including (without limitation) those relating to Taxation, capital adequacy, liquidity, reserve assets, cash ratio deposits and special deposits, is to:

12.2.1 subject any Bank to Taxes or change the basis of Taxation of any Bank with respect to any payment under any of the Security Documents (other than Taxes or Taxation on the overall net income, profits or gains of such Bank imposed in the jurisdiction in which its principal or lending office under this Agreement is located); and/or

12.2.2 increase the cost to, or impose an additional cost on, any Bank or its holding company in making or keeping such Bank’s Commitment available or maintaining or funding all or part of such Bank’s Contribution; and/or

12.2.3 reduce the amount payable or the effective return to any Bank under any of the Security Documents; and/or

12.2.4 reduce any Bank's or its holding company's rate of return on its overall capital by reason of a change in the manner in which it is required to allocate capital resources to such Bank's obligations under any of the Security Documents; and/or

12.2.5 require any Bank or its holding company to make a payment or forego a return on or calculated by reference to any amount received or receivable by such Bank under any of the Security Documents; and/or

12.2.6 require any Bank or its holding company to incur or sustain a loss (including a loss of future potential profits) by reason of being obliged to deduct all or part of its Commitment or the Loan from its capital for regulatory purposes,

then and in each such case (subject to clause 12.3):

(a) such Bank shall (through the Agent) notify the Borrowers in writing of such event promptly upon its becoming aware of the same; and

(b) the Borrowers shall on demand made at any time whether or not such Bank’s Contribution has been repaid, pay to the Agent for the account of such Bank the amount which such Bank specifies (in a certificate setting forth the basis of the computation of such amount but not including any matters which such Bank or its holding company regards as confidential) is required to compensate such Bank and/or (as the case may be) its holding company for such liability to Taxes, cost, reduction, payment , forgone return or loss.

For the purposes of this clause 12.2 “holding company” means, in relation to a Bank, the company or entity (if any) within the consolidated supervision of which such Bank is included.

12.3 Exception

Nothing in clause 12.2 shall entitle any Bank to receive any amount in respect of compensation for any such liability to Taxes, increased or additional cost, reduction, payment, foregone return or loss to the extent that the same is the subject of an additional payment under clause 6.6.

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13 Security, set-off and pro-rata payments

13.1 Application of moneys

All moneys received by the Agent and/or the Security Agent under or pursuant to any of the Security Documents and expressed to be applicable in accordance with the provisions of this clause 13.1 shall be applied in the following manner:

13.1.1 first, in or towards payment of all unpaid costs and expenses which may be owing to the Creditors or any of them under any of the Security Documents;

13.1.2 secondly, in or towards payment of any unpaid fees payable to the Creditors or any of them;

13.1.3 thirdly, in or towards payment of any arrears of interest owing in respect of the Loan or any part thereof;

13.1.4 fourthly, in or towards repayment of the Loan (whether the same is due and payable or not);

13.1.5 fifthly, in or towards payment to any Bank for any loss suffered by reason of any such payment in respect of principal not being effected on an Interest Payment Date relating to the part of the Loan repaid or prepaid and which amounts are so payable under this Agreement;

13.1.6 sixthly, in or towards payment to the Swap Provider of any amounts owing to it under the Master Swap Agreement;

13.1.7 seventhly, in or towards payment to any Creditor of any other sums owing to it under any of the Security Documents; and

13.1.8 eighthly, the surplus (if any) shall be paid to the Borrowers or to whomsoever else may be entitled to receive such surplus.

13.2 Pro rata payments

13.2.1 If at any time any Bank (the “Recovering Bank”) receives or recovers any amount owing to it by the Borrowers under this Agreement by direct payment, set-off or in any manner other than by payment through the Agent pursuant to clauses 6.1 or 6.9 (not being a payment received from a Transferee Bank or a sub-participant in such Bank’s Contribution or any other payment of an amount due to the Recovering Bank for its sole account pursuant to clauses 3.6, 5, 6.6, 11.1, 11.2, 12.1 or 12.2) the Recovering Bank shall, within two (2) Banking Days of such receipt or recovery (a “Relevant Receipt”) notify the Agent of the amount of the Relevant Receipt. If the Relevant Receipt exceeds the amount which the Recovering Bank would have received if the Relevant Receipt had been received by the Agent and distributed pursuant to clauses 6.1 or 6.9 (as the case may be) then:

(a) within two (2) Banking Days of demand by the Agent, the Recovering Bank shall pay to the Agent an amount equal (or equivalent) to the excess;

(b) the Agent shall treat the excess amount so paid by the Recovering Bank as if it were a payment made by the Borrowers and shall distribute the same to the Banks (other than the Recovering Bank) in accordance with clause 6.9; and

(c) as between the Borrowers and the Recovering Bank the excess amount so re-distributed shall be treated as not having been paid but the obligations of the Borrowers to the other Banks shall, to the extent of the amount so re-distributed to them, be treated as discharged.

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13.2.2 If any part of the Relevant Receipt subsequently has to be wholly or partly refunded by the Recovering Bank (whether to a liquidator or otherwise) each Bank to which any part of such Relevant Receipt was so re-distributed shall on request from the Recovering Bank repay to the Recovering Bank such Bank’s pro-rata share of the amount which has to be refunded by the Recovering Bank.

13.2.3 Each Bank shall on request supply to the Agent such information as the Agent may from time to time request for the purpose of this clause 13.2.

13.2.4 Notwithstanding the foregoing provisions of this clause 13.2, no Recovering Bank shall be obliged to share any Relevant Receipt which it receives or recovers pursuant to legal proceedings taken by it to recover any sums owing to it under this Agreement with any other party which has a legal right to, but does not, either join in such proceedings or commence and diligently pursue separate proceedings to enforce its rights in the same or another court (unless the proceedings instituted by the Recovering Bank are instituted by it without prior notice having been given to such party through the Agent).

13.3 Set-off

13.3.1 Each Borrower authorises each Creditor (without prejudice to any of such Creditor’s rights at law, in equity or otherwise), at any time and without notice to such Borrower, to apply any credit balance to which such Borrower is then entitled standing upon any account of such Borrower with any branch of such Creditor in or towards satisfaction of any sum due and payable from such Borrower to such Creditor under any of the Security Documents.  For this purpose, each Creditor is authorised to purchase with the moneys standing to the credit of such account such other currencies as may be necessary to effect such application.

13.3.2 No Creditor shall be obliged to exercise any right given to it by this clause 13.2.  Each Creditor shall notify the Agent and the relevant Borrower forthwith upon the exercise or purported exercise of any right of set-off giving full details in relation thereto and the Agent shall inform the other Creditors.

13.4 No release

For the avoidance of doubt it is hereby declared that failure by any Recovering Bank to comply with the provisions of clause 13.2 shall not release any other Recovering Bank from any of its obligations or liabilities under clause 13.2.

13.5 No charge

The provisions of this clause 13 shall not, and shall not be construed so as to, constitute a charge or other security interest by a Creditor over all or any part of a sum received or recovered by it in the circumstances mentioned in clause 13.2.

13.6 Further assurance

The Borrowers jointly and severally undertake that the Security Documents shall both at the date of execution and delivery thereof and so long as any moneys are owing under any of the Security Documents be valid and binding obligations of the respective parties thereto and rights of each Creditor enforceable in accordance with their respective terms and that they will, at their expense, execute, sign, perfect and do, and will procure the execution, signing, perfecting and doing by each of the other Security Parties of, any and every such further assurance, document, act or thing as in the reasonable opinion of the Majority Banks may be necessary or desirable for perfecting the security contemplated or constituted by the Security Documents.

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13.7 Conflicts

In the event of any conflict between this Agreement and any of the other Borrowers' Security Documents, the provisions of this Agreement shall prevail.

14 Operating Accounts

14.1 General

The Borrowers jointly and severally undertake with each Creditor that they will:

14.1.1 on or before the Drawdown Date of the first Advance to be drawn down, open each of the Operating Accounts; and

14.1.2 procure that all moneys payable to a Borrower in respect of the Earnings (as defined in the relevant Deed of Covenant) of such Borrower’s Ship shall, unless and until the Agent (acting on the instructions of the Majority Banks) directs to the contrary pursuant to clause 2.1 of each of the Deed of Covenant, be paid to such Borrower’s Operating Account Provided however that if any of the moneys paid to either of the Operating Accounts are payable in a currency other than Dollars, the Account Bank shall (and the Borrowers hereby irrevocably and unconditionally instruct the Account Bank to) convert such moneys into Dollars at the Account Bank’s spot rate of exchange at the relevant time for the purchase of Dollars with such currency and the term “spot rate of exchange” shall include any premium and costs of exchange payable in connection with the purchase of Dollars with such currency.

14.2 Account terms

Amounts standing to the credit of the Operating Accounts shall (unless otherwise agreed between the Account Bank and the Borrowers) bear interest at the rates from time to time offered by the Account Bank to its customers for Dollar deposits in comparable amounts for comparable periods.  Interest shall accrue on the Operating Accounts from day to day and be calculated on the basis of actual days elapsed and a three hundred and sixty (360) day year and shall be credited to the Operating Accounts at such times as the Account Bank and the Borrowers shall agree.

14.3 Withdrawals

Unless the Agent (acting on the instructions of the Majority Banks) otherwise agrees in writing, neither Borrower shall be entitled to withdraw any moneys from its Operating Account at any time from the date of this Agreement and so long as any moneys are owing under the Security Documents save that, unless and until a Default shall occur and the Agent (acting on the instructions of the Majority Banks) shall direct to the contrary, each Borrower may withdraw moneys from its Operating Account:

14.3.1 to pay any amount to the Agent in or towards payments of any instalments of interest or principal or any other amounts then payable pursuant to the Security Documents;

14.3.2 to pay the proper and reasonable operating expenses of its Ship;

14.3.3 to pay the proper and reasonable expenses of administering its affair; and

14.3.4 to make any payments of dividends to the extent permitted by clause 8.3.12.

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14.4 Application of accounts

At any time after the occurrence of an Event of Default, the Agent may (and on the instructions of the Majority Banks shall), without notice to the Borrowers, instruct the Account Bank to apply all moneys then standing to the credit of the Operating Accounts or either of them (together with interest from time to time accruing or accrued thereon) in or towards satisfaction of any sums due to the Creditors or any of them under the Security Documents in the manner specified in clause 13.1.

14.5 Charging of Operating Accounts

The Operating Accounts and all amounts from time to time standing to the credit thereof shall be subject to the security constituted and the rights conferred by the Operating Account Assignments.

15 Assignment, transfer and lending office

15.1 Benefit and burden

This Agreement shall be binding upon, and enure for the benefit of, the Creditors and the Borrowers and their respective successors in title.

15.2 No assignment by Borrowers

Neither Borrower may assign or transfer any of its rights or obligations under this Agreement.

15.3 Transfers by Banks

Subject to the prior written consent of the Borrowers (such consent not to be unreasonably withheld and the request for which to be promptly responded to) and the Agent and any Bank (the “Transferor Bank”) may at any time cause all or any part of its rights, benefits and/or obligations under this Agreement and the Security Documents to be transferred to any other bank or financial institution experienced in shipping finance (a “Transferee Bank”) by delivering to the Agent a Transfer Certificate duly completed and duly executed by the Transferor Bank and the Transferee Bank.  No such transfer is binding on, or effective in relation to, the Borrowers, the Agent or the other Creditors unless (i) it is effected or evidenced by a Transfer Certificate which complies with the provisions of this clause 15.3 and is signed by or on behalf of the Transferor Bank, the Transferee Bank and the Agent (on behalf of itself, the Borrowers and the other Creditors) and (ii) such transfer of rights under the other Security Documents has been effected and registered.  Upon signature of any such Transfer Certificate by the Agent, which signature shall be effected as promptly as is practicable after such Transfer Certificate has been delivered to the Agent, and subject to the terms of such Transfer Certificate, such Transfer Certificate shall have effect as set out below.

The following further provisions shall have effect in relation to any Transfer Certificate:

15.3.1 a Transfer Certificate may be in respect of a Bank’s rights in respect of all, or part of, its Commitment and shall be in respect of the same proportion of its Contribution;

15.3.2 a Transfer Certificate shall only be in respect of rights and obligations of the Transferor Bank in its capacity as a Bank and shall not transfer its rights and obligations as Agent, Security Agent or in any other capacity, as the case may be and such other rights and obligations may only be transferred in accordance with any applicable provisions of this Agreement;

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15.3.3 a Transfer Certificate shall take effect in accordance with English law as follows:

(a) to the extent specified in the Transfer Certificate, the Transferor Bank’s payment rights and all its other rights (other than those referred to in sub-clause 15.3.2 above) under this Agreement are assigned to the Transferee Bank absolutely, free of any defects in the Transferor Bank’s title and of any rights or equities which the Borrowers or either of them had against the Transferor Bank;

(b) the Transferor Bank’s Commitment is discharged to the extent specified in the Transfer Certificate;

(c) the Transferee Bank becomes a Bank with a Contribution and a Commitment of the amounts specified in the Transfer Certificate;

(d) the Transferee Bank becomes bound by all the provisions of this Agreement and the Security Documents which are applicable to the Banks generally, including those about pro-rata sharing and the exclusion of liability on the part of, and the indemnification of, the Agent, the Security Agent, the Swap Provider and the Arranger in accordance with the provisions of clause 16 and to the extent that the Transferee Bank becomes bound by those provisions, the Transferor Bank ceases to be bound by them;

(e) an Advance or part of an Advance which the Transferee Bank makes after the Transfer Certificate comes into effect ranks in point of priority and security in the same way as it would have ranked had it been made by the Transferor Bank, assuming that any defects in the Transferor Bank’s title and any rights or equities of any Security Party against the Transferor Bank had not existed; and

(f) the Transferee Bank becomes entitled to all the rights under this Agreement which are applicable to the Banks generally, including but not limited to those relating to the Majority Banks and those under clauses 3.6, 5 and 12 and to the extent that the Transferee Bank becomes entitled to such rights, the Transferor Bank ceases to be entitled to them;

15.3.4 the rights and equities of the Borrowers or of any other Security Party referred to above include, but are not limited to, any right of set-off and any other kind of cross-claim; and

15.3.5 the Borrowers, the Account Bank, the Security Agent, the Swap Provider and the Banks hereby irrevocably authorise and instruct the Agent to sign any such Transfer Certificate on their behalf and undertake not to withdraw, revoke or qualify such authority or instruction at any time.  Promptly upon its signature of any Transfer Certificate, the Agent shall notify the Borrowers, the Security Agent, the Swap Provider, the Account Bank, the Arranger, the Transferor Bank, the Transferee Bank and the other Banks.

