UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
20549





________________





FORM
10-K





[X]           ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE




SECURITIES EXCHANGE ACT OF
1934





For the Fiscal Year Ended December
31, 2009





OR




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


THE





SECURITIES
EXCHANGE ACT OF 1934





For
the transition period
from                   to


________________





Commission File
Number001-33831





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
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)
 
 477
      Madison Avenue
                New
      York, New York
                (Address
      of principal executive offices)
              
              10022
                (Zip
      Code)





Registrant's
telephone number, including area code: (212) 785–2500





Securities
registered pursuant to Section 12(b) of the Act:





Common
Stock, par value $.01 per share


(Title of
Class)





The
Common Stock is registered on the NASDAQ Stock Market LLC


(Name of
exchange on which registered)





Securities
registered pursuant to Section 12(g) of the Act: None








Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No ý




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No ý





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 ý No o






1





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ý





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.  (Check
one):




Large
accelerated filer o     Accelerated
filer ýNon-Accelerated
filer oSmaller reporting
company o




(Do not
check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No ý





The
aggregate market value of the Common Stock held by non-affiliates of the
registrant on June 30, 2009, the last business day of the registrant's most
recently completed second quarter, was 291,869,440 based on the closing price of
$4.71 per share on the NASDAQ Stock Exchange on that date. (For this purpose,
all outstanding shares of Common Stock have been considered held by
non-affiliates, other than the shares beneficially owned by directors, officers
and certain 5% shareholders of the registrant; without conceding that any of the
excluded parties are "affiliates" of the registrant for purposes of the federal
securities laws.)





As of
March 5, 2010, 62,126,665 shares of the registrant's Common Stock were
outstanding.








DOCUMENTS
INCORPORATED BY REFERENCE





Portions of the registrant's definitive
proxy statement to be filed by the registrant within 120 days of December 31,
2009 in connection with its 2010 Annual Meeting of Shareholders are incorporated
by reference into Part III of this Form 10-K.








TABLE OF CONTENTSPagePART
      IItem
      1.
            Business
            3Item
      1A.
            Risk
      Factors
            32Item
      1B.
            Unresolved
      Staff Comments
            48Item
      2.
            Properties
            48Item
      3.
            Legal
      Proceedings
            48Item
      4.
            Reserved
            48PART
      IIItem
      5.
            Market
      for Registrant's Common Equity, Related Stockholder
              Matters
      and Issuer Purchases of Equity
      Securities
            49Item
      6.
            Selected
      Financial Data
            51Item
      7.
            Management's
      Discussion and Analysis of Financial Condition
              and
      Results of
      Operations
            53Item
      7A.
            Quantitative
      and Qualitative Disclosures about Market Risks
            78Item
      8.
            Financial
      Statements and Supplementary Data
            80Item
      9.
            Changes
      in and Disagreements with Accountants on
              Accounting
      and Financial
      Disclosure
            80Item
      9A.
            Controls
      and Procedures
            80Item
      9B.
            Other
      Information
            81PART
      IIIItem
      10.
            Directors,
      Executive Officers, and Corporate Governance
            82Item
      11.
            Executive
      Compensation
            82Item
      12.
            Security
      Ownership of Certain Beneficial Owners and
              Management
      and Related Stockholder
      Matters
            82Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            82Item
      14.
            Principal
      Accounting Fees and Services
            82PART
      IVItem
      15.
            Exhibits,
      Financial Statement Schedules
            83Signatures
            84







2





PART
I





ITEM
1.    BUSINESS





Overview




Eagle Bulk Shipping Inc. (the
"Company", "we", "us", or "our"), incorporated under the laws of the Republic of
the Marshall Islands (the "Marshall Islands") and headquartered in New York
City, is engaged primarily in the ocean transportation of a broad range of major
and minor bulk cargoes, including iron ore, coal, grain, cement and fertilizer,
along worldwide shipping routes. We operate in the Handymax sector of the dry
bulk industry, with particular emphasis on the Supramax class of vessels. We own
one of the largest fleets of Supramax dry bulk vessels in the world. Supramax
dry bulk vessels range in size from 50,000 to 60,000 deadweight tons, or dwt.
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 charterers.




As of December 31, 2009, we owned and
operated a modern fleet of 27 oceangoing vessels with a combined carrying
capacity of 1,412,535 dwt and an average age of approximately six years. We also
have a Supramax vessel newbuilding program in China and Japan which commenced
delivery of the constructed vessels in 2008 and is expected to continue until
2011. Under this newbuilding program, by the end of 2009, we had taken delivery
of 7 vessels and we held contracts for the construction of 20 vessels with a
carrying capacity of approximately 1,141,300 dwt. During 2009, four vessels were
constructed and delivered into our fleet. Upon delivery of the last contracted
newbuilding vessel in 2011, our total fleet will consist of 47 vessels with a
combined carrying capacity of 2.55 million dwt. The newbuilding program also
provides us with options for the construction of eight additional Supramax
vessels with a combined carrying capacity of 464,000 dwt.




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
which maintains its principle executive offices in New York City. 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 annual
report.




A glossary of shipping terms (the
"Glossary") that should be used as a reference when reading this Annual Report
on Form 10-K begins on pages 29-30. Capitalized terms that are used in this
Annual Report are either defined when they are first used or in the
Glossary.










3




Forward-Looking
Statements




This Form 10-K contains forward-looking
statements regarding the outlook for dry cargo markets, and the Company's
prospects. There are a number of factors, risks and uncertainties that could
cause actual results to differ from the expectations reflected in these
forward-looking statements, including changes in production of or demand for
major and minor bulk commodities, either globally or in particular regions;
greater than anticipated levels of vessel newbuilding orders or less than
anticipated rates of scrapping of older vessels; changes in trading patterns for
particular commodities significantly impacting overall tonnage requirements;
changes in the rates of growth of the world and various regional economies;
risks incident to vessel operation, including discharge of pollutants;
unanticipated changes in laws and regulations; increases in costs of operation;
the availability to the Company of suitable vessels for acquisition or
chartering-in on terms it deems favorable; the ability to attract and retain
customers. This Form 10-K 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. The Company assumes no obligation
to update or revise any forward-looking statements. Forward-looking statements
in this Form 10-K and written and oral forward-looking statements attributable
to the Company or its representatives after the date of this Form 10-K are
qualified in their entirety by the cautionary statement contained in this
paragraph and in other reports hereafter filed by the Company with the
Securities and Exchange Commission.





Management
      of Our Fleet





Our New York City based management
team, with in excess of 20 years of experience in the shipping industry
primarily focused on the sub-Panamax dry bulk sectors, such as Supramax,
Handymax and Handysize vessels, undertakes all commercial and strategic
management of our fleet and supervises the technical management of our vessels.
The technical management of our fleet is primarily provided by unaffiliated
third party managers, V.Ships, Wilhelmsen Ship Management (formerly Barber Ship
Management), and Anglo Eastern International Ltd., which we believe are three of
the world's largest providers of independent ship management and related
services, and which we refer to as our technical managers. In the third quarter
of 2009, we set up our own in-house technical management for a portion of our
fleet in order to establish a vessel management bench-mark with our external
technical managers. The management of our fleet includes the following
functions:





·      Strategic management. We
locate, obtain financing and insurance for, purchase and sell,
vessels.





·
            Commercial management.
      We obtain employment for our vessels and manage our relationships with
      charterers.





·
            Technical management.
      Our unaffiliated technical managers or our in-house technical manager
      performs day-to-day operations and maintenance of our
    vessels.





Our
Competitive Strengths and our Business Strategy





We believe that we have a number of
strengths that provide us with a competitive advantage in the dry bulk shipping
industry, including:





·
            A fleet of Supramax dry bulk
      vessels. We specialize in the Supramax class of the Handymax sector
      of the dry bulk industry. Our operating fleet of 27 vessels at December
      31, 2009 and contracts for the construction of 20 newbuilding vessels
      makes us one of the world's largest fleets of vessels in the sector. We
      view Handymax vessels, especially the Supramax class of vessels, as a
      highly attractive sector of the dry bulk shipping industry relative to
      larger vessel sectors due to their:





-  reduced
      volatility in charter rates;


-  increased
      operating flexibility;


-  ability
      to access more ports;


-  ability
      to carry a more diverse range of cargoes;
and


-  broader
      customer base.






4





·
            A modern, high quality
      fleet. The 27 Handymax vessels in our operating fleet at December
      31, 2009 had an average age of approximately six years compared to an
      average age for the world Handymax dry bulk fleet of over 15 years. As of
      December 31, 2009, we have taken delivery of seven Supramax newbuilding
      vessels and we are also constructing another 20 Supramax vessels. We also
      hold options for the construction of an additional 8 Supramax vessels
      which if exercised would deliver between 2010 and 2012. We believe that
      owning a modern, high quality fleet reduces operating costs, improves
      safety and provides us with a competitive advantage in securing employment
      for our vessels. Our fleet was built to high standards and all of our
      vessels were built at leading Japanese and Chinese shipyards, including
      Mitsui Engineering and Shipbuilding Co., Ltd., and Oshima Shipbuilding
      Co., Ltd. The vessels under construction are being built at premier
      shipyards in Japan, IHI Marine United, and China, Yangzhou Dayang
      Shipbuilding Co. Ltd.





·
            A fleet of sister and similar
      ships allows us to maintain low cost, highly efficient operations.
      Our current operating fleet of 27 vessels includes 8 identical sister
      ships built at the Mitsui shipyard based upon the same design
      specifications, two sets of 2 identical sister ships built at Dayang
      shipyard, 3 identical sister ships built at IHI Marine United shipyard,
      and 3 similar ships built at the Oshima shipyard that use many of the same
      parts and equipment. Our newbuilding fleet of 20 vessels to be constructed
      includes three sets of sister vessels - two 56,000 dwt sister ships from
      IHI Marine United, three 53,100 dwt sister ships and fifteen 58,000 dwt
      sister ships from Yangzhou Dayang Shipbuilding Co. Ltd. Operating sister
      and similar ships provides us with operational and scheduling flexibility,
      efficiencies in employee training and lower inventory and maintenance
      expenses. We believe that this should allow us both to increase revenue
      and lower operating costs. We intend to actively monitor and control
      vessel operating expenses while maintaining the high quality of our fleet
      through regular inspection and maintenance programs. We also intend to
      take advantage of savings that result from the economies of scale that the
      third party technical managers provide us through access to bulk
      purchasing of supplies, quality crew members and a global service network
      of engineers, naval architects and port
  captains.





·
            A medium-to long-term
      fixed-rate time charter program. We have entered into time charter
      employment contracts for all the vessels in our operating fleet and a
      substantial portion of our newbuilding fleet and these charters provide
      for fixed semi-monthly payments in advance. A significant proportion of
      our charters on the vessels in our operating fleet range in length from
      one to three years, and a few of the newly constructed vessels are on long
      term charters with an average duration of eight years. A few of our
      vessels in the operating fleet are on charters whose revenues are linked
      to the Baltic Supramax index and have durations of one-year or less. These
      index linked charters provide us with the revenue upside as the market
      improves. Furthermore, we expect that 21 of the 27 newbuilding vessels
      which have been delivered or to be constructed and delivered are scheduled
      to enter into charters averaging approximately six years duration as of
      December 31, 2009. We believe that this structure provides significant
      visibility to our future financial results and allows us to take advantage
      of the stable cash flows and high utilization rates that are associated
      with medium- to long-term time charters, while at the same time providing
      us with the revenue upside potential from the index linked charters. Our
      use of time charters also mitigates in part the seasonality of the spot
      market business. Generally, spot markets are strongest in the first and
      fourth quarters of the calendar year and weaker in the second and third
      quarters. Our time charters provide for fixed semi-monthly payments in
      advance. While we remain focused on securing charters with fixed base
      rates, we have also entered into contracts with fixed minimum rates and
      profit sharing arrangements, enabling us to benefit from an increasing
      rate environment while still minimizing downside risk. We regularly
      monitor the dry bulk shipping market and based on market conditions we may
      consider taking advantage of short-term charter
  rates.





·
            Expand our fleet through
      selective acquisitions of dry bulk vessels. We intend to continue
      to grow our fleet through timely and selective acquisitions of additional
      vessels in a manner that is accretive to earnings. We expect to focus
      primarily in the Handymax sector of the dry bulk shipping industry, and in
      particular on Supramax class vessels. We may also consider acquisitions of
      other sizes of dry bulk vessels, including Handysize vessels, but not
      tankers.






5





Our
Fleet





Our operating fleet consists of 27
vessels, which includes 7 newly constructed vessels. We are also constructing an
additional 20 vessels under our newbuilding program. The following table
presents certain information concerning our fleet as of December 31,
2009:





No. of Vessels
            Dwt
            Vessel Type
            Delivery
            EmploymentVessels in Operation27
      Vessels
            1,412,535
            24
      Supramax
            
            Time
      Charter3
      Handymax
            
            Time
      CharterVessels to be delivered3
      Vessels
            159,300
            53,100
      dwt series Supramax
            2010
            2
      Vessels on Time Charter and
              1
      Vessel Charter Free2
      Vessels
            112,000
            56,000
      dwt series Supramax
            2010
            2
      Vessels on Time Charter15
      Vessels
            870,000
            58,000
      dwt series Supramax
            2010-2011
            15
      Vessels on Time Charter





All vessels in our fleet are fitted
with cargo cranes and cargo grabs that permit them to load and unload cargo in
ports that do not have cargo handling infrastructure in place. All of our
vessels are flagged in the Marshall Islands. We own each of our vessels through
a separate wholly owned Republic of Marshall Islands subsidiary.





Operating
Fleet:





Our
operating fleet consists of 27 vessels and these vessels are all employed on
time charters. The following table represents certain information about the
Company's operating fleet:





Vessel
            Year Built
            Dwt
            Time Charter Employment (expiry range)(1)Bittern
            2009
            57,809
            December
      2018 to April 2019Canary
            2009
            57,809
            December
      2018 to April 2019Cardinal
            2004
            55,362
            September
      2010 to November 2010Condor
            2001
            50,296
            July
      2010 to October 2010Crested
      Eagle
            2009
            55,989
            January
      2011 to April 2011Crowned
      Eagle
            2008
            55,940
            March
      2010 to May 2010Falcon
            2001
            51,268
            April
      2010 to June 2010Goldeneye
            2002
            52,421
            May
      2010 to July 2010Griffon
            1995
            46,635
            February
      2010 to May 2010Harrier
            2001
            50,296
            April
      2010 to August 2010Hawk
      I
            2001
            50,296
            May
      2010 to August 2010Heron
            2001
            52,827
            January
      2011 to May 2011Jaeger
            2004
            52,248
            April
      2010 to July 2010Kestrel
      I
            2004
            50,326
            March
      2010 to July 2010   6
  Kite
            1997
            47,195
            November
      2010 to January 2011Kittiwake
            2002
            53,146
            August
      2010 to October 2010Merlin
            2001
            50,296
            December
      2010 to March 2011Osprey
      I
            2002
            50,206
            March
      2010 to May 2010Peregrine
            2001
            50,913
            Jan
      2011 to Mar 2011Redwing
            2007
            53,411
            August
      2010 to October 2010Shrike
            2003
            53,343
            May
      2010 to August 2010Skua
            2003
            53,350
            September
      2010 to November 2010Sparrow
            2000
            48,225
            February
      2010 to May 2010Stellar
      Eagle
            2009
            55,989
            February
      2010 to May 2010Tern
            2003
            50,200
            June
      2010 to August 2010Woodstar
            2008
            53,390
            December
      2018 to April 2019Wren
            2008
            53,349
            December
      2018 to April 2019





(1)
            The
      date range provided represents the earliest and latest date on which the
      charterer may redeliver the vessel to the Company upon the conclusion of
      the charter.




Newbuilding
Acquisitions





We hold contracts for the construction
of a fleet of Supramax vessels in Japan and China which have begun delivering
into our operating fleet. The newbuilding program in Japan consists of a total
of five vessels, of which three vessels have been constructed and delivered. The
CROWNED EAGLE, CRESTED EAGLE and STELLAR EAGLE, delivered in November 2008,
January 2009 and March 2009, respectively. The remaining two vessels, GOLDEN
EAGLE and IMPERIAL EAGLE were delivered in January and February 2010,
respectively.





During the third quarter of 2007, we
acquired the rights to 26 Supramax newbuilding vessels from Kyrini Shipping
Inc., an unrelated privately held Greek shipping company. Five of these Supramax
vessels are of the 53,000 dwt category, while the remaining 21 are of the 58,000
dwt category. Of these 26 vessels, 21 vessels are secured by long-term charters
for periods up to 2018.  We also received options for 9 additional
58,000 dwt Supramax newbuilding vessels from the shipyard in China. In December
2007, we exercised four of the nine options, and the options for the remaining
five vessels lapsed. In December 2008, we amended our newbuilding program with
the shipyard and converted the firm contracts on eight unchartered vessels into
options. Furthermore, the delivery of one of the unchartered vessels was delayed
from September 2009 to November 2010.





As of December 31, 2009, we have taken
delivery of four vessels from the shipyard in China. The WREN delivered in June
2008, the WOODSTAR in October 2008, the BITTERN in October 2009, and CANARY in
December 2009. In January and February 2010, we took delivery of four vessels
from the Chinese shipyard, CRANE, EGRET BULKER, THRASHER, and
AVOCET.





The
following table represents certain information about the Company's newbuilding
fleet, at December 31, 2009:





Vessel
              
              Dwt
              
              
              Year Built – Actual or Expected Delivery(1)
              
              Time Charter Employment(2)Thrasher
      (3)
              
              
              53,100
              
              
              
              2010Q1
              
              Dec
      2018/Apr 2019Crane
      (3)
              
              
              58,000
              
              
              
              2010Q1
              
              Dec
      2018/Apr 2019
   7
  Egret Bulker (3,4)
            58,000
            2010Q1
            Oct
      2012/Feb 2013Golden Eagle (3)
            56,000
            2010Q1
            Dec
      2010/Mar 2011Avocet (3)
            53,100
            2010Q1
            Dec
      2018/May 2019Imperial Eagle (3)
            56,000
            2010Q1
            Jan
      2011/Mar 2011Gannet Bulker(4)
            58,000
            2010Q2
            Jan
      2013/ May 2013Grebe Bulker(4)
            58,000
            2010Q2
            Jan
      2013/May 2013Ibis Bulker(4)
            58,000
            2010Q2
            Mar
      2013/Jul 2013Jay
            58,000
            2010Q3
            Dec
      2018/Apr 2019Kingfisher
            58,000
            2010Q3
            Dec
      2018/Apr 2019Martin
            58,000
            2010Q3
            Feb
      2017/Feb 2018Thrush
            53,100
            2010Q4
            Charter
      FreeNighthawk
            58,000
            2011Q1
            Sep
      2017/Sep 2018Oriole
            58,000
            2011Q3
            Jan
      2018/Jan 2019Owl
            58,000
            2011Q3
            Feb
      2018/Feb 2019Petrel (4)
            58,000
            2011Q4
            Jun
      2014/Oct 2014Puffin (4)
            58,000
            2011Q4
            Jul
      2014/Nov 2014Roadrunner (4)
            58,000
            2011Q4
            Aug
      2014/Dec 2014Sandpiper (4)
            58,000
            2011Q4
            Sep
      2014/Jan 2015CONVERTED INTO OPTIONSSnipe
            58,000
            2012Q1
            Charter
      FreeSwift
            58,000
            2012Q1
            Charter
      FreeRaptor
            58,000
            2012Q2
            Charter
      FreeSaker
            58,000
            2012Q2
            Charter
      FreeBesra
      (5)
            58,000
            2011Q4
            Charter
      FreeCernicalo (5)
            58,000
            2011Q1
            Charter
      FreeFulmar (5)
            58,000
            2011Q3
            Charter
      FreeGoshawk (5)
            58,000
            2011Q4
            Charter
      Free


(1)
            Vessel
      build and delivery dates are estimates based on guidance received from
      shipyard.


(2)
            The
      date range represents the earliest and latest date on which the charterer
      may redeliver the vessel to the Company upon conclusion of the
      charter.


(3)
            The
      THRASHER, CRANE, AVOCET, EGRET BULKER, GOLDEN EAGLE and IMPERIAL EAGLE
      delivered in the first quarter of
2010.


(4)
            The
      charterer has an option to extend the charter by one or two periods of 11
      to 13 months each.


(5)
            Options
      for construction declared on December 27, 2007. Firm contracts converted
      back to options in December 2008.





Nature
of Business





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. A significant proportion of the time
charters on our operating fleet range in length from one to three
years.  During 2009, we have also entered into charters whose revenues
are linked to the Baltic Supramax index and have durations of one-year or less.
Similarly, we expect that 21 of the 27 newbuilding vessels recently delivered or
under construction are scheduled to enter into time charters averaging
approximately six years duration as of December 31, 2009. We regularly monitor
the dry bulk shipping market and based on market conditions we may consider
taking advantage of short-term charter rates.






8





A time charter involves the hiring of a
vessel from its owner for a period of time pursuant to a contract under which
the vessel owner places its ship (including its crew and equipment) at the
service of the charterer. Under a typical time charter, the charterer
periodically pays us a fixed daily charter hire rate and bears all voyage
expenses, including the cost of fuel and port and canal charges. Once we have
time chartered a vessel, trading of the vessel and the commercial risks shift to
the customer. Subject to certain restrictions imposed by us in the contract, the
charterer determines the type and quantity of cargo to be carried and the ports
of loading and discharging. We have contracted the technical operations of the
vessel to third party vessel managers and we oversee the technical operation and
navigation of the vessel at all times, including monitoring vessel operating
expenses, such as the cost of crewing, insuring, repairing and maintaining the
vessel, costs of spare parts and supplies, tonnage taxes and other miscellaneous
expenses.





In connection with the charter of each
of our vessels, 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 to
in-house ship brokers associated with the charterers, depending on the number of
brokers involved with arranging the relevant charter.





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





Our
Customers





Our customers include international
companies such as BHP, Bunge S.A., Clipper Bulk, Cosco Bulk Carriers Co.,Ltd.,
Eitzen Bulk AS, Hanjin, Hyundai Merchant Marine Co., Ltd., Lauritzen Bulkers AS,
Korea Line, Ltd., Oldendorff Carriers GmbH & Co.KG, Pacific Basin, San Juan
Navigation Corp., Western Bulk Carriers ASA. Our assessment of a charterer's
financial condition and reliability is an important factor in negotiating
employment for our vessels. We expect to charter our vessels to major trading
houses (including commodities traders), publicly traded companies, reputable
vessel owners and operators, major producers and government-owned entities
rather than to more speculative or undercapitalized entities. We evaluate the
counterparty risk of potential charterers based on our management's experience
in the shipping industry combined with the additional input of two independent
credit risk consultants. In 2009, four customers individually accounted for more
than 10% of our time charter revenue.





Operations





There are two central aspects to the
operation of our fleet:





·
            Commercial
      Operations, which involves chartering and operating a vessel;
      and





·
            Technical
      Operations, which involves maintaining, crewing and insuring a
      vessel.





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 was formed in January 2005 and maintains its principle executive offices in
New York City. Our office staff, either directly or through this subsidiary,
provides the following services:





·
            commercial
      operations and technical
supervision;





·
            safety
      monitoring;





·
            vessel
      acquisition; and





·
            financial,
      accounting and information technology
services.





We
currently have 32 shore based personnel in our principal executive office and 21
personnel on-site at the shipyards supervising our newbuilding
program.





Commercial
      and Strategic Management





We perform all of the commercial and
strategic management of our fleet that includes obtaining employment for our
vessels and maintaining our relationships with our charterers. We believe that
because our management team has an average of 20 years experience in operating
Handymax and Handysize dry bulk vessels, we have access to a broad range of
charterers and can employ the fleet efficiently in any market and achieve high
utilization rates.






9





In accordance with our strategy, we
have entered into time charters for all 27 of our vessels currently in the
operating fleet and 19 of the 20 vessels under construction. In general, our
time charters afford us greater assurance that we will be able to cover a fixed
portion of our costs, mitigate revenue volatility, provide stable cash flow and
achieve higher utilization rates than if our vessels were employed on the
shorter term voyage charters or on the spot market.





We regularly monitor the dry bulk
shipping market and, based on market conditions, when a time charter ends, we
may consider taking advantage of short-term charter rates. In such cases we will
arrange voyage charters for those vessels that we will operate in the spot
market. Under a voyage charter, the owner of a vessel provides the vessel for
the transport of goods between specific ports in return for the payment of an
agreed-upon freight per ton of cargo or, alternatively, a specified total
amount. All operating costs are borne by the owner of the vessel. A single
voyage charter is often referred to as a "spot market" charter, which generally
lasts from two to ten weeks. Operating vessels in the spot market may afford
greater speculative opportunity to capitalize on fluctuations in the spot
market; when vessel demand is high we earn higher rates, but when demand is low
our rates are lower and potentially insufficient to cover costs. Spot market
rates are volatile and are affected by world economics, international events,
weather conditions, strikes, governmental policies, supply and demand, and other
factors beyond our control. If the markets are especially weak for protracted
periods, there is a risk that vessels in the spot market may spend time idle
waiting for business, or may have to be "laid up".





·
            Identifying, purchasing, and
      selling vessels. We believe that our commercial management team has
      longstanding relationships in the dry bulk industry, which provides us
      access to an extensive network of ship brokers and vessel owners that we
      believe will provide us with an advantage in future
      transactions.





·
            Obtaining insurance coverage
      for our vessels. We have well-established relationships with
      reputable marine underwriters in all the major insurance markets around
      the world that helps insure our fleet with insurance at competitive
      rates.





·
            Supervising our third party
      technical managers. We regularly monitor the expenditures, crewing,
      and maintenance of our vessels by our technical managers, V.Ships, and
      Wilhemsen Ship Management, and Anglo Eastern International Ltd. In 2009,
      we set up our own in-house technical management capability in order to
      establish a vessel management bench-mark with our external technical
      managers. Our management team has direct experience with vessel
      operations, repairs, drydockings and vessel
  construction.





Technical
      Management





The technical management of our fleet
is provided by our unaffiliated third party technical managers, V.Ships,
Wilhelmsen Ship Management and Anglo Eastern International Ltd., that we believe
are three of the world's largest providers of independent ship management and
related services. We have also set up our own in-house technical management
capability in order to establish a vessel management bench-mark with our
external technical managers. We review the performance of our managers 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. Our technical managers also manage
and process all crew insurance claims. Our technical managers maintain records
of all costs and expenditures incurred in connection with their services that
are available for our review on a daily basis. Our technical managers are
members of marine contracting associations which arrange bulk purchasing thereby
enabling us to benefit from economies of scale.






10





We
currently crew our vessels primarily with officers and seamen from Ukraine and
Romania who are supplied by our managers. As of December 31, 2009, we employed a
total of 568 officers and seamen on the 27 vessels in our operating fleet. Each
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.





We pay our unaffiliated technical
managers a monthly fee per vessel plus actual costs incurred by our vessels.
These monthly fees averaged $9, 233 per vessel in 2009, $9,041 per vessel in
2008, and $8,906 per vessel in 2007.





Permits
and Authorizations





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





Environmental
and Other Regulations





Government
regulation significantly affects the ownership and operation of our vessels. We
are subject to international conventions and treaties, national, state and local
laws and regulations in force in the countries in which our vessels may operate
or are registered relating to safety and health and environmental protection
including the storage, handling, emission, transportation and discharge of
hazardous and non-hazardous materials, and the remediation of contamination and
liability for damage to natural resources. Compliance with such laws,
regulations and other requirements entails significant expense, including vessel
modifications and implementation of certain operating procedures.





A variety
of government and private entities subject our vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities
(United States Coast Guard, harbor master or equivalent), classification
societies; flag state administrations (country of registry) and charterers,
particularly terminal operators. Certain of these entities require us to obtain
permits, licenses and certificates for the operation of our vessels. Failure to
maintain necessary permits or approvals could require us to incur substantial
costs or temporarily suspend the operation of one or more of our
vessels.





We believe that the heightened level of
environmental and quality concerns among insurance underwriters, regulators and
charterers is leading to greater inspection and safety requirements on all
vessels and may accelerate the scrapping of older vessels throughout the dry
bulk shipping industry. Increasing environmental concerns have created a demand
for vessels that conform to the stricter environmental standards. We are
required to maintain operating standards for all of our vessels that emphasize
operational safety, quality maintenance, continuous training of our officers and
crews and compliance with United States and international regulations. We
believe that the operation of our vessels is in substantial compliance with
applicable environmental laws and regulations and that our vessels have all
material permits, licenses, certificates or other authorizations necessary for
the conduct of our operations. However, because such laws and regulations are
frequently changed and may impose increasingly stricter requirements, we cannot
predict the ultimate cost of complying with these requirements, or the impact of
these requirements on the resale value or useful lives of our
vessels.  In addition, a future serious marine incident that causes
significant adverse environmental impact could result in additional legislation
or regulation that could negatively affect our profitability.









11




International Maritime
Organization


The
International Maritime Organization ("IMO"), the United Nations agency for
maritime safety and the prevention of pollution by ships, or the IMO, has
adopted the International Convention for the Prevention of Marine Pollution,
1973, as modified by the related Protocol of 1978 relating thereto, which has
been updated through various amendments, or the MARPOL Convention. The MARPOL
Convention establishes environmental standards relating to oil leakage or
spilling, garbage management, sewage, air emissions, handling and disposal of
noxious liquids and the handling of harmful substances in packaged forms. The
IMO adopted regulations that set forth pollution prevention requirements
applicable to dry bulk carriers. These regulations have been adopted by over 150
nations, including many of the jurisdictions in which our vessels
operate.





In
September 1997, the IMO adopted Annex VI to the MARPOL Convention, Regulations
for the Prevention of Pollution from Ships, to address air pollution from ships.
Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide
emissions from all commercial vessel exhausts and prohibits deliberate emissions
of ozone depleting substances (such as halons and chlorofluorocarbons),
emissions of volatile compounds from cargo tanks, and the shipboard incineration
of specific substances. Annex VI also includes a global cap on the sulfur
content of fuel oil and allows for special areas to be established with more
stringent controls on sulfur emissions. We believe that all our vessels are
currently compliant in all material respects with these regulations. In October
2008, the IMO adopted amendments to Annex VI regarding nitrogen oxide and sulfur
oxide emissions standards which are expected to enter into force on July 1,
2010. The amended Annex VI would reduce air pollution from vessels by, among
other things, (i) implementing a progressive reduction of sulfur oxide emissions
from ships, with the global sulfur cap reduced initially to 3.50% (from the
current cap of 4.50%), effective from January 1, 2012, then progressively to
0.50%, effective from January 1, 2020, subject to a feasibility review to be
completed no later than 2018; and (ii) establishing new tiers of stringent
nitrogen oxide emissions standards for new marine engines, depending on their
date of installation. Once these amendments become effective, we may incur costs
to comply with these revised standards. Also in October 2008, the United States became a party to
the MARPOL Convention by depositing an instrument of ratification with the IMO
for the amended Annex VI, thereby rendering U.S. air emissions standards
equivalent to IMO requirements.





