-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wwp4oa3lJsXK7vg+eZubSMRhc0/j8d+XhSMunU4e9Atj04ye9qE1zC8T85ePIyHr v9vyfl3sBw+BWjTFGDL4EQ== 0001341004-06-002988.txt : 20061113 0001341004-06-002988.hdr.sgml : 20061110 20061113064240 ACCESSION NUMBER: 0001341004-06-002988 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061113 DATE AS OF CHANGE: 20061113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Eagle Bulk Shipping Inc. CENTRAL INDEX KEY: 0001322439 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 980450435 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-51366 FILM NUMBER: 061204975 BUSINESS ADDRESS: STREET 1: 477 MADISON AVENUE STREET 2: SUITE 1405 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-785-2500 MAIL ADDRESS: STREET 1: 477 MADISON AVENUE STREET 2: SUITE 1405 CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 eagle10q.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2006 ------------------- 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 000-51366 EAGLE BULK SHIPPING INC. (Exact name of Registrant as specified in its charter) Republic of the Marshall Islands 98-0453513 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 477 Madison Avenue New York, New York 10022 Registrant's Address Registrant's telephone number, including area code: (212) 785-2500 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. YES X NO Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated Filer Accelerated Filer Non-accelerated Filer X ------ ----- ----- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO X Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Common Stock, par value $0.01per share 35,900,000 shares outstanding as of November 10, 2006. ================================================================================ 1 TABLE OF CONTENTS
Page PART I INANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005 3 Consolidated Statements of Operations (unaudited) for the three-months ended September 30, 2006 and 2005 and for nine months ended September 30, 2006 and the period from January 26, 2005 (inception) to September 4 30, 2005 Consolidated Statement of Stockholders' Equity (unaudited) for the nine-months ended September 30, 2006 5 Consolidated Statements of Cash Flows (unaudited) for the nine-months ended September 30, 2006 and for the period from January 6 26, 2005 (inception) to September 30, 2005. Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risks 32 Item 4. Controls and Procedures 33 PART II OTHER INFORMATION Item 1. Legal Proceedings 34 Item 1A. Risk Factors 34 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34 Item 3. Defaults upon Senior Securities 34 Item 4. Submission of Matters to a Vote of Security Holders 34 Item 5. Other Information 34 Item 6. Exhibits 35 Signatures 36
Part 1 : FINANCIAL INFORMATION Item 1 : Financial Statements EAGLE BULK SHIPPING INC. CONSOLIDATED BALANCE SHEETS
September 30, 2006 December 31, 2005 (Unaudited) Current Assets: Cash $ 23,213,588 $ 24,526,528 Accounts Receivable 398,152 281,094 Prepaid Charter Revenue 4,844,000 8,508,000 Prepaid Expenses 1,599,176 513,145 ------------- ------------- Total Current Assets 30,054,916 33,828,767 Fixed Assets: Vessels and Vessel Improvements, at cost, net of Accumulated Depreciation of $25,607,187 at September 30, 2006 and $10,384,247 at December 31, 2005 507,471,279 417,581,610 Restricted Cash 6,524,616 6,624,616 Deferred Drydock Costs, net of Accumulated Amortization of $543,030 at September 30, 2006, and $27,980 at December 31, 2005 2,148,074 393,702 Deferred Financing Costs, net of Accumulated Amortization of $215,556 at September 30, 2006 and $98,065 at December 31, 2005 2,169,525 1,268,209 Other Assets 3,516,513 2,647,077 ------------- ------------- Total Assets $ 551,884,923 $ 462,343,981 ============= ============= LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 2,758,788 $ 1,861,145 Accrued Interest 651,441 514,631 Other Accrued Liabilities 971,783 424,669 Deferred Revenue 77,500 1,306,000 Unearned Charter Hire Revenue 3,299,143 2,444,522 ------------- ------------- Total Current Liabilities 7,758,655 6,550,967 Long-term Debt 214,800,000 140,000,000 ------------- ------------- Total Liabilities 222,558,655 146,550,967 Commitment and Contingencies Stockholders' Equity: Preferred Stock, $.01 par value, 25,000,000 shares authorized, none issued -- -- Common stock, $.01 par value, 100,000,000 shares authorized, 35,900,000 shares issued and outstanding as of September 30, 2006 and 33,150,000 shares issued and outstanding as of December 31, 2005, respectively 359,000 331,500 Additional Paid-In Capital 357,593,881 320,822,037 Retained Earnings (net of cumulative Dividends declared of $68,081,500 at September 30, 2006 and $14,661,000 at December 31, 2005) (32,143,126) (8,007,600) Accumulated Other Comprehensive Income 3,516,513 2,647,077 ------------- ------------- Total Stockholders' Equity 329,326,268 315,793,014 ------------- ------------- Total Liabilities and Stockholders' Equity $ 551,884,923 $ 462,343,981 ============= =============
----------------------- The accompanying notes are an integral part of these Consolidated Financial Statements. 3 EAGLE BULK SHIPPING INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Period from Three Months Three Months Nine Months January 26, 2005 ended ended ended (inception) to September 30, September 30, September 30, September 30, 2006 2005 2006 2005 --------------- --------------- --------------- --------------- Revenues, net of commissions $ 28,358,830 $ 21,137,615 $ 76,254,265 $ 31,753,494 Vessel Expenses 6,118,038 3,732,726 15,742,457 6,848,124 Depreciation and Amortization 5,980,747 3,858,943 15,737,990 5,879,515 General and Administrative Expenses 1,266,905 833,384 3,366,408 2,253,421 Management and Other Fees to Affiliates -- -- -- 6,175,046 Non-cash Compensation Expense 3,076,699 3,735,705 5,768,355 11,376,552 --------------- --------------- --------------- --------------- Total Operating Expenses 16,442,389 12,160,758 40,615,210 32,532,658 --------------- --------------- --------------- --------------- Operating Income/(Loss) 11,916,441 8,976,857 35,639,055 (779,164) Interest Expense 3,180,336 1,727,416 7,364,009 4,961,012 Interest Income (364,632) (144,848) (1,009,928) (239,708) --------------- --------------- --------------- --------------- Net Interest Expense 2,815,704 1,582,568 6,354,081 4,721,304 --------------- --------------- --------------- --------------- Net Income/(Loss) $ 9,100,737 $ 7,394,289 $ 29,284,974 $ (5,500,468) =============== =============== =============== =============== Weighted Average Shares Outstanding : Basic 35,900,000 27,150,000 34,086,813 18,498,387 Diluted 35,900,678 27,150,000 34,086,848 18,498,387 Per Share Amounts: Basic Net Income/(Loss) $ 0.25 $ 0.27 $ 0.86 $ (0.30) Diluted Net Income/(Loss) $ 0.25 $ 0.27 $ 0.86 $ (0.30) Cash dividends declared and paid $ 0.50 -- $ 1.57 --
----------------------- The accompanying notes are an integral part of these Consolidated Financial Statements. 4 EAGLE BULK SHIPPING INC. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2006 Additional Common Paid-In Shares Shares Capital ------------- ------------- ------------- Balance at December 31, 2005 . 33,150,000 $ 331,500 $ 320,822,037 Comprehensive Income : Net Income -- -- -- Net Unrealized gains on derivatives -- -- -- Comprehensive Income -- -- -- Issuance of Common Stock, net -- of issuance costs 2,750,000 27,500 31,003,489 Cash Dividends -- -- -- Non-cash Compensation -- -- 5,768,355 ------------- ------------- ------------- Balance at September 30, 2006 35,900,000 $ 359,000 $ 357,593,881 ============= ============= =============
Retained Earnings Other Total Cash Accumulated Comprehensive Stockholders' Net Income Dividends Deficit Income Equity ------------- ------------- ------------- ------------- ------------- Balance at December 31, 2005 . $ 6,653,400 $ (14,661,000) $ (8,007,600) $ 2,647,077 $ 315,793,014 Comprehensive Income : Net Income 29,284,974 -- 29,284,974 -- 29,284,974 Net Unrealized gains on derivatives -- -- -- 869,436 869,436 ------------- Comprehensive Income -- -- -- -- 30,154,410 Issuance of Common Stock, net of issuance costs -- -- -- 31,030,989 Cash Dividends -- (53,420,500) (53,420,500) -- (53,420,500) Non-cash Compensation -- -- -- -- 5,768,355 ------------- ------------- ------------- ------------- ------------- Balance at September 30, 2006 $ 35,938,374 $ (68,081,500) $ (32,143,126) $ 3,516,513 $ 329,326,268 ============= ============= ============= ============= =============
----------------------- The accompanying notes are an integral part of these Consolidated Financial Statements. 5 EAGLE BULK SHIPPING INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Period from Nine Months January 26, 2005 ended (inception) to September 30, September 30, 2006 2005 --------------- --------------- Cash Flows from Operating Activities Net Income/(Loss) $ 29,284,974 $ (5,500,468) Adjustments to Reconcile Net Income (Loss) to Net Cash provided by Operating Activities: Items included in net income not affecting cash flows: Depreciation 15,222,940 5,879,515 Amortization of Deferred Drydocking Costs 515,050 -- Amortization of Deferred Financing Costs 117,491 1,195,456 Amortization of Prepaid and Deferred Charter Revenue 2,435,500 328,500 Non-cash Compensation Expense 5,768,355 11,376,552 Changes in Operating Assets and Liabilities: Accounts Receivable (117,058) (103,431) Prepaid Revenue -- (1,489,000) Prepaid Expenses (1,086,031) (783,946) Accounts Payable 713,068 1,906,956 Accrued Interest 136,810 546,784 Accrued Expenses 547,114 438,627 Deferred Revenue -- 2,056,500 Drydocking Expenditures (2,269,422) -- Unearned Charter Hire Revenue 854,621 2,507,425 --------------- --------------- Net Cash Provided by Operating Activities 52,123,412 18,359,470 Cash Flows from Investing Activities Advances for Vessel Deposits -- (7,000,000) Advances for Vessel Improvements -- (820,904) Purchase of Vessels (105,112,609) (365,733,279) --------------- --------------- Net Cash Used in Investing Activities (105,112,609) (373,554,183) Cash Flows from Financing Activities Capital Contribution -- 40,843,662 Issuance of Common Stock 33,000,000 201,600,000 Equity Issuance Costs (1,784,436) (15,070,710) Bank Borrowings 74,800,000 282,950,000 Rapayment of Bank Debt -- (125,950,000) Decrease/(Increase) in Restricted Cash 100,000 (5,500,000) Deferred Financing Costs (1,018,807) (2,503,107) Borrowings from Eagle Ventures LLC -- 58,730,434 Repayment of Eagle Ventures LLC Note -- (58,730,434) Cash Dividends (53,420,500) -- --------------- --------------- Net Cash Provided by Financing Activities 51,676,257 376,369,845 Net (Decrease)/Increase in Cash (1,312,940) 21,175,132 Cash at Beginning of Period 24,526,528 -- --------------- --------------- Cash at End of Period $ 23,213,588 $ 21,175,132 =============== =============== Supplemental Cash Flow Information: Cash paid during the period for Interest (including Fees) $ 7,110,772 $ 3,218,772 =============== ===============
----------------------- The accompanying notes are an integral part of these Consolidated Financial Statements. 6 EAGLE BULK SHIPPING INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation and General Information The accompanying unaudited interim consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries (collectively, the "Company"). The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership and operation of dry bulk vessels. The Company's fleet is comprised of Handymax bulk carriers, focused on the Supramax sub-class, and the Company operates its business in one business segment. The Company is a holding company incorporated on March 23, 2005, under the laws of the Republic of the Marshall Islands. Following incorporation, the Company merged with Eagle Holdings LLC, a Marshall Islands limited liability company formed on January 26, 2005, and became a wholly-owned subsidiary of Eagle Ventures LLC, a Marshall Islands limited liability company. Eagle Ventures LLC is owned by Kelso Investments Associates VII, L.P. and KEP VI, LLC, both affiliates of Kelso & Company, L.P. ("Kelso"), members of management, a director, and outside investors. The merger was accounted for as a reorganization of entities under common control. Eagle Ventures LLC currently owns approximately 28.2% of the Company's outstanding common stock. Eagle Ventures LLC is 80.7% owned by affiliates of Kelso. The Company is the sole owner of all of the outstanding shares of the Marshall Island incorporated wholly-owned subsidiaries listed below. The primary activity of each of these subsidiaries is the ownership of a vessel. ---------------------------------------------------------------------
Company Owner of dwt. Built Vessel Acquired Vessel Cardinal Shipping LLC Cardinal 55,408 2004 April 18, 2005 Condor Shipping LLC Condor 50,296 2001 April 29, 2005 Falcon Shipping LLC Falcon 50,296 2001 April 21, 2005 Griffon Shipping LLC Griffon 46,635 1995 June 1, 2005 Harrier Shipping LLC Harrier 50,296 2001 April 19, 2005 Hawk Shipping LLC Hawk I 50,296 2001 April 26, 2005 Heron Shipping LLC Heron 52,827 2001 December 1, 2005 Jaeger Shipping LLC Jaeger 52,248 2004 July 7, 2006 Kestrel Shipping LLC Kestrel I 50,326 2004 June 30, 2006 Kite Shipping LLC Kite 47,195 1997 May 9, 2005 Merlin Shipping LLC Merlin 50,296 2001 October 26, 2005 Osprey Shipping LLC Osprey I 50,206 2002 August 31, 2005 Peregrine Shipping LLC Peregrine 50,913 2001 June 30, 2005 Shikra Shipping LLC Shikra 41,096 1984 April 29, 2005 Sparrow Shipping LLC Sparrow 48,225 2000 July 19, 2005 Tern Shipping LLC Tern 50,200 2003 July 3, 2006
--------------------------------------------------------------------- The commercial and strategic management of the Company is carried out by a wholly-owned subsidiary of the Company, Eagle Shipping International (USA) LLC, a Marshall Islands limited liability company. 7 The following table represents certain information about the Company's revenue earning charters: --------------------------------------------------------------------- Daily Time Delivered to Charter Vessel Charterer Time Charter Expiration (1) Hire Rate - ------ --------- --------------------------- --------- Cardinal April 19, 2005 March 2007 to June 2007 $26,500 Condor April 30, 2005 November 2006 to March 2007 $24,000 Falcon April 22, 2005 February 2008 to June 2008 $20,950 Griffon February 17, 2006 January 2007 to March 2007 $13,550 Harrier April 21, 2005 March 2007 to June 2007 $23,750 Hawk I April 28, 2005 March 2007 to June 2007 $23,750 Heron December 11, 2005 November 2007 to February 2008 $24,000 Jaeger July 7, 2006 April 2007 to June 2007 $18,550 Kestrel I (2) July 1, 2006 December 2007 to April 2008 $18,750 Kite April 17, 2006 March 2007 to May 2007 $14,750 Merlin October 26, 2005 October 2007 to December 2007 $24,000 Osprey I (3) August 31, 2005 July 2008 to November 2008 $21,000 Peregrine July 1, 2005 October 2006 to January 2007 $24,000 Shikra (4) September 10, 2006 September 2007 to December 2007 $14,800 Sparrow July 20, 2005 November 2006 to February 2007 $22,500 Tern (5) July 3, 2006 December 2007 to April 2008 $19,000 - -------------------------------------- (1)The date range provided represents the earliest and latest date on which the charterer may redeliver the vessel to the Company upon the termination of the charter. (2)The charterer of the KESTREL I has an option to extend the charter period by 11 to 13 months at a daily time charter rate of $20,000 per day. (3)The charterer of the OSPREY I has an option to extend the charter period by up to 26 months at a daily time charter rate of $25,000. (4)Upon completion of the current charter in September 2006, the SHIKRA commenced a new time charter at $14,800 per day for 12 to 15 months. (5)The charterer of the TERN has an option to extend the charter period by 11 to 13 months at a daily time charter rate of $20,500 per day. The Company began vessel operations in April 2005. The following table represents certain information about the Company's charterers which individually accounted for more than 10% of the Company's gross time charter revenue during the periods indicated: ---------------------------------------------------------------------
Period from January 26, 2005 Charterer Three-months ended Three-months ended Nine-months ended (inception) to --------- ------------------- ------------------- ------------------ -------------- September 30, 2006 September 30, 2005 September 30, 2006 September 30, 2005 ------------------ ------------------ ------------------ ------------------ Charterer A 14.4% -- 15.3% -- Charterer B 19.4% 19.6% 17.3% 22.4% Charterer C 11.6% 20.2% 13.9% 17.1% Charterer D 12.0% 10.9% 12.3% 12.9% Charterer E 7.2% 9.9% 7.8% 10.9% Charterer F 6.2% 9.1% 7.0% 10.0%
--------------------------------------------------------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and the rules and regulations of the SEC which apply to interim financial statements. Accordingly, they do not include all of the information and footnotes normally included in consolidated financial statements prepared in conformity with accounting principles in the United States. They 8 should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2005 Annual Report on Form 10-K. The accompanying unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its consolidated financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year. Note 2. Vessels Vessel and Vessel Improvements During the three-month period ended September 30, 2006, the Company took delivery of the TERN, a 2003 built 50,209 dwt. Supramax class dry bulk vessel, and the JAEGER, a 2004 built 52,265 dwt. Supramax class dry bulk vessel. The Company funded the balance of the purchase price of $62,100,000 for the two vessels with a combination of proceeds from cash on hand and borrowings from its revolving credit facility. At September 30, 2006, the Company's fleet consisted of a total of 16 dry bulk vessels acquired at a total cost of $532,257,562. These costs consist of the contracted purchase price of $539,877,903, $472,159 in additional costs relating to the acquisition of the vessels, and adjustments of $8,092,500 in net prepaid charter revenue relating to the assumption of time charters associated with certain of the acquired vessels. The Company has also capitalized $820,904 of costs relating to vessel improvements. Vessel and vessel improvement costs have been depreciated from the date of their acquisition through their remaining estimated useful life. Depreciation expense for the three-month and nine-month periods ended September 30, 2006 were $5,775,804 and $15,222,940 respectively. Note 3. Long-Term Debt At September 30, 2006, the Company's debt consisted of $214,800,000 in borrowings under a revolving credit facility. During the three-month period ended September 30, 2006, the Company borrowed $32,400,000 from its revolving credit facility to partly fund the acquisition of the JAEGER. In July 2006, the Company amended and increased its existing revolving credit facility from $330,000,000 to $450,000,000 and extended its maturity date by one year to July 2016. The entire $450,000,000 facility will be available for a period of six years from July 30, 2006, compared to four years remaining in the commitment period of the Company's existing facility. There are no principal repayment obligations during this initial six-year period. Over the remaining four years, the facility will reduce in semi-annual amounts of $25,000,000 with a final reduction of $250,000,000 occurring simultaneously with the last semi-annual reduction. The amended facility will bear interest at the rate of 0.75% to 0.85% over LIBOR (decreased from 0.95% over LIBOR under its existing facility), depending upon the amount of debt drawn as a percentage of the value of the Company's vessels. The Company paid an arrangement fee of $900,000 in connection with the amended facility and will pay on a quarterly basis a commitment fee of 0.25% per annum (decreased from 0.40% under its existing facility) on the undrawn amount of the amended facility. At September 30, 2006, the Company had a remaining undrawn capacity of $235,200,000 available to borrow for future acquisitions of dry bulk vessels. For the three-month period ended September 30, 2006, interest rates applicable on the Company's debt ranged from 4.97% to 6.32%, including the margin. The weighted average effective interest rate was 5.49%. For the nine-month period ended September 30, 2006, interest rates applicable on the Company's debt ranged from 4.97% to 6.32%, including the margin. The weighted average effective interest rate was 5.37%. 9 Interest Expense consists of:
Period from Three-months Three-months Nine-months January 26, 2005 ended ended ended (inception) to September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ------------------ ------------------ ------------------ ------------------ Loan Interest $ 2,986,183 $ 1,467,773 $ 6,720,658 $ 2,821,079 Commitment Fees 142,887 194,900 525,860 336,255 Eagle Ventures Note Interest -- -- -- 608,222 Amortization of Deferred Financing Costs 51,266 64,743 117,491 1,195,456 ------------------ ------------------ ------------------ ------------------ Total Interest Expense $ 3,180,336 $ 1,727,416 $ 7,364,009 $ 4,961,012 ================== ================== ================== ==================
Interest-Rate Swaps The Company has entered into interest rate swaps to effectively convert a portion of its debt from a floating to a fixed-rate basis. The swaps are designated and qualify as cash flow hedges. During the quarter ended September 30, 2006, the Company entered an interest rate swap contract for a notional amount of $84,800,000. This contract matures in September 2009. On this contract, exclusive of applicable margin, the Company will pay 5.24% fixed-rate interest and receive floating-rate interest amounts based on three-month LIBOR settings. The Company has two other interest rate swap contracts for notional amounts of $100,000,000 and $30,000,000 which were entered into in 2005. These contracts mature in September 2010. On these contracts, exclusive of applicable margin, the Company pays 4.22% and 4.54% fixed-rate interest, respectively, and receives floating-rate interest amounts based on three-month LIBOR settings. The Company records the fair value of the interest rate swaps as an asset or liability on the balance sheet. The effective portion of the swap is recorded in accumulated other comprehensive income. At September 30, 2006 and December 31, 2005, the Company recorded an asset of $3,516,513 and $2,647,077, respectively, which is included in Other Assets in the accompanying balance sheet. Note 4. Related Party Transactions The Company did not incur any related party expenses in the three-month or nine-month periods ended September 30, 2006. The Company did not incur any related party expenses in the corresponding three-month period ended September 30, 2005. During the nine-month period ended September 30, 2005, the Company recorded an expense of $6,175,046. The Company had a financial advisory agreement dated February 1, 2005 with Kelso. Under the terms of the agreement the Company was to pay Kelso annual fees of up to $500,000. The agreement had also provided for Kelso to be paid fees in connection with other services. In June 2005, the Company terminated certain of its obligations under this agreement, including its obligation to pay the annual fees of $500,000, for a one-time payment of $1,000,000. The Company recorded an expense of $6,175,046 in the quarter ended June 30, 2005 for fees incurred under such agreement. Note 5. Commitments and Contingencies Vessel Technical Management Contract The Company has technical management agreements in place for each of its vessels with V. Ships Management Ltd., an independent technical manager. V. Ships is paid a technical management fee of $8,583 per vessel per month. 10 Operating Lease In December 2005, the Company entered into a lease for office space. The lease is secured by a Letter of Credit backed by cash collateral of $124,616 which amount is recorded under Restricted Cash. The Letter of Credit amounts decline to zero at the conclusion of the lease. Note 6. Earnings Per Common Share The computation of earnings per share is based on the weighted average number of common shares outstanding during the period. In the three-month period ended March 31, 2006, the Company granted 56,666 shares of the Company's stock in options under the 2005 Stock Incentive Plan (see Note 9). Diluted net income per share gives effect to the aforementioned stock options. ---------------------------------------------------------------------
Period from Three months Three months Nine Months January 26, 2005 ended ended ended (inception) to September 30, September 30, September 30, September 30, 2006 2005 2006 2005 -------------- --------------- --------------- -------------- Net Income/(Loss) $9,100,737 $7,394,289 $29,284,974 $(5,500,468) Weighted Average Shares - Basic . 35,900,000 27,150,000 34,086,813 18,498,387 Incremental Shares using treasury stock method 678 -- 35 -- Weighted Average Shares - Diluted 35,900,678 27,150,000 34,086,848 18,498,387 Basic Earnings Per Share $0.25 $0.27 $0.86 $(0.30) Diluted Earnings Per Share $0.25 $0.27 $0.86 $(0.30)
--------------------------------------------------------------------- Note 7. Non-cash Compensation For the three-months ended September 30, 2006 the Company recorded a non-cash, non-dilutive compensation charge of $3,076,699 which relates to profits interests awarded to members of the Company's management by the Company's principal shareholder Eagle Ventures LLC. For the nine-months ended September 30, 2006 the Company recorded a non-cash compensation charge of $5,768,355. This amount includes $5,721,322 in non-cash, non-dilutive charges relating to profits interests awarded to members of the Company's management by the Company's principal shareholder Eagle Ventures LLC, and a non-cash amount of $47,033 which relates to the fair value of the stock options granted to certain directors of the Company under the 2005 Stock Incentive Plan on the date of grant (see Note 9). These profits interests will dilute only the interests of owners of Eagle Ventures LLC, and will not dilute the direct holders of the Company's common stock. For the three-months ended September 30, 2006, Eagle Ventures LLC paid certain members of the Company's management $1,756,606 as compensation under the profits interests. The non-cash compensation charge is being recorded as an expense over the estimated service period in accordance with SFAS No. 123(R). The non-cash compensation charges will be based on the fair value of the profits interests which will be "marked to market" at the end of each reporting period. The impact of any changes in the estimated fair value of the profits interests will be recorded as a change in estimate cumulative to the date of change. The impact on the amortization of the compensation charge of any changes to the estimated vesting periods for the performance related profits interests will be adjusted prospectively as a change in estimate. Note 8. Capital Stock Dividends 11 The Company's current policy is to declare quarterly dividends to stockholders in February, April, July and October. Payment of dividends is limited by the terms of certain agreements which the Company and its subsidiaries are party to. The Company's revolving credit facility permits it to pay quarterly dividends in amounts up to its quarterly earnings before extraordinary or exceptional items, interest, taxes, depreciation and amortization (Credit Agreement EBITDA), less the aggregate amount of interest incurred and net amounts payable under interest rate hedging agreements during the relevant period and an agreed upon reserve for dry-docking for the period, provided that there is not a default or breach of loan covenant under the credit facility and the payment of the dividends would not result in a default or breach of a loan covenant. Depending on market conditions in the dry bulk shipping industry and acquisition opportunities that may arise, the Company may be required to obtain additional debt or equity financing which could affect its dividend policy. However, any determination to pay dividends in the future will be at the discretion of the Board of Directors and will depend upon the Company's results of operations, financial condition, capital restrictions, covenants and other factors deemed relevant by the Board of Directors. On July 18, 2006 the Company's Board of Directors declared a cash dividend for the second quarter of 2006 of $0.50 per share which was paid on August 3, 2006 to all shareholders of record as of July 28, 2006. The aggregate amount of this cash dividend was $17,950,000. On October 18, 2006 the Company's Board of Directors declared a cash dividend for the third quarter of 2006 of $0.51 per share, based on 35,900,000 shares of common stock outstanding, payable on November 2, 2006 to all shareholders of record as of October 30, 2006. The aggregate amount of the cash dividend paid to the Company's shareholders on November 2, 2006 was $18,309,000. Note 9. 2005 Stock Incentive Plan The Company adopted the 2005 Stock Incentive Plan for the purpose of affording an incentive to eligible persons. The 2005 Stock Incentive Plan provides for the grant of equity-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses, dividend equivalents and other awards based on or relating to the Company's common stock to eligible non-employee directors, selected officers and other employees and independent contractors. The plan is administered by a committee of the Company's Board of Directors. An aggregate of 2.6 million shares of the Company's common stock has been authorized for issuance under the plan. As of December 31, 2005, no grants had been made under the plan. On March 17, 2006, the Company granted options to purchase 56,666 shares of the Company's common stock to its independent non-employee directors. These options vested and became exercisable on the grant date at an exercise price of $13.23 per share. All options expire ten years from the date of grant. As of September 30, 2006, no other grants have been made under the plan. For purposes of determining compensation cost for the Company's stock option plans using the fair value method of FAS 123(R), the fair value of the options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rate of 5%, dividend yield of 14%, expected stock price volatility factor of 0.33. On March 17, 2006, the Company also granted a Dividend Equivalent Rights Award to its independent non-employee directors equivalent to 62,964 shares of the Company's common stock. This award entitles the participant to receive a Dividend Equivalent payment each time the Company pays a dividend to the Company's stockholders. The amount of the Dividend Equivalent payment is equal to the number of Dividend Equivalent Rights multiplied by the amount of the per share dividend paid by the Company on its stock on the date the dividend is paid. In the three-month period ended September 30, 2006, the Company has recorded $31,482 as compensation expense for the Dividend Equivalent payments relating to the dividend paid to shareholders on August 3, 2006. Note 10. Subsequent Events Vessel Newbuilding Contract 12 On November 6, 2006, the Company, through its subsidiaries, entered into two vessel newbuilding contracts with IHI Marine United Inc., a Japanese shipyard, for the construction of two `Future-56' class Supramax vessels. These 56,000 deadweight ton vessels are expected to be delivered in January and February of 2010, respectively. The contract price for each vessel is 3.655 billion Japanese Yen or approximately $33.5 million after giving effect to currency hedges. The Company has placed deposits of 1.462 billion Japanese Yen or $12.4 million for each of the vessels, which were funded through borrowings from its credit facility, and will pay an additional 10% of the contract price in November 2009, and the remainder upon delivery. The Company has hedged its Japanese Yen exposures into U.S. Dollars in order to effectively eliminate currency risk. Credit Facility On November 6, 2006, the Company amended its existing revolving credit facility from its sole lender, Royal Bank of Scotland plc to increase the borrowing capacity from $450 million to $500 million. The structure of the financing will enable the Company to capitalize pre-delivery payments under the vessel newbuilding contracts described above and costs associated with supervision and financing the new vessels. There are no principal repayment obligations under the amended facility until July 2012. Over the remaining four years until maturity in 2016, the facility will reduce in semi-annual amounts of $28,750,000 with a final reduction of $270,000,000 occurring simultaneously with the last semi-annual reduction. All other terms and conditions of the amended facility remain the same as the existing facility. Non-cash Compensation On November 9, 2006, the limited liability company agreement of Eagle Ventures LLC was amended and restated (the "Fifth LLC Agreement"). Pursuant to the Fifth LLC Agreement, the unvested portion of the performance-related profits interests that previously vested ratably based on Kelso affiliates achieving a multiple (ranging from two to four times) on their original investment in the Company will now vest ratably based on Kelso affiliates achieving a multiple (ranging from two to 3.25 times) on their original investment in the Company. In addition, a first priority payment was added so that certain members of Eagle Ventures receive a first priority distribution from Eagle Ventures, prior to other distributions to members of Eagle Ventures, in an aggregate amount of approximately $100,000, in order to adjust for the interest payments received by Eagle Ventures on loans made by Eagle Ventures to the Company prior to its initial public offering. Furthermore, all of the service-related profits interests that are subject to a three-year vesting schedule are now considered fully vested for purposes of determining participation in distributions from Eagle Ventures but these service-related profits interests will remain forfeitable, if applicable, by the management members (in accordance with the existing three-year vesting schedule) upon their termination of employment with Eagle Ventures LLC or its subsidiaries (including the Company). Finally, a second priority payment was added so that management members receive a second priority distribution from Eagle Ventures, prior to other distributions to members of Eagle Ventures (other than the first priority payment described above), in an aggregate amount of approximately $740,000 in respect of such newly vested service-related profits interests. Accordingly, the Company anticipates recording an additional charge in the fourth quarter of approximately $840,000 as a result of the amendment. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following is a discussion of the Company's financial condition and results of operation for the three-month and nine-month periods ended September 30, 2006. This section should be read in conjunction with the consolidated financial statements included elsewhere in this report and the notes to those financial statements. This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provided for under these sections. These statements may include words such as "believe," "estimate," "project," "intend," "expect," "plan," "anticipate," and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward looking statements reflect management's current expectations and observations with respect to future events and financial performance. Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by those forward-looking statements. The principal factors that affect our financial position, results of operations and cash flows include, charter market rates, which have recently increased to historic highs, and periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily in U.S. dollars, depreciation expenses, which are a function of the cost of our vessels, significant vessel improvement costs and our vessels' estimated useful lives, and financing costs related to our indebtedness. Our actual results may differ materially from those anticipated in these forward looking statements as a result of certain factors which could include the following: (i) changes in demand in the dry bulk market, including, without limitation, changes in production of, or demand for, commodities and bulk cargoes, generally or in particular regions; (ii) greater than anticipated levels of dry bulk vessel new building orders or lower than anticipated rates of dry bulk vessel scrapping; (iii) changes in rules and regulations applicable to the dry bulk industry, including, without limitation, legislation adopted by international bodies or organizations such as the International Maritime Organization and the European Union or by individual countries; (iv) actions taken by regulatory authorities; (v) changes in trading patterns significantly impacting overall dry bulk tonnage requirements; (vi) changes in the typical seasonal variations in dry bulk charter rates; (vii) changes in the cost of other modes of bulk commodity transportation; (viii) changes in general domestic and international political conditions; (ix) changes in the condition of the Company's vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated dry docking costs); (x) and other factors listed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our Registration Statement on Form S-1 filed with the Securities and Exchange Commission. This discussion also includes statistical data regarding world dry bulk fleet and orderbook and fleet age. We generated some of these data internally, and some were obtained from independent industry publications and reports that we believe to be reliable sources. We have not independently verified these data nor sought the consent of any organizations to refer to their reports in this annual report. We disclaim any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Overview We are Eagle Bulk Shipping Inc., a Marshall Islands corporation headquartered in New York City. We are the largest U.S. based owner of Handymax dry bulk vessels. Handymax dry bulk vessels range in size from 35,000 to 60,000 deadweight tons, or dwt, and transport a broad range of major and minor bulk cargoes, including iron ore, coal, grain, cement and fertilizer, along worldwide shipping routes. As of September 30, 2006, we owned and operated a modern fleet of 16 Handymax dry bulk vessels that we have purchased from unrelated third parties. In November 2006, we further expanded our fleet by placing orders for two newbuilding vessels of 56,000 dwt capacity which are to be delivered into our fleet in the first quarter of 2010. We are focused on maintaining a high quality fleet that is concentrated primarily in one vessel type - Handymax dry bulk carriers and its sub-category of Supramax vessels which are Handymax vessels ranging in size 14 from 50,000 to 60,000 dwt. Twelve of the 16 vessels in our operating fleet are classed as Supramax dry bulk vessels. These vessels have the cargo loading and unloading flexibility of on-board cranes while offering cargo carrying capacities approaching that of Panamax dry bulk vessels, which range in size from 60,000 to 100,000 dwt and must rely on port facilities to load and offload their cargoes. We believe that the cargo handling flexibility and cargo carrying capacity of the Supramax class vessels make them attractive to potential charterers. The 16 vessels in our operating fleet have a combined carrying capacity of 796,759 dwt and an average age of six years as compared to an average age for the world Handymax dry bulk fleet of over 15 years. Each of our vessels is owned by us through a separate wholly owned Marshall Islands limited liability company. We maintain our principal executive offices at 477 Madison Avenue, New York, New York 10022. Our telephone number at that address is (212) 785-2500. Our website address is www.eagleships.com. Information contained on our website does not constitute part of this quarterly report. Our financial performance since inception is based on the following key elements of our business strategy: (1) concentration in one vessel category: Handymax dry bulk vessels, which offer size, operational and geographical advantages (over Panamax and Capesize vessels), (2) our strategy is to charter our vessels primarily pursuant to one- to three-year time charters to allow us to take advantage of the stable cash flow and high utilization rates that are associated with medium to long-term time charters. Reliance on the spot market contributes to fluctuations in revenue, cash flow, and net income. On the other hand, time charters provide a shipping company with a predictable level of revenues. We have entered into time charters for all of our vessels which range in length from one to three years and provide for fixed semi-monthly payments in advance. This strategy is effective in strong and weak dry bulk markets, giving us security and predictability of cashflows when we look at the volatility of the shipping markets, (3) maintain high quality vessels and improve standards of operation through improved environmental procedures, crew training and maintenance and repair procedures, and (4) maintain a balance between purchasing vessels as market conditions and opportunities arise and maintaining prudent financial ratios (e.g. leverage ratio). Our Fleet The following table presents certain information concerning our fleet as of September 30, 2006. --------------------------------------------------------------------- Vessel Year Built Dwt Time Charter Employment Expiration (1) SUPRAMAX: Cardinal (3) 2004 55,408 March 2007 to June 2007 Condor (2) (4) 2001 50,296 November 2006 to March 2007 Falcon (2) 2001 50,296 February 2008 to June 2008 Harrier (2) 2001 50,296 March 2007 to June 2007 Hawk I (2) (5) 2001 50,296 April 2007 Heron 2001 52,827 December 2007 to February 2008 Jaeger 2004 52,248 April 2007 to June 2007 Kestrel ((6)) 2004 50,326 December 2007 to April 2008 Merlin (2) 2001 50,296 October 2007 to December 2007 Osprey I (2) (7) 2002 50,206 July 2008 to November 2008 Peregrine (3) (8) 2001 50,913 October 2006 to January 2007 15 Tern (9) 2003 50,200 December 2007 to April 2008 HANDYMAX: Sparrow (3) (10) 2000 48,225 November 2006 to February 2007 Kite 1997 47,195 March 2007 to May 2007 Griffon (11) 1995 46,635 January 2007 to February 2007 Shikra (12) 1984 41,096 September 2007 to December 2007 - ---------------------------------------------------- (1) The date range provided represents the earliest and latest date on which the charterers may redeliver the vessel to us upon the termination of the charter. (2) These vessels are sister ships. (3) These vessels are similar ships built at the same shipyard. (4) Upon completion of the current charter the CONDOR will enter a new time charterat $20,500 per day for 26 to 29 months. (5) The charter for the HAWK I has been renewed at $22,000 per day commencing in April 2007 for 24 to 26 months. (6) The charterer of the KESTREL I has an option to extend the charter period by 11 to 13 months at a daily time charter rate of $20,000 per day. (7) The charterer of the OSPREY I has an option to extend the charter period by up to 26 month at a daily time charter rate of $25,000 per day. (8) Upon completion of the current charter the PEREGRINE will enter a new time charter at $20,500 per day for 24 to 26 months. (9) The charterer of the TERN has an option to extend the charter period by 11 to 13 months at a daily time charter rate of $20,500 per day.. (10) Upon completion of the current charter the SPARROW will enter a new time charter at a base rate of $24,000 per day for 11 to 13 months with a profit share of 30% of up to the first $3,000 per day over the base rate (11) Upon completion of the current charter the GRIFFON will enter a new time charter at $20,075 per day for 24 to 26 months. (12) Upon completion of the current charter in September 2006, the SHIKRA commenced a new time charter at $14,800 per day for 12 to 15 months. New Acquisitions In November 2006, the Company, through its subsidiaries, entered into two vessel newbuilding contracts with IHI Marine United Inc., a Japanese shipyard, for the construction of two `Future-56' class Supramax vessels. These 56,000 deadweight ton vessels are expected to be delivered in January and February of 2010, respectively. The contract price for each vessel is 3.655 billion Japanese Yen or approximately $33.5 million after giving effect to currency hedges. The Company has placed deposits of 1.462 billion Japanese Yen or $12.4 million for each of the vessels, which were funded through borrowings from its credit facility, and will pay an additional 10% of the contract price in November 2009, and the remainder upon delivery. The Company has hedged its Japanese Yen exposures into U.S. Dollars in order to effectively eliminate currency risk. Fleet Management The management of our fleet includes the following functions: o Strategic management. We locate, obtain financing and insurance for, purchase and sell vessels. o Commercial management. We obtain employment for our vessels and manage our relationships with charterers. o Technical management. The technical manager performs day-to-day operations and maintenance of our vessels. Commercial and Strategic Management 16 We carry out the commercial and strategic management of our fleet through our wholly owned subsidiary, Eagle Shipping International (USA) LLC, a Marshall Islands limited liability company that maintains its principal executive offices in New York City. We currently have a total of eight shore based personnel, including our senior management team and our office staff, either directly or through this subsidiary, provides the following services: o commercial operations and technical supervision; o safety monitoring; o vessel acquisition; and o financial, accounting and information technology services. Technical Management The technical management of our fleet is provided by our technical manager, V.Ships, an unaffiliated third party, that we believe is the world's largest provider of independent ship management and related services. We review the performance of V.Ships on an annual basis and may add or change technical managers. Technical management includes managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging our hire of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. V.Ships also manages and processes all crew insurance claims. Our technical manager maintains records of all costs and expenditures incurred in connection with its services that are available for our review on a daily basis. Our technical manager is a member of Marine Contracting Association Limited (MARCAS), an association that arranges bulk purchasing for its members, which enables us to benefit from economies of scale. We currently crew our vessels with Ukrainian officers and seamen supplied by V.Ships in its capacity as technical manager. These officers and seamen are employees of our wholly owned vessel owning subsidiaries while aboard our vessels. We currently employ a total of 341 officers and seamen on the 16 vessels in our operating fleet. Our technical manager handles each seaman's training, travel, and payroll and ensures that all our seamen have the qualifications and licenses required to comply with international regulations and shipping conventions. Additionally, our seafaring employees perform most commissioning work and assist in supervising work at shipyards and drydock facilities. We typically man our vessels with more crew members than are required by the country of the vessel's flag in order to allow for the performance of routine maintenance duties. All of our crew members are subject to and are paid commensurate with international collective bargaining agreements and, therefore, we do not anticipate any labor disruptions. No international collective bargaining agreements to which we are a party are set to expire within two years. For the three and nine-month periods ended September 30, 2006, we paid our technical manager a fee of $8,583 per vessel per month, plus actual costs incurred by our vessels. Competition We compete with a large number of international fleets. The international shipping industry is highly competitive and fragmented with many market participants. There are approximately 6,300 drybulk carriers aggregating approximately 360 million dwt, and the ownership of these vessels is divided among approximately 1,400 mainly private independent dry bulk vessel owners with no one shipping group owning or controlling more than 5.0% of the world dry bulk fleet. We primarily compete with other owners of dry bulk vessels in the Handymax class that are mainly privately owned fleets. Competition in the ocean shipping industry varies primarily according to the nature of the contractual relationship as well as with respect to the kind of commodity being shipped. Our business will fluctuate in line with the main patterns of trade of dry bulk cargoes and varies according to changes in the supply and demand for these 17 items. Competition in virtually all bulk trades is intense and based primarily on supply and demand. 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. Increasingly, major customers are demonstrating a preference for modern vessels based on concerns about the environmental and operational risks associated with older vessels. Consequently, owners of large modern fleets have gained a competitive advantage over owners of older fleets. As in the spot market, the time charter market is price sensitive and also depends on our ability to demonstrate the high quality of our vessels and operations to chartering customers. However, because of the longer term commitment, customers entering time charters are more concerned about their exposure and image from chartering vessels that do not comply with environmental regulations or that will be forced out of service for extensive maintenance and repairs. Consequently, in the time charter market, factors such as the age and quality of a vessel and the reputation of the owner and operator tend to be more significant than in the spot market in competing for business. Value of Assets and Cash Requirements The replacement costs of comparable new vessels may be above or below the book value of our fleet. The market value of our fleet may be below book value when market conditions are weak and exceed book value when markets are strong. In common with other shipowners, we may consider asset redeployment which at times may include the sale of vessels at less than their book value. The Company's results of operations and cash flow may be significantly affected by future charter markets. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations is based upon our interim consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions. Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies, because they generally involve a comparatively higher degree of judgment in their application. Revenue Recognition We currently generate all of our revenue from time charters. Time charters are for a specific period of time at a specific rate per day or month, and are generally not as complex or as subjective as voyage charters. If we had a vessel on a voyage charter, or a charter in the spot market, we would agree to provide a vessel for the transport of specific goods between specific ports in return for the payment of an agreed upon freight per ton of cargo or, alternatively, for a specified total amount. All operating costs would be for our account. Vessel Lives and Impairment The carrying value of each of our vessels represents its original cost at the time it was delivered or purchased less depreciation. We depreciate our dry bulk vessels on a straight-line basis over their estimated useful lives, estimated to be 28 years from date of initial delivery from the shipyard to the original owner. Depreciation is based on cost less the estimated residual salvage value. Salvage, or scrap, value is based upon a vessel's lightweight tonnage ("lwt") multiplied by a scrap rate. We use a scrap rate of $150 per lwt, which we believe is common in the dry bulk shipping industry, to compute each vessel's salvage value. An increase in the useful life of a dry bulk vessel or in its salvage value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of a dry bulk vessel or in its salvage value would have the effect of increasing the annual depreciation charge. However, when regulations place limitations over the ability of a vessel to trade on a worldwide 18 basis, the vessel's useful life is adjusted to end at the date such regulations become effective. The estimated scrap value is used in the computation of depreciation expense and recoverability of the carrying value of each vessel when evaluating for impairment of vessels. Management's estimates for salvage values may differ from actual results. The carrying values of the Company's vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Historically, both charter rates and vessel values tend to be cyclical. We evaluate the carrying amounts and periods over which long-lived assets are depreciated to determine if events have occurred which would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, we review certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. We determine undiscounted projected net operating cash flow for each vessel and compare it to the vessel carrying value. This assessment is made at the individual vessel level since separately identifiable cash flow information for each vessel is available. In developing estimates of future cash flows, the Company must make assumptions about future charter rates, ship operating expenses, and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well as future expectations. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. In the event that an impairment were to occur, we would determine the fair value of the related asset and record a charge to operations calculated by comparing the asset's carrying value to the estimated fair value. We estimate fair value primarily through the use of third party valuations performed on an individual vessel basis. Deferred Drydock Cost There are three methods that are used by the shipping industry to account for drydockings; first is the prepaid method where drydock costs are capitalized when incurred and amortized over the period to the next scheduled drydock; second, is the accrual method where the estimated cost of the next scheduled drydock is accrued over the period preceding such drydock, and lastly; expensing drydocking costs in the period it is incurred. We use the prepaid method of accounting for drydock expenses. Under the prepaid method, drydock expenses are capitalized and amortized on a straight-line basis until the next drydock, which we estimate to be a period of two to three years. We believe the prepaid method better matches costs with revenue and minimizes any significant changes in estimates associated with the accrual method, including the disposal of vessels before a drydock which has been accrued before it is performed. We use judgment when estimating the period between drydocks performed, which can result in adjustments to the estimated amortization of drydock expense. If the vessel is disposed of before the next drydock, the remaining balance in prepaid drydock is written-off to the gain or loss upon disposal of vessels in the period when contracted. We expect that our vessels will be required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. Costs capitalized as part of the drydocking include actual costs incurred at the drydock yard and parts and supplies used in making such repairs. Vessel Acquisitions Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market data and the amount of expected future cash flows. We value any asset or liability arising from the market value of the time charters assumed when an acquired vessel is delivered to us. Where we have assumed an existing charter obligation or enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are less than market charter rates, we record a liability in Deferred Revenues based on the difference between the assumed charter rate and the market charter rate for an equivalent vessel. Conversely, where we assume an existing charter obligation or enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are above market charter rates, we record an asset in Prepaid Charter Revenue, based on the difference between the market charter rate and the contracted charter rate for an equivalent vessel. This determination is made at the time the vessel is delivered to us, and such assets and liabilities are amortized to revenue over the remaining period of the charter. The determination of the fair value of acquired assets and assumed liabilities requires us to make significant assumptions and estimates of many 19 variables including market charter rates, expected future charter rates, future vessel operation expenses, the level of utilization of our vessels and our weighted average cost of capital. The use of different assumptions could result in a material change in the fair value of these items, which could have a material impact on our financial position and results of operations. In the event that the market charter rates relating to the acquired vessels are lower than the contracted charter rates at the time of their respective deliveries to us, our net earnings for the remainder of the terms of the charters may be adversely affected although our cash flows will not be so affected. Factors Affecting Our Results of Operations We believe that the important measures for analyzing future trends in our results of operations consist of the following: o Ownership days: We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership 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 a period. o Available days: We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition, scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues. o Operating days: We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues. o Fleet utilization: We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning. Voyage and Time Charter Revenue Shipping revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by a Company and the trades in which those vessels operate. In the drybulk sector of the shipping industry, rates for the transportation of drybulk cargoes such as ores, grains, steel, fertilizers, and similar commodities, are determined by market forces such as the supply and demand for such commodities, the distance that cargoes must be transported, and the number of vessels expected to be available at the time such cargoes need to be transported. The demand for shipments then is significantly affected by the state of the economy globally and in discrete geographical areas. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally because of scrapping. Our revenues are driven primarily by the number of vessels in our fleet, the number of days during which our vessels operate and the amount of the daily charter hire rates that our vessels earn under charters, which, in turn, are affected by a number of factors, including: o the duration of our charters; o our decisions relating to vessel acquisitions and disposals; o the amount of time that we spend positioning our vessels; o the amount of time that our vessels spend in dry-dock undergoing repairs; o maintenance and upgrade work; 20 o the age, condition and specifications of our vessels; o levels of supply and demand in the dry bulk shipping industry; and o other factors affecting spot market charter rates for dry bulk carriers. As is common in the shipping industry, we pay commissions ranging from 1.25% to 6.25% of the total daily charter hire rate of each charter to unaffiliated ship brokers and in-house brokers associated with the charterers, depending on the number of brokers involved with arranging the charter. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees. Insurance expense varies with overall insurance market conditions as well as the insured's loss record, level of insurance and desired coverage. The main vessel insurance expenses include Protection and Indemnity ("P & I") insurance (i.e. liability insurance) costs, and hull and machinery insurance (i.e. asset insurance) costs. Certain other insurances, such as basic war risk premiums based on voyages into designated war risk areas are often for the account of the charterers. With regard to vessel operating expenses, we have entered into technical management agreements for each of our vessels with V. Ships Management Ltd, our independent technical manager. In conjunction with our management, V. Ships has established an operating expense budget for each vessel and performs the technical management of our vessels. All deviations from the budgeted amounts are for our account. Technical management services include managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging the hire of qualified officers and crew, arranging dry-docking and repairs, purchasing stores, supplies, spare parts and new equipment, appointing supervisors and technical consultants and providing technical support. Our vessel operating expenses, which generally represent costs under the vessel operating budgets, cost of insurance and vessel registry and other regulatory fees, will increase with the enlargement of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, may also cause these expenses to increase, including, for instance, developments relating to market prices for insurance and petroleum-based lubricants and supplies. Voyage Expenses To the extent that we employ our vessels on voyage charters, we will incur expenses that include port and canal charges, bunker (fuel oil) expenses and commissions, as these expenses are borne by the vessel owner on voyage charters. Port and canal charges and bunker expenses primarily increase in periods during which vessels are employed on voyage charters because these expenses are for the account of the vessels. Currently all our vessels are employed under time charters that require the charterer to bear all of those expenses, hence we expect that any port and canal charges and bunker expenses, if incurred, will represent a relatively minor portion of our vessels' overall expenses. Results of Operations for the three-month periods ended September 30, 2006 and September 30, 2005 and nine-months ended September 30, 2006 and the period from January 26, 2005 (inception) to September 30, 2005 Fleet Data Fleet utilization was steady for the three-month periods ending September 30, 2006 and September 30, 2005 respectively even as fleet days increased by 57% in the three-month period from a year before due to increase in fleet size. 21