15.4 Reliance on Transfer Certificate

15.4.1 The Agent shall be entitled to rely on any Transfer Certificate believed by it to be genuine and correct and to have been presented or signed by the persons by whom it purports to have been presented or signed, and shall not be liable to any of the parties to this Agreement and the Security Documents for the consequences of such reliance.

15.4.2 The Agent shall at all times during the continuation of this Agreement maintain a register in which it shall record the name, Commitments, Contributions and administrative details (including the lending office) from time to time of the Banks holding a Transfer Certificate and the date at which the transfer referred to in such Transfer Certificate held by each Bank was transferred to such Bank, and the Agent shall make the said register available for inspection by any Bank, the Security Agent, the Swap Provider, the Account Bank or either Borrower during normal banking hours upon receipt by the Agent of reasonable prior notice requesting the Agent to do so.

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15.4.3 The entries on the said register shall, in the absence of manifest error, be conclusive in determining the identities of the Commitments, the Contributions and the Transfer Certificates held by the Banks from time to time and the principal amounts of such Transfer Certificates and may be relied upon by the Agent, the other Creditors and the Security Parties for all purposes in connection with this Agreement and the Security Documents.

15.5 Transfer fees and expenses

If any Bank causes the transfer of all or any part of its rights, benefits and/or obligations under the Security Documents, it shall pay to the Agent and/or the Security Agent on demand all costs, fees and expenses (including, but not limited to, legal fees and expenses), and all value added tax thereon, verified by the Agent or, as the case may be, the Security Agent as having been incurred by it in connection with such transfer.

15.6 Documenting transfers

If any Bank transfers all or any part of its rights, benefits and/or obligations as provided in clause 15.3, the Borrowers jointly and severally undertake with each Creditor, immediately on being requested to do so by the Agent and at the cost of the Transferor Bank, to enter into, and procure that the other Security Parties shall (at the cost of the Transferor Bank) enter into, such documents as may be necessary or desirable to transfer to the Transferee Bank all or the relevant part of such Bank’s interest in the Security Documents and all relevant references in this Agreement to such Bank shall thereafter be construed as a reference to the Transferor Bank and/or its Transferee Bank (as the case may be) to the extent of their respective interests.

15.7 Sub-participation

A Bank may sub-participate to any other bank or financial institution all or any part of its rights and/or obligations under the Security Documents without the consent of, or notice to, the Borrowers but with the prior written consent of the Agent (acting on the instructions of the Majority Banks).

15.8 Lending offices

Each Bank shall lend through its office at the address specified in schedule 1 or, as the case may be, in any relevant Transfer Certificate or through any other office of such Bank selected from time to time by such Bank through which such Bank wishes to lend for the purposes of this Agreement.  If the office through which a Bank is lending is changed pursuant to this clause 15.8, such Bank shall notify the Agent promptly of such change and the Agent shall notify the Borrowers, the Security Agent, the Swap Provider, the Account Bank and the other Banks.

15.9 Disclosure of information

Any Bank may, with the prior written consent of the Agent, disclose to a prospective Transferee Bank or to any other person who may propose entering into contractual relations with such Bank in relation to this Agreement such information about the Borrowers, the other Security Parties or any of them as such Bank shall consider appropriate.

16 Arranger, Agent and Security Agent

16.1 Appointment of the Agent

Each Bank and the Swap Provider irrevocably appoints the Agent as its agent for the purposes of this Agreement and such of the Security Documents to which it may be appropriate for the Agent to be party. By virtue of such appointment, each of the Banks and the Swap Provider hereby authorises the Agent:

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16.1.1 to execute such documents as may be approved by the Majority Banks for execution by the Agent; and

16.1.2 (whether or not by or through employees or agents) to take such action on such Bank’s or, as the case may be, the Swap Provider’s behalf and to exercise such rights, remedies, powers and discretions as are specifically delegated to the Agent by this Agreement and/or any other Security Document, together with such powers and discretions as are reasonably incidental thereto.

16.2 Agent’s actions

Any action taken by the Agent under or in relation to this Agreement or any of the other Security Documents whether with requisite authority, or on the basis of appropriate instructions, received from the Banks (or as otherwise duly authorised) shall be binding on all the Banks, the Swap Provider and the other Creditors.

16.3 Agent’s duties

The Agent shall:

16.3.1 promptly notify each Bank of the contents of each notice, certificate or other document received by it from the Borrowers under or pursuant to clauses 8.1.1, 8.1.5, 8.1.6 and 8.1.7; and

16.3.2 (subject to the other provisions of this clause 16) take (or instruct the Security Agent to take) such action or, as the case may be, refrain from taking (or authorise the Security Agent to refrain from taking) such action with respect to the exercise of any of its rights, remedies, powers and discretions as agent, as the Majority Banks may direct.

16.4 Agent’s rights

The Agent may:

16.4.1 in the exercise of any right, remedy, power or discretion in relation to any matter, or in any context, not expressly provided for by this Agreement or any of the other Security Documents, act or, as the case may be, refrain from acting (or authorise the Security Agent to act or refrain from acting) in accordance with the instructions of the Banks, and shall be fully protected in so doing;

16.4.2 unless and until it shall have received directions from the Majority Banks, take such action or, as the case may be, refrain from taking such action (or authorise the Security Agent to take or refrain from taking such action) in respect of a Default of which the Agent has actual knowledge as it shall deem advisable in the best interests of the Banks and the Swap Provider (but shall not be obliged to do so);

16.4.3 refrain from acting (or authorise the Security Agent to refrain from acting) in accordance with any instructions of the Banks to institute any legal proceedings arising out of or in connection with this Agreement or any of the other Security Documents until it and/or the Security Agent has been indemnified and/or secured to its satisfaction against any and all costs, expenses or liabilities (including legal fees) which it would or might incur as a result;

16.4.4 deem and treat (i) each Bank as the person entitled to the benefit of the Contribution of such Bank for all purposes of this Agreement unless and until a Transfer Certificate shall have been filed with the Agent pursuant to clause 15.3 and shall have become effective, and (ii) the office set opposite the name of each of the Banks in schedule 1 or, as the case may be, in any relevant Transfer Certificate as such Bank’s lending office unless and until a written notice of change of lending office shall have been received by the Agent and the Agent may act upon any such notice unless and until the same is superseded by a further such notice;

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16.4.5 rely as to matters of fact which might reasonably be expected to be within the knowledge of any Security Party upon a certificate signed by any director or officer of the relevant Security Party on behalf of the relevant Security Party; and

16.4.6 do anything which is in its opinion necessary or desirable to comply with any law or regulation in any jurisdiction.

16.5 No liability of Arranger or Agent

Neither the Arranger nor the Agent nor any of their respective employees and agents shall:

16.5.1 be obliged to make any enquiry as to the use of any of the proceeds of either Advance unless (in the case of the Agent) so required in writing by a Bank, in which case the Agent shall promptly make the appropriate request to the Borrowers; or

16.5.2 be obliged to make any enquiry as to any breach or default by either of the Borrowers or any other Security Party in the performance or observance of any of the provisions of this Agreement or any of the other Security Documents or as to the existence of a Default unless the Agent has actual knowledge thereof or has been notified in writing thereof by a Bank, in which case the Agent shall promptly notify the Banks of the relevant event or circumstance; or

16.5.3 be obliged to enquire whether or not any representation or warranty made by either of the Borrowers or any other Security Party pursuant to this Agreement or any of the other Security Documents is true; or

16.5.4 be obliged to do anything (including, without limitation, disclosing any document or information) which would, or might in its opinion, be contrary to any law or regulation or be a breach of any duty of confidentiality or otherwise be actionable or render it liable to any person; or

16.5.5 be obliged to account to any Bank for any sum or the profit element of any sum received by it for its own account; or

16.5.6 be obliged to institute any legal proceedings arising out of or in connection with this Agreement or any of the other Security Documents other than on the instructions of the Majority Banks; or

16.5.7 be liable to any Bank or the Swap Provider for any action taken or omitted under or in connection with this Agreement or any of the other Security Documents unless caused by its gross negligence or wilful misconduct.

For the purposes of this clause 16, neither the Arranger nor the Agent shall be treated as having actual knowledge of any matter of which the corporate finance or any other division outside the agency or loan administration department of the Arranger or the person for the time being acting as the Agent may become aware in the context of corporate finance, advisory or lending activities from time to time undertaken by the Arranger or, as the case may be, the Agent for any Security Party or any other person which may be a trade competitor of any Security Party or may otherwise have commercial interests similar to those of any Security Party.

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16.6 Non-reliance on Arranger or Agent

Each Bank and the Swap Provider acknowledges that it has not relied on any statement, opinion, forecast or other representation made by the Arranger or the Agent to induce it to enter into this Agreement or any of the other Security Documents and that it has made and will continue to make, without reliance on the Arranger or the Agent and based on such documents as it considers appropriate, its own appraisal of the creditworthiness of the Security Parties and its own independent investigation of the financial condition, prospects and affairs of the Security Parties in connection with the making and continuation of such Bank’s Commitment or Contribution under this Agreement. Neither the Arranger nor the Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any other Creditor with any credit or other information with respect to any Security Party whether coming into its possession before the making of either Advance or at any time or times thereafter other than as provided in clause 16.3.1.

16.7 No responsibility on Arranger or Agent for Borrowers’ performance

Neither the Arranger nor the Agent shall have any responsibility or liability to any other Creditor:

16.7.1 on account of the failure of any Security Party to perform its obligations under any of the Security Documents; or

16.7.2 for the financial condition of any Security Party; or

16.7.3 for the completeness or accuracy of any statements, representations or warranties in any of the Security Documents or any document delivered under any of the Security Documents; or

16.7.4 for the execution, effectiveness, adequacy, genuineness, validity, enforceability or admissibility in evidence of any of the Security Documents or of any certificate, report or other document executed or delivered under any of the Security Documents; or

16.7.5 to investigate or make any enquiry into the title of either of the Borrowers or any other Security Party to the Ships or any other security or any part thereof; or

16.7.6 for the failure to register any of the Security Documents with any official or regulatory body or office or elsewhere; or

16.7.7 for taking or omitting to take any other action under or in relation to any of the Security Documents or any aspect of any of the Security Documents; or

16.7.8 on account of the failure of the Security Agent to perform or discharge any of its duties or obligations under the Security Documents; or

16.7.9 otherwise in connection with this Agreement or its negotiation or for acting (or, as the case may be, refraining from acting) in accordance with the instructions of the Banks.

16.8 Reliance on documents and professional advice

The Arranger and the Agent shall be entitled to rely on any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person and shall be entitled to rely as to legal or other professional matters on opinions and statements of any legal or other professional advisers selected or approved by it (including those in the Arranger’s or, as the case may be, the Agent’s employment).

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16.9 Other dealings

The Arranger and the Agent may, without any liability to account to any other Creditor, accept deposits from, lend money to, and generally engage in any kind of banking or other business with, and provide advisory or other services to, any Security Party or any of its Related Companies or any of the other Creditors as if it was not the Arranger or, as the case may be, the Agent.

16.10 Rights of Agent as Bank; no partnership

With respect to its own Commitment and Contribution (if any) the Agent shall have the same rights and powers under the Security Documents as any other Bank and may exercise the same as though it were not performing the duties and functions delegated to it under this Agreement and the term “Banks” shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Bank. This Agreement shall not and shall not be construed so as to constitute a partnership between the parties or any of them.

16.11 Amendments and waivers

16.11.1 Subject to clause 16.11.2, the Agent may, with the written consent of the Majority Banks (or if and to the extent expressly authorised by the other provisions of any of the Security Documents) and, if so instructed by the Majority Banks, shall:

(a) agree (or authorise the Security Agent to agree) amendments or modifications to any of the Security Documents with any Security Party; and/or

(b) waive breaches of, or defaults under, or otherwise excuse performance of, any provision of any of the other Security Documents by any Security Party (or authorise the Security Agent to do so).

Any such action so authorised and effected by the Agent shall be documented in such manner as the Agent shall (with the approval of the Majority Banks) determine, shall be promptly notified to the Banks by the Agent and (without prejudice to the generality of clause 16.2) shall be binding on all the Creditors.

16.11.2 Except with the prior written consent of all the Banks, the Agent shall have no authority on behalf of the Banks to agree (or authorise the Security Agent to agree) with any Security Party any amendment or modification to any of the Security Documents or to grant (or authorise the Security Agent to grant) waivers in respect of breaches or defaults or to vary or excuse (or authorise the Security Agent to vary or excuse) performance of or under any of the Security Documents by any Security Party, if the effect of such amendment, modification, waiver or excuse would be to:

(a) reduce the Margin;

(b) postpone the due date or reduce the amount of any payment of principal, interest or other amount payable by any Security Party under any of the Security Documents;

(c) change the currency in which any amount is payable by any Security Party under any of the Security Documents;

(d) increase any Bank’s Commitment;

(e) extend the Termination Date;

(f) change any provision of any of the Security Documents which expressly or implied requires the approval or consent of all the Banks such that the relevant approval or consent may be given otherwise than with the sanction of all the Banks;

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(g) change the order of distribution under clause 6.9 or clause 13.1;

(h) change this clause 16.11;

(i) change the definition of “Majority Banks” in clause 1.2; or

(j) release any Security Party from the security constituted by any Security Document (except as required by the terms thereof or by law) or change the terms and conditions upon which such security or guarantee may be, or is required to be, released.