Safety
Management System Requirements





The
operation of our vessels is also affected by the requirements set forth in the
IMO's International Convention for the Safety of Life at Sea, or SOLAS and the
International Convention on Load Lines, or the LL Convention, which impose a
variety of standards that regulate the design and operational features of ships.
The IMO periodically revises the SOLAS and LL Convention standards. We believe
that all our vessels are in material compliance with SOLAS and LL Convention
standards.





Under
Chapter IX of SOLAS, the International Safety Management Code for the Safe
Operation of Ships and for Pollution Prevention, or ISM Code, our operations are
also subject to environmental standards and requirements contained in the ISM
Code promulgated by the IMO. The ISM Code requires the party with operational
control of a vessel to develop an extensive safety management system that
includes, among other things, the adoption of a safety and environmental
protection policy setting forth instructions and procedures for operating its
vessels safely and describing procedures for responding to emergencies. We rely
upon the safety management system that we and our technical manager have
developed for compliance with the ISM Code. The failure of a ship owner or
bareboat charterer to comply with the ISM Code may subject such party to
increased liability, may decrease available insurance coverage for the affected
vessels and may result in a denial of access to, or detention in, certain ports.
As of the date of this filing, all of the vessels in our operating fleet are ISM
code-certified.





The ISM
Code requires that vessel operators obtain a safety management certificate for
each vessel they operate. This certificate evidences compliance by a vessel's
management with the ISM Code requirements for a safety management system. No
vessel can obtain a safety management certificate unless its manager has been
awarded a document of compliance, issued by each flag state, under the ISM Code.
Our appointed ship managers have obtained documents of compliance for their
offices and safety management certificates for all of our vessels for which the
certificates are required by the IMO. The document of compliance, or the DOC,
and ship management certificate, or the SMC, are renewed every five years but
the DOC is subject to audit verification annually and the SMC at least every 2.5
years.




Pollution
Control and Liability Requirements





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





Although
the United States is not a
party to these conventions, many countries have ratified and follow the
liability plan adopted by the IMO and set out in the International Convention on
Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or the
CLC. Under this convention and depending on whether the country in which the
damage results is a party to the 1992 Protocol to the CLC, a vessel's registered
owner is strictly liable for pollution damage caused in the territorial waters
of a contracting state by discharge of persistent oil, subject to certain
defenses.  The limits on liability outlined in the 1992 Protocol use
the International Monetary Fund currency unit of Special Drawing Rights, or SDR.
Under an amendment to the 1992 Protocol that became effective on November 1,
2003, for vessels between 5,000 and 140,000 gross tons (a unit of measurement
for the total enclosed spaces within a vessel), liability is limited to
approximately $6.69 million (4.51 million SDR) plus $937 (631 SDR) for each
additional gross ton over 5,000. For vessels of over 140,000 gross tons,
liability is limited to $133.24 million (89.77 million SDR).  As the
convention calculates liability in terms of a basket of currencies, these
figures are based on currency exchange rates of 0.673737 SDR per U.S. dollar on
February 23, 2009. The right to limit liability is forfeited under the CLC where
the spill is caused by the ship owner's actual fault and under the 1992 Protocol
where the spill is caused by the ship owner's intentional or reckless conduct.
Vessels trading with states that are parties to these conventions must provide
evidence of insurance covering the liability of the owner. In jurisdictions
where the CLC has not been adopted, various legislative schemes or common law
govern, and liability is imposed either on the basis of fault or in a manner
similar to that of the convention. We believe that our protection and indemnity
insurance will cover the liability under the plan adopted by the
IMO.





In March
2006, the IMO amended Annex I to MARPOL, including a new regulation relating to
oil fuel tank protection, which became effective August 1, 2007.  The
new regulation will apply to various ships delivered on or after August 1,
2010.  It includes requirements for the protected location of the fuel
tanks, performance standards for accidental oil fuel outflow, a tank capacity
limit and certain other maintenance, inspection and engineering
standards.





The IMO
adopted the International Convention on Civil Liability for Bunker Oil Pollution
Damage, or the Bunker Convention, to impose strict liability on ship owners for
pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention, which became effective on
November 21, 2008, requires registered owners of ships over 1,000 gross tons to
maintain insurance for pollution damage in an amount equal to the limits of
liability under the applicable national or international limitation regime (but
not exceeding the amount calculated in accordance with the Convention on
Limitation of Liability for Maritime Claims of 1976, as
amended).  With respect to non-ratifying states, liability for spills
or releases of oil carried as fuel in ship's bunkers typically is determined by
the national or other domestic laws in the jurisdiction where the events or
damages occur.





IMO
regulations also require owners and operators of vessels to adopt Ship Oil
Pollution Emergency Plans. Periodic training and drills for response personnel
and for vessels and their crews are required.





Anti-Fouling
Requirements





In 2001,
the IMO adopted the International Convention on the Control of Harmful
Anti-fouling Systems on Ships, or the Anti-fouling Convention.  The
Anti-fouling Convention prohibits the use of organotin compound coatings to
prevent the attachment of mollusks and other sea life to the hulls of vessels
after September 1, 2003.  The exteriors of vessels constructed prior
to January 1, 2003 that have not been in drydock must, as of September 17, 2008,
either not contain the prohibited compounds or have coatings applied to the
vessel exterior that act as a barrier to the leaching of the prohibited
compounds.  Vessels of over 400 gross tons engaged in international
voyages must obtain an International Anti-fouling System Certificate and undergo
a survey before the vessel is put into service or when the anti-fouling systems
are altered or replaced. We have obtained Anti-fouling System Certificates for
all of our vessels that are subject to the Anti-fouling Convention.






12





Compliance
Enforcement





The flag
state, as defined by the United Nations Convention on Law of the Sea, has
overall responsibility for the implementation and enforcement of international
maritime regulations for all ships granted the right to fly its flag. The
"Shipping Industry Guidelines on Flag State Performance" evaluates flag states
based on factors such as sufficiency of infrastructure, ratification of
international maritime treaties, implementation and enforcement of international
maritime regulations, supervision of surveys, casualty investigations and
participation at IMO meetings. Our vessels are flagged in the Marshall Islands. Marshall
Islands-flagged vessels have historically received a good assessment in the
shipping industry.  We recognize the importance of a credible flag
state and do not intend to use flags of convenience or flag states with poor
performance indicators.




Noncompliance
with the ISM Code or other IMO regulations may subject the ship owner or
bareboat charterer to increased liability, may lead to decreases in available
insurance coverage for affected vessels and may result in the denial of access
to, or detention in, some ports. The U.S. Coast Guard and European Union
authorities have indicated that vessels not in compliance with the ISM Code by
the applicable deadlines will be prohibited from trading in U.S. and European Union ports,
respectively. As of the date of this report, each of our vessels is ISM Code
certified.  However, there can be no assurance that such certificate
will be maintained.





The IMO
continues to review and introduce new regulations. It is impossible to predict
what additional regulations, if any, may be passed by the IMO and what effect,
if any, such regulations might have on our operations.





The
U.S. Oil Pollution Act of 1990 and Comprehensive Environmental Response,
Compensation and Liability Act





The U.S.
Oil Pollution Act of 1990, or OPA, established an extensive regulatory and
liability regime for the protection and cleanup of the environment from oil
spills. OPA affects all owners and operators whose vessels trade in the United
States, its territories and possessions or whose vessels operate in United
States waters, which includes the United States' territorial sea and its two
hundred nautical mile exclusive economic zone.  The United States has also enacted
the Comprehensive Environmental Response, Compensation and Liability Act, or
CERCLA, which applies to the discharge of hazardous substances other than oil,
whether on land or at sea.  Both OPA and CERCLA impact our
operations.





Under
OPA, vessel owners, operators and bareboat charterers are "responsible parties"
and are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from discharges or
threatened discharges of oil from their vessels. OPA defines these other damages
broadly to include:





·
            natural
      resources damage and the costs of assessment
  thereof;





·
            real
      and personal property damage;





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





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





·
            net
      cost of public services necessitated by a spill response, such as
      protection from fire, safety or health hazards;
  and





·
            loss
      of subsistence use of natural
resources.






13





Under
amendments to OPA that became effective on July 11, 2006, the liability of
responsible parties is limited to the greater of $950 per gross ton or $0.8
million per non-tank (e.g. dry bulk) vessel that is over 300 gross tons (subject
to periodic adjustment for inflation). CERCLA, which applies to owners and
operators of vessels, contains a similar liability regime and provides for
cleanup, removal and natural resource damages.  Liability under CERCLA
is limited to the greater of $300 per gross ton or $5 million for vessels
carrying a hazardous substance as cargo and the greater of $300 per gross ton or
$0.5 million for any other vessel.  These limits of liability do not
apply if an incident was directly caused by violation of applicable U.S. federal
safety, construction or operating regulations or by a responsible party's gross
negligence or willful misconduct, or if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with oil removal
activities.





We
currently maintain pollution liability coverage insurance in the amount of $1
billion per incident for each of our vessels. If the damages from a catastrophic
spill were to exceed our insurance coverage it could have an adverse effect on
our business and results of operation.





OPA also
requires owners and operators of vessels to establish and maintain with the U.S.
Coast Guard evidence of financial responsibility sufficient to meet their
potential liabilities under OPA and CERCLA.  On October 17, 2008, the
U.S. Coast Guard regulatory requirements under OPA and CERCLA were amended to
require evidence of financial responsibility in amounts that reflect the higher
limits of liability imposed by the 2006 amendments to OPA, as described above.
The increased amounts became effective on January 15, 2009.  In
addition, on September 24, 2008, the U.S. Coast Guard proposed adjustments to
the limits of liability for non-tank vessels that would further increase the
limits to the greater of $1,000 per gross ton or $848,000 and establish a
procedure for adjusting the limits for inflation every three
years.  The Coast Guard is currently soliciting comments on the
proposal.  Under the regulations, vessel owners and operators may
evidence their financial responsibility by showing proof of insurance, surety
bond, self-insurance or guaranty. Under OPA, an owner or operator of a fleet of
vessels is required only to demonstrate evidence of financial responsibility in
an amount sufficient to cover the vessels in the fleet having the greatest
maximum liability under OPA.





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





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





OPA
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for oil
spills. In some cases, states, which have enacted such legislation, have not yet
issued implementing regulations defining vessels owners' responsibilities under
these laws. We intend to comply with all applicable state regulations in the
ports where our vessels call.  We believe that we are in substantial
compliance with all applicable existing state requirements.  In
addition, we intend to comply with all future applicable state regulations in
the ports where our vessels call.









14




Other
Environmental Initiatives


The U.S.
Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances
in U.S. navigable waters
unless authorized by a duly-issued permit or exemption, and imposes strict
liability in the form of penalties for any unauthorized discharges. The CWA also
imposes substantial liability for the costs of removal, remediation and damages
and complements the remedies available under OPA and CERCLA. In addition, most
U.S. states that border a
navigable waterway have enacted environmental pollution laws that impose strict
liability on a person for removal costs and damages resulting from a discharge
of oil or a release of a hazardous substance. These laws may be more stringent
than U.S. federal
law.





The U.S.
Environmental Protection Agency, or EPA, historically exempted the discharge of
ballast water and other substances incidental to the normal operation of vessels
in U.S. waters from CWA
permitting requirements. However, on March 31, 2005, a U.S. District Court ruled
that the EPA exceeded its authority in creating an exemption for ballast water.
On September 18, 2006, the court issued an order invalidating the exemption in
the EPA's regulations for all discharges incidental to the normal operation of a
vessel as of September 30, 2008, and directed the EPA to develop a system for
regulating all discharges from vessels by that date. The District Court's
decision was affirmed by the Ninth Circuit Court of Appeals on July 23, 2008.
The Ninth Circuit's ruling meant that owners and operators of vessels traveling
in U.S. waters would soon
be required to comply with the CWA permitting program to be developed by the EPA
or face penalties.





In
response to the invalidation and removal of the EPA's vessel exemption by the
Ninth Circuit, the EPA has enacted rules governing the regulation of ballast
water discharges and other discharges incidental to the normal operation of
vessels within U.S.
waters. Under the new rules, which took effect February 6, 2009, commercial
vessels 79 feet in length or longer (other than commercial fishing vessels), or
Regulated Vessels, are required to obtain a CWA permit regulating and
authorizing such normal discharges. This permit, which the EPA has designated as
the Vessel General Permit for Discharges Incidental to the Normal Operation of
Vessels, or VGP, incorporates the current U.S. Coast Guard requirements for
ballast water management as well as supplemental ballast water requirements, and
includes limits applicable to 26 specific discharge streams, such as deck
runoff, bilge water and gray water.





For each
discharge type, among other things, the VGP establishes effluent limits
pertaining to the constituents found in the effluent, including best management
practices, or BMPs, designed to decrease the amount of constituents entering the
waste stream. Unlike land-based discharges, which are deemed acceptable by
meeting certain EPA-imposed numerical effluent limits, each of the 26 VGP
discharge limits is deemed to be met when a Regulated Vessel carries out the
BMPs pertinent to that specific discharge stream. The VGP imposes additional
requirements on certain Regulated Vessel types that emit discharges unique to
those vessels. Administrative provisions, such as inspection, monitoring,
recordkeeping and reporting requirements are also included for all Regulated
Vessels.





In
addition, pursuant to §401 of the CWA which requires each state to certify
federal discharge permits such as the VGP, certain states have enacted
additional discharge standards as conditions to their certification of the VGP.
These local standards bring the VGP into compliance with more stringent state
requirements, such as those further restricting ballast water discharges and
preventing the introduction of non-indigenous species considered to be invasive.
The VGP and its state-specific regulations and any similar restrictions enacted
in the future will increase the costs of operating in the relevant
waters.





The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or the CAA, requires the EPA to promulgate standards applicable to
emissions of volatile organic compounds and other air contaminants. Our vessels
are subject to vapor control and recovery requirements for certain cargoes when
loading, unloading, ballasting, cleaning and conducting other operations in
regulated port areas. Our vessels that operate in such port areas with
restricted cargoes are equipped with vapor recovery systems that satisfy these
requirements. The CAA also requires states to draft State Implementation Plans,
or SIPs, designed to attain national health-based air quality standards in
primarily major metropolitan and/or industrial areas. Several SIPs regulate
emissions resulting from vessel loading and unloading operations by requiring
the installation of vapor control equipment. As indicated above, our vessels
operating in covered port areas are already equipped with vapor recovery systems
that satisfy these existing requirements.






15





As
referenced above, the amended Annex VI to the IMO's MARPOL Convention, which
addresses air pollution from ships, was ratified by the United States on October 9, 2008
and entered into force domestically on January 8, 2009. The EPA and the state of
California, however, have
each proposed more stringent regulations of air emissions from ocean-going
vessels. On July 24, 2008, the California Air Resources Board of the State of
California, or CARB, approved clean-fuel regulations applicable to all vessels
sailing within 24 miles of the California coastline whose itineraries call for
them to enter any California ports, terminal facilities, or internal or
estuarine waters. The new CARB regulations require such vessels to use low
sulfur marine fuels rather than bunker fuel. By July 1, 2009, such vessels are
required to switch either to marine gas oil with a sulfur content of no more
than 1.5% or marine diesel oil with a sulfur content of no more than 0.5%. By
2012, only marine gas oil and marine diesel oil fuels with 0.1% sulfur will be
allowed. CARB unilaterally approved the new regulations in spite of legal
defeats at both the district and appellate court levels, but more legal
challenges are expected to follow. If CARB prevails and the new regulations go
into effect as scheduled on July 1, 2009, in the event our vessels were to
travel within such waters, these new regulations would require significant
expenditures on low-sulfur fuel and would increase our operating costs. Finally,
although the more stringent CARB regime was technically superseded when the
United States ratified and implemented the amended Annex VI, the possible
declaration of various U.S. coastal waters as Emissions Control Areas may in
turn bring U.S. emissions standards into line with the new CARB regulations,
which would cause us to incur further costs.





The U.S.
National Invasive Species Act, or NISA, was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through ballast water
taken on by ships in foreign ports. NISA established a ballast water management
program for ships entering U.S. waters. Under NISA,
mid-ocean ballast water exchange is voluntary, except for ships heading to the
Great Lakes or Hudson Bay,
or vessels engaged in the foreign export of Alaskan North Slope crude oil.
However, NISA's reporting and record-keeping requirements are mandatory for
vessels bound for any port in the United States. Although ballast
water exchange is the primary means of compliance with the act's guidelines,
compliance can also be achieved through the retention of ballast water on board
the ship, or the use of environmentally sound alternative ballast water
management methods approved by the U.S. Coast Guard. If the mid-ocean ballast
exchange is made mandatory throughout the United States, or if water
treatment requirements or options are instituted, the cost of compliance could
increase for ocean carriers. Although we do not believe that the costs of
compliance with a mandatory mid-ocean ballast exchange would be material, it is
difficult to predict the overall impact of such a requirement on the dry bulk
shipping industry. The U.S. House of Representatives has recently passed a bill
that amends NISA by prohibiting the discharge of ballast water unless it has
been treated with specified methods or acceptable alternatives. Similar bills
have been introduced in the U.S. Senate, but we cannot predict which bill, if
any, will be enacted into law. In the absence of federal standards, states have
enacted legislation or regulations to address invasive species through ballast
water and hull cleaning management and permitting requirements. For instance,
the state of California
has recently enacted legislation extending its ballast water management program
to regulate the management of "hull fouling" organisms attached to vessels and
adopted regulations limiting the number of organisms in ballast water
discharges. In addition, in November 2008 the Sixth Circuit affirmed a District
Court's dismissal of challenges to the state of Michigan's ballast water
management legislation mandating the use of various techniques for ballast water
treatment. Other states may proceed with the enactment of similar requirements
that could increase the costs of operating in state waters.





Our
operations occasionally generate and require the transportation, treatment and
disposal of both hazardous and non-hazardous solid wastes that are subject to
the requirements of the U.S. Resource Conservation and Recovery Act or
comparable state, local or foreign requirements. In addition, from time to time
we arrange for the disposal of hazardous waste or hazardous substances at
offsite disposal facilities. If such materials are improperly disposed of by
third parties, we may still be held liable for cleanup costs under applicable
laws.





European
Union Regulations





In 2005,
the European Union adopted a directive on ship-source pollution, imposing
criminal sanctions for intentional, reckless or negligent pollution discharges
by ships. The directive could result in criminal liability for pollution from
vessels in waters of European countries that adopt implementing
legislation.  Criminal liability for pollution may result in
substantial penalties or fines and increased civil liability
claims.






16





Greenhouse
Gas Regulation





In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, or the Kyoto Protocol, entered into force. Pursuant to the Kyoto
Protocol, adopting countries are required to implement national programs to
reduce emissions of certain gases, generally referred to as greenhouse gases,
which are suspected of contributing to global warming. Currently, the emissions
of greenhouse gases from international shipping are not subject to the Kyoto
Protocol. However, the European Union has indicated that it intends to propose
an expansion of the existing European Union emissions trading scheme to include
emissions of greenhouse gases from vessels. In the United States, the Attorneys
General from 16 states and a coalition of environmental groups in April 2008
filed a petition for a writ of mandamus, or petition, with the DC Circuit Court
of Appeals, or the DC Circuit, to request an order requiring the EPA to regulate
greenhouse gas emissions from ocean-going vessels under the Clean Air Act.
Although the DC Circuit denied the petition in June 2008, any future passage of
climate control legislation or other regulatory initiatives by the IMO, European
Union or individual countries where we operate that restrict emissions of
greenhouse gases could entail financial impacts on our operations that we cannot
predict with certainty at this time.





Vessel
Security Regulations





Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the U.S.
Maritime Transportation Security Act of 2002, or the MTSA came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in
December 2002, amendments to SOLAS created a new chapter of the convention
dealing specifically with maritime security. The new chapter became effective in
July 2004 and imposes various detailed security obligations on vessels and port
authorities, most of which are contained in the newly created International Ship
and Port Facilities Security Code, or the ISPS Code. The ISPS Code is designed
to protect ports and international shipping against terrorism. After July 1,
2004, to trade internationally, a vessel must attain an International Ship
Security Certificate from a recognized security organization approved by the
vessel's flag state. Among the various requirements are:





·
            on-board
      installation of automatic identification systems to provide a means for
      the automatic transmission of safety-related information from among
      similarly equipped ships and shore stations, including information on a
      ship's identity, position, course, speed and navigational
      status;





·
            on-board
      installation of ship security alert systems, which do not sound on the
      vessel but only alert the authorities on
shore;





·
            the
      development of vessel security
plans;





·
            ship
      identification number to be permanently marked on a vessel's
      hull;





·
            a
      continuous synopsis record kept onboard showing a vessel's history
      including the name of the ship and of the state whose flag the ship is
      entitled to fly, the date on which the ship was registered with that
      state, the ship's identification number, the port at which the ship is
      registered and the name of the registered owner(s) and their registered
      address; and





·
            compliance
      with flag state security certification
  requirements.





The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have
on board, as of July 1, 2004, a valid International Ship Security Certificate
attesting to the vessel's compliance with SOLAS security requirements and the
ISPS Code. Our managers intend to implement the various security measures
addressed by MTSA, SOLAS and the ISPS Code, and we intend that our fleet will
comply with applicable security requirements. We have implemented the various
security measures addressed by the MTSA, SOLAS and the ISPS Code.






17





Inspection
by Classification Societies





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





The
classification society also undertakes on request other surveys and checks that
are required by regulations and requirements of the flag state. These surveys
are subject to agreements made in each individual case and/or to the regulations
of the country concerned.





For
maintenance of the class certification, regular and extraordinary surveys of
hull, machinery, including the electrical plant, and any special equipment
classed are required to be performed as follows:





·
            Annual Surveys. For
      seagoing ships, annual surveys are conducted for the hull and the
      machinery, including the electrical plant and where applicable for special
      equipment classed, at intervals of 12 months from the date of commencement
      of the class period indicated in the
  certificate.





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





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





All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years. Vessels under five years of age can waive
drydocking in order to increase available days and decrease capital
expenditures, provided that the vessel is inspected underwater.




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





Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as "in class" by a classification society which is a member of the
International Association of Classification Societies, or IACS. All our vessels
that we have purchased and may agree to purchase in the future must be certified
as being "in class" prior to their delivery under our standard purchase
contracts and memorandum of agreement. If the vessel is not certified on the
date of closing, we have no obligation to take delivery of the vessel. We have
all of our vessels, and intend to have all vessels that we acquire in the
future, classed by IACS members.









18




Risk
of Loss and Liability Insurance


General





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





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





Since the
current dry bulk charter rates have fallen below their significant highs that
existed at or around the time the Company obtained charterers' default insurance
with respect to certain of its charters, the Company may determine to reduce or
let lapse its charterers' default insurances currently in place. The company
will review policy renewals as and when market conditions warrant.





Hull
& Machinery and War Risks Insurance





We
maintain marine hull and machinery, war risks insurances, and loss of hire
insurance, which cover the risk of actual or constructive total loss for all of
our vessels. Our vessels are each covered up to at least their fair market value
with a deductible of $75,000 per vessel per incident.





Protection
and Indemnity Insurance





Protection
and indemnity insurance is provided by mutual protection and indemnity
associations, or P&I Associations, which insure our third party liabilities
in connection with our shipping activities. This includes third-party liability
and other related expenses resulting from the injury, illness or death of crew,
passengers and other third parties, the loss or damage to cargo, claims arising
from collisions with other vessels, damage to other third-party property,
pollution arising from oil or other substances and salvage, towing and other
related costs, including wreck removal. [Protection and indemnity insurance is a
form of mutual indemnity insurance, extended by protection and indemnity mutual
associations, or "clubs."] Subject to the "capping" discussed below, our
coverage, except for pollution, is unlimited.





Our
current protection and indemnity insurance coverage for pollution is $1 billion
per vessel per incident. The 13 P&I Associations that comprise the
International Group insure approximately 90% of the world's commercial tonnage
and have entered into a pooling agreement to reinsure each association's
liabilities. As a member of P&I Associations, which are members of the
International Group, an advance call is paid to reflect the associations'
contribution to the International Group pool, taking into account the historical
record of that association within the pool, the premium income of that
association as a percentage of the total premium income of all associations in
the pool, the aggregate cost of all pool claims and the cost to the
International Group of putting the reinsurance program into place. We may also
be subject to additional or unbudgeted calls payable to an association should it
be deemed that such measures are necessary to maintain adequate levels of
capitalization or "free reserves".





Competition





We
compete with a large number of international dry bulk fleets. The international
shipping industry is highly competitive and fragmented with many market
participants. There are approximately 7,312 dry bulk carriers aggregating
approximately 459 million dwt, and the ownership of the world dry bulk fleet
remains very fragmented with no single owner accounting for more than 6% of any
one sector. We primarily compete with other owners of dry bulk vessels in the
Handymax class that are mainly privately owned fleets.






19





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 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.





Exchange
Controls





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





Tax
Considerations





The following is a discussion of the
material Marshall Islands and United States federal income tax considerations
relevant to owning common stock by a United States Holder or a non-United States
Holder, each as defined below. This discussion does not purport to deal with the
tax consequences of owning the common stock to all categories of investors, some
of which (such as financial institutions, regulated investment companies, real
estate investment trusts, tax-exempt organizations, insurance companies, persons
holding our common stock as part of a hedging, integrated, conversion or
constructive sale transaction or a straddle, traders in securities that have
elected the mark-to-market method of accounting for their securities, persons
liable for alternative minimum tax, persons who are investors in pass-through
entities, dealers in securities or currencies, persons who own 10% or more of
our common stock and investors whose functional currency is not the United
States dollar) may be subject to special rules. This discussion deals only with
holders who own the common stock as a capital asset. Shareholders are encouraged
to consult their own tax advisors concerning the overall tax consequences
arising in their own particular situation under United States federal, state,
local or foreign law of the ownership of our common stock.





Marshall
Islands Tax Considerations





In the
opinion of Seward & Kissel LLP, the following are the material Marshall Islands tax
consequences of our activities to us and shareholders of our common stock. We
are incorporated in the Marshall
Islands. Under current Marshall Islands law, we are not
subject to tax on income or capital gains, and no Marshall Islands withholding tax
will be imposed upon payments of dividends by us to our
shareholders.






20





United
States Federal Income Tax Considerations





In the
opinion of Seward & Kissel LLP, our United States counsel, the
following are the material United
States federal income tax consequences to us of our activities and to
United States Holders and to Non-United States Holders of our common stock. The
following discussion of United States federal income tax matters is based on the
Internal Revenue Code of 1986, as amended, or the Code, judicial decisions,
administrative pronouncements, and existing and proposed regulations issued by
the United States Department of the Treasury, all of which are subject to
change, possibly with retroactive effect. In addition, the discussion below is
based, in part, on the description of our business as described in ''Business''
in this annual report and assumes that we conduct our business as described in
that section.





We have
made, or will make, special United States federal income tax elections in
respect of each of our ship owning or operating subsidiaries that is potentially
subject to tax as a result of deriving income attributable to the transportation
of cargoes to or from the United States. The effect of the special U.S. tax
elections is to ignore or disregard the subsidiaries for which elections have
been made as separate taxable entities and to treat them as part of their
parent, the ''Company.'' Therefore, for purposes of the following discussion,
the Company, and not the subsidiaries subject to this special election, will be
treated as the owner and operator of the vessels and as receiving the income
therefrom.





United
StatesFederal Income Taxation of Our Company





Taxation
of Operating Income: In General





The
Company currently earns, and we anticipate that the Company will continue to
earn, substantially all its income from the hiring or leasing of vessels for use
on a time or voyage charter basis or from the performance of services directly
related to those uses, all of which we refer to as ''shipping
income.''





Unless
exempt from United States federal income taxation under the rules of Section 883
of the Code, or Section 883, as discussed below, a foreign corporation such as
ourselves will be subject to United States federal income taxation on its
''shipping income'' that is treated as derived from sources within the United
States, to which we refer as ''United States source shipping income.'' For tax
purposes, ''United States source shipping income'' includes 50% of shipping
income that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States.





Shipping
income attributable to transportation exclusively between non-United States
ports will be considered to be 100% derived from sources outside the United States. Shipping income
derived from sources outside the United States will not be
subject to any United
States federal income tax.





Shipping
income attributable to transportation exclusively between United States ports is
considered to be 100% derived from United States sources. However,
the Company is not permitted by United States law to engage in
the transportation of cargoes that produces 100% United States source
income.





Unless
exempt from tax under Section 883, the Company's gross United States source shipping
income would be subject to a 4% tax imposed without allowance for deductions as
described below.





Exemption of Operating Income fromUnited StatesFederal Income
Taxation





Under
Section 883 and the regulations thereunder, a foreign corporation will be exempt
from United States federal income taxation on its United States source shipping
income if:






21







(1)
            it
      is organized in a qualified foreign country, which is one that grants an
      ''equivalent exemption'' from tax to corporations organized in the United
      States in respect of each category of shipping income for which exemption
      is being claimed under Section 883 and to which we refer as the ''Country
      of Organization Test''; and(2)
            one
      of the following tests is met:  (A)
            more
      than 50% of the value of its shares is beneficially owned, directly or
      indirectly, by qualified shareholders, which as defined includes
      individuals who are ''residents'' of a qualified foreign country, to which
      we refer as the ''50% Ownership Test'';(B)
            its
      shares are ''primarily and regularly traded on an established securities
      market'' in a qualified foreign country or in the United States, to which
      we refer as the ''Publicly-Traded Test"; or(C)
            it
      is a ''controlled foreign corporation'' and satisfies an ownership test,
      to which, collectively, we refer as the ''CFC Test.''


The
Republic of the Marshall Islands, the jurisdiction where the Company is
incorporated, has been officially recognized by the IRS as a qualified foreign
country that grants the requisite ''equivalent exemption'' from tax in respect
of each category of shipping income the Company earns and currently expects to
earn in the future. Therefore, the Company will be exempt from United States
federal income taxation with respect to its United States source shipping income
if it satisfies any one of the 50% Ownership Test, the Publicly-Traded Test, or
the CFC Test.





We
believe that we currently satisfy the Publicly-Traded Test, as discussed in more
detail below. The Company does not currently anticipate a circumstance under
which it would be able to satisfy the 50% Ownership Test or the CFC
Test.





Publicly-Traded
Test





The
regulations under Section 883 provide, in pertinent part, that shares of a
foreign corporation will be considered to be ''primarily traded'' on an
established securities market in a country if the number of shares of each class
of shares that are traded during any taxable year on all established securities
markets in that country exceeds the number of shares in each such class that are
traded during that year on established securities markets in any other single
country. The Company's common stock, which is its sole class of issued and
outstanding shares, are ''primarily traded'' on the Nasdaq Global Select
Market.