Period from January 26 Three Months ended Three Months ended Nine Months ended (inception) to September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ---------------- ---------------- ---------------- ---------------- Ownership Days 1,463 932 3,816 1,422 Available Days 1,443 929 3,752 1,408 Operating Days 1,437 926 3,734 1,403 Fleet Utilization 99.6% 99.7% 99.5% 99.6%
Revenues Net revenues, for the three-month period ended September 30, 2006, of $28,358,830 includes billed time charter revenues of $30,671,690 and deductions for brokerage commissions of $1,587,860 and $725,000 in amortization of net prepaid and deferred charter revenue. Net revenues for the three-month period ended September 30, 2006 were 134% greater than net revenues for the three-month period ended September 30, 2005, primarily due to a larger fleet size as reflected by increased operating days. Net revenue, for the same three-month period ended September 30, 2005, was $21,137,615 which included billed time charter revenues of $22,315,461 and deductions for brokerage commissions of $1,054,346 and $123,500 in amortization of net prepaid and deferred charter revenue. Net revenues, for the nine-month period ended September 30, 2006, of $76,254,265 includes billed time charter revenues of $82,919,582 and deductions for brokerage commissions of $4,229,817 and $2,435,500 in amortization of net prepaid and deferred charter revenue. Net revenue, for the period from January 26, 2005 (inception) to September 30, 2005, was $31,753,494 which included billed time charter revenues of $33,801,872 and deductions for brokerage commissions of $1,719,878 and $328,500 in amortization of net prepaid and deferred charter revenue. Net revenues for the nine-month period ended September 30, 2006 were greater than net revenues for the period from January 26, 2005 (inception) to September 30, 2005 primarily due to a larger fleet size and to reflect the shorter operating period in 2005 as vessel operations commenced only in April 2005. Vessel Expenses For the three-month period ended September 30, 2006, total vessel expenses incurred amounted to $6,118,038. These expenses included $5,231,420 in vessel operating costs, $410,353 in technical management fees, $213,636 in delivery and pre-operating costs, including costs for providing initial provisions, stores and spares, for the three newly acquired vessels which went into operation in the quarter, and $262,629 in costs associated with vessel on-board inventory. Total vessel expenses for the corresponding three-month period ended September 30, 2005 were $3,732,726 and this included vessel operating costs of $3,420,859, delivery and pre-operating costs of $275,383, and inventory costs of $36,484. Total vessel expenses for the three-month period ended September 30, 2006 were higher than the same three-month period ended September 30, 2005 primarily due to the increase in fleet size and corresponding increase in vessel ownership days. For the nine-month period ended September 30, 2006, total vessel expenses incurred amounted to $15,742,457. These expenses included $14,080,431 in vessel operating costs, $1,079,853 in technical management fees, $213,636 in delivery and pre-operating costs, including costs for providing initial provisions, stores and spares, for the three newly acquired vessels which went into operation in the quarter, and $368,537 in costs associated with vessel on-board inventory. Total vessel expenses for the period from January 26, 2005 (inception) to September 30, 2005 were $6,848,124 and this included vessel operating costs of $4,983,409, delivery and pre-operating costs of $1,462,933, and inventory costs of $401,782. Total vessel expenses for the nine-month period ended September 30, 2006 were higher than the period from January 26, 2005 (inception) to September 30, 2005 due to the increase in fleet size and the increase in vessel ownership days. Depreciation and Amortization 22 For the three-month period ended September 30, 2006, total depreciation and amortization expense was $5,980,747 of which amount, $5,775,804 relates to depreciation and $204,943 relates to the amortization of deferred drydocking costs. Total depreciation expense for the corresponding three-month period ended September 30, 2005 was $3,858,943. Depreciation expenses increased from the corresponding three-month period ended September 30, 2005 due to the growth in our fleet. Amortization of deferred financing costs for the three-month periods ended September 30, 2006 and 2005 is included in interest expense. For the nine-month period ended September 30, 2006, total depreciation and amortization expense was $15,737,990 of which amount, $15,222,940 relates to depreciation and $515,050 relates to the amortization of deferred drydocking costs. Total depreciation expense for the period from January 26, 2005 (inception) to September 30, 2005 was $5,879,515. Depreciation expenses increased from the corresponding period from January 26, 2005 (inception) to September 30, 2005 due to the growth in our fleet. Amortization of deferred financing costs for the nine-month period ended September 30, 2006 and the period from January 26, 2005 (inception) to September 30, 2005 is included in interest expense. General and Administrative Expenses General and Administrative Expenses for the three-month periods ended September 30, 2006 and 2005 were $1,266,905 and $833,384 respectively. The increase in such expenses was primarily due to increase in recurring administrative costs as our fleet expanded. Our general and administrative expenses include recurring administrative costs and non-recurring formation and advisory costs. Recurring costs include our onshore vessel administration related expenses such as legal and professional expenses and administrative and other expenses including payroll and expenses relating to our executive officers and office staff, office rent and expenses, directors fees and compensation, and directors and officers insurance. For the three-month periods ended September 30, 2006 and 2005, all of our general and administrative costs were recurring in nature. We expect general and administrative expenses to increase as our fleet expands. General and Administrative Expenses for the nine-month period ended September 30, 2006 and period from January 26, 2005 (inception) to September 30, 2005 were $3,366,408 and $2,253,421, respectively. The increase in such expenses was primarily due to increase in recurring administrative costs as our fleet expanded. For the nine-month period ended September 30, 2006, all of our general and administrative costs were recurring in nature. For the corresponding period from January 26, 2005 (inception) to September 30, 2005, recurring administrative costs amounted to $1,443,154 and non-recurring costs amounted to $810,267. Financial Advisory Fees We did not incur any related party expenses in the three-month or nine-month periods ended September 30, 2006. We did not incur any related party expenses in the corresponding three-month period ended September 30, 2005. For the nine- month period ended September 30, 2005, the Company recorded an expense of $6,175,046 which relates to a financial advisory agreement dated February 1, 2005 with Kelso which was terminated in 2005. Under the terms of the agreement the Company was to pay Kelso annual fees of up to $500,000. The agreement had also provided for Kelso to be paid fees in connection with other services. In June 2005, the Company terminated certain of its obligations under this agreement, including its obligation to pay the annual fees of $500,000, for a one-time payment of $1,000,000. The Company recorded an expense of $6,175,046 in the quarter ended June 30, 2005 for fees incurred under such agreement. Non-Cash Compensation Expense For the three-month periods ended September 30, 2006 and 2005, the Company recorded non-cash compensation charges of $3,076,699 and $3,735,705, respectively. For the nine-month period ended September 30, 2006 and the period from January 26, 2005 (inception) to September 30, 2005 the Company recorded non-cash compensation charges of $5,768,355 and $11,376,552, respectively. The expense for the nine-month period ended September 30, 2006 includes $5,721,322 in non-cash, non-dilutive charges relating to profits interests awarded to members of the Company's management by the Company's principal shareholder Eagle Ventures LLC, and a non- 23 cash amount of $47,033 which relates to the fair value of the stock options granted on March 17, 2006 to certain directors of the Company under the 2005 Stock Incentive Plan. These non-cash, non-dilutive charges relate to profits interests awarded to members of the Company's management by the Company's principal shareholder Eagle Ventures LLC. These profits interests will dilute only the interests of the owners of Eagle Ventures LLC, and will not dilute the direct holders of the Company's common stock. The non-cash compensation charge is being recorded as an expense over the estimated service period in accordance with SFAS No. 123(R). The non-cash compensation charges will be based on the fair value of the profits interests which will be "marked to market" at the end of each reporting period. The impact of any changes in the estimated fair value of the profits interests will be recorded as a change in estimate cumulative to the date of change. The impact on the amortization of the compensation charge of any changes to the estimated vesting periods for the performance related profits interests will be adjusted prospectively as a change in estimate. The Company's Financial Statements for the year ended December 31, 2005 on Form 10-K includes a more detailed description of these profits interests. From January 26, 2005 (inception) to June 30, 2006, named executive officers of Eagle Bulk received the following aggregate distributions from Eagle Ventures in respect of their common equity ownership interest in Eagle Ventures: Sophocles Zoullas ($469,976) and Alan Ginsberg ($2,956). On September 12, 2006, the Company's principal shareholder, Eagle Ventures, sold 2,300,000 shares of the Company's common stock in a secondary sale in a private placement. Eagle Ventures distributed the proceeds of this secondary sale to its members in accordance with the Fourth Amended and Restated Limited Liability Company Agreement of Eagle Ventures. Named executive officers of Eagle Bulk received proceeds from this distribution (in respect of vested profits interests) as follows: Sophocles Zoullas ($1,497,107) and Alan Ginsberg ($99,807). Named executive officers of Eagle Bulk received additional proceeds from this distribution (in respect of their common ownership interests in Eagle Ventures) as follows: Sophocles Zoullas ($481,704) and Alan Ginsberg ($3,030). In addition, on October 18, 2006 the Company's Board of Directors declared a cash dividend for the third quarter of 2006 of $0.51 per share to all shareholders of record as of October 30, 2006, including Eagle Ventures, which was paid on November 2, 2006. Eagle Ventures distributed the proceeds of this dividend to its members in accordance with the Fourth Amended and Restated Limited Liability Company Agreement of Eagle Ventures. Named executive officers of Eagle Bulk received proceeds from this distribution (in respect of vested profits interests) as follows: Sophocles Zoullas ($334,710) and Alan Ginsberg ($22,314). Named executive officers of Eagle Bulk received additional proceeds from this distribution (in respect of their common ownership interests in Eagle Ventures) as follows: Sophocles Zoullas ($72,638) and Alan Ginsberg ($457). On November 9, 2006, the limited liability company agreement of Eagle Ventures LLC was amended and restated (the "Fifth LLC Agreement") and is included as Exhibit 10.7 to this quarterly report. Pursuant to the Fifth LLC Agreement, the unvested portion of the performance-related profits interests that previously vested ratably based on Kelso affiliates achieving a multiple (ranging from two to four times) on their original investment in the Company will now vest ratably based on Kelso affiliates achieving a multiple (ranging from two to 3.25 times) on their original investment in the Company. In addition, a first priority catch-up payment was added so that certain members of Eagle Ventures receive a first priority distribution from Eagle Ventures, prior to other distributions to members of Eagle Ventures, in an aggregate amount of approximately $100,000, in order to adjust for the interest payments received by Eagle Ventures on loans made by Eagle Ventures to the Company prior to its initial public offering. Furthermore, all of the service-related profits interests that are subject to a three-year vesting schedule are now considered fully vested for purposes of determining participation in distributions from Eagle Ventures but these service-related profits interests will remain forfeitable, if applicable, by the management members (in accordance with the existing three-year vesting schedule) upon their termination of employment with Eagle Ventures LLC or its subsidiaries (including the Company). Finally, a second priority catch-up payment was added so that management members receive a second priority distribution from Eagle Ventures, prior to other distributions to members of Eagle Ventures (other than the first priority catch-up payment described above), in an aggregate amount of approximately $740,000, as a catch-up in respect of such newly vested service-related profits interests. Accordingly, we anticipate recording an additional charge in the fourth quarter of approximately $840,000 as a result of the amendment. 24 Interest and Finance Costs Interest expense for the three-month period ended September 30, 2006, of $3,180,336 includes loan interest of $2,986,183 incurred on our borrowings from our revolving credit facility, commitment fees of $142,887 incurred on the unused portion of the revolving credit facility, and costs of $51,266 relating to the amortization of financing costs associated with our revolving credit facility. Interest expense for the corresponding three-month period ended September 30, 2005, was $1,727,416. These costs included loan interest costs of $1,467,773, commitment fees of $194,900, and amortization charges of $64,743 relating to financing costs associated with the then existing term loan and the revolving credit facility. Interest expense for the nine-month period ended September 30, 2006, of $7,364,009 includes loan interest of $6,720,658 incurred on our borrowings from our revolving credit facility, commitment fees of $525,860 incurred on the unused portion of the revolving credit facility, and costs of $117,491 relating to the amortization of financing costs associated with our revolving credit facility. Interest expense for the previous period from January 26, 2005 (inception) to September 30, 2005, was $4,961,012. These costs included loan interest costs of $2,821,079, commitment fees of $336,255, $608,222 in interest costs associated with a Note from Eagle Ventures, and amortization charges of $1,195,456 which includes a write-off of $1,130,713 relating to the deferred financing fees associated with the then existing term loan which was entirely repaid upon refinancing with our revolving credit facility in July 2005, and $64,743 relating to amortization of financing costs associated with the revolving credit facility. For the three-month period ended September 30, 2006, interest rates applicable on the Company's debt ranged from 4.97% to 6.32%, including the margin. The weighted average effective interest rate was 5.49%. For the nine-month period ended September 30, 2006, interest rates applicable on the Company's debt ranged from 4.97% to 6.32%, including the margin. The weighted average effective interest rate was 5.37%. Our interest expense will increase as we increase our debt to finance vessel acquisitions for our fleet growth. Interest Rate Swaps We have entered into interest rate swaps to effectively convert a portion of its debt from a floating to a fixed-rate basis. The swaps are designated and qualify as cash flow hedges. During the quarter ended September 30, 2006, we entered an interest rate swap contract for a notional amount of $84,800,000. This contract matures in September 2009. On this contract, exclusive of applicable margin, the Company will pay 5.24% fixed-rate interest and receive floating-rate interest amounts based on three-month LIBOR settings. The Company has two other interest rate swap contracts for notional amounts of $100,000,000 and $30,000,000 which were entered into in 2005. These contracts mature in September 2010. On these contracts, exclusive of applicable margin, the Company pays 4.22% and 4.54% fixed-rate interest, respectively, and receives floating-rate interest amounts based on three-month LIBOR settings. We record the fair value of the interest rate swap as an asset or liability in our financial statement. The effective portion of the swap is recorded in accumulated other comprehensive income. Accordingly, at September 30, 2006 and December 31, 2005, we recorded an asset of $3,516,513 and $2,647,077, respectively, which is included in Other Assets in the accompanying balance sheet. EBITDA EBITDA represents operating earnings before extraordinary items, depreciation and amortization, interest expense, and income taxes, if any. EBITDA is included because it is used by certain investors to measure a company's financial performance. EBITDA is not an item recognized by GAAP and should not be considered a substitute for net 25 income, cash flow from operating activities and other operations or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. EBITDA is presented to provide additional information with respect to the Company's ability to satisfy its obligations including debt service, capital expenditures, and working capital requirements. While EBITDA is frequently used as a measure of operating results and the ability to meet debt service requirements, the definition of EBITDA used here may not be comparable to that used by other companies due to differences in methods of calculation. Our revolving credit facility permits us to pay dividends in amounts up to our earnings before extraordinary or exceptional items, interest, taxes, depreciation and amortization (Credit Agreement EBITDA), less the aggregate amount of interest incurred and net amounts payable under interest rate hedging agreements during the relevant period and an agreed upon reserve for dry-docking. Therefore, we believe that this non-GAAP measure is important for our investors as it reflects our ability to pay dividends. The following table is a reconciliation of net income, as reflected in the consolidated statements of operations, to the Credit Agreement EBITDA for the three-month periods ended September 30, 2006 and 2005 and for the nine-month period ended September 30, 2006 and the period from January 26, 2005 (inception) to September 30, 2005 respectively:
Period from Three-Months Three-Months Nine-Months January 26 ended ended ended (inception) to September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ---------------- ---------------- ---------------- ---------------- Net Income/(Loss) $9,100,737 $7,394,289 $29,284,974 $(5,500,468) Interest Expense 3,180,336 1,727,416 7,364,009 4,961,012 Depreciation and Amortization 5,980,747 3,858,943 15,737,990 5,879,515 Amortization of Prepaid and Deferred Revenue 725,000 123,500 2,435,500 328,500 ---------------- ---------------- ---------------- ---------------- EBITDA 18,986,820 13,104,148 54,822,473 5,668,559 Adjustments for Exceptional Items: Management and Other Fees to Affiliates (1) -- -- -- 6,175,046 Non-cash Compensation Expense (2) 3,076,699 3,735,705 5,768,355 11,376,552 ---------------- ---------------- ---------------- ---------------- Credit Agreement EBITDA $22,063,519 $16,839,853 $60,590,828 $23,220,157 ================ ================ ================ ================
(1) One-time charge (2) Management's participation in profits interests in Eagle Ventures LLC and Options Expense (see Notes to our financial statements) Effects of Inflation We do not believe that inflation has had or is likely, in the foreseeable future, to have a significant impact on vessel operating expenses, drydocking expenses or general and administrative expenses. Liquidity and Capital Resources Net cash provided by operating activities during the nine-month period ended September 30, 2006, was $52,123,412 compared to $18,359,470 during the period from inception on January 26, 2005 to September 30, 2005. This increase was primarily due to cash generated from the operation of a fleet of 16 vessels for 3,816 operating days in the period for 2006 compared to 1,422 operating days from 11 vessels during the corresponding period in 2005. Net cash used in investing activities during the nine-month period ended September 30, 2006, was $105,112,609 as the Company expanded its fleet to 16 vessels by acquiring three Supramax class vessel, KESTREL I, TERN and JAEGER. Net cash used in investing activities during the corresponding period from inception on January 26, 2005 to September 30, 2005 was $373,554,183 as the Company acquired its initial eleven vessels and placed deposits for two additional vessels. 26 Net cash provided by financing activities during the nine-month period ended September 30, 2006, was $51,676,257 which primarily consisted of $33,000,000 in gross proceeds from a private placement of its common stock, borrowings of $74,800,000 from its revolving credit facility, and payments of $53,420,500 in dividends. Net cash provided by financing activities during the corresponding period from inception on January 26, 2005 to September 30, 2005 was $376,369,845 primarily consisting of net proceeds of $186,529,290 from the initial public offering, capital contributions of $40,843,662 and net borrowings of $157,000,000 from its credit facilities. As of September 30, 2006, our cash balance was $23,213,588 compared to a cash balance of $24,526,528 at December 31, 2005. In addition, $6,400,000 in cash deposits are maintained with our lender for loan compliance purposes and this amount is recorded in Restricted Cash in our financial statements as of September 30, 2006 and December 31, 2005. Also recorded in Restricted Cash is an amount of $124,616 which is collateralizing a letter of credit relating to our office lease. In July 2006, we amended and increased our $330,000,000 long-term revolving credit facility which we had entered into in July 2005. Our revised facility consists of $450,000,000 of which $235,200,000 was unused as of September 30, 2006. The amended revolving credit agreement also provides us with the ability to borrow up to $15,000,000 for working capital purposes. (See section entitled "Revolving Credit Facility" for a description of the revised facility and subsequent changes to the credit facility). We anticipate that our current financial resources, together with cash generated from operations and, if necessary, borrowings under our revolving credit facility will be sufficient to fund the operations of our fleet, including our working capital requirements, for at least the next 12 months. It is our intention to fund our future acquisition related capital requirements initially through borrowings under our revolving credit facility and to repay all or a portion of such borrowings from time to time with the net proceeds of equity issuances. We believe that funds will be available to support our growth strategy, which involves the acquisition of additional vessels, and will allow us to pay dividends to our stockholders as contemplated by our dividend policy. Dividends Our policy is to declare quarterly dividends to stockholders in February, April, July and October in amounts that are substantially equal to our available cash from operations during the previous quarter less any cash reserves for drydocking and working capital. Our revolving credit facility permits us to pay quarterly dividends in amounts up to our quarterly earnings before extraordinary or exceptional items, interest, taxes, depreciation and amortization (Credit Agreement EBITDA), less the aggregate amount of interest incurred and net amounts payable under interest rate hedging agreements during the relevant period and an agreed upon reserve for drydocking for the period, provided that there is not a default or breach of loan covenant under the credit facility and the payment of the dividends would not result in a default or breach of a loan covenant. Depending on market conditions in the dry bulk shipping industry and acquisition opportunities that may arise, we may be required to obtain additional debt or equity financing which could affect our dividend policy. On July 18, 2006 the Company's Board of Directors declared a cash dividend for the second quarter of 2006 of $0.50 per share, based on 35,900,000 shares of common stock outstanding, which was paid on August 3, 2006 to all shareholders of record as of July 28, 2006. The aggregate amount of this cash dividend was $17,950,000. On October 18, 2006 the Company's Board of Directors declared a cash dividend for the third quarter of 2006 of $0.51 per share, based on 35,900,000 shares of common stock outstanding, payable on November 2, 2006 to all shareholders of record as of October 30, 2006. The aggregate amount of the cash dividend paid to the Company's shareholders on November 2, 2006 was $18,309,000. Revolving Credit Facility 27 In July 2006, the Company amended and increased its initial $330,000,000 long-term revolving credit facility which we had entered into in July 2005. (The Company's Financial Statements for the year ended December 31, 2005 on Form 10-K includes a more detailed description of the initial revolving credit facility). During the nine-month period ended September 30, 2006, the Company borrowed a total of $74,800,000 from its initial revolving credit facility which was used to partly fund the acquisition of the KESTREL I, TERN and JAEGER. Following the completion of these acquisitions the Company's borrowings under the revolving credit facility stood at $214,800,000. Subsequent to the acquisition of the three vessels, in July 2006, the initial revolving credit facility was amended and increased to $450,000,000 with a new term of ten years. The entire $450,000,000 facility will be available for a period of six years from July 30, 2006, compared to four years remaining in the commitment period of the Company's initial facility. There are no principal repayment obligations during this initial six-year period. Over the remaining four years until maturity in July 2016, the facility will reduce in semi-annual amounts of $25,000,000 with a final reduction of $250,000,000 occurring simultaneously with the last semi-annual reduction. We paid an arrangement fee of $900,000 to our lender in connection with the amended credit facility. As a result of the amendment to the facility, at September 30, 2006, the Company had increased its remaining undrawn capacity to $235,200,000 which is available to fund future acquisitions of dry bulk vessels. We are permitted to borrow up to $15,000,000 (increased from $10,000,000 under its existing facility) at any one time for working capital purposes during an initial period of 18 months from the first draw down date, after which time our ability to borrow amounts for working capital purposes is subject to review and reapproval on an annual basis. The amended facility will bear interest at the rate of 0.75% to 0.85% over LIBOR (decreased from 0.95% over LIBOR under its initial facility), depending upon the amount of debt drawn as a percentage of the value of the Company's vessels. The Company will pay a commitment fee of 0.25% per annum (decreased from 0.40% under its initial facility) on the undrawn amount of the amended facility. Our ability to borrow amounts under the amended revolving credit facility will be subject to the satisfaction of certain customary conditions precedent and compliance with terms and conditions included in the loan documents. In connection with vessel acquisitions, amounts borrowed may not exceed 75% of the value of the vessels securing our obligations under the credit facility. Our ability to borrow such amounts, in each case, is subject to our lender's approval of the vessel acquisition. Our lender's approval will be based on the lender's satisfaction of our ability to raise additional capital through equity issuances in amounts acceptable to our lender and the proposed employment of the vessel to be acquired. Our obligations under the amended revolving credit facility are secured by a first priority mortgage on each of the vessels in our fleet and such other vessels that we may from time to time include with the approval of our lender, and by a first assignment of all freights, earnings, insurances and requisition compensation relating to our vessels. The facility also limits our ability to create liens on our assets in favor of other parties. We may grant additional securities from time to time in the future. The revolving credit facility, as amended, contains financial covenants requiring us, among other things, to ensure that: o the aggregate market value of the vessels in our fleet that secure our obligations under the revolving credit facility, as determined by an independent shipbroker on a charter free basis, at all times exceeds 125% of the aggregate principal amount of debt outstanding under the new credit facility and the notional or actual cost of terminating any related hedging arrangements; o to the extent our debt during any accounting period is less than $250,000,000, our total assets minus our debt will not be less than $100,000,000; to the extent our debt during any accounting period is greater than $250,000,000, our total assets minus our debt will not be less than $150,000,000; 28 o our EBITDA, as defined in the credit agreement, will at all times be not less than 2x the aggregate amount of interest incurred and net amounts payable under interest rate hedging arrangements during the relevant period; and o we maintain with the lender $400,000 per vessel in addition to an amount adequate to meet anticipated capital expenditures for the vessel over a 12 month period. For the purposes of the revolving credit facility, our "total assets" includes our tangible fixed assets and our current assets, as set forth in our consolidated financial statements, except that the value of any vessels in our fleet that secure our obligations under the facility are measured by their fair market value rather than their carrying value on our consolidated balance sheet. The revolving credit facility permits us to pay dividends in amounts up to our earnings before extraordinary or exceptional items, interest, taxes, depreciation and amortization (EBITDA), less the aggregate amount of interest incurred and net amounts payable under interest rate hedging agreements during the relevant period and an agreed upon reserve for dry-docking, provided that there is not a default or breach of loan covenant under the credit facility and the payment of the dividends would not result in a default or breach of a loan covenant. On November 6, 2006, the Company amended its existing revolving credit facility from its sole lender, Royal Bank of Scotland plc to increase the borrowing capacity from $450 million to $500 million. The structure of the financing will enable us to capitalize pre-delivery payments under our vessel newbuilding contracts and costs associated with supervision and financing the new vessels. There are no principal repayment obligations under the amended facility until July 2012. Over the remaining four years until maturity in 2016, the facility will reduce in semi-annual amounts of $28,750,000 with a final reduction of $270,000,000 occurring simultaneously with the last semi-annual reduction. All other terms and conditions of the amended facility remain the same as the existing facility. We paid an arrangement fee of $250,000 to our lender in connection with the amended credit facility. Contractual Obligations The following table sets forth our expected contractual obligations and their maturity dates as of September 30, 2006:
Within One to Three to More than Total One Year Three Years Five Years Five years ------- ---------- ---------- ---------- -------- (in thousands of U.S. dollars) Bank Loans -- -- -- 214,800 214,800 Interest and borrowing fees ((1)) 12,394 24,823 24,789 46,487 108,493 Office lease 250 501 376 -- 1,127 ------------------------------------------------------------------- Total $12,645 $25,324 $25,164 $261,287 $324,420 ===================================================================
(1) The Company is a party to floating-to-fixed interest rate swaps covering notional amounts of $100,000,000, $30,000,000, and $84,800,000 at September 30, 2006 that effectively convert the Company's interest rate exposure from a floating rate based on LIBOR to a fixed rate of 4.22%, 4.54% and 5.24% respectively, plus applicable margin. Capital Expenditures Our capital expenditures relate to purchase of vessels and capital improvements to our vessels which are expected to enhance the revenue earning capabilities of these vessels. In addition to acquisitions that we may undertake in future periods, other major capital expenditures include funding the Company's maintenance program of regularly scheduled drydocking necessary to preserve the quality of our vessels as well as to comply with international 29 shipping standards and environmental laws and regulations. Although the Company has some flexibility regarding the timing of its dry docking, the costs are relatively predictable. Management anticipates that vessels are to be drydocked every two and a half years. Funding of these requirements is anticipated to be met with cash from operations. We anticipate that this process of recertification will require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days during that period. During the three-month period ended September 30, 2006, we drydocked two vessels. In the nine-month period ended September 30, 2006, we have spent $2,269,422 on vessel drydockings and this amount is amortized to expense on a straight-line basis over the period through the date the next drydocking for those vessels are scheduled to occur. The following table represents certain information about the estimated costs for anticipated vessel drydockings in the remainder of 2006 and calendar 2007 along with the anticipated off-hire days: - -------------------------------------------------------------------------------- Quarter Ending Off-hire Days(1) Projected Costs(2) -------------- ---------------- ------------------ December 31, 2006..................... -- -- March 31, 2007........................ 30 $0.70 million June 30, 2007......................... 15 $0.35 million September 30, 2007.................... 30 $0.70 million December 31, 2007..................... 30 $0.70 million - -------------------------------------------------------------------------------- (1) Actual duration of drydocking will vary based on the condition of the vessel, yard schedules and other factors. (2) Actual costs will vary based on various factors, including where the drydockings are actually performed. - -------------------------------------------------------------------------------- Contracted Time Charter Revenue We have time charter contracts currently for all our vessels. The contracted time charter revenue schedule, as shown below, reduces future contracted revenue for any estimated off-hire days relating to dry-docks. The following table represents certain information about the Company's revenue earning charters: - --------------------------------------------------------------------------------
Daily Time Charter Vessel Delivered to Charterer Time Charter Expiration (1) Hire Rate - ----- ---------------------- -------------------------- --------- Cardinal April 19, 2005 March 2007 to June 2007 $26,500 Condor (2) April 30, 2005 November 2006 to March 2007 $24,000 Falcon April 22, 2005 February 2008 to June 2008 $20,950 Griffon (3) February 17, 2006 January 2007 to February 2007 $13,550 Harrier April 21, 2005 March 2007 to June 2007 $23,750 Hawk I (4) April 28, 2005 April 2007 $23,750 Heron December 11, 2005 December 2007 to February 2008 $24,000 Jaeger July 7, 2006 April 2007 to June 2007 $18,550 Kestrel I (5) July 1, 2006 December 2007 to April 2008 $18,750 Kite April 17, 2006 March 2007 to May 2007 $14,750 Merlin October 26, 2005 October 2007 to December 2007 $24,000 Osprey I (6) September 1, 2005 May 2008 to September 2008 $21,000 Peregrine (7) July 1, 2005 October 2006 to January 2007 $24,000 Shikra (8) September 10, 2006 September 2007 to December 2007 $14,800 Sparrow (9) July 20, 2005 November 2006 to Feb 2007 $22,500 Tern (10) July 3, 2006 December 2007 to April 2008 $19,000
- -------------------------------------------------------------------------------- (1) The date range provided represents the earliest and latest date on which the charterer may redeliver the vessel to the Company upon the termination of the charter. (2) Upon completion of the current charter the CONDOR will enter a new time charter at $20,500 per day for 26 to 29 months. - -------------------------------------------------------------------------------- 31 - -------------------------------------------------------------------------------- (3) Upon completion of the current charter the GRIFFON will enter a new time charter at $20,075 per day for 24 to 26 months. (4) The charter for the HAWK I has been renewed at $22,000 per day commencing in April 2007 for 24 to 26 months. (5) The charterer of the KESTREL I has an option to extend the charter period by 11 to 13 months at a daily time charter rate of $20,000 per day. (6) The charterer of the OSPREY I has an option to extend the charter period by up to 26 months at a daily time charter rate of $25,000. (7) Upon conclusion of the current charter, the PEREGRINE commences a new time charter at $20,500 per day for 24 to 26 months. (8) Upon conclusion of the current charter in September 2006 the SHIKRA commenced a new time charter at $14,800 per day for 12 to 15 months. (9) Upon completion of the current charter the SPARROW will enter a new time charter at a base rate of $24,000 per day for 11 to 13 months with a profit share of 30% of upto the first $3,000 per day over the base rate (10) The charterer of the TERN has an option to extend the charter period by 11 to 13 months at a daily time charter rate of $20,500 per day. - -------------------------------------------------------------------------------- Off-balance Sheet Arrangements We do not have any off-balance sheet arrangements. 31 Item 3. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk There have been no material changes from the "Interest Rate Risk" previously disclosed in our Form 10-K for the year ended December 31, 2005. Currency and Exchange Rates The shipping industry's functional currency is the U.S. dollar. The Company generates all of its revenues in U.S. dollars. The majority of the Company's operating expenses and the entirety of its management expenses are in U.S. dollars. The Company does not intend to use financial derivatives to mitigate the risk of exchange rate fluctuations for its revenues and expenses. Subsequent to September 30, 2006, the Company has entered into foreign exchange swap transactions to hedge the Japanese yen exposure into US dollars for the purchase price in Japanese yen of two new-build vessels which are expected to be delivered to the Company in January 2010 and February 2010. The Company has swapped a total of 7,310,000,000 in yen currency exposure into equivalent US $67,108,583. 32 Item 4. Controls and Procedures Disclosure Controls and Procedures Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Internal Control Over Financial Reporting We evaluated our internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934), and there have been no changes in our internal control over financial reporting that occurred during the second quarter of 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 33 PART II: OTHER INFORMATION Item 1 - Legal Proceedings We are not aware of any legal proceedings or claims to which we or our subsidiaries are party or of which our property is subject. From time to time in the future, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. Those claims, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources. Item 1A - Risk Factors There have been no material changes from the "Risk Factors" previously disclosed in our Form 10-K for the year ended December 31, 2005. Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds On March 17, 2006, the Company granted 56,666 shares of the Company's stock in options to its independent non-employee directors. These options vested and became exercisable on the grant date at an exercise price of $13.23 per share. All options expire ten years from the date of grant. On June 28, 2006, the Company issued an aggregate of 2,750,000 shares of its common stock, par value $0.01, to certain institutional investors pursuant to a securities purchase agreement dated June 22, 2006, for an aggregate purchase price of $33,000,000, or $12.00 per share of common stock. The shares of common stock were sold pursuant to an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. The offering incurred costs of $1,770,811 in fees and expenses and the balance of the proceeds was used to fund a portion of the acquisition of three vessels, KESTREL I, TERN and JAEGER. Item 3 - Defaults upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders None Item 5 - Other Information On September 12, 2006 the Company's principal shareholder, Eagle Ventures LLC, sold 2,300,000 shares from its holdings of the Company's common stock in a private placement. The Company did not receive any proceeds from this secondary sale. The sale incurred costs of $198,200. On November 9, 2006, the limited liability company agreement of Eagle Ventures LLC was amended and restated (the "Fifth LLC Agreement") and is included as Exhibit 10.7 to this quarterly report. Pursuant to the Fifth LLC Agreement, the unvested portion of the performance-related profits interests that previously vested ratably based on Kelso affiliates achieving a multiple (ranging from two to four times) on their original investment in the Company will now vest ratably based on Kelso affiliates achieving a multiple (ranging from two to 3.25 times) on their original investment in the Company. In addition, a first priority catch-up payment was added so that certain members of Eagle Ventures receive a first priority distribution from Eagle Ventures, prior to other distributions to members of Eagle Ventures, in an aggregate amount of approximately $100,000, in order to adjust for the interest payments received by Eagle Ventures on loans made by Eagle Ventures to the Company prior to its initial public offering. Furthermore, all of the service-related profits interests that are subject to a three-year vesting schedule are now considered fully vested 34 for purposes of determining participation in distributions from Eagle Ventures but these service-related profits interests will remain forfeitable, if applicable, by the management members (in accordance with the existing three-year vesting schedule) upon their termination of employment with Eagle Ventures LLC or its subsidiaries (including the Company). Finally, a second priority catch-up payment was added so that management members receive a second priority distribution from Eagle Ventures, prior to other distributions to members of Eagle Ventures (other than the first priority catch-up payment described above), in an aggregate amount of approximately $740,000, as a catch-up in respect of such newly vested service-related profits interests. Item 6 - Exhibits EXHIBIT INDEX 3.1 Amended and Restated Articles of Incorporation of the Company* 3.2 Amended and Restated Bylaws of the Company* 4.1 Form of Share Certificate of the Company* 10.1 Form of Registration Rights Agreement* 10.2 Form of Management Agreement* 10.3 Form of Amended and Restated Credit Agreement** 10.3.1 Form of Second Amended and Restated Credit Agreement 10.4 Eagle Bulk Shipping Inc. 2005 Stock Incentive Plan* 10.5 Employment Agreement for Mr. Sophocles N. Zoullas* 10.6 Form of Fourth Amended and Restated Limited Liability Company Agreement of Eagle Ventures LLC*** 10.7 Form of Fifth Amended and Restated Limited Liability Company Agreement of Eagle Ventures LLC 31.1 Rule 13a-14(d) / 15d-14(a)_Certification of CEO 31.2 Rule 13a-14(d) / 15d-14(a)_Certification of CFO 32.1 Section 1350 Certification of CEO 32.2 Section 1350 Certification of CFO * Incorporated by reference to the Registration Statement on Form S-1, Registration No. 333-123817. ** Incorporated by reference to the Report on Form 8-K filed on July 31, 2006. *** Incorporated by reference to the Registrant's annual report on Form 10-K for the period ending December 31, 2005 filed on March 14, 2006. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE BULK SHIPPING INC. - ---------------------------------------- (REGISTRANT) Date: November 9, 2006 By: /s/ Sophocles N. Zoullas - ---------------------------------------- Sophocles N. Zoullas Chairman of the Board and Chief Executive Officer Date: November 9, 2006 By: /s/ Alan S. Ginsberg - ---------------------------------------- Alan S. Ginsberg Chief Financial Officer and Treasurer 36 Exhibit 31.1 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER I, Sophocles Zoullas, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Eagle Bulk Shipping 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 registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer 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 registrant 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 registrant, 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 registrant'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 the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant'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 registrant'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 registrant's internal control over financial reporting. Date: November 13, 2006 37 - ------------------------------ /s/ Sophocles Zoullas Sophocles Zoullas Chief Executive Officer Exhibit 31.2 CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER I, Alan Ginsberg, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Eagle Bulk Shipping 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 registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer 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 registrant 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 registrant'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 the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant'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 registrant'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 registrant's internal control over financial reporting. Date: November 13, 2006 38 - ------------------------------ /s/ Alan Ginsberg Alan Ginsberg Chief Financial Officer 39 Exhibit 32.1 PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the quarterly report of Eagle Bulk Shipping Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, Sophocles Zoullas, Principal 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: November 13, 2006 - ---------------------------- /s/ Sophocles Zoullas Sophocles Zoullas Chief Executive Officer 40 Exhibit 32.2 PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the quarterly report of Eagle Bulk Shipping Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, Alan Ginsberg, Principal 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: November 13, 2006 - ----------------------------- /s/ Alan Ginsberg Alan Ginsberg Chief Financial Officer 41 EX-10 2 eagle10-7.txt EXHIBIT 10.7 Exhibit 10.7 ------------ .___________________________________________________________________ FIFTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF EAGLE VENTURES LLC A MARSHALL ISLANDS LIMITED LIABILITY COMPANY ___________________________________________________________________
Table of Contents ----------------- Page ---- ARTICLE I DEFINED TERMS Section 1.1 Definitions..................................................................................1 ARTICLE II FORMATION OF THE COMPANY Section 2.1 Formation...................................................................................13 Section 2.2 Company Name................................................................................13 Section 2.3 The Certificate, etc........................................................................13 Section 2.4 Term of Company.............................................................................14 Section 2.5 Registered Agent and Office.................................................................14 Section 2.6 Principal Place of Business.................................................................14 Section 2.7 Qualification in Other Jurisdictions........................................................14 Section 2.8 Fiscal Year; Taxable Year...................................................................14 ARTICLE III PURPOSE AND POWERS OF THE COMPANY Section 3.1 Purpose.....................................................................................14 Section 3.2 Powers of the Company.......................................................................15 Section 3.3 Certain Tax Matters.........................................................................15 ARTICLE IV MEMBERS Section 4.1 Powers of Members...........................................................................15 Section 4.2 Units Generally.............................................................................15 Section 4.3 Meetings of Members.........................................................................16 Section 4.4 Business Transactions of a Member with the Company..........................................17 Section 4.5 No Cessation of Membership upon Bankruptcy..................................................17 Section 4.6 Confidentiality; Nonsolicitation; Non-Disparagement.........................................17 Section 4.7 Other Business for Kelso Members and Certain Members........................................19 Section 4.8 Additional Members..........................................................................20 ARTICLE V MANAGEMENT Section 5.1 Board.......................................................................................21 Section 5.2 Meetings of the Board.......................................................................22 Section 5.3 Quorum and Acts of the Board................................................................23 Section 5.4 Electronic Communications...................................................................23 Section 5.5 Committees of Directors.....................................................................23 Section 5.6 Compensation of Directors...................................................................24 Section 5.7 Resignation.................................................................................24 Section 5.8 Removal of Directors........................................................................24 Section 5.9 Vacancies...................................................................................24
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Table of Contents ----------------- (continued) Page ---- Section 5.10 Directors as Agents.........................................................................25 Section 5.11 Subsidiaries................................................................................25 ARTICLE VI INVESTMENT REPRESENTATIONS, WARRANTIES AND COVENANTS Section 6.1 Representations, Warranties and Covenants of Members........................................26 Section 6.2 Additional Representations and Warranties of Management Members, Outside Investor Members and Other Investor Members..........................................................27 Section 6.3 Additional Representations and Warranties of Kelso Members..................................28 Section 6.4 Additional Representations and Warranties of Zoullas, the Management Members and the Outside Investor Members....................................................................29 Section 6.5 Certain Members.............................................................................29 ARTICLE VII CAPITAL ACCOUNTS; CAPITAL CONTRIBUTIONS Section 7.1 Capital Accounts............................................................................29 Section 7.2 Adjustments.................................................................................30 Section 7.3 Initial Capital Contributions; Initial SMI Funds Advance....................................30 Section 7.4 Additional Capital Contributions by Kelso...................................................30 Section 7.5 Additional Capital Contributions............................................................31 Section 7.6 Negative Capital Accounts...................................................................32 ARTICLE VIII POINTS Section 8.1 Points......................................................................................32 Section 8.2 Ex-Management Members.......................................................................33 Section 8.3 Allocation of Points to Management Members upon Termination of Employment...................34 Section 8.4 Nontransferability of Awards................................................................36 Section 8.5 Amendment to the Points Plan................................................................37 ARTICLE IX ALLOCATIONS Section 9.1 Book Allocations of Net Profit and Net Loss.................................................37 Section 9.2 Special Book Allocations....................................................................37 Section 9.3 Tax Allocations.............................................................................38 ARTICLE X DISTRIBUTIONS Section 10.1 Explanation of Terms........................................................................39 Section 10.2 Distributions Generally.....................................................................41 Section 10.3 Distributions In Kind.......................................................................43 Section 10.4 No Withdrawal of Capital....................................................................44 Section 10.5 Withholding.................................................................................44