16.12 Reimbursement and indemnity by Banks

Each Bank shall reimburse the Agent (rateably in accordance with such Bank’s Commitment or, following the first drawdown, Contribution), to the extent that the Agent is not reimbursed by the Borrowers, for the costs, charges and expenses incurred by the Agent which are expressed to be payable by the Borrowers under clause 5.2 including (in each case) the fees and expenses of legal or other professional advisers. Each Bank shall on demand indemnify the Agent (rateably in accordance with such Bank’s Commitment or, following the first drawdown, Contribution) against all liabilities, damages, costs and claims whatsoever incurred by the Agent in connection with any of the Security Documents or the performance of its duties under any of the Security Documents or any action taken or omitted by the Agent under any of the Security Documents, unless such liabilities, damages, costs or claims arise from the Agent’s own gross negligence or wilful misconduct.

16.13 Retirement of Agent

16.13.1 The Agent may, (having given to the Borrowers, each of the Banks and the Swap Provider not less than thirty (30) days’ notice of its intention to do so), retire from its appointment as Agent under this Agreement, provided that no such retirement shall take effect unless there has been appointed by the Banks and the Swap Provider as a successor agent:

(a) a Bank nominated within a period of twenty eight (28) days by the Majority Banks or, failing such a nomination,

(b) any reputable bank or financial institution experienced in shipping finance nominated by the retiring Agent.

Any corporation into which the retiring Agent may be merged or converted or any corporation with which the Agent may be consolidated or any corporation resulting from any merger, conversion, amalgamation, consolidation or other reorganisation to which the Agent shall be a party shall, to the extent permitted by applicable law, be the successor Agent under this Agreement and the other Security Documents without the execution or filing of any document or any further act on the part of any of the parties to this Agreement and the other Security Documents save that notice of any such merger, conversion, amalgamation, consolidation or other reorganisation shall forthwith be given to each Security Party, the Banks and the Swap Provider.  Prior to any such successor being appointed, the Agent agrees to consult with the Borrowers as to the identity of the proposed successor and to take account of any reasonable objections which the Borrowers may raise to such successor being appointed.

16.13.2 Upon any such successor as aforesaid being appointed, the retiring Agent shall be discharged from any further obligation under the Security Documents (but shall continue to have the benefit of this clause 16 in respect of any action it has taken or refrained from taking prior to such discharge) and its successor and each of the other parties to this Agreement shall have the same rights and obligations among themselves as they would have had if such successor had been a party to this Agreement in place of the retiring Agent. The retiring Agent shall (at the expense of the Borrowers) provide its successor with copies of such of its records as its successor reasonably requires to carry out its functions under the Security Documents.

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16.14 Appointment and retirement of Security Agent

16.14.1 Appointment

Each of the Agent, the Swap Provider and the Banks irrevocably appoints the Security Agent as its security agent and trustee for the purposes of this Agreement and the other Security Documents on the terms set out in this Agreement. By virtue of such appointment, the Agent, the Swap Provider and each of the Banks hereby authorises the Security Agent (whether or not by or through employees or agents) to take such action on its behalf and to exercise such rights, remedies, powers and discretions as are specifically delegated to the Security Agent by this Agreement and/or any of the other Security Documents together with such powers and discretions as are reasonably incidental thereto.

16.14.2 Retirement

(a) Without prejudice to clause 16.13, the Security Agent may, having given to the Borrowers and each of the Banks and the Swap Provider not less than fifteen (15) days’ notice of its intention to do so, retire from its appointment as Security Agent under this Agreement and any Trust Deed, provided that no such retirement shall take effect unless there has been appointed by the Banks, the Agent and the Swap Provider as a successor security agent and trustee:

(i) a Related Company of the Security Agent nominated by the Security Agent which the Banks hereby irrevocably and unconditionally agree to appoint or, failing such nomination,

(ii) a bank or trust corporation nominated by the Majority Banks or, failing such a nomination,

(iii)      any bank or trust corporation nominated by the retiring Security Agent,

and, in any case (A) such successor security agent and trustee shall have duly accepted such appointment by delivering to the Agent (1) written confirmation (in a form acceptable to the Agent) of such acceptance agreeing to be bound by this Agreement in the capacity of Security Agent as if it had been an original party to this Agreement and (2) a duly executed Trust Deed and (B) such successor security agent and trustee shall have duly entered into, whether with the retiring Security Agent and/or with the Borrowers and/or with the Creditors or with any of them, such documents in connection with the Security Documents as the Agent shall require in its absolute discretion.

(b) Any corporation into which the retiring Security Agent may be merged or converted or any corporation with which the Security Agent may be consolidated or any corporation resulting from any merger, conversion, amalgamation, consolidation or other reorganisation to which the Security Agent shall be a party shall, to the extent permitted by applicable law, be the successor Security Agent under this Agreement, any Trust Deed and the other Security Documents without the execution or filing of any document or any further act on the part of any of the parties to this Agreement, any Trust Deed and the other Security Documents save that notice of any such merger, conversion, amalgamation, consolidation or other reorganisation shall forthwith be given to each Security Party, the Banks, the Agent and the Swap Provider.  Prior to any such successor being appointed, the Security Agent agrees to consult with the Borrowers as to the identity of the proposed successor and to take account of any reasonable objections which the Borrowers may raise to such successor being appointed.

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(c) Upon any such successor as aforesaid being appointed, the retiring Security Agent shall be discharged from any further obligation under the Security Documents (but shall continue to have the benefit of this clause 16 in respect of any action it has taken or refrained from taking prior to such discharge) and its successor and each of the other parties to this Agreement shall have the same rights and obligations among themselves as they would have had if such successor had been a party to this Agreement in place of the retiring Security Agent. The retiring Security Agent shall (at the expense of the Borrowers) provide its successor with copies of such of its records as its successor reasonably requires to carry out its functions under the Security Documents.

16.15 Powers and duties of the Security Agent

16.15.1 The Security Agent shall have no duties, obligations or liabilities to the Agent, the Swap Provider or any of the Banks beyond those expressly stated in any of the Security Documents. The Agent, the Swap Provider and each of the Banks hereby authorises the Security Agent to enter into and execute:

(a) each of the Security Documents to which the Security Agent is or is intended to be a party; and

(b) any and all such other Security Documents as may be approved by the Agent in writing (acting on the instructions of the Majority Banks) for entry into by the Security Agent,

and, in each and every case, to hold any and all security thereby created upon trust for the Banks, the Agent and the Swap Provider in the manner contemplated by this Agreement.

16.15.2 Subject to clause 16.15.3 the Security Agent may, with the prior consent of the Majority Banks communicated in writing by the Agent, concur with any of the Security Parties to:

(a) amend, modify or otherwise vary any provision of the Security Documents to which the Security Agent is or is intended to be a party; or

(b) waive breaches of, or defaults under, or otherwise excuse performance of, any provision of the Security Documents to which the Security Agent is or is intended to be a party.

Any such action so authorised and effected by the Security Agent shall be promptly notified to the Banks, the Agent and the Swap Provider by the Security Agent and shall be binding on all the Creditors.

16.15.3 The Security Agent shall not concur with any Security Party with respect to any of the matters described in clause 16.11.2 without the consent of all the Banks communicated in writing by the Agent.

16.15.4 The Security Agent shall (subject to the other provisions of this clause 16) take such action or, as the case may be, refrain from taking such action, with respect to any of its rights, powers and discretions as security agent and trustee, as the Agent may direct.  Subject as provided in the foregoing provisions of this clause, unless and until the Security Agent shall have received such instructions from the Agent, the Security Agent may, but shall not be obliged to, take (or refrain from taking) such action under or pursuant to the Security Documents referred to in clause 16.15.1 as the Security Agent shall deem advisable in the best interests of the Creditors provided that (for the avoidance of doubt), to the extent that this clause might otherwise be construed as authorising the Security Agent to take, or refrain from taking, any action of the nature referred to in clause 16.15.2-and for which the prior consent of the Banks is expressly required under clause 16.15.3 - clauses 16.15.2 and 16.15.3 shall apply to the exclusion of this clause.

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16.15.5 None of the Banks nor the Swap Provider nor the Agent shall have any independent power to enforce any of the Security Documents referred to in clause 16.15.1 or to exercise any rights, discretions or powers or to grant any consents or releases under or pursuant to such Security Documents or otherwise have direct recourse to the security and/or guarantees constituted by such Security Documents except through the Security Agent.

16.15.6 For the purpose of this clause 16, the Security Agent may, rely and act in reliance upon any information from time to time furnished to the Security Agent by the Agent (whether pursuant to clause 16.15.7 or otherwise) unless and until the same is superseded by further such information, so that the Security Agent shall have no liability or responsibility to any party as a consequence of placing reliance on and acting in reliance upon any such information unless the Security Agent has actual knowledge that such information is inaccurate or incorrect.

16.15.7 Without prejudice to the foregoing, each of the Agent, the Swap Provider and the Banks (whether directly or through the Agent) shall provide the Security Agent with such written information as it may reasonably require for the purpose of carrying out its duties and obligations under the Security Documents referred to in clause 16.15.1.

16.15.8 Each Bank shall reimburse the Security Agent (rateably in accordance with such Bank’s Commitment or, following the first drawdown, Contribution), to the extent that the Security Agent is not reimbursed by the Borrowers, for the costs, charges and expenses incurred by the Agent which are expressed to be payable by the Borrowers under clause 5.2 including (in each case) the fees and expenses of legal or other professional advisers. Each Bank shall on demand indemnify the Security Agent (rateably in accordance with such Bank’s Commitment or, following the first drawdown, Contribution) against all liabilities, damages, costs and claims whatsoever incurred by the Security Agent in connection with any of the Security Documents or the performance of its duties under any of the Security Documents or any action taken or omitted by the Security Agent under any of the Security Documents, unless such liabilities, damages, costs or claims arise from the Security Agent’s own gross negligence or wilful misconduct.

16.16 Trust provisions

16.16.1 The trusts constituted or evidenced in or by this Agreement and the Trust Deed shall remain in full force and effect until whichever is the earlier of:

(a) the expiration of a period of eighty (80) years from the date of this Agreement; and

(b) receipt by the Security Agent of confirmation in writing by the Agent that there is no longer outstanding any Indebtedness (actual or contingent) which is secured or guaranteed or otherwise assured by or under any of the Security Documents,

and the parties to this Agreement declare that the perpetuity period applicable to this Agreement and the trusts declared by the Trust Deed shall for the purposes of the Perpetuities and Accumulations Act 1964 be the period of eighty (80) years from the date of this Agreement.

16.16.2 In its capacity as trustee in relation to the Security Documents specified in clause 16.15.1 the Security Agent shall, without prejudice to any of the powers, discretions and immunities conferred upon trustees by law (and to the extent not inconsistent with the provisions of any of those Security Documents), have all the same powers and discretions as a natural person acting as the beneficial owner of such property and/or as are conferred upon the Security Agent by any of those Security Documents.

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16.16.3 It is expressly declared that, in its capacity as trustee in relation to the Security Documents specified in clause 16.15.1, the Security Agent shall be entitled to invest moneys forming part of the security and which, in the opinion of the Security Agent, may not be paid out promptly following receipt in the name or under the control of the Security Agent in any of the investments for the time being authorised by law for the investment by trustees of trust moneys or in any other property or investments whether similar to the aforesaid or not or by placing the same on deposit in the name or under the control of the Security Agent as the Security Agent may think fit without being under any duty to diversify its investments and the Security Agent may at any time vary or transpose any such property or investments for or into any others of a like nature and shall not be responsible for any loss due to depreciation in value or otherwise of such property or investments. Any investment of any part of all of the security may, at the discretion of the Security Agent, be made or retained in the names of nominees.

16.17 Independent action by Creditors

None of the Creditors shall enforce, exercise any rights, remedies or powers or grant any consents or releases under or pursuant to, or otherwise have a direct recourse to the security and/or guarantees constituted by any of the Security Documents without the prior written consent of the Majority Banks but, Provided such consent has been obtained, it shall not be necessary for any other Creditor to be joined as an additional party in any proceedings for this purpose.

16.18 Common Agent and Security Agent

The Agent and the Security Agent have entered into the Security Documents in their separate capacities (a) as agent for the Banks and the Swap Provider under and pursuant to this Agreement (in the case of the Agent) and (b) as security agent and trustee for the Agent, the Banks and the Swap Provider, under and pursuant to this Agreement, to hold the guarantees and/or security created by the other Security Documents specified in clause 16.15.1 on the terms set out in such Security Documents (in the case of the Security Agent). However, from time to time the Agent and the Security Agent may be the same entity. When the Agent and the Security Agent are the same entity and any Security Document provides for the Agent to communicate with or provide instructions to the Security Agent (and vice versa), it will not be necessary for there to be any such formal communications or instructions on those occasions.

16.19 Co-operation to achieve agreed priorities of application

The Banks, the Agent and the Swap Provider shall co-operate with each other and with the Security Agent and any receiver under the Security Documents in realising the property and assets subject to the Security Documents and in ensuring that the net proceeds realised under the Security Documents after deduction of the expenses of realisation are applied in accordance with clause 13.1.