Under the
regulations, the Company's common stock will be considered to be ''regularly
traded'' on an established securities market if one or more classes of its
shares representing more than 50% of its outstanding shares, by both total
combined voting power of all classes of shares entitled to vote and total value,
are listed on such market, to which we refer as the ''listing threshold.'' Since
our common stock, which is our sole class of issued and outstanding shares, is
listed on the Nasdaq Global Select Market, we believe that we satisfy the
listing threshold.





It is
further required that with respect to each class of shares relied upon to meet
the listing threshold, (i) such class of shares is traded on the market, other
than in minimal quantities, on at least 60 days during the taxable year or
one-sixth of the days in a short taxable year; and (ii) the aggregate number of
shares of such class of shares traded on such market during the taxable year is
at least 10% of the average number of shares of such class of shares outstanding
during such year or as appropriately adjusted in the case of a short taxable
year. We believe the Company will satisfy the trading frequency and trading
volume tests. Even if this were not the case, the regulations provide that the
trading frequency and trading volume tests will be deemed satisfied if, as is
the case with the Company's common stock, such class of shares is traded on an
established market in the United States and such shares are regularly quoted by
dealers making a market in such shares.





Notwithstanding
the foregoing, the regulations provide, in pertinent part, that a class of
shares will not be considered to be ''regularly traded'' on an established
securities market for any taxable year in which 50% or more of the vote and
value of the outstanding shares of such class are owned, actually or
constructively under specified share attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the vote and
value of such class of outstanding shares, to which we refer as the ''5 Percent
Override Rule.''






22





For
purposes of being able to determine the persons who actually or constructively
own 5% or more of the vote and value of the Company's common stock, or ''5%
Shareholders,'' the regulations permit the Company to rely on those persons that
are identified on Schedule 13G and Schedule 13D filings with the Commission, as
owning 5% or more of the Company's common stock. The regulations further provide
that an investment company which is registered under the Investment Company Act
of 1940, as amended, will not be treated as a 5% Shareholder for such
purposes.





In the
event the 5 Percent Override Rule is triggered, the regulations provide that the
5 Percent Override Rule will nevertheless not apply if the Company can establish
that within the group of 5% Shareholders, there are sufficient qualified
shareholders for purposes of Section 883 to preclude non-qualified shareholders
in such group from owning 50% or more of the Company's common stock for more
than half the number of days during the taxable year, which we refer to as the
''5 Percent Override Exception.''





The
Company does not believe that it is currently subject to the 5 Percent Override
Rule. Therefore, the Company believes that it currently qualifies for the
Publicly-Traded Test. However, there is no assurance that the Company will
continue to satisfy the Publicly-Traded Test. For example, the Company's
shareholders could change in the future, and thus the Company could become
subject to the 5 Percent Override Rule.





Taxation
in Absence of Section 883 Exemption


If the
benefits of Section 883 are unavailable, the Company's United States source
shipping income would be subject to a 4% tax imposed by Section 887 of the Code
on a gross basis, without the benefit of deductions, to the extent that such
income is not considered to be ''effectively connected'' with the conduct of a
United States trade or business, as described below. Since under the sourcing
rules described above, no more than 50% of the Company's shipping income would
be treated as being United States source shipping income, the maximum effective
rate of United States federal income tax on our shipping income would never
exceed 2% under the 4% gross basis tax regime. Based on the current operation of
our vessels, if we were subject to 4% gross basis tax, our United States federal
income tax liability would be approximately $900,000 and $1,400,000 for the
years ended December 31, 2009 and 2008, respectively. However, we can give no
assurance that the operation of our vessels, which are under the control of
third party charterers, will not change such that our United States federal income tax
liability would be substantially higher.





To the
extent the Company's United States source shipping income is considered to be
''effectively connected'' with the conduct of a United States trade or business,
as described below, any such ''effectively connected'' United States source
shipping income, net of applicable deductions, would be subject to United States
federal income tax, currently imposed at rates of up to 35%. In addition, the
Company may be subject to the 30% ''branch profits'' tax on earnings effectively
connected with the conduct of such trade or business, as determined after
allowance for certain adjustments, and on certain interest paid or deemed paid
attributable to the conduct of the Company's United States trade or
business.





The
Company's United States
source shipping income would be considered ''effectively connected'' with the
conduct of a United States
trade or business only if:





·
            the
      Company has, or is considered to have, a fixed place of business in the
      United States involved in the earning of United States source shipping
      income; and





·
            substantially
      all of the Company's United States source shipping income is attributable
      to regularly scheduled transportation, such as the operation of a vessel
      that follows a published schedule with repeated sailings at regular
      intervals between the same points for voyages that begin or end in the
      United States.






23





The
Company does not intend to have, or permit circumstances that would result in
having, any vessel sailing to or from the United States on a regularly
scheduled basis. Based on the foregoing and on the expected mode of the
Company's shipping operations and other activities, we believe that none of the
Company's United States source shipping income will be ''effectively connected''
with the conduct of a United States trade or business.





United
StatesTaxation of Gain
onSaleof
Vessels





If the
Company qualifies for exemption from tax under Section 883 in respect of the
shipping income derived from the international operation of its vessels, then
gain from the sale of any such vessel should likewise be exempt from tax under
Section 883. If, however, the Company's shipping income from such vessels does
not for whatever reason qualify for exemption under Section 883 and assuming
that any decision on a vessel sale is made from and attributable to the United
States office of the Company, as we believe likely to be the case as the Company
is currently structured, then any gain derived from the sale of any such vessel
will be treated as derived from United States sources and subject to United
States federal income tax as ''effectively connected'' income (determined under
rules different from those discussed above) under the above described net income
tax regime.





United
StatesFederal Income
Taxation ofUnited
StatesHolders


As used
herein, the term ''United States Holder'' means a beneficial owner of common
stock that is an individual United States citizen or resident, a United States
corporation or other United States entity taxable as a corporation, an estate
the income of which is subject to United States federal income taxation
regardless of its source, or a trust if a court within the United States is able
to exercise primary jurisdiction over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust.





If a
partnership holds our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common stock, you
are encouraged to consult your tax advisor.





Distributions


Subject
to the discussion of passive foreign investment companies below, any
distributions made by the Company with respect to its common stock to a United
States Holder will generally constitute dividends to the extent of the Company's
current or accumulated earnings and profits, as determined under United States
federal income tax principles. Distributions in excess of such earnings and
profits will be treated first as a nontaxable return of capital to the extent of
the United States Holder's tax basis in his common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because the Company is not a United States
corporation, United States Holders that are corporations will not be entitled to
claim a dividends received deduction with respect to any distributions they
receive from us. Dividends paid with respect to the Company's common stock will
generally be treated as ''passive category income'' for purposes of computing
allowable foreign tax credits for United States foreign tax credit
purposes.





Dividends
paid on the Company's common stock to a United States Holder who is an
individual, trust or estate (a ''United States Non-Corporate Holder'') will
generally be treated as ''qualified dividend income'' that is taxable to such
United States Non-Corporate Holder at preferential tax rates (through 2010)
provided that (1) the common stock is readily tradable on an established
securities market in the United States (such as the Nasdaq Global Select Market
on which the Company's common stock is traded); (2) the Company is not a passive
foreign investment company for the taxable year during which the dividend is
paid or the immediately preceding taxable year (which we do not believe we have
been, are or will be); (3) the United States Non-Corporate Holder has owned the
common stock for more than 60 days in the 121-day period beginning 60 days
before the date on which the common stock becomes ex-dividend; and (4) the
United States Non-Corporate Holder is not under an obligation to make related
payments with respect to positions in substantially similar or related
property.





There is
no assurance that any dividends paid on the Company's common stock will be
eligible for these preferential rates in the hands of a United States
Non-Corporate Holder, although we believe that they will be so eligible.
Legislation has been previously introduced in the U.S. Congress which, if
enacted in its present form, would preclude our dividends from qualifying for
such preferential rates prospectively from the date of enactment. Any dividends
out of earnings, and profits the Company pays, which are not eligible for these
preferential rates will be taxed as ordinary income to a United States
Non-Corporate Holder.






24





Special
rules may apply to any ''extraordinary dividend''—generally, a dividend in an
amount which is equal to or in excess of 10% of a shareholder's adjusted basis
in a common share—paid by the Company. If the Company pays an ''extraordinary
dividend'' on its common stock that is treated as ''qualified dividend income,''
then any loss derived by a United States Non-Corporate Holder from the sale or
exchange of such common stock will be treated as long-term capital loss to the
extent of such dividend.





Sale, Exchange or
Other Disposition of Common Stock





Assuming
the Company does not constitute a passive foreign investment company for any
taxable year, a United States Holder generally will recognize taxable gain or
loss upon a sale, exchange or other disposition of the Company's common stock in
an amount equal to the difference between the amount realized by the United
States Holder from such sale, exchange or other disposition and the United
States Holder's tax basis in such stock. Such gain or loss will be treated as
long-term capital gain or loss if the United States Holder's holding period is
greater than one year at the time of the sale, exchange or other disposition.
Such capital gain or loss will generally be treated as United States source income or
loss, as applicable, for United
States foreign tax credit purposes. Long-term capital gains of United
States Non-Corporate Holders are currently eligible for reduced rates of
taxation. A United States Holder's ability to deduct capital losses is subject
to certain limitations.





Passive
Foreign Investment Company Status and Significant Tax
Consequences





Special
United States federal income tax rules apply to a United States Holder that
holds shares in a foreign corporation classified as a ''passive foreign
investment company'' for United States federal income tax purposes. In general,
the Company will be treated as a passive foreign investment company with respect
to a United States Holder if, for any taxable year in which such holder holds
the Company's common stock, either:





·
            at
      least 75% of our gross income for such taxable year consists of passive
      income (e.g., dividends, interest, capital gains and rents derived other
      than in the active conduct of a rental business);
  or





·
            at
      least 50% of the average value of our assets during such taxable year
      produce, or are held for the production of, passive
  income.





Income
earned, or deemed earned, by the Company in connection with the performance of
services would not constitute passive income. By contrast, rental income would
generally constitute ''passive income'' unless the Company was treated under
specific rules as deriving its rental income in the active conduct of a trade or
business.





Based on
the Company's current operations and future projections, we do not believe that
the Company has been or is, nor do we expect the Company to become, a passive
foreign investment company with respect to any taxable year. Although there is
no legal authority directly on point, our belief is based principally on the
position that, for purposes of determining whether the Company is a passive
foreign investment company, the gross income it derives from its time chartering
and voyage chartering activities should constitute services income, rather than
rental income. Accordingly, such income should not constitute passive income,
and the assets that the Company owns and operates in connection with the
production of such income, in particular, the vessels, should not constitute
passive assets for purposes of determining whether the Company is a passive
foreign investment company. We believe there is substantial legal authority
supporting our position consisting of case law and IRS pronouncements concerning
the characterization of income derived from time charters and voyage charters as
services income for other tax purposes.  However, there is also
authority which characterizes time charter income as rental income rather than
services income for other tax purposes.  In addition, we have obtained
an opinion from our counsel, Seward & Kissel LLP, that, based upon the
Company's operations as described herein, its income from time charters and
voyage charters should not be treated as passive income for purposes of
determining whether it is a passive foreign investment company. However, in the absence
of any legal authority specifically relating to the statutory provisions
governing passive foreign investment companies, the IRS or a court could
disagree with our position. In addition, although the Company intends to conduct
its affairs in a manner to avoid being classified as a passive foreign
investment company with respect to any taxable year, we cannot assure you that
the nature of its operations will not change in the future.






25





As
discussed more fully below, if the Company were to be treated as a passive
foreign investment company for any taxable year, a United States Holder would be
subject to different taxation rules depending on whether the United States
Holder makes an election to treat the Company as a ''Qualified Electing Fund,''
which election we refer to as a ''QEF election.'' As an alternative to making a
QEF election, a United States Holder should be able to make a ''mark-to-market''
election with respect to the Company's common stock, as discussed
below.





Taxation ofUnited
StatesHolders Making a
Timely QEF Election





If a
United States Holder makes a timely QEF election, which United States Holder we
refer to as an ''Electing Holder,'' the Electing Holder must report for United
States federal income tax purposes its pro rata share of the Company's ordinary
earnings and net capital gain, if any, for each taxable year of the Company for
which it is a passive foreign investment company that ends with or within the
taxable year of the Electing Holder, regardless of whether or not distributions
were received from the Company by the Electing Holder. No portion of any such
inclusions of ordinary earnings will be treated as ''qualified dividend
income.'' Net capital gain inclusions of United States Non-Corporate Holders
would be eligible for preferential capital gains tax rates. The Electing
Holder's adjusted tax basis in the common stock will be increased to reflect
taxed but undistributed earnings and profits. Distributions of earnings and
profits that had been previously taxed will result in a corresponding reduction
in the adjusted tax basis in the common stock and will not be taxed again once
distributed. An Electing Holder would not, however, be entitled to a deduction
for its pro rata share of any losses that the Company incurs with respect to any
year. An Electing Holder would generally recognize capital gain or loss on the
sale, exchange or other disposition of the Company's common stock. A United
States Holder would make a timely QEF election for shares of the Company by
filing one copy of IRS Form 8621 with his United States federal income tax
return for the first year in which he held such shares when the Company was a
passive foreign investment company. If the Company were to be treated as a
passive foreign investment company for any taxable year, the Company would
provide each United States Holder with all necessary information in order to
make the QEF election described above.





Taxation ofUnited
StatesHolders Making a
''Mark-to-Market'' Election





Alternatively,
if the Company were to be treated as a passive foreign investment company for
any taxable year and, as we anticipate, its shares are treated as "marketable
stock", a United States Holder would be allowed to make a ''mark-to-market''
election with respect to the Company's common stock, provided the United States
Holder completes and files IRS Form 8621 in accordance with the relevant
instructions and related Treasury regulations. If that election is made, the
United States Holder generally would include as ordinary income in each taxable
year the excess, if any, of the fair market value of the common stock at the end
of the taxable year over such holder's adjusted tax basis in the common stock.
The United States Holder would also be permitted an ordinary loss in respect of
the excess, if any, of the United States Holder's adjusted tax basis in the
common stock over its fair market value at the end of the taxable year, but only
to the extent of the net amount previously included in income as a result of the
mark-to-market election. A United States Holder's tax basis in his common stock
would be adjusted to reflect any such income or loss amount. Gain realized on
the sale, exchange or other disposition of the Company's common stock would be
treated as ordinary income, and any loss realized on the sale, exchange or other
disposition of the common would be treated as ordinary loss to the extent that
such loss does not exceed the net mark-to-market gains previously included by
the United States Holder. No income inclusions under this election will be
treated as "qualified dividend income."





Taxation ofUnited
StatesHolders Not
Making a Timely QEF or Mark-to-Market
Election





Finally,
if the Company were to be treated as a passive foreign investment company for
any taxable year, a United States Holder who does not make either a QEF election
or a ''mark-to-market'' election for that year, whom we refer to as a
''Non-Electing Holder,'' would be subject to special rules with respect to (1)
any excess distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on the common stock in a taxable year in excess of 125% of
the average annual distributions received by the Non-Electing Holder in the
three preceding taxable years, or, if shorter, the Non-Electing Holder's holding
period for the common stock), and (2) any gain realized on the sale, exchange or
other disposition of the Company's common stock. Under these special
rules:






26





·
            the
      excess distribution or gain would be allocated ratably over the
      Non-Electing Holder's aggregate holding period for the common
      stock;





·
            the
      amount allocated to the current taxable year, and any taxable year prior
      to the first taxable year in which the Company was a passive foreign
      investment company, would be taxed as ordinary income and would not be
      ''qualified dividend income''; and





·
            the
      amount allocated to each of the other taxable years would be subject to
      tax at the highest rate of tax in effect for the applicable class of
      taxpayer for that year, and an interest charge for the deemed deferral
      benefit would be imposed with respect to the resulting tax attributable to
      each such other taxable year.





These
special rules would not apply to a qualified pension, profit sharing or other
retirement trust or other tax-exempt organization that did not borrow money or
otherwise utilize leverage in connection with its acquisition of the Company's
common stock. If the Company is a passive foreign investment company and a
Non-Electing Holder who is an individual dies while owning the Company's common
stock, such holder's successor generally would not receive a step-up in tax
basis with respect to such shares.





United
StatesFederal Income
Taxation of ''Non-United States
Holders''





A
beneficial owner of common stock (other than a partnership) that is not a United
States Holder is referred to herein as a "Non-United States
Holder".





If a
partnership holds our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common stock, you
are encouraged to consult your tax advisor.





Dividends
on Common Stock





Non-United
States Holders generally will not be subject to United States federal income tax
or withholding tax on dividends received from the Company with respect to its
common stock, unless that income is effectively connected with the Non-United
States Holder's conduct of a trade or business in the United States. If the Non-United
States Holder is entitled to the benefits of a United States income tax treaty
with respect to those dividends, that income is taxable only if it is
attributable to a permanent establishment maintained by the Non-United States
Holder in the United States.





Sale, Exchange or
Other Disposition of Common Stock





Non-United
States Holders generally will not be subject to United States federal income tax
or withholding tax on any gain realized upon the sale, exchange or other
disposition of the Company's common stock, unless:





·
            the
      gain is effectively connected with the Non-United States Holder's conduct
      of a trade or business in the United States (and, if the Non-United States
      Holder is entitled to the benefits of an income tax treaty with respect to
      that gain, that gain is attributable to a permanent establishment
      maintained by the Non-United States Holder in the United States);
      or





·
            the
      Non-United States Holder is an individual who is present in the United
      States for 183 days or more during the taxable year of disposition and
      other conditions are met.






27





If the
Non-United States Holder is engaged in a United States trade or business for
United States federal income tax purposes, the income from the common stock,
including dividends and the gain from the sale, exchange or other disposition of
the shares, that is effectively connected with the conduct of that trade or
business will generally be subject to regular United States federal income tax
in the same manner as discussed in the previous section relating to the taxation
of United States Holders. In addition, if you are a corporate Non-United States
Holder, your earnings and profits that are attributable to the effectively
connected income, which are subject to certain adjustments, may be subject to an
additional branch profits tax at a rate of 30%, or at a lower rate as may be
specified by an applicable income tax treaty.





Backup
Withholding and Information Reporting


In
general, dividend payments, or other taxable distributions, made within the
United States to you will
be subject to information reporting requirements if you are a non-corporate
United States Holder. Such payments or distributions may also be subject to
backup withholding tax if you are a non-corporate United States Holder and
you:





·
            fail
      to provide an accurate taxpayer identification
  number;





·
            are
      notified by the IRS that you have failed to report all interest or
      dividends required to be shown on your federal income tax returns;
      or





·
            in
      certain circumstances, fail to comply with applicable certification
      requirements.





Non-United
States Holders may be required to establish their exemption from information
reporting and backup withholding by certifying their status on IRS Form W-8BEN,
W-8ECI or W-8IMY, as applicable.





If you
are a Non-United States Holder and you sell your common stock to or through a
United States office of a
broker, the payment of the proceeds is subject to both United States backup withholding
and information reporting unless you certify that you are a non-United States
person, under penalties of perjury, or you otherwise establish an exemption. If
you sell your common stock through a non-United States office of a non-United
States broker and the sales proceeds are paid to you outside the United States, then information
reporting and backup withholding generally will not apply to that payment.
However, United States
information reporting requirements, but not backup withholding, will apply to a
payment of sales proceeds, even if that payment is made to you outside the United States, if you sell your
common stock through a non-United States office of a broker that is a United States person or has some
other contacts with the United
States. Such information reporting requirements will not apply, however,
if the broker has documentary evidence in its records that you are a non-United
States person and certain other conditions are met, or you otherwise establish
an exemption.





Backup
withholding tax is not an additional tax. Rather, you generally may obtain a
refund of any amounts withheld under backup withholding rules that exceed your
income tax liability by filing a refund claim with the IRS.





28


GLOSSARY
OF SHIPPING TERMS





Following are definitions of shipping
terms used in this Form 10-K.





Annual Survey—The inspection
of a vessel by a classification society, on behalf of a flag state, that takes
place every year.





Baltic Dry Index (BDI) —The
BDI is an index published by the Baltic Exchange which tracks worldwide
international shipping prices of various dry bulk cargoes.  The index
provides an assessment of the price for moving major raw materials by sea and is
composed of 20 key shipping routes.





Baltic Exchange—Based in
London, the Baltic Exchange is a market for the trading and settlement of
shipping and freight contracts.  The exchange publishes daily freight
market prices and maritime shipping cost indices, including: Baltic Dry Index
(BDI), Baltic Supramax Index (BSI), Baltic Panamax Index (BPI), Baltic Capesize
Index (BCI), Baltic Tanker Dirty Index (BDTI), and Baltic Tanker Clean Index
(BCTI).





Baltic Supramax Index (BSI)
—The BSI is an index published by the Baltic Exchange which tracks worldwide
international shipping prices of various dry bulk cargoes carried specifically
by the Supramax class of vessels.





Bareboat Charter—Also known as
"demise charter." Contract or hire of a ship under which the shipowner is
usually paid a fixed amount of charter hire rate for a certain period of time
during which the charterer is responsible for the operating costs and voyage
costs of the vessel as well as arranging for crewing.





Bulk Vessels/Carriers—Vessels
which are specially designed and built to carry large volumes of cargo in bulk
cargo form.





Bunkers—Heavy fuel oil used to
power a vessel's engines.





Capesize—A dry bulk carrier in
excess of 100,000 dwt.





Charter—The hire of a vessel
for a specified period of time or to carry a cargo for a fixed fee from a
loading port to a discharging port. The contract for a charter is called a
charterparty.





Charterer—The individual or
company hiring a vessel.





Charter Hire Rate—A sum of
money paid to the vessel owner by a charterer under a time charterparty for the
use of a vessel.





Classification Society—An
independent organization which certifies that a vessel has been built and
maintained in accordance with the rules of such organization and complies with
the applicable rules and regulations of the country of such vessel and the
international conventions of which that country is a member.





Deadweight Ton—"dwt"—A unit of
a vessel's capacity for cargo, fuel oil, stores and crew, measured in metric
tons of 1,000 kilograms. A vessel's DWT or total deadweight is the total weight
the vessel can carry when loaded to a particular load line.





Demise Charter—See bareboat
charter.





Draft—Vertical Distance
between the waterline and the bottom of the vessel's keel.





Dry Bulk—Non-liquid cargoes of
commodities shipped in an unpackaged state.





Drydocking—The removal of a
vessel from the water for inspection and/or repair of submerged
parts.






29





Gross Ton—Unit of 100 cubic
feet or 2.831 cubic meters used in arriving at the calculation of gross
tonnage.





Handymax—A dry bulk carrier of
approximately 35,000 to 60,000 dwt.





Handysize—A dry bulk carrier
having a carrying capacity of up to approximately 35,000 dwt.





Hull—The shell or body of a
vessel.





International Maritime
Organization—"IMO"—A United Nations agency that issues international
trade standards for shipping.





Intermediate Survey—The
inspection of a vessel by a classification society surveyor which takes place
between two and three years before and after each Special Survey for such vessel
pursuant to the rules of international conventions and classification
societies.





ISM Code—The International
Management Code for the Safe Operation of Ships and for Pollution Prevention, as
adopted by the IMO.





Metric Ton—A unit of
measurement equal to 1,000 kilograms.





Newbuilding—A newly
constructed vessel.





OPA—The United States Oil
Pollution Act of 1990 (as amended).





Orderbook—A reference to
currently placed orders for the construction of vessels (e.g., the Panamax
orderbook).





Panamax—A dry bulk carrier of
approximately 60,000 to 100,000 dwt of maximum length, depth and draft capable
of passing fully loaded through the Panama Canal.





Protection & Indemnity
Insurance—Insurance obtained through a mutual association formed by
shipowners to provide liability insurance protection from large financial loss
to one member through contributions towards that loss by all
members.





Scrapping—The disposal of old
or damaged vessel tonnage by way of sale as scrap metal.





Short-Term Time Charter—A time
charter which lasts less than approximately 12 months.





Sister Ships—Vessels of the
same class and specification which were built by the same shipyard.





SOLAS—The International
Convention for the Safety of Life at Sea 1974, as amended, adopted under the
auspices of the IMO.





Special Survey—The inspection
of a vessel by a classification society surveyor which takes place a minimum of
every four years and a maximum of every five years.





Spot Market—The market for
immediate chartering of a vessel usually for single voyages.





Strict Liability—Liability
that is imposed without regard to fault.





Supramax—A new class of
Handymax dry bulk carrier of approximately 50,000 to 60,000 dwt.





Time Charter—Contract for hire
of a ship. A charter under which the ship-owner is paid charter hire rate on a
per day basis for a certain period of time, the shipowner being responsible for
providing the crew and paying operating costs while the charterer is responsible
for paying the voyage costs. Any delays at port or during the voyages are the
responsibility of the charterer, save for certain specific exceptions such as
loss of time arising from vessel breakdown and routine maintenance.




Ton—A metric ton.
 
 Voyage Charter—Contract for
hire of a vessel under which a shipowner is paid freight on the basis of moving
cargo from a loading port to a discharge port. The shipowner is responsible for
paying both operating costs and voyage costs. The charterer is typically
responsible for any delay at the loading or discharging
ports.






30





Available
Information





The
Company makes available free of charge through its internet website, www.eagleships.com
its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as
soon as reasonably practicable after the Company electronically files such
material with, or furnishes it to, the Securities and Exchange Commission. You
may read and copy any document we file with the SEC at the SEC's public
reference facilities maintained by the Securities and Exchange Commission at 100
F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference facilities. Our
SEC filings are also available to the public at the SEC's web site at http://www.sec.gov.
The information on our website is not incorporated by reference into this
report.








31





ITEM
1A.   RISK FACTORS





We operate in an intensely competitive
industry. Some of the following risks relate principally to the industry in
which we operate and our business in general. Other risks relate principally to
the securities market, national and global economic conditions and the ownership
of our common stock. The occurrence of any of the events described in this
section could cause our  results to differ materially from those
contained in the forward-looking statements made in this report, and could
significantly and negatively affect our business, financial condition or
operating results.





Industry
Specific Risk Factors





Charter hire rates for dry bulk
vessels are volatile and have declined significantly since their historic highs
and may decrease in the future, which may adversely affect our
earnings.





The dry
bulk shipping industry is cyclical with attendant volatility in charterhire
rates and profitability. The degree of charter hire rate volatility among
different types of dry bulk vessels has varied widely, and charterhire rates for
dry bulk vessels have declined significantly from historically high levels.
Fluctuations in charter rates result from changes in the supply and demand for
vessel capacity and changes in the supply and demand for the major commodities
carried by water internationally. Because the factors affecting the supply and
demand for vessels are outside of our control and are unpredictable, the nature,
timing, direction and degree of changes in industry conditions are also
unpredictable.





Factors that influence demand for dry
bulk vessel capacity include:





·
            supply
      and demand for energy resources, commodities and industrial
      products;





·
            changes
      in the exploration or production of energy resources, commodities,
      consumer and industrial products;





·
            the
      location of regional and global exploration, production and manufacturing
      facilities;





·
            the
      location of consuming regions for energy resources, commodities,
      semi-finished and finished consumer and industrial
    products;





·
            the
      globalization of production and
manufacturing;





·
            global
      and regional economic and political conditions, including armed conflicts
      and terrorist activities; embargoes and
strikes;





·
            developments
      in international trade;





·
            changes
      in seaborne and other transportation patterns, including the distance
      cargo is transported by sea;





·
            environmental
      and other regulatory developments;





·
            currency
      exchange rates; and





·
            weather.





Factors
      that influence the supply of vessel capacity
  include:





·
            number
      of newbuilding deliveries;





·
            scrapping
      of older vessels;





·
            vessel
      casualties; and





·
            number
      of vessels that are out of service.






32





We anticipate that the future demand
for our dry bulk vessels will be dependent upon economic growth in the world's
economies, seasonal and regional changes in demand, changes in the capacity of
the global dry bulk fleet and the sources and supply of dry bulk cargo to be
transported by sea. Given the large number of new dry bulk vessels currently on
order with shipyards, the capacity of the global dry bulk carrier fleet seems
likely to increase and economic growth may continue to be slow. Adverse
economic, political, social or other developments could have a material adverse
effect on our business and operating results.





Our ability to recharter our dry bulk
vessels upon the expiration or termination of their current time charters and
charter new vessels as they are delivered to us, and the charter rates payable
under any renewal or replacement charters will depend upon, among other things,
the current state of the dry bulk shipping market. If the dry bulk shipping
market is in a period of depression when our vessels' charters expire, we may be
forced to re-charter them at reduced rates or even possibly at a rate whereby we
incur a loss, which may reduce our earnings or make our earnings
volatile.





In addition, because the market value
of our vessels may fluctuate significantly, we may incur losses when we sell
vessels, which may adversely affect our earnings. If we sell vessels at a time
when vessel prices have fallen and before we have recorded an impairment
adjustment to our financial statements, the sale may be at less than the
vessel's carrying amount on our financial statements, resulting in a loss and a
reduction in earnings.





The
current global economic downturn may continue to negatively impact our
business.





In the current global economy,
operating businesses have faced and continue to face tightening credit,
weakening demand for goods and services, weak international liquidity
conditions, and declining markets. Lower demand for dry bulk cargoes as well as
diminished trade credit available for the delivery of such cargoes have led to
decreased demand for dry bulk carriers, creating downward pressure on charter
rates and on vessel values.  The current economic downturn has had and
may continue to have during 2010 a number of adverse consequences for dry bulk
and other shipping sectors, including, among other things:





·
            an
      absence of financing for vessels;





·
            a
      further decrease in the market value of our vessels and no active
      second-hand market for the sale of
vessels;





·
            low
      charter rates;





·
            widespread
      loan covenant defaults; and





·
            declaration
      of bankruptcy by some operators and shipowners as well as
      charterers.





The occurrence of one or more of these
events could have a material adverse effect on our business, results of
operations, cash flows and financial condition.





A continued downturn in the dry bulk
carrier charter market may have an adverse effect on our revenues, earning and
profitability and our ability to comply with our loan
covenants.





The
Baltic Dry bulk Index, or BDI, has declined significantly since its early 2008,
although charter rates recovered somewhat during 2009.  The general
decline in the dry bulk charter marker has resulted in lower charter rates for
vessels exposed to the spot market and time charters linked to the BDI which
also adversely affected negotiated general time charter rates. The decline in
charter rates is due to various factors, including the lack of trade financing
for purchases of commodities carried by sea, which has resulted in a significant
decline in cargo shipments, and the excess supply of iron ore in China, which
has resulted in falling iron ore prices and increased stockpiles in Chinese
ports.  The decline in charter rates in the dry bulk market also
affects the value of our dry bulk vessels, which follows the trends of dry bulk
charter rates, and earnings on our charters, and similarly, affects our cash
flows, liquidity and compliance with the covenants contained in our loan
agreements.