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Table of Contents ----------------- (continued) Page ---- Section 10.6 Restricted Distributions....................................................................45 Section 10.7 Tax Distributions...........................................................................45 Section 10.8 Eagle Bulk Shipping Advances................................................................45 Section 10.9 Benchmarked Points - Catch Up Payment.......................................................45 ARTICLE XI BOOKS AND RECORDS Section 11.1 Books, Records and Financial Statements.....................................................46 Section 11.2 Filings of Returns and Other Writings; Tax Matters Partner..................................47 Section 11.3 Accounting Method...........................................................................47 Section 11.4 Appraisal...................................................................................48 ARTICLE XII LIABILITY, EXCULPATION AND INDEMNIFICATION Section 12.1 Liability...................................................................................48 Section 12.2 Exculpation.................................................................................48 Section 12.3 Fiduciary Duty..............................................................................48 Section 12.4 Indemnification.............................................................................48 Section 12.5 Expenses....................................................................................49 Section 12.6 Severability................................................................................49 ARTICLE XIII TRANSFERS OF INTERESTS Section 13.1 Restrictions on Transfers of Interests or Special Membership Interests by Management Members, Outside Investor Members and Other Investor Members................................49 Section 13.2 Estate Planning Transfers; Transfers upon Death of a Management Member, Outside Investor Members or Other Investor Members...........................................................50 Section 13.3 Effect of Assignment........................................................................50 Section 13.4 Overriding Provisions.......................................................................51 Section 13.5 Put Rights with respect to Interests and Special Membership Interests Owned by Zoullas and the Outside Investor Members............................................................51 Section 13.6 Involuntary Transfers.......................................................................53 Section 13.7 Assignment by the Company...................................................................54 Section 13.8 Substitute Members..........................................................................54 Section 13.9 Release of Liability........................................................................55 Section 13.10 Tag-Along and Drag-Along Rights; Initial Members Participation Rights.......................55 Section 13.11 Initial Public Offering.....................................................................58 Section 13.12 Right of First Offer........................................................................58 ARTICLE XIV DISSOLUTION, LIQUIDATION AND TERMINATION Section 14.1 Dissolving Events...........................................................................59 Section 14.2 Dissolution and Winding-Up..................................................................59
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Table of Contents ----------------- (continued) Page ---- Section 14.3 Distributions in Cash or in Kind............................................................60 Section 14.4 Termination.................................................................................61 Section 14.5 Claims of the Members.......................................................................61 ARTICLE XV MISCELLANEOUS Section 15.1 Notices.....................................................................................61 Section 15.2 Securities Act Matters......................................................................62 Section 15.3 Headings; Interpretation....................................................................62 Section 15.4 Entire Agreement............................................................................62 Section 15.5 Counterparts................................................................................62 Section 15.6 Governing Law; Attorneys' Fees; Forum; Jurisdiction; Service of Process.....................63 Section 15.7 Waiver of Jury Trial........................................................................63 Section 15.8 Waiver of Partition.........................................................................63 Section 15.9 Severability................................................................................63 Section 15.10 Further Actions.............................................................................63 Section 15.11 Amendments..................................................................................64 Section 15.12 Outside Investor Members Representative; Power of Attorney..................................64 Section 15.13 Power of Attorney...........................................................................65 Section 15.14 Fees and Expenses...........................................................................66
EXHIBITS Exhibit A Joinder Agreement SCHEDULES Schedule A Initial Capital Commitments by Kelso Members, Management Members, Outside Investor Members and Other Investor Members Schedule B Management Points Schedule C Initial Directors Schedule D Post IPO Performance Percentages - Definitions Schedule E Special Membership Interests Schedule F Vested IPO Percentages for Management Members Schedule 10.9 Benchmarked Points Schedule 10.10 Fifth Amended Catch Up Payments iv FIFTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT This Fifth Amended and Restated Limited Liability Company Agreement of Eagle Ventures LLC, a Marshall Islands limited liability company (the "Company"), is made as of November [ ], 2006 by and among the individuals or entities listed under the heading "Kelso Members" on Schedule A hereto (each a "Kelso Member" and collectively, the "Kelso Members"), Sophocles Zoullas ("Zoullas"), Edward H. James ("James"), Claude Thouret ("Thouret"), Alan Ginsberg ("Ginsberg"), Sunil Damodar ("Damodar"), Intercontinental Shipping and Trading Corp. ("IST"), Maria Zoullas ("Maria"), George S. Kaufman ("Kaufman"), Jeffrey S. Nordhaus ("Nordhaus"), David Hiley ("Hiley"), and Magnetite Asset Investors III L.L.C. ("Magnetite," and, together with the Kelso Members, Zoullas, James, Thouret, Ginsberg, IST, Maria, Kaufman, Nordhaus and Hiley, the "Initial Members") and such other Persons as may become Members of the Company after the date hereof in accordance with Section 4.8 of this Agreement. Zoullas, James, Thouret, Ginsberg and Damodar and such other employees of the Company or any Subsidiary of the Company as shall become members of the Company after the date hereof are referred to as the "Management Members." IST, Maria, Kaufman and Nordhaus are collectively referred to as the "Outside Investor Members." Hiley and Magnetite are collectively referred to as the "Other Investor Members." The Kelso Members, Management Members, Outside Investor Members and Other Investor Members are collectively referred to herein as the "Members." ARTICLE I DEFINED TERMS Section 1.1 Definitions. "Accounting Period" means, for the first Accounting Period, the period commencing on the day after the Initial Capital Contribution Date and ending on the next Adjustment Date. All succeeding Accounting Periods shall commence on the day after an Adjustment Date and end on the next Adjustment Date. "Additional Capital Contribution Event" has the meaning set forth in Section 7.4(a) of this Agreement. "Additional Member" has the meaning set forth in Section 4.8(a) of this Agreement. "Adjusted Aggregate Post IPO Performance Percentage" has the meaning set forth in Section 10.1(a)(ii) of this Agreement. "Adjusted Carry Percentage" means, with respect to any Management Member, the product of (x) such Management Member's Carry Percentage multiplied by (y) the Carry Adjustment Factor. "Adjusted Total Vested IPO Percentage" has the meaning set forth in Section 10.1(a)(iii) of this Agreement. "Adjusted Total Vested Service Percentage" shall have the meaning set forth in Section 10.1(a)(i) of this Agreement. "Adjustment Date" means the last day of each fiscal year of the Company or any other date determined by the Board, in its sole discretion, as appropriate for an interim closing of the Company's books. "Affiliate" means, with respect to a specified Person, any Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the specified Person. As used in this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise; provided, that, for purposes of this Agreement, the Company shall not be considered an Affiliate of any Kelso Member or any affiliate or portfolio company of any Kelso Member. "Aggregate Benchmark Withholdings" has the meaning set forth in Section 10.9 of this Agreement. "Aggregate Investment" has the meaning set forth in Section 10.2(c) of this Agreement. "Aggregate Post IPO Performance Percentage" has the meaning set forth in Section 10.1(a)(ii) of this Agreement. "Aggregate Retainable Service Points" has the meaning set forth in Section 8.3(d) of this Agreement. "Agreement" means this Limited Liability Company Agreement of the Company, as this agreement may be amended, modified, supplemented or restated from time to time after the date hereof. "Appraisal" has the meaning set forth in Section 11.4 of this Agreement. "Appraisal Date" has the meaning set forth in Section 11.4 of this Agreement. "Appraiser" has the meaning set forth in Section 11.4 of this Agreement. "Benchmark Amount" has the meaning set forth in Section 10.1(b) of this Agreement. 2 "Board" has the meaning set forth in Section 5.1(a) of this Agreement. "Bulk Advance" has the meaning set forth in Section 10.8 of this Agreement. "Capital Account" has the meaning set forth in Section 7.1 of this Agreement. "Capital Contribution" means, for any Member, the total amount of cash and the Fair Market Value of any property contributed to the Company by such Member. For the avoidance of doubt, Special Membership Interest Funds shall not be considered Capital Contributions. "Carry Adjustment Factor" means a fraction, the numerator of which is $125,000,000, and the denominator of which is the aggregate value of all Capital Contributions and advances of Special Membership Interest Aggregate Funds made to the Company since January 31, 2005 (other than Capital Contributions or advances of Special Membership Interest Funds not made to the Company for good faith bona fide Company purposes); provided that in no event shall the Carry Adjustment Factor be more than 1. "Carry Percentage" has the meaning set forth in Section 10.1 of this Agreement. "Carrying Value" means with respect to any Interest of any Management Member, Outside Investor Member or Other Investor Member purchased by the Company, the value equal to the Capital Contribution made by the selling Management Member, Outside Investor Member or Other Investor Member in respect of any such Interest plus simple interest at a rate per annum equal to 6%, which shall be deemed to be the carrying cost, from the date of such Capital Contribution by such Management Member, Outside Investor Member or Other Investor Member through the date of such purchase by the Company, less the amount of distributions made in respect of such Interest (to the extent the amount of such distributions does not exceed simple interest). "Catch Up Payment" has the meaning set forth in Section 10.9 of this Agreement. "Certificate" means the Certificate of Formation of the Company and any and all amendments thereto and restatements thereof filed on behalf of the Company pursuant to the Marshall Islands Act with the Republic of the Marshall Islands Registrar of Corporations. "Code" means the U.S Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the recitals to this Agreement. "Compensation Committee" has the meaning set forth in Section 5.5 of this Agreement. "Confidential Information" has the meaning set forth in Section 4.6(a) of this Agreement. 3 "Covered Person" means a current or former Member or Director, an Affiliate of a current or former Member or Director, any officer, director, shareholder, partner, member, employee, representative or agent of a current or former Member or Director or any of their respective Affiliates, or any current or former officer, employee or agent of the Company or any of its Affiliates. "Deficit" has the meaning set forth in Section 9.2(a) of this Agreement. "Director" has the meaning set forth in Section 5.1(a) of this Agreement. "Disability" means with respect to a Management Member, the termination of the employment of any Management Member by the Company or any Subsidiary of the Company that employs such individual (or by the Company on behalf of any such Subsidiary) as a result of such Management Member's incapacity due to reasonably documented physical or mental illness that shall have prevented such Management Member from performing his or her duties for the Company on a full-time basis for more than six months and within 30 days after written notice has been given to such Management Member, such Management Member shall not have returned to the full time performance of his or her duties, in which case the date of termination shall be deemed to be the last day of the aforementioned 30-day period, provided that in the case of any Management Member who, as of the date of determination, is party to an effective services, severance or employment agreement with the Company or any of its Subsidiaries, "Disability" shall have the meaning, if any, specified in such agreement. "Distributable Amounts" has the meaning set forth in Section 10.2 of this Agreement. "Drag-Along Rights" has the meaning set forth in Section 13.10(b) of this Agreement. "Eagle Shipping" means Eagle Shipping International (USA) LLC, a Marshall Islands Limited Liability Company. "Economic Interest" means a Member's or Ex-Management Member's share of the profits and losses of the Company and such Member's or Ex-Management Member's right to receive distributions of the Company's assets, but shall not include the right to vote on or participate in any decision or action of or by the Members or any right to receive information concerning the business and affairs of the Company. "Ex-Management Member" has the meaning set forth in Section 8.2 of this Agreement. "Exit Event" shall mean a transaction or series of transactions (other than an Initial Public Offering): (a) involving the sale, transfer or other disposition by the Kelso Members to one or more Persons that are not, immediately prior to such sale, Affiliates of the Company or any Kelso Member, of all or substantially all of both the Interests 4 and Special Membership Interests of the Company beneficially owned by the Kelso Members as of the date of such transaction; or (b) involving the sale, Transfer or other disposition of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to one or more Persons that are not, immediately prior to such sale, Transfer or other disposition, Affiliates of the Company or any Kelso Member. "Fair Market Value" means, as of any date, (a) for purposes of determining the value of any property contributed to or distributed by the Company, (i) in the case of publicly-traded securities, the average of their last sales prices on the applicable trading exchange or quotation system on each trading day during the five trading-day period ending on such date and (ii) in the case of any other property, the fair market value of such property, as determined in good faith by the Board, or (b) for purposes of determining the value of any Member's Interest or Special Membership Interest in connection with Section 13.5 ("Put Rights"), Section 13.6 ("Involuntary Transfers") or for other purposes contemplated in this Agreement, (i) the fair market value of such Interest as reflected in the most recent Appraisal without additional premiums for control or discounts for minority interests or restrictions on transfer or (ii) in the event no such Appraisal exists with respect thereto or the Appraisal Date is more than one year prior to the date of determination or the Board otherwise determines in good faith that the use of such Appraisal is inappropriate, the fair market value of such Interest or Special Membership Interest, as applicable, as determined in good faith by the Board; provided that, in the event fair market value is to be determined by the Board hereunder and such determination is disputed in good faith on reasonable grounds by a majority of the Members directly affected by such determination, then fair market value shall be finally determined by arbitration in New York City in accordance with the commercial rules of the American Arbitration Association, and any such determination by the arbitration panel shall be final and binding (the expenses of such arbitration to be borne equally by the Company, on the one hand, and the affected disputing Members, on the other hand). "Financing Documents" has the meaning set forth in Section 13.5(b) of this Agreement. "Fifth LLC Effective Date" means the date of the Company's Fifth Amended and Restated Limited Liability Company Agreement. "Ginsberg" has the meaning set forth in the recitals to this Agreement. 5 "Hiley" has the meaning set forth in the recitals to this Agreement. "Initial Capital Commitment" means, with respect to any Member, the amount as set forth opposite the name of such Member on Schedule A hereto under the heading "Initial Capital Commitment." "Initial Capital Contribution" means, for any Member, the amount of cash and the Fair Market Value of any property contributed to the Company by such Member on or prior to the Initial Capital Contribution Date. "Initial Capital Contribution Date" shall mean May 11, 2005. "Initial SMI Funds Advance" means, for any Member, the amount of Special Membership Interest Funds advanced to the Company by such Member on or prior to the Initial Capital Contribution Date. "Initial Members" has the meaning set forth in the recitals to this Agreement. "Initial Public Offering" or "IPO" means the first underwritten public offering of the common stock of a Subsidiary of the Company to the general public through a registration statement filed with the Securities and Exchange Commission that covers (together with prior effective registrations) (i) not less than 25% of the then outstanding shares of common stock of such Subsidiary of the Company on a fully diluted basis or (ii) shares of such Subsidiary of the Company that will be traded on any of the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers Automated Quotation System after the close of any such general public offering. "Interest" means a Member's limited liability interest in the Company (other than any Special Membership Interest), including such Member's Economic Interest, the right, if any, to vote on or participate in any decision or action of or by the Members (as such voting rights are represented by such Member's Units) and the right to receive information concerning the business and affairs of the Company, in each case to the extent provided for herein or as otherwise required by the Marshall Islands Act. "Interest Priority Payments" means an aggregate amount equal to $101,370.28 "Involuntary Transfer" has the meaning set forth in Section 13.6 of this Agreement. "Involuntary Transferee" has the meaning set forth in Section 13.6 of this Agreement. "IST" has the meaning set forth in the recitals to this Agreement. "James" has the meaning set forth in the recitals to this Agreement. 6 "Kaufman" has the meaning set forth in the recitals to this Agreement. "Kelso" means KIA VII together with KEP VI. "Kelso Investment Multiple" has the meaning set forth on Schedule D to this Agreement. "Kelso IRR" has the meaning set forth on Schedule D to this Agreement. "Kelso Member" has the meaning set forth in the recitals to this Agreement. "Kelso Restriction Period" has the meaning set forth in Section 13.10(b) of this Agreement. "Kelso Threshold Date" shall be deemed to occur at such time as the Kelso Total Invested Capital has reached and amount equal to $126,681,771. "Kelso Total Invested Capital" means the aggregate amount of all Capital Contributions and advances of Special Membership Interest Aggregate Funds by the Kelso Members. "KEP VI" means KEP VI, LLC, a Delaware limited liability company. "KIA VII" means Kelso Investment Associates VII, L.P., a Delaware limited partnership. "Management Member" has the meaning set forth in the recitals to this Agreement. A Management Member shall be deemed not to be a "manager" within the meaning of the Marshall Islands Act (except to the extent Section 5.1(b)(i) of this Agreement applies). "Majority in Interest" means the holders of a majority of the Units held by Members having the right to vote at a meeting of the Members. "Magnetite" has the meaning set forth in the recitals to this Agreement. "Maria" has the meaning set forth in the recitals to this Agreement. "Marshall Islands Act" means the Marshall Islands Limited Liability Company Act of 1996 (SS.22.1 et seq of the Republic of the Marshall Islands Associations Law), as the same may be amended from time to time. "Maximum Amount" has the meaning set forth in Section 13.5(c) of this Agreement. "Member" has the meaning set forth in the recitals to this Agreement and includes any Person admitted as an additional or substitute Member of the Company pursuant to this Agreement. 7 "Net Profits" and "Net Losses" means, with respect to any Accounting Period, net income or net loss of the Company for such Accounting Period, determined in accordance with ss. 703(a) of the Code, including any items that are separately stated for purposes of ss. 702(a) of the Code, as determined in accordance with federal income tax accounting principles with the following adjustments: (a) any income of the Company that is exempt from United States federal income tax shall be included as income; (b) any expenditures of the Company described in ss. 705(a)(2)(B) of the Code or treated as expenditures pursuant to ss. 1.704-1(b)(2)(iv)(i) of the Treasury Regulations shall be treated as current expenses; (c) any items of income, gain, loss or deduction specially allocated pursuant to this Agreement, including pursuant to Section 9.2, shall be excluded from the determination of Net Profit and Net Loss; and (d) treating as an item of gain (loss) the excess (deficit), if any, of the gross fair market value of property distributed in such Accounting Period over (under) the amount at which such property was carried on the books of the Company. "Nordhaus" has the meaning set forth in the recitals to this Agreement. "Other Investor Members" has the meaning set forth in the recitals to this Agreement. "Outside Investor Members" has the meaning set forth in the recitals to this Agreement. "Partnership Minimum Gain" shall have the meaning set forth in sections 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations. "Performance Factor" has the meaning set forth on Schedule D to this Agreement. "Performance Percentage" has the meaning set forth in Section 10.1(a)(ii) of this Agreement. "Performance Points" has the meaning set forth in Section 8.1(a) of this Agreement. "Person" means any individual, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company, or other legal entity or organization. "Points" has the meaning set forth in Section 8.1(a) of this Agreement. "Post IPO Awarded Performance Points" has the meaning set forth in Section 10.1(a)(ii) of this Agreement. 8 "Post IPO Performance Percentage" has the meaning set forth in Section 10.1(a)(ii) of this Agreement. "Post IPO Remaining Percentage" has the meaning set forth in Section 10.1(a)(ii) of this Agreement. "Put Notice" has the meaning set forth in Section 13.5(a) of this Agreement. "Put Rights" has the meaning set forth in Section 13.5(a) of this Agreement. "Retainable Service Points" has the meaning set forth in Section 8.3(d) of this Agreement. "Resignation for Good Reason" means a voluntary termination of a Member's employment with the Company or any Subsidiary of the Company that employs such individual by such Member of his employment with the Company or any such Subsidiary as a result of either of the following: (a) without the Member's prior written consent, a significant reduction by the Company or any such Subsidiary of his or her current salary, other than any such reduction which is part of a general salary reduction or other concessionary arrangement affecting all employees or affecting the group of employees of which the Member is a member (after receipt by the Company of written notice from such Member and a 20-day cure period); or (b) the taking of any action by the Company or any such Subsidiary that would substantially diminish the aggregate value of the benefits provided him or her under the Company's or such Subsidiary's accident, disability, life insurance and any other employee benefit plans in which he or she was participating on the date of his or her execution of this Agreement, other than any such reduction which is (i) required by law, (ii) implemented in connection with a general concessionary arrangement affecting all employees or affecting the group of employees of which the Member is a member, (iii) generally applicable to all beneficiaries of such plans (after receipt by the Company of written notice and a 20-day cure period) or (iv) in accordance with the terms of any such plan. or, if such Member is a party to a services, severance or employment agreement with the Company or a Subsidiary of the Company, the meaning as set forth in such services or employment agreement. "Restriction Period" means, with respect to any Management Member, a period commencing on the date hereof and ending on the later of (i) the date on which a Management Member or any transferee thereof permitted under Section 13.2 hereof, directly or indirectly, no longer retains any equity interest in the Company and (ii) the termination of any severance 9 payable pursuant to any employment, termination or severance agreement, if any, entered into between such Management Member and the Company or any Subsidiary of the Company. "Retirement" means the termination of a Member's employment on or after the date the Member attains age 65. Notwithstanding the foregoing, (i) with respect to any Member who is a party to a services or employment agreement with the Company or a Subsidiary of the Company, "Retirement" shall have the meaning, if any, specified in such Member's services, severance or employment agreement and (ii) in the event a Member whose employment with the Company or a Subsidiary of the Company terminates due to Retirement continues to serve as a Director of or a consultant to the Company or a Subsidiary of the Company, such participant's employment with the Company or a Subsidiary of the Company shall not be deemed to have terminated for purposes of Sections 8.3 and 13.5, until the date as of which such Member's services as a Director of or consultant to the Company or a Subsidiary of the Company shall have also terminated, at which time the Member shall be deemed to have terminated employment due to retirement. "ROFO" has the meaning set forth in Section 13.12(a) of this Agreement. "ROFO Notice" has the meaning set forth in Section 13.12(a) of this Agreement. "Rule 144" has the meaning set forth in Section 6.1(b) of this Agreement. "Securities Act" means the Securities Act of 1933 as amended from time to time. "Service Percentage" has the meaning set forth in Section 10.1(a)(i) of this Agreement. "Service Points" has the meaning set forth in Section 8.1(a) of this Agreement. "Ship Sale" has the meaning set forth in Section 13.12(a) of this Agreement. "Special Interest Payment" has the meaning set forth in Section 10.8 of this Agreement. "Special Membership Interest" means, with respect to any Member, the special debt membership interest in the Company issued to such Member in the amount set forth on Schedule E, as such schedule may be amended from time to time (including to account for any reduction in the Special Membership Interest by virtue of Section 10.8). "Special Membership Interest Aggregate Funds" means, with respect to any Member, aggregate Special Membership Interest Funds advanced by such Member in respect of all Special Membership Interests (whether or not currently outstanding) issued to such Member. "Special Membership Interest Funds" means, with respect to any particular advance by a Member, cash funds advanced by a Member to the Company in exchange for Special Membership Interests. 10 "Stub Performance Percentage Allocation" has the meaning set forth in Section 10.1(a)(ii) of this Agreement. "Subject Members" means the Management Members, Outside Investor Members and any Additional Members. "Subsidiary" means, with respect to any Person, any corporation, partnership, joint venture or other legal entity of which such Person (either alone or through or together with any other Subsidiary) (a) owns, directly or indirectly, fifty percent (50%) or more of the stock, partnership interests or other equity interests which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, joint venture of other legal entity; or (b) possesses, directly or indirectly, control over the direction of management or policies of such corporation, partnership, joint venture or other legal entity (whether through ownership of voting securities, by agreement or otherwise). "Subsidiary Board" has the meaning set forth in Section 5.11(a) of this Agreement. "Tag-Along Rights" has the meaning set forth in Section 13.10(a) of this Agreement. "Tax Matters Partner" has the meaning set forth in Section 11.2(b) of this Agreement. "Termination for Cause" means a termination of a Member's employment by the Company or any Subsidiary of the Company that employs such individual (or by the Company on behalf of any such Subsidiary), provided that any of the events described below that give rise to such termination shall not have been cured within 30 days after a Member receives written notice of termination from the Company, due to such Member's (i) refusal or neglect to perform substantially his or her employment-related duties, (ii) dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) indictment for, conviction of, or entering a plea of guilty or no lo contedere to, a crime constituting a felony or his or her willful violation of any law, rule, or regulation (other than a traffic violation or other offense or violation outside of the course of employment which in no way adversely affects the Company and its Subsidiaries or its reputation or the ability of the Member to perform his or her employment-related duties or to represent the Company or any Subsidiary of the Company that employs such Management Member) or (iv) material breach of any written covenant or agreement with the Company or any of its Subsidiaries not to disclose any information pertaining to the Company or such Subsidiary or not to compete or interfere with the Company or such Subsidiary, provided that, in the case of any Member who, as of the date of determination, is party to an effective services, severance or employment agreement with the Company or a Subsidiary of the Company, "Termination for Cause" shall have the meaning, if any, specified in such agreement. "Third Party" shall mean, in respect of any Transfer, one or more Persons other than the Company, any Member or any of their respective Affiliates. "Thouret" has the meaning set forth in the recitals to this Agreement. 11 "Total Available Post IPO Remaining Performance Percentage" has the meaning set forth on Schedule D to this Agreement. "Total Performance Pool Points" has the meaning set forth in Section 10.1(a)(ii) of this Agreement. "Total Service Percentage" shall have the meaning set forth in Section 10.1(a)(i) of this Agreement. "Total Service Pool Points" shall have the meaning set forth in Section 10.1(a)(i) of this Agreement. "Total Stub Performance Percentage" has the meaning set forth on Schedule D to this Agreement. "Total Vested IPO Percentage" has the meaning set forth in Section 10.1(a)(iii) of this Agreement. "Transfer" means to directly or indirectly transfer, sell, pledge, hypothecate or otherwise dispose of. "Transferor Member" has the meaning set forth in Section 13.10(d). "Treasury Regulations" means the Regulations of the Treasury Department of the United States issued pursuant to the Code. "Trigger Achieving Balance" has the meaning set forth in Section 10.2(b) of this Agreement. "Trigger Multiple" means the Kelso Investment Multiple set forth on Schedule 10.9. "Unallocated Points" has the meaning set forth in Section 8.1(a) of this Agreement. "Units" has the meaning set forth in Section 4.2 of this Agreement. "Unreturned Benchmark Withholdings" shall have the meaning set forth in Section 10.9 of this Agreement. "Unreturned Capital" means, with respect to any Member on any date of determination, an amount equal to the excess, if any, of (x) the aggregate amount of Capital Contributions made by such Member on or after the date of this Agreement over (y) the aggregate amount of distributions made by the Company on or after the date of this Agreement that constitute a return of the Capital Contributions of such Member pursuant to Section 10.2. 12 "Vested IPO Percentage" has the meaning set forth in Section 10.1(a)(iii) of this Agreement. "Vesting Service Catch Up Payments" means an aggregate amount equal to $741,276.84. "Zoullas" has the meaning set forth in the recitals to this Agreement. ARTICLE II FORMATION OF THE COMPANY Section 2.1 Formation. The Company was formed upon the filing of the Certificate pursuant to the Marshall Islands Act with the Republic of the Marshall Islands Registrar of Corporations on January 27, 2005. Section 2.2 Company Name. The name of the Company shall be Eagle Ventures LLC. The business of the Company may be conducted under such other names as the Board may from time to time designate, provided that the Company complies with all relevant state laws relating to the use of fictitious and assumed names. Section 2.3 The Certificate, etc. Derick W. Betts, Jr. is hereby designated as an authorized person within the meaning of the Marshall Islands Act and shall be authorized to execute, deliver and file (or direct the execution, delivery and filing of) any necessary amendments to the Certificate with the Republic of the Marshall Islands Registrar of Corporations. Each Director is hereby authorized to execute, deliver, file and record all such other certificates and documents, including amendments to or restatements of the Certificate, and to do such other acts as may be appropriate to comply with all requirements for the formation, continuation and operation of a limited liability company, the ownership of property, and the conduct of business under the laws of the Marshall Islands and any other jurisdiction in which the Company may own property or conduct business. Section 2.4 Term of Company. The term of the Company commenced on the date of the initial filing of the Certificate with the Republic of the Marshall Islands Registrar of Corporations. The Company may be terminated in accordance with the terms and provisions hereof, and shall continue unless and until dissolved as provided in Article XIV. The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate as provided in the Marshall Islands Act. Section 2.5 Registered Agent and Office. The Company's registered agent in the Marshall Islands shall be The Trust Company of the Marshall Islands, Inc., and office of such registered agent shall be Trust Company Complex, Ajeltake Island, Ajeltake Road, Majuro, 13 Marshall Islands MH 96960. The Board may designate another registered agent and/or registered office from time to time in accordance with the then applicable provisions of the Marshall Islands Act and any other applicable laws. Section 2.6 Principal Place of Business. The principal place of business of the Company shall be located at 29 Broadway, New York, New York 10006. The location of the Company's principal place of business may be changed by the Board from time to time in accordance with the then applicable provisions of the Marshall Islands Act and any other applicable laws. Section 2.7 Qualification in Other Jurisdictions. Any authorized Person of the Company shall execute, deliver and file any certificates (and any amendments and/or restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business. Section 2.8 Fiscal Year; Taxable Year. The fiscal year of the Company for financial accounting purposes shall end on December 31. The taxable year of the Company for federal, state and local income tax purposes shall end on December 31. ARTICLE III PURPOSE AND POWERS OF THE COMPANY Section 3.1 Purpose. The purposes of the Company are, and the nature of the business to be conducted and promoted by the Company is, engaging in any lawful act or activity for which limited liability companies may be formed under the Marshall Islands Act and engaging in all acts or activities as the Company deems necessary, advisable or incidental to the furtherance of the foregoing. Section 3.2 Powers of the Company. The Company shall have the power and authority to take any and all actions that are necessary, appropriate, advisable, convenient or incidental to or for the furtherance of the purposes set forth in Section 3.1. Section 3.3 Certain Tax Matters. The Members agree that, pursuant to Treasury Regulation Section 301.7701-3, the Company shall elect to be classified as a partnership for U.S. federal income tax purposes and under all corresponding provisions of state or local income tax law and that Zoullas is hereby authorized, in the name of and on behalf of the Company and each of the Members, to sign and file with the U.S. Internal Revenue Service an Entity Classification Election (IRS Form 8832) electing to have the Company classified as a partnership for U.S. federal income tax purposes retroactive to the date of formation of the Company, and any such action heretofore taken by Zoullas is hereby ratified, confirmed and approved in all respects. The Company and the Board shall not permit the registration or listing of interests in the 14 Company on an "established securities market," as such term is used in Treasury Regulations section 1.7704-1. ARTICLE IV MEMBERS Section 4.1 Powers of Members. The Members shall have the power to exercise any and all rights or powers granted to the Members pursuant to the express terms of this Agreement. The approval or consent of the Members shall not be required in order to authorize the taking of any action by the Company unless and then only to the extent that (i) this Agreement shall expressly provide therefor, (ii) such approval or consent shall be required by non-waivable provisions of the Marshall Islands Act or (iii) the Board shall determine that obtaining such approval or consent would be appropriate or desirable. The Members, as such, shall have no power to bind the Company. Section 4.2 Units Generally. The right of a Member to vote in its capacity as a member of the Company shall be represented by membership units (the "Units"). Unless otherwise determined by the Board, each Member shall receive one Unit for each dollar of such Member's Capital Contribution. The number of Units of each Member shall be set forth on Schedule A. Notwithstanding anything to the contrary, Special Membership Interests shall not have voting rights. Section 4.3 Meetings of Members. (a) Meetings; Notice of Meetings. Meetings of the Members, including any special meeting, may be called by (i) the Board from time to time, (ii) any Member, or Members, holding 25% or more of the Units or (iii) Zoullas so long as he is Chief Executive Officer of Eagle Shipping and a Member of the Company. Notice of any such meeting shall be given to all Members not less than three nor more than 30 business days prior to the date of such meeting and shall state the location, date and hour of the meeting and, in the case of a special meeting, the nature of the business to be transacted. Meetings shall be held at the location at the date and hour set forth in the notice of the meeting. (b) Waiver of Notice. No notice of any meeting of Members need be given to any Member who submits a signed waiver of notice, whether before or after the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Members need be specified in a written waiver of notice. The attendance of any Member at a meeting of Members shall constitute a waiver of notice of such meeting, except when the Member attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. 15 (c) Quorum. Except as otherwise required by law or by the Certificate, the presence in person or by proxy of the holders of record of a Majority in Interest shall constitute a quorum for the transaction of business at such meeting. (d) Voting. If the Board has fixed a record date, every holder of record of Units entitled to vote at a meeting of Members or to consent in writing in lieu of a meeting of Members shall be entitled to one vote for each such Unit outstanding in such Member's name at the close of business on such record date. If no record date has been so fixed, then every holder of record of such Units entitled to vote at a meeting of Members shall be entitled to one vote for each Unit outstanding in his name on the close of business on the day next preceding the day on which notice of the meeting is given or the first consent in respect of the applicable action is executed and delivered to the Company, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. Except as otherwise required by applicable law, the Certificate or this Agreement, the vote of a majority of the Units represented in person or by proxy at any meeting at which a quorum is present shall be sufficient for the transaction of any business at such meeting. (e) Proxies. Each Member may authorize any Person to act for such Member by proxy on all matters in which a Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Member or such Member's attorney-in-fact. No proxy shall be valid after the expiration of three years from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Member executing it unless otherwise provided in such proxy, provided, that such right to revocation shall not invalidate or otherwise affect actions taken under such proxy prior to such revocation. (f) Organization. Each meeting of Members shall be conducted by such Person as the Board may designate. (g) Action Without a Meeting. Unless otherwise provided in this Agreement, any action which may be taken at any meeting of the Members may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by a Majority in Interest. Prompt notice of the taking of the action without a meeting by less than unanimous written consent shall be given to those Members who have not consented in writing. Section 4.4 Business Transactions of a Member with the Company. Subject to prior approval of the Board, a Member may lend money to, borrow money from, act as surety or endorser for, guarantee or assume one or more specific obligations of, provide collateral for, or transact any other business with the Company, provided that any such transaction pursuant to any agreement entered into after the date hereof shall be approved by a majority of the non-interested Directors. 16 Section 4.5 No Cessation of Membership upon Bankruptcy. A Person shall not cease to be a Member of the Company upon the happening, with respect to such Person, of any of the events specified in Section 21 of the Marshall Islands Act. Section 4.6 Confidentiality; Nonsolicitation; Non-Disparagement. The covenants and restrictions contained in this Section 4.6 shall be in addition to and not in lieu of any covenants or restrictions applying to any Member pursuant to any employment, severance or services agreement between such Member and the Company or any of its Subsidiaries. (a) Confidentiality; Tax Information. Without the prior written consent of a majority of the Board, except to the extent required by law, rule, regulation or court order, each Subject Member shall not disclose any trade secrets, customer lists, drawings, designs, marketing plans, sales plans, management organization information (including data and other information relating to members of the Board or management), operating policies or manuals, business plans, financial records or other financial, commercial, business or technical information relating to the Company or any of its Subsidiaries or information designated as confidential or proprietary that the Company or any of its Subsidiaries may receive belonging to suppliers, customers or others who do business with the Company or any of its Subsidiaries (collectively, "Confidential Information") to any third person unless such Confidential Information has been previously disclosed to the public by the Company or is in the public domain (other than by reason of such Subject Member's breach of this Section 4.6(a)). Notwithstanding anything to the contrary herein or contained in any other materials relating to an investment in the Company, each Subject Member (and each employee, representative, or other agent of the foregoing) may disclose to any and all persons, without limitation of any kind, the tax treatment and any facts that may be relevant to the tax structure of the Company and its Subsidiaries, provided, however, that no Subject Member (and no employee, representative, or other agent thereof) shall disclose any other information that is not relevant to understanding the tax treatment and tax structure of the Company and its Subsidiaries (including the identity of any Subject Member and any information that could lead another to determine the identity of any Subject Member), or any other information to the extent that such disclosure could reasonably result in a violation of any applicable securities law. (b) Non-Solicitation of Employees. Except as permitted under any employment, severance or services agreement between such Subject Member and the Company or any of its Subsidiaries, during the Restriction Period, no Subject Member shall directly or indirectly induce any employee of the Company or any of its Subsidiaries to terminate employment with such entity, and no Subject Member shall directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ, offer employment to or otherwise interfere with the employment relationship of the Company or any of its Subsidiaries with any person who is or was employed by the Company or such Subsidiary unless, at the time of such employment, offer or other interference, such person shall have ceased to be employed by such entity for a period of at least six months, provided that, nothing in this Section 4.6(b) shall preclude such Subject Member from placing advertisements during the Restriction Period in periodicals of 17 general circulation soliciting persons for employment or from employing any person who comes to such Subject Member solely in response to such advertisements. (c) Non-Solicitation of Clients. Except as permitted under any employment, severance or services agreement between such Subject Member and the Company or any of its Subsidiaries, during the Restriction Period, no Subject Member shall solicit or otherwise attempt to establish for himself or any other person, firm or entity any business relationship with any person, firm or entity which is, or during the 12-month period preceding the date such Subject Member ceases to hold any equity interest in the Company was, a customer, client or distributor of the Company or any of its Subsidiaries. (d) Non-Disparagement. No Subject Member shall, directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, make, participate in the making of, or encourage any other Person to make, any statement, whether written or oral, that criticizes, disparages or defames the Company, any Subsidiary of the Company or the business conducted by the Company or any Subsidiary of the Company. (e) Injunctive Relief with Respect to Covenants. Each Subject Member acknowledges and agrees that the covenants and obligations of such Subject Member with respect to non-disparagement, nonsolicitation and confidentiality herein relate to special, unique and extraordinary matters and that a violation or threatened violation of any of the terms of such covenants or obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, each Subject Member agrees, to the fullest extent permitted by law, that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining such Subject Member from committing any violation of the covenants or obligations contained in this Section 4.6. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provisions of this Section 4.6, each Subject Member represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. (f) Unenforceable Restriction. It is expressly understood and agreed that although each Subject Member and the Company consider the restrictions contained in this Section 4.6 to be reasonable, if a final determination is made by an arbitrator to whom the parties have assigned the matter or a court of competent jurisdiction that any restriction contained in this Agreement is an unenforceable restriction against any Subject Member, the provisions of this Agreement shall not be rendered void but shall be reformed to apply as to such maximum time and to such maximum extent as such arbitrator or court may determine or indicate to be enforceable. Alternatively, if such arbitrator or court finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be reformed so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 18 (g) Ex-Management Members. The provisions of this Section 4.6 shall apply to both Management Members and Ex-Management Members (as defined in Section 8.2). Section 4.7 Other Business for Kelso Members and Certain Members. (a) Notwithstanding anything to the contrary contained in Section 4.6, any Kelso Member or Affiliate thereof may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Company, and the Company, the Directors and the Members shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Company, shall not be deemed wrongful or improper. No Kelso Member, Director (other than any Subject Member who serves as a Director) or Affiliate thereof shall be obligated to present any particular investment opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be taken by the Company, and any Kelso Member, Director (other than any Subject Member who serves as a Director) or Affiliate thereof shall have the right to take for such Person's own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity, provided that this Section 4.7(a) shall not apply to Subject Members or any other Members who are employees of the Company or any of its Subsidiaries. (b) Notwithstanding anything to the contrary contained in Section 4.6, any Outside Investor Member, Other Investor Member or Affiliate thereof (other than Zoullas) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Company, and the Company, the Directors and the Members shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Company, shall not be deemed wrongful or improper. No Outside Investor Member, Other Investor Member or any of its Affiliates (other than Zoullas) shall be obligated to present any particular investment opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be taken by the Company, and any Outside Investor Member, Other Investor Member or Affiliate thereof (other than Zoullas) shall have the right to take for such Person's own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity, provided that this Section 4.7(b) shall not apply to Subject Members or any other Members who are employees of the Company or any of its Subsidiaries. Section 4.8 Additional Members. (a) Admission. Upon the approval of the Board, the Company may admit one or more additional Members (each an "Additional Member"), including additional Management Members to the Company, to be treated as a "Member" or one of the "Members" for all purposes hereunder. Each Person shall be admitted as an Additional Member at the time such Person 19 (i) executes a joinder agreement to this Agreement substantially in the form of Exhibit A hereto (subject, in the case of the admission of any Additional Member who is a Management Member, to the following sentence), (ii) complies with the applicable Board resolution, if any, with respect to such admission and (iii) is named as a Member in Schedule A and Schedule B (as described in Section 8.1) and Schedule E hereto, as applicable. Any Management Member admitted as an Additional Member after the date hereof who is unable to make the representation contained in Section 6.1(e) may execute a joinder agreement which exclude such representation; provided such Additional Member also concurrently delivers to the Company a certificate, accompanied by an opinion of counsel, to the effect that the issuance of Units or Points to such Member shall be exempt from the registration requirements under the Securities Act. Kelso is authorized to amend Schedule A, Schedule B and Schedule E, as applicable, to reflect any such admission and any actions pursuant to Section 4.8(b) below. (b) Rights of Additional Members. Upon, and as a condition precedent to, the admission of an Additional Member: (i) the Board shall determine the Initial Capital Commitment and any additional capital commitment (if any) of such Additional Member; (ii) the Board shall determine the rights (if any) of such Additional Members to appoint Directors to the Board; (iii) the Board shall assign Units (if any) to such Additional Member; (iv) such Additional Member shall make Capital Contributions and/or advance Special Membership Interest Funds to the Company in an amount to be determined by the Board; (v) if such Additional Member is an employee of the Company or any of its Subsidiaries, such employee will be a "Management Member" and one of the "Management Members" for all purposes hereunder, and, subject to the prior consultation with the Chief Executive Officer of Eagle Shipping and further subject to the terms of any employment or services agreement between the Company or any Subsidiary of the Company, and any Management Member, the Board will have the right to grant such employee Points pursuant to Article VIII and amend Schedule B accordingly; (vi) if such Additional Member will not be a Management Member hereunder then the Board may either designate such Member as a "Kelso Member," as an "Outside Investor Member" or as an "Other Investor Member" or as a member of such other class or designation as may be designated by the Board, having such rights and obligations as the Board may specify; and (vii) the Board will amend Schedule A and Schedule E, as applicable, to reflect the actions taken pursuant to this Section 4.8. 