16.20 Prompt distribution of proceeds

Moneys received by any of the Creditors (whether from a receiver or otherwise) pursuant to the exercise of (or otherwise by virtue of the existence of) any rights and powers under or pursuant to any of the Security Documents shall (after providing for all costs, charges, expenses and liabilities and other payments ranking in priority) be paid to the Agent for distribution (in the case of moneys so received by any of the Creditors other than the Agent or the Security Agent) and shall be distributed by the Agent or, as the case may be, the Security Agent (in the case of moneys so received by the Agent or, as the case may be, the Security Agent) in each case in accordance with clause 13.1.  The Agent or, as the case may be, the Security Agent shall make each such application and/or distribution as soon as is practicable after the relevant moneys are received by, or otherwise become available to, the Agent or, as the case may be, the Security Agent save that (without prejudice to any other provision contained in any of the Security Documents) the Agent or, as the case may be, the Security Agent (acting on the instructions of the Majority Banks) or any receiver may credit any moneys received by it to a suspense account

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for so long and in such manner as the Agent or such receiver may from time to time determine with a view to preserving the rights of the Agent and/or the Security Agent and/or the Account Bank and/or the Swap Provider and/or the Arranger and/or the Banks or any of them to provide for the whole of their respective claims against the Borrowers or any other person liable.

17 Notices and other matters

17.1 Notices

Every notice, request, demand or other communication under this Agreement or (unless otherwise provided therein) under any of the other Security Documents shall:

17.1.1 be in writing delivered personally or by first-class prepaid letter (airmail if available) or facsimile transmission or other means of telecommunication in permanent written form;

17.1.2 be deemed to have been received, subject as otherwise provided in the relevant Security Document, in the case of a letter, when delivered personally or three (3) days after it has been put in to the post and, in the case of a facsimile transmission or other means of telecommunication in permanent written form, at the time of despatch (provided that if the date of despatch is not a business day in the country of the addressee or if the time of despatch is after the close of business in the country of the addressee it shall be deemed to have been received at the opening of business on the next such business day); and

17.1.3 be sent:

(a) if to the Borrowers or either of them at:

 c/o DryShips Inc.

 Omega Building

 80 Kifissias Avenue

 151 25 Maroussi

 Greece

 Fax no:        +30 210 8090 275

 Attention:     Mr Aristidis Ioannidis

(b) if to the Arranger, the Agent, the Security Agent or the Account Bank at:

 DnB NOR Bank ASA

 20 St. Dunstan’s Hill

 London EC3R 8HY

 England

 Fax No:        +44 207 626 5956

 Attention:      Shipping Department

(c) in the case of a Bank, to its address or facsimile number specified in schedule 1 or in any relevant Transfer Certificate; or

(d) in the case of the Swap Provider, to its address or fax number specified in paragraph (a) of Part 4 of the Schedule to the Master Swap Agreement,

or to such other address and/or numbers as is notified by one party to the other parties under this Agreement.

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17.2 Notices through the Agent

Every notice, request, demand or other communication under this Agreement to be given by the Borrowers to any other party (other than the Swap Provider) shall be given to the Agent for onward transmission as appropriate and if such notice, request, demand or other communication is to be given to the Borrowers it shall (except if otherwise provided in the Security Documents) be given through the Agent.

17.3 No implied waivers, remedies cumulative

No failure or delay on the part of any Creditor to exercise any power, right or remedy under any of the Security Documents shall operate as a waiver thereof, nor shall any single or partial exercise by any Creditor of any power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy.  The remedies provided in the Security Documents are cumulative and are not exclusive of any remedies provided by law.

17.4 English language

All certificates, instruments and other documents to be delivered under or supplied in connection with any of the Security Documents shall be in the English language or shall be accompanied by a certified English translation upon which the Creditors or any of them shall be entitled to rely.

17.5 Borrowers' obligations

17.5.1 Joint and several

Notwithstanding anything to the contrary contained in any of the Security Documents, the agreements, obligations and liabilities of the Borrowers herein contained are joint and several and shall be construed accordingly.  Each of the Borrowers agrees and consents to be bound by the Security Documents to which it is, or is to be, a party notwithstanding that the other Borrower which is intended to sign or to be bound may not do so or be effectually bound and notwithstanding that any of the Security Documents may be invalid or unenforceable against the other Borrower, whether or not the deficiency is known to any of the Creditors.

17.5.2 Borrowers as principal debtors

Each Borrower acknowledges and confirms that it is a principal and original debtor in respect of all amounts which may become payable by the Borrowers in accordance with the terms of this Agreement or any of the other Security Documents and agrees that the Creditors may also continue to treat it as such, whether or not any Creditor is or becomes aware that such Borrower is or has become a surety for the other Borrower.

17.5.3 Indemnity

The Borrowers hereby agree jointly and severally to keep the Creditors fully indemnified on demand against all damages, losses, costs and expenses arising from any failure of either Borrower to perform or discharge any purported obligation or liability of a Borrower which would have been the subject of this Agreement or any other Security Document had it been valid and enforceable and which is not or ceases to be valid and enforceable against a Borrower on any ground whatsoever, whether or not known to a Creditor (including, without limitation, any irregular exercise or absence of any corporate power or lack of authority of, or breach of duty by, any person purporting to act on behalf of a Borrower (or any legal or other limitation, whether under the Limitation Acts or otherwise or any disability or death, bankruptcy, unsoundness of mind, insolvency, liquidation, dissolution, winding up, administration, receivership, amalgamation, reconstruction or any other incapacity of any person whatsoever (including, in the case of a partnership, a termination or change in the composition of the partnership) or any change of name or style or constitution of any Security Party)).

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17.5.4 Liability unconditional

None of the obligations or liabilities of the Borrowers under this Agreement or any other Security Document shall be discharged or reduced by reason of:

(a) the death, bankruptcy, unsoundness of mind, insolvency, liquidation, dissolution, winding-up, administration, receivership, amalgamation, reconstruction or other incapacity of any person whatsoever (including, in the case of a partnership, a termination or change in the composition of the partnership) or any change of name or style or constitution of a Borrower or any other person liable;

(b) the Agent (acting on the instructions of the Majority Banks) or the Security Agent granting any time, indulgence or concession to, or compounding with, discharging, releasing or varying the liability of, a Borrower or any other person liable or renewing, determining, varying or increasing any accommodation, facility or transaction or otherwise dealing with the same in any manner whatsoever or concurring in, accepting, varying any compromise, arrangement or settlement or omitting to claim or enforce payment from a Borrower or any other person liable; or

(c) anything done or omitted which but for this provision might operate to exonerate the Borrowers or either of them.

17.5.5 Recourse to other security

The Creditors shall not be obliged to make any claim or demand or to resort to any Security Document or other means of payment now or hereafter held by or available to it for enforcing this Agreement or any of the Security Documents against a Borrower or any other person liable and no action taken or omitted by any Creditor in connection with any such Security Document or other means of payment will discharge, reduce, prejudice or affect the liability of the Borrowers under this Agreement and the Security Documents to which either of them is, or is to be, a party.

17.5.6 Waiver of Borrowers' rights

Each Borrower agrees with each Creditor that, from the date of this Agreement and so long as any moneys are owing under any of the Security Documents and while all or any part of the Total Commitment remains outstanding, it will not, without the prior written consent of the Agent (acting on the instructions of the Majority Banks):

(a) exercise any right of subrogation, reimbursement and indemnity against the other Borrower or any other person liable under the Security Documents;

(b) demand or accept repayment in whole or in part of any Indebtedness now or hereafter due to such Borrower from the other Borrower or from any other person liable or demand or accept any guarantee, indemnity or other assurance against financial loss or any document or instrument created or evidencing an Encumbrance in respect of the same or dispose of the same;

(c) take any steps to enforce any right against any other Borrower or any other person liable in respect of any such moneys; or

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(d) claim any set-off or counterclaim against the other Borrower or any other person liable or claiming or proving in competition with any Creditor in the liquidation of any other Borrower or any other person liable or have the benefit of, or share in, any payment from or composition with, the other Borrower or any other person liable or any other Security Document now or hereafter held by any Creditor for any moneys owing under this Agreement or for the obligations or liabilities of any other person liable but so that, if so directed by the Agent, it will prove for the whole or any part of its claim in the liquidation of any other Borrower or other person liable on terms that the benefit of such proof and all money received by it in respect thereof shall be held on trust for the Banks and applied in or towards discharge of any moneys owing under this Agreement in such manner as the Agent (acting on the instructions of the Majority Banks) shall deem appropriate.

18 Governing law and jurisdiction

18.1 Law

This Agreement is governed by, and shall be construed in accordance with, English law.

18.2 Submission to jurisdiction

The Borrowers jointly and severally agree, for the benefit of each Creditor, that any legal action or proceedings arising out of or in connection with this Agreement against the Borrowers or either of them or any of their assets may be brought in the English courts.  Each of the Borrowers irrevocably and unconditionally submits to the jurisdiction of such courts and irrevocably designates, appoints and empowers Ince & Co at present of International House, 1 St. Katharine’s Way, London E1W 1AY, England to receive for it and on its behalf, service of process issued out of the English courts in any such legal action or proceedings.  The submission to such jurisdiction shall not (and shall not be construed so as to) limit the right of any Creditor to take proceedings against either of the Borrowers in the courts of any other competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.

The parties further agree that only the courts of England and not those of any other State shall have jurisdiction to determine any claim which either of the Borrowers may have against any Creditor arising out of or in connection with this Agreement.

18.3 Contracts (Rights of Third Parties) Act 1999

No term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement.

IN WITNESS whereof the parties to this Agreement have caused this Agreement to be duly executed on the date first above written.

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Schedule 1

The Banks and their Commitments

Name	Lending Office	Address for Notices	Commitment ($)
DnB NOR Bank ASA	20 St. Dunstan’s Hill London EC3R 8HY England	20 St. Dunstan’s Hill London EC3R 8HY England Fax no:  +44 207 626 5956 Att:          Shipping Department	101,150,000
TOTAL COMMITMENT			101,150,000

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Schedule 2

Form of Drawdown Notice

(referred to in clause 2.4)

To:        DnB NOR Bank ASA

20 St Dunstan’s Hill

London EC3R 8HY

England

(as Agent)

 [·] 200[·]

U.S.$101,150,000 Loan

Loan Agreement dated [·] 2007 (the “Loan Agreement”)

We refer to the above Loan Agreement and hereby give you notice that we wish to draw down the [Saldanha] [Avoca] Advance, namely $· on [                      ] 200[·] and select the first interest period in respect thereof to expire on [·].  The funds should be credited to [name and number of account] with [details of bank in New York City].

We confirm that:

(a) no event or circumstance has occurred and is continuing which constitutes a Default;

(b) the representations and warranties contained in (i) clauses 7.1, 7.2 and 7.3(b) of the Loan Agreement and (ii) clause 4 of the Corporate Guarantee, are true and correct at the date hereof as if made with respect to the facts and circumstances existing at such date;

(c) the borrowing to be effected by the drawdown of the [Saldanha] [Avoca] Advance will be within our corporate powers, has been validly authorised by appropriate corporate action and will not cause any limit on our borrowings (whether imposed by statute, regulation, agreement or otherwise) to be exceeded;

(d) there has been no material adverse change in our business, management, assets, operations, results of operations, properties, performances, prospects or the condition (financial or otherwise) from that existing on the date of the Loan Agreement as described by us or any other Security Party to the Agent and/or the Arranger in the negotiation of the Loan Agreement; and

(e) we will use the proceeds of the [Saldanha] [Avoca] Advance for our benefit and under our full responsibility and exclusively for the purpose specified in the Loan Agreement.

Words and expressions defined in the Loan Agreement shall have the same meanings where used.

…………………………………..

For and on behalf of

TEAM-UP OWNING COMPANY LIMITED

.................................................