33





Although
our vessels are employed predominately on medium and long-term time charters, 15
of these are scheduled to expire in the next 12 months, at which time we will
have to negotiate new employment for these vessels.  If the very low
charter rates in the dry bulk market continue to exist when we are required to
renew these charters or in the future when our other charters must be renewed,
this will have an adverse effect on our revenues, profitability, cash flows and
our ability to comply with the financial covenants in our loan
agreements.





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





The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in such respects
as structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and balance of payments
position. Prior to 1978, the Chinese economy was a planned economy. Since 1978,
increasing emphasis has been placed on the utilization of market forces in the
development of the Chinese economy. Annual and five year State Plans are adopted
by the Chinese government in connection with the development of the economy.
Although state-owned enterprises still account for a substantial portion of the
Chinese industrial output, in general, the Chinese government is reducing the
level of direct control that it exercises over the economy through State Plans
and other measures. There is an increasing level of freedom and autonomy in
areas such as allocation of resources, production, pricing and management and a
gradual shift in emphasis to a "market economy" and enterprise reform. Limited
price reforms were undertaken with the result that prices for certain
commodities are principally determined by market forces. Many of the reforms are
unprecedented or experimental and may be subject to revision, change or
abolition based upon the outcome of such experiments. If the Chinese government
does not continue to pursue a policy of economic reform the level of imports to
and exports from China could be adversely affected by changes to these economic
reforms by the Chinese government, as well as by changes in political, economic
and social conditions or other relevant policies of the Chinese government, such
as changes in laws, regulations or export and import restrictions, all of which
could, adversely affect our business, operating results and financial
condition.





The
market values of our vessels have declined and may further decrease, which could
limit the amount of funds that we can borrow or trigger certain financial
covenants under our current or future credit facilities and/or we may incur a
loss if we sell vessels following a decline in their market value.





The fair
market values of our vessels have generally experienced high volatility and have
recently declined significantly.  The market prices for secondhand
Handymax and Supramax dry bulk carriers have recently decreased sharply from
their historically high levels.  The fair market value of our vessels
may continue to fluctuate (i.e., increase and decrease) depending on a number of
factors including:





·
            prevailing
      level of charter rates;





·
            general
      economic and market conditions affecting the shipping
      industry;





·
            types
      and sizes of vessels;





·
            supply
      and demand for vessels;





·
            other
      modes of transportation;





·
            cost
      of newbuildings;





·
            governmental
      or other regulations; and





·
            technological
      advances.






34





If the
fair market value of our vessels declines, we may not be in compliance with
certain provisions of our credit facility and we may not be able to refinance
our debt or obtain additional financing. If we are not able to comply with the
covenants in our credit facility, and are unable to remedy the relevant breach,
our lenders could accelerate our debt and foreclose on our fleet. In addition,
if we sell one or more of our vessels at a time when vessel prices have fallen
and before we have recorded an impairment adjustment to our consolidated
financial statements, the sale may be less than the vessel's carrying value on
our consolidated financial statements, resulting in a loss and a reduction in
earnings. Furthermore, if vessel values fall significantly we may have to record
an impairment adjustment in our financial statements which could adversely
affect our financial results.





Further
declines in charter rates and other market deterioration could cause us to incur
impairment charges.





We evaluate the carrying amounts of our
vessels to determine if events have occurred that would require an impairment of
their carrying amounts. The recoverable amount of vessels is reviewed based on
events and changes in circumstances that would indicate that the carrying amount
of the assets might not be recovered. The review for potential impairment
indicators and projection of future cash flows related to the vessels is complex
and requires us to make various estimates including future freight rates,
earnings from the vessels and discount rates. All of these items have been
historically volatile.





We evaluate the recoverable amount as
the higher of fair value less costs to sell and value in use. If the recoverable
amount is less than the carrying amount of the vessel, the vessel is deemed
impaired. The carrying values of our vessels may not represent their fair market
value in the future because the new market prices of second-hand vessels tend to
fluctuate with changes in charter rates and the cost of newbuildings. Any
impairment charges incurred as a result of declines in charter rates could have
a material adverse effect on our business, results of operations, cash flows and
financial condition.





An over-supply of dry bulk carrier
capacity may lead to reductions in charter hire rates and
profitability.





The
market supply of dry bulk carriers has been increasing, and the number of dry
bulk carriers on order are near historic highs. These newbuildings were
delivered in significant numbers starting at the beginning of 2006 and
continuing through 2009. As of December 2009, newbuilding orders had been placed
for an aggregate of more than 59% of the existing global dry bulk fleet on a
deadweight basis, with deliveries expected during the next 24
months.  An over-supply of dry bulk carrier capacity may result in a
reduction of charter hire rates. If such a reduction occurs, upon the expiration
or termination of our vessels' current charters we may only be able to
re-charter our vessels at reduced or unprofitable rates or we may not be able to
charter these vessels at all.





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





Terrorist
attacks in such as the attacks on the United States in 2001, in London in 2005
and in Mumbai in 2008 and the continuing response of the United States and
others to these attacks, as well as the threat of future terrorist attacks in
the United States or elsewhere, continues to cause uncertainty in the world's
financial markets and may affect our business, operating results and financial
condition. The continuing presence of United States and other armed forces in
Iraq and Afghanistan may lead to additional acts of terrorism and armed conflict
around the world, which may contribute to further economic instability in the
global financial markets. These uncertainties could also adversely affect our
ability to obtain additional financing on terms acceptable to us or at all. In
the past, political conflicts have also resulted in attacks on vessels, mining
of waterways and other efforts to disrupt international shipping, particularly
in the Arabian Gulf region. Acts of terrorism and piracy have also affected
vessels trading in regions such as the South China Sea and the Gulf of Aden off
the coast of Somalia. Any of these occurrences could have a material adverse
impact on our operating results, revenues and costs.





Terrorist
attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very large crude
carrier not related to us, may in the future also negatively affect our
operations and financial condition and directly impact our vessels or our
customers. Future terrorist attacks could result in increased volatility and
turmoil of the financial markets in the United States and globally. Any of these
occurrences could have a material adverse impact on our revenues and
costs.







35





Acts of piracy on ocean-going
vessels have recently increased in frequency, which could adversely affect our
business.





Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia.  During 2008 and 2009, the frequency of piracy incidents has
increased significantly, particularly in the Gulf of Aden off the coast of
Somalia.  If these piracy attacks result in regions in which our
vessels are deployed being characterized by insurers as "war risk" zones, as the
Gulf of Aden temporarily was in May 2008, or Joint War Committee (JWC) "war and
strikes" listed areas, premiums payable for such coverage could increase
significantly and such insurance coverage may be more difficult to
obtain.  In addition, crew costs, including employing onboard security
guards, could increase in such circumstances.  We may not be
adequately insured to cover losses from these incidents, which could have a
material adverse effect on us.  In addition, detention hijacking as a
result of an act of piracy against our vessels, or an increase in cost, or
unavailability of insurance for our vessels, could have a material adverse
impact on our business, financial condition and results of
operations.





Continued disruptions in world
financial markets and the resulting governmental action in the United States and
in other parts of the world could have a material adverse impact on our results
of operations, financial condition and cash flows, and could cause the market
price of our common stock to further decline.





The
credit markets in the United States continued to contract in 2009 and
experienced deleveraging and reduced liquidity, and the United States federal
government and state governments have implemented a broad variety of
governmental action and/or new regulation of the financial markets and may
implement additional regulations in the future. Securities and futures markets
and the credit markets are subject to comprehensive statutes, regulations and
other requirements. The Commission, other regulators, self-regulatory
organizations and exchanges are authorized to take extraordinary actions in the
event of market emergencies, and may effect changes in law or interpretations of
existing laws.





A number
of financial institutions experienced serious financial difficulties in 2009.
The uncertainty surrounding the future of the credit markets in the United
States and the rest of the world has resulted in reduced access to credit
worldwide.





We face
risks attendant to changes in economic environments, changes in interest rates,
and instability in the banking and securities markets around the world, among
other factors. Major market disruptions and the current adverse changes in
market conditions and regulatory climate in the United States and worldwide may
adversely affect our business or impair our ability to borrow amounts under our
credit facilities or any future financial arrangements. We cannot predict how
long the current market conditions will last. However, these recent and
developing economic and governmental factors, together with the concurrent
decline in charter rates and vessel values, may have a material adverse effect
on our results of operations, financial condition or cash flows, have caused the
trading price of our common shares on the Nasdaq Global Market to decline and
could cause the price of our common shares to continue to decline.





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





We
operate our vessels in markets that have historically exhibited seasonal
variations in demand and, as a result, in charter hire rates. To the extent we
operate vessels in the spot market, this seasonality may result in
quarter-to-quarter volatility in our operating results, which could affect the
amount of dividends that we pay to our stockholders from quarter to quarter. The
dry bulk sector is typically stronger in the fall and winter months in
anticipation of increased consumption of coal and other raw materials in the
northern hemisphere. In addition, unpredictable weather patterns in these months
tend to disrupt vessel scheduling and supplies of certain commodities. As a
result, our revenues from our dry bulk carriers may be weaker during the fiscal
quarters ended June 30 and September 30, and, conversely, our revenues from our
dry bulk carriers may be stronger in fiscal quarters ended December 31 and March
31. While this seasonality will not affect our operating results as long as our
fleet is employed on time charters, if our vessels are employed in the spot
market in the future, it could materially affect our operating
results.






36





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





The
operation of our vessels is affected by the requirements set forth in the United
Nation's International Maritime Organization's International Management Code for
the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM
Code requires shipowners, ship managers and bareboat charterers to develop and
maintain an extensive "Safety Management System" that includes the adoption of a
safety and environmental protection policy setting forth instructions and
procedures for safe operation and describing procedures for dealing with
emergencies. The failure of a shipowner or bareboat charterer to comply with the
ISM Code may subject it to increased liability, may invalidate existing
insurance or decrease available insurance coverage for the affected vessels and
may result in a denial of access to, or detention in, certain
ports.  Each of the vessels that has been delivered to us is ISM
Code-certified and we expect that each other vessel that we have agreed to
purchase will be ISM Code-certified when delivered to us.





In
addition, vessel classification societies also impose significant safety and
other requirements on our vessels. In complying with current and future
environmental requirements, vessel-owners and operators may also incur
significant additional costs in meeting new maintenance and inspection
requirements, in developing contingency arrangements for potential spills and in
obtaining insurance coverage. Government regulation of vessels, particularly in
the areas of safety and environmental requirements, can be expected to become
stricter in the future and require us to incur significant capital expenditures
on our vessels to keep them in compliance.





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





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





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





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





Our business has
inherent operational risks, which may not be adequately covered by insurance.





Our
vessels and their cargoes are at risk of being damaged or lost because of events
such as marine disasters, bad weather, mechanical failures, human error,
environmental accidents, war, terrorism, piracy and other circumstances or
events. In addition, transporting cargoes across a wide variety of international
jurisdictions creates a risk of business interruptions due to political
circumstances in foreign countries, hostilities, labor strikes and boycotts, the
potential for changes in tax rates or policies, and the potential for government
expropriation of our vessels. Any of these events may result in loss of
revenues, increased costs and decreased cash flows to our customers, which could
impair their ability to make payments to us under our charters.






37





In the event of a casualty to a vessel
or other catastrophic event, we will rely on our insurance to pay the insured
value of the vessel or the damages incurred. Through our management agreements
with our technical managers, we procure insurance for the vessels in our fleet
employed under time charters against those risks that we believe the shipping
industry commonly insures against. These insurances include marine hull and
machinery insurance, protection and indemnity insurance, which include pollution
risks and crew insurances, and war risk insurance. Currently, the amount of
coverage for liability for pollution, spillage and leakage available to us on
commercially reasonable terms through protection and indemnity associations and
providers of excess coverage is $1 billion per vessel per
occurrence.





We have
procured hull and machinery insurance, protection and indemnity insurance, which
includes environmental damage and pollution insurance coverage and war risk
insurance for our fleet. We do not maintain, for our vessels, insurance against
loss of hire, which covers business interruptions that result from the loss of
use of a vessel. We may not be adequately insured against all risks. We may not
be able to obtain adequate insurance coverage for our fleet in the future, and
we may not be able to obtain certain insurance coverages, including insurance
against charter party defaults, that we have obtained in the past on terms that
are acceptable to us or at all.. The insurers may not pay particular claims. Our
insurance policies may contain deductibles for which we will be responsible and
limitations and exclusions which may increase our costs or lower our revenue.
Moreover, insurers may default on claims they are required to pay.





We cannot assure you that we will be
adequately insured against all risks or that we will be able to obtain adequate
insurance coverage at reasonable rates for our vessels in the
future.  For example, in the past more stringent environmental
regulations have led to increased costs for, and in the future may result in the
lack of availability of, insurance against risks of environmental damage or
pollution. Additionally, our insurers may refuse to pay particular claims. Any
significant loss or liability for which we are not insured could have a material
adverse effect on our financial condition.





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





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





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





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







38







Company
Specific Risk Factors





We cannot assure
you that our board of directors will declare dividends.





Commencing
with the fourth quarter of 2008, our board of directors determined to suspend
the payment of a dividend to our shareholders to increase cash flow, optimize
financial flexibility and enhance internal growth.  In the future, the
declaration and payment of dividends, if any, will always be subject to the
discretion of our board of directors, restrictions contained in our amended
credit facility and the requirements of Marshall Islands law. The timing and
amount of any dividends declared will depend on, among other things, our
earnings, financial condition and cash requirements and availability, our
ability to obtain debt and equity financing on acceptable terms as contemplated
by our growth strategy, the terms of our outstanding indebtedness and the
ability of our subsidiaries to distribute funds to us. The international dry
bulk shipping industry is highly volatile, and we cannot predict with certainty
the amount of cash, if any, that will be available for distribution as dividends
in any period. Also, there may be a high degree of variability from period to
period in the amount of cash that is available for the payment of
dividends.





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





Under the terms of our credit facility,
we will not be permitted to pay dividends if there is a default or a breach of a
loan covenant. In addition, we are permitted to pay dividends only in amounts up
to our cumulative cash flows which is EBITDA (as defined in our credit
agreement) 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 drydockings. Please see the section of this Annual
Report entitled "Credit Facility" for more information relating to restrictions
on our ability to pay dividends under the terms of our credit
facility.





The Republic of Marshall Islands laws
generally prohibits the payment of dividends other than from surplus (retained
earnings and the excess of consideration received for the sale of shares above
the par value of the shares) or while a company is insolvent or would be
rendered insolvent by the payment of such a dividend. We may not have sufficient
surplus in the future to pay dividends and our subsidiaries may not have
sufficient funds or surplus to make distributions to us. We can give no
assurance that dividends will be paid at all.





We may have
difficulty managing our planned growth properly.





The
acquisition and management of the 27 vessels in our operating fleet and the
ongoing construction of our newbuilding vessels have imposed, and additional dry
bulk vessels that we may acquire in the future will impose, significant
responsibilities on our management and staff. The addition of vessels to our
fleet may require us to increase the number of our personnel. Further, we have
recently commenced providing technical management services to certain of our
vessels in house, and expect to provide these services to additional vessels in
our fleet.  We will also have to manage our customer base so that we
can provide continued employment for our vessels upon the expiration of our
existing time charters.





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





·
            locating
      and acquiring suitable vessels;






39





·
            obtaining
      required financing on acceptable
terms;





·
            identifying
      and consummating acquisitions;





·
            enhancing
      our customer base; and





·
            managing
      our expansion.





Growing any business by acquisition
presents numerous risks, such as undisclosed liabilities and obligations, the
possibility that indemnification agreements will be unenforceable or
insufficient to cover potential losses and difficulties associated with imposing
common standards, controls, procedures and policies, obtaining additional
qualified personnel, managing relationships with customers and integrating newly
acquired assets and operations into existing infrastructure. We cannot give any
assurance that we will be successful in executing our growth plans or that we
will not incur significant expenses and losses in connection with our future
growth.





We cannot
assure you that we will be able to borrow amounts under our credit facility and
restrictive covenants in our credit facility may impose financial and other
restrictions on us





We entered into a senior secured
revolving credit facility in July 2005. We used borrowings under the revolving
credit facility to refinance a portion of our outstanding indebtedness at the
time of our initial public offering in June 2005 and to fund vessel
acquisitions. Since then we have amended and enhanced our credit facility
periodically to accommodate our newbuilding program of 27 vessels, of which we
have taken delivery of 7 vessels, and eight vessel contracts which we have
converted into options to build and purchase vessels in the
future.  In July, 2008, we entered into an amendment to our $1.6
billion revolving credit facility that, among other things, provided for an
additional incremental commitment of up to $200 million under the same terms and
conditions as the previously existing facility, subject to satisfaction of
certain additional conditions, and amended the applicable margin rate under the
facility.  In December 2008, we entered into a further amendment to
our credit facility to, among other changes, reduce the required minimum
security value of our fleet from 130% to 100%, reduce the requirement minimum
net worth requirement from $300 million to $75 million for 2009, subject to
annual review thereafter, and amend the applicable interest margin to 1.75% over
LIBOR. In August 2009, we entered into a further amendment to our credit
facility which among other things reduced the facility to $1.2 billion with a
maturity in July 2014, amended the applicable interest margin to 2.5% over
LIBOR, and until the Company is in compliance with the original covenants for
two consecutive accounting periods, amended the collateral covenants from market
values to book values, reduced the EBITDA to interest coverage ratio, and
allocated half the net proceeds from any equity issuance to repay debt and
reduce the facility, including $48.6 million from our last equity raised which
reduce our facility to $1.151 billion.





Our
ability to borrow future amounts under our 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, will be 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. To the extent that we are not able to satisfy these requirements,
including as a result of a decline in the value of our vessels, we may not be
able to draw down the credit facility in connection with a vessel acquisition
without obtaining a waiver or consent from the lender.





The credit facility also imposes
operating and financial restrictions on us. These restrictions may limit our
ability to, among other things:





·
            pay
      dividends in the future in amounts exceeding our 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 drydockings;






40





·
            change
      our Chief Executive Officer without the approval of our
      lender;





·
            incur
      additional indebtedness;





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





·
            create
      liens on our assets;





·
            sell
      our vessels;





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





·
            enter
      into a new line of business; and





·
            enter
      into a time charter or consecutive voyage charters that has a term that
      exceeds, or which by virtue of any optional extensions may exceed,
      thirteen months.





In addition, we may not pay dividends
if there is a default or a breach of a loan covenant under the credit facility
or if the payment of the dividends would result in a default or breach of a loan
covenant. Our indebtedness may also be accelerated if we experience a change of
control. Therefore, we may need to seek permission from our lender in order to
engage in some corporate actions. Our lender's interests may be different from
ours and we cannot guarantee you that we will be able to obtain our lender's
permission when needed. This may limit our ability to pay dividends to you,
finance our future operations, make acquisitions or pursue business
opportunities.





We cannot assure
you that we will be able to refinance indebtedness incurred under our credit
facility.





Our
business strategy contemplates that we repay all or a portion of our acquisition
related debt from time to time with the net proceeds of equity issuances. We
cannot assure you that we will be able to refinance our indebtedness through
equity offerings or otherwise on terms that are acceptable to us or at all. If
we are not able to refinance our indebtedness, we will have to dedicate a
portion of our cash flow from operations to pay the principal and interest of
this indebtedness. We cannot assure you that we will be able to generate cash
flow in amounts that are sufficient for these purposes. If we are not able to
satisfy these obligations, we may have to undertake alternative financing plans
or sell our assets. The actual or perceived credit quality of our charterers,
any defaults by them, and the market value of our fleet, among other things, may
materially affect our ability to obtain alternative financing. In addition, debt
service payments under our credit facility or alternative financing may limit
funds otherwise available for working capital, capital expenditures, payment of
dividends and other purposes. If we are unable to meet our debt obligations, or
if we otherwise default under our credit facility or an alternative financing
arrangement, our lender could declare the debt, together with accrued interest
and fees, to be immediately due and payable and foreclose on our fleet, which
could result in the acceleration of other indebtedness that we may have at such
time and the commencement of similar foreclosure proceedings by other lenders.
In addition, if the recent financial difficulties experienced by financial
institutions worldwide leads to such institutions being unable to meet their
lending commitments, that inability could have a material adverse effect on our
ability to meet our own capital commitment obligations under our newbuilding
contracts and our ability to grow our fleet.  If we are not able to
borrow under our credit facility and are unable to find alternative sources of
financing on terms that are acceptable to us or at all, our business, financial
condition, results of operations and cash flows may be materially adversely
affected.







41




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


Twenty of
the 27 Handymax segment dry bulk vessels in our operating fleet at December 31,
2009, are secondhand vessels. We have entered into contracts for the
construction of 27 newbuilding vessels, of which we have taken delivery of 7,
and have options to acquire 8 additional vessels. We also may enter into
additional newbuilding contracts and purchase additional secondhand vessels in
the future. While we have the right to inspect previously owned vessels prior to
purchase, such an inspection does not provide us with the same knowledge about
their condition that we would have if these vessels had been built for and
operated exclusively by us. A secondhand vessel may have conditions or defects
that we were not aware of when we bought the vessel and which may require us to
incur costly repairs to the vessel. These repairs may require us to put a vessel
into dry dock, which would reduce our fleet utilization. Furthermore, we usually
do not receive the benefit of warranties on secondhand vessels.





We
are subject to certain risks with respect to our counterparties on contracts,
and failure of such counterparties to meet their obligations could cause us to
suffer losses or otherwise adversely affect our business.





We enter
into, among other things, charter parties with our customers. Such agreements
subject us to counterparty risks. The ability of each of our counterparties to
perform its obligations under a contract with us will depend on a number of
factors that are beyond our control and may include, among other things, general
economic conditions, the condition of the maritime and offshore industries, the
overall financial condition of the counterparty, charter rates received for
specific types of vessels, and various expenses. Consistent with dry bulk
shipping industry practice, we have not independently analyzed the
creditworthiness of the charterers.  In addition, in depressed market
conditions, our charterers may no longer need a vessel that is currently under
charter or may be able to obtain a comparable vessel at lower
rates.  As a result, charterers may seek to renegotiate the terms of
their existing charter parties or avoid their obligations under those
contracts.  Should a counterparty fail to honor its obligations under
agreements with us, we could sustain significant losses which could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.





We depend upon a
few significant customers for a large part of our revenues and the loss of one
or more of these customers could adversely affect our financial
performance.





We derive
a significant part of our revenues from a small number of charterers. In 2009,
four customers individually accounted for more than 10% of our time charter
revenue. The charterers' payments to us under their charters are our sole source
of revenue. Some of our charterers are privately owned companies for which
limited credit and financial information was available to us in making our
assessment of counterparty risk when we entered into our charter. In addition,
the ability of each of our charterers to perform its obligations under a charter
will depend on a number of factors that are beyond our control. These factors
may include general economic conditions, the condition of the dry bulk shipping
industry, the charter rates received for specific types of vessels and various
operating expenses. If one or more of these charterers terminates its charter or
chooses not to re-charter our vessel or is unable to perform under its charter
with us and we are not able to find a replacement charter, we could suffer a
loss of revenues that could adversely affect our financial condition, results of
operations and cash available for distribution as dividends to our stockholders.
In addition, we may be required to change the flagging or registration of the
related vessel and may incur additional costs, including maintenance and crew
costs if a charterer were to default on its obligations. Our stockholders do not
have any recourse against our charterers.





In the highly
competitive international shipping industry, we may not be able to compete for
charters with new entrants or established companies with greater
resources.





Our
vessels are employed in a highly competitive market that is capital intensive
and highly fragmented. Competition arises primarily from other vessel owners,
some of whom have substantially greater resources than we do. Competition for
the transportation of dry bulk cargo by sea is intense and depends on price,
location, size, age, condition and the acceptability of the vessel and its
operators to the charterers. Due in part to the highly fragmented market,
competitors with greater resources could enter the dry bulk shipping industry
and operate larger fleets through consolidations or acquisitions and may be able
to offer lower charter rates and higher quality vessels than we are able to
offer.







42
 
  We may be unable
to attract and retain key management personnel and other employees in the
shipping industry, which may negatively impact the effectiveness of our
management and results of operations.




Our
success depends to a significant extent upon the abilities and efforts of our
management team. We have entered into an employment contract with our Chairman
and Chief Executive Officer, Sophocles Zoullas. Our success will depend upon our
ability to retain key members of our management team and to hire new members as
may be necessary. The loss of any of these individuals could adversely affect
our business prospects and financial condition. Difficulty in hiring and
retaining replacement personnel could have a similar effect. We do not maintain
"key man" life insurance on any of our officers.





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





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





·
            marine
      disaster;





·
            environmental
      accidents;





·
            cargo
      and property losses or damage;





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





·
            piracy.





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





The aging of our
fleet may result in increased operating costs in the future, which could
adversely affect our earnings.





In
general, the cost of maintaining a vessel in good operating condition increases
with the age of the vessel. Although the weighted average age of the 27 Handymax
dry bulk vessels in our operating fleet as of December 31, 2009 is approximately
six years, as our fleet ages, we will incur increased costs. Older vessels are
typically less fuel efficient and more costly to maintain than more recently
constructed vessels due to improvements in engine technology. Cargo insurance
rates increase with the age of a vessel, making older vessels less desirable to
charterers. Governmental regulations and safety or other equipment standards
related to the age of vessels may also require expenditures for alterations or
the addition of new equipment, to our vessels and may restrict the type of
activities in which our vessels may engage. We cannot assure you that, as our
vessels age, market conditions will justify those expenditures or enable us to
operate our vessels profitably during the remainder of their useful
lives.





Technological
innovation could reduce our charterhire income and the value of our
vessels.





The charterhire rates and the value and
operational life of a vessel are determined by a number of factors including the
vessel's efficiency, operational flexibility and physical
life.  Efficiency includes speed, fuel economy and the ability to load
and discharge cargo quickly.  Flexibility includes the ability to
enter harbors, utilize related docking facilities and pass through canals and
straits.  The length of a vessel's physical life is related to its
original design and construction, its maintenance and the impact of the stress
of operations.  If new dry bulk carriers are built that are more
efficient or more flexible or have longer physical lives than our vessels,
competition from these more technologically advanced vessels could adversely
affect the amount of charterhire payments we receive for our vessels once their
initial charters expire and the resale value of our vessels could significantly
decrease.  As a result, our business, results of operations, cash
flows and financial condition could be adversely affected.







43
 
  We may have to
pay tax on United States source income, which would reduce our
earnings.




Under the
United States Internal Revenue Code of 1986, as amended, or the Code, 50% of the
gross shipping income of a vessel owning or chartering corporation, such as
ourselves and our subsidiaries, that is attributable to transportation that
begins or ends, but that does not both begin and end, in the United States is
characterized as United States source shipping income and such income is subject
to a 4% United States federal income tax without allowance for any deductions,
unless that corporation qualifies for exemption from tax under Section 883 of
the Code and the Treasury regulations promulgated thereunder.





We believe that we and each of our
subsidiaries qualify for this statutory tax exemption and we will take this
position for United States federal income tax return reporting purposes.
However, there are factual circumstances beyond our control that could cause us
to lose the benefit of this tax exemption after the offering and thereby cause
us to become subject to United States federal income tax on our United States
source shipping income. For example, there is a risk that we could no longer
qualify for exemption under Section 883 of the Code for a particular taxable
year if other shareholders with a five percent or greater interest in our stock
were, in combination with to own 50% or more of our outstanding shares of our
stock on more than half the days during the taxable year. Due to the factual
nature of the issues involved, we can give no assurances on our tax-exempt
status or that of any of our subsidiaries.





In addition, changes in the Code, the
Treasury regulations or the interpretation thereof by the Internal Revenue
Service or the courts could adversely affect our ability to take advantage of
the exemption under Section 883.





If we are not entitled to this
exemption under Section 883 for any taxable year, we would be subject for such
taxable year to a 4% United States federal income tax on our United States
source shipping income. The imposition of this taxation could have a negative
effect on our business and would result in decreased earnings available for
distribution to our stockholders.





Based on
the current operation of our vessels, if we were subject to this tax, our United
States federal income tax liability would be approximately $900,000 and
1,400,000for the
year ended December 31, 2009 and 2008, respectively. Because the operations of
our vessels are under the control of third party charterers, we can give no
assurance that our United States federal income tax liability would be
substantially higher. However, since no more that 50% of our shipping income
would be treated as derived from U.S. sources, our maximum tax liability under
the 4% tax regime would never exceed 2% of our shipping income.





United Statestax
authorities could treat us as a "passive foreign investment company," which
could have adverse United States federal income tax consequences to United
States holders.





A foreign
corporation will be treated as a "passive foreign investment company," or PFIC,
for United States federal income tax purposes if either (1) at least 75% of its
gross income for any taxable year consists of certain types of "passive income"
or (2) at least 50% of the average value of the corporation's assets produce or
are held for the production of those types of "passive income." For purposes of
these tests, "passive income" includes dividends, interest, and gains from the
sale or exchange of investment property and rents and royalties other than rents
and royalties which are received from unrelated parties in connection with the
active conduct of a trade or business. For purposes of these tests, income
derived from the performance of services does not constitute "passive income."
United States stockholders of a PFIC are subject to a disadvantageous United
States federal income tax regime with respect to the income derived by the PFIC,
the distributions they receive from the PFIC and the gain, if any, they derive
from the sale or other disposition of their shares in the PFIC.





Based on our current method of
operation, we do not believe that we have been, are or will be a PFIC with
respect to any taxable year. In this regard, we intend to treat the gross income
we derive or are deemed to derive from our time chartering activities as
services income, rather than rental income. Accordingly, we believe that our
income from our time chartering activities does not constitute "passive income,"
and the assets that we own and operate in connection with the production of that
income do not constitute passive assets.





There is, however, no direct legal
authority under the PFIC rules addressing our method of operation. Accordingly,
no assurance can be given that the United States Internal Revenue Service, or
IRS, or a court of law will accept our position, and there is a risk that the
IRS or a court of law could determine that we are a PFIC. Moreover, no assurance
can be given that we would not constitute a PFIC for any future taxable year if
there were to be changes in the nature and extent of our
operations.






44






If the IRS were to find that we are or
have been a PFIC for any taxable year, our United States stockholders would face
adverse United States tax consequences. Under the PFIC rules, unless those
stockholders made an election available under the Code (which election could
itself have adverse consequences for such stockholders, as discussed below under
"United States Federal Income Taxation of United States Holders"), such
stockholders would be liable to pay United States federal income tax upon excess
distributions and upon any gain from the disposition of our common stock at the
then prevailing income tax rates applicable to ordinary income plus interest as
if the excess distribution or gain had been recognized ratably over the
stockholder's holding period of our common stock. Please see the section of this
Form 10-K entitled "Tax Considerations—United States Federal Income Taxation of
United States Holders" for a more comprehensive discussion of the United States
federal income tax consequences to United States stockholders if we are treated
as a PFIC.





Our vessels may
suffer damage and we may face unexpected drydocking costs, which could adversely
affect our cash flow and financial condition.