20 ARTICLE V MANAGEMENT Section 5.1 Board. (a) Generally. The business and affairs of the Company shall be managed by or under the direction of a committee of the Company (the "Board") consisting of up to seven (7) natural Persons (each a "Director"), which Persons shall be elected annually by the holders of Units unless otherwise appointed pursuant to Section 5.1(b)(ii). The initial Directors of the Company shall be as designated pursuant to Section 5.1(b)(i). Subject to the rights granted pursuant to Section 5.1(b)(ii), the Board, in its sole discretion, may increase the authorized number of Directors at any time with the vote of a majority of the Directors then in office. Directors need not be Members. Subject to the consultation rights of Zoullas set forth in his employment agreement with the Company or any Subsidiary of the Company and except as otherwise set forth in this Agreement, the Board shall have full, exclusive and complete discretion to manage and control the business and affairs of the Company, to make all decisions affecting the business and affairs of the Company and to take all such actions as it deems necessary or appropriate to accomplish the purposes of the Company as set forth herein, including, without limitation, to exercise all of the powers of the Company set forth in Section 3.2. (b) Election of Directors. (i) Initial Directors; Term. The initial Board shall consist of four (4) Directors. The initial Directors of the Company will be those individuals set forth on Schedule C. Each Director shall hold office until a successor is elected or appointed by a Majority in Interest (unless otherwise appointed in accordance with Section 5.1(b)(ii)) or until such Director's earlier death, resignation or removal in accordance with the provisions hereof in which event, a successor will be appointed in accordance with Section 5.1(b)(ii). Each Person named as a Director herein or subsequently appointed as a Director (including any Management Member named or appointed as such) is hereby designated as a "manager" (within the meaning of the Marshall Islands Act) of the Company. Except as otherwise provided herein, no single Director may bind the Company, and the Board shall have the power to act only collectively in the manner specified herein. (ii) Composition. For so long as the Board consists of four (4) Directors, Kelso shall have the right to appoint, in its sole discretion, three (3) Directors. In the event that the Board determines to expand the size of the Board following the date hereof in accordance with Section 5.1(a), Kelso shall have the right to appoint in its sole discretion such number of additional Directors that are necessary for Kelso to retain the right to appoint a majority of the Directors on the Board (as so expanded). For so long as Zoullas is a Member of the Company, Zoullas shall have the right to appoint one (1) 21 Director (which may be himself). For so long as Zoullas is the Chief Executive Officer of Eagle Shipping (and a Member of the Company), Zoullas shall have the right to appoint, in his sole discretion, a number of additional Directors that, when taken together with the Directors referred to in the immediately preceding sentence, constitutes one less than a majority of the Board. Section 5.2 Meetings of the Board. The Board shall meet from time to time to discuss the business of the Company. Meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board. The Chairman of the Board or Zoullas so long as he is Chief Executive Officer of Eagle Shipping and a Member of the Company or a majority of the Board may call a meeting of the Board on three business days' notice to each Director, either personally, by telephone, by facsimile or by any other similarly timely means of communication. Any Director may waive the notice requirement described in this Section 5.2 as it relates to such Director. Section 5.3 Quorum and Acts of the Board. At all meetings of the Board, four Directors shall constitute a quorum for the transaction of business unless the number of Directors is increased pursuant to Section 5.1(a), in which case the presence of a majority of the then authorized number of Directors shall constitute a quorum. Except as otherwise provided in this Agreement, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if a majority of the members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee; each Director not executing such a written consent shall be given prompt notice after any such action is taken by the other Directors. Section 5.4 Electronic Communications. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 5.5 Committees of Directors. The Board (a) shall designate (i) a compensation committee (the "Compensation Committee") and (ii) an Executive Committee and (b) may, by resolution passed by unanimous consent of the Directors, designate one or more additional committees. Such resolution shall specify the duties and quorum requirements of such additional committees. Each committee of the Board shall be comprised of at least three (3) Directors, two (2) of whom shall be Directors designated by Kelso and the other Director shall be the Chief Executive Officer of Eagle Shipping. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent 22 or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. Each committee shall keep regular minutes of its meetings and report the same to the Board when required. Section 5.6 Compensation of Directors. The Board shall have the authority to fix the compensation (if any) of Directors. The Directors may be paid their expenses (if any) of attendance at such meetings of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as a Director. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 5.7 Resignation. Any Director may resign at any time by giving written notice to the Company. The resignation of any Director shall take effect upon receipt of such notice or at such later time as shall be specified in the notice; and, unless otherwise specified in the notice, the acceptance of the resignation by the Company, the Members or the remaining Directors shall not be necessary to make it effective. Upon the effectiveness of any such resignation, such Director shall cease to be a "manager" (within the meaning of the Marshall Islands Act). Section 5.8 Removal of Directors. The Members holding a Majority in Interest shall have the right to remove any Director at any time with or without cause. In addition, a majority of the Directors then in office shall have the right to remove a Director for cause. Upon the taking of such action, the Director shall cease to be a "manager" (within the meaning of the Marshall Islands Act). Notwithstanding anything in this Section 5.8 to the contrary, (i) the removal from the Board or a Subsidiary Board (with or without cause) of any Director designated hereunder by Kelso shall be only at the written request of Kelso, and under no other circumstances, and (ii) the removal from the Board or a Subsidiary Board (without cause) of any Director designated hereunder by Zoullas shall be only at the written request of Zoullas. Upon receipt of any such written removal request, the Board will promptly take all such actions as shall be necessary or desirable to cause the removal of such Director. Any vacancy caused by any such removal shall be filled in accordance with Section 5.9. Section 5.9 Vacancies. If any vacancies shall occur in the Board, by reason of death, resignation, removal or otherwise, the Directors then in office shall continue to act, and actions that would otherwise be taken by a majority of the Directors may be taken by a majority of the Directors then in office, even if less than a quorum. Any vacancy shall be filled at any time in 23 accordance with Section 5.1(b)(ii). A Director elected to fill a vacancy in the Board shall hold office until his or her successor has been elected and qualified or until his or her earlier death, resignation or removal. Section 5.10 Directors as Agents. The Directors, to the extent of their powers set forth in this Agreement, are agents of the Company for the purpose of the Company's business, and the actions of the Directors taken in accordance with such powers shall bind the Company. Except as otherwise provided in this Agreement, no single Director shall have the power to bind the Company and the Board shall have the power to act only collectively in the manner specified herein. Section 5.11 Subsidiaries. (a) Subsidiary Boards. The composition of the board of directors of each of the Company's Subsidiaries (a "Subsidiary Board") shall be determined by a majority of the Directors; provided, that, the rights of Kelso and Zoullas to appoint directors thereof shall be similar to their respective rights to appoint Directors to the Board described in Section 5.1(b)(ii). (b) Structure; Governance. For so long as Zoullas is the Chief Executive Officer of Eagle Shipping (and a Member of the Company), the Board shall consider recommendations of Zoullas before altering the structure or governance of any Subsidiary of the Company. Any change in the structure or governance of any Subsidiary of the Company shall not adversely affect any Member or group of Members disproportionately relative to other Members without the prior written consent of the affected Member or Members, as applicable. (c) Protections. All Subsidiaries of the Company shall be governed in a manner consistent with the applicable provisions of this Agreement (including with respect to Board composition, quorum and notice requirements). The Company shall take such actions, including causing its Subsidiaries to take such actions, to ensure that the provisions of Subsidiaries' organizational documents applicable to Subsidiary Boards are not inconsistent with the provisions of this Agreement applicable to the Board or any Subsidiary Board. ARTICLE VI INVESTMENT REPRESENTATIONS, WARRANTIES AND COVENANTS Section 6.1 Representations, Warranties and Covenants of Members. (a) Investment Intention and Restrictions on Disposition. Each Member represents and warrants that such Member is acquiring the Interests and/or Special Membership Interests, as applicable, solely for such Member's own account for investment and not with a view to resale in connection with, any distribution thereof. Each Member agrees that such Member will not, 24 directly or indirectly, Transfer any of the Interests or Special Membership Interests (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of any of the Interests) or any interest therein or any rights relating thereto or offer to Transfer, except in compliance with the Securities Act, all applicable state securities or "blue sky" laws and this Agreement, as the same shall be amended from time to time. Any attempt by a Member, directly or indirectly, to Transfer, or offer to Transfer, any Interests or Special Membership Interests, as applicable, or any interest therein or any rights relating thereto without complying with the provisions of this Agreement, shall be void and of no effect. (b) Securities Laws Matters. Each Member acknowledges receipt of advice from the Company that (i) neither the Interests nor the Special Membership Interests have been registered under the Securities Act or qualified under any state securities or "blue sky" laws, (ii) it is not anticipated that there will be any public market for the Interests or the Special Membership Interests, (iii) the Interests and the Special Membership Interests must be held indefinitely and such Member must continue to bear the economic risk of the investment in the Interests and the Special Membership Interests, as applicable, unless the Interests and/or Special Membership Interests are subsequently registered under the Securities Act and such state laws or an exemption from registration is available, (iv) Rule 144 promulgated under the Securities Act ("Rule 144") is not presently available with respect to sales of any securities of the Company and the Company has made no covenant to make Rule 144 available and Rule 144 is not anticipated to be available in the foreseeable future, (v) when and if the Interests and/or Special Membership Interests may be disposed of without registration in reliance upon Rule 144, such disposition can be made only in limited amounts and in accordance with the terms and conditions of such Rule and the provisions of this Agreement, (vi) if the exemption afforded by Rule 144 is not available, public sale of the Interests or Special Membership Interests without registration will require the availability of an exemption under the Securities Act, (vii) restrictive legends shall be placed on any certificate representing the Interests and/or Special Membership Interests, as applicable, and (viii) a notation shall be made in the appropriate records of the Company indicating that the Interests and the Special Membership Interests are subject to restrictions on transfer and, if the Company should in the future engage the services of a transfer agent, appropriate stop-transfer instructions will be issued to such transfer agent with respect to the Interests and the Special Membership Interests. (c) Ability to Bear Risk. Each Member represents and warrants that (i) such Member's financial situation is such that such Member can afford to bear the economic risk of holding the Interests and/or the Special Membership Interests, as applicable, for an indefinite period of time and (ii) such Member can afford to suffer the complete loss of such Member's investment in the Interests and/or the Special Membership Interests, as applicable. (d) Access to Information; Sophistication; Lack of Reliance. Each Member represents and warrants that (i) such Member is familiar with the business and financial condition, properties, operations and prospects of the Company and that such Member has been granted the opportunity to ask questions of, and receive answers from, representatives of the Company 25 concerning the Company and the terms and conditions of the purchase of the Interests and/or the Special Membership Interests, as applicable, and to obtain any additional information that such Member deems necessary, (ii) such Member's knowledge and experience in financial and business matters is such that such Member is capable of evaluating the merits and risk of the investment in the Interests and/or the Special Membership Interests, as applicable, and (iii) such Member has carefully reviewed the terms and provisions of this Agreement and has evaluated the restrictions and obligations contained therein. In furtherance of the foregoing, each Member represents and warrants that (x) no representation or warranty, express or implied, whether written or oral, as to the financial condition, results of operations, prospects, properties or business of the Company or as to the desirability or value of an investment in the Company has been made to such Member by or on behalf of the Company, (y) such Member has relied upon such Member's own independent appraisal and investigation, and the advice of such Member's own counsel, tax advisors and other advisors, regarding the risks of an investment in the Company and (z) such Member will continue to bear sole responsibility for making its own independent evaluation and monitoring of the risks of its investment in the Company. (e) Accredited Investor. Each Member represents and warrants that such Member is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and, in connection with the execution of this Agreement, agrees to deliver such certificates to that effect as the Board may request. Section 6.2 Additional Representations and Warranties of Management Members, Outside Investor Members and Other Investor Members. Each Management Member, Outside Investor Member and Other Investor Member represents and warrants as to itself that (a) such Management Member, Outside Investor Member or Other Investor Member has duly executed and delivered this Agreement; (b) all actions required to be taken by or on behalf of the Management Member, Outside Investor Member or Other Investor Member to authorize it to execute, deliver and perform its obligations under this Agreement have been taken and this Agreement constitutes such Management Member's, Outside Investor Member's or Other Investor Member's legal, valid and binding obligation, enforceable against such Management Member, Outside Investor Member or Other Investor Member in accordance with the terms hereof; (c) the execution and delivery of this Agreement and the consummation by the Management Member, Outside Investor Member or Other Investor Member of the transactions contemplated hereby in the manner contemplated hereby do not and will not conflict with, or result in a breach of any terms of, or constitute a default under, any agreement or instrument or any statute, law, rule or regulation, or any judgment, decree, writ, injunction, order or award of any arbitrator, court or governmental authority which is applicable to such Management Member, Outside Investor Member or Other Investor Member or by which such Management Member, Outside Investor Member or Other Investor Member or any material portion of its properties is bound; (d) no consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to be obtained by such Management Member, Outside Investor Member or Other Investor Member in connection with the execution and delivery of this Agreement or the performance of such 26 Management Member's, Outside Investor Member's or Other Investor Member's obligations hereunder; (e) if such Management Member, Outside Investor Member or Other Investor Member is an individual, such Management Member, Outside Investor Member or Other Investor Member is a resident of the state set forth below such Management Member's, Outside Investor Member's or Other Investor Member's name on the signature page hereof; and (f) if such Management Member, Outside Investor Member or Other Investor Member is not an individual, such Management Member's, Outside Investor Member's or Other Investor Member's principal place of business and mailing address is in the state or foreign jurisdiction set forth below the Management Member's signature on the signature page. Section 6.3 Additional Representations and Warranties of Kelso Members. (a) Due Organization; Power and Authority, etc. KIA VII represents and warrants that it is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Delaware. KEP VI represents and warrants that it is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware. Each Kelso Member further represents and warrants that it has all necessary power and authority to enter into this Agreement to carry out the transactions contemplated herein and therein. (b) Authorization; Enforceability. Each Kelso Member represents and warrants that such Kelso Member has duly executed and delivered this Agreement. All actions required to be taken by or on behalf of such Kelso Member to authorize it to execute, deliver and perform its obligations under this Agreement have been taken, and this Agreement constitutes the valid and binding obligation of such Kelso Member, enforceable against such Kelso Member in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. No consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to be obtained by such Kelso Member in connection with the execution and delivery of this Agreement or the performance of such Kelso Member's obligations hereunder (c) Compliance with Laws and Other Instruments. The execution and delivery of this Agreement and the consummation by such Kelso Member of the transactions contemplated hereby in the manner contemplated hereby do not and will not conflict with, or result in a breach of any terms of, or constitute a default under, any agreement or instrument or any statute, law, rule or regulation, or any judgment, decree, writ, injunction, order or award of any arbitrator, court or governmental authority which is applicable to such Kelso Member or by which such Kelso Member or any material portion of its properties is bound, except for conflicts, breaches and defaults that, individually or in the aggregate, will not have a material adverse effect upon the financial condition, business or operations of such Kelso Member or upon such Kelso Member's ability to enter into and carry out its obligations under this Agreement. 27 (d) Executing Parties. The person executing this Agreement on behalf of each Kelso Member has full power and authority to bind such Kelso Member to the terms hereof and thereof. Section 6.4 Additional Representations and Warranties of Zoullas, the Management Members and the Outside Investor Members. Zoullas, each Management Member and each Outside Investor Member represents and warrants that such Member does not, directly or indirectly (i) own any equity or other interest in Norland Shipping & Trading Company ("Norland") or (ii) have any ownership or other interest in any of the vessels for which Norland currently acts, or at any time in the past has acted, as agent. Section 6.5 Certain Members. Notwithstanding anything to the contrary contained herein, the representations and warranties under this Article VI shall be deemed not to be made to Members not executing this Agreement or a joinder agreement substantially in the form of Exhibit A hereto. ARTICLE VII CAPITAL ACCOUNTS; CAPITAL CONTRIBUTIONS Section 7.1 Capital Accounts. A separate capital account (a "Capital Account") shall be established and maintained for each Member. The initial balance in each Member's Capital Account shall be zero. Section 7.2 Adjustments. (a) Each Member's Capital Accounts shall be credited with (i) the amount of Capital Contributions by such Member on the Initial Capital Contribution Date and (ii) the amount of funds advanced as Special Membership Interest Funds, on the Initial Capital Contribution Date, as set forth on Schedule A. (b) As of the end of each Accounting Period, the balance in each Member's Capital Account shall be adjusted by (i) increasing such balance by such Member's (A) allocable share of Net Profit (allocated in accordance with Section 9.1) and (B) the amount of cash and the Fair Market Value of any property (as of the date of the contribution thereof and net of any liabilities encumbering such property) contributed (or advanced as Special Membership Funds) by such Member to the Company during such Accounting Period, if any, and (ii) decreasing such balance by (A) the amount of cash and the Fair Market Value of any property (as of the date of the distribution thereof and net of any liabilities encumbering such property) distributed to such Member during such Accounting Period (including payments in respect of Special Membership Interests held pursuant to Section 10.8) and (B) such Member's allocable share of Net Loss (allocated in accordance with Section 9.1). Each Member's Capital Account shall be further adjusted with respect to any special allocations pursuant to Section 9.2. The provisions of this 28 Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations section 1.704-1(b) and section 1.704-2 and shall be interpreted and applied in a manner consistent with such Treasury Regulations. Section 7.3 Initial Capital Contributions; Initial SMI Funds Advance. Each of the Members has made or is concurrently making (i) an initial cash contribution to the capital of the Company and/or (ii) an initial advance of cash funds constituting Special Membership Interest Funds, in an aggregate amount equal to its Initial Capital Commitment on or before the Initial Capital Contribution Date. Any contributions of property on or after the Initial Capital Contribution Date shall be valued at their Fair Market Value. Section 7.4 Additional Capital Contributions by Kelso. (a) In addition to its Initial Capital Contribution and its Initial SMI Funds Advance, Kelso, subject to receipt of its investment committee approval and satisfaction of such other customary closing conditions for such additional investment, may make additional Capital Contributions and/or advance Special Membership Interest Funds to the Company at such times, if any, as the Board shall determine such additional Capital Contributions or advances of Special Membership Interest Funds are advisable (x) to make acquisitions of assets, businesses or other entities which the Board determines are desirable for the business of the Company and its Subsidiaries and (y) for other bona fide corporate or organizational purposes (each time a Capital Contribution is made or Special Membership Interest Funds are advanced by Kelso, in either case following the date hereof, an "Additional Capital Contribution Event"). (b) [intentionally omitted] Section 7.5 Additional Capital Contributions. Except as required by Section 7.4(a), no Member shall be required or permitted to make any additional Capital Contribution or advance Special Membership Interests Funds to the Company in respect of the Interests or Special Membership Interests, as applicable, then owned by such Member. However, from and after the Kelso Threshold Date, the Initial Members (including Zoullas and the Outside Investor Members) shall have the right (but not the obligation) to make additional Capital Contributions or advances of Special Membership Interest Funds, as applicable, to the Company in the following circumstances: (a) at the time of any Additional Capital Contribution Event from and after the Kelso Threshold Date, in amounts up to such amounts as are necessary to maintain its relative ownership interest (in respect of each of Interests and Special Membership Interests, as applicable) in the Company; provided, that the rights of the Initial Members (including Zoullas and the Outside Investor Members) to make additional Capital Contributions or advances of Special Membership Interest Funds pursuant to this Section 7.5 shall not apply (i) at any time prior to the Kelso Threshold Date and (ii) in connection with an Additional Capital Contribution Event from and after the Kelso Threshold Date involving a Capital Contribution or advance of 29 Special Membership Interest Funds by Kelso of less than $1.0 million; provided, that if, at any time following the Kelso Threshold Date, Kelso makes a particular Capital Contribution or advance of Special Membership Interest Funds of less than $1.0 million (the "Threshold Contribution") which together with Capital Contributions or advances of Special Membership Interest Funds made by Kelso over the prior 12-month period aggregates to an amount greater than $1 million, then such Threshold Contribution shall be deemed to be not less than $1 million; provided, that the calculation of aggregate contributions or advances over the prior 12-month period pursuant to the previous proviso shall exclude any contributions or advances made prior to the Kelso Threshold Date; and (b) upon the written consent of the Board acting by majority vote. For the avoidance of doubt, except upon the written consent of the Board, no Member shall have the right to make additional Capital Contributions or advance Special Membership Interest Funds to the Company in connection with (i) issuances of Points (as defined in Section 8.1) made to executives for compensatory or incentive purposes, and (ii) issuances made as additional yield or consideration in connection with the incurrence of indebtedness by the Company. The provisions of this Section 7.5 are intended solely to benefit the Members and, to the fullest extent permitted by applicable law, shall not be construed as conferring any benefit upon any creditor of the Company (and no such creditor shall be a third party beneficiary of this Agreement), and no Member shall have any duty or obligation to any creditor of the Company to make any additional Capital Contributions or advances of Special Membership Interest Funds or to cause the Board to consent to the making of additional Capital Contributions or advances of Special Membership Interest Funds. Members shall be deemed to have contributed or advanced, as applicable, such additional capital upon issuance of additional Interests or Special Membership Interests, as applicable, equal to the cash purchase price for such Interests or Special Membership Interests, as applicable, or, if no cash is paid or there is non-cash consideration, in the amount of the Fair Market Value of such non-cash consideration as determined by the Board in good faith at or prior to issuance of such Interests or Special Membership Interests, as applicable. No Member shall be permitted to finance its additional Capital Contributions or advances of Special Membership Interest Funds pursuant to this Section 7.5 by or through third party financing or any relationship or arrangement with third parties (other than third party debt financing not secured by Interests or Special Membership Interests (or otherwise by Units or Economic Interests in the Company)). In connection with any additional Capital Contributions to be made following the IPO of Eagle Bulk Shipping Inc. (including any Capital Contributions made by third parties), the Board may in its discretion make appropriate adjustments to Section 10.2(c) of this Agreement (including to provide that distributions are made for purposes of Section 10.2(c) on the basis of Units held) to account for any such Capital Contributions made at a higher valuation than earlier Capital Contributions; provided that any such adjustments affect all then current Members holding Units in the same manner. Section 7.6 Negative Capital Accounts. Except as required by law, no Member shall be required to make up a negative balance in its Capital Account. 30 ARTICLE VIII POINTS Section 8.1 Points. (a) General. There shall be established two pools of points. One pool shall consist of points called "Service Points;" and one pool shall consist of points called "Performance Points." There shall be 1000 Service Points and 1000 Performance Points. Service Points and Performance Points shall be referred to collectively as "Points." The Compensation Committee shall have the discretionary authority to allocate Points from time to time to any Management Member subject to the terms of any employment or services agreement between the Company or any Subsidiary of the Company and any Management Member; provided, that (i) the Compensation Committee shall take into consideration the recommendation of Zoullas (for so long as Zoullas is a Member and the Chief Executive Officer of Eagle Shipping) in making its allocation and (ii) the Compensation Committee may, pursuant to an employment or services agreement between the Company or any Subsidiary of the Company and a Management Member, delegate authority to award or allocate Points to the Chief Executive Officer of Eagle Shipping. On the Initial Capital Contribution Date, Zoullas and the other Management Members listed on Schedule B hereto shall be allocated the number and type of Points set forth opposite their respective names. Schedule B will be maintained confidentially and accurately in the books and records of the Company by the chairman of the Compensation Committee and each Management Member will receive a copy of Schedule B reflecting only his or her own Point allocation. The Compensation Committee shall have the discretion to allocate, after taking into consideration the recommendation of Zoullas (for so long as Zoullas is a Member and the Chief Executive Officer of Eagle Shipping) any or all of the remaining Points (the "Unallocated Points"), to any Management Member (as determined at the time of such allocation). Unless otherwise determined by the Board, or as otherwise provided in an employment or services agreement between the Company or any Subsidiary of the Company and such Management Member, all Service Points, whether allocated or unallocated, shall expire on the tenth anniversary of the initial date of issuance of Points hereunder and, upon such expiration, the provisions of this Article VIII shall be of no further force and effect. (b) Additional Management Members. The Compensation Committee may decide at any time to award Points to an employee of the Company who is not yet a party to this Agreement by admitting such employee as a Management Member hereunder pursuant to Section 4.8. (c) Economics. The economic rights of Points are set forth in Article X. Section 8.2 Ex-Management Members. In the event that the employment with the Company (or any Subsidiary of the Company that employs such individual) of any Management Member terminates for any reason, such Management Member shall, as of the earlier of the date of such termination or the repurchase by the Company of such Management Members' Interests 31 or Special Membership Interests pursuant to Section 13.5, cease to be a Member of the Company for all purposes and shall be thereafter referred to herein as a "Ex-Management Member" with only the rights of a Ex-Management Member specified herein unless such Ex-Management Member continues to own Units in the Company by virtue of such Ex-Management Member having made a Capital Contribution to the Company. Notwithstanding the foregoing, such Ex-Management Member shall continue to be treated, for U.S. federal, state and local income tax purposes, as a Member to the extent such Ex-Management Member retains any Points following such termination, and any allocations or distributions made to such Ex-Management Member shall be deemed for tax purposes to be made to such Ex-Management Member in its capacity as a Member. Section 8.3 Allocation of Points to Management Members upon Termination of Employment. (a) Termination for Cause. Unless otherwise determined by the Compensation Committee in a manner more favorable to such Management Member or Ex-Management Member, or as otherwise provided in an employment or services agreement between the Company or any Subsidiary of the Company and such Management Member, if a Management Member's employment with the Company or any Subsidiary of the Company that employs such individual is terminated for Cause, the number of Service Points and Performance Points allocated to such Ex-Management Member shall be reduced to zero. (b) Other Termination of Employment. Unless otherwise determined by the Compensation Committee in a manner more favorable to such Ex-Management Member, or as otherwise provided in an employment or services agreement between the Company or any Subsidiary of the Company and such Management Member, if the Management Member's employment with the Company or any Subsidiary of the Company that employs such individual terminates for any reason other than for Cause, then the number of Performance Points allocated to such Ex-Management Member shall be reduced to zero (unless at the time such Ex-Management Member's employment is terminated the Kelso Investment Multiple is at least four (4) and the Kelso IRR is at least ten percent (10%), in which case all of the Performance Points allocated to such Ex-Management Member shall be retained and not forfeited) and the number of Service Points allocated to such Ex-Management Member shall be adjusted according to the following schedule (provided, however, that with respect to the Benchmarked Service Points held by the individuals listed on Schedule 10.9 hereof, the number of Benchmarked Service Points allocated to such individuals shall be adjusted according to the schedule set forth on Schedule 10.9 hereof and shall not be subject to the following schedule): 32
The Ex-Management Member's Service Points shall be If the termination occurs reduced by Before the first quarterly anniversary of the grant of such 93.75% Ex-Management Member's Service Points On or after the first quarterly anniversary, but before the second 87.5% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the second quarterly anniversary, but before the third 81.25% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the third quarterly anniversary, but before the fourth 75.00% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the fourth quarterly anniversary, but before the fifth 68.75% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the fifth quarterly anniversary, but before the sixth 62.50% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the sixth quarterly anniversary, but before the seventh 56.25% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the seventh quarterly anniversary, but before the eighth 50.00% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the eighth quarterly anniversary, but before the ninth 43.75% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the ninth quarterly anniversary, but before the tenth 37.50% quarterly anniversary, of the grant of such Ex-Management Member's Service Points
33
On or after the tenth quarterly anniversary, but before the eleventh 31.25% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the eleventh quarterly anniversary, but before the twelfth 25.00% quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the twelfth quarterly anniversary, but before the 18.75% thirteenth quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the thirteenth quarterly anniversary, but before the 12.50% fourteenth quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the fourteenth quarterly anniversary, but before the 6.25% fifteenth quarterly anniversary, of the grant of such Ex-Management Member's Service Points On or after the fifteenth quarterly anniversary of the grant of such 0.0% Ex-Management Member's Service Points
(c) Forfeiture of Points. Any Points forfeited by such Member pursuant to this Section 8.3 shall, following such forfeiture, be considered Unallocated Points for purposes of Section 8.1 hereof, except as otherwise provided therein. (d) Service Points Vesting. For purposes of this Agreement, (A) "Retainable Service Points," with respect to any Management Member at any particular date of determination, shall mean all of the Service Points held by such Management Member on such date of determination if such Management Member is employed by the Company or any Subsidiary of the Company on the date of such determination, (B) "Ex-Management Retained Services Points," with respect to any Ex-Management Member at any particular date of determination, shall mean such number of Service Points that were retained and not forfeited by such Ex-Management Member at the time such Ex-Management Member's employment with the Company or the Subsidiary of the Company that employed such Ex-Management Member as was determined in accordance with (x) in the case of all Service Points (other than Benchmarked Service Points), the schedule set forth in Section 8.3(b) hereof or (y) in the case of Benchmarked Service Points, the schedule set forth on Schedule 10.9 hereof and (C) "Aggregate Retainable Service Points" shall mean the sum of (a) the aggregate Retainable Service Points of all Management Members and (b) the aggregate Ex-Management Retained Service Points. Notwithstanding the provisions of Section 8.3(b), in the event that any Person other than Kelso or Affiliates thereof shall acquire a Majority 34 in Interests of the Company or the right to appoint a majority of the Directors on the Board, all Service Points then allocated to any Member shall no longer be subject to forfeiture or adjustment, other than as provided in Section 8.3(a). Section 8.4 Nontransferability of Awards. No Points (or Economic Interests by virtue of such Management Member's or Ex-Management Member's, as applicable, Vested IPO Percentages) allocated hereby may be Transferred, other than by will or by the laws of descent and distribution or, on such terms and conditions as the Compensation Committee shall establish, to a transferee permitted under Section 13.2. All rights with respect to Points (or Economic Interests by virtue of such Management Member's or Ex-Management Member's, as applicable, Vested IPO Percentages) allocated to a Management Member or Ex-Management Member hereunder shall be distributed during his or her lifetime only to such Management Member or Ex-Management Member or, if applicable, a transferee permitted under Section 13.2. Section 8.5 Amendment to the Points Plan. The Compensation Committee will administer the allocation of Points and will have the authority to amend the terms of the Points at any time, however, no amendment shall adversely affect in a material way any of the rights of a Management Member without such Member's consent with respect to awards of Points previously granted. For so long as Zoullas remains Chief Executive Officer of Eagle Shipping and a Member, any such amendment shall be subject to the consent of Zoullas, which such consent shall not be unreasonably withheld. Notwithstanding anything in this Article VIII to the contrary, until such time as the Company shall have received Capital Contributions and Special Membership Interest Aggregate Funds of at least $125 million in the aggregate, the Compensation Committee and the Board shall not be permitted to increase the number of Performance Points (above 1000) available for allocation hereunder. Notwithstanding the foregoing, the Compensation Committee shall have the right to make the adjustments contemplated by the last paragraph of Schedule D attached hereto. ARTICLE IX ALLOCATIONS Section 9.1 Book Allocations of Net Profit and Net Loss. Except as provided in Section 9.2, Net Profit or Net Loss, as the case may be, with respect to any Accounting Period, including each item of income, gain, loss and deduction of the Company, shall be allocated among the Capital Accounts as of the end of such Accounting Period in a manner that as closely as possible gives effect to the provisions of Article X and the other relevant provisions of this Agreement. Section 9.2 Special Book Allocations. (a) Qualified Income Offset. If any Member unexpectedly receives any adjustment, allocation or distribution described in Treasury Regulations section 1.704-1(b)(2)(ii)(d)(4), (5) or 35 (6) and such adjustment, allocation or distribution causes or increases a deficit in such Member's Capital Account in excess of its obligation to make additional Capital Contributions (a "Deficit"), items of gross income and gain for such Accounting Period and each subsequent Accounting Period shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Deficit of such Member as quickly as possible; provided that an allocation pursuant to this Section 9.2(a) shall be made only if and to the extent that such Member would have a Deficit after all other allocations provided for in this Article IX have been tentatively made as if this Section 9.2(a) were not in this Agreement. This Section 9.2(a) is intended to comply with the qualified income offset provision of Treasury Regulations section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith. (b) Partnership Minimum Gain. Except as otherwise provided in Treasury Regulations section 1.704-2(f), if there is a net decrease in Partnership Minimum Gain during any Accounting Period, each Member shall be specially allocated items of Company income and gain for such Accounting Period in proportion to, and to the extent of, an amount equal to the portion of such Member's share of the net decrease in Partnership Minimum Gain, determined in accordance with Treasury Regulations section 1.704-2(g). This Section 9.2(b) is intended to comply with the chargeback of items of income and gain requirement in Treasury Regulations section 1.704-2(f) and shall be interpreted consistently therewith. (c) Restorative Allocations. Any special allocations of items of income or gain pursuant to this Section 9.2 shall be taken into account in computing subsequent allocations pursuant to this Agreement, so that the net amount for any item so allocated and all other items allocated to each Member pursuant to this Agreement shall be equal, to the extent possible, to the net amount that would have been allocated to each Member pursuant to the provisions of this Agreement if such special allocations had not occurred. (d) Bulk Advances. Notwithstanding anything to the contrary, interest income derived from Bulk Advances shall be allocated only to the Capital Accounts of Members holding Special Membership Interests (on a basis pro rata for Special Membership Interests held). Section 9.3 Tax Allocations. The income, gains, losses, credits and deductions recognized by the Company shall be allocated among the Members, for U.S. federal, state and local income tax purposes, to the extent permitted under the Code and the Treasury Regulations, in the same manner that each such item is allocated to the Members' Capital Accounts. Notwithstanding the foregoing, the Board shall have the power to make such allocations for U.S. federal, state and local income tax purposes as may be necessary to maintain substantial economic effect, or to ensure that such allocations are in accordance with the Members' interests in the Company, in each case within the meaning of the Code and the Treasury Regulations, it being anticipated that no Management Member or Additional Management Member shall be allocated taxable income in excess of the amount of cash to be received by such Member or Additional Member. In accordance with section 704(c) of the Code and the Treasury 36 Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for U.S. federal income tax purposes and its fair market value at the time of contribution. ARTICLE X DISTRIBUTIONS Section 10.1 Explanation of Terms. (a) Carry Percentage. For purposes of computing the amount to be distributed to each Member, certain Members will have a "Carry Percentage," which shall be based upon the following two elements: a Service Percentage and a Performance Percentage. The Carry Percentage shall be, for each Management Member, the quotient obtained by dividing (i) the sum of such Member's Service Percentage and such Member's Performance Percentage by (ii) the sum of (w) 100% plus (x) the Adjusted Total Vested Service Percentage plus (y) the Adjusted Aggregate Post IPO Performance Percentage plus (z) the Adjusted Total Vested IPO Percentage. (i) Service Percentage. The "Service Percentage" for each Management Member (or Ex-Management Member, as applicable) shall be the Total Service Percentage multiplied by the quotient obtained by dividing (x) the number of Retainable Service Points allocated to such Management Member (or, in the case of any Ex-Management Member, the number of Ex-Management Retained Service Points held by such Ex-Management Member) by (y) 1000 (or, if the pool of allocated Service Points has been increased above 1000 (such increased number, the "Total Service Pool Points"), the Total Service Pool Points). For purposes of this Agreement, (A) the "Total Service Percentage" means five percent (5%), (B) the "Adjusted Total Vested Service Percentage" means the product of (x) the Total Service Percentage and (y) the Carry Adjustment Factor. (ii) Performance Percentage. The "Performance Percentage" for each Management Member (or Ex-Management Member, if applicable) on any date of determination shall be the sum of (a) such Management Member's (or Ex-Management Member's) Vested IPO Percentage (as defined in Section 10.1(a)(iii)), if any, and (b) such Management Member's (or Ex-Management Member's, if applicable) Post IPO Performance Percentage (as defined below). 1. A Management Member's (or Ex-Management Member's, if applicable) "Post IPO Performance Percentage" shall be the sum of (a) such Management Member's (or Ex-Management Member's, if applicable) Post IPO Remaining Percentage (as defined below) and (b) such Management Member's 37 (or Ex-Management Member's, if applicable) Stub Performance Percentage Allocation (as defined below), if any. 2. A Management Member's (or Ex-Management Member's, if applicable) "Post IPO Remaining Percentage" shall be calculated by dividing (x) the number of Performance Points allocated to such Management Member (or, in the case of any Ex-Management Member, the allocated and retained Performance Points of such Ex-Management Member, if any) by (y) 1000 (or, if the pool of allocated Performance Points has been increased above 1000 (such increased number, the "Total Performance Pool Points"), the Total Performance Pool Points); and then multiplying the resulting quotient by the Total Available Post IPO Remaining Performance Percentage for such date of determination. 3. A Management Member's (or Ex-Management Member's, if applicable) "Stub Performance Percentage Allocation" shall be calculated by dividing (x) the number of Post IPO Awarded Performance Points, if any, allocated to such Management Member (or, in the case of any Ex-Management Member, the allocated and retained Post IPO Awarded Performance Points of such Ex-Management Member, if any) by (y) 120 (or, if the total Post IPO Awarded Performance Points are greater than 120, then such greater number of total Post IPO Awarded Performance Points); and then multiplying the resulting quotient by the Total Stub Performance Percentage for such date of determination. 4. For purposes of this Agreement, (A) the "Total Available Post IPO Remaining Performance Percentage" means, on any date of determination, the percentage determined by reference to Schedule D of this Agreement, (B) the "Total Stub Performance Percentage" means, on any date of determination, the percentage determined by reference to Schedule D of this Agreement, (C) the "Aggregate Post IPO Performance Percentage" means the sum of (i) Total Available Post IPO Remaining Performance Percentage plus (ii) Total Stub Performance Percentage, (D) the "Adjusted Aggregate Post IPO Performance Percentage" means the product of (x) the Carry Adjustment Factor and (y) the Aggregate Post IPO Performance Percentage and (E) "Post IPO Awarded Performance Points" mean Performance Points (including any previously forfeited Performance Points) that are newly awarded after the IPO of Eagle Bulk Shipping Inc. to Management Members (it being understood that the 880 Performance Points set forth on Schedule B as of the date hereof shall be excluded unless, and to the extent that, any of such Performance Points are forfeited and reallocated to Management Members after the IPO of Eagle Bulk Shipping Inc.). (iii) Vested IPO Percentage. The "Vested IPO Percentage," with respect to any Management Member or Ex-Management Member, as applicable, is the percentage 38 (if any) set forth on Schedule F with respect to such Management Member or Ex-Management Member, as applicable; provided that if the applicable Ex-Management Member's employment with the Company or the Subsidiary of the Company that employed such Ex-Management Member was terminated for Cause, then the "Vested IPO Percentage" of such Ex-Management Member shall be reduced to zero percent (0%). For purposes of this Agreement, (A) the "Total Vested IPO Percentage" means the sum of all Vested IPO Percentages of Management Members and Ex-Management Members set forth on Schedule F hereof, as indicated opposite "Total Vested IPO Percentage" thereon (reduced by any forfeited amounts pursuant to the proviso of the preceding sentence) and (B) the "Adjusted Total Vested IPO Percentage" means the product of (x) the Carry Adjustment Factor and (y) the Total Vested IPO Percentage. (b) Benchmark Amounts. (i) Management Members who receive Points after the Initial Contribution Date may be assigned, in respect of any Points allocated to a Management Member, a "Benchmark Amount," which shall be an amount determined by the Compensation Committee (or the Board, as applicable) at the time the Compensation Committee (or the Board, as applicable) assigned such Points (such Points to which a Benchmark applies, the "Benchmarked Points"). The Benchmark Amount may be used by the Compensation Committee to calculate an appropriate adjustment to a Management Member's Carry Percentage, and/or the manner and timing of distributions to Management Members, to reflect the increase or decrease in the value of the Company between the Initial Contribution Date and the date of such award or as otherwise required by the Compensation Committee in its discretion. The Benchmark Amounts (if any) for each Management Member will be reflected on Schedule B. Section 10.2 Distributions Generally. This section provides for the distribution of certain amounts ("Distributable Amounts") to the Members. The term "Distributable Amounts" means (a) upon the occurrence of an Exit Event, all amounts held by the Company immediately following such Exit Event, reduced by existing liabilities (including the pro rata payment of all amounts owed in respect of outstanding Special Membership Interests) and expenses of the Company and a reasonable reserve for future liabilities and expenses; and (b) at any other time determined by the Board, any amounts designated by the Board in its sole discretion (subject to Section 10.8 hereof). Immediately prior to the making of any distribution, a tentative distribution schedule shall be made for the purpose of determining each Member's Performance Percentage, if any. Distributable Amounts shall then be distributed in the following order and priority: (a) First, to the Members and Ex-Management Members, an amount equal to their aggregate Unreturned Capital (in the proportion that each such Member's or Ex-Management Member's share of Unreturned Capital immediately prior to such distribution bears to the aggregate Unreturned Capital of all Members and Ex-Management Members immediately prior 39 to such distribution), until each Member and Ex-Management Member has received distributions in an amount equal to its Unreturned Capital immediately prior to such distribution, and no distribution or portion thereof shall be made under any of Section 10.2(b)-(e) below until the entire amount of the Unreturned Capital for all Members and Ex-Management Members has been paid in full; (b) Second, from and after the Fifth Amended Effective Date, the Interest Priority Payments (if any) required to be paid to the applicable individuals pursuant to Section 10.10 shall be paid until the aggregate Interest Priority Payments required to be paid pursuant thereto have been paid and following (and only following) the payment of the aggregate Interest Priority Payments, the Vesting Service Catch Up Payment (if any) required to be paid to the applicable individuals pursuant to Section 10.10 shall be paid until the aggregate Vesting Service Catch Up Payments required to be paid pursuant thereto have been paid; (c) Third, until such time as Kelso achieves the Trigger Multiple, (i) to each Management Member and Ex-Management Member (other than the individuals set forth on Schedule 10.9 in respect of any Benchmarked Points held by such individuals), the product of (A) the amount that is the lesser of (I) the Trigger Achieving Balance and (II) the remaining balance to be distributed at such time (after giving effect to Section 10.2(a) above) and (B) each such Management Member's or Ex-Management Member's Adjusted Carry Percentage (it being understood that (x) Benchmarked Points of the individuals set forth on Schedule 10.9 shall be treated as non-Benchmarked Points solely for purposes of calculating clause (ii) of the definition of "Carry Percentage" in Section 10.1(a) (and in turn the calculation of Adjusted Carry Percentages of all Management Members for purposes of this clause (b)(i)) and (y) Benchmarked Points shall not be included for purposes of calculating clause (i) of the definition of "Carry Percentage" in Section 10.1(a) (and in turn the calculation of Adjusted Carry Percentage) for individuals holding Benchmarked Points but otherwise participating under this Section 10.2(c)(i) by virtue of non-Benchmarked Points), and (ii) to the Members (and Ex-Management Members, if applicable) in proportion to their respective Aggregate Investments (as defined in Section 10.2(f)), the lesser of (I) the remaining amount of the Trigger Achieving Balance and (II) the remaining amount of the balance to be distributed at such time (in each case after giving simultaneous effect to distributions made under clause (c)(i) above); For purposes of this Section 10.2(c), the "Trigger Achieving Balance" means the amount of the distribution in question which, after giving effect to clause 10.2(c)(ii), results in Kelso achieving the Trigger Multiple. (d) Fourth, following (and only following) achievement by Kelso of the Trigger Multiple, the Catch Up Payments (if any) required to be paid to the applicable individuals pursuant to 40 Section 10.9 shall be paid until the aggregate Catch Up Payments required to be paid pursuant thereto have been paid; (e) Fifth, following (and only following) achievement by Kelso of the Trigger Multiple and the payment of Catch Up Payments pursuant to Section 10.2(d) above, to each Management Member and Ex-Management Member, an amount equal to the product of (i) the sum of (A) the balance remaining to be distributed at such time (after giving effect to clauses (a), (b), (c) and (d) above, in each case to the extent applicable to the distribution in question) and (B) aggregate Catch Up Payments being paid pursuant to Section 10.2(d) above (if any), and (ii) the Adjusted Carry Percentage of such Management Member or Ex-Management Members (it being understood that, if Catch Up Payments are being paid pursuant to Section 10.2(d) above, the sum of (A) and (B) in clause (i) hereof is simply a notional amount, but that the product of (i) and (ii) shall be an actual distribution); and (f) Sixth, to the Members (and Ex-Management Members, if applicable), the remaining balance to be distributed (in proportion to their respective Aggregate Investments). For purposes of this Agreement, the "Aggregate Investment," with respect to any Member or Ex-Management Member, as applicable, shall mean the sum of such Member's (or Ex-Management Member's, as applicable) aggregate Capital Contributions and advances of Special Membership Interest Aggregate Funds. Notwithstanding the foregoing, for purposes of Sections 10.2(c) or (e), as applicable, if any Management Member has Benchmarked Points, then distributions to such Management Member pursuant to this Section 10.2 in respect of such Benchmarked Points shall be made as though the aggregate Unreturned Capital of all Members immediately prior to the time of the granting of the applicable Benchmarked Points had been equal to such Management Member's applicable Benchmark Amount (which has the effect of making less proceeds assumed to be available for distribution pursuant to Sections 10.2(c) or (e), as applicable, since more amounts are assumed to be distributed pursuant to Section 10.2(a)); provided that the foregoing shall in no event apply to the individuals set forth on Schedule 10.9 hereof in respect of any Benchmarked Points held by such individuals. An amount equal to the amount of any reduction in distributions to a Management Member resulting from the application of the foregoing sentence (i.e., the incremental amount that such Management Member with a Benchmark Amount would have otherwise been distributed pursuant to any particular distribution but for the application of the prior sentence) shall be distributed, in accordance with Section 10.2(c) or (e), as applicable, and Section 10.2(f), to all of the other Members then entitled to participate in distributions pursuant thereto. For the avoidance of doubt, with respect to any Management Member holding both (i) Benchmarked Points and (ii) Points without an assigned Benchmark Amount, such Management Member's distributions pursuant to Section 10.2(c) or (e), as applicable, will be reduced, as applicable, solely in respect of the Benchmarked Points. In the event that an Exit Event is structured as a sale of Interests by the Members, rather than a distribution of proceeds by the Company, the purchase agreement governing such Interest 41 sale will have provisions therein which replicate, to the greatest extent possible, the economic result which would have been attained under this Article X had the Exit Event been structured as a distribution of proceeds. Section 10.3 Distributions In Kind. In the event of a distribution of Company property, such property shall for all purposes of this Agreement be deemed to have been sold at its Fair Market Value and the proceeds of such sale shall be deemed to have been distributed to the Members. Section 10.4 No Withdrawal of Capital. Except as otherwise expressly provided in Article XIV, no Member shall have the right to withdraw capital from the Company or to receive any distribution or return of such Member's Capital Contributions or advance of Special Membership Interest Funds, as applicable. Section 10.5 Withholding. (a) Each Member shall, to the fullest extent permitted by applicable law, indemnify and hold harmless each Person who is or who is deemed to be the responsible withholding agent for U.S. federal, state, local or foreign income tax purposes against all claims, liabilities and expenses of whatever nature (other than any claims, liabilities and expenses in the nature of penalties and accrued interest thereon that result from such Person's fraud, willful misfeasance, bad faith or gross negligence) relating to such Person's obligation to withhold and to pay over, or otherwise pay, any withholding or other taxes payable by the Company or as a result of such Member's participation in the Company, provided that such liability of any Member shall not exceed the sum of the balance of such Member's Capital Account, after giving effect to all adjustments hereunder, and the aggregate amount of all prior distributions made to such Member by the Company. (b) Notwithstanding any other provision of this Article X, (i) each Member hereby authorizes the Company to withhold and to pay over, or otherwise pay, any withholding or other taxes payable by the Company or any of its Affiliates with respect to such Member or as a result of such Member's participation in the Company and (ii) if and to the extent that the Company shall be required to withhold or pay any such taxes (including any amounts withheld from amounts payable to the Company to the extent attributable, in the judgment of the Compensation Committee, to the interest of such Member in the Company), such Member shall be deemed for all purposes of this Agreement to have received a payment from the Company as of the time such withholding or tax is required to be paid, which payment shall be deemed to be a distribution with respect to such Member's interest in the Company to the extent that the Member (or any successor to such Member's interest in the Company) is then entitled to receive a distribution. To the extent that the aggregate of such payments to a Member for any period exceeds the distributions to which such Member is entitled for such period, such Member shall make a prompt payment to the Company of such amount. 