For and on behalf of

ORPHEUS OWNING COMPANY LIMITED

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Schedule 3

Documents and evidence required as conditions precedent to the Loan being made

(referred to in clause 9.1)

Part 1

1 Constitutional documents

copies, certified by the legal adviser of each Security Party as true, complete and up to date copies of all documents which contain or establish or relate to the constitution of that Security Party;

2 Corporate authorisations

copies of resolutions of the directors and (except for the Corporate Guarantor) the shareholders of each Security Party approving such of the Underlying Documents and the Security Documents to which such Security Party is, or is to be, party and authorising the signature, delivery and performance of such Security Party's obligations thereunder, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) by an officer of such Security Party as:

(a) being true and correct;

(b) being duly passed at meetings of the directors of such Security Party and of the shareholders of such Security Party each duly convened and held;

(c) not having been amended, modified or revoked; and

(d) being in full force and effect,

together with originals or certified copies of any powers of attorney issued by any such Security Party pursuant to such resolutions;

3 Specimen signatures

copies of the signatures of the persons who have been authorised on behalf of each Security Party to sign such of the Underlying Documents and the Security Documents to which such Security Party is, or is to be, party and to give notices and communications, including notices of drawing, under or in connection with the Security Documents, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) by an officer of such Security Party as being the true signatures of such persons;

4 Certificates of incumbency

a list of directors and officers of each Security Party specifying the names and positions of such persons, certified (in a certificate dated no earlier than five (5) Banking Days prior to the date of this Agreement) by the legal adviser of such Security Party to be true, complete and up to date;

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5 Borrowers’ consents and approvals

a certificate (dated no earlier than five (5) Banking Days prior to the date of this Agreement) from an officer of each of the Borrowers that no consents, authorisations, licences or approvals are necessary for that Borrower to authorise or are required by that Borrower in connection with the borrowing by that Borrower of the Loan pursuant to this Agreement or the execution, delivery and performance of that Borrower's Security Documents;

6 Other consents and approvals

a certificate (dated no earlier than five (5) Banking Days prior to the date of this Agreement) from an officer of each Security Party (other than the Borrowers) that no consents, authorisations, licences or approvals are necessary for such Security Party to guarantee and/or grant security for the borrowing by the Borrowers of the Total Commitment pursuant to this Agreement and execute, deliver and perform the Security Documents insofar as such Security Party is a party thereto;

7 Due diligence

evidence that all information required in relation to any Security Party in order for the Agent and each Bank to complete its due diligence formalities in connection with this Agreement and the other Security Documents has been provided and is satisfactory in all respects to the Agent;

8 Money laundering

such documentation and other evidence as is reasonably requested by the Agent in order for each Creditor to carry out and be satisfied with the results of all necessary "know your client" or other checks which it is required to carry out in relation to the transactions contemplated by this Agreement and the other Security Documents and to the identity of any parties to the Security Documents (other than the Creditors) and their directors and officers;

9 Certified Underlying Documents

a copy, certified (in a certificate dated no earlier than (5) five Banking Days prior to the date of this Agreement) as a true and complete copy by the legal adviser of each of the Borrowers of each of the Management Agreements and the Contracts;

10 Marshall Islands opinion

an opinion of Poles, Tublin, Stratakis, Gonzalez & Weichert, LLP, special legal advisers on matters of Marshall Islands law to the Agent;

11 Liberian opinion

an opinion of Poles, Tublin, Stratakis, Gonzalez & Weichert, LLP, special legal advisers on matters of Liberian law to the Agent;

12 Further opinions

any such further opinion as may be required by the Agent;

13 Operating Accounts

evidence that the Operating Accounts have been opened together with mandate forms in respect thereof and each of them has a credit balance of at least $10;

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14 Security Documents

the Fee Letter, the Master Swap Agreement, the Corporate Guarantee, the Operating Account Assignments and the Swap Assignment, each duly executed;

15 Fees

evidence that any fees and commission due under clause 5.1 have been paid in full;

16 Borrowers' process agent

a letter from each Borrower's agent for receipt of service of proceedings referred to in clause 18.2 accepting its appointment under the said clause and under each of the other Security Documents in which it is or is to be appointed as such Borrower's agent; and

17 Security Parties’ process agent

a letter from each Security Party’s agent for receipt of service of proceedings accepting its appointment under each of the Security Documents in which it is or is to be appointed as such Security Party’s agent.

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Part 2

1 Ship conditions

Evidence that the Ship (the “Relevant Ship”) to which the Advance to be drawn down relates (the “Relevant Advance”):

1.1 Registration and Encumbrances

is permanently registered in the name of the relevant Borrower under the laws and flag of the relevant Flag State through the relevant Registry and that the Relevant Ship and its Earnings, Insurances and Requisition Compensation (each as defined in the relevant Ship Security Documents) are free of Encumbrances;

1.2 Classification

maintains the relevant Classification free of all requirements and recommendations of the relevant Classification Society; and

1.3 Insurance

is insured in accordance with the provisions of the relevant Ship Security Documents and all requirements of such Ship Security Documents in respect of such insurance have been complied with (including without limitation, confirmation from the protection and indemnity association or other insurer with which the Relevant Ship is, or is to be, entered for insurance or insured against protection and indemnity risks (including oil pollution risks) that any necessary declarations required by the association or insurer for the removal of any oil pollution exclusion have been made and that any such exclusion does not apply to the Relevant Ship);

2 Ship Security Documents

the Ship Security Documents for the Relevant Ship, together with the other documents to be delivered to the Security Agent pursuant thereto, duly executed;

3 Title and deletion

evidence that the transfer of title to the Relevant Shipfrom the relevant Seller to the relevant Borrower has been duly recorded at the relevant Registry free of Encumbrances and that the prior registration of such Ship (if any) in the name of the relevant Seller has been or within a period of seven (7) days following the Delivery Date of such Ship, will be cancelled and that no Encumbrances are registered against such Ship prior register;

4 Mortgage registration

evidence that the relevant Mortgage has been permanently registered against the Relevant Ship under the laws and flag of the relevant Flag State through the relevant Registry;

5 Registration forms

such statutory forms duly signed by the Borrowers and the other Security Parties as may be required by the Agent to perfect the security contemplated by the Security Documents;

6 Notices of assignment and acknowledgements

copies of duly executed notices of assignment and acknowledgements thereof in the forms prescribed by the relevant Ship Security Documents in respect of the Relevant Ship;

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7 Marshall Islands opinion

an opinion of Poles, Tublin, Stratakis, Gonzalez & Weichert, LLP, special legal advisers on matters of Marshall Islands law to the Agent;

8 Liberian opinion

an opinion of Poles, Tublin, Stratakis, Gonzalez & Weichert, LLP, special legal advisers on matters of Liberian law to the Agent;

9 Maltese opinion

an opinion of Ganado & Associates, special legal advisers on matters of Maltese law to the Agent;

10 Further opinions

any such further opinion as may be required by the Agent;

11 Insurance opinion

an opinion from insurance consultants to the Agent on the insurances effected or to be effected in respect of the Relevant Ship upon and following the relevant Drawdown Date of the Relevant Advance in form and substance satisfactory to the Agent;

12 Bill of sale and delivery documents

a copy, certified as a true and complete copy by an officer or a legal advisor of the Borrowers, of a duly executed and notarised/legalised bill of sale in respect of the Relevant Ship evidencing the full Contract Price for the Relevant Ship and the other delivery documents duly executed and exchanged pursuant to the relevant Contract;

13 Readiness and payment of Contract Price

evidence that the Relevant Ship is in all respects ready for delivery pursuant to the relevant Contract and that the relevant Contract Price for the Relevant Ship has been paid in full;

14 ISPS Code compliance

14.1 evidence satisfactory to the Agent that the Relevant Ship is subject to a ship security plan which complies with the ISPS Code; and

14.2 a copy certified (in a certificate dated no later than seven (7) Banking Days after the Delivery Date of the Relevant Ship) as a true and complete copy by an officer or a legal advisorof the Borrowers of the ISSC for the Relevant Ship and the continuous synopsis record required by the ISPS Code in respect of the Relevant Ship;

15 SMC/DOC

a copy, certified (in a certificate dated no later than seven (7) Banking Days after the Delivery Date of the Relevant Ship) as a true and complete copy by an officer of the Borrowers of the DOC issued to the Operator of the Relevant Ship and the SMC for the Relevant Ship;

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16 Valuation

a valuation of the Relevant Ship, made (at the cost of the Borrowers) by an Approved Shipbroker nominated by the Borrowers (or, failing this, by the Agent) and appointed by the Agent, demonstrating the market value of such Ship, on the basis and in the manner set out in clause 8.2.2; and

17 Further matters/conditions

any such other matter or conditions as may be required by the Agent.

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Schedule 4

Form of Transfer Certificate

(referred to in clause 15.3)

TRANSFER CERTIFICATE

Banks are advised not to employ Transfer Certificates or otherwise to assign or transfer interests in the Loan Agreement without further ensuring that the transaction complies with all applicable laws and regulations, including the Financial Services and Markets Act 2000 and regulations made thereunder and similar statutes which may be in force in other jurisdictions

To: DNB NOR BANK ASA as agent on its own behalf and on behalf of the Borrowers, the Account Bank, the Security Agent, the Arranger, the Swap Provider and the Banks defined in the Loan Agreement referred to below.

[Date]

Attention:                      [·]

This certificate (“Transfer Certificate”) relates to a loan agreement dated [·] December 2007 (the “Loan Agreement”) and made between (1) Team-Up Owning Company Limited and Orpheus Owning Company Limited as joint and several borrowers (the “Borrowers”), (2) the banks and financial institutions set out in schedule 1 thereto as banks (the “Banks”) and (3) DnB NOR Bank ASA as Arranger, Agent, Security Agent, Swap Provider and Account Bank, in relation to a loan of up to $101,150,000.  Terms defined in the Loan Agreement shall, unless otherwise defined herein, have the same meanings herein as therein.

In this Certificate:

the “Transferor” means [full name] of [lending office]; and

the “Transferee” means [full name] of [lending office].

1 The Transferor with full title guarantee assigns to the Transferee absolutely all rights and interests (present, future or contingent) which the Transferor has as a Bank under or by virtue of the Loan Agreement and all the Security Documents in relation to that part of the [Contribution] [Available Commitment] of the Transferor (or its predecessors in title) details of which are set out below:

  Date of Advances   Amount of Advance   Transferor’s [Contribution] [Available Commitment] to Advance     Maturity Date

2 By virtue of this Transfer Certificate and clause 15 of the Loan Agreement, the Transferor is discharged [entirely from its [Contribution] [Commitment] which amounts to $[          ]] [from [   ] per cent ([   ]%) of its [Contribution] [Commitment] in respect of both Advances], which percentage represents $[          ]].

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3 The Transferee hereby requests the Borrowers, the Agent (on behalf of itself, the Account Bank, the Arranger, the Security Agent, the Swap Provider and the Banks) to accept the executed copies of this Transfer Certificate as being delivered pursuant to and for the purposes of clause 15.3 of the Loan Agreement so as to take effect in accordance with the terms thereof on [date of transfer].

4 The Transferee:

4.1 confirms that it has received a copy of the Loan Agreement and the other Security Documents together with such other documents and information as it has required in connection with the transaction contemplated thereby;

4.2 confirms that it has not relied and will not hereafter rely on the Transferor, the Agent, the Security Agent, the Swap Provider, the Arranger, the Account Bank or the other Banks to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of the Loan Agreement, any of the Security Documents or any such documents or information;

4.3 agrees that it has not relied and will not rely on the Transferor, the Agent, the Security Agent, the Arranger, the Account Bank, the Swap Provider or the Banks to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrowers or either of them or any other Security Party (save as otherwise expressly provided therein);

4.4 warrants that it has power and authority to become a party to the Loan Agreement and has taken all necessary action to authorise execution of this Transfer Certificate and to obtain all necessary approvals and consents to the assumption of its obligations under the Loan Agreement and the Security Documents; and

4.5 if not already a Bank, appoints (i) the Agent to act as its agent and (ii) the Security Agent to act as its security agent and trustee, in each case as provided in the Loan Agreement and the Security Documents and agrees to be bound by the terms of the Loan Agreement and the other Security Documents.

5 The Transferor:

5.1 warrants to the Transferee that it has full power to enter into this Transfer Certificate and has taken all corporate action necessary to authorise it to do so;

5.2 warrants to the Transferee that this Transfer Certificate is binding on the Transferor under the laws of England, the country in which the Transferor is incorporated and the country in which its lending office is located; and

5.3 agrees that it will, at its own expense, execute any documents which the Transferee reasonably requests for perfecting in any relevant jurisdiction the Transferee’s title under this Transfer Certificate or for a similar purpose.

6 The Transferee hereby undertakes with the Transferor and each of the other parties to the Loan Agreement and the other Security Documents that it will perform in accordance with its terms all those obligations which by the terms of the Loan Agreement and the other Security Documents will be assumed by it after delivery of the executed copies of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect.

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7 By execution of this Transfer Certificate on their behalf by the Agent and in reliance upon the representations and warranties of the Transferee, the Borrowers, the Account Bank, the Arranger, the Security Agent, the Swap Provider and the Banks accept the Transferee as a party to the Loan Agreement and the Security Documents with respect to all those rights and/or obligations which by the terms of the Loan Agreement and the Security Documents will be assumed by the Transferee (including those about pro-rata sharing and the exclusion of liability on the part of, and the indemnification of, the Agent, the Arranger, the Account Bank, the Swap Provider and the Security Agent as provided by the Loan Agreement) after delivery of the executed copies of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect.

8 None of the Transferor, the Agent, the Security Agent, the Account Bank, the Arranger, the Swap Provider or the Banks:

8.1 makes any representation or warranty nor assumes any responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Loan Agreement or any of the Security Documents or any document relating thereto; or

8.2 assumes any responsibility for the financial condition of the Borrowers or either of them or any other Security Party or any party to any such other document or for the performance and observance by the Borrowers or either of them or any other Security Party or any party to any such other document (save as otherwise expressly provided therein) and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded (except as aforesaid).

9 The Transferor and the Transferee each undertake that they will on demand fully indemnify the Agent in respect of any claim, proceeding, liability or expense which relates to or results from this Transfer Certificate or any matter concerned with or arising out of it unless caused by the Agent’s gross negligence or wilful misconduct, as the case may be.

10 The agreements and undertakings of the Transferee in this Transfer Certificate are given to and for the benefit of and made with each of the other parties to the Loan Agreement and the Security Documents.

11 This Transfer Certificate is governed by, and shall be construed in accordance with, English law.

Transferor	Transferee
By: ………………………………………………	By: ………………………………………………
Dated: ……………………………………………	Dated: ……………………………………………

Agent

Agreed for and on behalf of itself as Agent, the Borrowers, the Security Agent, the Account Bank, the Arranger, the Swap Provider and the Banks.

DNB NOR BANK ASA

By:                      ………………………………………

Dated:                      ………………………………………

Note:                      The execution of this Transfer Certificate alone may not transfer a proportionate share of the Transferor’s interest in the security constituted by the Security Documents in the Transferor’s or Transferee’s jurisdiction.  It is the responsibility of the Transferee to ascertain whether any other documents are required to perfect a transfer of such a share in the Transferor’s interest in such security in any such jurisdiction and, if so, to seek appropriate advice and arrange for execution of the same.