If our
vessels suffer damage, they may need to be repaired at a drydocking facility.
The costs of drydock repairs are unpredictable and can be substantial. The loss
of earnings while our vessels are being repaired and repositioned, as well as
the actual cost of these repairs, would decrease our earnings and reduce the
amount of cash that we have available for dividends. We may not have insurance
that is sufficient to cover these costs or losses and may have to pay drydocking
costs not covered by our insurance.





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





We are a
holding company and our subsidiaries conduct all of our operations and own all
of our operating assets. We have no significant assets other than the equity
interests in our subsidiaries. As a result, our ability to satisfy our financial
obligations and to make dividend payments in the future depends on our
subsidiaries and their ability to distribute funds to us. If we are unable to
obtain funds from our subsidiaries, our board of directors may exercise its
discretion not to declare or pay dividends. We do not intend to obtain funds
from other sources to pay dividends.





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





Our
current operating and financial systems may not be adequate as we implement our
plan to expand the size of our fleet and our attempts to improve those systems
may be ineffective. In addition, as we expand our fleet, we will need to recruit
suitable additional seafarers and shore side administrative and management
personnel. We cannot guarantee that we will be able to hire suitable employees
as we expand our fleet. If we or our crewing agent encounters business or
financial difficulties, we may not be able to adequately staff our vessels. If
we are unable to grow our financial and operating systems or to recruit suitable
employees as we expand our fleet, our financial performance may be adversely
affected and, among other things, the amount of cash available for distribution
as dividends to our stockholders may be reduced.





If the recent volatility in LIBOR
continues, it could affect our profitability, earnings and cash
flow.





LIBOR has
recently been volatile, with the spread between LIBOR and the prime lending rate
widening significantly at times. These conditions are the result of the recent
disruptions in the international credit markets. Because the interest rates
borne by our outstanding indebtedness fluctuate with changes in LIBOR, if this
volatility were to continue, it would affect the amount of interest payable on
our an hedged debt, which in turn, could have an adverse effect on our
profitability, earnings and cash flow.







45




Risks
Relating to Our Common Stock


We are
incorporated in the Marshall Islands, which does not have a well-developed body
of corporate law.





Our
corporate affairs are governed by our amended and restated articles of
incorporation and bylaws and by the Marshall Islands Business Corporations Act,
or the BCA. The provisions of the BCA resemble provisions of the corporation
laws of a number of states in the United States. However, there have been few
judicial cases in the Marshall Islands interpreting the BCA. The rights and
fiduciary responsibilities of directors under the laws of the Marshall Islands
are not as clearly established as the rights and fiduciary responsibilities of
directors under statutes or judicial precedent in existence in the United
States. The rights of stockholders of companies incorporated in the Marshall
Islands may differ from the rights of stockholders of companies incorporated in
the United States. While the BCA provides that it is to be interpreted according
to the laws of the State of Delaware and other states with substantially similar
legislative provisions, there have been few, if any, court cases interpreting
the BCA in the Marshall Islands and we can not predict whether Marshall Islands
courts would reach the same conclusions as United States courts. Thus, you may
have more difficulty in protecting your interests in the face of actions by the
management, directors or controlling stockholders than would stockholders of a
corporation incorporated in a United States jurisdiction which has developed a
relatively more substantial body of case law.





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





Sales of
a substantial number of shares of our common stock in the public market, or the
perception that these sales could occur, may depress the market price for our
common stock. These sales could also impair our ability to raise additional
capital through the sale of our equity securities in the future. We intend to
issue additional shares of our common stock in the future. Our amended and
restated articles of incorporation authorize us to issue 100 million shares of
common stock of which 62,126,665shares were issued and
outstanding as of December 31, 2009.





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





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





·
            authorizing
      our board of directors to issue "blank check" preferred stock without
      stockholder approval;





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





·
            authorizing
      vacancies on our board of directors to be filled only by a vote of the
      majority of directors then in office and specifically denying our
      stockholders the right to fill vacancies on the
  board;





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





·
            prohibiting
      cumulative voting in the election of
directors;





·
            limiting
      the persons who may call special meetings of
  stockholders;





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





·
            prohibiting
      stockholder action by written consent;
and






46





·
            establishing
      supermajority voting provisions with respect to amendments to certain
      provisions of our amended and restated articles of incorporation and
      bylaws.





In addition to the provision described
above, on November 9, 2007, our board of directors adopted a shareholder rights
plan and declared a dividend distribution of one Right for each outstanding
share of our common stock to shareholders of record on the close of business on
November 23, 2007. Each Right is nominally exercisable, upon the occurrence of
certain events, for one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share, at a purchase price of
$125.00 per unit, subject to adjustment. The Rights may further discourage a
third party from making an unsolicited proposal to acquire us, as exercise of
the Rights would cause substantial dilution to such third party attempting to
acquire us.




These
anti-takeover provisions could substantially impede the ability of public
stockholders to benefit from a change in control and, as a result, may adversely
affect the market price of our common stock and your ability to realize any
potential change of control premium.








47





ITEM
1B.     UNRESOLVED STAFF COMMENTS





None





ITEM
2.        PROPERTIES





We do not own any real property. We
lease office space at 477 Madison Avenue, New York, New York 10022.





ITEM
3.        LEGAL PROCEEDINGS





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





ITEM
4.        RESERVED





48


PART
II





ITEM
5.        MARKET FOR REGISTRANT'S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES





Common
Stock





The
trading market for shares of our common stock is the Nasdaq Stock Market, on
which our shares are quoted under the symbol "EGLE." As of February 25, 2010,
the number of stockholders of record of the Company's common stock was
approximately 45,873. The following table sets forth the high and low closing
prices for shares of our common stock in 2009 and 2008, as reported by the
Nasdaq Stock Market:





For the period:
            
            High
            
            
            LowJanuary
      1, 2009 to March 31, 2009
            
            $
            8.55
            
            
            $
            2.93April
      1, 2009 to June 30, 2009
            
            $
            9.18
            
            
            $
            4.20July
      1, 2009 to September 30, 2009
            
            $
            6.31
            
            
            $
            4.10October
      1, 2009 to December 31, 2009
            
            $
            6.75
            
            
            $
            4.59January
      1, 2008 to March 31, 2008
            
            $
            28.06
            
            
            $
            19.79April
      1, 2008 to June 30, 2008
            
            $
            36.24
            
            
            $
            23.57July
      1, 2008 to September 30, 2008
            
            $
            30.46
            
            
            $
            12.48October
      1, 2008 to December 31, 2008
            
            $
            14.20
            
            
            $
            2.55





Recent
Sales of Unregistered Securities





None.





Equity
Compensation Plan





Information
regarding our equity compensation plan as of December 31, 2009 is disclosed in
Note 9, "Stock Incentive Plans" to our consolidated financial
statements.





Performance
Graph





The
following graph illustrates a comparison of the cumulative total shareholder
return (change in stock price plus reinvested dividends) of Eagle Bulk Shipping
Inc.'s common stock with the Standard and Poor's 500 Index and a peer group "Dry
Index" consisting of DryShips, Inc., Diana Shipping Inc., Excel Maritime
Carriers Ltd., Navios Maritime Holdings, Inc. and Genco Shipping and Trading
Limited. The comparison graph assumes a $100 investment in each of the Company's
common stock, the Standard & Poor's 500 Index and the Dry Index peer group
on June 28, 2005, the date of the Company's initial public
offering.






49















Payment
of Dividends to Stockholders





In 2007,
the Company declared four quarterly dividends in the aggregate amount of $1.98
per share of its common stock in February, April, July and November. Aggregate
payments were $82,134,982 for dividends declared in 2007.





In 2008,
the Company declared four quarterly dividends in the aggregate amount of $2.00
per share of its common stock in March, May, August and November. Aggregate
payments were $93,592,906 for dividends declared in 2008.





In
December 2008, commencing with the fourth quarter of 2008, the Company's board
of directors has determined to suspend the payment of a dividend to stockholders
in order to increase cash flow, optimize financial flexibility and enhance
internal growth.  In the future, the declaration and payment of
dividends, if any, will always be subject to the discretion of the board of
directors, restrictions contained in the credit facility and the requirements of
Marshall Islands law. The timing and amount of any dividends declared will
depend on, among other things, our earnings, financial condition and cash
requirements and availability, the ability to obtain debt and equity financing
on acceptable terms as contemplated by the Company's growth strategy, the terms
of its outstanding indebtedness and the ability of the Company's subsidiaries to
distribute funds to it. (See Notes to the Consolidated Financial Statements and
Management's Discussion & Analysis.)


50


ITEM
6.        SELECTED FINANCIAL
DATA





We were
incorporated on March 23, 2005 and our predecessor, Eagle Holdings LLC, was
formed on January 26, 2005. The following table sets forth selected
financial data for each of the five years in the period ended December 31,
2009. Certain information in the table has been derived from
the Company's audited financial statements and notes thereto.
This data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included herein. In
accordance with standard shipping industry practice, we did not obtain from the
sellers historical operating data for the vessels that we acquired, as that data
was not material to our decision to purchase the vessels. Accordingly, we have
not included any historical financial data relating to the results of operations
of our vessels from the period before our acquisition of them. Please see the
section of this annual report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations—Lack of Historical Operating Data
for Vessels Before their Acquisition."




(Dollar
      amounts in thousands except Per Share amounts and Fleet
    Data)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Income
      Statement DataRevenues,
      net of commissions
            
            $
            192,574
            
            
            $
            185,425
            
            
            $
            124,815
            
            
            $
            104,648
            
            
            $
            56,066Vessel
      Expenses
            
            
            50,161
            
            
            
            36,270
            
            
            
            27,144
            
            
            
            21,562
            
            
            
            11,053Depreciation
      and Amortization
            
            
            44,329
            
            
            
            33,949
            
            
            
            26,436
            
            
            
            21,813
            
            
            
            10,412General
      and Administrative Expenses
            
            
            32,714
            
            
            
            34,567
            
            
            
            11,776
            
            
            
            18,293
            
            
            
            21,401Gain
      on Sale of Vessel
            
            
            —
            
            
            
            —
            
            
            
            (873
            )
            
            
            —
            
            
            
            —Write-off
      of advances for vessel construction
            
            
            —
            
            
            
            3,883
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      Operating Expenses
            
            
            127,204
            
            
            
            108,669
            
            
            
            64,483
            
            
            
            61,668
            
            
            
            42,866Interest
      Expense, Net
            
            
            28,700
            
            
            
            13,033
            
            
            
            8,088
            
            
            
            9,179
            
            
            
            6,547Write-off
      of deferred financing costs
            
            
            3,383
            
            
            
            2,090
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
      Income
            
            $
            33,287
            
            
            $
            61,633
            
            
            $
            52,244
            
            
            $
            33,801
            
            
            $
            6,653Share
      and Per Share DataBasic
      Income per share
            
            $
            0.60
            
            
            $
            1.32
            
            
            $
            1.24
            
            
            $
            0.98
            
            
            $
            0.30Diluted
      Income per share
            
            
            0.60
            
            
            
            1.31
            
            
            
            1.24
            
            
            
            0.98
            
            
            
            0.30Weighted
      Average Shares Outstanding - Diluted
            
            
            55,923,308
            
            
            
            46,888,788
            
            
            
            42,195,561
            
            
            
            34,543,862
            
            
            
            21,968,824Cash
      Dividends
      Declared per share
            
            $
            —
            
            
            $
            2.00
            
            
            $
            1.98
            
            
            $
            2.08
            
            
            $
            0.54Consolidated
      Cash Flow DataNet
      cash from operating activities
            
            $
            90,525
            
            
            $
            109,536
            
            
            $
            82,889
            
            
            $
            70,535
            
            
            $
            26,616Net
      cash used in investing activities
            
            
            (228,624
            )
            
            
            (336,658
            )
            
            
            (446,251
            )
            
            
            (130,759
            )
            
            
            (427,966
            )Net
      cash from financing activities
            
            
            200,235
            
            
            
            83,427
            
            
            
            493,989
            
            
            
            57,973
            
            
            
            425,877Consolidated
      Balance Sheet Data
            
            December
      31, 2009
            
            
            December
      31, 2008
            
            
            December
      31, 2007
            
            
            December
      31, 2006
            
            
            December
      31, 2005Current
      Assets
            
            $
            84,205
            
            
            $
            16,864
            
            
            $
            157,454
            
            
            $
            27,652
            
            
            $
            33,829Total
      Assets
            
            
            1,608,
      203
            
            
            
            1,362,176
            
            
            
            1,136,008
            
            
            
            568,791
            
            
            
            462,344Total
      Liabilities
            
            
            988,474
            
            
            
            890,749
            
            
            
            621,037
            
            
            
            247,215
            
            
            
            146,551Long-term
      Debt
            
            
            900,171
            
            
            
            789,601
            
            
            
            597,243
            
            
            
            239,975
            
            
            
            140,000Stockholders'
      Equity
            
            
            619,729
            
            
            
            471,427
            
            
            
            514,971
            
            
            
            321,576
            
            
            
            315,793Other
      DataEBITDA
      (a)
            
            $
            121,
      239
            
            
            $
            127,683
            
            
            $
            99,418
            
            
            $
            82,695
            
            
            $
            43,075Capital
      Expenditures :Vessels
            
            $
            228,530
            
            
            $
            336,438
            
            
            $
            458,262
            
            
            $
            130,759
            
            
            $
            427,966Payments
      for Drydockings
            
            $
            4,477
            
            
            $
            2,389
            
            
            $
            3,625
            
            
            $
            2,325
            
            
            $
            422Ratio
      of Total Debt to Total Capitalization (b)
            
            
            59.2
            %
            
            
            62.6
            %
            
            
            53.7
            %
            
            
            42.7
            %
            
            
            30.7
            %Fleet
      DataNumber
      of Vessels in operating fleet
            
            
            27
            
            
            
            23
            
            
            
            18
            
            
            
            16
            
            
            
            13Average
      Age of Fleet (in dwt weighted years)
            
            
            6
            
            
            
            6
            
            
            
            6
            
            
            
            6
            
            
            
            6Fleet
      Ownership Days
            
            
            9,106
            
            
            
            7,229
            
            
            
            6,166
            
            
            
            5,288
            
            
            
            2,531Fleet
      Available Days
            
            
            8,999
            
            
            
            7,172
            
            
            
            6,073
            
            
            
            5,224
            
            
            
            2,507Fleet
      Operating Days
            
            
            8,966
            
            
            
            7,139
            
            
            
            6,039
            
            
            
            5,203
            
            
            
            2,500Fleet
      Utilization Days
            
            
            99.6
            %
            
            
            99.5
            %
            
            
            99.4
            %
            
            
            99.6
            %
            
            
            99.7
            %








51






(a)
            Our
      revolving credit facility permits us to pay dividends in amounts up to
      cumulative free cash flows which is 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 Company's computation of EBITDA may not
      be comparable to similar titled measures of other companies. Following an
      amendment to the revolving credit facility in December 2008, payment of
      dividend has been suspended until certain covenants requirements have been
      met and our board of directors determines in its discretion to declare and
      pay future dividends. The following table is a reconciliation of net
      income, as reflected in the consolidated statements of operations, to the
      Credit Agreement EBITDA:




(b)
            Ratio
      of Total Debt to Total Capitalization was calculated as debt divided by
      capitalization (debt plus stockholders'
equity).





2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Net
      Income
            
            $
            33,287,271
            
            
            $
            61,632,809
            
            
            $
            52,243,981
            
            
            $
            33,801,540
            
            
            $
            6,653,400Interest
      Expense
            
            
            28,904,610
            
            
            
            15,816,573
            
            
            
            12,741,106
            
            
            
            10,548,616
            
            
            
            7,208,641Depreciation
      and Amortization
            
            
            44,329,258
            
            
            
            33,948,840
            
            
            
            26,435,646
            
            
            
            21,812,486
            
            
            
            10,412,227Amortization
      of fair value (below) above market of time charter
acquired
            
            
            (2,643,820
            )
            
            
            (799,540
            )
            
            
            3,740,000
            
            
            
            3,462,000
            
            
            
            890,500EBITDA
            
            
            103,877,319
            
            
            
            110,598,682
            
            
            
            95,160,733
            
            
            
            69,624,642
            
            
            
            25,164,768Adjustments
      for Exceptional Items:Write-off
      of Advances for Vessel Construction (1)
            
            
            —
            
            
            
            3,882,888
            
            
            
            —
            
            
            
            —
            
            
            
            —Write-off
      of Financing Fees (1)
            
            
            3,383,289
            
            
            
            2,089,701
            
            
            
            —
            
            
            
            —Management
      and Other Fees to Affiliates (1)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,175,046Non-cash
      Compensation Expense (2)
            
            
            13,977,974
            
            
            
            11,111,885
            
            
            
            4,256,777
            
            
            
            13,070,473
            
            
            
            11,734,812Credit
      Agreement EBITDA
            
            $
            121,238,582
            
            
            $
            127,683,156
            
            
            $
            99,417,510
            
            
            $
            82,695,115
            
            
            $
            43,074,626





(1)
              One time charge (see
      Notes to the financial statements)(2)
              Stock based
      compensation related to stock options, restricted stock units (for 2007:
      stock-based compensation related to stock options, restricted stock units
      and management's participation   in profits interests in
      Eagle Ventures LLC see Notes to the financial
  statements).




52


ITEM
7.        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 years ended December 31, 2009, 2008 and 2007. 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 declined significantly from 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. 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 Republic of Marshall Islands corporation
headquartered in New York City. We own one of the largest fleets of Supramax dry
bulk vessels in the world. Supramax dry bulk vessels range in size from 50,000
to 60,000 dwt. We transport a broad range of major and minor bulk cargoes,
including iron ore, coal, grain, cement and fertilizer, along worldwide shipping
routes. As of December 31, 2009, we owned and operated a modern fleet of 27
Handymax segment dry bulk vessels, 24 of which are of the Supramax class. We
also have an on-going Supramax newbuilding program for the construction of 20
newbuilding vessels in Japan and China. The first three of these vessels were
delivered to us in 2008 while four vessels were constructed and delivered in
2009. Upon delivery of all newbuilding vessels by end 2011, our total fleet will
consist of 47 vessels with a combined carrying capacity of approximately 2.55
million dwt. We also hold options for the construction of an additional eight
Supramax vessels at the same shipyard in China.






53





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 from 50,000 to 60,000 dwt.
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 27 vessels in our operating
fleet have a combined carrying capacity of 1,412,535 dwt and an average age of
approximately six years, as compared to an average age for the world Handymax
dry bulk fleet of over 15 years.




Our
financial performance is based on the following key elements of our business
strategy:







(1)
            concentration
      in one vessel category: Supramax class of Handymax dry bulk vessels, which
      we believe 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 many of our vessels which
      range in length from approximately one to three years, and in the case of
      many of our newbuilding vessels for periods up to December 2018. We have
      also entered into one-year charters for a few of our vessels whose
      revenues are linked to the Baltic Supramax Index. Our time charters
      provide for fixed semi-monthly payments in advance. We believe 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).





The
following are several significant events that occurred during 2009:





·
            In
      January 2009, we took delivery of a newbuilding vessel, CRESTED EAGLE.
      This vessel is the second of the series of five vessels being built in
      Japan.





·
            In
      March 2009, we took delivery of a newbuilding vessel, STELLAR EAGLE. This
      vessel is the third of the series of five vessels being built in
      Japan.





·
            In
      May - June 2009, we raised $100 million by issuing shares of our common
      stock.





·
            In
      August 2009, we amended and reduced our revolving credit facility to
      $1,200,000,000.





·
            In
      September 2009, we set up our own in-house technical management
      operation.





·
            We
      took delivery of our third newbuilding vessel from China, BITTERN, in
      October 2009.





·
            We
      took delivery of our fourth newbuilding vessel from China, CANARY, in
      December 2009.





The
following are several significant events that occurred during 2008:





·
            In
      May 2008, we acquired two Supramax vessels, GOLDENEYE and REDWING, which
      delivered into our fleet in June 2008 and September 2008,
      respectively.






54





·
            We
      took delivery of the first of our newbuilding vessels, WREN in June 2008.
      This vessel is the first of the series of 22 vessels being built in China
      under construction contracts.





·
            We
      took delivery of our second newbuilding vessel from China, WOODSTAR, in
      October 2008.





·
            We
      took delivery of our third newbuilding vessel, CROWNED EAGLE, in November
      2008. This vessel is the first of the series of five vessels being built
      in Japan.





·
            In
      December 2008, we renegotiated our 30 vessel newbuilding program in China
      by converting firm construction contracts on eight charter free vessels
      into options. The contract deposits on these vessels were redirected as
      progress payments towards vessels being constructed for delivery in 2009.
      We also deferred delivery of a vessel, THRUSH, from September 2009 to
      November 2010. These changes in the newbuilding program resulted in a
      reduction of the Company's capital expenditure program by a total of $363
      million.





·
            In
      December 2008, we amended and reduced our revolving credit facility to
      $1,350,000,000.





The
following are several significant events that occurred during 2007:





·
            In
      January 2007, we entered into two vessel newbuilding contracts with IHI
      Marine United Inc., a Japanese shipyard, for the construction of two
      56,000 deadweight ton 'Future-56' class Supramax vessels at a contract
      price in Japanese yen equivalent to $33,500,000
  each.





·
            In
      February 2007 we sold our oldest vessel, SHIKRA, and we expanded our fleet
      from 16 vessels to 18 vessels by acquiring the SHRIKE, SKUA and
      KITTIWAKE





·
            In
      March 2007, we completed a public offering of 5,813,819 shares of our
      common stock.





·
            In
      April 2007, we entered into a vessel newbuilding contract with IHI Marine
      United Inc., for the construction of a 'Future-56' class Supramax vessel
      at a contract price in Japanese yen equivalent to
    $33,500,000.





·
            In
      August 2007, we completed the acquisition of the rights to 26 newbuilding
      vessels and options for the construction of an additional 9 vessels. These
      vessels will be constructed in China, at the Yangzhou Dayang Shipbuilding
      Co. Ltd., and delivered into our Company's fleet between 2008 and 2012 for
      a total cost of approximately $1,100,000,000 and associated capitalized
      financing and technical supervision costs. On December 27, 2007, the
      Company exercised four of the nine options. The total contract price for
      the four additional vessels is $169,200,000. The remaining five options
      expired on March 31, 2008.





·
            On
      September 21, 2007, we completed a public offering of 5,000,000 shares of
      our common stock.





·
            In
      October 2007, we amended and increased our revolving credit facility to
      $1,600,000,000.





We have
employed all of our vessels on time charters. The following table represents
certain information about the Company's vessel revenue earning
charters:






55





The
following table represents certain information about our revenue earning
charters on our operating fleet as of December 31, 2009:





Vessel
            Year Built
            Dwt
            Time
      Charter Expiration(1)
            Daily
      Time
              Charter Hire RateBittern
      (2)
            2009
            57,809
            Jan
      2015
              Jan
      2015 to Dec 2018/Apr 2019
            $18,850
              $18,000
      (with
              profit
      share)Canary
      (3)
            2009
            57,809
            March
      2015
              Mar
      2015 to Dec 2018/Apr 2019
            $18,850
              $18,000
      (with
              profit
      share)Cardinal
      (4)
            2004
            55,362
            September
      2010 to November 2010
            $16,250Condor
            2001
            50,296
            Jul
      2010 to Oct 2010
            $22,000Crested
      Eagle (5)
            2009
            55,989
            January
      2011 to April 2011
            $11,500
      + Index shareCrowned
      Eagle (6)
            2008
            55,940
            March
      2010 to May 2010
            $25,000Falcon
            2001
            51,268
            April
      2010 to June 2010
            $39,500Goldeneye
      (7)
            2002
            52,421
            May
      2010 to July 2010
            IndexGriffon
            1995
            46,635
            February
      2010 to May 2010
            $9,500Harrier
            2001
            50,296
            April
      2010 to August 2010
            $13,500Hawk
      I
            2001
            50,296
            May
      2010 to August 2010
            $13,000Heron
      (8)
            2001
            52,827
            January
      2011 to May 2011
            $26,375Jaeger
      (9)
            2004
            52,248
            April
      2010 to July 2010
            $26,000Kestrel
      I
            2004
            50,326
            March
      2010 to July 2010
            $11,500Kite
      (10)
            1997
            47,195
            November
      2010 to January 2011
            $17,000Kittiwake
      (11)
            2002
            53,146
            August
      2010 to October 2010
            IndexMerlin
      (12)
            2001
            50,296
            December
      2010 to March 2011
            $25,000Osprey
      I (13)
            2002
            50,206
            March
      2010 to May 2010
            $18,000Peregrine
      (14)
            2001
            50,913
            January
      2010
              Jan
      2010 to Jan 2011/Mar 2011
            $8,500
              $10,500
      + Index shareRedwing
      (15)
            2007
            53,411
            August
      2010 to October 2010
            IndexShrike
            2003
            53,343
            May
      2010 to August 2010
            $25,600Skua
      (16)
            2003
            53,350
            September
      2010 to November 2010
            IndexSparrow
      (17)
            2000
            48,225
            February
      2010 to May 2010
            $10,000Stellar
      Eagle
            2009
            55,989
            February
      2010 to May 2010
            $12,000Tern
            2003
            50,200
            December
      2009 to March 2010
            $8,500Mar
      2010 to June2010/Aug 2010
            $23,500Woodstar
      (18)
            2008
            53,390
            January
      2014
              Jan
      2014 to Dec 2018/Apr 2019
            $18,300
              $18,000
      (with
              profit
      share)Wren
      (19)
            2008
            53,349
            Dec
      2011
              Dec
      2011 to Dec 2018/Apr 2019
            $24,750
              $18,000
      (with
              profit
      share)






56





(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. The time charter hire rates presented are gross daily charter
      rates before brokerage commissions, ranging from 1.25% to 6.25%, to third
      party ship brokers.


(2)
            The
      BITTERN has entered into a long-term charter. The charter rate until Jan
      2015 is $18,850 per day. Subsequently, the charter until redelivery in
      December 2018 to April 2019 will be profit share based. The base charter
      rate will be $18,000 with a 50% profit share for earned rates over $22,000
      per day. Revenue recognition for the base rate from commencement of the
      charter is based on an average daily base rate of
  $18,479.


(3)
            The
      CANARY has entered into a long-term charter. The charter rate until March
      2015 is $18,850 per day. Subsequently, the charter until redelivery in
      December 2018 to April 2019 will be profit share based. The base charter
      rate will be $18,000 with a 50% profit share for earned rates over $22,000
      per day. Revenue recognition for the base rate from commencement of the
      charter is based on an average daily base rate of
  $18,487.


(4)
            Upon
      conclusion of the previous charter in September 2009, the CARDINAL
      commenced a new one year charter at $16,250 per
  day.


(5)
            The
      charterer of the CRESTED EAGLE has exercised an option to extend the
      charter period by 11 to 13 months from February 2010 at a base time
      charter rate of $11,500 plus 50% of the difference between the base rate
      and the BSI time charter average (provided the BSI TC average is greater
      than the base rate). The profit share to be calculated each month is based
      on the trailing BSI TC average for the
month.


(6)
            Upon
      completion of the previous charter in December 2009, the CROWNED EAGLE
      commenced a charter for three to five months at $25,000 per
      day.


(7)
            Upon
      conclusion of the previous time charter, in September 2009, the GOLDENEYE
      commenced an index based one year charter with a minimum rate of $8,500
      per day. The index rate will be an average of the trailing Baltic Supramax
      Index for each 15 day hire period. For the first 50 days of the charter
      the index rate is $15,000 per day.


(8)
            The
      charterer of the HERON has an option to extend the charter period by 11 to
      13 months at a time charter rate of $27,375 per day. The charterer has a
      second option for a further 11 to 13 months at a time charter rate of
      $28,375 per day.


(9)
            Upon
      completion of the previous charter in January 2010, the JAEGER commenced a
      charter for three to five months at $26,000 per
  day.


(10)
            Upon
      completion of the previous charter in January 2010, the KITE commenced a
      one year charter at $17,000 per
day.


(11)
            Upon
      conclusion of the previous charter, the KITTIWAKE entered into an index
      based charter for one year with a minimum rate of $8,500 per day. The
      index rate will be an average of the trailing Baltic Supramax Index for
      each 15 day hire period. For the first 45 days of the charter the index
      rate will be a maximum of $19,000 per
day.


(12)
            The
      daily rate for the MERLIN is $27,000 for the first year, $25,000 for the
      second year and $23,000 for the third year. Revenue recognition is based
      on an average daily rate of
$25,000.


(13)
            Upon
      completion of the previous charter in December 2009, the OSPREY I
      commenced a charter for four to six months at $18,000 per
    day.


(14)
            The
      charterer of the PEREGRINE has exercised the option to extend the charter
      period by 11 to 13 months. The rate for the option period is index based
      with a minimum daily time charter rate of $10,500 and a profit share which
      is equal to 50% of the difference between the base rate and the average of
      the trailing Baltic Supramax Index for each 30 day hire
      period.


(15)
            Upon
      conclusion of the previous time charter in August 2009, the REDWING
      commenced an index based one year charter with a minimum rate of $8,500
      per day. The index rate will be an average of the trailing Baltic Supramax
      Index for each 15 day hire period. For the first 45 days of the charter
      the index rate will be a maximum of $19,000 per
  day.


(16)
            Upon
      conclusion of the previous time charter in August 2009, the SKUA commenced
      an index based one year charter with a minimum rate of $8,500 per day. The
      index rate will be an average of the trailing Baltic Supramax Index for
      each 15 day hire period. For the first 45 days of the charter the index
      rate will be a maximum of $19,000 per
day.


(17)
            In
      March 2009, the charterer of the SPARROW paid in advance for the duration
      of the charter an amount equal to the difference between the prevailing
      daily charter rate of $34,500 and a new rate of $10,000 per day. This
      amount has been recorded in Deferred Revenue in the Company's financial
      statements and is being recognized into revenue ratably over the charter
      period such that the daily charter rate remains effectively $34,500 per
      day. The cash payment received by the Company has been adjusted by a
      present value interest rate factor of
3%.






57




(18)
            The
      WOODSTAR has entered into a long-term charter. The charter rate until
      January 2014 is $18,300 per day. Subsequently, the charter until
      redelivery in December 2018 to April 2019 will be profit share based. The
      base charter rate will be $18,000 with a 50% profit share for earned rates
      over $22,000 per day. Revenue recognition for the base rate from
      commencement of the charter is based on an average daily base rate of
      $18,152.


(19)
            The
      WREN has entered into a long-term charter. The charter rate until Dec 2011
      is $24,750 per day. Subsequently, the charter until redelivery in December
      2018 to April 2019 will be profit share based. The base charter rate will
      be $18,000 with a 50% profit share for earned rates over $22,000 per day.
      Revenue recognition for the base rate from commencement of the charter is
      based on an average daily base rate of
$20,306.