42 (c) If the Company makes a distribution in kind and such distribution is subject to withholding or other taxes payable by the Company on behalf of any Member, such Member shall make a prompt payment to the Company of the amount of such withholding or other taxes by wire transfer. Section 10.6 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make a distribution to any Member on account of its interest in the Company if such distribution would violate Section 40 of the Marshall Islands Act or other applicable law. Section 10.7 Tax Distributions. In the event the Company allocates net taxable income to any of the Company's Members for any accounting period, then, at the Compensation Committee's discretion (or the Board, if there shall be no Compensation Committee), the Company will make distributions of cash to such members prior to any other distributions provided for in Article X in an amount determined by the Compensation Committee (or the Board, if there shall be no Compensation Committee) for the purpose of allowing such members to satisfy their tax liability arising as a result of such allocation. Tax distributions made pursuant to the foregoing shall be treated as advances against distributions payable to members pursuant to Section 10.2. Section 10.8 Eagle Bulk Shipping Advances. Notwithstanding anything to the contrary, all principal payments paid to the Company in respect of any Bulk Advances (as defined below), and quarterly (or such other scheduled payment intervals that is on a basis consistent with the timing of payments in respect of such Bulk Advances) cash payments at a fixed per annum rate of seven percent (7.0%) on the amount equal to the daily outstanding principal amount of any Bulk Advances (the "Special Interest Payment"), shall be paid pro rata to (and only to) the holders of outstanding Special Membership Interests, until the Bulk Advances are repaid to the Company in full; provided, however, that no such payments shall be made if, after giving effect to such payments, the Company would be insolvent. Any repayment of principal on the Bulk Advances subsequently paid to any Member pursuant to the foregoing shall reduce such Member's Special Membership Interest on a dollar for dollar basis (and, as result, only such reduced amount shall be considered outstanding as a Special Membership Interest for purposes of this Agreement, and Schedule E shall be amended accordingly). For purposes of this Agreement, "Bulk Advances" shall be loans made by the Company to Eagle Bulk Shipping Inc., a Marshall Islands corporation and a Subsidiary of the Company, as determined to be made by the Board in its discretion, of funds advanced to the Company as Special Membership Interest Funds. Section 10.9 Benchmarked Points - Catch Up Payment. Notwithstanding anything to the contrary, following Kelso's achievement of the Trigger Multiple, a Catch Up Payment (as defined below) shall be paid to each of the individuals set forth on Schedule 10.9 as a priority distribution before payment of any amounts are distributed to the other Members or Management Members (or Ex-Management Members), as applicable; provided, that, once a Catch Up 43 Payment is paid in full to an individual set forth on Schedule 10.9 in accordance with Section 10.2(d) such individual shall no longer have a right to receive any Catch Up Payment in future distributions under this Agreement. For purposes of this Section 10.9, (i) a "Catch Up Payment", with respect to each of the individuals set forth on Schedule 10.9, shall mean a distribution in an amount equal to the lesser of (A) such individual's pro rata portion (determined pro rata for relative Unreturned Benchmark Withholdings) of Distributable Amounts remaining to be distributed (after giving effect to Section 10.2(c)), and (B) such individual's Unreturned Benchmark Withholdings, (ii) "Unreturned Benchmark Withholdings", with respect to each of the individuals set forth on Schedule 10.9, means that portion of such individual's Aggregate Benchmark Withholding which has not been paid to such individual pursuant to any priority catch up distribution or otherwise, and (iii) "Aggregate Benchmark Withholdings", with respect to each of the individuals set forth on Schedule 10.9, means the aggregate incremental reduction in such Management Member's distributions pursuant to Section 10.2 resulting from the fact that such individual's Benchmarked Points were excluded from distributions under Section 10.2(c) (i.e, the aggregate incremental amount that such Management Member would have otherwise been distributed under Section 10.2(c) pursuant to any prior distribution or distributions if all of such Management Member's Points (including Benchmarked Points) were included for purposes of clause (i) of the definition of Carry Percentage with respect to such individual). Notwithstanding the foregoing, if in connection with an Exit Event distribution, any remaining proceeds (after giving effect to Section 10.2(c)) are not sufficient (A) to make payments of all required Catch Up Payments pursuant to Section 10.2(d) and (B) to pay any amounts required to be paid to all Management Members and Ex-Management Members pursuant to the terms of Section 10.2(e), then the Compensation Committee shall have discretion to allocate any such remaining proceeds among the Management Members and Ex-Management Members (including in respect of Catch Up Payments then due) in an equitable manner taking into account the intent of this Agreement. The implementation of, and all decisions with respect to, this Section 10.9 shall be determined by the Board or the Compensation Committee in its good faith discretion. Section 10.10 Fifth Amended Catch Up Payments. Notwithstanding anything to the contrary, with respect to any distributions of Distributable Amounts following the Fifth Amended LLC Effective Date, prior to making any distributions pursuant to Section 10.2 (other than as set forth in Section 10.2(b)), first an Interest Priority Payment (as defined below) and then a Vesting Service Catch Up Payment (as defined below) shall be paid to each of the individuals set forth on Schedule 10.10 (pro rata to each individual in accordance with the amount of such payment required to be made to such individual relative to the aggregate amount of all such payments to all individuals as listed on Schedule 10.10) as a priority distribution before payment of any amounts are distributed to any other Members; provided, that, once the Interest Priority Payment and Vesting Service Catch Up Payment is paid in full to each of the individuals set forth on Schedule 10.10 in accordance with Section 10.2(b) such individuals shall no longer have a right to receive any Interest Priority Payments and Vesting Service Catch Up Payments in future distributions under this Agreement. For purposes of this Section 10.10, (i) an "Interest Priority Payment" means, for each Management Member, the amount set forth 44 opposite such Management Member's name on Schedule 10.10 under the heading "Interest Priority Payment," and (ii) a "Vesting Service Catch Up Payment", means, for each Management Member, the amount set forth opposite such Management Member's name on Schedule 10.10 under the heading "Vesting Service Catch Up Payment". Notwithstanding the foregoing, if in connection with an Exit Event distribution, any remaining proceeds are not sufficient to make payments of all required Interest Priority Payments and Vesting Service Catch Up Payments pursuant to Section 10.2(b), then the Compensation Committee shall have discretion to allocate any such remaining proceeds among the Management Members and Ex-Management Members (including in respect of Interest Priority Payments and Vesting Service Catch Up Payments then due) in an equitable manner taking into account the intent of this Agreement. The implementation of, and all decisions with respect to, this Section 10.10 shall be determined by the Board or the Compensation Committee in its good faith discretion. Section 10.11 Periodic Catch Up Payments. From and after the time the Interest Priority Payments and Vesting Service Catch Up Payments are made in full pursuant to Section 10.2(b), the Board shall have discretion to make periodic upward adjustments to the allocation of Distributable Amounts to the Management Members in respect of Points held by such Management Members that have a different Carry Percentage at the time of such distribution in question as compared to the Carry Percentage that was used to calculate the allocation of Distributable Amounts made to such Management Members at the time of any prior interim distributions. The intention of the foregoing is to allocate an additional portion of future Distributable Amounts to Management Members in respect of Points then held in an incremental amount (in excess of actual receipts) that such Management Member would have received pursuant to Section 10.2 at each such prior interim distribution if the Points held by such Management Member had participated at the then existing Carry Percentage, after giving effect to this Section 10.11, (as opposed to the Carry Percentage that existed at the time of the prior distribution). To illustrate the foregoing, if the Board determines to make an upward adjustment as contemplated by this Section 10.11 at a future distribution of Distributable Amounts, the Board may make a comparative evaluation to determine the difference between (x) the actual amount of distributions received by the Management Members prior to such distribution in question plus the amount that would be distributed to the Management Members in such distribution in question if this Section 10.11 adjustment was not applicable to such distribution and (y) the aggregate amount that the Management Members would have received if all prior distributions were being made in one lump sum payment at the time of the distribution in question (including the amounts actually being distributed at the time of such distribution). The positive difference between (x) and (y) may represent the aggregate adjustment to be made at the time of such distribution in which the Board determines to implement the principles of Section 10.11. The implementation of, and all decisions (including, without limitation, the calculation of the actual amount payable and the timing of such payments) with respect to, this Section 10.10 shall be determined by the Board or the Compensation Committee in its good faith discretion. 45 ARTICLE XI BOOKS AND RECORDS Section 11.1 Books, Records and Financial Statements. At all times during the continuance of the Company, the Company shall maintain, at its principal place of business, separate books of account for the Company that shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received and all income derived in connection with the operation of the Company's business in accordance with generally accepted accounting principles consistently applied, and, to the extent inconsistent therewith, in accordance with this Agreement. Such books of account, together with a copy of this Agreement and the Certificate, shall at all times be maintained at the principal place of business of the Company and shall be open to inspection and examination at reasonable times by each Member owning Units and its duly authorized representative for any purpose reasonably related to such Member's interest in the Company, provided that the Company may maintain the confidentiality of Schedule B. The Company shall provide to all Members owning Units, within 120 days of fiscal year end, annual audited financial statements of the Company. The annual audited financial statements may be provided to all such Members, in the sole discretion of the Board, either electronically or via hard copy. Section 11.2 Filings of Returns and Other Writings; Tax Matters Partner. (a) The Company shall timely file all Company tax returns and shall timely file all other writings required by any governmental authority having jurisdiction to require such filing. Within 90 days after the end of each taxable year (or as soon as reasonably practicable thereafter), the Company shall send to each Person that was a Member at any time during such year such information as may be necessary for such Person to file his, her or its United States federal income tax returns. (b) KIA VII shall be the tax matters partner of the Company, within the meaning of section 6231 of the Code (the "Tax Matters Partner") unless a Majority in Interest votes otherwise. Each Member hereby consents to such designation and agrees that upon the request of the Tax Matters Partner, such Member will execute, certify, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to evidence such consent. (c) Promptly following the written request of the Tax Matters Partner, the Company shall, to the fullest extent permitted by law, reimburse and indemnify the Tax Matters Partner for all reasonable expenses, including reasonable legal and accounting fees, claims, liabilities, losses and damages incurred by the Tax Matters Partner in connection with any administrative or judicial proceeding with respect to the tax liability of the Members, except to the extent arising from the bad faith, gross negligence, willful violation of law, fraud or breach of this Agreement by such Tax Matters Partner. 46 (d) The provisions of this Section 11.2 shall survive the termination of the Company or the termination of any Member's interest in the Company and shall remain binding on the Members for as long a period of time as is necessary to resolve with the Internal Revenue Service any and all matters regarding the U.S. federal income taxation of the Company or the Members. Section 11.3 Accounting Method. For both financial and tax reporting purposes, the books and records of the Company shall be kept on the accrual method of accounting applied in a consistent manner and shall reflect all Company transactions and be appropriate and adequate for the Company's business. Section 11.4 Appraisal. The Company shall engage, from time to time, but not less often than within 90 days after every fiscal year, commencing with the fiscal year ending on December 31, 2005, a nationally recognized independent valuation consultant or appraiser of national standing reasonably satisfactory to Kelso and the Chief Executive Officer of Eagle Shipping (which approval shall not be unreasonably withheld) (the "Appraiser") to appraise the Fair Market Value of the Interests as of the last day of the fiscal year then most recently ended or, at the request of the Company, as of any more recent date (the "Appraisal Date") and to prepare and deliver a report to the Company describing the results of such appraisal (the "Appraisal"). The Company shall bear the fees and expenses of each Appraisal. ARTICLE XII LIABILITY, EXCULPATION AND INDEMNIFICATION Section 12.1 Liability. Except as otherwise provided by the Marshall Islands Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Covered Person shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Covered Person. Section 12.2 Exculpation. No Covered Person shall be liable to the Company or any other Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner believed to be within the scope of authority conferred on such Covered Person by this Agreement, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person's gross negligence, willful misconduct or willful breach of this Agreement. Section 12.3 Fiduciary Duty. To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Covered Person, a Covered Person acting under this Agreement shall not be liable to the Company or to any other Covered Person for its good faith reliance on the provisions of this 47 Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Covered Person. Section 12.4 Indemnification. To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner believed to be within the scope of authority conferred on such Covered Person by this Agreement, except that no Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Person by reason of such Covered Person's gross negligence, willful misconduct or willful breach of this Agreement with respect to such acts or omissions; provided, that any indemnity under this Section 12.4 shall be provided out of and to the extent of Company assets only, and no Covered Person shall have any personal liability on account thereof. Section 12.5 Expenses. To the fullest extent permitted by applicable law, expenses (including, without limitation, reasonable attorneys' fees, disbursements, fines and amounts paid in settlement) incurred by a Covered Person in defending any claim, demand, action, suit or proceeding relating to or arising out of their performance of their duties on behalf of the Company shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that the Covered Person is not entitled to be indemnified as authorized in Section 12.4. Section 12.6 Severability. To the fullest extent permitted by applicable law, if any portion of this Article shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify each Covered Person and may indemnify each employee or agent of the Company as to costs, charges and expenses (including reasonable attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Company, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated. ARTICLE XIII TRANSFERS OF INTERESTS Section 13.1 Restrictions on Transfers of Interests or Special Membership Interests by Management Members, Outside Investor Members and Other Investor Members. No Member (other than the Kelso Members) may Transfer any Interests or Special Membership Interests (including, without limitation to any other Member, or by gift, or by operation of law or otherwise, provided that Interests and/or Special Membership Interests may be Transferred (a) 48 pursuant to Section 13.2 ("Estate Planning Transfers, Transfers Upon Death"), (b) in accordance with Section 13.5 ("Puts"), (c) in accordance with Section 13.6 ("Involuntary Transfers"), (d) pursuant to Section 13.10(a) ("Tag-Along Rights") and (e) pursuant to Section 13.10(b) ("Drag-Along Rights"). Notwithstanding the foregoing, Zoullas may Transfer his Interests and/or Special Membership Interests to any of his Affiliates or to any Outside Investor Member or its Affiliates, and any Outside Investor Member may transfer its Interests and/or Special Membership Interests to its Affiliates or to Zoullas or any of his Affiliates, subject in each case to the requirements of applicable law. Each Other Investor Member may transfer its Interests and/or Special Membership Interests to any of its Affiliates. The Kelso Members shall be free to Transfer their Interests and/or Special Membership Interests, in whole or in part, at any time, subject to Section 13.10(a) and (b). Section 13.2 Estate Planning Transfers; Transfers upon Death of a Management Member, Outside Investor Members or Other Investor Members. Interests and/or Special Membership Interests held by any Member may be transferred for estate-planning purposes of such Member, authorized by the prior written approval of the Board which shall not be unreasonably withheld (excluding such Member and other members of the Board who are designees of such Member), to (A) a trust under which the distribution of the Interests and/or Special Membership Interests may be made only to beneficiaries who are such Member, his or her spouse, his or her parents, members of his or her immediate family or his or her lineal descendants, (B) a charitable remainder trust, the income from which will be paid to such Member during his or her life, (C) a corporation, the members or shareholders of which are only such Member, his or her spouse, his or her parents, members of his or her immediate family or his or her lineal descendants or (D) a partnership or limited liability company, the partners or members of which are only such Member, his or her spouse, his or her parents, members of his or her immediate family or his or her lineal descendants. Interests and/or Special Membership Interests may be transferred as a result of the laws of descent, provided that any heirs, executors or other beneficiaries shall remain subject to the terms of this Agreement as if such Member continued to hold the Interests and/or Special Membership Interests, as applicable, directly. Section 13.3 Effect of Assignment. The Company shall, from the effective date of any permitted assignment or Transfer of an Interest and/or Special Membership Interest (or part thereof), as applicable, thereafter pay all further distributions or payments on account of such Interest and/or Special Membership Interest (or part thereof), as applicable, to the assignee or transferee, as applicable, of such Interest and/or Special Membership Interests (or part thereof), as applicable. It is understood that for purposes of Section 10.2(c) of this Agreement, any Member transferring Units (including a transfer of Units to the Company pursuant to Section 13.5 hereof) shall be deemed to have made Aggregate Investments in an amount ratably reduced by the proportion of such Member's total Units (before giving effect to the applicable transfer) so transferred. 49 Section 13.4 Overriding Provisions. (a) Any Transfer in violation of this Article XIII shall be null and void ab initio, and the provisions of Section 13.3 shall not apply to any such Transfers. The approval of any Transfer in any one or more instances shall not limit or waive the requirement for such approval in any other or future instance. (b) All Transfers permitted under this Article XIII are subject to this Section 13.4, Section 13.5 and Section 13.10. (c) Any proposed Transfer by a Member pursuant to the terms of this Article XIII shall, in addition to meeting all of the other requirements of this Agreement, satisfy the following conditions: (i) the Transfer will not be effected on or through an "established securities market" or a "secondary market or the substantial equivalent thereof," as such terms are used in Treasury Regulations section 1.7704-1, and, at the request of the Board, the transferor and the transferee will have each provided the Company a certificate to such effect; and (ii) the proposed Transfer will not result in the Company having more than 99 Members, within the meaning of Treasury Regulations section 1.7704-1(h)(1) (determined pursuant to the rules of Treasury Regulations section 1.7704-1(h)(3)). The Board may in its sole discretion waive the condition set forth in clause (ii) of this Section 13.4(c). (d) The Company shall promptly amend Schedule A and/or Schedule E, as applicable, to reflect any permitted Transfers of Interests or Special Membership Interests, as applicable, pursuant to this Article XIII. Section 13.5 Put Rights with respect to Interests and Special Membership Interests Owned by Zoullas and the Outside Investor Members. (a) Sale to the Company ("Put Rights"). Subject to all provisions of this Section 13.5(a) and to Section 13.5(b) ("Prohibited Purchases"), unless otherwise provided in an employment or services agreement between the Company or any Subsidiary of the Company and Zoullas, Zoullas shall have the right to sell to the Company, and the Company shall have the obligation to purchase from Zoullas and the Outside Investor Members, all, but not less than all, of the Interests and Special Membership Interests owned by Zoullas and the Outside Investor Members following the termination of employment of Zoullas, at their Fair Market Value (as of the date of the Put Notice (as defined below)), if the employment of Zoullas with the Company or any Subsidiary that employs Zoullas (or by the Company on behalf of any such Subsidiary) (i) is terminated without Cause or (ii) terminates as a result of (A) the death or Disability of Zoullas, (B) the Resignation of Zoullas for Good Reason or (C) upon the approval of such right by the Compensation Committee, the Retirement of Zoullas. If Zoullas desires to sell Interests and Special Membership Interests pursuant to this Section 13.5(a), he (or his estate, as the case may be) shall notify the Company (such notice, the "Put Notice") not more than 60 days after the qualifying termination of employment as described in (i) and (ii) above (such 60 day period, the 50 "Put Notice Period"). Failure to deliver the Put Notice within the Put Notice Period pursuant to the preceding sentence shall constitute a waiver of the Put Right by Zoullas (or his estate). Subject to the provisions of paragraphs (b) and (c) of this Section 13.5, the Company shall purchase and deliver payment for the Interests and Special Membership Interests of the Zoullas and the Outside Investor Members not later than 60 days after receipt of the Put Notice. The Company shall be permitted to use the proceeds from any key man insurance policy on Zoullas to fulfill its obligations under this Section 13.5. (b) Prohibited Purchases. Notwithstanding anything to the contrary herein, and unless otherwise provided in an employment or services agreement between the Company or any Subsidiary of the Company, and Zoullas, the Company shall not be permitted or obligated to purchase any Interests and/or Special Membership Interests from Zoullas or any Outside Investor Member hereunder to the extent (i) the Company is prohibited from purchasing such Interests and/or Special Membership Interests (or incurring debt to finance the purchase of such Interests and/or Special Membership Interests), or a Subsidiary is restricted from distributing funds to the Company for such purchase, in any case by any debt instruments or agreements, including any amendment, renewal, extension, substitution, refinancing, replacement or other modification thereof, which have been entered into or which may be entered into by the Company or any of its Subsidiaries, including those to finance the acquisition of assets or businesses by the Company or any of its Subsidiaries and any future acquisitions or recapitalizations (the "Financing Documents") or by applicable law, (ii) an event of default has occurred (or, with notice or the lapse of time or both, would occur) under any Financing Document and is (or would be) continuing, or (iii) the purchase of such Interests and/or Special Membership Interests (including the incurrence of any indebtedness in connection with the financing of such purchase) or the distribution of funds to the Company by a Subsidiary for such purchase (1) would, or in the opinion of the Board (excluding from such determination Zoullas and other members of the Board who are designees of the Zoullas or the Outside Investor Members) might, result in the occurrence of an event of default under any Financing Document or create a condition which would or might, with notice or lapse of time or both, result in such an event of default, or (2) would, in the reasonable opinion of the Board (excluding Zoullas and other members of the Board who are designees of Zoullas or the Outside Investor Members), be imprudent in view of the financial condition (present or projected) of the Company or any of its Subsidiaries or the anticipated impact of the purchase of such Interests and/or Special Membership Interests on the Company's or any of its Subsidiaries' ability to meet their respective obligations under any Financing Document or otherwise, or to satisfy and make their planned capital or other expenditures or satisfy any related obligations. If Interests and/or Special Membership Interests which the Company has the right or obligation to purchase on any date exceed the total amount permitted to be purchased on such date pursuant to the preceding sentence (the "Maximum Amount"), the Company shall purchase on such date only that number of Interests and/or Special Membership Interests up to the Maximum Amount (if any) (and shall not be required to purchase more than the Maximum Amount) in such amounts as the Board shall in good faith determine. 51 (c) Form of Payment. Notwithstanding anything to the contrary contained in this Agreement, if the Company is unable to make any payment when due to Zoullas or any Outside Investor Member under this Agreement by reason of paragraph (b) of this Section 13.5, the Company shall have the option to pay all or a portion of the purchase price for such Interests and Special Membership Interests, as applicable, with a subordinated note accruing simple interest at 6% per annum which is fully subordinated in right of payment and exercise of remedies to the lenders' rights under the Financing Documents and the maturity date of which is 30 days after the latest maturity date on any debt of the Company which is outstanding (or reasonably expected to become outstanding) as of the date such subordinated note is issued; provided, that if all or a portion of the purchase price will be paid by delivery of a subordinated note, at least 10 business days prior to the payment due date, the Company shall notify Zoullas (or his estate, as the case may be) that it will pay all or a portion of the purchase price with a subordinated note, and Zoullas (or his estate, as the case may be) shall have 10 business days from receipt of such notice to rescind his or her (or his or her estate's, as the case may be) election to sell his Interests and Special Membership Interests, as applicable, and those of the Outside Investor Members to the Company. (d) Interests of Outside Investor Members. Notwithstanding anything in this Agreement to the contrary, for purposes of this Section 13.5, the exercise of the Put Right by Zoullas with respect to Interests and Special Membership Interests, as applicable, owned by him and the Outside Investor Members shall be deemed to be binding on the Outside Investor Members with respect to the Interests and Special Membership Interests, as applicable, owned by the Outside Investor Members. Upon any exercise by Zoullas, and subject to the provisions of paragraphs (b) and (c) of this Section 13.5, each Outside Investor Member shall have the obligation to sell, and the Company shall have the obligation to purchase, all of each such Outside Investor Member's Interests and Special Membership Interests, as applicable, on the terms set forth in this Section 13.5 (it being understood that any rescission by Zoullas shall also be deemed to be a rescission with respect to the Interests and Special Membership Interests, as applicable, owned by the Outside Investor Members). The exercise of the Put Right by Zoullas may have such other consequences to Zoullas (including consequences with respect to the forfeiture of Points) as may be set forth in any employment or services agreement between the Company or one of its Subsidiaries and Zoullas. Section 13.6 Involuntary Transfers. Any transfer of title or beneficial ownership of Interests or Special Membership Interests, as applicable, upon default, foreclosure, forfeit, divorce, court order or otherwise than by a voluntary decision on the part of a Management Member, Outside Investor Member or Other Investor Member (each, an "Involuntary Transfer") shall be void unless such Management Member, Outside Investor Member or Other Investor Member complies with this Section 13.6 and enables the Company to exercise in full its rights hereunder. Upon any Involuntary Transfer, the Company shall have the right to purchase such Interests or Special Membership Interests, as applicable, pursuant to this Section 13.6 and the person or entity to whom such Interests or Special Membership Interests, as applicable, have been Transferred (the "Involuntary Transferee") shall have the obligation to sell such Interests 52 or Special Membership Interests, as applicable, in accordance with this Section 13.6. Upon the Involuntary Transfer of any Interest or Special Membership Interests, as applicable, such Management Member, Outside Investor Member or Other Investor Member shall promptly (but in no event later than two days after such Involuntary Transfer) furnish written notice to the Company indicating that the Involuntary Transfer has occurred, specifying the name of the Involuntary Transferee, giving a detailed description of the circumstances giving rise to, and stating the legal basis for, the Involuntary Transfer. Upon the receipt of the notice described in the preceding sentence, and for 60 days thereafter, the Company shall have the right to purchase, and the Involuntary Transferee shall have the obligation to sell, all (but not less than all) of the Interests and Special Membership Interests acquired by the Involuntary Transferee for a purchase price equal to the lesser of (i) the Fair Market Value of such Interests or Special Membership Interests, as applicable, and (ii) the amount of the indebtedness or other liability that gave rise to the Involuntary Transfer plus the excess, if any, of the Carrying Value of such Interests or Special Membership Interests, as applicable, over the amount of such indebtedness or other liability that gave rise to the Involuntary Transfer. For purposes of this Agreement, "Carrying Value", with respect to any outstanding Special Membership Interest, means the value equal to the Special Membership Interest Funds advanced by the applicable selling Management Member, Outside Investor Member or Other Investor Member in respect of any such outstanding Special Membership Interest (plus any portion of accrued and unpaid interest on the applicable pro rata outstanding portion of the Bulk Advances that is allocable to the applicable Member pursuant to Section 10.8), less principal amounts paid to such Member in respect of such Member's Special Membership Interest. Section 13.7 Assignment by the Company. The Company shall have the right to assign to Kelso all or any portion of its rights and obligations under Sections 13.5(a) or 13.6, provided that any such assignment or assumption is accepted by Kelso. If the Company has not exercised its right to purchase Interests or Special Membership Interests pursuant to any such section within 15 days of receipt by the Company of the letter, notice or other occurrence giving rise to such right, then Kelso shall have the right to require the Company to assign such right. Kelso shall have the right to assign to one or more of the Kelso Members all or any of its rights to purchase Interests or Special Membership Interests pursuant to this Section 13.7. Section 13.8 Substitute Members. In the event any Management Member, Outside Investor Member, Other Investor Member or Kelso Member Transfers its Interest or Special Membership Interests in compliance with the other provisions of this Article XIII, the transferee thereof shall have the right to become a substitute Management Member, Outside Investor Member, Other Investor Member or substitute Kelso Member, as the case may be, but only upon satisfaction of the following: (a) execution of such instruments as the Board deems reasonably necessary or desirable to effect such substitution; and 53 (b) acceptance and agreement in writing by the transferee of the Member's Interest or Special Membership Interest, as applicable, to be bound by all of the terms and provisions of this Agreement and assumption of all obligations under this Agreement (including breaches hereof) applicable to the transferor. Section 13.9 Release of Liability. In the event any Member shall sell such Member's entire interest in the Company (other than in connection with an Exit Event) in compliance with the provisions of this Agreement, including, without limitation, pursuant to the last sentence of Section 13.6, without retaining any interest therein, directly or indirectly, then the selling Member shall, to the fullest extent permitted by law, be relieved of any further liability arising hereunder for events occurring from and after the date of such Transfer; provided, however, that no such Transfer shall relieve any Management Member of his obligations pursuant to Section 4.6 hereof and such obligations shall survive any termination of such Management Member's membership in the Company for the restriction period set forth in Section 4.6. Section 13.10 Tag-Along and Drag-Along Rights; Initial Members Participation Rights. (a) Tag-Along Rights. In the event that at any time any Kelso Member proposes to Transfer Interests or Special Membership Interests in the Company, other than any Transfer to an Affiliate of Kelso, and such Interests or Special Membership Interests would represent, together with all Interests and Special Membership Interests previously Transferred by the Kelso Members, more than 10% of the aggregate Interests and Special Membership Interests, taken together, held by the Kelso Members, then at least thirty (30) days prior to effecting such Transfer, Kelso shall give each Management Member written notice of such proposed Transfer. Each Management Member shall then have the right (the "Tag-Along Right"), exercisable by written notice to Kelso, to participate pro rata in such sale by selling a pro rata portion of such Management Member's Interests or Special Membership Interests, as applicable, on substantially the same terms (including with respect to representations, warranties and indemnification) as the selling Kelso Members (including relative proportions of Interests and Special Membership Interests being sold), provided, however, that any representations and warranties relating specifically to any Member shall only be made by that Member and any indemnification provided by the Members shall be based on the relative Interests and Special Membership Interests being sold by each Member in the proposed sale, either on a several, not joint, basis or solely with recourse to an escrow established for the benefit of the proposed purchaser; provided, further, however, that the form or forms of consideration to be received by Kelso or any Kelso Member in connection with the proposed sale may be different from that received by the Management Members so long as the value of the consideration to be received by Kelso or any Kelso Member is the same or less (with respect to each of the Interests and Special Membership Interests being sold) than what they would have received had they received the same form or forms of consideration as the Management Members (as reasonably determined by the Board in good faith). In the event the Kelso Members sell less than 100% of their aggregate Interests and Special Membership Interests in the Company, and any Management Member exercises its rights 54 under this Section 13.10(a), participation "pro rata in such sale" shall be based on relative Capital Contributions unless the Compensation Committee deems the provisions of Article X operative. (b) Drag-Along Rights. (i) Subject to the provisions of Section 13.12 ("Right of First Offer"), in the event that at any time any Kelso Member (A) proposes to Transfer Interests or Special Membership Interests in the Company, other than any Transfer to an Affiliate of Kelso, and such Interests or Special Membership Interests would represent, together with all Interests and Special Membership Interests previously Transferred by the Kelso Members, more than 75% of the aggregate Interests and Special Membership Interests, taken together, held by the Kelso Members or (B) desires to effect an Exit Event, the Kelso Members shall have the right (the "Drag-Along Right"), upon written notice to the other Members, to require that each other Member join pro rata in such sale on substantially the same terms (including with respect to representations, warranties and indemnification) as the selling Kelso Members, provided, however, that any representations and warranties relating specifically to any Member shall only be made by that Member and any indemnification provided by the Members shall be based on the relative purchase price being received by each Member in the proposed sale, either on a several, not joint, basis or solely with recourse to an escrow established for the benefit of the proposed purchaser; provided, further, however, that the form or forms of consideration to be received by Kelso or any Kelso Member in connection with the proposed sale may be different from that received by the other Members so long as the value of the consideration to be received by Kelso or any Kelso Member is the same or less (with respect to each of the Interests and Special Membership Interests being sold) than what they would have received had they received the same form or forms of consideration as the other Members (as reasonably determined by the Board in good faith). Notwithstanding the foregoing, the Kelso Members shall not be permitted to exercise the Drag-Along Right for a period of 18 months following the date hereof (the "Kelso Restriction Period") unless (x) the Company or any of its Subsidiaries is in default under any Financing Document or (y) for any fiscal quarter, in the good faith reasonable judgment of the Board, the Company and its Subsidiaries have failed to meet or exceed 75% of targeted EBITDA (as set forth in most recently business plan approved by the Board) for such period as set forth in the most recent business plan approved by the Board for such period. For purposes of this Section 13.10, for each Member, "joining the Kelso Members in such sale" shall include voting its Interests consistently with the Kelso Members, transferring its Interests or Special Membership Interests to a corporation organized in anticipation of such sale in exchange for capital stock or other securities of such corporation, executing and delivering agreements and documents which are being executed and delivered by the Kelso Members and providing such other cooperation as the Kelso Members may reasonably request. (ii) Any Exit Event may be structured as an auction and may be initiated by the delivery to the Company and the other Members of a written notice that Kelso has elected to initiate an auction sale procedure. Kelso shall be entitled to take all steps reasonably necessary to carry out an auction of the Company, including, without limitation, selecting an investment bank, providing confidential information (pursuant to confidentiality agreements), selecting 55 the winning bidder and negotiating the requisite documentation. The Company and each Member shall provide assistance with respect to these actions as reasonably requested. (iii) In the event the Kelso Members sell less than 100% of their Interests and Special Membership Interests in the aggregate in the Company, joining "pro rata in such sale" shall be based on relative Capital Contributions and Special Membership Interest Aggregate Funds unless the Compensation Committee deems the provisions of Article X operative. (c) Any transaction costs, including transfer taxes and legal, accounting and investment banking fees incurred by the Company and Kelso in connection with an Exit Event shall, unless the applicable purchaser refuses, be borne by the Company in the event of a merger, consolidation or sale of assets and shall otherwise be borne by the Members on a pro rata basis based on the consideration received by each Member in such Exit Event. (d) Initial Members Participation Rights. In addition, in the event the Board permits any Member (other than a Kelso Member) to Transfer Interests or Special Membership Interests that would not otherwise be permitted by the terms of this Agreement (such transferring Member, the "Transferor Member"), then at least thirty (30) days prior to effecting such Transfer, the Transferor Member shall give each Initial Member written notice of such proposed Transfer. Each Initial Member shall then have the right exercisable by written notice to the Transferor Member to participate pro rata in such sale by selling a pro rata portion of such Initial Member's Interests or Special Membership Interests, as applicable, on substantially the same terms (including with respect to representations, warranties and indemnification) as the Transferor Member, provided, however, that any representations and warranties relating specifically to any Initial Member shall only be made by that Initial Member and any indemnification provided by the Initial Members shall be based on the relative Interests or Special Membership Interests, as applicable, being sold by each Initial Member in the proposed sale, either on a several, not joint, basis or solely with recourse to an escrow established for the benefit of the proposed purchaser; provided, further, however, that the form or forms of consideration to be received by the Transferor Member in connection with the proposed sale may be different from that received by the Initial Members so long as the value of the consideration to be received by the Transferor Member is the same or less (in respect of each of the Interests and Special Membership Interests, as applicable) than what they would have received had they received the same form or forms of consideration as the Initial Members (as reasonably determined by the Board in good faith). Section 13.11 Initial Public Offering. [intentionally left blank] Section 13.12 Right of First Offer. (a) In the event that the Board determines to sell any of the vessels owned by any of its Subsidiaries or the equity securities or other interests in any of its Subsidiaries that own any such vessels to a Third Party (any such sale, a "Ship Sale") and Zoullas objected to such Ship Sale (such objection to be evidenced by a negative vote or a no vote by Zoullas (in the event Zoullas 56 did not have the opportunity to vote) in the meeting of the Board in which the decision to proceed with a potential Ship Sale was ratified by the Board in accordance with the terms of this Agreement), the Company shall promptly send to Zoullas a notice (the "ROFO Notice") setting forth its intentions with respect to a Ship Sale and offering Zoullas the right (the "ROFO") to make an offer to purchase the vessel described in the ROFO Notice. Within seven (7) days of receipt of a ROFO Notice, Zoullas shall notify the Board that he either (i) wishes to exercise his ROFO with respect to the Ship Sale described in the ROFO Notice or (ii) does not intend to exercise such ROFO. The failure to notify the Board within such seven (7) day period shall be deemed to be a notice that Zoullas does not intend to exercise his ROFO with respect to such Ship Sale. In the event Zoullas elects to exercise his ROFO with respect to the Ship Sale described in the ROFO Notice, Zoullas must, within fourteen (14) days of his receipt of the ROFO Notice (i) execute a definitive agreement with respect to such Ship Sale that is at a price acceptable to the Company and on other terms and conditions reasonably satisfactory to the Company; and (ii) make a customary deposit and provide credible evidence (as determined by the Board in its reasonable judgment) of having financing necessary to consummate such Ship Sale. If Zoullas fails to comply with the requirements of the immediately preceding sentence (which failure shall include, for the avoidance of doubt, the price not being acceptable to the Company or the Company not being reasonably satisfied with the other terms and conditions of the definitive agreement delivered by Zoullas with respect to such Ship Sale), the Company shall have no further obligations to Zoullas with respect to such Ship Sale and the Company may consummate such Ship Sale with a Third Party. (b) Notwithstanding anything to the contrary contained in paragraph (a) of this Section 13.12, the Company shall not be required to send a ROFO Notice and grant Zoullas a ROFO with respect to any Ship Sale if (i) the Board determines in good faith that the Company in undergoing financial difficulties at the time of such proposed Ship Sale, (ii) Zoullas is no longer a Member of the Company at the time of such proposed Ship Sale or (iii) Zoullas has previously successfully exercised a ROFO with respect to any other Ship Sale (provided that in the event Zoullas exercises a ROFO but fails to consummate the Ship Sale that was contemplated by the ROFO Notice by reason of Zoullas' failure to obtain the financing necessary to consummate such Ship Sale, the exercise of such ROFO shall be deemed to be a "successful exercise" for purposes of this clause (iii)). (c) Notwithstanding anything to the contrary, the provisions of this Section 13.12 shall terminate, and no party shall have rights or obligations under this Section 13.12, upon and following an IPO. 57 ARTICLE XIV DISSOLUTION, LIQUIDATION AND TERMINATION Section 14.1 Dissolving Events. The Company shall be dissolved and its affairs wound up in the manner hereinafter provided upon the happening of any of the following events: (a) the Board and the Members shall vote or agree in writing to dissolve the Company pursuant to the required votes set forth in Sections 5.3 and 4.3(d), respectively; (b) any event which under applicable law would cause the dissolution of the Company, provided that, unless required by law, the Company shall not be wound up as a result of any such event and the business of the Company shall continue. Notwithstanding the foregoing, the death, retirement, resignation, expulsion, bankruptcy or dissolution of any Member or the occurrence of any other event that terminates the continued membership of any Member in the Company under the Marshall Islands Act shall not, in and of itself, cause the dissolution of the Company. In such event, the remaining Member(s) shall continue the business of the Company without dissolution. Section 14.2 Dissolution and Winding-Up. Upon the dissolution of the Company, the assets of the Company shall be liquidated or distributed under the direction of and to the extent determined by the Board and the business of the Company shall be wound up. Within a reasonable time after the effective date of dissolution of the Company, the Company's assets shall be distributed in the following manner and order: First, to creditors in satisfaction of indebtedness (other than any loans or advances that may have been made by any of the Members to the Company), whether by payment or the making of reasonable provision for payment, and the expenses of liquidation, whether by payment or the making of reasonable provision for payment, including the establishment of reasonable reserves (which may be funded by a liquidating trust) determined by the Board or the liquidating trustee, as the case may be, to be reasonably necessary for the payment of the Company's expenses, liabilities and other obligations (whether fixed, conditional, unmatured or contingent); Second, to the payment of loans or advances that may have been made by any of the Members to the Company and amounts owed in respect of outstanding Special Membership Interests pursuant to Section 10.8; and Third, to the Members in accordance with Section 10.2, taking into account any amounts previously distributed under Section 10.2, provided that no payment or distribution in any of the foregoing categories shall be made until all payments in each prior category shall have been made in full, and provided, further, that if the 58 payments due to be made in any of the foregoing categories exceed the remaining assets available for such purpose, such payments shall be made to the Persons entitled to receive the same pro rata in accordance with the respective amounts due to them. To the extent that the balances in the Capital Accounts, after adjusting the Capital Accounts for all allocations of Profits and Losses and all special book allocations and all distributions other than liquidating distributions under this Section 14.2, do not equal the amounts to be distributed hereunder, then, any provision in this Agreement to the contrary notwithstanding, the Company shall allocate gross income or gross deductions for its last Fiscal Year to the extent necessary in order that such Capital Accounts equal the distributions to be made to the Members pursuant to this Section 14.2; and to the extent such gross income or gross deductions are not sufficient, shall allocate gross income and gross deductions for the next preceding Fiscal Year to the extent necessary in order that such Capital Accounts equal such distributions; and to the extent such gross income or gross deductions are not sufficient, shall allocate gross income or gross deductions for the second preceding Fiscal Year, and so forth, with respect to all Company taxable years for which an amended return can be timely filed, to the extent necessary to cause such Capital Accounts to equal the amounts to be distributed hereunder. Section 14.3 Distributions in Cash or in Kind. Upon the dissolution of the Company, the Board shall use all commercially reasonable efforts to liquidate all of the Company's assets in an orderly manner and apply the proceeds of such liquidation as set forth in Section 14.2, provided that if in the good faith judgment of the Board, a Company asset should not be liquidated, the Board shall cause the Company to allocate, on the basis of the Fair Market Value of any Company assets not sold or otherwise disposed of, any unrealized gain or loss based on such value to the Members' Capital Accounts as though the assets in question had been sold on the date of distribution and, after giving effect to any such adjustment, distribute such assets in accordance with Section 14.2 as if such Fair Market Value had been received in cash, subject to the priorities set forth in Section 14.2, and provided, further, that the Board shall in good faith attempt to liquidate sufficient Company assets to satisfy in cash (or make reasonable provision for) the debts and liabilities referred to in Section 14.2. Section 14.4 Termination. The Company shall terminate when the winding up of the Company's affairs has been completed, all of the assets of the Company have been distributed and the Certificate has been canceled, all in accordance with the Marshall Islands Act. Section 14.5 Claims of the Members. The Members and former Members shall look solely to the Company's assets for the return of their Capital Contributions, and if the assets of the Company remaining after payment of or due provision for all debts, liabilities and obligations of the Company are insufficient to return such Capital Contributions, the Members and former Members shall have no recourse against the Company or any other Member. 