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The Schedule

Outstanding Contribution: $•

Available Commitment: $•

Portion Transferred: •%

Administrative Details of Transferee

Name of Transferee:

Lending Office:

Contact Person

(Loan Administration Department):

Telephone:

Telefax No:

Contact Person:

(Credit Administration Department):

Telephone:

Telefax No:

Account for payments:

72

Schedule 5

Form of Trust Deed

THIS DECLARATION OF TRUST made by DNB NOR BANK ASA (the “Security Agent”) is made on [·] 2007 and is supplemental to (and made pursuant to the terms of) a Loan Agreement dated [·] 2007 (the “Agreement”) and made between (1) Team-Up Owning Company Limited and Orpheus Owning Company Limited as joint and several Borrowers, (2) the banks and financial institutions mentioned in schedule 1 to the Agreement as the Banks and (3) DnB NOR Bank ASA as Arranger, Agent, Security Agent, Swap Provider and Account Bank.  Words and expressions defined in the Agreement shall have the same meaning when used in this Deed.

NOW THIS DEED WITNESSETH as follows:

1 The Security Agent hereby acknowledges and declares that, from the date of this Deed, it holds and shall hold the Trust Property on trust for the Banks, the Agent and the Swap Provider on the terms and basis set out in the Agreement.

2 The declaration and acknowledgement contained in paragraph 1 above shall be irrevocable.

IN WITNESS whereof the Security Agent has executed this Deed the day and year first above written.

SIGNED. SEALED and DELIVERED	)
as a DEED	)
by	)	Attorney-in-fact
for and on behalf of	)
DNB NOR BANK ASA	)
(as Security Agent)	)

73

Schedule 6

Mandatory Cost formula

1 The Mandatory Cost is an addition to the interest rate to compensate Banks for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.

2 On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the "Additional Cost Rate") for each Bank, in accordance with the paragraphs set out below.  The Mandatory Cost will be calculated by the Agent as a weighted average of the Banks' Additional Cost Rates (weighted in proportion to the percentage participation of each Bank in the Loan or any relevant unpaid sum) and will be expressed as a percentage rate per annum.

3 The Additional Cost Rate for any Bank lending from a lending office in a Participating Member State will be the percentage notified by that Bank to the Agent.  This percentage will be certified by that Bank in its notice to the Agent to be its reasonable determination of the cost (expressed as a percentage of that Bank's participation in the Loan or the relevant unpaid sum made from that lending office) of complying with the minimum reserve requirements of the European Central Bank in respect of loans made from that lending office.

4 The Additional Cost Rate for any Bank lending from a lending office in the United Kingdom will be calculated by the Agent as follows:

Where E is designed to compensate Banks for amounts payable under the Fees Rules and is calculated by the Agent as being the average of the most recent rates of charge supplied by the Reference Banks to the Agent pursuant to paragraph 6 below and expressed in pounds per £1,000,000.

5 For the purposes of this Schedule:

(a) "Fees Rules" means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;

(b) "Fee Tariffs" means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate);

(c) “Participating Member State” means any member of the European Union that adopts or has adopted the euro as its lawful currency in accordance with the legislation of the European Community relating to the Economic and Monetary Union;

(d) "Special Deposits" has the meaning given to it from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England; and

(e) "Tariff Base" has the meaning given to it in, and will be calculated in accordance with, the Fees Rules.

74

6 If requested by the Agent, each Reference Bank shall, as soon as practicable after publication by the Financial Services Authority, supply to the Agent, the rate of charge payable by that Reference Bank to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by that Reference Bank as being the average of the Fee Tariffs applicable to that Reference Bank for that financial year) and expressed in pounds per £1,000,000 of the Tariff Base of that Reference Bank.

7 Each Bank shall supply any information required by the Agent for the purpose of calculating its Additional Cost Rate.  In particular, but without limitation, each Bank shall supply the following information on or prior to the date on which it becomes a Bank:

(a) the jurisdiction of its lending office; and

(b) any other information that the Agent may reasonably require for such purpose.

Each Bank shall promptly notify the Agent of any change to the information provided by it pursuant to this paragraph.

8 The rates of charge of each Reference Bank for the purpose of E above shall be determined by the Agent based upon the information supplied to it pursuant to paragraphs 6 and 7 above and on the assumption that, unless a Bank notifies the Agent to the contrary, each Bank's obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a lending office in the same jurisdiction as its lending office.

9 The Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Bank and shall be entitled to assume that the information provided by any Bank or Reference Bank pursuant to paragraphs 3, 6 and 7 above is true and correct in all respects.

10 The Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Banks on the basis of the Additional Cost Rate for each Bank based on the information provided by each Bank and each Reference Bank pursuant to paragraphs 3, 6 and 7 above.

11 Any determination by the Agent pursuant to this schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Bank shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement.

12 The Agent may from time to time, after consultation with the Borrower and the Banks, determine and notify to all parties to this Agreement any amendments which are required to be made to this schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement.

75

Schedule 7

Form of Mortgage

76

Schedule 8

Form of Deed of Covenant

77

Schedule 9

Form of Corporate Guarantee

78

Schedule 10

Form of Manager’s Undertakings

79

Schedule 11

Form of Master Swap Agreement

80

Schedule 12

Form of Swap Assignment

81

Schedule 13

Form of Operating Account Assignment

82

SIGNED by	)
for and on behalf of	)
TEAM-UP OWNING COMPANY LIMITED	)	Attorney-in-fact
as Borrower	)
SIGNED by	)
for and on behalf of	)
ORPHEUS OWNING COMPANY LIMITED	)	Attorney-in-fact
as Borrower	)
SIGNED by	)
for and on behalf of	)
DNB NOR BANK ASA	)	Attorney-in-fact
as Arranger, Agent, Security Agent,	)
Swap Provider and Account Bank	)
SIGNED by	)
for and on behalf of	)
DNB NOR BANK ASA	)	Attorney-in-fact
as Bank	)

83

EX-4.13

Exhibit 4.13

Date               December 2007

PRIMELEAD LIMITED

as Borrower

– and –

THE BANKS AND FINANCIAL INSTITUTIONS

listed in Schedule 1

as Lenders

– and –

NORDEA BANK FINLAND PLC, LONDON BRANCH

as Agent

and as Security Trustee

LOAN AGREEMENT

relating to a credit

facility of up to US$260,000,000

Watson, Farley & Williams

London

INDEX

Clause		Page
1	INTERPRETATION	1
2	FACILITY	14
3	POSITION OF THE LENDERS AND THE MAJORITY LENDERS	14
4	DRAWDOWN	16
5	INTEREST	17
6	INTEREST PERIODS	20
7	DEFAULT INTEREST	20
8	REPAYMENT AND PREPAYMENT	21
9	CONDITIONS PRECEDENT	23
10	REPRESENTATIONS AND WARRANTIES	24
11	GENERAL UNDERTAKINGS	25
12	CORPORATE UNDERTAKINGS	28
13	SECURITY COVER	30
14	PAYMENTS AND CALCULATIONS	31
15	APPLICATION OF RECEIPTS	33
16	EARNINGS	33
17	EVENTS OF DEFAULT	34
18	FEES AND EXPENSES	38
19	INDEMNITIES	39
20	NO SET-OFF OR TAX DEDUCTION	41
21	ILLEGALITY, ETC	42
22	INCREASED COSTS	44
23	SET OFF	45
24	TRANSFERS AND CHANGES IN LENDING OFFICES	46
25	VARIATIONS AND WAIVERS	49
26	NOTICES	50
27	SUPPLEMENTAL	52

28	LAW AND JURISDICTION	52
SCHEDULE 1  LENDERS AND COMMITMENTS		54
SCHEDULE 2  DRAWDOWN NOTICE		55
SCHEDULE 3  CONDITION PRECEDENT DOCUMENTS		56
SCHEDULE 4  TRANSFER CERTIFICATE		58
SCHEDULE 5   FORM OF COMPLIANCE CERTIFICATE		62
SCHEDULE 6  MANDATORY COST FORMULA		63
EXECUTION PAGE		66

THIS LOAN AGREEMENT is made on             December 2007

BETWEEN:

(1) PRIMELEAD LIMITED, as Borrower;

(2) THE BANKS AND FINANCIAL INSTITUTIONS  listed in Schedule 1, as Lenders;

(3) NORDEA BANK FINLAND PLC, LONDON BRANCH, as Agent, Lead Arranger and Book Runner; and

(4) NORDEA BANK FINLAND PLC, LONDON BRANCH, as Security Trustee.

WHEREAS the Lenders have agreed, subject to the term of this Agreement, to make available to the Borrower a credit facility of up to US$260,000,000 to finance its acquisition of 51,778,647 shares in the common stock of Ocean Rig ASA, listed on the Oslo Børs, and to pay fees and expenses incurred in connection with such credit facility.

IT IS AGREED as follows:

1 INTERPRETATION

1.1 Definitions.  Subject to Clause 1.5, in this Agreement (including the Recitals):

“Account Security Deed” means a deed creating security in respect of the Earnings Account and the Deposit Account executed or to be executed by the Borrower in favour of the Security Trustee in such form as the Lenders may agree or require;

“Adjusted Equity” means, as of any Compliance Date, the value of the stockholders’ equity of the Group determined on a consolidated basis in accordance with GAAP and as shown in the consolidated balance sheets for the Group in the Applicable Accounts, adjusted by adding or subtracting (depending on whether the same is positive or negative) any difference between:

(a) the value of Total Assets determined on a consolidated basis in accordance with GAAP and as shown in such consolidated balance sheets; and

(b) the Market Value Adjusted Total Assets;

“Advance”  means the principal amount of any borrowing by the Borrower under this Agreement;

“Affected Lender”  has the meaning given in Clause 5.5;

“Agency and Trust Deed”  means the agency and trust deed dated the same date as this Agreement and made between the Borrower, the Lenders, the Agent and the Security Trustee;

“Agent”  means Nordea Bank Finland Plc, London Branch, in its capacity as agent for the Lenders under this Agreement and the other Finance Documents, acting through its office at 8th Floor, City Place House, 55 Basinghall Street, London  EC2V 5NB, or any successor of it appointed under clause 5 of the Agency and Trust Deed;

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“Applicable Accounts” means, in relation to a Compliance Date or an accounting period, the consolidated balance sheets and related consolidated statements of stockholders’ equity, income and cash flows of the Group set out in the annual financial statements or interim financial statements of the Group prepared as of the Compliance Date or, as the case may be, the last day of the accounting period in question (and which the Borrower is obliged to deliver to the Agent pursuant to Clause 11.6);

“Approved Broker”  means each of Braemar Seascope Shipbrokers Ltd., H. Clarkson & Company Limited, Barry Rogliano Salles S.A., R.S. Platou Shipbrokers A.S., P.F. Bassoe AS, Arrow Sale & Purchase (UK) Ltd., Simpson Spence & Young, Fearnley AS and Maersk Shipbrokers;

“Availability Period”  means, subject to the provisions of Clause 9.1, the period commencing on the date of this Agreement and ending on:

(a) 30 June 2008 (or such later date as the Agent, with the authorisation of the Majority Lenders, may agree with the Borrower); or

(b) if earlier, the date on which the Total Commitments are fully borrowed, cancelled or terminated;

“Borrower” meansPRIMELEAD LIMITED,a company incorporated in Cyprus whose registered office is at 10 Skopa Street, Nicosia, Cyprus (and any successor);

“Business Day”  means a day on which banks are open in London, Oslo and Athens and, in respect of a day on which a payment is required to be made under a Finance Document, also in New York City;

“Commitment”  means, in relation to a Lender, the amount set opposite its name in Schedule 1, or, as the case may require, the amount specified in the relevant Transfer Certificate, as that amount may be reduced, cancelled or terminated in accordance with this Agreement (and “Total Commitments” means the aggregate of the Commitments of all the Lenders);

“Compliance Date” means 30 June and 31 December in each calendar year (or such other dates as of which the Group prepares the consolidated financial statements which it is required to deliver pursuant to Clause 11.6);

“Contractual Currency”  has the meaning given in Clause 19.5;

“Contribution”  means, in relation to a Lender, the part of the Loan which is owing to that Lender;

“Creditor Party”  means the Agent, the Security Trustee or any Lender whether as at the date of this Agreement or at any later time;

“Dollars” and “$”  means the lawful currency for the time being of the United States of America;

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“Drawdown Date”  means, in relation to the Advance, the date requested by the Borrower for such Advance to be made, or (as the context may require) the date on which such Advance is actually made being not later than 30 June 2008;

“Drawdown Notice”  means a notice in the form set out in Schedule 2 (or in any other form which the Agent approves or reasonably requires);

“Deposit Account”  means an NOK account in the name of the Borrower with the Security Trustee in London, designated “PRIMELEAD LIMITED - Deposit Account” or, any other account (with that or another office of the Security Trustee or with a bank or financial institution other than the Security Trustee) which is designated by the Security Trustee as the Deposit Account for the purposes of this Agreement;

“Earnings”  means all dividends, interest and other moneys paid or payable after the date of this Deed on all or any of the Ocean Rig Shares and all rights accruing at any time to or in respect of all or any of the Ocean Rig Shares (including, without limitation, put and call options, pre-emption rights and any proceeds of sale or other realisation of all or any part of the Ocean Rig Shares) ,

“Earnings Account”  means a US Dollar account in the name of the Borrower with the Security Trustee in London, designated “PRIMELEAD LIMITED - Earnings Account” or, any other account (with that or another office of the Security Trustee or with a bank or financial institution other than the Security Trustee) which is designated by the Security Trustee as the Earnings Account for the purposes of this Agreement;

“EBITDA”  means, for any accounting period, the consolidated net income of the Group for that accounting period:

(a)   plus, to the extent deducted in computing consolidated net income of the Group for that accounting period, the sum, without duplication, of:

(i)   all federal, state, local and foreign taxes and tax distributions;

(ii)   Net Interest Expenses; and

(iii)   depreciation, depletion, amortisation of intangibles and other non-cash charges or non-cash losses (including non-cash transaction expenses and the amortisation of debt discounts) and any extraordinary losses not incurred in the ordinary course of business;