The
following table, as of December 31, 2009, represents certain information about
the Company's newbuilding vessels being constructed and their expected
employment upon delivery:





Vessel
            Dwt
            Year Built – Actual or Expected
      Delivery(1)
            Time Charter Employment
      Expiration(2)
            Daily Time Charter Hire Rate(3)
            Profit ShareThrasher (4)
      (5)
            53,100
            2010Q1
            Apr
      2016
            $18,400
            —Apr
      2016 to Dec 2018/Apr 2019
            $18,000
            50%
      over $22,000Crane (4)
      (6)
            58,000
            2010Q1
            Apr
      2015
            $18,850
            —Apr
      2015 to Dec 2018/Apr 2019
            $18,000
            50%
      over $22,000Avocet (4)
      (7)
            53,100
            2010Q1
            May
      2016
            $18,400
            —May
      2016 to Dec 2018/May 2019
            $18,000
            50%
      over $22,000Egret Bulker (4)
            58,000
            2010Q1
            Oct
      2012 to Feb 2013
            $17,650
            50%
      over $20,000Golden Eagle (4)
            56,000
            2010Q1
            Dec
      2010 to Mar 2011
            Index
            —Imperial Eagle (4)
            56,000
            2010Q1
            Jan
      2011 to Mar 2011
            Index
            —Gannet Bulker (8)
            58,000
            2010Q2
            Jan
      2013 to May 2013
            $17,650
            50%
      over $20,000Grebe Bulker(8)
            58,000
            2010Q2
            Jan
      2013 to May 2013
            $17,650
            50%
      over $20,000Ibis Bulker(8)
            58,000
            2010Q2
            Mar
      2013 to Jul 2013
            $17,650
            50%
      over $20,000Jay
            58,000
            2010Q3
            Dec
      2015
            $18,500
            50%
      over $21,500Dec
      2015 to Dec 2018/Apr 2019
            $18,000
            50%
      over $22,000Kingfisher
            58,000
            2010Q3
            Dec
      2015
            $18,500
            50%
      over $21,500Dec
      2015 to Dec 2018/Apr 2019
            $18,000
            50%
      over $22,000Martin
            58,000
            2010Q3
            Feb
      2017 to Feb 2018
            $18,400
            —Thrush
            53,100
            2010Q4
            Charter
      Free
            —
            —Nighthawk
            58,000
            2011Q1
            Sep
      2017 to Sep 2018
            $18,400
            —Oriole
            58,000
            2011Q3
            Jan
      2018 to Jan 2019
            $18,400
            —Owl
            58,000
            2011Q3
            Feb
      2018 to Feb 2019
            $18,400
            —Petrel (8)
            58,000
            2011Q4
            Jun
      2014 to Oct 2014
            $17,650
            50%
      over $20,000Puffin (8)
            58,000
            2011Q4
            Jul
      2014 to Nov 2014
            $17,650
            50%
      over $20,000Roadrunner (8)
            58,000
            2011Q4
            Aug
      2014 to Dec 2014
            $17,650
            50%
      over $20,000Sandpiper (8)
            58,000
            2011Q4
            Sep
      2014 to Jan 2015
            $17,650
            50%
      over $20,000   58
   CONVERTED INTO OPTIONSSnipe (10)
            58,000
            2012Q1
            Charter
      Free
            —
            —Swift (10)
            58,000
            2012Q1
            Charter
      Free
            —
            —Raptor (10)
            58,000
            2012Q2
            Charter
      Free
            —
            —Saker (10)
            58,000
            2012Q2
            Charter
      Free
            —
            —Besra
      (9,10)
            58,000
            2011Q4
            Charter
      Free
            —
            —Cernicalo (9,10)
            58,000
            2011Q1
            Charter
      Free
            —
            —Fulmar (9,10)
            58,000
            2011Q3
            Charter
      Free
            —
            —Goshawk (9,10)
            58,000
            2011Q4
            Charter
      Free
            —
            —






(1)
              Vessel
      build and delivery dates are estimates based on guidance received from
      shipyard.(2)
              The
      date range represents the earliest and latest date on which the charterer
      may redeliver the vessel to the Company upon the termination of the
      charter.(3)
              The
      time charter hire rate presented are gross daily charter rates before
      brokerage commissions ranging from 1.25% to 6.25% to third party ship
      brokers.(4)
              The
      THRASHER, CRANE, AVOCET, EGRET BULKER, GOLDEN EAGLE and IMPERIAL EAGLE
      delivered in the first quarter of 2010.(5)
              The
      THRASHER has entered into a long-term charter. The charter rate until
      April 2016 is $18,400 per day. Subsequently, the charter until redelivery
      in December 2018 to April 2019 will be profit share based. The base
      charter rate will be $18,000 with a 50% profit share for earned rates over
      $22,000 per day. Revenue recognition for the base rate from commencement
      of the charter is based on an average daily base rate of
      $18,272.(6)
              The
      CRANE has entered into a long-term charter. The charter rate until April
      2015 is $18,850 per day. Subsequently, the charter until redelivery in
      December 2018 to April 2019 will be profit share based. The base charter
      rate will be $18,000 with a 50% profit share for earned rates over $22,000
      per day. Revenue recognition for the base rate from commencement of the
      charter is based on an average daily base rate of
  $18,489.(7)
              The
      AVOCET has entered into a long-term charter. The charter rate until May
      2016 is $18,400 per day. Subsequently, the charter until redelivery in
      December 2018 to May 2019 will be profit share based. The base charter
      rate will be $18,000 with a 50% profit share for earned rates over $22,000
      per day. Revenue recognition for the base rate from commencement of the
      charter is based on an average daily base rate of
  $18,274.(8)
              The
      charterer has an option to extend the charter by 2 periods of 11 to 13
      months each.(9)
              Options
      for construction declared on December 27, 2007.(10)
              Firm
      contracts converted to options in December
2008.




Market
Overview





The
international shipping industry is highly competitive and fragmented with many
market participants. There are approximately 7,312 dry bulk carriers of over
10,000 dwt aggregating approximately 459 million dwt, and the ownership of the
world dry bulk fleet remains very fragmented with no single owner accounting for
more than 6% of any one sector. We primarily compete with other owners of dry
bulk vessels in the Handymax and Handysize class and Panamax class sectors that
are mainly privately owned fleets.





Competition
in virtually all bulk trades is intense and based primarily on supply and
demand. Such demand is a function of world economic conditions and the
consequent requirement for commodities, production and consumption patterns, as
well as events which interrupt production, trade routes and consumption. 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.






59





Our
strategy is to concentrate in one vessel category of the dry bulk segment of the
shipping industry – the Handymax sector. Handymax dry bulk vessels range in size
from 35,000 to 60,000 dwt. Within the Handymax sector, the industry has migrated
to a larger size of vessel class called the Supramax class of dry bulk vessels
which range in size from 50,000 to 60,000 dwt. 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. Twenty four of the 27 vessels in our operating fleet as of
December 31, 2009 are classified as Supramax vessels. All of the 20 vessels
under construction are also Supramax class vessels.














The
supply of dry bulk vessels depends primarily on the level of the orderbook, the
fleet age profile, and the operating efficiency of the existing fleet. As of
January 2010, 27% of the world Handymax fleet is 20 years or older. The 27
Handymax vessels in our operating fleet have an average age of approximately 6
years as of December 31, 2009, compared to an average age for the world Handymax
dry bulk fleet of over 14.5 years. The Handymax newbuilding orderbook currently
stands at 58% of the world Handymax fleet.








60













The
Handymax Market





The
recovery of the dry bulk industry during 2009 has been largely unexpected. The
Baltic Dry Index ended 2009 at 4,107. The index which peaked at 11,623 in June
2008 had plummeted in a space of a few months to a low of 773 during the credit
crisis of 2008. The recovery has been fueled by unprecedented global government
intervention which in turn has increased confidence in international trade
finance prompting a gradual recovery in global trade volumes and demand for dry
bulk commodities. Despite this temporary dislocation in demand, the growth of
China and India continue to underpin the
fundamentals of dry bulk shipping demand. China experienced yet another
robust growth year and Indian industrial production also posted another stellar
year in 2009.  This growth is reflected in the robust recovery of
demand for the most important commodity for dry bulk, iron ore. Global iron ore
shipments have crossed the 750 million ton mark and are growing.





However,
even as the demand equilibrium is stabilizing, there is considerable uncertainty
in the ship supply position. The boom years of 2004-2008 saw an unprecedented
growth in newbuilding ordering as the demand surge, led by China, increased
global fleet utilization rates to well over 90% each year. Easy credit further
helped fuel the orderbook of new vessels.





In 2009,
the dry bulk fleet is estimated to have increased from 420 million dwt to 455
million dwt, a substantial increase of 8.25%. The recent large supply increase,
however, has been absorbed by the recovery in dry bulk demand, a sharp increase
in scrapping which is the result of the 2008 freight rate collapse, and
increasing port congestion which is an infrastructure constraint. However, such
a large increase in supply is not conducive for a healthy freight rate
environment, which has remained fragile.





Industry
research indicates estimated dry bulk vessel deliveries for 2010 and 2011 are 76
million dwt and 78m dwt respectively, an unprecedented increase if it all comes
to fruition.






61





The
international banking crisis has resulted in a withdrawal of credit which in
turn has resulted in a number of order cancellations or deferrals.  As
most shipyard and ship owners have elected to keep this information private, the
result is an uncertain supply position. Recent reports have indicated
cancellations ranging from 15% to 25% of the orderbook which would have the
result of increasing supply by 7% to 12% of the dry bulk fleet. Some extreme
scenarios have also called for cancellations of up to 65% of the orderbook which
while beneficial for dry bulk freight rates, would result in severe consequences
for the shipbuilding industry. However, for demand and supply equilibrium to be
in balance, global demand has to increase by the same amount in short
order.





Despite
increasing iron ore shipments, estimates show that world steel production is
down 22.9% in 2009 as  Western producers continue to close plants and
cut output even as Chinese steel production has increased by 2.4%. This may
result in a shift in global trade with increasing shipments of iron ore to China and finished steel
products increasingly being shipped out of China. While this may be a long
term trend beneficial to absorb the ship supply, in the short term the
continuing inequilibrium is likely to result in a low freight rate
environment.





In the
Capesize sector, about 730 vessels are on order which is equivalent to 90% of
existing fleet. Scheduled deliveries are 160 vessels in 2009, 350 vessels in
2010 and about 200 vessels in 2011. The Panamax sector has about 31% of its
existing fleet on order with deliveries peaking in 2010. The Handymax sector has
about 28% of its existing fleet on order with the bulk of deliveries in 2009 and
2010. However, the existing global Handymax fleet is significantly older with a
considerable proportion of the trading fleet 25 years or older. And in a low
freight rate environment this sector will see the highest scrapping potential.
This would have the benefit of bringing the Handymax fleet into demand
equilibrium the fastest among all the dry bulk sectors.





Lack
of Historical Operating Data for Vessels Before their Acquisition





Consistent
with shipping industry practice, other than inspection of the physical condition
of the vessels and examinations of classification society records, there is no
historical financial due diligence process when we acquire vessels. Accordingly,
we do not obtain the historical operating data for the vessels from the sellers
because that information is not material to our decision to make acquisitions,
nor do we believe it would be helpful to potential investors in our common stock
in assessing our business or profitability. Most vessels are sold under a
standardized agreement, which, among other things, provides the buyer with the
right to inspect the vessel and the vessel's classification society records. The
standard agreement does not give the buyer the right to inspect, or receive
copies of, the historical operating data of the vessel. Prior to the delivery of
a purchased vessel, the seller typically removes from the vessel all records,
including past financial records and accounts related to the vessel. In
addition, the technical management agreement between the seller's technical
manager and the seller is automatically terminated and the vessel's trading
certificates are revoked by its flag state following a change in
ownership.





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





Critical
Accounting Policies





The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of those financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions and
conditions.






62





Critical
accounting policies are those that reflect significant judgments of
uncertainties and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies, because they generally involve a
comparatively higher degree of judgment in their application. For a description
of all our accounting policies, see Note 2 to our consolidated financial
statements included herein.





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, and are generally not as
complex or as subjective as voyage charters. For long-term time charters,
revenue is recognized on a straight-line basis over the term of the
charter.





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 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
two methods that are used by the shipping industry to account for drydockings;
(a) the deferral method where drydock costs are capitalized when incurred and
amortized over the period to the next scheduled drydock; and (b) expensing
drydocking costs in the period it is incurred. We use the deferral method of
accounting for drydock expenses. Under the deferral 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 deferral method
better matches costs with revenue than expensing the costs as incurred. 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 deferral
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.






63





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 Fair
value below contract value of time charters acquired 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 Fair value above contract value of time charters acquired, based on the
difference between the market charter rate and the contracted charter rate for
an equivalent vessel. This determination is made at the time the vessel is
delivered to us, and such assets and liabilities are amortized to revenue over
the remaining period of the charter. The determination of the fair value of
acquired assets and assumed liabilities requires us to make significant
assumptions and estimates of many variables including market charter rates,
expected future charter rates, 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.





Deferred
Financing Costs





Fees
incurred for obtaining new loans or refinancing existing ones are deferred and
amortized to interest expense over the life of the related debt. Unamortized
deferred financing costs are written off when the related debt is repaid, or
there is a reduction in the facility, and such amounts are expensed in the
period the repayment or refinancing is made.





Results
of Operations for the years ended December 31, 2009, 2008 and 2007





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:





2009
            2008
            2007Ownership
      Days
            9,106
            7,229
            6,166Available
      Days
            8,999
            7,172
            6,073Operating
      Days
            8,966
            7,139
            6,039Fleet
      Utilization
            99.6%
            99.5%
            99.4%





·
            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. There were sixteen vessels in the fleet at
      the beginning of 2007. During 2007, we sold one vessel in the first
      quarter and took delivery of three vessels in the second quarter.
      Ownership days in 2008 increased due to the acquisition of two second-hand
      vessels which delivered in June and September of 2008, and the delivery of
      three newbuilding vessels in June, October, and November 2008. Ownership
      days in 2009 increased due to the delivery of four newbuilding vessels, in
      January, March, October, and December
2009.






64





·
            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
      drydockings, 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. We drydocked five vessels in 2007, three vessels in
      2008, and eight vessels in 2009.





·
            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.





·
            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.
      Our fleet continues to perform at very high utilization
    rates.





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





65


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 dry bulk sector of the shipping
industry, rates for the transportation of dry bulk 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.





Revenues
are also affected by the mix of charters between spot (voyage charter) and
long-term (time charter). Because shipping revenues and voyage expenses are
significantly affected by the mix between voyage charters and time charters,
vessel revenues are bench-marked on the basis of time charter equivalent ("TCE")
revenues. TCE revenue comprises revenue from vessels operating on time charters,
or TC revenue, and voyage revenue less voyage expenses from vessels operating on
voyage charters in the spot market. TCE revenue serves as a measure of analyzing
fluctuations between financial periods and as a method of equating revenue
generated from a voyage charter to time charter revenue. TCE revenue also serves
as an industry standard for measuring revenue and comparing results between
geographical regions and among competitors.





Our
economic decisions are based on anticipated TCE rates and we evaluate financial
performance based on TCE rates achieved. 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:





·
            the
      duration of our charters;





·
            our
      decisions relating to vessel acquisitions and
  disposals;





·
            the
      amount of time that we spend positioning our
  vessels;





·
            the
      amount of time that our vessels spend in dry-dock undergoing
      repairs;





·
            maintenance
      and upgrade work;





·
            the
      age, condition and specifications of our
  vessels;





·
            levels
      of supply and demand in the dry bulk shipping industry;
  and





·
            other
      factors affecting spot market charter rates for dry bulk
      carriers.





All our
revenues for the years ended December 31, 2009 and December 31, 2008 and
December 31, 2007 were earned from time charters, hence our TCE revenue is equal
to the TC revenue. 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.





Net
revenues for the year ended December 31, 2009 of $192,574,826 included billed
time charter revenues of $199,851,763, amortization of Fair value below contract
value of time charters acquired of $2,643,820, and deductions for brokerage
commissions of $9,920,757. While, net revenues for the year ended December 31,
2009 were 4% greater than net revenues for the year ended December 31, 2008, the
positive impact of a larger fleet size was offset by a decrease in time charter
rates earned by the fleet.






66





Net
revenues for the year ended December 31, 2008 of $185,424,949 included billed
time charter revenues of $194,253,142, amortization of Fair value below contract
value of time charters acquired of $799,540, and deductions for brokerage
commissions of $9,627,733. Net revenues for the year ended December 31, 2008
were 49% greater than net revenues for the year ended December 31, 2007,
primarily due to a larger fleet size, as reflected by the increased operating
days, and an increase in daily time charter rates.





Net
revenues for the year ended December 31, 2007 of $124,814,804 included billed
time charter revenues of $135,412,594, deductions for brokerage commissions of
$6,857,790 and amortization of Fair value below contract value of time charters
acquired of $3,740,000.





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.





Vessel
Expenses





Vessel
expenses for the years ended December 31, 2009, 2008 and 2007 were $50,161,091,
$36,270,382, and $27,143,515, respectively. Vessel expenses increase as the
fleet size increases. During 2009, vessel expenses also increased due to
increases in vessel crew costs, insurance costs, costs relating to anti-piracy
measures, and general increases in costs of stores and spares. Vessel expenses
for the year ended December 31, 2009 included $47,466,300 in vessel operating
costs and $2,694,791 in technical management fees. Vessel expenses for the year
ended December 31, 2008 included $34,065,337 in vessel operating costs and
$2,205,047 in technical management fees. Vessel expenses in 2008 increased due
to increases in vessel crew costs, increase in insurance costs, and increases in
lube costs which are based on global oil prices. Vessel expenses for the year
ended December 31, 2007 included $25,338,098 in vessel operating costs and
$1,805,417 in technical management fees.





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, pre-operating costs associated with the delivery of
acquired vessels including providing the newly acquired vessels with initial
provisions and stores, 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 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 as the fleet is entirely time chartered.





With
regard to vessel operating expenses, we have entered into technical management
agreements for each of our vessels with our independent technical managers, V.
Ships, Wilhelmsen Ship Management, and Anglo Eastern International Ltd. In
conjunction with our management, our managers have established an operating
expense budget for each vessel. Included in Vessel Expenses is a daily fixed
management fee for each vessel in our operating fleet paid to our independent
technical managers. In the third quarter of 2009, we set up our own in-house
technical management for a portion of our fleet in order to establish a vessel
management bench-mark with our external technical managers. For the years ended
December 31, 2009, 2008, and 2007, the technical management fees averaged
$9,233, $9,041, and $8,906 per month per vessel, respectively. 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.






67





Our
vessel 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 crew, insurance and petroleum-based lubricants and
supplies.





Depreciation
and Amortization





For the
years ended December 31, 2009, 2008 and 2007, total depreciation and
amortization expense was $44,329,258, $33,948,840, and $26,435,646,
respectively. Total depreciation and amortization expense for the year ended
December 31, 2009 includes $41,380,917 of vessel depreciation and $2,948,341 of
amortization of deferred drydocking costs. Total depreciation and amortization
expense for the year ended December 31, 2008 includes $31,379,444 of vessel
depreciation and $2,569,396 of amortization of deferred drydocking costs.
Comparable amounts for the year ended December 31, 2007 were $24,791,502 of
vessel depreciation and $1,644,144 of amortization of deferred drydocking
costs.





The cost
of our vessels is depreciated on a straight-line basis over the expected useful
life of each vessel. Depreciation is based on the cost of the vessel less its
estimated residual value. We estimate the useful life of our vessels to be 28
years from the date of initial delivery from the shipyard to the original owner.
Furthermore, we estimate the residual values of our vessels to be $150 per
lightweight ton, which we believe is common in the dry bulk shipping industry.
Our depreciation charges will increase as our fleet expands. Drydocking relates
to our regularly scheduled maintenance program necessary to preserve the quality
of our vessels as well as to comply with international shipping standards and
environmental laws and regulations. Management anticipates that vessels are to
be drydocked every two and a half years and, accordingly, these expenses are
deferred and amortized over that period.





General
and Administrative Expenses





Our
general and administrative expenses include onshore vessel administration
related expenses such as legal and professional expenses and recurring
administrative and other expenses including payroll and expenses relating to our
executive officers and office staff, office rent and expenses, directors fees,
and directors and officers insurance. General and administrative expenses also
include non-cash compensation expenses.





General
and administrative expenses for the years ended December 31, 2009, 2008 and 2007
were $32,713,917, $34,567,070, and $11,776,511, respectively. General and
administrative expenses in 2009 and 2008 were impacted primarily by cash and
non-cash compensation (performance-based compensation and amortization of
restricted stock awards) to our executive officers and office staff, and by
administrative costs associated with operating a larger fleet, including the
extensive newbuilding program.





General
and administrative expenses include non-cash compensation charges of
$13,977,974, $11,111,885, and $4,256,777, respectively in 2009, 2008, and 2007.
These non-cash compensation charges relate to the stock options and restricted
stock units granted to members of management and certain directors of the
Company under the Stock Incentive Plans (see Note 10).  Non-cash
compensation charges in 2007 also includes $3,137,812 in non-cash, non-dilutive
charges relating to profits interests awarded to members of the Company's
management by the Company's former principal shareholder Eagle Ventures
LLC.






68





Members
of the Company's management had been awarded profits interests in the Company's
former principal shareholder Eagle Ventures LLC that entitled such persons to an
economic interest of up to 16.7% on a fully diluted basis (assuming all profits
interests were vested) in any appreciation in the value of the assets of Eagle
Ventures LLC (including shares of the Company's common stock owned by Eagle
Ventures LLC when sold). These profits interests diluted only the interests of
owners of Eagle Ventures LLC, and did not dilute direct holders of the Company's
common stock. However, the Company's statement of operations reflects non-cash
charges for compensation related to the profits interests. In the aggregate, one
fourth of the profits interests were service-related and the remaining profits
interests were performance related.  Since these profits interests
would not be settled in stock of the Company, they were being accounted for as a
liability plan. The compensation charge was based on the fair value of the
profits interests by marking to market the assets of Eagle Ventures LLC at the
end of each reporting period. The impact of any changes in the estimated fair
value of the profits interests was 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 was adjusted prospectively as a change in estimate. As Eagle
Ventures LLC has sold all of its remaining holdings in the Company, the
non-cash, non-dilutive charges relating to profits interests ended in the first
quarter of 2007 and there will be no charges in future periods.





Interest
and Finance Costs





Interest
Expense, exclusive of capitalized interest, consists of:





2009
            
            
            2008
            
            
            2007Loan
      Interest and Commitment Fees
            
            $
            27,530,612
            
            
            $
            15,571,736
            
            
            $
            12,498,749Amortization
      of Deferred Financing Costs
            
            
            1,373,998
            
            
            
            244,837
            
            
            
            242,357Write-off
      of Deferred Financing Costs
            
            
            3,383,289
            
            
            
            2,089,701
            
            
            
            —Total
      Interest Expense
            
            $
            32,287,899
            
            
            $
            17,906,274
            
            
            $
            12,741,106





Interest
expense includes loan interest incurred on borrowings from the Company's
revolving credit facility for the vessels in operation, certain commitment fees
incurred on the unused portion of the revolving credit facility, and the
amortization of financing costs associated with the revolving credit facility
(see section Revolving Credit Facility). These financing costs are amortized
over the life of the facility and the amortization relating to our operating
fleet is included in interest expense.





For 2009,
interest rates on our outstanding debt ranged from 2.19% to 7.73%, including a
margin over LIBOR applicable under the terms of the amended revolving credit
facility. The weighted average effective interest rate was 6.23%.





For 2008,
interest rates on our outstanding debt ranged from 3.10% to 6.99%, including a
margin over LIBOR applicable under the terms of the amended revolving credit
facility. The weighted average effective interest rate was 5.46%. Commitment
fees incurred on the undrawn portion of the facility ranged from 0.25% to 0.3%
on the unused portions of the revolving credit facility.





For 2007,
interest rates on our outstanding debt ranged from 4.97% to 6.56%, including a
margin over LIBOR applicable under the terms of the amended revolving credit
facility. The weighted average effective interest rate was 5.44%. Commitment
fees incurred on the undrawn portion of the facility was 0.25% on the unused
portions of the revolving credit facility.





Cash
interest paid during 2009, 2008, and 2007, exclusive of capitalized interest,
amounted to $26,116,825, $13,557,351, and $13,031,996,
respectively.





As our
fleet increases in size, interest expense will increase as a result of
additional debt drawn from our revolving credit facility to finance the
acquisition of vessels. Interest costs on borrowings made for the construction
of our newbuilding vessels are capitalized until the vessels are delivered (see
below).





Write-off
of Deferred Financing Costs





In August
2009, we entered into a third Amendatory Agreement to our original
$1,600,000,000 revolving credit facility. Among other things, the credit
facility was amended to $1,200,000,000. In connection with this amendment and
the debt repayment of $48, 645,523 we recorded a one-time non-cash charge of
$3,383,289, which is a write-off of the portion of deferred finance costs
associated with the reduction of the credit facility.






69





In
December 2008, we entered into a second Amendatory Agreement to our original
$1,600,000,000 revolving credit facility. Among other things, the credit
facility amended the amount of the credit facility to $1,350,000,000. In
connection with the second amendment we recorded a one-time non-cash charge of
$2,089,701, which is a write-off of the portion of the deferred finance costs
associated with the reduction of the credit facility.





Capitalized
Interest





We have
contracted for the construction of 27 newbuilding vessels of which 7 vessels
have been constructed and delivered in 2008 and 2009. We make periodic progress
payments for the ongoing construction of the remainder of the vessels under the
contracts. Interest costs on related borrowings are capitalized until the
vessels are delivered.





Capitalized
interest in 2009 amounted to $28,485,470, which includes $26,345,204 in interest
and commitment fees, and $2,140,266 in amortization of financing costs.
Capitalized interest in 2008 amounted to $26,211,616, which includes $24,392,000
in interest and commitment fees, and $1,819,616 in amortization of financing
costs. For 2007, capitalized interest amounted to $9,400,288 which includes
$8,964,989 in interest and commitment fees, and $435,299 in amortization of
financing costs. The increase in capitalized interest is substantially due to
additional borrowings to fund the construction of the newbuilding vessels and
the increase in margins. Cash paid for capitalized interest during 2009, 2008,
and 2007 amounted to $26,643,519, $20,385,190, and $8,775,957,
respectively.





Interest
Rate Swaps





We have
entered into interest rate swaps to effectively convert a portion of our debt
from a floating to a fixed-rate basis. Under these swap contracts, exclusive of
applicable margins, we pay fixed rate interest and receive floating-rate
interest amounts based on three-month LIBOR settings. The swaps are designated
and qualify as cash flow hedges.





As of
December 31, 2009, the following swap contracts were outstanding:





Notional
      Amount Outstanding –
              December
      31, 2009
            
            
            Fixed
      Rate
            
            
            Maturity$
            25,776,443
            
            
            
            4.905
            %
            
            
            03/201010,995,000
            
            
            
            4.980
            %
            
            
            08/2010202,340,000
            
            
            
            5.040
            %
            
            
            08/2010100,000,000
            
            
            
            4.220
            %
            
            
            09/201030,000,000
            
            
            
            4.538
            %
            
            
            09/2010144,700,000
            
            
            
            3.580
            %
            
            
            10/20119,162,500
            
            
            
            3.515
            %
            
            
            10/20113,405,174
            
            
            
            3.550
            %
            
            
            10/201117,050,000
            
            
            
            3.160
            %
            
            
            11/201125,048,118
            
            
            
            4.740
            %
            
            
            12/201136,752,038
            
            
            
            5.225
            %
            
            
            08/201281,500,000
            
            
            
            3.895
            %
            
            
            01/201384,800,000
            
            
            
            3.900
            %
            
            
            09/2013
            *$
            771,529,273




* An
      $84,800,000 swap matured in September 2009. This swap had a fixed interest
      rate of 5.24%. Subsequently, a swap with the same notional amount
      immediately commenced with a fixed interest rate of 3.90% and maturity in
      September 2013.




We record
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. Accordingly, $35,408,049, $50,538,060 and
$13,531,883 have been recorded in Fair Value of derivative instruments
(liabilities) in the Company's balance sheets as of December 31, 2009, 2008 and
2007, respectively.





Foreign
Currency Swaps





The
shipping industry's functional currency is the U.S. dollar. All our revenues and
the majority of our operating expenses and the entirety of our management
expenses are in U.S. dollars. Therefore we do not use or intend to use financial
derivatives to mitigate the risk of exchange rate fluctuations for our revenues
and expenses.


70


However,
as we have entered into a newbuilding program for vessels to be built in Japan and which are priced in
Japanese yen, we have entered into foreign exchange swap transactions to hedge
foreign currency risks to our vessel newbuilding contracts. These swaps are
designated and qualify as cash flow hedges.





At
December 31, 2007, the Company had outstanding foreign currency swap contracts
for notional amounts aggregating 11.28 billion Japanese yen swapped into the
equivalent of $104,259,998.





At
December 31, 2008, the Company had outstanding foreign currency swap contracts
for notional amounts aggregating 8.6 billion Japanese yen swapped into the
equivalent of $80,378,030.





In
February 2009, the Company fixed the gain on its outstanding foreign currency
swaps contracts. This gain will be recognized upon delivery of the remaining
vessels as an offset to the cost of the vessels. During 2009, the Company
recognized a foreign currency gain of $8,710,806 which offset the cost of the
Japanese vessels upon their delivery or payment incurred. The remaining gain as
of December 31, 2009 aggregating $4,765,116 will offset the cost of the
remaining two vessels upon their delivery in January, 2010 and February
2010.





The
Company records the fair value of the currency swaps as an asset or liability in
its financial statements. The effective portion of the swap is recorded in
accumulated other comprehensive income. Accordingly, an amount of $4,765,116,
$15,039,535 and $932,638 has been recorded in Fair Value of derivative
instruments in the accompanying financial statements as of December 31, 2009,
2008, and 2007, respectively.





Write-off
of Advances for Vessel Construction





In
December 2008, we reached an agreement with Yangzhou Dayang Shipbuilding Co.,
Ltd., to convert eight charter-free Supramax vessel construction contracts in
our newbuilding program into options on the part of the Company, for
consideration of $440,000. The carrying value of the advanced payment in
connection with the acquisition of these construction contracts from Kyrini
Shipping Inc. and the cost of the eight newly converted shipbuilding contract
options were in excess of the fair value of the eight options, and as such, we
recorded an impairment charge of $3,882,888.





Gain
on Sale of Vessel





On
February 27, 2007, we sold the SHIKRA, a 1984-built Handymax vessel, to an
unrelated third party for $12,525,000. We incurred total expenses of $513,518
relating to the sale. We recorded a gain on the sale of $872,568.