59 ARTICLE XV MISCELLANEOUS Section 15.1 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered personally, (b) mailed, certified or registered mail with postage prepaid, (c) sent by next-day or overnight mail or delivery or (d) sent by fax, as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): (a) If to the Company: Eagle Ventures LLC 477 Madison Avenue, Suite 1405 New York, New York 10022 With a copy to: Kelso & Company, L.P. 320 Park Avenue 24th Floor New York, New York 10022 Fax: 212-223-2379 Attention: James J. Connors, II and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Fax: 212-735-2000 Attention: Lou R. Kling (b) If to a Member, at the address set forth opposite such Member's name on Schedule A attached hereto, or at such other address as such Member may hereafter designate by written notice to the Company. All such notices, requests, demands, waivers and other communications shall be deemed to have been received by (w) if by personal delivery, on the day delivered, (x) if by certified or registered mail, on the fifth business day after the mailing thereof, (y) if by next-day or overnight mail or delivery, on the day delivered, or (z) if by fax, on the day delivered, provided that such delivery is confirmed. 60 Section 15.2 Securities Act Matters. Each Member understands that in addition to the restrictions on transfer contained in this Agreement, he or she must bear the economic risks of his or her investment for an indefinite period because neither the Interests nor the Special Membership Interests have been registered under the Securities Act. Section 15.3 Headings; Interpretation. The headings contained in this Agreement are for purposes of convenience only and shall not affect the meaning or interpretation of this Agreement. If any claim is made by a party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or any burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any party or its counsel. Section 15.4 Entire Agreement. This Agreement constitutes the entire agreement among the Members with respect to the subject matter hereof, and supersedes any prior agreement or understanding among them with respect to such subject matter. Section 15.5 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. Section 15.6 Governing Law; Attorneys' Fees; Forum; Jurisdiction; Service of Process. This Agreement shall be governed in all respects, including as to validity, construction, interpretation and effect, by the substantive laws of the Marshall Islands, without giving effect to the conflict of laws rules thereof. The substantially prevailing party in any action or proceeding relating to this Agreement shall be entitled to receive an award of, and to recover from the other party or parties, any fees or expenses incurred by him, her or it (including, without limitation, reasonable attorneys' fees and disbursements) in connection with any such action or proceeding. Each party hereby irrevocably and unconditionally agrees that any legal action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby must be brought in the State of New York, City of New York and hereby expressly submits to the personal jurisdiction and venue of such courts for the purposes thereof and expressly waives any claim of improper venue and any claim that such courts are an inconvenient forum. Each party hereby irrevocably consents to the service of process of any of the aforementioned court by notice in the manner specified in Section 15.1. Section 15.7 Waiver of Jury Trial. EACH MEMBER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 15.8 Waiver of Partition. Except as may otherwise be provided by law in connection with the winding-up, liquidation and dissolution of the Company, each Member 61 hereby irrevocably waives any and all rights that it may have to maintain an action for partition of any of the Company's property. Section 15.9 Severability. If any provision of this Agreement is inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatsoever, so long as this Agreement, taken as a whole, still expresses the material intent of the parties hereto. The invalidity of any one or more phrases, sentences, clauses, Sections or subsections of this Agreement shall not affect the remaining portions of this Agreement. Section 15.10 Further Actions. Each Member shall execute and deliver such other certificates, agreements and documents, and take such other actions, as may reasonably be requested by the Company in connection with the continuation of the Company and the achievement of its purposes, including, without limitation, (a) any documents that the Company deems necessary or appropriate to continue the Company as a limited liability company in all jurisdictions in which the Company or its Subsidiaries conduct or plan to conduct business and (b) all such agreements, certificates, tax statements and other documents as may be required to be filed in respect of the Company. Section 15.11 Amendments. This Agreement (including this Section 15.11) may not be amended, modified or supplemented except by a written instrument signed by a Majority in Interest; provided, however, that the Board may (i) pursuant to Section 4.8, make such modifications to this Agreement, including Schedule A and Schedule B, as are necessary to admit additional Members and (ii) pursuant to Section 10.8, make modifications to Schedule E, and (iii) to the extent that any provision related to Units is subject to Section 409A of the Code and fails to comply with the requirements of Section 409A of the Code, amend, modify or supplement such provision in order to cause it to either not be subject to Section 409A of the Code or to comply with the applicable provisions of such section. Notwithstanding the foregoing, for so long as Zoullas is a Member of the Company, no amendment, modification or supplement to this Agreement shall adversely affect Zoullas or the Outside Investor Members relative to the other Members unless such amendment, modification or supplement is signed by Zoullas, other than any amendment, modification or supplement required to comply with Section 409A of the Code. The Company shall notify all Members after any such amendment, modification or supplement, other than any amendments to Schedule A, Schedule B, Schedule E or any amendment required to comply with Section 409A of the Code, as permitted herein, has taken effect. Each Member acknowledges and agrees that in the event that the Board determines that Special Membership Interests shall be exchanged for Interests in the Company (or another form of security), the Board may affect such exchange and amend and make any modifications to this agreement and Schedule E which it considers necessary or appropriate to reflect any such exchange. 62 Section 15.12 Outside Investor Members Representative; Power of Attorney. Each of the Outside Investor Members hereby irrevocably makes, constitutes and appoints Zoullas as its true and lawful agent, representative and attorney-in-fact for all purposes relating to this Agreement and to the Outside Investor Members' ownership of Interests and/or Special Membership Interests in the Company, including with out limitation, the full power and authority on the Outside Investor Member's behalf to (i) vote or direct the voting of such Outside Investor Member's Interests, including with respect to any amendments to this Agreement; (ii) sell, or direct the sale, of any or all of such Outside Investor Member's Interests and/or Special Membership Interests, including a sale to the Company pursuant to the exercise of any "Put Right" granted to Zoullas pursuant to Section 13.5 of this Agreement; (iii) collect on behalf of such Outside Investor Member any amounts that the Company would otherwise pay to such Outside Investor Member in exchange of Interests and/or Special Membership Interests held by such Outside Investor Member (whether in the form of cash or a promissory note) pursuant to Zoullas' decision to exercise the Put Right relating to the Interests and/or Special Membership Interests held by Zoullas and the Outside Investor Members; and (iv) to execute and deliver on behalf of such Outside Investor Member any instruments or other documents related to, and to take any actions deemed necessary or appropriate by Zoullas in his sole discretion to effectuate, any of the foregoing. Each of the Outside Investor Members agrees that the Company shall be entitled to rely upon the power and authority of Zoullas, acting as a limited representative of such Outside Investor Member, to act on behalf of such Outside Investor Member with respect to the Put Right described above. Section 15.13 Power of Attorney. Each Member hereby constitutes and appoints Kelso as his or her true and lawful representative and attorney-in-fact in his or her name, place and stead to make, execute, acknowledge, record and file the following: (a) any amendment to the Certificate which may be required by the laws of the Marshall Islands due to: (i) any duly made amendment to this Agreement, or (ii) any change in the information contained in such Certificate, or any amendment thereto; (b) any other certificate or instrument which may be required to be filed by the Company under the laws of the Marshall Islands or under the applicable laws of any other jurisdiction in which counsel to the Company determines that it is advisable to file; (c) any certificate or other instrument which Kelso or the Board deems necessary or desirable to effect a termination and dissolution of the Company which is authorized under this Agreement; 63 (d) any amendments to this Agreement, duly adopted in accordance with the terms of this Agreement; and (e) any other instruments that Kelso or the Board may deem necessary or desirable to carry out fully the provisions of this Agreement; provided, however, that any action taken pursuant to this power shall not, in any way, increase the liability of the Members beyond the liability expressly set forth in this Agreement, and provided further that where action by a majority of the Board is required, such action shall have been taken. Such attorney-in-fact is not by the provisions of this Section 15.12 granted any authority on behalf of the undersigned to amend this Agreement, except as provided for in this Agreement. Such power of attorney is coupled with an interest and shall continue in full force and effect notwithstanding the subsequent death or incapacity of the Member granting such power of attorney. Section 15.14 Fees and Expenses. The Company shall assume (as applicable) and pay all legal, formation, transaction and related expenses incurred by the Company and its Subsidiaries (including all such expenses incurred by any Member on behalf of the Company and its Subsidiaries). Except (i) as provided in this Agreement, (ii) as provided in any other agreement between the Company and such Member or its Affiliates (including the letter agreement dated February 1, 2005, between Kelso & Company, L.P., the Company and Eagle Holdings LLC), or (iii) for the reasonable documented expenses incurred by Zoullas in respect of the transactions contemplated by this Agreement (including in connection with Zoullas' negotiation of this Agreement and the employment agreement between Zoullas and the Company or any Subsidiary of the Company), all other fees and expenses incurred by any Member in connection with its investment in the Company (including in connection with such Member's negotiation of this Agreement) shall be borne by the respective Member incurring such expenses. 64 Schedule A Kelso Members Initial Capital Commitment
Name & Mailing Address Total Date of Initial SMI Initial Capital Capital Admission Funds Advance Contribution Commitment Units ----------- -------------- ------------ ---------- ----- Kelso Investment Associates VII, L.P. c/o January 28, 2005 43,143,367 30,323,681 73,467,048 30,323,681 Kelso & Company, L.P. 320 Park Avenue, 24th Floor New York, NY 10022 KEP VI, LLC January 28, 2005 10,683,112 7,508,733 18,191,845 7,508,733 c/o Kelso & Company, L.P. 320 Park Avenue, 24th Floor New York, NY 10022
65 Management Members Initial Capital Commitment
Name & Mailing Address Total Date of Initial SMI Initial Capital Capital Admission Funds Advance Contribution Commitment Units ----------- -------------- ------------ ---------- ----- Sophocles Zoullas January 28, 2005 1,024,490 621,836 1,646,326 621,836 829 Park Avenue New York, New York 10021 Edward H. James February 1, 2005 8,965 3,911 12,876 3,911 2433 Lurting Avenue Bronx, New York 10969 Claude Thouret February 1, 2005 22,4717 9,777 32,194 9,777 56 Shainy Lane Matawan, New Jersey 07747 Alan Ginsberg February 1, 2005 8,965 3,911 12,876 3,911 648 Second Street Brooklyn, New York 11215
66 Outside Investor Members Initial Capital Commitment
Name & Mailing Address Total Date of Initial SMI Initial Capital Capital Admission Funds Advance Contribution Commitment Units ----------- -------------- ------------ ---------- ----- Intercontinental Shipping & Trading Corp. February 1, 2005 1,826,725 1,173,275 3,000,000 1,173,275 c/o Cruzpren S.L. Tomas Morales 92, 1st Floor Las Palmas 35004 Canary Islands, Spain Maria Zoullas February 1, 2005 161,083 97,773 258,856 97,773 117 East 79th Street New York, New York 10021 George Kaufman February 1, 2005 161,083 97,773 258,856 97,773 117 East 79th Street New York, New York 10021 Jeffrey Nordhaus February 1, 2005 134,501 58,664 193,165 58,664 220 East 72nd Street, Apt 15F New York, New York 10021
67 Other Investor Members Initial Capital Commitment
Name & Mailing Address Total Date of Initial SMI Initial Capital Capital Admission Funds Advance Contribution Commitment Units ----------- -------------- ------------ ---------- ----- David Hiley April 21, 2005 311,144 188,856 500,000 188,856 845 Riomar Drive Vero Beach, FL 32963 Magnetite Asset Investors III L.L.C. May 6, 2005 1,244,578 755,422 2,000,000 755,422 c/o BlackRock Financial Management 40 East 52nd Street New York, NY 10022
68 Schedule B Points
- ------------------------------------------------------------------------------------------------- Benchmark Amount Name Performance Points Service Points (if any) Date of Grant - ------------------------------------------------------------------------------------------------- Sophocles N. Zoullas 750 750 May 11, 2005 - ------------------------------------------------------------------------------------------------- Alan S. Ginsberg 50 50 May 11, 2005 - ------------------------------------------------------------------------------------------------- 100* 100* $230,168,796 in January 28, 2006 respect of Points awarded post-IPO - ------------------------------------------------------------------------------------------------- Claude Thouret 40 40 May 11, 2005 - ------------------------------------------------------------------------------------------------- Edward H. James 40 40 May 11, 2005 - ------------------------------------------------------------------------------------------------- Sunil Damodar 20* 20* $230,168,796 in January 28, 2006 respect of Points awarded post-IPO - ------------------------------------------------------------------------------------------------- TOTAL 1000 1000 - -------------------------------------------------------------------------------------------------
* Reflects Points awarded after the IPO of Eagle Bulk Shipping, Inc. With respect to Performance Points, these post IPO Points are "Post IPO Awarded Performance Points" for purposes of this Agreement. See Schedule 10.9 for more information relating to these Benchmarked Points. Schedule C Initial Directors Michael Goldberg Philip Berney Frank J. Loverro Sophocles Zoullas Schedule D Post IPO Performance Percentages - Definitions The "Total Available Post IPO Remaining Performance Percentage" available to all Management Members allocated Performance Points (and Ex-Management Members that retain Performance Points pursuant to this Agreement, if any) on any date of determination shall equal the product of (x) seven and one half percent (7.5%) and (y) the Performance Factor (as defined below). The "Total Stub Performance Percentage" available to all Management Members allocated Post IPO Awarded Performance Points (and Ex-Management Members that retain Post IPO Awarded Performance Points pursuant to this Agreement, if any) on any date of determination shall equal the product of (x) nine-tenths of one percent (.9%) and (y) the Performance Factor. For purposes of this Schedule D: The "Kelso Investment Multiple" is computed by dividing (x) (i) the total Fair Market Value of all distributions (determined pro forma for any distributions to be made to the Kelso Members at the time which the Kelso Investment Multiple is calculated) received by the Kelso Members from the Company in respect of their aggregate investment in the Company (which shall include, if applicable, the Fair Market Value of any Units distributed by the Kelso Members to any Affiliate of the Kelso Members that is not a party to this Agreement) plus (ii) all principal payments on Bulk Advances and all Special Interest Payments in each case paid to the Kelso Members in respect of advances of Special Membership Interest Funds by the Kelso Members by (y) the aggregate Capital Contributions of the Kelso Members plus the Special Membership Interest Aggregate Funds advanced by the Kelso Members. The "Kelso IRR" means the internal rate of return, compounded annually, received by the Kelso Members on their aggregate Capital Contributions and advances of Special Membership Interest Aggregate Funds, calculated after giving full effect to any reduction in the Kelso IRR caused by an increase in the Total Available Performance Percentage. The "Performance Factor" is a number (between zero and one) equal to the quotient obtained by dividing (x) the excess, if positive, of the Kelso Investment Multiple over two (2) by (y) one and one quarter (1.25); provided however that if such quotient is greater than one (1), the Performance Factor shall equal one (1); provided further that, if in any date of determination of Total Available Post IPO Performance Percentage, the Kelso IRR calculated as of such date is less than 10%, the Performance Factor computed pursuant to the foregoing shall be reduced to such amount as would cause the Kelso IRR to equal 10% or, if there is no such amount, to zero (0). Compensation Committee Adjustments Notwithstanding anything in the Agreement to the contrary, as contemplated by the last sentence of Section 8.5 of the Agreement, the Compensation Committee shall make such adjustments to the Kelso Investment sMultiple and the Kelso IRR or otherwise as it deems necessary in its good faith discretion to take into account any increase in interest, fees or other expenses incurred by the Company as a result of a refinancing or extraordinary dividends, with the general intention that no such increase in interest, fees or expenses resulting from the refinancing or extraordinary dividends (as applicable) would have a material adverse effect on the achievement of a particular Carry Percentage by any Management Member when measured in terms of dollars to be received (in any distributions pursuant to Section 10.2) by any such Management Member. 72 Schedule E Special Membership Interests - -------------------------------------------------------------------------------- Member Special Special Membership Interest Membership Interest Aggregate Funds - -------------------------------------------------------------------------------- KIA VII 43,143,367 43,143,367 - -------------------------------------------------------------------------------- KEP VI 10,683,112 10,683,112 - -------------------------------------------------------------------------------- Magnetite 1,244,578 1,244,578 - -------------------------------------------------------------------------------- Sophocles Zoullas 1,024,490 1,024,490 - -------------------------------------------------------------------------------- Edward H. James 8,967 8,967 - -------------------------------------------------------------------------------- Claude Thouret 22,417 22,417 - -------------------------------------------------------------------------------- Alan Ginsberg 8,967 8,967 - -------------------------------------------------------------------------------- Intercontinental Shipping & Trading Corp 1,826,725 1,826,725 - -------------------------------------------------------------------------------- Maria Zoullas 161,083 161,083 - -------------------------------------------------------------------------------- George Kaufman 161,083 161,083 - -------------------------------------------------------------------------------- Jeffrey Nordhaus 134,501 134,504 - -------------------------------------------------------------------------------- David Hiley 311,144 311,144 - -------------------------------------------------------------------------------- 73 Schedule F Vested IPO Percentages - -------------------------------------------------------------------------------- Member Vested IPO Percentage - -------------------------------------------------------------------------------- Sophocles Zoullas 5.625% - -------------------------------------------------------------------------------- Edward James 0.3% - -------------------------------------------------------------------------------- Claude Thouret 0.3% - -------------------------------------------------------------------------------- Alan Ginsberg 0.375% - -------------------------------------------------------------------------------- TOTAL VESTED IPO PERCENTAGE 6.6% - -------------------------------------------------------------------------------- 74 Schedule 10.9 Benchmarked Points
Benchmarked Points ------------------ Benchmarked Benchmarked Benchmark Name Performance Points Service Points Amount Trigger Multiple - ------ ----------------- --------------- ------ ---------------- Alan S. Ginsberg 100 100 $230,168,796 2.184 Sunil Damodar 20 20 $230,168,796 2.184
Schedule Relating to Forfeiture of Benchmarked Service Points Unless otherwise determined by the Compensation Committee in a manner more favorable to such Ex-Management Member, or as otherwise provided in an employment or services agreement between the Company or any Subsidiary of the Company and such Management Member, if the Management Member's employment with the Company or any Subsidiary of the Company that employs such individual terminates for any reason other than for Cause, then the number of Benchmarked Service Points allocated to such Ex-Management Member shall be adjusted according to the following schedule (and shall not be adjusted according to the schedule set forth in Section 8.3(b)):
The Ex-Management Member's Service Points shall be If the termination occurs reduced by Before May 11, 2006 75.00% On or after May 11, 2006 but before August 11, 2006 68.75% On or after August 11, 2006 but before November 11, 2006 62.50% On or after November 11, 2006 but before February 11, 2007 56.25% On or after February 11, 2007 but before May 11, 2007 50.00% On or after May 11, 2007 but before August 11, 2007 43.75% On or after August 11, 2007 but before November 11, 2007 37.50%
75
On or after November 11, 2007 but before February 11, 2008 31.25% On or after February 11, 2008 but before May 11, 2008 25.00% On or after May 11, 2008 but before August 11, 2008 18.75% On or after August 11, 2008 but before November 11, 2008 12.50% On or after November 11, 2008 but before February 11, 2009 6.25% On or after February 11, 2009 0.00%
76 Schedule 10.10 - -------------------------------------------------------------------------------- Interest Priority Vesting Service Member Payment Catch Up Payment - -------------------------------------------------------------------------------- Sophocles Zoullas $76,027.71 $631,770.03 - -------------------------------------------------------------------------------- Alan Ginsberg $15,205.54 $42,118.00 - -------------------------------------------------------------------------------- Claude Thouret $4,054.81 $33,694.40 - -------------------------------------------------------------------------------- Edward James $4,054.81 $33,694.40 - -------------------------------------------------------------------------------- Sunil Damodar $2,027.41 $0 - -------------------------------------------------------------------------------- TOTAL $101,370.28 $741,276.84 - -------------------------------------------------------------------------------- 77 EX-10 3 credagmt.txt EXHIBIT 10.3.1- 2D AMENDED & RESTATED CREDIT AGMT $500,000,000 SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of November 1, 2006 Among EAGLE BULK SHIPPING INC. as Borrower, CARDINAL SHIPPING LLC CONDOR SHIPPING LLC FALCON SHIPPING LLC GRIFFON SHIPPING LLC HARRIER SHIPPING LLC HAWK SHIPPING LLC HERON SHIPPING LLC JAEGER SHIPPING LLC KESTREL SHIPPING LLC KITE SHIPPING LLC MERLIN SHIPPING LLC OSPREY SHIPPING LLC PEREGRINE SHIPPING LLC SHIKRA SHIPPING LLC SPARROW SHIPPING LLC TERN SHIPPING LLC and the Additional Guarantors party hereto from time to time, as Guarantors, and THE ROYAL BANK OF SCOTLAND PLC as Lender ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS...................................1 SECTION 1.01. Certain Defined Terms.........................................1 SECTION 1.02. Interpretation...............................................13 SECTION 1.03. Computation of Time Periods..................................13 SECTION 1.04. Accounting Terms.............................................13 ARTICLE II - AMOUNTS AND TERMS OF THE ADVANCES................................13 SECTION 2.01. The Commitment...............................................13 SECTION 2.02. Newbuildings; Additional Vessels............................14 SECTION 2.03. Drawdown.....................................................14 SECTION 2.04. Repayment....................................................15 SECTION 2.05. Reduction of Commitment......................................16 SECTION 2.06. Interest.....................................................16 SECTION 2.07. Interest Rate Determination..................................16 SECTION 2.08. Fees.........................................................17 SECTION 2.09. Master Agreement.............................................17 SECTION 2.10. Increased Costs..............................................18 SECTION 2.11. Illegality...................................................19 SECTION 2.12. Payments and Computations....................................19 SECTION 2.13. Taxes........................................................20 ARTICLE III - CONDITIONS OF EFFECTIVENESS AND LENDING.........................21 SECTION 3.01. Conditions Precedent to Effectiveness........................21 SECTION 3.02. Conditions Precedent to Each Newbuilding Advance.............23 SECTION 3.03. Conditions Precedent to Each Additional Vessel Advance.......25 SECTION 3.04. Conditions Precedent to Each Advance.........................27 ARTICLE IV - REPRESENTATIONS AND WARRANTIES...................................29 SECTION 4.01. Representations and Warranties...............................29 ARTICLE V - GUARANTY..........................................................32 SECTION 5.01. Guaranty.....................................................32 SECTION 5.02. Obligations Absolute.........................................32 SECTION 5.03. Guaranty Unconditional.......................................32 SECTION 5.04. Waiver of Subrogation; Contribution..........................32 SECTION 5.05. Reinstatement................................................33 SECTION 5.06. Waiver.......................................................33 SECTION 5.07. Payments; No Reductions......................................33 SECTION 5.08. Set-Off......................................................33 SECTION 5.09. Continuing Guarantee.........................................34 SECTION 5.10. Right of Contribution........................................34 SECTION 5.11. Limitation of Liability......................................35 ARTICLE VI - FINANCIAL COVENANTS..............................................35 SECTION 6.01. Financial Covenants..........................................35 ARTICLE VII - COVENANTS OF THE BORROWER.......................................35 SECTION 7.01. Affirmative Covenants........................................35 SECTION 7.02. Negative Covenants...........................................38 ARTICLE VIII - EVENTS OF DEFAULT..............................................40 SECTION 8.01. Events of Default............................................40 ARTICLE IX - MISCELLANEOUS....................................................42 SECTION 9.01. Amendments, Etc..............................................42 SECTION 9.02. Notices, Etc.................................................43 SECTION 9.03. No Waiver, Remedies..........................................43 SECTION 9.04. Costs; Expenses..............................................43 SECTION 9.05. Right of Set-off.............................................44 SECTION 9.06. Assignments and Participations...............................45 SECTION 9.07. Judgment.....................................................45 SECTION 9.08. Governing Law; Submission to Jurisdiction....................46 SECTION 9.09. Execution in Counterparts....................................46 SECTION 9.10. WAIVER OF JURY TRIAL.........................................46 SECTION 9.11. Entire Agreement.............................................47 SECTION 9.12. Severability of Provisions...................................47 SECTION 9.12. Master Agreement and Collateral Documents....................47 Exhibit A - Form of Notice of Drawdown Exhibit B - Form of Note Exhibit C - Form of Account Charge Exhibit D - Form of Cash Pooling Deed Exhibit E - Form of Mortgage Exhibit F - Form of Assignment of Earnings Exhibit G - Form of Assignment of Insurances Exhibit H - Form of Approved Manager's Undertaking Exhibit I - Form of Credit Agreement Supplement Exhibit J - Form of Compliance Certificate Exhibit K - Form of Assignment of Shipbuilding Contract and Refund Guarantee ii SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 1, 2006 (as such may be amended, supplemented (including, without limitation, by way of each Credit Agreement Supplement executed and delivered from time to time), or otherwise modified, this "Agreement") among (i) EAGLE BULK SHIPPING INC., a Marshall Islands corporation (the "Borrower"), (ii) CARDINAL SHIPPING LLC, CONDOR SHIPPING LLC, FALCON SHIPPING LLC, GRIFFON SHIPPING LLC, HARRIER SHIPPING LLC, HAWK SHIPPING LLC, HERON SHIPPING LLC, JAEGER SHIPPING LLC, KESTREL SHIPPING LLC, KITE SHIPPING LLC, MERLIN SHIPPING LLC, OSPREY SHIPPING LLC, PEREGRINE SHIPPING LLC, SHIKRA SHIPPING LLC, SPARROW SHIPPING LLC and TERN SHIPPING LLC, each a Marshall Islands limited liability company (collectively, the "Initial Guarantors"), and the Additional Guarantors party hereto from time to time, and (iii) THE ROYAL BANK OF SCOTLAND PLC, as Lender (the "Lender"). PRELIMINARY STATEMENTS: 1. The Borrower, the Initial Guarantors and the Lender are parties to an Amended and Restated Credit Agreement dated as of July 28, 2006 (the "Existing Credit Agreement") providing for a reducing revolving credit facility in the principal amount of $450,000,000. 2. The Borrower has requested that the Lender amend and restate the Existing Credit Agreement to increase the principal amount of the reducing revolving credit facility under the Existing Credit Agreement from $450,000,000 to $500,000,000 in order (a) to continue financing Delivered Vessels, (b) to provide working capital in an amount up to $15,000,000 at any time, (c) to finance Newbuilding Predelivery Costs relating to Newbuildings, and (d) to finance a portion of the purchase price of Additional Vessels,. 3. The Initial Guarantors have agreed, in order to induce the Lender to make such additional amounts available to the Borrower hereunder, to guarantee all of the obligations of the Borrower under this Agreement, the Note and the other Loan Documents. 4. The Lender has agreed to amend and restate the Existing Credit Agreement to make available a reducing revolving credit facility in the aggregate principal amount of up to $500,000,000 to the Borrower upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account Charges" means each of the deeds containing, among other things, a first priority account charge made or to be made by a Guarantor in favor of the Lender in respect of such Guarantor's Operating Account and in substantially the form of Exhibit C (as amended from time to time in accordance with its terms). "Accounting Information" means the quarterly financial statements and/or the annual audited financial statements to be provided by the Borrower to the Lender in accordance with Section 7.01(h). "Accounting Period" means each consecutive period of approximately three months (ending on the last day in March, June, September and December of each year) for which quarterly Accounting Information is required to be delivered in accordance with Section 7.01(h). "Additional Guarantor" means any wholly-owned Subsidiary of the Borrower formed under the laws of the Republic of the Marshall Islands that (i) is acceptable to the Lender in its sole and absolute discretion, and (ii) shall execute and deliver to the Lender a Credit Agreement Supplement. "Additional Vessel" means any dry bulk carrier (other than a Delivered Vessel) which the Borrower notifies to the Lender pursuant to Section 2.02(b) as a vessel which the Borrower wishes to finance or purchase with the assistance of an Advance, and which the Lender, in its sole and absolute discretion, shall notify to the Borrower as being acceptable to the Lender, in accordance with Section 2.02(b), and which is or is to be registered in the ownership of a Guarantor under the laws and flag of the Marshall Islands, and everything belonging to such vessel; and "Additional Vessels" means, collectively, all such vessels approved by the Lender in accordance with Section 2.02(b). "Additional Vessel Advances" has the meaning specified in Section 2.01(d). "Adjusted Net Worth" means, in respect of an Accounting Period, the amount of Total Assets less Consolidated Debt. "Advance" has the meaning specified in Section 2.01. "Advance Ratio" has the meaning specified in Section 2.07(a). "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 50% or more of the voting stock, membership or partnership interests, or other similar interests of such Person or to direct or cause direction of the management and policies of such Person, whether through the ownership of voting stock, membership or partnership interests, or other similar interests, by contract or otherwise. "Agreement" has the meaning specified in the recital hereto. "Applicable Margin" means, in relation to each Accounting Period (or relevant portion thereof), (i) if the Advance Ratio for such Accounting Period is less than fifty percent (50%), seventy-five hundredths of one percent (0.75%) per annum, and (ii) if the Advance Ratio for such Accounting Period is equal to or greater than fifty percent (50%), eighty-five hundredths of one percent (0.85%) per annum. "Approved Broker" means, as the context may require, any of H. Clarkson & Company, Galbraiths Limited, Braemar Seascope or such other independent London based sale and purchase ship broker as may from time to time be appointed by the Lender. 2 "Approved Manager" means, as the context may require, either of (i) Eagle Shipping International (USA) LLC, a Marshall Islands limited liability company with offices currently at 477 Madison Avenue, New York, New York, or any other company approved by the Lender from time to time as the commercial manager of a Vessel, which approval shall not unreasonably be withheld, and (ii) V Ships Management Ltd., an Isle of Man company with offices at Eaglehurst, Belmont Hill, Douglas, Isle of Man, or any other company approved by the Lender from time to time as the technical manager of a Vessel, which approval shall not unreasonably be withheld. "Approved Manager's Undertakings" means each of the undertakings made or to be made by an Approved Manager in favor of the Lender in respect of a Vessel and in substantially the form of Exhibit H (as amended from time to time in accordance with its terms). "Assignments of Earnings" means each of the first priority assignments of earnings made or to be made by a Guarantor in favor of the Lender in respect of a Vessel and in substantially the form of Exhibit F (as amended from time to time in accordance with its terms). "Assignments of Insurances" means each of the first priority assignments of insurances made or to be made by a Guarantor in favor of the Lender in respect of a Vessel and in substantially the form of Exhibit G (as amended from time to time in accordance with its terms). "Assignments of Shipbuilding Contract and Refund Guarantee" means each of the first priority assignments to be made by a Guarantor in favor of the Lender in respect of the Shipbuilding Contract and Refund Guarantees relating to a Newbuilding and in substantially the form of Exhibit K (as amended from time to time in accordance with its terms). "Available Free Cash" means, for any Accounting Period, (i) EBITDA less Interest Expenses for such Accounting Period, minus (ii) a reasonable reserve for drydocking and maintenance for all Vessels during the twelve months following such Accounting Period, plus (iii) the amount of any non-cash charges relating to compensation payable to management of the Borrower pursuant to the limited liability company agreement of Eagle Ventures. "Borrower" has the meaning specified in the recital hereof. "Business Day" means a day of the year on which dealings are carried on in the London interbank market and banks are open for business in London and not required or authorized to close in New York City. "Cash Pooling Deeds" means each of the deeds containing, among other things, instructions regarding an Operating Account made or to be made by the Borrower and the relevant Guarantor in favor of the Lender in substantially the form of Exhibit D (as amended from time to time in accordance with its terms). "Change of Control" means the occurrence of any of the following: (a) the Borrower ceases directly to own one hundred percent (100%) of the membership interests of each of the Guarantors, or (b) a Person or group (as such term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) other than Kelso & Company shall at any time become the owner, directly or indirectly, beneficially or of record, of shares representing more than 30% of the outstanding voting or economic equity interests of the Borrower and such Person or group shall at such time own more shares of the Borrower than Kelso & Company, or (c) the board of directors of the Borrower ceases 3 to consist of a majority of the existing directors who constitute the board of directors as of the date hereof or directors nominated by such existing directors or Kelso & Company, or (d) Sophocles Zoullas shall cease to be the chief executive officer of the Borrower. "Classification Society" means in respect of any Vessel, Bureau Veritas, Det norske Veritas, Nippon Kaiji Kyokai or, in any case, such other classification society as is selected by the Borrower with the prior consent of the Lender. "Collateral" means all "Collateral" referred to in the Collateral Documents and all other property that is or is intended to be subject to any Lien in favor of the Lender. "Collateral Documents" means (a) this Agreement (where the context so admits), (b) the Account Charges, (c) the Master Agreement Security Deed, (d) the Mortgages, (e) the Assignments of Earnings, (f) the Assignments of Insurances, (g) the Approved Manager's Undertakings, (h) the Security Interest Deed, (i) the Assignments of Shipbuilding Contract and Refund Guarantee, and (j) any other document that provides for the guarantee of the obligations of any Person under any Loan Document or that creates, or purports to create, a Lien in favor of, or for the benefit of, the Lender. "Commitment" means, at any time, the maximum sum available to be advanced at such time by the Lender to the Borrower pursuant to Section 2.01 of this Agreement, as such amount may be reduced from time to time pursuant to Sections 2.05, 2.10, 2.11 or 8.01. "Commitment Period" has the meaning specified in Section 2.01. "Commitment Termination Date" means (i) July 28, 2016 or, if such day is not a Business Day, the next succeeding Business Day, provided that, if such succeeding Business Day would fall in the next following calendar month, the Commitment Termination Date shall be the immediately preceding Business Day, or (ii) such earlier day as the Commitment shall have been canceled in full pursuant to the provisions of this Agreement. "Compliance Certificate" means, as of any relevant date, a certificate of the chief financial officer of the Borrower which sets forth the calculations required to establish whether the Borrower was in compliance with the provisions of Article VI as of such date in substantially the form of Exhibit J. "Consolidated Debt" means, in respect of an Accounting Period, the aggregate amount of Debt due by the members of the Group (other than any such Debt owing by any member of the Group to another member of the Group) as stated in the then most recent Accounting Information. "Credit Agreement Supplement" means a supplement to this Agreement made or to be made by an Additional Guarantor by which it becomes a Guarantor hereunder, substantially the form of Exhibit I (as amended from time to time in accordance with its terms). "Current Assets" means, in respect of each Accounting Period on a consolidated basis for the Group, the aggregate of the cash and marketable securities, trade and other receivables from persons other than a member of the Group realizable within one year, inventories and prepaid expenses which are to be charged to income within one year less any doubtful debts and any discounts or allowances given as stated in the then most recent Accounting Information. "Debt" means in relation to any member of the Group (the "debtor"): 4 (a) Financial Indebtedness of the debtor; (b) liability for any credit to the debtor from a supplier of goods or services or under any instalment purchase or payment plan or other similar arrangement; (c) contingent liabilities of the debtor (including without limitation any taxes or other payments under dispute) which have been or, under GAAP, should be recorded in the notes to the Accounting Information; (d) deferred tax of the debtor; and (e) liability under a guarantee, indemnity or similar obligation entered into by the debtor in respect of a liability of another person who is not a member of the Group which would fall within (a) to (d) if the references to the debtor referred to the other person. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Delivered Vessels" means, collectively, the vessels described in Schedule II hereto. "Dollars" and the sign "$" each means lawful money of the United States of America. "Drawdown Date" means each requested date for the borrowing of an Advance, which shall not be later than the Commitment Termination Date. "Eagle Ventures" means Eagle Ventures LLC, a Marshall Islands limited liability company. "Early Termination Date" has the meaning ascribed thereto in Section 14 of the Master Agreement. "EBITDA" means, in respect of an Accounting Period, the aggregate amount of consolidated pre-tax profits of the Group before extraordinary or exceptional items, depreciation, interest, rentals under finance leases and similar charges payable as stated in the then most recent Accounting Information. "Effective Date" means the first date on which the conditions precedent set forth in Section 3.01 shall be satisfied (or waived in writing by the Lender). "Environmental Action" means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, notice of non-compliance or violation, investigation, proceeding, consent order or consent agreement based upon or arising out of any Environmental Law including without limitation (a) any claim by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions, or fines, penalties or damages pursuant to any Environmental Law, and (b) any claim by any third party seeking damages, contribution, or injunctive relief arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Laws" means any and all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, petroleum or 5 petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "Environmentally Sensitive Material" means oil, oil products, any other substance which is polluting, toxic or hazardous or any substance the release of which into the environment is regulated, prohibited or penalized by or pursuant to any Environmental Law. "Event of Loss", means any of the following events: (x) the actual or constructive total loss or the agreed or compromised total loss of a Vessel; or (y) the capture, condemnation, confiscation, requisition (excluding any requisition for hire for a fixed period not in excess of ninety (90) days), purchase, seizure or forfeiture of, or any taking of title to, a Vessel. An Event of Loss shall be deemed to have occurred (i) in the event of an actual loss of a Vessel, at noon Greenwich Mean Time on the date of such loss or if that is not known on the date which such Vessel was last heard from; (ii) in the event of damage which results in a constructive or compromised or arranged total loss of a Vessel, at noon Greenwich Mean Time on the date of the event giving rise to such damage; or (iii) in the case of an event referred to in clause (y) above, at noon Greenwich Mean Time on the date on which such event is expressed to take effect by the Person making the same. Notwithstanding the foregoing, if the relevant Vessel shall have been returned to the relevant Borrower following any capture, requisition or seizure referred to in clause (y) above prior to the date upon which payment is required to be made under Section 2.04(d), no Event of Loss shall be deemed to have occurred by reason of such capture, requisition or seizure. "Events of Default" has the meaning specified in Section 8.01. "Existing Credit Agreement" has the meaning specified in the Preliminary Statements hereof. "Fair Market Value" means, (a) in relation to any Vessel, the fair market value of such Vessel, and (b) in relation to any Newbuilding, the fair market value of the Shipbuilding Contract relating to such Newbuilding less any amount remaining unpaid to the relevant shipyard under such Shipbuilding Contract, such fair market value in each case determined by means of a valuation made (at the expense of the Borrower) at any relevant time by an Approved Broker. Such valuation shall be made with or without physical inspection of such Vessel or Newbuilding (as the Lender may require), on the basis of a sale for prompt delivery for cash at arms' length on normal commercial terms as between a willing seller and a willing buyer, free of any existing charter or other contracts of employment, and shall be conclusive evidence of the fair market value of such Vessel or Newbuilding at the date of such valuation. "Financial Indebtedness" means, in relation to any member of the Group (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; 6 (c) under any acceptance credit, guarantee or letter of credit facility made available to the debtor; (d) under a financial lease, a deferred purchase consideration arrangement (in each case, other than in respect of assets or services obtained on normal commercial terms in the ordinary course of business) or any other agreement having the commercial effect of a borrowing or raising of money by the debtor; (e) under any foreign exchange transaction, 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 or similar obligation entered into by the debtor in respect of a liability of another person which would fall within (a) to (e) if the references to the debtor referred to the other person. "GAAP" means accounting principles, concepts, bases and policies generally adopted and accepted in the United States of America consistently applied. "Group" means the Borrower and its Subsidiaries (whether direct or indirect and including, but not limited to, the Guarantors) from time to time and "member of the Group" shall be construed accordingly. "Guaranteed Obligations" has the meaning specified in Section 5.01. "Guarantors" means, collectively, the Initial Guarantors and each Additional Guarantor, if any, and "Guarantor" means any of them as the context may require. "Guaranty" means the joint and several guaranty of the Guarantors provided in Article V as supplemented by each Credit Agreement Supplement executed and delivered from time to time. "Indemnified Party" has the meaning specified in Section 9.04(c). "Initial Guarantors" has the meaning specified in the recital hereto. "Interest Expenses" means, in respect of an Accounting Period, the aggregate on a consolidated basis of all interest incurred by any member of the Group (excluding any amounts owing by one member of the Group to another member of the Group) and any net amounts payable under interest rate hedge agreements. "Interest Period" means, in relation to each Advance (or any relevant portion thereof), (x) in the case of the first such period, the period commencing on the Drawdown Date for such Advance (or any relevant portion thereof) and ending on the last day of the period selected by the Borrower pursuant to the provisions below and (y) thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be three, six or twelve months (or such other period as may be requested by the Borrower and consented to by the Lender so as to ensure that the Commitment Termination Date is the last day of an Interest Period) as the Borrower may, upon notice received by the Lender not later than 11:00 A.M. (New York City 7 time) on the third Business Day prior to the first day of such Interest Period, select or request; provided, however, that: (a) the Borrower may not select any Interest Period that ends after (A) any Scheduled Commitment Reduction Date, unless the aggregate outstanding principal amount of Advances which have Interest Periods which end or are deemed to end after such Scheduled Commitment Reduction Date will not exceed the aggregate amount of the Lender's Commitment on such Scheduled Commitment Reduction Date or (B) the Commitment Termination Date; (b) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; (c) whenever the first day of any Interest Period occurs on a day in a calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month; (d) any notice given by the Borrower selecting the duration of an Interest Period shall be irrevocable and, if the Borrower fails to select an Interest Period then, subject as provided herein, the Borrower shall be deemed to have selected an Interest Period of three (3) months; and (e) the Lender, in its sole and absolute discretion, is satisfied that deposits in Dollars for a period equal to such Interest Period will be available to the Lender in the London Interbank Market at the commencement of such Interest Period and, if the Lender is not so satisfied, such Interest Period shall be of such duration as the Lender and the Borrower shall agree (or, in the absence of such agreement, as the Lender shall specify). "ISM Code" means in relation to its application to each Guarantor, any relevant Approved Manager, each Vessel and its operation, the International Safety Management Code (including the guidelines on its implementation) adopted by the International Maritime Organization ("IMO") as Resolution A.741(18) and Resolution A.913(22) (superseding Resolution A.788(19)), as the same may be amended, supplemented or replaced from time to time (and the terms "safety management system", "Safety Management Certificate" and "Document of Compliance" have the meanings specified in the ISM Code). "ISPS Code" means in relation to its application to each Guarantor, any relevant Approved Manager, each Vessel and its operation, the International Ship and Port Facility Security Code constituted pursuant to resolution A.924(22) of the IMO adopted by a Diplomatic Conference of the IMO on Maritime Security on 13 December 2002 and now set out in Chapter XI-2 of the Safety of Life at Sea Convention (SOLAS) 1974 (as amended). "Kelso & Company" means, collectively, Kelso & Company, L.P., a Delaware limited partnership, and its Affiliates. 8 "Lender" has the meaning ascribed thereto in the recital hereof. "Lender's Account" means the account of the Lender maintained by the Lender with American Express Bank Limited, 3 World Financial Center, 23rd Floor, New York, New York 10285-2300, Account No. 00261123, SWIFT: AEIBUS33, or such other account as may from time to time be notified by the Lender to the Borrower. "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor. "Loan Documents" means this Agreement, the Master Agreement, the Cash Pooling Deeds, the Note and the Collateral Documents. "Mandatory Cost Rate" means the percentage rate which represents the cost to the Lender, relative to the Advances, of compliance with the requirements of the Bank of England, the Financial Services Authority or any other regulatory authority, as determined by the Lender in accordance with the formula detailed in Schedule I hereto. "Margin Stock" has the meaning specified in Regulation U of the Board of Governors of the Federal Reserve System and any successor regulations thereto, as in effect from time to time. "Master Agreement" means the Master Agreement (on the 1992 ISDA (Multicurrency-Cross Border) form as amended) dated as of June 28, 2005 between the Borrower and the Lender pursuant to which the Borrower and the Lender may enter into one or more interest rate swap transactions to hedge the Borrower's exposure under this Agreement to interest rate fluctuations and/or one or more forward foreign exchange transactions to hedge the Borrower's exposure in respect of any Shipbuilding Contract to currency exchange rate fluctuations and/or one or more forward freight transactions to hedge the Borrower's exposure in respect of ocean freight rate fluctuations and/or one or more forward bunker contracts to hedge the Borrower's exposure in respect of fluctuations in bunker fuel prices, and includes all transactions from time to time entered into and confirmations from time to time exchanged under such Master Agreement, and any amending, supplementing or replacement agreements made from time to time. "Master Agreement Security Deed" means the deed dated July 7, 2005 made by the Borrower in favor of the Lender containing, among other things, a charge in respect of the Master Agreement (as amended from time to time in accordance with its terms). "Material Adverse Effect" means, with respect to any Person, a material adverse effect upon (a) the condition (financial or otherwise), operations, assets or business of such Person and its Subsidiaries, taken as a whole, (b) the ability of such Person to perform any of its material obligations under any Loan Document to which it is a party, or (c) the material rights and remedies of the Lender under any Loan Document to which such Person is a party. "Memorandum of Agreement" means, in relation to an Additional Vessel, a memorandum of agreement executed by the owner of such Vessel, as seller, and a Guarantor, as buyer, providing for the purchase by such Guarantor of such Vessel (as amended from time to time in accordance with its terms). 9 "Mortgage" means each of the first preferred mortgages made or to be made by a Guarantor in favor of the Lender in respect of a Vessel and in substantially the form of Exhibit E, as the same may be amended in accordance with this Agreement (as amended from time to time in accordance with its terms). "Newbuilding" means any dry bulk carrier to be built which the Borrower notifies to the Lender pursuant to Section 2.02(a), the Newbuilding Predelivery Costs of which the Borrower wishes to finance with the assistance of one or more Advances, and which the Lender, in its sole and absolute discretion, shall notify to the Borrower as being acceptable to the Lender, in accordance with Section 2.02(a); and "Newbuildings" means, collectively, all such dry bulk carriers to be built and approved by the Lender in accordance with Section 2.02(a). "Newbuilding Advances" has the meaning specified in Section 2.01(c). "Newbuilding Predelivery Costs" means, collectively, (i) amounts payable by or for the account of a Guarantor to the relevant shipyard in respect of a Newbuilding prior to its delivery under the relevant Shipbuilding Contract, (ii) any other costs incurred by or for the account of a Guarantor for the construction of such Newbuilding, including supervision of such construction, (iii) the fee payable under Section 2.08(a), and (iv) interest accrued under this Agreement on any outstanding Newbuilding Advance relating to such Newbuilding. "Note" means the promissory note of the Borrower payable to the order of the Lender, in substantially the form of Exhibit B hereto, evidencing the aggregate indebtedness of the Borrower to the Lender resulting from the Advances made or to be made by the Lender. "Notice of Drawdown" has the meaning specified in Section 2.03(a). "Obligors" means, collectively, the Borrower and the Guarantors, and "Obligor" means any of them as the context may require. "Operating Accounts" means each of the accounts opened or to be opened in the name of a Guarantor with the Lender (or such other account with any other branch of the Lender or with a bank or financial institution other than the Lender (whether associated with the Lender or not) substituted therefor pursuant to this Agreement). "Other Taxes" has the meaning specified in Section 2.13(b). "Permitted Encumbrances" has the meaning specified in the Mortgages. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, limited liability company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "RBS LIBOR" means, for any Interest Period, the rate per annum at which deposits in Dollars in an amount approximately equal to the Advances (or any relevant portion thereof) are (or would have been) offered by the Lender to leading banks in the London Interbank Dollar Market at or about 11:00 a.m. (London time) on the second Business Day prior to the commencement of such Interest Period for a period equal to such Interest Period and for delivery on the first Business Day thereof. 