(b)   minus, to the extent added in computing consolidated net income of the Group for that accounting period, any non-cash income or non-cash gains and any extraordinary gains not incurred in the ordinary course of business;

all determined on a consolidated basis in accordance with GAAP and as shown in the consolidated statements of income for the Group in the Applicable Accounts;

“Event of Default”  means any of the events or circumstances described in Clause 17.1;

“Fair Market Value”  means, the fair value of the Ocean Rig Shares, as determined in accordance with Clause 13.3;

3

 “Finance Documents”  means:

(a) this Agreement;

(b) the Agency and Trust Deed;

(c) the Guarantee;

(d) the Shares Pledge;

(e) the Account Security Deed;

(f) any other document (whether creating a Security Interest or not) which is executed at any time by the Borrower or any other person as security for, or to establish any form of subordination or priorities arrangement in relation to, any amount payable to the Lenders under this Agreement or any of the other documents referred to in this definition;

“Financial Indebtedness”  means, in relation to a person (the “debtor”), a liability of the debtor:

(a) for principal, interest or any other sum payable in respect of any moneys borrowed or raised by the debtor;

(b) under any loan stock, bond, note or other security issued by the debtor;

(c) under any acceptance credit, guarantee or letter of credit facility (or any dematerialised equivalent) made available to the debtor;

(d) under a financial lease, a deferred purchase consideration arrangement or any other agreement having the commercial effect of a borrowing or raising of money by the debtor;

(e) under any foreign exchange transaction, any interest or currency swap or any other kind of derivative transaction entered into by the debtor or, if the agreement under which any such transaction is entered into requires netting of mutual liabilities, the liability of the debtor for the net amount; or

(f) under a guarantee, indemnity for loss or otherwise or similar obligation entered into by the debtor in respect of a liability of another person which would fall within paragraphs (a) to (e) if the references to the debtor referred to the other person;

“Financial Year”  means in relation to the Group, each period of 1 year commencing on 1 January in respect of which its consolidated accounts are or ought to be prepared;

“Fleet Vessels”  means together all of the vessels from time to time owned by members of the Group;

“GAAP” means generally accepted accounting principles as from time to time in effect in the United States of America;

4

“Group”  means the Guarantor and its subsidiaries (whether direct or indirect and including, but not limited to, the Borrower) from time to time during the Security Period and “member of the Group” shall be construed accordingly;

“Guarantee”  means each guarantee of the liabilities of the Borrower under the Finance Documents to which it is a party made or to be made between the Guarantor and the Security Trustee in such form as the Lenders may agree or require and in the plural means all of them;

“Guarantor”  means Dryships Inc., a company incorporated under the laws of the Marshall Islands with its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960. and listed on the NASDAQ exchange in the United States of America;

“Interest Coverage Ratio”  means, in relation to a Compliance Date or an accounting period, the ratio of (a) EBITDA for the most recent financial period of the Group ending on the Compliance Date to (b) the Net Interest Expenses for that financial period (calculated on a trailing 12-months basis);

“Interest Period”  means, in relation to the Advance, a period determined in accordance with Clause 6;

“Lender”  means a bank or financial institution listed in the Schedule 1 and acting through its branch indicated in Schedule 1 (or through another branch notified to the Borrower under Clause 24.15) or its transferee, successor or assign;

“LIBOR” means, in relation to any amount and for any period, the offered rate (if any) for deposits of Dollars for such amount and for such period which is:

(a)           the rate for such period appearing on Reuters page LIBOR01 (British Bankers’ Association Interest Settlement Rates) (or such other page as may replace such page being designed by the British Bankers’ Association to calculate the BBA Interest Settlement Rate (as defined in the British Bankers’ Association’s Recommended Terms and Conditions (“BBAIRS” terms))) at or about 11:00am (London time) on the Quotation Date such period; or

(b)           if on such date no such rate is displayed, the arithmetic mean of the rate quoted to the Agent by the Reference Banks at the request of the Agent as the Reference Banks’ offered rate for deposits of Dollars in an amount equal or approximately equal to such period to prime banks in the London Interbank Market at or about 11:00 am (London time) on the Quotation Date for such period;

“Liquid Funds” means, in respect of any relevant period, the aggregate of the Group’s consolidated (i) cash in hand; (ii) deposits in banks or financial institutions; (iii) debt securities rated AA/Aa2 or better by either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc; or (iv) any other instrument approved by the Lender, all of which shall be free of any Security Interest;

“Loan”  means the principal amount for the time being outstanding under this Agreement;

5

“Majority Lenders”  means Lenders whose Commitments total 66.6 per cent. of the Total Commitments;

“Mandatory Cost” means the percentage rate per annum calculated by the Agent in accordance with Schedule 6;

“Margin”  means, one and a half per cent (1.5%) per annum;

“Market Adjusted Equity Ratio”  means, in relation to a Compliance Date, the ratio of (a) the Adjusted Equity for the most recent financial period of the Group ending on the Compliance Date to (b) the aggregate of (i) Total Interest Bearing Liabilities and (ii) Adjusted Equity for that financial period;

“Market Value”  means, in relation to each Fleet Vessel, the market value thereof calculated at any date by taking the arithmetic mean of two valuations each prepared: as at a date not more than 15 days previously; by an Approved Broker appointed by the Agent with the valuations being addressed to the Agent; with or without physical inspection of Fleet Vessel (as the Agent may require); on the basis of a sale for prompt delivery for cash on normal arm's length commercial terms as between a willing seller and a willing buyer; free of any existing charter or other contract of employment; and after deducting the estimated amount of the usual and reasonable expenses which would be incurred in connection with the sale.

Provided that the Agent may obtain additional valuations from any Approved Broker to be prepared in accordance with this paragraph if, in the opinion of the Agent, circumstances require an additional valuation and the Market Value of a Ship will be the arithmetic mean of all such valuations;

“Market Value Adjusted Net Worth” means Paid-Up Capital plus General Reserves plus Retained Earnings adjusted to reflect the difference between the book values of the Fleet Values and the Market Values of all Fleet Vessels at any relevant time;

“Market Value Adjusted Total Assets”  means, at any time, Total Assets adjusted to reflect the Market Value of all Fleet Vessels;

“Negotiation Period”  has the meaning given in Clause 5.8;

“Net Interest Expenses”  means, as of any Compliance Date, the aggregate of all interest, commitment and other fees, commissions, discounts and other costs, charges or expenses accruing due from all the members the Group during that accounting period less interest income received, determined on a consolidated basis in accordance with GAAP and as shown in the consolidated statements of income for the Group in the Applicable Accounts;

“NOK”  means the lawful currency for the time being of the Kingdom of Norway:

“Notifying Lender”  has the meaning given in Clause 21.1 or Clause 22.1 as the context requires;

“Ocean Rig Shares” means 51,778,647 shares in the common stock of Ocean Rig ASA, listed on the Oslo Børs to be purchased by the Borrower from the Sellers pursuant to a Sale and Purchase Agreement dated 6 December 2007.

6

“Paid-Up Capital”, “General Reserves” and “Retained Earnings” have the meanings ascribed to them in the Applicable Accounts;

“Payment Currency”  has the meaning given in Clause 19.5;

“Permitted Security Interests”  means:

(a) Security Interests created by the Finance Documents;

(b) Security Interests arising by operation of law in respect of taxes which are not overdue for payment other than taxes being contested in good faith by appropriate steps and in respect of which appropriate reserves have been made;

“Pertinent Document”  means

(a) any Finance Document; and

(b) any other document contemplated by or referred to in any Finance Document; and

any document which has been or is at any time sent by or to the Agent or the Security Trustee in contemplation of or in connection with any Finance Document or any policy, contract or document falling within paragraphs (b);

“Pertinent Jurisdiction”,  in relation to a company, means:

(a) England and Wales;

(b) the country under the laws of which the company is incorporated or formed;

(c) a country in which the company has the centre of its main interests or in which the company’s central management and control is or has recently been exercised;

(d) a country in which the overall net income of the company is subject to corporation tax, income tax or any similar tax;

(e) a country in which assets of the company (other than securities issued by, or loans to, related companies) having a substantial value are situated, in which the company maintains a branch or a permanent place of business, or in which a Security Interest created by the company must or should be registered in order to ensure its validity or priority; and

(f) a country the courts of which have jurisdiction to make a winding up, administration or similar order in relation to the company, whether as main or territorial ancillary proceedings or which would have such jurisdiction if their assistance were requested by the courts of a country referred to in paragraphs (b) or (c);

“Pertinent Matter” means:

(a) any transaction or matter contemplated by, arising out of, or in connection with a Pertinent Document; or

7

(b) any statement relating to a Pertinent Document or to a transaction or matter falling within paragraph (a);

and covers any such transaction, matter or statement, whether entered into, arising or made at any time before the signing of this Agreement or on or at any time after that signing;

“Potential Event of Default”  means an event or circumstance which, with the giving of any notice and/or the lapse of time and/or the satisfaction of any condition and/or a determination of the Majority Lenders would constitute an Event of Default;

“Purchase Price”  means the purchase price of the Ocean Rig Shares paid by the Borrower to the Sellers in US Dollars or the US Dollar equivalent in any other currency;

“Quotation Date”  means, in relation to any Interest Period (or any other period for which an interest rate is to be determined under any provision of a Finance Document), the day on which quotations would ordinarily be given by leading banks in the London Interbank Market for deposits in the currency in relation to which such rate is to be determined for delivery on the first day of that Interest Period or other period;

“Relevant Person”  has the meaning given in clause 17.9;

“Repayment Date”  means a date on which a repayment is required to be made under Clause 8;

“Secured Liabilities”  means all liabilities which the Borrower, the Security Parties or any of them have, at the date of this Agreement or at any later time or times, under or by virtue of the Finance Documents or any judgment relating to the Finance Documents; and for this purpose, there shall be disregarded any total or partial discharge of these liabilities, or variation of their terms, which is effected by, or in connection with, any bankruptcy, liquidation, arrangement or other procedure under the insolvency laws of any country;

“Security Interest”  means:

(a) a mortgage, charge (whether fixed or floating) or pledge or any other lien; and

(b) any other arrangement of any kind having the effect of conferring security;

“Security Party”  means the Guarantor, and any other person (except a Creditor Party) who, as a surety or mortgagor, as a party to any subordination or priorities arrangement, or in any similar capacity, executes a document falling within the last paragraph of the definition of “Finance Documents”;

“Security Period”  means the period commencing on the date of this Agreement and ending on the date on which the Agent notifies the Borrower, the Security Parties and the Lenders that:

(a) all amounts which have become due for payment by the Borrower or any Security Party under the Finance Documents have been paid and the Total Commitments have been reduced to zero;

8

(b) no amount is owing or has accrued (without yet having become due for payment) under any Finance Document;

(c) neither the Borrower nor any Security Party has any future or contingent liability under Clause 18, 19 or 20 below or any other provision of this Agreement or another Finance Document; and

(d) the Agent, the Security Trustee, and the Majority Lenders do not consider that there is a significant risk that any payment or transaction under a Finance Document would be set aside, or would have to be reversed or adjusted, in any present or possible future bankruptcy of the Borrower or a Security Party or in any present or possible future proceeding relating to a Finance Document or any asset covered (or previously covered) by a Security Interest created by a Finance Document;

“Security Trustee”  means Nordea Bank Finland Plc, London Branch in its capacity as trustee for the Lenders under this Agreement and the other Finance Documents, acting through its office at 8th Floor, City Place House, 55 Basinghall Street, London  EC2V 5NB or any successor of it appointed under clause 5 of the Agency and Trust Deed;

“Sellers”  means Cheyne Special Situations Fund LP, Cheyne Global Catalyst Fund LP and Cheyne Value Fund LP, all being funds managed by Cheyne Capital Management (UK) LLP, a limited liability company having its registered address at Stornoway House, 13 Cleveland Row, London SW1A 1DH, UK;

“Shareholders”  means, Primelead Shareholders Inc., a company incorporated in the Marshall Islands which its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960;

“Shares Pledge”  means the pledge of all of the Ocean Rig Shares and the VPS Account executed or to be executed by the Borrower in favour of the Security Trustee in such form as the Lenders shall agree or require;

“Total Assets” means, as of any Compliance Date, the aggregate value of all trade debtors and the value of all stock (valued in accordance with GAAP) and all other investments and other tangible and intangible assets of the Group properly included in the Applicable Accounts as “fixed assets” in accordance with GAAP but excluding any assets held on trust;

“Total Interest Bearing Liabilities” means, as of any Compliance Date, the consolidated total amount of the interest bearing Financial Indebtedness of the Group;

“Transfer Certificate”  has the meaning given in Clause 24.2;

“Trust Property”  has the meaning given in clause 3.1 of the Agency and Trust Deed;

“VPS Account”  means the account opened by the Borrower with the Norwegian Central Securities Depository in Norway (account number 06001.2096503) including, without limitation, all securities from time to time registered on that account).