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 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
cumulative free cash flows which is 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. Following an amendment to the revolving credit facility in
December 2008, payment of dividends has been suspended until certain covenants requirements
have been met and until our board of directors determines in its discretion to
declare and pay future dividends. The following table is a reconciliation of net
income, as reflected in the consolidated statements of operations, to the Credit
Agreement EBITDA:





71





2009
            
            
            2008
            
            
            2007Net
      Income
            
            $
            33,287,271
            
            
            $
            61,632,809
            
            
            $
            52,243,981Interest
      Expense
            
            
            28,904,610
            
            
            
            15,816,573
            
            
            
            12,741,106Depreciation
      and Amortization
            
            
            44,329,258
            
            
            
            33,948,840
            
            
            
            26,435,646Amortization
      of fair value (below) above market of time charter
acquired
            
            
            (2,643,820
            )
            
            
            (799,540
            )
            
            
            3,740,000EBITDA
            
            
            103,877,319
            
            
            
            110,598,682
            
            
            
            95,160,733Adjustments
      for Exceptional Items:Write-off
      of Advances for Vessel Construction (1)
            
            
            —
            
            
            
            3,882,888
            
            
            
            —Write-off
      of Financing Fees (1)
            
            
            3,383,289
            
            
            
            2,089,701
            
            
            
            —Non-cash
      Compensation Expense (2)
            
            
            13,977,974
            
            
            
            11,111,885
            
            
            
            4,256,777Credit
      Agreement EBITDA
            
            $
            121,238,582
            
            
            $
            127,683,156
            
            
            $
            99,417,510





(1)  One
      time charge (see Notes to the financial
  statements)


(2)  Stock
      based compensation related to stock options, restricted stock units, and
      management's  participation in profits interests in Eagle
      Ventures LLC (see Notes to our financial
  statements)





Effects
of Inflation





The
Company does not believe that inflation has had or is likely, in the foreseeable
future, to have a significant impact on vessel operating expenses, drydocking
expenses and general and administrative expenses.





Liquidity
and Capital Resources





Net cash
provided by operating activities during the years ended December 31, 2009 and
2008 was $90,524,861 and $109,535,918, respectively. The change was primarily
due to lower rates on time charter renewals offset by cash generated from
operation of the fleet for 9,106 operating days in 2009 compared to 7,229
operating days in 2008.





Net cash
used in investing activities during 2009, was $228,624,263, compared to
$336,657,686 in 2008. Investing activities during 2009 reflected the purchase of
the CRESTED EAGLE, STELLAR EAGLE, BITTERN and CANARY, which were delivered in
the January, March, October and December of 2009, respectively, and advances for
the newbuilding vessel construction program.  Investing activities
during 2008 reflected the purchase of the GOLDENEYE and REDWING, which were
delivered in the second and third quarter of 2008, respectively, and advances
for the newbuilding vessel construction program. During 2008, we also incurred
$219,245 in leasehold improvements relating to the expansion of our office
space.





Net cash
provided by financing activities during 2009 was $200,235,313 compared to
$83,426,938 in 2008. During 2009 we received 97,291,046 in net proceeds from
distribution of common shares of the Company, borrowed $159,215,000 from our
revolving credit facility which was used to partly fund advances for
construction of newbuilding vessels, fourth of which, CRESTED EAGLE, STELLAR
EAGLE, BITTERN and CANARY delivered during the year, repaid $48,645,523 to our
lenders under the terms of the amended debt agreement, and incurred $4,515,623
in financing costs related to our debt agreements. Net cash provided by
financing activities during 2008 was $83,426,938. We borrowed $192,358,513 from
our revolving credit facility which was used to partly fund the REDWING and fund
advances for construction of newbuilding vessels, three of which, WREN, WOODSTAR
and CROWNED EAGLE delivered during the year. In 2008, we also paid $93,592,906
in dividends.





As of
December 31, 2009, our cash balance was $71,344,773 compared to a cash balance
of $9,208,862 at December 31, 2008. In addition, $13,500,000 in cash deposits
are maintained with our lender for loan compliance purposes and this amount is
recorded in Restricted Cash on our balance sheet as of December 31, 2009. Also
recorded in Restricted Cash is an amount of $276,056 which is collateralizing a
letter of credit relating to our office lease.






72





On August
4, 2009, the Company entered into a third Amendatory Agreement to its revolving
credit facility dated October 19, 2007 (See section entitled "Revolving Credit
Facility" for a description of the facility and its amendments). As of December
31, 2009, borrowings under this facility aggregated $900,170,880. The facility
also provides us with the ability to borrow up to $20,000,000 for working
capital purposes. We were in compliance with all of the covenants contained in
our debt agreements as of December 31, 2009. 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 the next twelve months. We will rely on operating cash flows as well as our
revolving credit facility and possible additional equity and debt financing
alternatives to fund our long term capital requirements for vessel construction
and implement future growth plans. In December 2008, our board of directors
suspended the payment of dividends to stockholders in order to increase cash
flow, optimize financial flexibility and enhance internal growth.





Our loan
agreements for our borrowings are secured by liens on our vessels and contain
various financial covenants. The covenants relate to our financial position,
operating performance and liquidity. The market value of dry bulk vessels is
sensitive, among other things, to changes in the dry bulk charter market. The
recent general decline in the dry bulk carrier charter market has resulted in
lower charter rates for vessels in the dry bulk market. The decline in charter
rates in the dry bulk market coupled with the prevailing difficulty in obtaining
financing for vessel purchases have adversely affected dry bulk vessel values. A
continuation of these conditions, could lead to a significant decline in the
fair market values of our vessels, which could impact our compliance with these
loan covenants. The recent developments in the credit markets and related impact
on the dry bulk charter market and have also resulted in additional risks. The
occurrence of one or more of these risk factors could adversely affect our
results of operations or financial condition. Please refer to the section
entitled "Risk Factors" in Part I of this document.





It is our
intention to fund our future acquisition related capital requirements initially
through borrowings under the amended revolving credit facility and to repay all
or a portion of such borrowings from time to time with cash generated from
operations and from net proceeds of issuances of securities. The Company has a
shelf registration filed on Form S-3 in March 2, 2009, subsequently amended,
which would enable the Company to issue such securities.





Dividends





Historically
we have declared quarterly dividends to stockholders in March, May, August and
November. Our amended revolving credit facility permits us to pay quarterly
dividends in amounts up to cumulative free cash flows which is 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. In this connection, the dry bulk market has recently declined
substantially. In December 2008, commencing with the fourth quarter of 2008, the
Company's board of directors has determined to suspend the payment of dividends
to stockholders in order to increase cash flow, optimize financial flexibility
and enhance internal growth.  In the future, the declaration and
payment of dividends, if any, will always be subject to the discretion of the
board of directors, restrictions contained in the amended credit facility and
the requirements of Marshall
Islands law. The timing and amount of any dividends declared will depend
on, among other things, the Company's earnings, financial condition and cash
requirements and availability, the ability to obtain debt and equity financing
on acceptable terms as contemplated by the Company's growth strategy, the terms
of its outstanding indebtedness and the ability of the Company's subsidiaries to
distribute funds to it.





The
Company did not make any dividend payments in 2009. In 2008, the Company
declared four quarterly dividends in the aggregate amount of $2.00 per share of
its common stock in February, May, August and November. Aggregate payments were
$93,592,906 for dividends declared in 2008. In 2007, the Company declared four
quarterly dividends in the aggregate amount of $1.98 per share of its common
stock in February, April, July and November. Aggregate payments were $82,134,982
for dividends declared in 2007.






73





Saleof Common Stock





On
January 16, 2007, our then principal shareholder, Eagle Ventures LLC, sold
7,202,679 shares of the Company's common stock from its holdings of the
Company's common stock in a secondary sale.  The Company did not
receive any proceeds from this offering.





On March
6, 2007, we sold 5,400,000 shares of our common stock for $18.95 per share,
raising gross proceeds of $102,330,000. On March 23, 2007, we raised an
additional $7,841,870 in gross proceeds from the underwriter's exercise of their
over-allotment option for the purchase of 413,819 shares of our common stock. We
used the net proceeds from the offering to fund a portion of the acquisition
costs of three vessels, the SHRIKE, SKUA and KITTIWAKE, which were delivered in
the second quarter of 2007.





On
September 21, 2007, we sold 5,000,000 shares of our common stock for $25.90 per
share, raising gross proceeds of $129,500,000.





On June
30, 2009, the Company completed its offering under an Equity Distribution
Agreement of $100,000,000.  From May through June 2009, the Company
sold 14,847,493 common shares. The net proceeds, after underwriting commission
of 2.5% and other issuance fees, amounted to $97,291,046.





We have
incurred fees and expenses aggregating $2,708,951 for the share sales in 2009,
and $5,642,117 for the share sales in 2007.





Revolving
Credit Facility





In
October 2007, the Company's revolving credit facility was amended and enhanced
to $1,600,000,000 to accommodate its newbuilding program. The original covenants
under this facility required us, among other things, to ensure that 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 exceed 130% 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. The facility also
required that, (a) we maintain an adjusted net worth, i.e., total assets less
consolidated debt of an amount not less than $300,000,000 during any accounting
period; and (b) 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.





On July
3, 2008, this facility was amended. Among other things, the amended facility
provided an additional incremental commitment of up to $200,000,000 under the
same terms and conditions as the existing facility, subject to satisfaction of
certain additional conditions. The Company now also has the ability to purchase
additional dry bulk vessels in excess of 85,000dwt and over 10 years of age, but
no more than 20 years of age, with certain limitations. The agreement also
provided for the purchase or acquisition of more than one additional vessel en
bloc or the acquisition of beneficial ownership in one or more additional
vessel(s). The agreement amended the margin applicable over the Libor interest
rate on borrowings to 0.95% for the next two years. Thereafter, if the advance
ratio is less than 35%, the margin will be 0.80% per year; if the advance ratio
is equal to or greater than 35% but less than 60%, the margin will be 0.95%; if
the advance ratio is equal to or greater than 60%, the margin will be 1.05%. The
agreement also amended the commitment fee on the undrawn portion of the
revolving credit facility to 0.30%. In connection with this second amendment,
applicable arrangement fees were to be incurred and these fees were to be in
proportion to the arrangement fees previously incurred when the revolving
facility was increased to $1,600,000,000 in 2007. All other terms and conditions
remained unchanged.






74





On
December 17, 2008, the Company entered into a second Amendatory Agreement to its
revolving credit facility. Among other things, the amount of the credit facility
was amended to $1,350,000,000. The agreement also amended the minimum security
value of the credit facility to include the aggregate market value of the
vessels in the Company's operating fleet and the deposits on its newbuilding
contracts. The agreement amended the minimum security value clause of the credit
facility from 130% to 100% of the aggregate principal amount of debt outstanding
under the credit facility. The agreement also provides that future dividend
payments will be based on maintaining a minimum security value of 130%. The
agreement reduces the minimum net worth clause of the credit facility from
$300,000,000 to $75,000,000 for 2009, subject to annual review thereafter. The
agreement also amends the interest margin to 1.75% over LIBOR.





On August 4, 2009, the Company entered
into a third Amendatory Agreement to its revolving credit facility. Among other
things, this amendment reduced the amount of the credit facility to
$1,200,000,000 with maturity in July 2014. The agreement also modified the
minimum security covenant, the minimum net worth covenant, and the minimum
interest coverage ratio covenant, until such time as the Company can comply with
the original covenants for two consecutive accounting periods. In the interim,
the measurement of the three covenants at the end of each accounting period has
been amended as follows: (a) The minimum security covenant has been suspended,
(b) the minimum net worth covenant has been amended to a threshold minimum of
$400 million plus an amount equal to fifty percent of any equity received by the
Company, with the determination of net worth to utilize book value of vessel
assets as stated in the financial statements rather than the market value, and
(c) until reinstatement of the original minimum security and net worth
covenants, for 24 months from July 1, 2009 to June 30, 2011, at each accounting
period, the Company's cumulative EBITDA (EBITDA as defined in the credit
agreement) will at all times be not less than 120% of the cumulative loan
interest incurred on a trailing four quarter basis, and for each accounting
period after June 30, 2011, the Company's cumulative EBITDA will at all times be
not less than 130% of the cumulative loan interest incurred on a trailing four
quarter basis. The amendment also requires that until the Company is in
compliance with the original covenants for two consecutive accounting periods,
the Company will use half the net proceeds from any equity issuance to reduce
the facility, including approximately $48.6 million from the equity raised
during the second quarter which was paid during the third quarter. These
payments reduce the available amount of the credit facility to $1,151,354,477.
The Company will continue to be able to borrow the undrawn portion of the
facility and the amounts borrowed will bear interest at LIBOR plus 2.50%. The
Company will also pay on a quarterly basis a commitment fee of 0.7% per annum on
the undrawn portion of the facility. The facility is available in full until
July 2012 when availability will begin to decline in four semi-annual reductions
of $53,969,741 with a balloon payment of $935,475,513 at maturity in July
2014.





The
Company's revolving credit facility contains financial covenants requiring us,
among other things, to ensure that we maintain with the lender $500,000 per
delivered vessel. As of December 31, 2009 the Company has recorded $13,500,000
as restricted cash in the accompanying balance sheets. At December 31, 2009, the
Company's debt consisted of $900,170,880 in net borrowings under the amended
Revolving Credit Facility. These borrowings consisted of $494,859,069 for the 27
vessels currently in operation and $405,311,811 used to fund the Company's
newbuilding program. As of December 31, 2009, $251,183,597 is available for
additional borrowings under the credit facility. In connection with the
arrangement of the revolving credit facility and its various amendments the
Company has recorded deferred financing costs aggregating $3,671,873 in 2009,
$13,945,190 in 2008 and $12,749,841 in 2007. It will also pay the lender an
annual agency fee of $65,000.





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.






75





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. The agreement also provides that future dividend payments will be
based on maintaining a minimum security value of 130%.





Contractual
Obligations





The
following table sets forth our expected contractual obligations and their
maturity dates as of December 31, 2009:





(in
      thousands of U.S. dollars)
            
            Within
              One Year
            
            
            One
      to
              Three Years
            
            
            Three
      to
              Five Years
            
            
            More
      than
              Five years
            
            
            TotalVessels
      (1)
            
            $
            277,711
            
            
            $
            159,428
            
            
            
            —
            
            
            
            —
            
            
            $
            437,139Bank
      Loans
            
            
            —
            
            
            
            —
            
            
            $
            900,171
            
            
            
            —
            
            
            
            900,171Interest
      and borrowing fees (2)
            
            
            58,692
            
            
            
            117,544
            
            
            
            92,781
            
            
            
            —
            
            
            
            269,017Office
      lease (3)
            
            
            649
            
            
            
            1,624
            
            
            
            1,670
            
            
            
            2,854
            
            
            
            6,797Total
            
            $
            337,052
            
            
            $
            278,596
            
            
            $
            994,622
            
            
            $
            2,854
            
            
            $
            1,613,124





(1)  The
      balance of the contract price in US dollars for the 24 newbuilding vessels
      which are to be constructed and delivered between 2010 and
      2011.


(2)  The
      Company is a party to floating-to-fixed interest rate swaps covering
      aggregate notional amount of $771,529,273. Interest and borrowing fees
      includes capitalized interest for the newbuilding
      vessels.


(3)  Remainder
      of the lease on the office space which we
  occupy.





Capital
Expenditures





Our
capital expenditures relate to the purchase of vessels and capital improvements
to our vessels which are expected to enhance the revenue earning capabilities
and safety of these vessels.





We make
capital expenditures from time to time in connection with our vessel
acquisitions. As of December 31, 2009, our fleet currently consists of 27
Supramax vessels which are currently operational and 20 newbuilding vessels
which have been contracted for construction.





In
addition to acquisitions that we may undertake in future periods, the Company's
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 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.





Drydocking
costs incurred are deferred and amortized to expense on a straight-line basis
over the period through the date of the next scheduled drydocking for those
vessels. In 2009, eight of our vessels were drydocked and we incurred $4,477,244
in drydocking related costs. In 2008, three of our vessels were drydocked while
five vessels passed drydock surveys in 2007. Total drydocking costs incurred in
2008 and 2007 were $2,388,776 and $3,624,851, respectively. The following table
represents certain information about the estimated costs for anticipated vessel
drydockings in the next four quarters, along with the anticipated off-hire
days:






76





Quarter Ending
              Off-hire
      Days(1)
              Projected
      Costs(2)March
      31, 2010
              44
              $1.10
      millionJune
      30, 2010
              22
              $0.55
      millionSeptember
      30, 2010
              66
              $1.65
      millionDecember
      31, 2010
              44
              $1.10
      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 in the operating fleet. The
contracted time charter revenue schedule, included in Management's Discussion
and Analysis of Financial Condition and results of operation should be read in
conjunction with the off-hire days in the drydock schedule above.





Off-balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements.




77





Item 7A.Quantitative and
Qualitative Disclosures about Market Risk




Interest
Rate Risk





The
Company is exposed to market risk from changes in interest rates, which could
impact its results of operations and financial condition. The Company's
objective is to manage the impact of interest rate changes on earnings and cash
flows of its borrowings. The Company expects to manage this exposure to market
risk through its regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments. The Company
expects to use interest rate swaps to manage net exposure to interest rate
changes related to its borrowings and to lower its overall borrowing
costs.





As of
December 31, 2009, the Company's debt consisted of $900,170,880 in loans under
the revolving credit facility at a margin plus variable rates above the LIBOR.
During the year ended December 31, 2009, interest rates on the outstanding debt
ranged from 2.19% to 7.73% (including margins). The weighted average effective
interest rate was 6.23%.





The
Company entered into interest rate swaps to effectively convert a substantial
portion of its debt from a floating to a fixed-rate basis. The swaps are
designated and qualify as cash flow hedges. As of December 31, 2009, the Company
had the following swap contracts outstanding:








Notional
      Amount Outstanding –
              December
      31, 2009
            
            
            Fixed
      Rate
            
            Maturity$     25,776,443
            
            
            4.905%
            
            03/201010,995,000
            
            
            4.980%
            
            08/2010202,340,000
            
            
            5.040%
            
            08/2010100,000,000
            
            
            4.220%
            
            09/201030,000,000
            
            
            4.538%
            
            09/2010144,700,000
            
            
            3.580%
            
            10/20119,162,500
            
            
            3.515%
            
            10/20113,405,174
            
            
            3.550%
            
            10/201117,050,000
            
            
            3.160%
            
            11/201125,048,118
            
            
            4.740%
            
            12/201136,752,038
            
            
            5.225%
            
            08/201281,500,000
            
            
            3.895%
            
            01/201384,800,000
            
            
            3.900%
            
            09/2013*$  771,529,273




* An
      $84,800,000 swap matured in September 2009. This swap had a fixed interest
      rate of 5.24%. Subsequently, a swap with the same notional amount
      immediately commenced with a fixed interest rate of 3.90% and maturity in
      September 2013.




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. Accordingly, 35,408,049 and $50,538,060
has been recorded in Fair Value of derivative instruments (liabilities) in the
Company's balance sheets as of December 31, 2009 and 2008,
respectively.





Foreign
Currency and Exchange Rate Risk





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.






78





The
Company has entered into foreign exchange swap transactions to hedge foreign
currency risks on its capital asset transactions (vessel newbuildings). The
swaps are designated and qualify as cash flow hedges. The Company has entered
into foreign exchange swap transactions to hedge the Japanese yen (JPY) exposure
into US dollars for the purchase price in Japanese yen of five new-build vessels
which commenced deliveries to the Company in November 2008 with the last vessel
delivering in February 2010. At December 31, 2008, the Company had outstanding
foreign currency swap contracts for notional amounts aggregating 8.6 billion
Japanese yen swapped into the equivalent of $80,378,030. In February 2009, the
Company fixed the gain on its outstanding foreign currency swaps contracts. This
gain will be recognized upon delivery of the remaining vessels as an offset to
the cost of the vessels. During the twelve months ended December 31, 2009, the
Company recognized a foreign currency gain of $8,710,806 which offset the cost
of the Japanese vessels upon delivery or payment incurred. The remaining gain as
of December 31, 2009 aggregating $4,765,116 will offset the cost of the
remaining two vessels upon their delivery in January, 2010 and February
2010.




The
Company records the fair value of the currency swaps as an asset or liability in
its financial statements. The effective portion of the urrency swap is recorded
in accumulated other comprehensive income. Accordingly, an amount of $4,765,116
and $15,039,535 have been recorded in Fair value of derivative instruments and
other assets in the accompanying balance sheets as of December 31, 2009 and
2008, respectively.





79





Item 8.Financial
Statements and Supplementary Data





The
information required by this item is contained in the financial statements set
forth in Item 15(a) under the caption "Consolidated Financial Statements" as
part of this Annual Report on Form 10-K.





Item 9.Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure





None.





Item 9A.Controls and
Procedures





Disclosure
Controls and Procedures





Our
management, including our Chief Executive Officer and our 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.





Management's
Report on Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange
Act. The Company's internal control over financial reporting is a process
designed under the supervision of the Company's Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company's
financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States.





Management
has conducted an assessment of the effectiveness of the Company's internal
control over financial reporting based on the framework established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, management has determined
that the Company's internal control over financial reporting as of December 31,
2009 is effective.





Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of assets; provide reasonable
assurances that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States, and that receipts and expenditures are being made only in
accordance with authorizations of management and the directors of the Company;
and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements.





The
effectiveness of the Company's internal control over financial reporting as of
December 31, 2009 has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report appearing on page
F-3 of the Consolidated Financial Statements.





Internal
Control Over Financial Reporting





In
addition, 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 fourth quarter of 2009 that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.





Inherent
Limitations on Effectiveness of Controls






80





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





Item
9B. Other
Information





None







81








PART III








Item
10. Directors, Executive
Officers and Corporate Governance





Directors





The
information concerning our directors required under this Item is incorporated
herein by reference from our proxy statement, which will be filed with the
Securities and Exchange Commission, relating to our Annual Meeting of
Stockholders (our "2010 Proxy Statement").





Executive
Officers





The
information concerning our Executive Officers required under this Item is
incorporated herein by reference from our 2010 Proxy Statement.





Code of Ethics





The
information concerning our Code of Conduct is incorporated herein by reference
from our 2010 Proxy Statement.





Audit Committee





The
information concerning our Audit Committee is incorporated herein by reference
from our 2010 Proxy Statement.





Audit
CommitteeFinancial
Experts





The
information concerning our Audit Committee Financial Experts is incorporated
herein by reference from our 2010 Proxy Statement.





Item 11.Executive
Compensation





The
information required under this Item is incorporated herein by reference from
our 2010 Proxy Statement.





Item 12.Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters





The
information required under this Item is incorporated herein by reference from
our 2010 Proxy Statement.





Item 13.Certain
Relationships and Related Transactions





The
information required under this Item is incorporated herein by reference from
our 2010 Proxy Statement.





Item 14.Principal
Accountant Fees and Services





Information
about the fees for 2009 for professional services rendered by our independent
registered public accounting firm is incorporated herein by reference from our
2010 Proxy Statement. Our Audit Committee's policy on pre-approval of audit and
permissible non-audit services of our independent registered public accounting
firm is incorporated by reference from our 2010 Proxy Statement.





82





PART
IV














Item
15. Exhibits, Financial
Statement Schedules





(a)   Documents
filed as part of this Annual Report on Form 10-K





1.
            Consolidated
      Financial Statements: See accompanying Index to Consolidated Financial
      Statements.





2.
            Consolidated
      Financial Statement Schedule: Financial statement schedules are omitted
      due to the absence of conditions under which they are
    required





(b)
Exhibits


3.1
            Amended
      and Restated Articles of Incorporation of the Company
  (1)


3.2
            Amended
      and Restated Bylaws of the Company
(1)


3.2.1
            Certificate
      of Designation of Series A Junior Participating Preferred Stock
      (2)


4.1
            Form
      of Share Certificate of the Company
(1)


4.1.1
            Form
      of Senior Indenture (3)


4.1.2
            Form
      of Subordinated Indenture (3)


4.1.3
            Rights
      Agreement (4)


10.1
            Form
      of Registration Rights Agreement
(1)


10.2
            Form
      of Management Agreement (1)


10.2.1
            Form
      of Restricted Stock Unit Award Agreement
(5)


10.2.2
            Securities
      Purchase Agreement (6)


10.3
            Form
      of Third Amended and Restated Credit Agreement
  (7)


10.3.1
            Second
      Amendatory Agreement of Third Amended and Restated Credit Agreement
      (8)


10.4
            Eagle
      Bulk Shipping Inc. 2005 Stock Incentive Plan
(1)


10.5
            Amended
      and Restated Employment Agreement for Mr. Sophocles N. Zoullas
      (9)


10.6
            Eagle
      Bulk Shipping Inc. 20059 Stock Incentive Plan
  (10)


10.7
            Delphin
      Management Agreement


14.1
            Code
      of Ethics (11)


21.1
            Subsidiaries
      of the Registrant


23.1
            Consent
      of Ernst & Young LLP


23.2
            Consent
      of Seward & Kissel LLP


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





(1)
              Incorporated
      by reference to the Registration Statement on Form S-1/A, Registration No.
      333-123817 filed on June 20, 2005.
 (2)
              Incorporated
      by reference to Exhibit 3.1 to the Company's registration statement on
      Form 8-A dated November 13, 2007.
 (3)
              Incorporated
      by reference to the Registration Statement on Form S-3 filed on December
      29, 2006.
 (4)
              Incorporated
      by reference to the Company's Report on Form 8-K filed on November 13,
      2007.
 (5)
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q for the
      period ending September 30, 2007, filed on November 9,
    2007.
 (6)
              Incorporated
      by reference to the Company's Report on Form 8-K filed on June 23,
      2006.
 (7)
              Incorporated
      by reference to the Company's Report on Form 8-K filed on October 25,
      2007.
 (8)
              Incorporated
      by reference to Exhibit 4.9 to the Company's registration statement on
      Form S-3POSASR, Registration No. 333-148417 filed on March 2, 2009.
 (9)
              Incorporated
      by reference to the Company's Report on Form 8-K filed on June 20,
      2008.
 (10)
              Incorporated
      in Appendix A to the proxy statement pursuant to Schedule 14A filed on
      April 10, 2009.
 (11)
              Incorporated
      by reference to the Company's to be filed 2010 Proxy
      Statement.





83


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.By:
            /s/
      Sophocles ZoullasName:  Sophocles
      ZoullasTitle:     Chief
      Executive Officer





March 5,
2010





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on March 2, 2009.








Signature
            Title/s/  Sophocles
      Zoullas___________________________________
              Sophocles
      Zoullas
            Chief
      Executive Officer and Director/s/
      David B. Hiley
              ___________________________________
              David
      B. Hiley
            Director/s/
      Douglas P. Haensel
              ___________________________________
              Douglas
      P. Haensel
            Director/s/
      Joseph Cianciolo
              ___________________________________
              Joseph
      Cianciolo
            Director/s/
      Forrest E. Wylie
              ___________________________________
              Forrest
      E. Wylie
            Director/s/
      Alexis P. Zoullas
              ___________________________________
              Alexis
      P. Zoullas
            Director/s/
      Jon Tomasson
              ___________________________________
              Jon
      Tomasson
            Director/s/
      Alan Ginsberg
              ___________________________________
              Alan
      Ginsberg
            Chief
      Financial Officer and Principal Accounting
  Officer





84





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS











Reports
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Balance Sheets at December 31, 2009 and 2008
            F-4Consolidated
      Statements of Operations for the Years ended December 31, 2009, 2008 and
      2007
            F-5Consolidated
      Statements of Changes in Stockholders' Equity for the Years ended December
      31,
              2009,
      2008 and 2007
            F-6Consolidated
      Statements of Cash Flows for the Years ended December 31, 2009, 2008 and
      2007
            F-7Notes
      to Consolidated Financial Statements
            F-8








F-1





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








The Board of Directors and Stockholders
of Eagle Bulk Shipping Inc.








We have audited the accompanying
consolidated balance sheets of Eagle Bulk Shipping Inc. as of December 31, 2009
and 2008, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2009. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.





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





In our opinion, the financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of the Eagle Bulk Shipping Inc. at December 31,
2009 and 2008, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009, in
conformity with U.S. generally accepted accounting principles.





We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), Eagle Bulk Shipping Inc.'s internal control over financial reporting as
of December 31, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 5, 2010 expressed an
unqualified opinion thereon.








/s/
      Ernst & Young LLP





New York,
New York


March 5,
2010











F-2














REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board of Directors and Stockholders
of Eagle Bulk Shipping Inc.





We have
audited Eagle Bulk Shipping Inc.'s internal control over financial reporting as
of December 31, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the "COSO criteria"). Eagle Bulk Shipping Inc.'s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's
Report of Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company's internal control over financial reporting
based on our audit.





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





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





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In our
opinion, Eagle Bulk Shipping Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on the COSO criteria.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Eagle Bulk
Shipping Inc. as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2009, and our report dated March 5,
2010 expressed an unqualified opinion thereon.





/s/
      Ernst & Young LLP





New York,
New York


March 5,
2010











F-3


EAGLE
BULK SHIPPING INC.


CONSOLIDATED
BALANCE SHEETS




December
      31,2009
            
            2008ASSETS:Current
      assets:Cash
      and cash equivalents
            $71,344,773
            
            $9,208,862Accounts
      receivable
            7,443,450
            
            4,357,837Prepaid
      expenses
            4,989,446
            
            3,297,801Fair
      value above contract value of time charters acquired
            427,359
            
            —Total
      current assets
            84,205,028
            
            16,864,500Noncurrent
      assets:Vessels
      and vessel improvements, at cost, net of accumulated
              depreciation
      of $125,439,001 and $84,113,047, respectively
            1,010,609,956
            
            874,674,636Advances
      for vessel construction
            464,173,887
            
            411,063,011Other
      fixed assets, net of accumulated amortization of $59,519
      and  $4,556,
              respectively
            258,347
            
            219,245Restricted
      cash
            13,776,056
            
            11,776,056Deferred
      drydock costs
            5,266,289
            
            3,737,386Deferred
      financing costs
            21,044,379
            
            24,270,060Fair
      value above contract value of time charters acquired
            4,103,756
            
            4,531,115Fair
      value of derivative instruments
            4,765,116
            
            15,039,535Total
      noncurrent assets
            1,523,997,786
            
            1,345,311,044Total
      assets
            $1,608,202,814
            
            $1,362,175,544LIABILITIES
      & STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            $2,289,333
            
            $2,037,060Accrued
      interest
            7,810,931
            
            7,523,057Other
      accrued liabilities
            3,827,718
            
            3,021,975Deferred
      revenue and fair value below contract value of time charters
              acquired
            7,718,902
            
            2,863,184Unearned
      charter hire revenue
            4,858,133
            
            5,958,833Total
      current liabilities
            26,505,017
            
            21,404,109Noncurrent
      liabilities:Long-term
      debt
            900,170,880
            
            789,601,403Deferred
      revenue and fair value below contract value of time charters
              acquired
            26,389,796
            
            29,205,196Fair
      value of derivative instruments
            35,408,049
            
            50,538,060Total
      noncurrent liabilities
            961,968,725
            
            869,344,659Total
      liabilities
            988,473,742
            
            890,748,768Commitment
      and contingenciesStockholders'
      equity:Preferred
      stock, $.01 par value, 25,000,000 shares authorized, none issued
            —
            
            —Common
      stock, $.01 par value, 100,000,000 shares authorized, 62,126,665 and
      47,031,300 shares issued and outstanding, respectively
            621,267
            
            470,313Additional
      paid-in capital
            724,250,125
            
            614,241,646Retained
      earnings (net of dividends declared of $262,118,388 as of
              December
      31, 2009 and 2008, respectively)
            (74,499,387)
            
            (107,786,658)Accumulated
      other comprehensive loss
            (30,642,933)
            
            (35,498,525)Total
      stockholders' equity
            619,729,072
            
            471,426,776Total
      liabilities and stockholders' equity
            $1,608,202,814
            
            $1,362,175,544


The accompanying notes are an
integral part of these Consolidated Financial Statements.