10 "Refund Guarantees" means, in relation to a Newbuilding, the refund guarantees issued or to be issued by a refund guarantor from time to time in favor of a Guarantor in respect of the refund obligations of the relevant shipyard under the Shipbuilding Contract relating to such Newbuilding (as amended from time to time in accordance with its terms). "Relevant Interest Rate" means RBS LIBOR, or, in the case where a Transaction is to be, or has been entered into under the Master Agreement and the Borrower has not made an election pursuant to Section 2.06(d), TELERATE. "Relevant Percentage" means, in relation to (a) any Vessel that is sold or becomes the subject of an Event of Loss, or (b) any Newbuilding that is sold (whether by sale of such Newbuilding or the relevant Shipbuilding Contract), a fraction (expressed as a percentage, rounded up to the nearest tenth of a percent) where (i) the numerator is the Fair Market Value of the Vessel or Newbuilding sold or lost, and (ii) the denominator is the Security Value of all Vessels and Newbuildings (including the Vessel or Newbuilding sold or lost), in each case determined on the basis of the most recent valuation(s) delivered pursuant to Section 3.01(a)(xvi), 3.02(c)(v), 3.03(c)(iv) or 7.01(l)(ii). "Scheduled Commitment Reduction Date" means July 27, 2012 and each day every six (6) months thereafter until and including the Commitment Termination Date or, if any such day is not a Business Day, the next succeeding Business Day, provided that, if such succeeding Business Day would fall in the next following calendar month, the Scheduled Commitment Reduction Date shall be the immediately preceding Business Day. "Securities and Exchange Commission" shall mean the United States Securities and Exchange Commission or any other governmental authority of the United States of America at the time administrating the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, or the Securities Exchange Act of 1934, as amended. "Security Interest Deed" means the deed dated July 28, 2006 among the Borrower, the Initial Guarantors and the Lender containing, among other things, a charge in respect of the Designated Account of the Borrower with the Lender described therein (as amended or supplemented from time to time in accordance with its terms). "Security Value" means, in respect of any relevant date, the aggregate amount of (a) the Fair Market Value of all Newbuildings which have not been delivered, where the relevant Shipbuilding Contract for each such Newbuilding is then subject to an Assignment of Shipbuilding Contract and Refund Guarantee, and (b) the Fair Market Value of all Vessels then subject to a Mortgage and which have not become the subject of an Event of Loss (determined on the basis of the most recent valuation(s) for each Newbuilding and each Vessel in each case determined on the basis of the most recent valuation(s) delivered pursuant to Section 3.01(a)(xvi), 3.02(c)(v), 3.03(c)(iv) or 7.01(l)(ii). "Shipbuilding Contract" means, in relation to a Newbuilding, the shipbuilding contract entered into between the shipyard undertaking to build such Newbuilding and a Guarantor, as buyer, providing for the purchase by such Guarantor of such Newbuilding (as amended from time to time in accordance with its terms). "Solvent" means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such 11 Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Subsidiary" of any Person means any corporation, limited liability company, partnership, joint venture, trust or estate or other entity of which (or in which) more than 50% of (a) the voting stock or membership interests of such corporation or company, (b) the interest in the capital or profits of such partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Tangible Fixed Assets" means, in respect of an Accounting Period, the value (less depreciation computed in accordance with GAAP) on a consolidated basis of all tangible fixed assets of the Group as stated in the then most recent Accounting Information; provided that, for the purposes of determining compliance with the covenants set forth in Article VI, the amount of Tangible Fixed Assets attributable to the Vessels shall be equal to the aggregate market value of the Vessels (as determined by an independent London shipbroker acceptable to the Lender) rather than the value of the Vessels as stated in the then most recent Accounting Information. "Taxes" has the meaning specified in Section 2.13(a). "TELERATE" means, for any Interest Period: (a) the rate per annum equal to the offered quotation for deposits in Dollars for a period equal to, or as near as possible equal to, that Interest Period or other relevant period which appears on REUTERS BBA Page LIBOR 01 at or about 11:00 a.m. (London time) on the second Business Day prior to the commencement of that Interest Period or other period (and, for the purposes of this Agreement, "REUTERS BBA Page LIBOR 01" means the display designated as "REUTERS BBA Page LIBOR 01" on the Reuters Money News Service or such other page as may replace REUTERS BBA Page LIBOR 01 on that service for the purpose of displaying rates comparable to that rate or on such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for Dollars); or (b) if no rate is quoted on REUTERS BBA Page LIBOR 01, the rate per annum determined by the Lender to be the rate per annum which leading banks in the London Interbank Market offer for deposits in Dollars in the London Interbank Market at or about 11:00 a.m. (London time) on the second Business Day prior to the commencement of that Interest Period or other period for a period equal to that Interest Period or other period and for delivery on the first Business Day of it. "Total Assets" means, in respect of an Accounting Period, the aggregate of Current Assets and Tangible Fixed Assets. 12 "Transaction" has the meaning ascribed thereto in the introductory paragraph of the Master Agreement. "Vessels" means, collectively, the Delivered Vessels and the Additional Vessels, and everything belonging to each such vessel, and, in the case of each Additional Vessel, to be purchased by a Guarantor, and in each case registered or to be registered by such Guarantor in its ownership under the laws and flag of the Republic of the Marshall Islands, and "Vessel" means any of them as the context may require. "Working Capital Advances" has the meaning specified in Section 2.01(b). SECTION 1.02. Interpretation. When used in this Agreement, (i) the words "herein", "hereof" and "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any provision of this Agreement, and the words "Article", "Section", "Schedule" and "Exhibit" shall refer to Articles and Sections of, and Schedules and Exhibits to, this Agreement unless otherwise specified and (ii)whenever the context so requires, the neuter gender includes the masculine or feminine, the masculine gender includes the feminine, and the singular number includes the plural, and vice versa. SECTION 1.03. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.04. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Commitment. The Lender agrees, on the terms and conditions hereinafter set forth, to make available advances (each an "Advance") to the Borrower from time to time on any Business Day during the period from the Effective Date until the Commitment Termination Date (the "Commitment Period") in an aggregate amount not to exceed at any time an aggregate principal amount of $500,000,000 as follows: (a) Effective as of the Effective Date, all "Advances" outstanding under the Existing Credit Agreement shall automatically be deemed Advances made and outstanding hereunder; (b) Up to an aggregate principal amount of $15,000,000, in one or more Advances for working capital purposes (collectively, the "Working Capital Advances"); (c) Up to an aggregate principal amount of $50,000,000, in up to seven (7) Advances outstanding at any time, each of which shall be applied by the Borrower to assist a Guarantor to finance Newbuilding Predelivery Costs (collectively, the "Newbuilding Advances"); and (d) The balance of the Commitment, after deducting the aggregate principal amount of all Advances outstanding as of the date of any Notice of Drawdown, in one or more Advances, each of which shall be applied by the Borrower to assist a Guarantor to finance a portion of the purchase price of an Additional Vessel under the relevant Memorandum of Agreement or Shipbuilding Contract (collectively, the "Additional Vessel Advances"); 13 Provided, however, the amount of any Newbuilding Advance or Additional Vessel Advance shall be an amount which, together with all other Advances of the Commitment then outstanding, shall not exceed seventy-five percent (75%) of the Security Value as of the date of such Advance. Within the limits of the Commitment, and of Section 2.02, the Borrower may borrow under this Section 2.01, repay pursuant to Section 2.04 and reborrow under this Section 2.01. SECTION 2.02. Newbuildings; Additional Vessels. (a) Where the Borrower wishes to borrow a Newbuilding Advance, the Borrower shall notify the Lender (i) the general description and deadweight tonnage of the relevant dry bulk carrier to be built (which shall be between 25,000 and 85,000 deadweight tons), (ii) the identity of the shipyard, (iii) the identity of the Guarantor, (iv) the purchase price to be paid by such Guarantor in respect of such dry bulk carrier to be built, (v) the identity of the shipyard's refund guarantor, and (vi) such further information as the Lender may require. The Borrower shall also provide the Lender with a true and complete copy of the relevant Shipbuilding Contract and any Refund Guarantees for such dry bulk carrier to be built. The Lender shall, as soon as reasonably practical, notify the Borrower of the Lender's acceptance or rejection of such dry bulk carrier to be built for the purposes of an Advance, which acceptance or rejection shall be in the absolute discretion of the Lender. (b) Where the Borrower wishes to borrow an Additional Vessel Advance in relation to the proposed purchase of a vessel by a Guarantor, the Borrower shall notify the Lender (i) the name of such vessel (ii) the general description and deadweight tonnage (which shall be between 25,000 and 85,000 deadweight tons), (iii) the age of such vessel (which shall not be greater than ten years at the time of delivery to such Guarantor), (iv) the identity of the current owner, (v) the identity of the Guarantor, (vi) the purchase price of such vessel paid or to be paid by such Guarantor, and (vii) such further information as the Lender may require. If available, the Borrower shall also provide the Lender with a true and complete copy of the relevant Memorandum of Agreement or Shipbuilding Contract for such vessel. The Lender shall, as soon as reasonably practical, notify the Borrower of the Lender's acceptance or rejection of such vessel for the purposes of an Advance, which acceptance or rejection shall be in the absolute discretion of the Lender. SECTION 2.03. Drawdown. (a) Each Advance shall be made on notice given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the proposed Drawdown Date by the Borrower to the Lender. Each such notice of drawdown (a "Notice of Drawdown") shall be in writing, in substantially the form of Exhibit A hereto, specifying therein (i) the requested Drawdown Date, which shall be a Business Day during the Commitment Period, (ii) the aggregate principal amount of the Advance requested on such Drawdown Date, and if it is a Working Capital Advance, Newbuilding Advance or Additional Vessel Advance, (iii) the duration of the initial Interest Period applicable to such Advance, and (iv) the recipients (including payment instructions) of the proceeds of such Advance. Upon fulfillment of the applicable conditions set forth in Article III, the Lender will make such funds available to, or for the account of, the Borrower according to the payment instructions set forth in the Notice of Drawdown. Each Additional Vessel Advance shall be $5,000,000 or an integral multiple of $1,000,000 in excess thereof, each Working Capital Advance shall be $1,000,000 or an integral multiple thereof, and each Newbuilding Advance shall be $100,000 or an integral multiple thereof. (b) Each Notice of Drawdown shall be irrevocable and binding on the Borrower. The Borrower shall indemnify the Lender against any loss, cost or expense incurred by the Lender as a result of any failure to fulfill on or before the Drawdown Date specified in any Notice of Drawdown 14 the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lender to fund the Advance to be made by the Lender on such Drawdown Date when such Advance, as a result of such failure, is not made on such date. SECTION 2.04. Repayment. (a) On any day on which the aggregate principal amount of the Advances exceeds the aggregate amount of the Lender's Commitment, the Borrower shall repay the principal amount of Advances in an amount equal to such excess. (b) Concurrently with the delivery of a Newbuilding by the relevant shipyard to the relevant Guarantor in accordance with the relevant Shipbuilding Contract, the Borrower shall repay in full each outstanding Newbuilding Advance relating to such Newbuilding. (c) The Borrower shall repay in full all outstanding Advances immediately upon the occurrence of a Change of Control. (d) In addition to, and without limitation of, the provisions of Section 7.01(l), on (i) the date of completion of any sale of a Newbuilding or the relevant Shipbuilding Contract by the relevant Guarantor, (ii) the date of any transfer of title of a Vessel by the relevant Guarantor, and (iii) the earlier of (A) the date which is one hundred fifty (150) days following an Event of Loss of a Vessel, and (B) the date of receipt by the relevant Guarantor, the Borrower or the Lender of the insurance proceeds relating to such Event of Loss, the Borrower shall repay the Advances in an amount equal to the Relevant Percentage of the Advances outstanding immediately prior to such sale or Event of Loss. (e) The Borrower may, upon not less than fourteen (14) Business Days' notice to the Lender identifying the Advance to be prepaid in whole or in part and stating the proposed date and aggregate principal amount of such prepayment (which notice shall be irrevocable), and if such notice is given the Borrower shall, prepay the outstanding principal amount of such Advance in whole or in part; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $5,000,000 or an integral multiple of $5,000,000 in excess thereof (or, if the aggregate outstanding principal amount of such Advance is less, such aggregate principal amount). (f) Anything contained in this Agreement to the contrary notwithstanding, all then outstanding Advances shall be repaid on the Commitment Termination Date. (g) With respect to each repayment of Advances required by this Section 2.04, the Borrower may designate the specific Advance or Advances pursuant to which a repayment is made, provided that all Advances with Interest Periods ending on such date of required repayment shall be paid in full prior to the payment of any other Advances. In the absence of a designation by the Borrower as described in the preceding sentence, the Lender shall, subject to the preceding provisions of this subsection (g), make such designation in its sole reasonable discretion with a view, but no obligation, to minimize breakage costs owing pursuant to Section 9.04(b). (h) Each such repayment of any Advance or relevant part thereof shall be accompanied by accrued interest to the date of such prepayment on the principal amount so repaid plus any amount payable pursuant to Section 9.04(b). 15 SECTION 2.05. Reduction of Commitment. (a) On each Scheduled Commitment Reduction Date prior to the Commitment Termination Date, the Lender's Commitment shall be reduced by an amount equal to $28,750,000, and the Lender's Commitment shall be reduced to nil on the Commitment Termination Date. (b) The Commitment shall be cancelled in full immediately upon the occurrence of a Change of Control. (c) The Borrower may, upon not less than five (5) Business Days' notice to the Lender, terminate in whole or reduce in part the unused portion of the Commitment; provided, however, that each partial reduction of the Commitment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $5,000,000 in excess thereof. SECTION 2.06. Interest. (a) Ordinary Interest. Subject to subsection (c) of this Section 2.06, the Borrower shall pay interest on the aggregate unpaid principal amount of each Advance from the relevant Drawdown Date until such principal amount shall be paid in full, at a rate per annum equal at all times during each Interest Period for such Advance to the sum of (i) the Relevant Interest Rate for such Interest Period plus (ii) the Applicable Margin in effect from time to time, plus (iii) the Mandatory Cost Rate in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three (3) months, on each day that occurs during such Interest Period every three (3) months from the first day of such Interest Period. (b) Default Interest. The Borrower shall pay on demand interest on the unpaid principal amount of each Advance and on the unpaid amount of all interest, fees and other amounts then due and payable hereunder that is not paid when due from the due date thereof to the date paid, at a rate per annum equal at such time to two percent (2%) per annum above the rate per annum required to be paid on such Advance pursuant to clause (a) above. (c) Interest Upon Default. Upon the occurrence and during the continuance of any Event of Default (or, in the case of any involuntary proceeding described in Section 8.01(f), a Default), the Borrower shall pay interest on the aggregate unpaid principal amount of each Advance from the date of the occurrence of such Event of Default or Default, as the case may be, until such Event of Default or Default, as the case may be, shall have been cured or waived, at a rate per annum equal to two percent (2%) per annum above the rate per annum required to be paid on such Advance pursuant to clause (a) above. (d) Interest Rate when Transactions under Master Agreement. If a Transaction is to be entered into under the Master Agreement to hedge the Borrower's exposure under this Agreement to interest rate fluctuations, the Relevant Interest Rate for each Interest Period applicable to any Advance the subject of the Transaction (commencing with the first Interest Period relating to such Transaction) shall be TELERATE unless the Borrower, by giving written notice (which shall be irrevocable) to the Lender not later than 11.00 A.M. (New York City time) three Business Days before the commencement of such first Interest Period, elects that the Relevant Interest Rate shall be RBS LIBOR rather than TELERATE. SECTION 2.07. Interest Rate Determination. (a) The Lender shall calculate in relation to each Accounting Period the ratio (expressed as a percentage) (the "Advance Ratio") of (i) the aggregate amount of Advances outstanding on the first day of such Accounting Period, to (ii) the Security Value on the first day of such Accounting Period, determined on the basis of valuations delivered to the 16 Lender pursuant to Section 7.01(l)(ii) not more than twenty-one (21) days prior to the first day of such Accounting Period; provided, however, if valuations are not timely delivered for such purpose, then the Security Value for such Accounting Period shall be deemed to be $1.00; and provided further, however, that the Advance Ratio for the Accounting Period in which the Effective Date falls shall be calculated on the basis of the aggregate amount of Advances outstanding on the Effective Date and the valuation(s) delivered pursuant to Section 3.01(a)(xvi). (b) The Lender shall give prompt notice to the Borrower of the applicable interest rate determined by the Lender for purposes of Section 2.06(a). SECTION 2.08. Fees. (a) The Borrower agrees to pay to the Lender a non-refundable arrangement fee of $250,000 on the date hereof. (b) The Borrower agrees to pay to the Lender a commitment fee on the unused portion of the Lender's Commitment from the Effective Date until the Commitment Termination Date, calculated on a 360 day year basis, at a rate per annum equal to 0.25%, payable quarterly in arrears. SECTION 2.09. Master Agreement. (a) If for any reason any Advance is not drawn down under this Agreement but nonetheless a Transaction has been entered into under the Master Agreement to hedge the Borrower's exposure under this Agreement to interest rate fluctuations in relation thereto then, subject to Section 2.09(c), the Lender shall be entitled but not obliged to amend, supplement, cancel, net out, terminate, liquidate, transfer or assign all or any part of the rights, benefits and obligations created by the Master Agreement and/or to obtain or re-establish any hedge or related trading position in any manner and with any Person the Lender in its absolute discretion decides, and in the event of the Lender exercising any part of its entitlement aforesaid the Borrower's continuing obligations under the Master Agreement shall, unless agreed otherwise by the Lender, be calculated so far as the Lender considers it practicable by reference to the reduction schedule for the Commitment taking into account the fact that such Advance has not been advanced. (b) In the case of repayment of all or part of any Advance under this Agreement or a reduction of the Commitment (whether scheduled or not) then, subject to Section 2.09(c), the Lender shall be entitled but not obliged to amend, supplement, cancel, net out, transfer or assign all or such part of the rights, benefits and obligations created by the Master Agreement which equate or relate to the Advance so repaid or prepaid or the part of the Commitment so reduced and/or to obtain or re-establish any hedge or related trading position in any manner and with any person the Lender in its absolute discretion decides, and in the case of such repayment or a partial prepayment or reduction of part of the Commitment and the Lender exercising any part of its entitlement as aforesaid the Borrower's continuing obligations under the Master Agreement shall, unless agreed otherwise by the Lender, be calculated so far as the Lender considers it practicable by reference to the reduction schedule (as it may be amended) for the Commitment taking account of the fact that more or less than the originally scheduled amount of the Commitment remains outstanding. (c) If either (i) less than the full amount of any Advance is drawn down under this Agreement, or (ii) more or less than the originally scheduled amount of the Commitment remains outstanding following a repayment or a reduction of the Commitment under this Agreement, and the Lender in its absolute discretion agrees, following a written request of the Borrower, that the Borrower may be permitted to maintain all or part of a Transaction in an amount not wholly matched with or linked to all or part of an Advance, the Borrower shall within ten (10) days of being notified by the Lender of such requirement provide the Lender with, or procure the provision to the Lender 17 of, such additional security as shall in the opinion of the Lender acting reasonably be adequate to secure the performance of such Transaction, which additional security shall take such form, be constituted by such documentation, and be entered into between such parties, as the Lender in its absolute discretion may approve or require, and each document comprising such additional security shall constitute a Credit Support Document (as defined in Section 14 of the Master Agreement). (d) The Borrower shall on the first written demand of the Lender indemnify the Lender in respect of all loss, cost and expense (including the fees of legal advisers) incurred or sustained by the Lender as a consequence of or in relation to the effecting of any matters or transactions referred to in this Section 2.09. (e) Without prejudice to or limitation of the obligation of the Borrower under Section 2.09(d), in the event that the Lender exercises any of its rights under Section 2.09(a) or (b) and such exercise results in all or part of a Transaction being terminated, such termination shall be treated under the Master Agreement in the same manner as if it were a Terminated Transaction (as defined in Section 14 of the Master Agreement) effected by the Lender after an Event of Default by the Borrower and, accordingly, the Lender shall be permitted to recover from the Borrower payment for early termination calculated in accordance with the provisions of Section 6(e)(i) of the Master Agreement. SECTION 2.10. Increased Costs. (a) If, due to either (i) the introduction of or any change (other than any change in the Mandatory Cost Rate) in or in the interpretation of any law or regulation or (ii) the compliance by the Lender with any guideline or request from any central bank or other governmental authority in any case introduced, changed, interpreted or requested after the date hereof (whether or not having the force of law), there shall be (x) imposed, modified or deemed applicable any reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, the Lender or (y) imposed on the Lender any other condition relating to this Agreement or the Advances, and the result of any event referred to in clause (x) or (y) shall be to increase the cost to the Lender of agreeing to make or making, funding or maintaining the Advances, then the Borrower shall from time to time, upon demand by the Lender, pay to the Lender additional amounts sufficient to compensate the Lender for such increased cost; provided, however, that, before making any such demand, the Lender agrees to use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different lending office for making and maintaining the Advances if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of the Lender, be otherwise disadvantageous to the Lender. A certificate as to the amount of such increased cost, submitted to the Borrower by the Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If the Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental or monetary authority in regard to capital adequacy (whether or not having the force of law), in any case in which such law, regulation, guideline or request became effective or was made after the date hereof, has or would have the effect of reducing the rate of return on the capital of, or maintained by, the Lender or any corporation controlling the Lender as a consequence of the Lender's Commitment or the Advances hereunder and other commitments of such type, by increasing the amount of capital required or expected to be maintained by the Lender or any corporation controlling the Lender, to a level below that which the Lender or any corporation controlling the Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into account the Lender's or such corporation's policies with respect to capital adequacy) then the Borrower shall, from time to time, pay the Lender, upon demand by the Lender, 18 such additional amount as may be specified by the Lender as being sufficient to compensate the Lender for such reduction in return, to the extent that the Lender reasonably determines such reduction to be attributable to the existence of the Lender's commitment to lend hereunder; provided however, that before making such demand, the Lender agrees to use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to enter into consultations with the Borrower in good faith and without prejudice to the rights of the Lender under this Agreement and the other Loan Documents with regard to the impact of such law, regulation, guideline or request and the amount of compensation required by the Lender as aforesaid. A certificate as to such amounts submitted to the Borrower by the Lender shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.11. Illegality. Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Lender to perform its obligations hereunder to make the Advances or to fund or maintain the Advances or any portion thereof hereunder, then, upon written notice by the Lender to the Borrower, the Lender and the Borrower shall negotiate in good faith to agree on terms for the Lender to continue the Advances or any portion thereof on a basis which is not unlawful. If no agreement shall be reached between the Borrower and the Lender within a period which in the sole discretion of the Lender is reasonable, the Lender shall be entitled to give notice to the Borrower that the obligation of the Lender to make or maintain the Advances or any portion thereof shall be forthwith terminated and the amount of the Lender's Commitment shall be reduced accordingly, and thereupon the aggregate outstanding principal amount of the Advances or any relevant portion thereof shall become due and payable in full, together with accrued interest thereon and other sums payable hereunder, and such amounts as the Borrower shall be obligated to reimburse the Lender pursuant to Section 9.04(b) if earlier prepayment is required by any law, regulation and/or regulatory requirement; provided, however, that, before making any such demand, the Lender shall designate a different lending office for monitoring the Advances if the making of such a designation would avoid the need for giving such notice and demand and would not, in the judgment of the Lender, be otherwise disadvantageous to the Lender. SECTION 2.12. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Note not later than 11:00 A.M. (New York City time) on the day when due in Dollars to the Lender at the Lender's Account in same day funds. Partial payments of overdue amounts in respect of fees, expenses, interest and/or principal shall (unless specifically provided for elsewhere herein or in any other Loan Document) be applied to the payment of such overdue fees, expenses, interest and/or principal, as the case may be, in such order as the Lender may determine. (b) The Borrower hereby authorizes the Lender, if and to the extent payment of principal, interest or fees owed to the Lender is not made when due hereunder or under the Note, to charge from time to time against any or all of the accounts of the Borrower with the Lender any amount so due. (c) All computations of interest shall be made by the Lender, on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Each determination by the Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, if such extension would cause payment of 19 interest on or principal of the Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. SECTION 2.13. Taxes. (a) All payments by the Borrower of principal of, and interest on, the Advances, the Note and all other amounts payable by the Borrower hereunder shall be made free and clear of, and without deduction or withholding for or on account of any present or future income or franchise taxes and other taxes, fees, levies, duties, withholdings or other charges of any nature whatsoever now or hereafter imposed, withheld, collected or assessed by any taxing authority, but excluding (such non-excluded items being called "Taxes"), in the case of the Lender, (i) net income, capital, doing business, and franchise taxes imposed on the Lender by the jurisdiction under the laws of which the Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which the Lender's lending office with respect to this Agreement is located, as the case may be, or any political subdivision or taxing authority thereof or therein; and (ii) any taxes, fees, levies, duties, withholdings or other charges that would not have been imposed but for the failure of the Lender to comply with any certification, identification or other similar requirement with which the Lender is in its reasonable judgment eligible to comply, to establish entitlement to exemption from such tax. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Note to the Lender, (i) the sum payable shall be increased as may be necessary so that after making all required deductions of Taxes (including deductions of Taxes applicable to additional sums payable under this Section 2.13) the Lender receives an amount equal to the sum it would have received had no such deductions of Taxes been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law; provided, however, that the Lender shall designate a different lending office for making or maintaining the Advances if, in the judgment of the Lender, such designation would avoid the need for, or reduce the amount of, any Taxes required to be deducted from or in respect of any sum payable hereunder to the Lender and would not, in the judgment of the Lender, be otherwise disadvantageous to the Lender. (b) In addition, the Borrower agree to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Note or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the Note (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify the Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.13) paid by the Lender and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 45 days from the date the Lender makes written demand therefor. (d) Within 30 days (or as soon thereafter as available) after the date of any payment of Taxes under this Section 2.13, the Borrower will furnish to the Lender, at its address referred to in Section 9.02, appropriate evidence of payment thereof. (e) The Lender shall, on or prior to the Effective Date and from time to time thereafter if requested in writing by the Borrower (but only so long as the Lender is and remains lawfully able to do so), provide the Borrower with two duly completed copies of Internal Revenue Service Form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that the Lender is entitled to benefits under an income tax treaty to which the United States is a party that reduces the rate of withholding tax on payments under this Agreement or the Note or 20 certifying that the income receivable pursuant to this Agreement or the Note is effectively connected with the conduct of a trade or business in the United States. (f) For any period with respect to which the Lender has failed to provide the Borrower with the appropriate forms described in subsection (e) above (other than if such failure is due to a change in law occurring after the date on which the Lender was originally required to provide such forms, or if such forms are otherwise not required under subsection (e) above), the Lender shall not be entitled to increased payments or indemnification under subsection (a) or (c) above with respect to Taxes imposed by the United States; provided, however, that should the Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes if, in the judgment of the Borrower such steps would avoid the need for, or reduce the amount of, any Taxes required to be deducted from or in respect of any sum payable hereunder to the Lender and would not, in the judgment of the Borrower, be disadvantageous to the Borrower. (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.13 shall survive the payment in full of principal and interest hereunder and under the Note. ARTICLE III CONDITIONS OF EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness. The amendment and restatement of the Existing Credit Agreement pursuant hereto shall become effective on and as of the first date (the "Effective Date") not later than December 29, 2006 on which all the following conditions precedent shall have been satisfied (or waived in writing by the Lender): (a) the Lender shall have received, in form and substance satisfactory to the Lender (unless otherwise specified): (i) certified copies of the resolutions of the board of directors of the Borrower approving (for itself and as sole member of each Initial Guarantor) this Agreement and each other document contemplated hereby to which any Obligor is or is to be a party, and of all documents evidencing other necessary corporate or company action and governmental approvals of each Obligor, if any, with respect to this Agreement and other documents to which it is or is to be a party; (ii) a certificate of an officer of the Borrower (for itself and as sole member of each Initial Guarantor, as the case may be) certifying the names and true signatures of the respective officers and attorneys-in-fact of each Obligor authorized to sign this Agreement and each other document contemplated thereby to which it is or is to be a party; (iii) a copy of the articles of incorporation and by-laws, or certificate of formation and limited liability company agreement, as the case may be, of each Obligor and each amendment thereto, certified (as of a date reasonably near the Effective Date) by an officer of the Borrower (for itself or as sole member of each Initial Guarantor, as the case may be) as being a true and correct copy thereof; 21 (iv) a copy of a certificate of goodstanding of each Obligor dated as of a date reasonably near the Effective Date, certifying that such Obligor is duly formed and in good standing under the laws of its jurisdiction of incorporation; (v) a written confirmation from the Borrower as to which individuals are authorized to give verbal and/or written instructions to the Lender on behalf of the Borrower in respect of the selection of any Interest Period pursuant to this Agreement; (vi) a certificate of an officer of the Borrower (for itself and as sole member of each Guarantor), dated as of the Effective Date (the statements made in such certificate shall be true on and as of the Effective Date), certifying as to (A) the veracity of the representations and warranties of the Obligors contained in this Agreement mutatis mutandis on and as of the Effective Date, unless such representation or warranty shall expressly relate to a different date, and (B) the absence of any event occurring and continuing that constitutes a Default; (vii) a satisfactory review by the Lender's counsel of the equity structure of the Borrower, including confirmation that the rights of equity holders of the Borrower shall be legally or effectively subordinated to the right of the Lender to payment of any and all amounts due to the Lender under this Agreement, the Note and the Security Documents; (viii) the Note evidencing the Advances dated the date of the Effective Date, duly executed by the Borrower to the order of the Lender; (ix) an amendment to each Mortgage relating to a Delivered Vessel, duly executed by the relevant Initial Guarantor; (x) evidence of insurance in respect of each of the Delivered Vessels naming the Lender as loss payee and, if required by the Lender, as co-assured with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is required pursuant to the relevant Mortgages; (xi) a favorable opinion from an independent insurance consultant acceptable to the Lender on such matters relating to the insurances for each of the Delivered Vessels as the Lender may require; (xii) a Certificate of Ownership and Encumbrance issued by the maritime administrator for the Marshall Islands (or other relevant authority) stating that each of the Delivered Vessels is owned by the relevant Initial Guarantor and that there are on record no Liens on such Delivered Vessel except the relevant Mortgage as amended in accordance herewith; (xiii) evidence of the completion of all other recordings and filings of, or with respect to, the Collateral Documents executed in connection with the making of the first Advance that the Lender may deem necessary or desirable in order to perfect and protect the Liens created thereby, including under the Uniform Commercial Code of New York (or such other jurisdiction where the relevant Initial Guarantor and/or any Collateral may be located); 22 (xiv) a copy of a certificate duly issued by the Classification Society, dated within seven (7) days of the Effective Date, to the effect that each of the Delivered Vessels has received the highest classification and rating for vessels of the same age and type, free of all recommendations and notations of the Classification Society affecting class; (xv) evidence that each of the Delivered Vessels will, as from the Effective Date, be managed by an Approved Manager on terms acceptable to the Lender, together with copies of the Document of Compliance and Safety Management Certificate issued pursuant to the ISM Code in respect of such Delivered Vessel; (xvi) one or more valuation(s), each dated no more than twenty one (21) days prior to the date of delivery to the Lender, addressed to the Lender (at the expense of the Borrower) by an Approved Broker indicating the Fair Market Value of each of the Delivered Vessels; (xvii) such other certificates relating any of the Delivered Vessels, or the operation thereof, as may be reasonably requested by the Lender; (xviii) a favorable opinion of Messrs. Seward & Kissel LLP, counsel for the Obligors, in respect of the Loan Documents executed on or before the Effective Date and as to such other matters as the Lender may reasonably request addressed to the Lender in form and substance satisfactory to the Lender; (xix) a favorable opinion of Watson, Farley & Williams, counsel for the Lender, addressed to the Lender and in form and substance satisfactory to the Lender; and (xx) such documents and evidence as the Lender shall require, based on applicable law and regulations and the Lender's own internal guidelines, relating to the Lender's knowledge of its customers. (b) The Obligors shall have paid all accrued and unpaid fees of the Lender under the Existing Credit Agreement. (c) The Obligors shall have paid all accrued and unpaid fees of the Lender in connection herewith which are payable on or prior to the Effective Date. SECTION 3.02. Conditions Precedent to Each Newbuilding Advance . The obligation of the Lender to make an Advance in relation to any Newbuilding is subject to the following conditions precedent having been satisfied (or waived in writing by the Lender) on or prior to the relevant Drawdown Date (for purposes of this Section 3.02, "relevant Advance" means, in relation to a Newbuilding, the Advance to be used to assist in financing Newbuilding Predelivery Costs relating to such Newbuilding, "relevant Newbuilding" refers to the Newbuilding to which such Newbuilding Predelivery Costs relate, and "relevant Guarantor" refers to the Guarantor party to the Shipbuilding Contract respecting the relevant Newbuilding): (a) the amount of the relevant Advance shall not exceed the Newbuilding Predelivery Costs accrued in relation to the relevant Newbuilding; (b) the amount of the relevant Advance shall not exceed the amount permitted for such Advance under Section 2.01; 23 (c) the Lender shall have received on or before the relevant Drawdown Date the following, each dated as of such Drawdown Date (unless otherwise specified), in form and substance satisfactory to the Lender (unless otherwise specified): (i) if the relevant Guarantor is an Additional Guarantor, a Credit Agreement Supplement duly executed by such Additional Guarantor; (ii) if the relevant Guarantor is an Additional Guarantor, documentation respecting such Additional Guarantor specified mutatis mutandis in Section 3.01(a)(i), (ii), (iii) and (iv); (iii) a copy of the Shipbuilding Contract (together with all amendments and addenda thereto) for the relevant Newbuilding, duly executed by the relevant Guarantor and the relevant shipyard, together with evidence of any address or similar commission arrangements, all of which shall be on terms acceptable to the Lender (certified by an officer of the Borrower to be a true, correct and complete copy thereof); (iv) an original counterpart of each Refund Guarantee (together with all amendments and addenda thereto) issued in relation to the relevant Newbuilding, duly executed by the relevant refund guarantor; (v) one or more valuation(s), each dated no more than twenty one (21) days prior to the date of delivery to the Lender, addressed to the Lender (at the expense of the Borrower) by an Approved Broker indicating the Fair Market Value of each of the Vessels, the Newbuildings and the relevant Newbuilding; (vi) such evidence as the Lender and its counsel shall require in relation to the due authorization and execution by the relevant shipyard and refund guarantor of the Shipbuilding Contract and Refund Guarantees, respectively, relating to the relevant Newbuilding; (vii) if the relevant Guarantor is an Additional Guarantor, evidence that the relevant Guarantor has duly opened an Operating Account and has delivered to the Lender all resolutions, signature cards and other documents or evidence required in connection with the opening, maintenance and operation of such Operating Account; (viii) if the relevant Guarantor is an Additional Guarantor, an Account Charge and a Cash Pooling Deed relating to the Operating Account of such Additional Guarantor, duly executed by such Additional Guarantor; (ix) an Assignment of Shipbuilding Contract and Refund Guarantee relating to the Shipbuilding Contract and Refund Guarantees relating to the relevant Newbuilding, duly executed by the relevant Guarantor, and acknowledged and agreed to by the relevant shipyard and refund guarantor; (x) evidence of the completion of all other recordings and filings of, or with respect to, the Collateral Documents executed in connection with the making of the relevant Advance that the Lender may deem necessary or desirable in order to perfect and protect the Liens created thereby, including under the Uniform Commercial Code of New York (or such other jurisdiction where the relevant Guarantor and/or any Collateral may be located); 24 (xi) a favorable opinion of Messrs. Seward & Kissel LLP, counsel for the Obligors, in respect of the Loan Documents executed in connection with the advance of the relevant Advance and as to such other matters as the Lender may reasonably request addressed to the Lender in form and substance satisfactory to the Lender; and (xxii) a favorable opinion of Watson, Farley & Williams, counsel for the Lender, addressed to the Lender and in form and substance satisfactory to the Lender. SECTION 3.03. Conditions Precedent to Each Additional Vessel Advance. The obligation of the Lender to make an Advance in relation to any Additional Vessel is subject to the following conditions precedent having been satisfied (or waived in writing by the Lender) on or prior to the relevant Drawdown Date (for purposes of this Section 3.03, "relevant Advance" means, in relation to an Additional Vessel, the Advance to be used to assist in financing such Vessel, "relevant Vessel" refers to the Additional Vessel to be financed by the relevant Advance, and "relevant Guarantor" refers to the Guarantor acquiring the relevant Vessel): (a) the amount of the relevant Advance shall not exceed the purchase price of such Vessel under the Memorandum of Agreement or Shipbuilding Contract for such Vessel and, if the relevant Vessel is a Newbuilding, the Newbuilding Advances made in respect of such Newbuilding shall have been repaid; (b) the amount of the relevant Advance shall not exceed the amount permitted for such Advance under Section 2.01; (c) the Lender shall have received on or before the relevant Drawdown Date the following, each dated as of such Drawdown Date (unless otherwise specified), in form and substance satisfactory to the Lender (unless otherwise specified): (i) if the relevant Guarantor is an Additional Guarantor, a Credit Agreement Supplement duly executed by such Additional Guarantor; (ii) if the relevant Guarantor is an Additional Guarantor, documentation respecting such Additional Guarantor specified mutatis mutandis in Section 3.01(a)(i), (ii), (iii) and (iv); (iii) a copy of the Memorandum of Agreement or Shipbuilding Contract (together with all amendments and addenda thereto) for such Additional Vessel, duly executed by the relevant Guarantor and the relevant seller or shipyard, together with evidence of any address or similar commission arrangements, all of which shall be on terms acceptable to the Lender (certified by an officer of the Borrower to be a true, correct and complete copy thereof); (iv) one or more valuation(s), each dated no more than twenty one (21) days prior to the date of delivery to the Lender, addressed to the Lender (at the expense of the Borrower) by an Approved Broker indicating the Fair Market Value of each of the Vessels, the Newbuildings and the relevant Vessel; (v) such evidence as the Lender and its counsel shall require in relation to the due authorization and execution by the relevant seller or shipyard of the Memorandum of Agreement or Shipbuilding Contract, as the case may be, relating to the relevant Vessel and all documents to be executed by the relevant seller or shipyard pursuant thereto; (vi) evidence that (i) the relevant Vessel has been unconditionally delivered by the relevant seller or shipyard to the relevant Guarantor in accordance with all the terms of the relevant Memorandum of 25 Agreement or Shipbuilding Contract, as the case may be, warranted free and clear of all Liens, (ii) the relevant seller or shipyard shall have been paid in full under the terms of the relevant Memorandum of Agreement or Shipbuilding Contract, as the case may be; and (iii) the relevant Vessel has been duly registered in the ownership of the relevant Guarantor under the laws and flag of the Republic of the Marshall Islands; (vii) if the relevant Guarantor is an Additional Guarantor, evidence that the relevant Guarantor has duly opened an Operating Account and has delivered to the Lender all resolutions, signature cards and other documents or evidence required in connection with the opening, maintenance and operation of such Operating Account; (viii) if the relevant Guarantor is an Additional Guarantor, an Account Charge and a Cash Pooling Deed relating to the Operating Account of such Additional Guarantor, duly executed by such Additional Guarantor; (ix) a Mortgage relating to the relevant Vessel, duly executed by the relevant Guarantor; (x) an Assignment of Earnings relating to the relevant Vessel, duly executed by the relevant Guarantor; (xi) an Assignment of Insurances relating to the relevant Vessel, duly executed by the relevant Guarantor, together with a signed Notice of Assignment, substantially in the form attached thereto; (xii) an Approved Manager's Undertakings relating to the relevant Vessel, duly executed by each Approved Manager of the relevant Vessel; (xiii) evidence of insurance in respect of the relevant Vessel naming the Lender as loss payee and, if required by the Lender, as co-assured with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is required pursuant to the relevant Mortgage; (xiv) a favorable opinion from an independent insurance consultant acceptable to the Lender on such matters relating to the insurances for the relevant Vessel as the Lender may require; (xv) a Certificate of Ownership and Encumbrance issued by the maritime administrator for the Marshall Islands (or other relevant authority) stating that the relevant Vessel is owned by the relevant Guarantor and that there are on record no Liens on such Vessel except the relevant Mortgage; (xvi) evidence of the completion of all other recordings and filings of, or with respect to, the Collateral Documents executed in connection with the making of the relevant Advance that the Lender may deem necessary or desirable in order to perfect and protect the 26 Liens created thereby, including under the Uniform Commercial Code of New York (or such other jurisdiction where the relevant Guarantor and/or any Collateral may be located); (xvii) a copy of a certificate duly issued by the Classification Society, dated within seven (7) days of the relevant Drawdown Date, to the effect that the relevant Vessel has received the highest classification and rating for vessels of the same age and type, free of all recommendations and notations of the Classification Society affecting class; (xviii) evidence that the relevant Vessel will, as from the relevant Drawdown Date, be managed by an Approved Manager on terms acceptable to the Lender, together with copies of the Document of Compliance and Safety Management Certificate issued pursuant to the ISM Code in respect of the relevant Vessel; (xix) a copy of any charter to which the relevant Vessel is subject as of the relevant Drawdown Date; (xx) such other certificates relating to the relevant Vessel, or the operation thereof, as may be reasonably requested by the Lender; (xxi) a favorable opinion of Messrs. Seward & Kissel LLP, counsel for the Obligors, in respect of the Loan Documents executed in connection with the advance of the relevant Advance and as to such other matters as the Lender may reasonably request addressed to the Lender in form and substance satisfactory to the Lender; and (xxii) a favorable opinion of Watson, Farley & Williams, counsel for the Lender, addressed to the Lender and in form and substance satisfactory to the Lender. SECTION 3.04. Conditions Precedent to Each Advance. The obligation of the Lender to make each Advance is subject to the following conditions precedent having been satisfied (or waived in writing by the Lender) on or prior to the relevant Drawdown Date: (a) the Lender shall have received a Notice of Drawdown as required by Section 2.03(a); (b) the Borrower shall have paid the fees due pursuant to Section 2.08 and any other fees payable pursuant hereto; (c) immediately after the making of the relevant Advance, (i) the aggregate outstanding principal amount of Working Capital Advances will not exceed $15,000,000, (ii) the aggregate outstanding principal amount of Newbuilding Advances will not exceed $50,000,000, and (iii) the aggregate outstanding principal amount of all Advances will not exceed the Commitment; (d) evidence that, if the test set out in Section 7.01(l)(i) were applied immediately following the making of the relevant Advance, the Borrower would not be obliged to provide additional security or repay part of the Advances as therein provided (determined on the basis of the most recent valuation for each Vessel and Newbuilding delivered pursuant to Section 3.02(c)(v) or Section 3.03(c)(iv), as the case may be); (e) immediately after the making of the relevant Advance, no Default or Event of Default shall have occurred and be continuing; 27 (f) the representations and warranties of the Obligors contained in this Agreement shall be true mutatis mutandis on and as of the date of the relevant Advance, unless such representation or warranty shall expressly relate to a different date; (g) the Lender shall have received on or before the relevant Drawdown Date the following, each dated as of such Drawdown Date (unless otherwise specified), in form and substance satisfactory to the Lender (unless otherwise specified): (i) a certificate of an officer of the Borrower (for itself and as sole member of each Guarantor), dated as of the relevant Drawdown Date (the statements made in such certificate shall be true on and as of such Drawdown Date), certifying as to (A) the absence of any amendments to the articles of incorporation and by-laws, or certificate of formation and limited liability company agreement of each Obligor certified to the Lender pursuant to Sections 3.01(a)(iii), 3.02(c)(ii) or 3.03(c)(ii), above, (B) the due incorporation or formation, as the case may be, and good standing of each Obligor, as a corporation or limited liability company formed under the laws of the Republic of The Marshall Islands and the absence of any proceeding for the dissolution or liquidation of such Obligor, (C) the veracity of the representations and warranties of the Obligors contained in this Agreement mutatis mutandis on and as of the date of the relevant Advance, unless such representation or warranty shall expressly relate to a different date, and (D) the absence of any event occurring and continuing, or resulting from the making of the relevant Advance that constitutes a Default; (ii) a duly signed and completed Compliance Certificate confirming that the Borrower shall be in compliance with the provisions of Article VI immediately after the making of the relevant Advance; (iii) the original of any power of attorney issued in favor of any Person executing any Loan Document (or any other document delivered pursuant to a Loan Document) on behalf of any Obligor in relation to the relevant Advance; (iv) true and complete copies of any governmental or regulatory consents, filings, registrations, approvals and waivers required in connection with the execution, delivery and performance of (A) each Loan Document executed in relation to the relevant Advance, and (B) the consummation of the transactions contemplated thereby; (v) if applicable, the relevant confirmation exchanged under the Master Agreement and which evidences a Transaction entered into between the Borrower and the Lender in connection with the relevant Advance, and any mandates required in connection therewith; and (vi) such opinions, consents, agreements and documents in connection with this Agreement, the Master Agreement and the Collateral Documents as the Lender may reasonably request by notice to the Borrower prior to the relevant Drawdown Date; and (h) to the extent required by any change in applicable law and regulation or any changes in the Lender's own internal guidelines since the date on which the applicable documents and evidence were delivered to the Lender pursuant to Section 3.01(a)(xx), such further documents and evidence as the Lender shall require relating to the Lender's knowledge of its customers. 28 The making of each Advance hereunder shall be deemed to be a representation and warranty by the Obligors on the date of such Advance as to the facts specified in clauses (c), (d), (e) and (f) of this Section 3.04. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties. Each of the Obligors, jointly and severally, represents and warrants as follows: (a) Existence and Power. Each Obligor (i) is a corporation or limited liability company duly organized or formed, validly existing and in good standing under the laws of the Republic of the Marshall Islands, (ii) is duly qualified and in good standing as a foreign company in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed, and (iii) has all requisite corporate or company power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) Authorization; No Violation. The execution, delivery and performance by each Obligor of this Agreement, the Note and each other Loan Document to which it is or is to be a party, and the consummation of other transactions contemplated thereby, are within such Obligor's corporate or company powers, have been duly authorized by all necessary company action, and do not (i) contravene such Obligor's articles of incorporation or by-laws, or certificate of formation or limited liability company agreement, as the case may be, (ii) violate any applicable law, rule, regulation, order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any loan agreement, contract, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting such Obligor or any of its properties, or (iv) except for the Liens created by the Collateral Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of such Obligor. None of the Obligors is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such loan agreement, contract, indenture, mortgage, deed of trust, lease or other instrument. (c) Governmental Consents, Etc. Except for the recording of the Mortgages and filing of proper financing statements in respect of the Assignments of Earnings specified in Section 4.01(s), no authorization, approval, consent or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other consent or approval of any other Person is required for (i) the due execution, delivery and performance by any Obligor of this Agreement or the Note or any other Loan Document to which it is or is to be a party or for the consummation of the transactions contemplated thereby, (ii) the grant by any Obligor of the Liens granted by it pursuant to the Collateral Documents, (iii) the perfection or maintenance of the Liens created by the Collateral Documents (including the first priority nature thereof), or (iv) the exercise by the Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents. (d) Binding Effect. This Agreement has been, and the Note, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Obligor party thereto. This Agreement is, and the Note and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligations of each Obligor party thereto, enforceable 29 against each such Obligor in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of creditor's rights generally. (e) Compliance with Laws. Each Obligor is in compliance with all applicable statutes, regulations and laws, including, without limitation, all Environmental Laws. (f) Financial Information; Other Obligations. The audited consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2005, a copy of which has been delivered to the Lender by the Borrower, fairly presents, in all material respects, the financial condition of the Borrower and its Subsidiaries as at such date. None of the Obligors has engaged in any business other than that contemplated by this Agreement and the Existing Credit Agreement. Except for the Existing Credit Agreement and the "Collateral" described therein, none of the Obligors is a party to any other loan or security agreement and none has filed or permitted to be filed any financing statement, mortgage, pledge or charge with respect to any assets owned by it and, as of the date hereof, there is (except as aforesaid) no Lien of any kind on any of the properties or assets of any of the Obligors. (g) No litigation. There is no pending or (to the knowledge of any Obligor) threatened action, proceeding, governmental investigation or arbitration affecting any Obligor or any of its properties before any court, governmental agency or arbitrator which may affect the legality, validity or enforceability of this Agreement, the Note or any other Loan Document, or the consummation of the transactions contemplated hereby or thereby. (h) Margin Stock. None of the Obligors is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock and no proceeds of any Advance will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. (i) ERISA. None of the Obligors has ever established or maintained any employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended. (j) Not "Investment Company". None of the Obligors is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (k) Subsidiaries. None of the Guarantors has any direct or indirect Subsidiaries. (l) Not "National". None of the Obligors is a "national" of any "designated foreign country", within the meaning of the Foreign Asset Control Regulations or the Cuban Asset Control Regulations of the U.S. Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, or any regulations or rulings issued thereunder. (m) No Restriction. Neither the making of any Advance nor the use of the proceeds thereof nor the performance by the Obligors of this Agreement violates any statute, regulation or executive order restricting loans to, investments in, or the export of assets to, foreign countries or entities doing business there. (n) Ownership of Obligors. All of the outstanding limited liability company interests of each of the Initial Guarantors is, and each Additional Guarantor shall be, directly owned and controlled by the Borrower. 30 (o) Solvency. Each of the Obligors is, individually, and the Borrower and its Subsidiaries are, together, Solvent. (p) Use of Proceeds. The Borrower is using the proceeds of the Advances solely for the purposes set forth in the Preliminary Statements hereof. (q) Place of Business. The Borrower has a place of business in New York City. None of the Obligors (other than the Borrower) has a place of business in the United States of America, the District of Columbia, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States of America. (r) Veracity of Statements. No representation, warranty or statement made or certificate, document or financial statement provided by any of the Obligors in or pursuant to this Agreement, the Note or any other Loan Document, or in any other document furnished in connection therewith, is untrue or incomplete in any material respect or contains any misrepresentation of a material fact or omits to state any material fact necessary to make any such statement herein or therein not misleading. (s) Collateral Documents. The provisions of each of the Collateral Documents create, or when delivered will create, in favor of the Lender, (i) in the case of the Mortgages, a valid first "preferred mortgage" within the meaning of Chapter 3 of the Marshall Islands Maritime Act, 1990, as amended, on the Vessels in favor of the Lender, subject to the recording of the Mortgages as described in the following sentence, and (ii) in the case of the Assignments of Shipbuilding Contract and Refund Guarantee, the Assignments of Earnings and the Assignments of Insurances, a valid, binding and executed and enforceable security interest and Lien in all right, title and interest in the Collateral therein described, and shall constitute a fully perfected first priority security interest in favor of the Lender in all right, title and interest in such Collateral, subject to no other Liens and subject in the case of (A) the Assignments of Shipbuilding Contract and Refund Guarantee and the Assignments of Earnings, to notice being given to account parties and to filing proper financing statements in the District of Columbia, and (B) the Assignments of Insurances, to notice being given to underwriters and protection and indemnity clubs, and their consent being obtained where policy provisions or club rules so require. Upon execution and delivery by the relevant Guarantor and recording in accordance with the laws of the Republic of The Marshall Islands, each of the Mortgages will be a first "preferred mortgage" within the meaning of Chapter 313 of Title 46 of the United States Code and will qualify for the benefits accorded a "preferred mortgage" under Chapter 313 of Title 46 of the United States Code and no other filing or recording or refiling or rerecording or any other act is necessary or advisable to create or perfect such security interest under the Mortgages or in the mortgaged property therein described. (t) No Money Laundering. Without prejudice to the generality of the foregoing provisions of this Section 4.01, in relation to the borrowing by the Borrower of the Advances, the performance and discharge of its obligations under this Agreement and the other Loan Documents and the transactions and other arrangements affected or contemplated by this Agreement and the other Loan Documents, the Borrower confirms that it is acting for its own account and that the foregoing will not involve or lead to contravention of any law, official requirement or other regulatory measure or procedure implemented to combat "money laundering" (as defined in Article 1 of the Directive (91/308/EEC) of the Council of the European Communities). 31 ARTICLE V GUARANTY SECTION 5.01. Guaranty. In order to induce the Lender to make Advances to the Borrower, each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Borrower now or hereafter existing under this Agreement, the Note and any other Loan Document, whether for principal, interest, fees, expenses or otherwise (collectively the "Guaranteed Obligations") due or owing to the Lender, and agrees to pay any and all expenses (including, without limitation, counsel fees and expenses) incurred by the Lender in enforcing any rights under this Guaranty. Each of the Guarantors hereby unconditionally and irrevocably agrees to indemnify the Lender immediately on demand against any cost, loss or liability suffered by the Lender (i) if any Guaranteed Obligation is or becomes unenforceable, invalid or illegal, or (ii) by operation of law as a consequence of the transactions contemplated by the Loan Documents. The amount of the cost, loss or liability shall be equal to the amount which the Lender would otherwise have been entitled to recover. The obligations of the Guarantors under this Article V are in addition to and shall not in any way be prejudiced by any other guaranty or security now or subsequently held by the Lender. SECTION 5.02. Obligations Absolute. Each of the Guarantors guarantees that the Guaranteed Obligations will be performed and paid to the Lender strictly in accordance with the terms of any applicable agreement, express or implied, with the Borrower, regardless of any law, regulation or order of any jurisdiction affecting any term of any Guaranteed Obligation or the rights of the Lender with respect thereto, including, without limitation, any law, rule or policy which is now or hereafter promulgated by any governmental authority (including, without limitation, any central bank) or regulatory body any of which may adversely affect the Borrower's ability or obligation to make, or right of the Lender to receive, such payments, including, without limitation, any sovereign act or circumstance which might otherwise constitute a defense to, or a legal or equitable discharge of, the Borrower. SECTION 5.03. Guaranty Unconditional. The liability of each Guarantor under this Guaranty shall be unconditional irrespective of (i) any amendment or waiver or consent to departure from the terms of any Guaranteed Obligation, including any extension of the time or change of the manner or place of payment, (ii) any exchange, release, or non-perfection of any collateral securing payment of any Guaranteed Obligation, (iii) any change in the corporate existence, structure or ownership of the Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or its assets or any resulting release or discharge of any of the Guaranteed Obligations, (iv) the existence of any claim, set-off or other rights which any of the Guarantors may have at any time against the Borrower, the Lender or any other corporation or person, whether in connection herewith or any unrelated transactions, and (v) any other circumstance whatsoever that might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower. SECTION 5.04. Waiver of Subrogation; Contribution. Notwithstanding any other provision of this Guaranty, until payment in full of the Guaranteed Obligations in cash after termination of any of the Lender's commitments with respect thereto, (i) each of the Guarantors hereby irrevocably waives any right to assert, enforce, or otherwise exercise any right of subrogation to any of the rights, security interests, claims, or liens which the Lender have against the Borrower in respect of the Guaranteed Obligations, (ii) none of the Guarantors shall have any right of recourse, reimbursement, contribution, 32 indemnification, or similar right (by contract or otherwise) against the Borrower in respect of the Guaranteed Obligations, and (iii) each of the Guarantors hereby irrevocably waives any and all of the foregoing rights and also irrevocably waives the benefit of, and any right to participate in, any collateral or other security given to the Lender to secure payment of the Guaranteed Obligations. SECTION 5.05. Reinstatement. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Lender. SECTION 5.06. Waiver. Each of the Guarantors waives promptness, diligence, notice of acceptance, presentment, demand, protest and notice of dishonor with respect to any Guaranteed Obligation and this Guaranty and any requirement that the Lender exhaust any right or take any action against the Borrower or any other entity or any Collateral. SECTION 5.07. Payments; No Reductions. (a) All payments under this Guaranty shall be made in accordance with Section 2.12 of this Agreement (concerning payments) free and clear of and without deduction for any and all present or future Taxes. If any Guarantor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this paragraph) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Guarantor shall make such deductions and (iii) such Guarantor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. In addition, each of the Guarantors agrees to pay any Other Taxes which arise from any payment made hereunder or from the execution, delivery or registration by the Guarantors of, or otherwise with respect to, this Agreement. Each of the Guarantors will indemnify the Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this paragraph) paid by the Lender and any liability (including, without limitation, penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 45 days from the date the Lender makes written demand therefor. Within 30 days after the date of any payment of Taxes the Guarantors will furnish to the Lender the original or a certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment, the Guarantors will furnish to the Lender a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to the Lender, in either case stating that such payment is exempt from or not subject to Taxes. Without prejudice to the survival of any other agreement contained herein, the agreements and obligations of the Guarantors contained in this Section shall survive the payment in full of the Guaranteed Obligations and principal and interest hereunder and any termination or revocation of this Guaranty. SECTION 5.08. Set-Off. If any of the Guarantors shall fail to pay any of its obligations hereunder when the same shall become due and payable, the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the Guarantor's credit or account against any and all of the Guaranteed Obligations, whether or not the Lender shall have made any demand under this Guaranty. The Lender agrees promptly to notify the relevant Guarantor after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this paragraph are in addition to any other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have. 33 SECTION 5.09. Continuing Guarantee. This Guaranty is a continuing guaranty, is joint and several with any other guarantee given in respect of the Guaranteed Obligations, and shall remain in full force and effect until the later of the termination of any commitment of the Lender under this Agreement and the payment in full of the Guaranteed Obligations and all other amounts payable hereunder and shall be binding upon each of the Guarantors, and their respective successors and permitted assigns. The obligations of each of the Guarantors under this Guaranty shall rank pari passu with all other unsecured obligations of such Guarantor. SECTION 5.10. Right of Contribution. At any time a payment in respect of the Guaranteed Obligations is made under this Guaranty, the right of contribution of each Guarantor against each other Guarantor shall be determined as provided in the immediately following sentence, with the right of contribution of each Guarantor to be revised and restated as of each date on which a payment (a "Relevant Payment") is made on the Guaranteed Obligations under this Guaranty. At any time that a Relevant Payment is made by a Guarantor that results in the aggregate payments made by such Guarantor in respect of the Guaranteed Obligations to and including the date of the Relevant Payment exceeding such Guarantor's Contribution Percentage (as defined below) of the aggregate payments made by all Guarantors in respect of the Guaranteed Obligations to and including the date of the Relevant Payment (such excess, the "Aggregate Excess Amount"), each such Guarantor shall have a right of contribution against each other Guarantor who has made payments in respect of the Guaranteed Obligations to and including the date of the Relevant Payment in an aggregate amount less than such other Guarantor's Contribution Percentage of the aggregate payments made to and including the date of the Relevant Payment by all Guarantors in respect of the Guaranteed Obligations (the aggregate amount of such deficit, the "Aggregate Deficit Amount") in an amount equal to (x) a fraction the numerator of which is the Aggregate Excess Amount of such Guarantor and the denominator of which is the Aggregate Excess Amount of all Guarantors multiplied by (y) the Aggregate Deficit Amount of such other Guarantor. A Guarantor's right of contribution pursuant to the preceding sentences shall arise at the time of each computation, subject to adjustment to the time of each computation; provided that no Guarantor may take any action to enforce such right until the Guaranteed Obligations have been paid in full in cash, it being expressly recognized and agreed by all parties hereto that any Guarantor's right of contribution arising pursuant to this Section 5.10 against any other Guarantor shall be expressly junior and subordinate to such other Guarantor's obligations and liabilities in respect of the Guaranteed Obligations and any other obligations under this Guaranty. As used in this Section 5.10: (i) each Guarantor's "Contribution Percentage" shall mean the percentage obtained by dividing (x) the Relevant Net Worth (as defined below) of such Guarantor by (y) the aggregate Relevant Net Worth of all Guarantors; (ii) the "Relevant Net Worth" of each Guarantor shall mean the greater of (x) the Net Worth (as defined below) of such Guarantor and (y) zero; and (iii) the "Net Worth" of each Guarantor shall mean the amount by which the fair saleable value of such Guarantor's assets on the date of any Relevant Payment exceeds its existing debts and other liabilities (including contingent liabilities, but without giving effect to any Guaranteed Obligations arising under this Guaranty) on such date. All parties hereto recognize and agree that, except for any right of contribution arising pursuant to this Section 5.10, each Guarantor who makes any payment in respect of the Guaranteed Obligations shall have no right of contribution or subrogation against any other Guarantor in respect of such payment until all of the Guaranteed Obligations have been irrevocably paid in full in cash. Each Guarantor recognizes and acknowledges that the rights to contribution arising hereunder shall constitute an asset in favor of the party entitled to such contribution. In this connection, each Guarantor has the right to waive its contribution right against any Guarantor to the extent that after giving effect to such waiver such Guarantor would remain Solvent, in the determination of the Lender. 34 SECTION 5.11. Limitation of Liability. Each Guarantor and the Lender hereby confirms that it is its intention that the Guaranteed Obligations not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, each Guarantor and the Lender hereby irrevocably agrees that the Guaranteed Obligations guaranteed by each Guarantor shall be limited to such amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws and after giving effect to any rights to contribution pursuant to any agreement providing for an equitable contribution among such Guarantor and the other Guarantors, result in the Guaranteed Obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance. ARTICLE VI FINANCIAL COVENANTS SECTION 6.01. Financial Covenants. So long as any Advance shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower shall maintain, and each of the Guarantors jointly and severally covenants and undertakes to cause the Borrower to maintain: (a) Minimum Adjusted Net Worth: At all times on or after the date hereof Adjusted Net Worth at an amount not less than (i) $100,000,000 during any Accounting Period that Consolidated Debt is less than $250,000,000, and (ii) $150,000,000 during any Accounting Period that Consolidated Debt is greater than or equal to $250,000,000; (b) Minimum Interest Coverage Ratio: For each Accounting Period ending after the date hereof, EBITDA at an amount not less than 200% of Interest Expenses; and (c) Minimum Liquidity: At all times on or after the date hereof, for each Vessel owned by a Guarantor, free cash in an amount of $400,000 in one or more accounts with the Lender. ARTICLE VII COVENANTS OF THE BORROWER SECTION 7.01. Affirmative Covenants. So long as any Advance shall remain unpaid or the Lender shall have any Commitment hereunder, each of the Obligors shall: (a) Compliance with Laws, Etc. Comply with all applicable laws, rules, regulations and orders, including Environmental Laws, the ISM Code and the ISPS Code in all material respects. (b) Compliance with Agreements. Comply with, observe and perform all of the terms, covenants and provisions of the Loan Documents to which it is a party. (c) Preservation of Corporate/Company Existence, Etc. Preserve and maintain its corporate or company existence, as the case may be, as well as its material rights and franchises. (d) Visitation Rights. Permit at any reasonable time and from time to time, upon reasonable prior notice, the Lender or its representatives, at the Lender's risk and cost, to the extent reasonably requested, to examine and make copies of and abstracts from the records and books of 35 account of, and visit the properties of, such Obligor and to discuss the affairs, finances and accounts of such Obligor with any of its officers or representatives and with its independent certified public accountants. (e) Keeping of Books. Keep, and cause to be kept, proper books of record and account, in which full and correct entries shall be made in accordance with GAAP of all financial transactions and the assets and business of such Obligor to the extent necessary to permit the preparation of the financial statements required to be delivered hereunder. (f) Maintenance of Properties, Etc. Maintain and preserve all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (g) Approvals and Other Consents. Obtain all such governmental licenses, authorizations, consents, permits and approvals as are required, by applicable law or otherwise, for (a) such Obligor to perform its obligations under this Agreement and all other Loan Documents and (b) the operation of the Vessels. (h) Reporting Requirements. Furnish, or cause to be furnished, to the Lender: (i) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower and its Subsidiaries, the consolidated balance sheet of Borrower and its Subsidiaries as of the end of such year, and the related consolidated statements of profit and loss, and changes in financial position of the Borrower and its Subsidiaries for the fiscal year then ended, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and in each case certified by Ernst & Young or by another independent public or chartered accountant satisfactory to the Lender stating that in making the examination necessary for the audit of such financial statements it has obtained no knowledge of the existence of any condition, event or act which constitutes a Default or Event of Default, or if it has obtained knowledge of the existence of any such condition, event or act, specifying the same; (ii) as soon as available and in any event within 60 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Borrower, the consolidated balance sheet of Borrower and its Subsidiaries as of the end of such quarterly period, and the related consolidated statements of profit and loss, and changes in financial position of the Borrower and its Subsidiaries for the period then ended, setting forth in each case in comparative form the corresponding figures for the corresponding periods in the preceding fiscal year, all of which shall be certified by an officer of the Borrower and subject only to normal year-end adjustments; (iii) simultaneously with the delivery of each set of financial statements referred to in clauses (i) and (ii) above, (A) a certificate of an officer of the Borrower stating whether any Default or Event of Default exists on the date of such certificate and, if any Default or Event of Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto, and (B) a duly signed and completed Compliance Certificate confirming that the Borrower is in compliance with the provisions of Article VI; 36 (iv) promptly upon the Borrower becoming aware of (A) the occurrence of a Default or Event of Default, or (B) the commencement of any action, suit, litigation or proceeding of the kind described in Section 4.01(g), a statement of an officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (v) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (vi) promptly upon the filing thereof, copies of all registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and other material filings which the Borrower shall have filed with the Securities and Exchange Commission or any similar governmental authority, or any national securities exchange, including, any reports or other disclosures required to be made in relation to the Borrower under Regulation FD or the Sarbanes-Oxley Act of 2002; and (vii) from time to time such additional information regarding the financial position, results of operations, business or prospects of the Borrower and its Subsidiaries as the Lender may reasonably request. (i) Payment of Obligations. Pay and discharge at or before maturity, all its material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and maintain in accordance with GAAP appropriate reserves for the accrual of any of the same. (j) Use of Proceeds. Use the proceeds of the Advances solely for the purposes set forth in the Preliminary Statement hereof. (k) Maintenance of Insurance. Maintain insurance on any of its properties other than the Vessels, payable in United States Dollars, with responsible companies, in such amounts and against such risks as is usually carried by owners of similar businesses and properties in the same general areas in which it operates, and as shall be satisfactory to the Lender. (l) Vessel Value Maintenance. (i) Ensure that the Security Value (plus the market value of any additional security for the time being actually provided to the Lender pursuant to this Section 7.01(1)(i)) is at all times not less than one hundred twenty-five percent (125%) of the sum of (A) the aggregate outstanding principal amount of the Advances plus (B) the notional amount if any (determined by the Lender) that would be payable by the Borrower to the Lender under Section 6(e)(i) of the Master Agreement if an Early Termination Date was deemed to have occurred in relation to all then subsisting Transactions after an Event of Default by the Borrower. If the Obligors at any time shall not be in compliance with the preceding sentence, and in any event within ten (10) days of being notified by the Lender of such noncompliance (which notification shall be conclusive and binding on the Obligors), the Obligors shall either: (1) provide the Lender with, or procure the provision to the Lender of, such additional security as shall in the opinion of the Lender be adequate to make up such deficiency, which additional security shall take such form, be constituted by such documentation and be entered into between such parties as the Lender in its absolute discretion may approve or require (and, 37 if the Obligors do not make proposals satisfactory to the Lender in relation to such additional security within five (5) days of the date of the Lender's notification to the Obligors aforesaid, the Obligors shall be deemed to have elected to repay in accordance with (2) below); or (2) repay (subject to, and in accordance with Section 2.04(e), (g) and (h)) such part of the Advances as will ensure compliance with this Section 7.01(l)(i). (ii) For purposes of Section 2.07(a) and this Section 7.01(l), the Obligors at their expense shall cause a valuation of each Vessel and Newbuilding to be made by an Approved Broker indicating the Fair Market Value of such Vessel and Newbuilding (i) not more than twenty-one (21) days prior to the first day of each Accounting Period, and (ii) at any time the Lender may request upon not less 5 days' prior written notice from the Lender to the Borrower. The Obligors shall supply to the Lender and to any relevant Approved Broker such information concerning the Vessels and Newbuildings, and their condition, as such Approved Broker may require for the purpose of making valuations of the Vessels and Newbuildings. (iii) If the Security Value (plus the market value of any additional security for the time being actually provided to the Lender pursuant to Section 7.01(1)(i)) is at any time less than one hundred fifty percent (150%) of the sum of (A) the aggregate outstanding principal amount of the Advances plus (B) the notional amount if any (determined by the Lender) that would be payable by the Borrower to the Lender under Section 6(e)(i) of the Master Agreement if an Early Termination Date was deemed to have occurred in relation to all then subsisting Transactions after an Event of Default by the Borrower, then the Borrower shall consult with the Lender as to the action intended to be taken by the Borrower to prevent any further decline in such ratio, taking into consideration the employment of the Vessels and the Newbuildings, and the prospects of the dry bulk market. (m) Operating Account. Cause each Guarantor to maintain its Operating Account with the Lender and to cause all earnings in respect of its Vessel to be deposited into such Operating Account. (n) "Know Your Customer" Documentation. The Borrower will produce such documents and evidence as the Lender shall from time to time require, based on applicable law and regulations from time to time and the Lender's own internal guidelines from time to time relating to the Lender's knowledge of its customers. SECTION 7.02. Negative Covenants. So long as any Advance shall remain unpaid or the Lender shall have any Commitment hereunder, none of the Obligors shall: (a) Liens, Etc. Create, incur, assume or suffer to exist any Lien on any of its properties whether now owned or hereafter acquired, or sign or file, under the Uniform Commercial Code (or analogous statute or law) of any jurisdiction, a financing statement that names it as debtor, or sign any security agreement authorizing any secured party thereunder to file such financing statement, or assign any right to receive income, other than: (i) Liens on Collateral in favor of the Lender, (ii) Liens permitted by the Loan Documents, (iii) Permitted Encumbrances, and (iv) in the case of the Borrower, Liens incurred in the ordinary course of its business and which do not secure Financial Indebtedness. (b) Consolidations, Mergers. Consolidate or merge with or into any other Person. 38 (c) Sales, Etc. of Assets. Sell, transfer or otherwise dispose of any assets or grant any option or other right to purchase or otherwise acquire any Collateral other than in the ordinary course of its business, except (i) sales in the ordinary course of its business and (ii) dispositions of obsolete, worn out or surplus property disposed of in the ordinary course of business; provided, that any Guarantor may sell the Vessel it owns or its Newbuilding but only if the Borrower shall be in compliance with the provisions of Sections 2.04(d) and 7.01(l) immediately after giving effect to such sale. (d) Restrictions on Chartering. Without the consent of the Lender, which consent shall not unreasonably be withheld (i) let any Vessel or Newbuilding on demise charter for any period; (ii) enter into any time or consecutive voyage charter in respect of any Vessel or Newbuilding for a term which exceeds, or which by virtue of any optional extensions may exceed, 13 months; (iii) enter into any charter in relation to any Vessel or Newbuilding under which more than 2 months' hire (or the equivalent) is payable in advance; (iv) charter any Vessel or Newbuilding otherwise than on bona fide arm's length terms at the time when such Vessel or Newbuilding is fixed; (v) de-activate or lay up any Vessel; or (iv) put any Vessel into the possession of any Person for the purpose of work being done upon her in an amount exceeding or likely to exceed $1,000,000 (or the equivalent in any other currency) unless that Person has first given to the Lender and in terms satisfactory to it a written undertaking not to exercise any Lien on such Vessel or her earnings for the cost of such work or for any other reason. (e) Change in Nature of Business. Engage in any line of business other than directly or indirectly owning and operating the Vessels, or acquiring the Newbuildings. (f) Debt. Create, incur, assume or suffer to exist any Debt other than (i) Debt under the Loan Documents and, prior to the first Drawdown Date, under the Existing Credit Agreement, (ii) Debt for (x) trade payables and expenses accrued in the ordinary course of business and that are not overdue, or (y) customer advance payments and customer deposits received in the ordinary course of business, and (iii) Debt owing to Affiliates provided that such Debt is subordinated on terms and conditions acceptable to the Lender and subject in right of payment to the prior payment in full of all amounts outstanding under this Agreement and the Note. (g) Dividends. Declare or pay any dividend of any kind or make any purchase or redemption of or distribution on any stock, limited liability company interest or other equity interest without the prior written consent of the Lender except that (i) any Guarantor may make distributions to the Borrower, and (ii) for any Accounting Period, the Borrower may pay a dividend, if and so long as both immediately before and after the declaration and payment of such dividend, no Default or Event of Default shall have occurred and be continuing, up to the amount of Available Free Cash at the time such dividend is declared and paid. (h) Loans, Investments. Make any loan or advance to, make any investment in, or enter into any working capital maintenance or similar agreement with respect to any Person whether by acquisition of stock or indebtedness, by loan, guarantee or otherwise, except loans to another Obligor to the extent such Obligor is permitted to incur such Debt under Section 7.02(f). (i) Acquisitions. Make any acquisition of an asset (other than a Vessel or a Newbuilding) outside the ordinary course of its business. 39 (j) Constitutive Document Amendments. Permit any amendment of its articles of incorporation and by-laws, or certificate of formation or limited liability company agreement, as the case may be, without giving the Lender prior written notice of such proposed amendment. (k) Transactions with Affiliates. Enter into or become a party to any material transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except pursuant to (i) the reasonable requirements of its business and upon terms which are fair and reasonable and in its best interests, or (ii) existing arrangements heretofore disclosed to the Lender in writing and approved by the Lender. (l) Place of Business. Establish a place of business in the United States of America, the District of Columbia, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States of America unless sixty (60) days' prior written notice of such establishment is given to the Lender. (m) Approved Manager. Employ a manager of any Vessel other than an Approved Manager, or change the terms and conditions of the management of such Vessel in any material respect other than upon such terms and conditions as the Lender shall approve. (n) Operating Accounts. Make any withdrawal from any of the Operating Accounts except in accordance with the Cash Pooling Deeds and except, so long as no Event of Default shall have occurred and be continuing, any amount credited to an Operating Account shall be available to the relevant Obligor to pay (i) the reasonable operating expenses of its Vessel, (ii) the principal amount of the Advances, interest thereon and any other amounts payable to the Lender hereunder or under the other Loan Documents, (iii) the reasonable overhead, legal and other expenses of the Obligors and Eagle Ventures incurred in connection with their involvement in the acquisition, ownership and operation of the Vessels, as well as any other fees and expenses to which the Lender may in its sole discretion agree from time to time, and (iv) any dividends or distributions permitted under Section 7.02(g). (o) Capital Stock. Permit the Borrower to issue any class of capital stock unless such stock is legally or effectively subordinated to the right of the Lender to payment of any and all amounts due to the Lender under this Agreement, the Note and the Security Documents. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) The Borrower shall fail to pay any installment of principal of any Advance when due and payable; or (b) The Borrower shall fail to pay any interest on any Advance or any fee payable to the Lender hereunder, or the Borrower shall fail to make any other payment hereunder, in each case within three (3) Business Days after the same becomes due and payable; or 40 (c) Any representation or warranty made by any Obligor under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made or deemed made or confirmed; or (d) (i) Any Obligor shall fail to perform or observe any term, covenant or agreement contained in Article VI or in Sections 7.01(h), 7.01(l) and 7.02 to be observed by it, or (ii) any Obligor shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied (A) beyond the expiration of any applicable notice and/or grace period or (B) if there is no applicable notice and/or grace period, for fifteen (15) days after written notice thereof shall have been given to the Borrower by the Lender; or (e) Any Obligor shall fail to pay any principal of or premium or interest on any Debt which such Obligor is liable to pay, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) Any Obligor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Obligor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of forty-five (45) days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any Obligor shall take any corporate or company action to authorize any of the actions set forth above in this Section 8.01(f); or (g) In the reasonable determination of the Lender, it becomes impossible or unlawful for any Obligor to fulfill any of the covenants and obligations required to be fulfilled as contained in any Loan Document or any of the instruments granting or creating rights in any of the Collateral in any material respect, or for the Lender to exercise any of the rights or remedies vested in it under any Loan Document, any of the Collateral or any of such instruments in any material respect; or (h) Any judgment or order shall be rendered against any Obligor that is reasonably likely to result in a Material Adverse Effect with respect to such Obligor, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect unless such judgment or order shall have been vacated, satisfied, discharged or bonded pending appeal; or 41 (i) Any material provision of any Loan Document after delivery thereof pursuant to Sections 3.01, 3.02 or 3.03 shall for any reason cease to be valid and binding on or enforceable against any Borrower or any such Borrower shall so state in writing; or (j) Any Collateral Document after delivery thereof shall for any reason (other than pursuant to the terms thereof) cease to create (i) in the case of any Mortgage, a valid first preferred mortgage under the Marshall Islands Maritime Act, 1990, as amended, and (ii) in the case of any Assignments of Shipbuilding Contract and Refund Guarantee, Assignment of Earnings or Assignment of Insurance, a valid and perfected first priority Lien on the Collateral purported to be covered thereby; or (k) An "Event of Default" as defined in any Mortgage shall occur; or (l) Notice of an Early Termination Date is given by the Lender under section 6(a) of the Master Agreement; or (m) A person entitled to do so gives notice of an Early Termination Date under Section 6(b)(iv) of the Master Agreement; or (n) An Event of Default (as defined in Section 14 of the Master Agreement) shall occur; or (o) The Master Agreement is terminated, cancelled, suspended, rescinded or revoked or otherwise ceases to remain in full force and effect for any reason; or (p) Any event occurs or any other circumstances arise or develop including, without limitation, a change in the financial position, state of affairs or prospects of the Borrower or its Subsidiaries in the light of which in the judgment of the Lender there is a significant risk that the Borrower is, or will later become unable to discharge its liabilities as they fall due; then, and in any such event, the Lender may, by notice to the Borrower, (i) declare the Commitment and the obligation of the Lender to make the Advances available to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the Note, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Note, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that, in the event of an actual or deemed entry of an order for relief with respect to any of the Borrower under the Federal Bankruptcy Code, (A) the obligation of the Lender to make the Advances available shall automatically be terminated and (B) the Note, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Note, nor consent to any departure by any Obligor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 42 SECTION 9.02. Notices, Etc. Except as otherwise provided for in this Agreement, all notices or other communications under or in respect of this Agreement to any party hereto shall be in writing (that is by letter or telefacsimile) and shall be deemed to be duly given or made when delivered (in the case of personal delivery or letter) and when dispatched (in the case of telefacsimile) to such party addressed to it at the address appearing below (or at such address as such party may hereafter specify for such purpose to the other by notice in writing): (a) if to any Obligor: c/o Eagle Shipping International (USA) LLC 477 Madison Avenue New York, New York 10022 Facsimile No: +1 212 785 3311 (b) if to the Lender: Shipping Business Centre 5-10 Great Tower Street London EC3P 3HX England Attention: Ship Finance Portfolio Management Team Facsimile No: +44 207 615 0112 A notice or other communication received on a non-working day or after business hours in the place of receipt, shall be deemed to be served on the next following working day in such place. SECTION 9.03. No Waiver, Remedies. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under the Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs; Expenses. (a) Whether or not any Advance is made or the transactions contemplated by this Agreement are consummated (including the proposed execution and delivery of the other Loan Documents), the Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Lender in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents and the other documents to be delivered hereunder including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Lender with respect thereto, and for advising the Lender as to its rights and responsibilities, or the protection or preservation of rights or interests, under the Loan Documents. The Borrower further agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Lender in connection with the enforcement of the Loan Documents and the other documents to be delivered hereunder, whether in action, suit, litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally or otherwise (including, without limitation, the reasonable fees and reasonable expenses of counsel for the Lender with respect thereto) and expenses in connection with the enforcement of rights under this Section 9.04(a). 43 (b) If any payment of principal of any Advance (or any relevant portion thereof) is made by the Borrower to the Lender other than on the last day of the Interest Period for such Advance (or relevant portion thereof), as a result of a payment pursuant to Section 2.04, acceleration of the maturity of the Note pursuant to Section 8.01 or for any other reason, the Borrower shall, upon demand by the Lender pay to the Lender (i) any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lender to fund or maintain such Advance (or any relevant portion thereof), plus (ii) an amount equal to the Applicable Margin which would, but for such payment of such Advance (or any relevant portion thereof), have accrued on such Advance (or any relevant portion thereof) from the date of such payment to the earlier of (A) the end of the current Interest Period, and (B) the ninetieth (90th) day following the date of such payment. (c) Each of the Obligors jointly and severally agrees to indemnify and hold harmless the Lender and each of its Affiliates, and their respective officers, directors, employees, agents, advisors and representatives (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and disbursements of counsel), that may be incurred by or asserted or awarded against any Indemnified Party, arising out of or in connection with or relating to (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the making of the Advances or consummation of any other transaction contemplated hereby, (ii) the Advances or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Environmentally Sensitive Material on or from any property owned or operated by any Obligor, or any Environmental Action related in any way to any Obligor, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnified Party is a party thereto, except, with respect to any particular Indemnified Party, to the extent such claim, damage, loss, liability or expense is either admitted to by such Indemnified Party or found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct, provided that the foregoing exceptions to the liability of the Obligors with respect to such Indemnified Person shall not limit or affect the liability of the Obligors to any other Indemnified Party. Each of the Obligors jointly and severally further agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract, tort or otherwise) to any Obligor or any of their respective shareholders, members or creditors for or in connection with the transactions contemplated hereby, except, with respect to any particular Indemnified Party, to the extent such liability is either admitted to by such Indemnified Party or found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. The indemnities of this Section 9.04(c) shall survive the termination of this Agreement and the other Loan Documents. SECTION 9.05. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, the Lender is hereby authorized at any time and from time to time to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower to the Lender now or hereafter existing under this Agreement and the Note held by the Lender, whether or not the Lender shall have made any demand under this Agreement or the Note and although such obligations may be unmatured. The Lender agrees promptly to notify the Borrower after any such set-off and application shall be made by the Lender, provided that the failure to give such notice shall not 44 affect the validity of such set-off and application. The rights of the Lender under this Section 9.05 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have. SECTION 9.06. Assignments and Participations. (a) This Agreement shall be binding upon and inure to the benefit of the Lender and the Borrower and their respective successors and permitted assigns. (b) The Borrower may not assign or transfer all or any part of its rights and/or obligations under this Agreement. (c) The Lender may, at the Lender's expense and with the prior consent of the Borrower which consent shall not unreasonably be withheld, assign or transfer all or any part of its rights or obligations under this Agreement and the Loan Documents; provided, however, the Lender may assign or transfer all or any part of its rights or obligations under this Agreement and the Loan Documents to any Affiliate of the Lender or, if an Event of Default shall have occurred and is continuing, to any other Person without the consent of the Borrower. The Lender shall notify the Borrower promptly following any such assignment or transfer. (d) The Lender may change its lending office without the consent of the Borrower provided that the Lender shall notify the Borrower promptly following any such change of lending office and such change of lending office shall not result in a Material Adverse Effect with respect to the Borrower and its Subsidiaries, taken as a whole. (e) The Lender may, at its own expense, sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including without limitation, all or a portion of its Commitment, any Advance and the Note); provided, however, that (i) the Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Lender shall remain the holder of the Note for all purposes of this Agreement, (iv) the Borrower shall continue to deal solely and directly with the Lender in connection with this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce or postpone any date fixed for payment of principal of, or interest on, the Note or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. (f) The Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.06, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower to be furnished to the Lender by or on behalf of the Borrower. SECTION 9.07. Judgment. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder or under the Note in Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Lender could purchase Dollars with such other currency on the Business Day preceding that on which final judgment is given. 45 (b) The obligation of each Obligor in respect of any sum due from it to the Lender hereunder or under the Note or any other Loan Document shall, notwithstanding any judgment in a currency other than Dollars, be discharged only to the extent that on the Business Day following receipt by the Lender of any sum adjudged to be so due in such other currency the Lender may in accordance with normal banking procedures purchase Dollars with such other currency; if the Dollars so purchased are less than the sum originally due to the Lender in Dollars, such Obligor agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Lender against such loss, and if the Dollars so purchased exceed the sum originally due to the Lender in Dollars, the Lender agrees to remit to such Obligor such excess. SECTION 9.08. Governing Law; Submission to Jurisdiction. (a) This Agreement and the Note shall be governed by, and construed in accordance with, the laws of the State of New York. (b) Each Obligor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each Obligor hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State Court or, to the extent permitted by law, in such Federal court. Each Obligor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to the foregoing and to paragraph (c) below, nothing in this Agreement shall affect any right that any party hereto may otherwise have to bring any action or proceeding relating to this Agreement against any other party hereto in the courts of any jurisdiction. (c) Each Obligor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court and any immunity from jurisdiction of any court or from any legal process with respect to itself or its property. (d) Each Obligor agrees that service of process may be made on it by personal service of a copy of the summons and complaint or other legal process in any such suit, action or proceeding, or by registered or certified mail (postage prepaid) to its address specified in Section 9.02, or by any other method of service provided for under the applicable laws in effect in the State of New York. SECTION 9.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS AND THE LENDER IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE ADVANCES OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. 46 SECTION 9.11. Entire Agreement. This Agreement, the Note and the other Loan Documents embody the entire agreement between the parties relating to the subject matter hereof and supersede all prior agreements, representations and understandings, if any, relating to such subject matter. SECTION 9.12. Severability of Provisions. Any provision of the Loan Documents that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or enforceability without invalidating the remaining provisions thereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 9.12.Master Agreement and Collateral Documents. Effective as of the Effective Date, each reference in the Master Agreement and any of the Collateral Documents executed prior to the Effective Date to "Credit Agreement" shall mean and refer to this Agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 47 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. EAGLE BULK SHIPPING INC. HAWK SHIPPING LLC By: ______________________________ By: ______________________________ Alan Ginsberg Alan Ginsberg Chief Financial Officer Attorney-in-Fact CARDINAL SHIPPING LLC HERON SHIPPING LLC By: ______________________________ By: ______________________________ Alan Ginsberg Alan Ginsberg Attorney-in-Fact Attorney-in-Fact CONDOR SHIPPING LLC JAEGER SHIPPING LLC By: ______________________________ By: ______________________________ Alan Ginsberg Alan Ginsberg Attorney-in-Fact Attorney-in-Fact FALCON SHIPPING LLC KESTREL SHIPPING LLC By: ______________________________ By: ______________________________ Alan Ginsberg Alan Ginsberg Attorney-in-Fact Attorney-in-Fact GRIFFON SHIPPING LLC KITE SHIPPING LLC By: ______________________________ By: ______________________________ Alan Ginsberg Alan Ginsberg Attorney-in-Fact Attorney-in-Fact HARRIER SHIPPING LLC MERLIN SHIPPING LLC By: ______________________________ By: ______________________________ Alan Ginsberg Alan Ginsberg Attorney-in-Fact Attorney-in-Fact 48 OSPREY SHIPPING LLC SPARROW SHIPPING LLC By: ______________________________ By: ______________________________ Alan Ginsberg Alan Ginsberg Attorney-in-Fact Attorney-in-Fact PEREGRINE SHIPPING LLC TERN SHIPPING LLC By: ______________________________ By: ______________________________ Alan Ginsberg Alan Ginsberg Attorney-in-Fact Attorney-in-Fact SHIKRA SHIPPING LLC THE ROYAL BANK OF SCOTLAND PLC By: ______________________________ By: ______________________________ Alan Ginsberg Leo Chang Attorney-in-Fact Attorney-in-Fact 49 Schedule I The Mandatory Cost Rate will be calculated in accordance with the following formula: F x 0.01 -------- 300 where on the day(s) of application of the formula: F. is the rate of charge payable by the Lender to the Financial Services Authority pursuant to paragraph 2 of the Fees Regulations (but where for this purpose, the figure at paragraph 2.02b/2.03b shall be deemed to be zero) and expressed in pounds per (pound)1 million of the Fee Base of the Lender. For the purposes of this Schedule: Fee Base has the meaning ascribed to it for the purposes of, and all be calculated in accordance with, the Fees Regulations. Fees Regulations means, as appropriate, either the Banking Supervision (Fees) Regulations 2000 or such regulations as from time to time may be in force, relating to the payment of fees for banking supervision in respect of periods subsequent to March 31, 2001. Any reference to a provision of any statute, directive, order or regulation herein is a reference to that provision as amended or re-enacted from time to time. If alternative or additional financial requirements are imposed which in the Lender's opinion make the formula set out above no longer appropriate, the Lender shall be entitled to stipulate such other formula as shall be suitable to apply in substitution for the formula set out above. 50 Schedule II Delivered Vessels Owner Vessel Flag Official No. - ----- ------ ---- ------------ Cardinal Shipping LLC CARDINAL Marshall Islands 2349 Condor Shipping LLC CONDOR Marshall Islands 2238 Falcon Shipping LLC FALCON Marshall Islands 2239 Griffon Shipping LLC GRIFFON Marshall Islands 2351 Harrier Shipping LLC HARRIER Marshall Islands 2240 Hawk Shipping LLC HAWK I Marshall Islands 2237 Heron Shipping LLC HERON Marshall Islands 2489 Jaeger Shipping LLC JAEGER Marshall Islands 2659 Kestrel Shipping LLC KESTREL I Marshall Islands 2658 Kite Shipping LLC KITE Marshall Islands 2352 Merlin Shipping LLC MERLIN Marshall Islands 2488 Osprey Shipping LLC OSPREY I Marshall Islands 2355 Peregrine Shipping LLC PEREGRINE Marshall Islands 2353 Shikra Shipping LLC SHIKRA Marshall Islands 2350 Sparrow Shipping LLC SPARROW Marshall Islands 2354 Tern Shipping LLC TERN Marshall Islands 2657 51 -----END PRIVACY-ENHANCED MESSAGE-----