9

1.2 Construction of certain terms.  In this Agreement:  

“administration notice”  means a notice appointing an administrator, a notice of intended appointment and any other notice which is required by law (generally or in the case concerned) to be filed with the court or given to a person prior to, or in connection with, the appointment of an administrator;

“approved”  means, for the purposes of Clause 17, approved in writing by the Agent;

“asset”  includes every kind of property, asset, interest or right, including any present, future or contingent right to any revenues or other payment;

“company”  includes any partnership, joint venture and unincorporated association;

“consent”  includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration, notarisation and legalisation;

“contingent liability”  means a liability which is not certain to arise and/or the amount of which remains unascertained;

“document”  includes a deed; also a letter or fax;

“expense”  means any kind of cost, charge or expense (including all legal costs, charges and expenses) and any applicable value added or other tax;

“law”  includes any form of delegated legislation, any order or decree, any treaty or international convention and any regulation or resolution of the Council of the European Union,  the European Commission, the United Nations or its Security Council;

“legal or administrative action”  means any legal proceeding or arbitration and any administrative or regulatory action or investigation;

“liability”  includes every kind of debt or liability (present or future, certain or contingent), whether incurred as principal or surety or otherwise;

EX-4.14

Exhibit 4.14

SALE- AND PURCHASE AGREEMENT

On this  6th day of December 2007 Cheyne Special Situations Fund LP, Cheyne Global Catalyst Fund LP and Cheyne Value Fund Inc (“the Sellers”), all being funds managed by Cheyne Capital Management (UK) LLP,  a limited liability partnership having its registered address at Stornoway House, 13 Cleveland Row, London SW1A 1DH, United Kingdom and Cardiff Marine Inc, a Liberian limited liability company having its registered address at 80, Kifissias Av. GR-151 25 Amaroussion, Greece (the “Buyer”) have agreed as follows:

1. The Sellers hereby undertake to sell and the Buyer hereby agree to purchase 51,778,647 shares issued in the capital of Ocean Rig ASA (the “Shares”) against a consideration of NOK 43 each, in total NOK 2,226,481,821.00 (the “Purchase Price”)

2. The Sellers shall deliver the shares to the Buyer against cash payment on or before 20 December 2007. The settlement of the transaction shall be made through Pareto Securities AS (“Pareto”). In the event the Buyer has not paid the Purchase Price and/or the Seller has not delivered the Shares to Pareto within 30 December 2007, Pareto shall immediately return to the Buyer or the Seller, respectively, any Purchase Price or Shares received by Pareto as of such date.

3. The Sellers and the Buyer shall cover their own costs related to this agreement, including but not limited to fees to Pareto, legal advisors etc.

4. The Buyer shall have the right to nominate another legal entity as purchaser of the Shares. In the event of any such nomination of a new purchaser, the Buyer shall be jointly and severally liable with the new purchaser for any and all obligations of the Buyer under this agreement.

5. The Sellers represent and warrant that the Shares will be delivered to the Buyer free of any mortgages or encumbrances whatsoever.

6. In the event that the Buyer or its nominee is making a bid for all the shares issued in the capital of Ocean Rig ASA within 16:30 Norwegian time on the day and date falling 3 calendar months after the day and date of settlement as per art. 2 above, then the Sellers shall be entitled to an additional purchase price equal to the difference (if any) between the purchase price stated in art. 1 above and the purchase price of any such bid. The additional purchase price shall be payable simultaneously with the settlement of any such bid (and only if such bid and settlement is completed). The same shall apply in the event that any third party makes and completes a bid for all the shares issued in the capital of Ocean Rig ASA within the same period of time and the Buyer accept such bid.

7. This agreement is conditional only upon the Buyer obtaining and documenting to the satisfaction of the Sellers financing of the transaction contemplated by this agreement and the Sellers providing a recent transcript of the register of shareholders confirming its holding of the Shares. This agreement will become null and void in the event that the Buyer has not confirmed in writing to the Sellers at and to Pareto on or before 10 December 2007 at 08:30 Norwegian time that such financing is in place. The Seller shall have the right to withdraw from this agreement at any time prior to receipt of the written notice from the Buyer confirming that financing is in place. Such notice shall be in writing with a copy to Pareto Securities.

8. Notices to be given under this agreement shall be in writing  and shall be addressed as follows:

If to the Sellers:	If to the Buyer:
Cheyne Capital Management (UK) LLP	Cardiff Marine Inc
Stornoway House,	80 Kifissias Avenue
13 Cleveland Row,	Athens 151-25
London SW1A 1DH,	Greece
United Kingdom
Att: Jean-Philippe Flament	Attn: Mr. Aris Ioannidis
E-mail:    jp.flament@cheyne.mc	E-mail : management@cardiff.gt

All notices shall be copied to Pareto, att Atle Moen, at e-mail atle.moen@pareto.no

9. In the event of default, then the party not in default shall be entitled to request assistance from Pareto in relation to the enforcement of this agreement and Pareto hereby agree to render such assistance.  For the avoidance of doubt, Pareto shall have no liability whatsoever arising from a default by the Buyer or the Sellers to fulfill any of their obligations pursuant to this agreement.  

10. The agreement shall be governed by Norwegian law.

11. Any and all disputes relating to this agreement shall be referred to arbitration in Oslo, Norway. The language in any such arbitration shall be English. The arbitration proceedings and the arbitration award shall be confidential. Otherwise the Norwegian Act on Arbitration shall apply.

_______________________________                                                                        _____________________________

Cheyne Capital Management (UK) LLP                                                                         for Cardiff Marine Inc

in its capacity as discretionary investment manager

for:

Cheyne Global Catalyst Fund LP

Cheyne Special Situations Fund LP

Cheyne Value Fund LP

____________________________________________________________________________________________________

Pareto  Securities A.S. hereby undertake to arrange the settlement between the Sellers and the Buyer as contemplated by art. 2 of this agreement and to render all reasonable assistance to either the Selelrs or the Buyer as contemplated by art. 9 of this agreement.

Pareto Securities A.S

Ote Henrik Bjorge

EX-8.1

Exhibit 8.1

The following is a list of the Company’s subsidiaries as of December 31, 2007.

	Ship-owning Company	Country of Incorporation	Vessel
1.	Hydrogen Shipping Company Limited (“Hydrogen”)	Malta	Mostoles (sold - July 2007)
2.	Oxygen Shipping Company Limited (“Oxygen”)	Malta	Shibumi (sold – April 2007)
3.	Annapolis Shipping Company Limited (“Annapolis”)	Malta	Lacerta
4.	Helium Shipping Company Limited (“Helium”)	Malta	Striggla (sold – January 2007)
5.	Blueberry Shipping Company Limited (“Blueberry”)	Malta	Panormos (sold – January 2007)
6.	Silicon Shipping Company Limited (“Silicon”)	Malta	Flecha (sold – December 2006)
7.	Lancat Shipping Company Limited (“Lancat”)	Malta	Matira (Note 5)
8.	Tolan Shipping Company Limited (“Tolan”)	Malta	Tonga
9.	Malvina Shipping Company Limited (“Malvina”)	Malta	Coronado
10.	Arleta Navigation Company Limited (“Arleta”)	Malta	Xanadu
11.	Selma Shipping Company Limited (“Selma”)	Malta	La Jolla
12.	Royerton Shipping Company Limited (“Royerton”)	Malta	Netadola (Note 5)
13.	Samsara Shipping Company Limited (“Samsara”)	Malta	Ocean Crystal
14.	Lansat Shipping Company Limited (“Lansat”)	Malta	Paragon
15.	Farat Shipping Company Limited (“Farat”)	Malta	Toro
16.	Madras Shipping Company Limited (“Madras”)	Malta	Alona (sold – June 2007)
17.	Iguana Shipping Company Limited (“Iguana”)	Malta	Iguana
18.	Borsari Shipping Company Limited (“Borsari”)	Malta	Catalina
19.	Onil Shipping Company Limited (“Onil”)	Malta	Padre
20.	Zatac Shipping Company Limited (“Zatac”)	Malta	Waikiki
21.	Fabiana Navigation Company Limited (“Fabiana”)	Malta	Alameda
22.	Fago Shipping Company Limited (“Fago”)	Malta	Lanikai (sold -July 2007)
23.	Felicia Navigation Company Limited (“Felicia”)	Malta	Solana
24.	Karmen Shipping Company Limited (“Karmen”)	Malta	Sonoma
25.	Thelma Shipping Company Limited (“Thelma”)	Malta	Manasota
26.	Celine Shipping Company Limited (“Celine”)	Malta	Mendocino
27.	Seaventure Shipping Limited (“Seaventure”)	Marshall Islands	Hille Oldendorff (sold June 2007)

	Ship-owning Company	Country of Incorporation	Vessel
28.	Tempo Marine Co. (“Tempo”)	Marshall Islands	Maganari
29.	Star Record Owning Company Limited (‘Star”)	Marshall Islands	Ligari
30.	Human Owning Company Limited (“Human”)	Marshall Islands	Estepona (sold – April 2007)
31.	Classical Owning Company Limited (“Classical”)	Marshall Islands	Delray (sold – May 2007)
32.	Maternal Owning Company Limited (“Maternal”)	Marshall Islands	Lanzarote
33.	Paternal Owning Company Limited (“Paternal”)	Marshall Islands	Formentera (sold – December 2007)
34.	Argo Owning Company Limited (“Argo”)	Marshall Islands	Redondo
35.	Rea Owning Company Limited (“Rea”)	Marshall Islands	Ecola (ex Zella Oldendorff)
36.	Gaia Owning Company Limited (“Gaia”)	Marshall Islands	Samsara (ex Cape Venture)
37.	Kronos Owning Company Limited (“Kronos”)	Marshall Islands	Primera (ex Sea Epoch)
38.	Trojan Maritime Co. (“Trojan”)	Marshall Islands	Brisbane (ex Spring Brave)
39.	Atlas Owning Company Limited (“Atlas”)	Marshall Islands	Menorca (ex Oinoussian Legend)
40.	Dione Owning Company Limited (“Dione”)	Marshall Islands	Marbella (ex Restless)
41.	Phoebe Owning Company Limited (“Phoebe”)	Marshall Islands	Majorca (ex Maria G.O.)
42.	Uranus  Owning Company Limited (“Uranus”)	Marshall Islands	Heinrich Oldendorff
43.	Platan Shipping  Company Limited (“Platan”)	Malta	Daytona (sold – January 2007)
44.	Selene Owning  Company Limited (“Selene”)	Marshall Islands	Bargara (ex Songa Hua)
45.	Tethys Owning Company Limited (“Tethys”)	Marshall Islands	Capitola (ex Songa Hui)
46.	Ioli Owning Company Limited (“Ioli”)	Marshall Islands	Clipper Gemini
47.	Iason Owning Company Limited (“Iason”)	Marshall Islands	Oregon (ex Athina Zafirakis)
48.	Orpheus Owning Company Limited (“Orpheus”)	Marshall Islands	Avoca (ex Nord Mercury)
49.	Team up Owning Company Limited (“Team-up”)	Marshall Islands	Saldanha (ex Shino Brilliance)
50.	Iokasti Owning Company Limited (“Iokasti”)	Marshall Islands	VOC Galaxy
51.	Boon Star Owners Inc. (“Boon”)	Marshall Islands	Samatan (ex Trans Atlantic)
52	Norwalk Star Owners Inc. (“Norwalk”)	Marshall Islands	Gran Trader
53.	Roscoe Marine Ltd. (“Roscoe”)	Marshall Islands	Hull 1518A
54.	Monteagle Shipping S.A. (“Monteagle”)	Marshall Islands	Hull 1519A
55.	Iktinos Owning Company Limited (“Iktinos”)	Marshall Islands	Hull SS058
56.	Kallikrates Owning Company Limited (“Kallikrates”)	Marshall Islands	Hull SS059
57.	Mensa Enterprises Inc. (“Mensa”)	Marshall Islands	Hull 0002
58.	Mandarin Shipholding Co. (“Mandarin”)	Marshall Islands	Hull 0003
59.	Faedon Owning Company Limited (“Faedon”)	Marshall Islands	Hull 2089
60.	Dallan Star Owners Inc. (“Dallan”)	Marshall Islands	Hull HN-1001
61.	NT LLC Investors Ltd.	Marshall Islands	Conquistador (ex Kookabura)
	Other company		Activity
62.	Wealth Management Inc. (“Wealth”)	Marshall Islands	Cash Manager
63.	Primelead Limited (“Primelead”)	Cyprus

K 23113 0002 861289

EX-12.1

Exhibit 12.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(a) AND 15d-14(a), AS AMENDED

I, George Economou, certify that:

1.           I have reviewed this annual report on Form 20-F of DryShips Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.           The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5.  The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

Date:

/s/ George Economou

George Economou

Chief Executive Officer and Interim Chief Financial Officer

SK 23113 0002 861294

EX-12.2

Exhibit 12.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULE 13a-14(a) AND 15d-14(a), AS AMENDED

I, George Economou, certify that:

1.I have reviewed this annual report on Form 20-F of DryShips Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a  significant role in the Company's internal control over financial reporting

Date:

/s/ George Economou

George Economou

Chief Executive Officer and Interim Chief Financial Officer

SK 23113 0002 861299

EX-13.1

Exhibit 13.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this Annual Report of DryShips Inc. (the "Company") on Form 20-F for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, George Economou, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date:

 /s/ George Economou

George Economou

Chief Executive Officer and Interim Chief Financial Officer

SK 23113 0002 861304

EX-13.2

Exhibit 13.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this Annual Report of DryShips Inc. (the "Company") on Form 20-F for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, George Economou, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date:

/s/ George Economou

George Economou

Chief Executive Officer and Interim Chief Financial Officer

SK 23113 0002 861305

EX-15.1

Exhibit 15.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Form F-3/A No. 333-146540 and Form F-3 No. 333-139204) of DryShips Inc. of our report dated April 27, 2007, with respect to the consolidated financial statements of DryShips Inc. for the years ended December 31, 2006 and 2005, included in DryShips Inc.’s Annual Report on Form 20-F for the year ended December 31, 2007.

/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.

Athens, Greece

March 28, 2008

EX-15.2

Exhibit 15.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements No. 333-146540 on Form F-3 ASR and No. 333-139204 on Form F-3 of our report dated March 28, 2008, relating to the financial statements of DryShips Inc. and subsidiaries (the "Company"), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 20-F of the Company for the year ended December 31, 2007.

/s/ Deloitte.

Hadjipavlou, Sofianos & Cambanis S.A.

Athens, Greece

March 28, 2008

SK 23113 0002 867870