F-4





EAGLE
BULK SHIPPING INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS











Year
      Ended December 31,2009
            
            2008
            
            2007Revenues,
      net of commissions
            $192,574,826
            
            $185,424,949
            
            $124,814,804Vessel
      expenses
            50,161,091
            
            36,270,382
            
            27,143,515Depreciation
      and amortization
            44,329,258
            
            33,948,840
            
            26,435,646General
      and administrative expenses
            32,713,917
            
            34,567,070
            
            11,776,511Write-off  of
      advances for vessel construction
            —
            
            3,882,888
            
            —Gain
      on sale of vessel
            —
            
            —
            
            (872,568)Total
      operating expenses
            127,204,266
            
            108,669,180
            
            64,483,104Operating
      Income
            65,370,560
            
            76,755,769
            
            60,331,700Interest
      expense
            28,904,610
            
            15,816,573
            
            12,741,106Interest
      income
            (204,610)
            
            (2,783,314)
            
            (4,653,387)Write-off
      of deferred financing costs
            3,383,289
            
            2,089,701
            
            —Net
      interest expense
            32,083,289
            
            15,122,960
            
            8,087,719Net
      income
            $33,287,271
            
            $61,632,809
            
            $52,243,981Weighted
      average shares outstanding:Basic
            55,897,946
            
            46,800,550
            
            42,064,911Diluted
            55,923,308
            
            46,888,788
            
            42,195,561Per
      share amounts:Basic
      net income
            $0.60
            
            $1.32
            
            $1.24Diluted
      net income 0.
            $0.60
            
            $1.31
            
            $1.24Cash
      dividends declared and paid
            —
            
            $2.00
            
            $1.98











The
accompanying notes are an integral part of these Consolidated Financial
Statements.





F-5





EAGLE
BULK SHIPPING INC.





CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY








Shares
            Common
                Shares
            Additional
                Paid-In
                Capital
            Retained
      Earnings
            Other
      Comprehensive Income
            Total
      Stockholders' EquityNetIncome
            Cash
      Dividends
            Accumulated
      DeficitBalance at January 1,
      2007
            35,900,001
            $359,000
            $364,574,877
            
            
            $(45,935,560)
            $2,577,624
            $321,575,941Comprehensive
      income :Net income
            —
            —
            —
            52,243,981
            —
            52,243,981
            —
            52,243,981Net
      unrealized losses on
              
              derivatives
            —
            —
            —
            —
            —
            —
            (15,176,869)
            (15,176,869)Comprehensive
      income
            —
            —
            —
            —
            —
            —
            —
            37,067,112Stock
      offering, net  of issuance costs
            10,813,819
            108,138
            233,921,613
            —
            —
            —
            —
            234,029,751Exercise of stock
      options
            13,333
            133
            176,263
            —
            —
            —
            —
            176,396Cash dividends
            —
            —
            —
            —
            (82,134,982)
            (82,134,982)
            —
            (82,134,982)Non-cash
      compensation
            —
            —
            4,256,777
            —
            —
            —
            —
            4,256,777Balance at December
      31, 2007
            46,727,153
            $467,271
            $602,929,530
            
            
            $(75,826,561)
            $(12,599,245)
            $514,970,995Comprehensive
      income :Net income
            —
            —
            —
            61,632,809
            —
            61,632,809
            —
            61,632,809Net
      unrealized losses on
              
              derivatives
            —
            —
            —
            —
            —
            —
            (22,899,280)
            (22,899,280)Comprehensive
      income
            —
            —
            —
            —
            —
            —
            —
            38,733,529Exercise of stock
      options
            13,333
            134
            237,194
            —
            —
            —
            —
            237,328Vesting of restricted
      shares
            260,814
            2,608
            (36,663)
            —
            —
            —
            —
            (34,055)Cash dividends
            —
            —
            —
            —
            (93,592,906)
            (93,592,906)
            —
            (93,592,906)Issuance of common
      shares
            30,000
            300
            608,100
            —
            —
            —
            —
            608,400Non-cash
      compensation –
              
              Restricted Stock
            —
            —
            10,503,485
            —
            —
            —
            —
            10,503,485Balance at December
      31, 2008
            47,031,300
            $470,
      313
            $614,241,646
            
            
            $(107,786,658)
            $(35,498,525)
            $471,426,776Comprehensive
      income :Net income
            —
            —
            —
            33,287,271
            —
            33,287,271
            —
            33,287,271Net
      unrealized gain on
              
              derivatives
            —
            —
            —
            —
            —
            —
            4,855,592
            4,855,592Comprehensive
      income
            —
            —
            —
            —
            —
            —
            —
            38,142,863Vesting
      of restricted shares, net of shares withheld for employee
    tax
            247,872
            2,479
            (1,112,066)
            —
            —
            —
            —
            (1,109,587)Issuance
      of common shares, net of issuance costs
            14,847,493
            148,475
            97,142,571
            —
            —
            —
            —
            97,291,046Non-cash
      compensation
            —
            —
            13,977,974
            —
            —
            —
            —
            13,977,974Balance at December
      31, 2009
            62,126,665
            $621,
      267
            $724,250,125
            
            
            (74,499,387)
            $(30,642,933)
            $619,729,072













The
accompanying notes are an integral part of these Consolidated Financial
Statements.








F-6


EAGLE
BULK SHIPPING INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS




Year
      Ended December 31,2009
            
            2008
            
            2007Cash
      flows from operating activitiesNet
      income
            $33,287,271
            
            $61,632,809
            
            $52,243,981Adjustments
      to reconcile net income to net cash provided by operating
      activities:Items
      included in net income not affecting cash flows:Depreciation
      and amortization
            41,380,917
            
            31,379,443
            
            24,791,502Amortization
      of deferred drydocking costs
            2,948,341
            
            2,569,396
            
            1,644,144Amortization
      of deferred financing costs
            1,373,998
            
            244,837
            
            242,357Write-off
      of deferred financing costs
            3,383,289
            
            2,089,701
            
            —Write-off
      of advances for vessel construction
            —
            
            3,882,888
            
            —Amortization
      of fair value (below) above contract value of time charter acquired
            (2,643,820)
            
            (799,540)
            
            3,740,000Gain
      on sale of vessel
            —
            
            —
            
            (872,568)Non-cash
      compensation expense
            13,977,974
            
            11,111,885
            
            4,256,777Changes
      in operating assets and liabilities:Accounts
      receivable
            (3,085,613)
            
            (965,376)
            
            (2,776,256)Prepaid
      expenses
            (1,691,645)
            
            (2,139,688)
            
            (137,292)Accounts
      payable
            252,273
            
            (1,584,499)
            
            1,971,400Accrued
      interest
            1,429,939
            
            1,707,326
            
            (344,933)Accrued
      expenses
            805,743
            
            1,158,703
            
            146,148Drydocking
      expenditures
            (4,477,244)
            
            (2,388,776)
            
            (3,624,851)Deferred
      revenue
            4,684,138
            
            —
            
            —Unearned
      charter hire revenue
            (1,100,700)
            
            1,636,809
            
            1,608,964Net
      cash provided by operating activities
            90,524,861
            
            109,535,918
            
            82,889,373Cash
      flows from investing activities:Vessels
      and vessel improvements and Advances for vessel construction
            (228,530,198)
            
            (336,438,441)
            
            (458,262,048)Purchase
      of other fixed assets
            (94,065)
            
            (219,245)
            
            —Proceeds
      from sale of vessel
            —
            
            —
            
            12,011,482Net
      cash used in investing activities
            (228,624,263)
            
            (336,657,686)
            
            (446,250,566)Cash
      flows from financing activitiesIssuance
      of common stock
            99,999,997
            
            237,328
            
            239,848,264Equity
      issuance costs
            (2,708,951)
            
            —
            
            (5,642,117)Bank
      borrowings
            159,215,000
            
            192,358,513
            
            369,708,070Repayment
      of bank debt
            (48,645,523)
            
            —
            
            (12,440,000)Changes
      in restricted cash
            (2,000,000)
            
            (2,651,440)
            
            (2,600,000)Deferred
      financing costs
            (4,515,623)
            
            (12,890,502)
            
            (12,749,841)Cash
      used to settle net share equity awards
            (1,109,587)
            
            (34,055)
            
            —Cash
      dividend
            —
            
            (93,592,906)
            
            (82,134,982)Net
      cash provided by financing activities
            200,235,313
            
            83,426,938
            
            493,989,394Net
      increase/(decrease) in Cash
            62,135,911
            
            (143,694,830)
            
            130,628,201Cash
      at beginning of period
            9,208,862
            
            152,903,692
            
            22,275,491Cash
      at end of period
            $71,344,773
            
            $9,208,862
            
            $152,903,692Supplemental
      cash flow information:Cash
      paid during the period for Interest (including Capitalized interest of
      $26,643,519, $20,385,190 and $8,775,957 in 2009, 2008 and 2007,
      respectively and Commitment Fees)
            $52,760,344
            
            $33,942,541
            
            $21,807,953





The
accompanying notes are an integral part of these Consolidated Financial
Statements.


F-7





EAGLE
BULK SHIPPING INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








Note
1.  Basis of Presentation and General Information:





The accompanying consolidated financial
statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned
subsidiaries (collectively, the "Company", "we" or "our"). 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
Supramax and Handymax bulk carriers and the Company operates its business in one
business segment.





The Company is a holding company
incorporated in 2005, under the laws of the Republic of the Marshall Islands and
is the sole owner of all of the outstanding shares of its wholly-owned
subsidiaries incorporated in the Republic of the Marshall Islands. The primary
activity of each of the subsidiaries is the ownership of a vessel. The
operations of the vessels are managed by a wholly-owned subsidiary of the
Company, Eagle Shipping International (USA) LLC, a Republic of the Marshall
Islands limited liability company.





As of December 31, 2009, the Company's
operating fleet consists of 27 vessels. The Company has an extensive vessel
newbuilding program and as of December 31, 2009, had contracts for the
construction of 20 vessels. The following tables present certain information
concerning the Company's fleet as of December 31, 2009:





No. of Vessels
            Dwt
            Vessel
              Type
            Delivery
            EmploymentVessels in Operation27
      Vessels
            1,412,535
            24
      Supramax
            
            Time
      Charter3
      Handymax
            
            Time
      CharterVessels to be delivered3
      Vessels
            159,300
            53,100
      dwt series Supramax
            2010
            2
      Vessels on Time Charter and 1 Vessel Charter Free2
      Vessels
            112,000
            56,000
      dwt series Supramax
            2010
            2
      Vessels on Time Charter15
      Vessels
            870,000
            58,000
      dwt series Supramax
            2010-2011
            15
      Vessels on Time Charter





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:





Charterer
            %  of  Consolidated Time
      Charter Revenue2009
            
            2008
            
            2007Charterer
      A
            -
            
            -
            
            12.9%Charterer
      B
            16.2%
            
            23.9%
            
            22.3%Charterer
      D
            -
            
            -
            
            12.4%Charterer
      H
            13.7%
            
            14.7%
            
            11.0%Charterer
      L
            12.3%
            
            15.9%
            
            -Charterer
      M
            18.2%
            
            13.5%
            
            -






F-8





Note
2.  Significant Accounting Policies:





(a)
            Principles
      of Consolidation: The accompanying consolidated financial
      statements have been prepared in accordance with U.S. generally accepted
      accounting principles and include the accounts of Eagle Bulk Shipping Inc.
      and its wholly-owned subsidiaries. All significant intercompany balances
      and transactions were eliminated upon
  consolidation.





(b)
            Use of
      Estimates: The preparation of consolidated financial statements in
      conformity with U.S. generally accepted accounting principles requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the consolidated financial statements and the
      reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those
  estimates.





(c)
            Other
      Comprehensive Income: The Company records the fair value of
      interest rate swaps and foreign currency swaps as an asset or liability on
      the balance sheet. The effective portion of the swap is recorded in
      accumulated other comprehensive income. Comprehensive Income is composed
      of net income and gains or losses relating to the
  swaps.





(d)
            Cash, Cash
      Equivalents and Restricted Cash: The Company considers highly
      liquid investments such as time deposits and certificates of deposit with
      an original maturity of three months or less to be cash equivalents.
      Restricted Cash includes minimum cash deposits required to be maintained
      with a bank for loan compliance purposes and an amount of $276,056 which
      is collateralizing a letter of
credit.





(e)
            Accounts
      Receivable: Accounts receivable includes receivables from
      charterers for hire. At each balance sheet date, all potentially
      uncollectible accounts are assessed for purposes of determining the
      appropriate provision for doubtful
accounts.





(f)
            Insurance
      Claims: Insurance claims are recorded on an accrual basis and
      represent the claimable expenses, net of deductibles, incurred through
      each balance sheet date, which are expected to be recovered from insurance
      companies. Any remaining costs to complete the claims are included in
      accrued liabilities.





(g)
            Vessels and
      vessel improvements, at Cost: Vessels are stated at cost which
      consists of the contract price and other direct costs relating to
      acquiring and placing the vessels in service. Major vessel improvements
      are capitalized and depreciated over the remaining useful lives of the
      vessels.





(h)
            Vessel
      Depreciation: Depreciation is computed using the straight-line
      method over the estimated useful life of the vessels, after considering
      the estimated salvage value. Each vessel's salvage value is equal to the
      product of its lightweight tonnage and estimated scrap rate. Management
      estimates the useful life of the Company's vessels to be 28 years from the
      date of initial delivery from the shipyard to the original owner.
      Management estimates the scrap rate to be $150 per lightweight ton.
      Secondhand vessels are depreciated from the date of their acquisition
      through their remaining estimated useful
life.





(i)
            Intangibles:
      Where the Company identifies any intangible assets or liabilities
      associated with the acquisition of a vessel, the Company records 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. The Company values any asset or liability
      arising from the market value of the time charters assumed when a vessel
      is acquired. When the time charters assumed are above market charter
      rates, the difference between the market charter rate and assumed charter
      rate is recorded as Fair value above contract value of time charters
      acquired. When the time charters assumed are below market charter rates,
      the difference between the market charter rate and assumed charter rate is
      recorded as Fair value below contract value of time charters acquired.
      Such assets and liabilities are amortized to revenue over the remaining
      period of the time charters.






F-9





(j)
            Impairment
      of Long-Lived Assets: The Company reviews long-lived assets for
      Impairment whenever events or changes in circumstances indicate that the
      carrying amount of the assets may not be recoverable. When the estimate of
      undiscounted cash flows, excluding interest charges, expected to be
      generated by the use of the asset is less than its carrying amount, the
      Company will evaluate the asset for an impairment loss. Measurement of the
      impairment loss is based on the fair value of the asset as provided by
      third parties or discounted cash flow analyses. In this respect,
      management regularly reviews the carrying amount of the vessels in
      connection with the estimated recoverable amount for each of the Company's
      vessels.





(k)
            Accounting
      for Dry-Docking Costs: The Company follows the deferral method of
      accounting for dry-docking costs whereby actual costs incurred are
      deferred and are amortized on a straight-line basis over the period
      through the date the next dry-docking is required to become due, generally
      30 months. Costs capitalized as part of the drydocking include actual
      costs incurred at the drydock yard and parts and supplies used.
      Unamortized dry-docking costs of vessels that are sold are written off and
      included in the calculation of the resulting gain or loss in the year of
      the vessels' sale.





(l)
            Deferred
      Financing Costs: Fees incurred for obtaining new loans or
      refinancing existing ones are deferred and amortized to interest expense
      over the life of the related debt. Unamortized deferred financing costs
      are written off when the related debt is repaid or refinanced and such
      amounts are expensed in the period the repayment or refinancing is
      made.





(m)
            Other fixed
      assets: Other fixed assets are stated at cost less accumulated
      depreciation. Depreciation is based on straight line basis over the
      estimated useful life of the asset. Other fixed assets consist principally
      of leasehold improvements, computers and software, and are depreciated
      over 3-10 years.





(n)
            Accounting
      for Revenues and Expenses: Revenues are generated from time charter
      agreements. Time charter revenues are recognized on a straight-line basis
      over the term of the respective time charter agreements as service is
      provided. Time charter hire revenue brokerage Commissions are recorded in
      the same period as these revenues are recognized. Vessel operating
      expenses are accounted for on the accrual
basis.





(o)
            Deferred
      Revenue: Deferred revenue includes cash received prior to the
      balance sheet date for which all criteria to recognize as revenue have not
      been met, including any deferred revenue resulting from charter agreements
      providing for varying annual rates, which are accounted for on a straight
      line basis.





(p)
            Unearned
      Charter Hire Revenue: Unearned charter hire revenue represents cash
      received from charterers prior to the time such amounts are earned. These
      amounts are recognized as revenue as services are provided in future
      periods.





(q)
            Repairs and
      Maintenance: All repair and maintenance expenses are expensed as
      incurred and is recorded in Vessel
Expenses.





(r)
            Protection
      and Indemnity Insurance: The Vessel's Protection and Indemnity
      Insurance is subject to additional premiums referred to as "back calls" or
      "supplemental calls" which are accounted for on an accrual basis and is
      recorded in Vessel Expenses.





(s)
            Derivatives:
      Derivative financial instruments are used to manage risk and are not used
      for trading or other speculative purposes. Derivative financial
      instruments used for hedging purposes must be designated and effective as
      a hedge of the identified risk exposure at the inception of the contract.
      Accordingly, changes in fair value of the derivative contract must be
      highly correlated with changes in fair value of the underlying hedged item
      at inception of the hedge and over the life of the hedge contract. All
      derivatives are recorded on the balance sheet as assets or liabilities and
      measured at fair value. For derivatives designated as cash flow hedges,
      the effective portion of the changes in fair value of the derivatives are
      recorded in Accumulated Other Comprehensive Income (Loss) and subsequently
      recognized in earnings when the hedged items impact earnings. Cash flows
      of such derivative financial instruments are classified consistent with
      the underlying hedged item.






F-10





(t)
            Earnings
      Per Share: Earnings per share is computed by dividing the net
      income by the weighted average number of common shares outstanding during
      the period. Diluted earnings per share reflects the impact of stock
      options and restricted stock unless their impact is
      antidilutive.





(u)
            Segment
      Reporting: The Company reports financial information and evaluates
      its operations by charter revenues and not by the length of ship
      employment for its customers, i.e., spot or time charters. The Company
      does not use discrete financial information to evaluate the operating
      results for each such type of charter. Although revenue can be identified
      for these types of charters, management cannot and does not identify
      expenses, profitability or other financial information for these charters.
      As a result, management, including the chief operating decision maker,
      reviews operating results solely by revenue per day and operating results
      of the fleet and thus the Company has determined that it operates under
      one reportable segment. Furthermore, when the Company charters a vessel to
      a charterer, the charterer is free to trade the vessel worldwide and, as a
      result, the disclosure of geographic information is
      impracticable.





(v)
            Interest
      Rate Risk Management: The Company is exposed to the impact of
      interest rate changes. The Company's objective is to manage the impact of
      interest rate changes on earnings and cash flows of its borrowings. The
      Company may use interest rate swaps to manage net exposure to interest
      rate changes related to its
borrowings.





(w)
            Federal
      Income Taxes: The Company is a Republic of Marshall Islands
      Corporation. Pursuant to various tax treaties and the current United
      States Internal Revenue Code, the Company does not believe its operations
      prospectively will be subject to federal income taxes in the United States
      of America.





Impact
of Recently Issued Accounting Standards





In
September 2006, the Financial Accounting Standards Board ("FASB") issued
authoritative guidance for fair value measurements, which defines fair value,
establishes a framework for measuring fair value, and expands disclosures assets
and liabilities measured at fair value in financial statements. This guidance is
set forth in Topic 820 in the Accounting Standards Codification ("ASC 820"). ASC
820 does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements.
ASC 820 is effective for fiscal years beginning after November 15, 2007.
However, on February 6, 2008, the FASB issued authoritative guidance which
deferred the effective date of ASC 820 for one year for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a recurring basis. We adopted ASC 820 on January 1,
2008, except as it applies to those nonfinancial assets and nonfinancial
liabilities as noted in the FASB's February 6, 2008 guidance. We adopted the
provisions of ASC 820 that relate to nonfinancial assets and nonfinancial
liabilities on January 1, 2009. The adoption of ASC 820 did not have a material
impact on our consolidated financial position or results of
operations.





In
December 2007, the FASB issued revised authoritative guidance for business
combinations, which establishes principles and requirements for how the acquirer
in a business combination: i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, an any
noncontrolling interest in the acquiree, ii) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase,
and iii) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. This guidance is set forth in Topic 805 in the Accounting
Standards Codification ("ASC 805"). This accounting standard is effective for
fiscal years beginning after December 15, 2008. We adopted ASC 805 on January 1,
2009. The adoption of ASC 805 did not have a material impact on our consolidated
financial position or results of operations as of the date of adoption. ASC 805
will have an impact on our accounting for any future business
combinations.






F-11





In April 2009, the FASB amended the
Fair Value of Financial Instruments guidance to require an entity to provide
disclosures about fair value of financial instruments in interim financial
information ("Fair Value Disclosure Amendment"). The Fair Value Disclosure
Amendment requires a publicly traded company to include disclosures about the
fair value of its financial instruments whenever it issues summarized financial
information for interim reporting periods. In addition, entities must disclose,
in the body or in the accompanying notes of its summarized financial information
for interim reporting periods and in its financial statements for annual
reporting periods, the fair value of all financial instruments for which it is
practicable to estimate that value, whether recognized or not recognized in the
statement of financial position. The Fair Value Disclosure Amendment became
effective for the Company in the quarter ended June 30, 2009, and its adoption
did not have an impact on our consolidated financial condition or results of
operations.





In May 2009, the FASB issued guidance
on "Subsequent Events."  This guidance sets forth general standards of
accounting for, and disclosure of, events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued.  This guidance is effective for periods ending after June 15,
2009. In
February 2010, the FASB amended the subsequent events guidance issued in May
2009 to remove the requirement for SEC filers to disclose a date through which
subsequent events have been evaluated in both issued and revised financial
statements. The amendment is effective upon issuance. The adoption of this
guidance did not have an impact on our consolidated financial condition or
results of operations.





In June
2009, the FASB issued guidance on "The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles" which established
the FASB Accounting Standards Codification as the single source of authoritative
accounting principles in the preparation of financial statements in conformity
with GAAP.  This guidance also explicitly recognized rules and
interpretive releases of the Securities and Exchange Commission ("SEC") under
federal securities laws as authoritative GAAP for SEC registrants. This guidance
was effective for financial statements issued for periods ending after September
15, 2009. The Company has adopted the Codification in the third quarter of 2009.
The adoption of this guidance did not have an impact on
our   consolidated financial statements.





In June
2009, there was a revision to the accounting standard for the consolidation of
variable interest entities. The revision eliminates the exemption for qualifying
special purpose entities, requires a new qualitative approach for determining
whether a reporting entity should consolidate a variable interest entity, and
changes the requirement of when to reassess whether a reporting entity should
consolidate a variable interest entity. During February 2010, the scope of the
revised standard was modified to indefinitely exclude certain entities from the
requirement to be assessed for consolidation. The standard is effective
beginning on January 1, 2010 and the Company does not expect the impact of the
adoption to be material to the Company's financial position or results of
operations.





In
October 2009, an update was made to "Revenue Recognition – Multiple Deliverable
Revenue Arrangements." guidance. This update removes the
objective-and-reliable-evidence-of-fair-value criterion from the separation
criteria used to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, replaces references to
"fair value" with "selling price" to distinguish from the fair value
measurements required under the " Fair Value Measurements and Disclosures"
guidance, provides a hierarchy that entities must use to estimate the selling
price, eliminates the use of the residual method for allocation, and expands the
ongoing disclosure requirements. This update is effective for the Company
beginning January 1, 2011 and can be applied prospectively or retrospectively.
We are currently evaluating the effect that adoption of this update will have,
if any, on the Company's consolidated financial position and results of
operations when it becomes effective in 2011.













F-12











Note
3.  Vessels





a. Vessel and vessel
improvements





At December 31, 2009, the Company's
operating fleet consisted of 27 dry bulk vessels. In January, March, October and
December 2009 the Company took delivery of the Crested Eagle, Stellar Eagle,
Bittern and Canary, respectively. The Company acquired 5 vessels in 2008, 3
vessels in 2007, 3 vessels in 2006, 13 vessels in 2005 and sold a vessel in
2007.





Vessel
and vessel improvements consist of the following:




Balance
      vessels and vessel improvements, at December 31, 2007
            
            $
      605,244,861Purchase
      of vessels and vessel improvements
            
            148,023,788Delivery
      of newbuild vessels
            
            152,785,430Depreciation
      expense
            
            (31,379,443)Balance
      vessels and vessel improvements, at December 31, 2008
            
            $874,674,636Purchase
      of vessels and vessel improvements
            
            4,699,553Delivery
      of newbuild vessels
            
            172,561,721Depreciation
      expense
            
            (41,325,954)Balance
      vessels and vessel improvements, at December 31, 2009
            
            $1,010,609,956





b. Advances for vessel
construction




In 2009 the Company took delivery of
four newly constructed vessels from its newbuilding program. Two vessels from
the Japanese shipyard, Crested Eagle, Stellar Eagle, delivered in January and
March 2009, respectively. Two vessels from the Chinese shipyard, Bittern and
Canary, delivered in October and December 2009, respectively. In 2008 the
Company took delivery of three vessels. Wren and Woodstar were delivered by the
Chinese shipyard in June and October 2008, respectively, while Crowned Eagle,
first of our five Japanese newbuilding vessels, delivered in November 2008.
Subsequent to December 31, 2009, in January and February 2010, the Company took
delivery of four vessels from the Chinese shipyard, Crane, Egret Bulker,
Thrasher, and Avocet, and the last two Japanese built vessels Golden Eagle and
Imperial Eagle.





As of December 31, 2009 the total cost
of the contracts for the remaining two Supramax vessels under construction at a
shipyard in Japan is equivalent to $71,621,094. These vessels construction
contracts are Japanese yen based and as of December 31, 2009, the Company has
advanced an equivalent of $31,807,153 in progress payments towards these
contracts. The remaining two vessels were delivered in January and February
2010. The Company incurred additional associated costs relating to the
construction of these vessels, including capitalized interest, insurance, legal,
and technical supervision costs.





In 2007, the Company acquired the
rights to the construction of the newbuilding vessels in China from Kyrini
Shipping Inc., an unrelated privately held Greek shipping company for
consideration of $150,000,000, and this amount is included in the total
construction cost. The acquisition comprised purchase contracts for the
construction of the 26 Supramax vessels and time charter employment contracts
for 21 of the 26 vessels. The charter rates on the employment contracts acquired
from Kyrini were either below or above market rates for equivalent time charters
prevailing at the time the foregoing vessel contracts were
acquired.  The present values of the above and below market charters
at the date of acquisition were estimated by the Company at $4,531,115 and
$32,867,920, respectively, and were recorded as assets and liabilities in the
consolidated balance sheets. These amounts are amortized to revenue over the
remaining life of the time charters assumed on these vessels. For the
twelve months ended December 31, 2009 and 2008, net revenues included $2,643,820
and $799,540, respectively, as amortization of the below market rate
charters.  As of December 31, 2009, the unamortized above and below
market rate charters was $4,531,115 and $29,424,560, respectively.  These
balances will be amortized to revenue over a weighted average period of 6.1
years.






F-13





The Company also received an option
from the shipyard in China, Yanghzou Dayang Shipbuilding Co., Ltd., ('Dayang')
for the construction of 9 additional Supramax vessels. On December 27, 2007, the
Company exercised four of these options and the options for the remaining five
vessels expired on March 31, 2008.





On December 17, 2008, the Company
reached an agreement with Dayang to convert eight charter-free Supramax
shipbuilding contracts into options on the part of the Company, for a
consideration of $440,000. The deposits of $47,370,000 previously paid by the
Company to Dayang for those eight contracts are applied to payments in respect
of other ships being constructed by Dayang. In addition, the delivery date for
one of the ships under construction has been rescheduled from September 2009 to
November 2010. The carrying value of the advanced payment in connection with the
acquisition of the construction contracts from Kyrini Shipping Inc and the cost
of the eight newly converted shipbuilding contract options were recorded as an
impairment charge of $3,882,888.





As of December 31, 2009 the Company has
18 Supramax vessels under construction at the shipyard in China. The total cost
of the construction project in China is approximately $768,800,798, of which the
Company has advanced $366,710,798 in progress payments towards the construction
of these vessels. These vessels are expected to be delivered between 2010 and
2011. The Company will incur additional costs relating to the construction of
these vessels, including capitalized interest, insurance, legal, and technical
supervision costs.





At December 31, 2009, the Company had
20 vessels under construction. Advances for Vessel Construction consist of the
following:




Advances
      for Vessel Construction at December 31, 2007
            
            $
      344,854,962Progress
      Payments
            
            188,461,866Capitalized
      Interest
            
            26,211,616Legal
      and Technical Supervision Costs
            
            8,202,885Write-off
      advances for vessel construction
            
            (3,882,888)Delivery
      of Newbuild Vessels
            
            (152,785,430)Advances
      for Vessel Construction at December 31, 2008
            
            $
      411,063,011Progress
      Payments
            
            179,355,977Capitalized
      Interest
            
            33,586,523Legal
      and Technical Supervision Costs
            
            12,730,097Delivery
      of Newbuild Vessels
            
            (172,561,721)Advances
      for Vessel Construction at December 31, 2009
            
            $
      464,173,887








Note
4.  Other Accrued Liabilities





Other accrued liabilities consist
of:




December
      31, 2009
            
            December
      31, 2008Vessel
      Expenses
            $2,723,785
            
            $2,055,929Other
      Expenses
            1,103,933
            
            966,046Balance
            $3,827,718
            
            $3,021,975





Note
5.  Long-term debt





At
December 31, 2009, the Company's debt consisted of $900,170,880 in net
borrowings under the amended Revolving Credit Facility. These borrowings
consisted of $494,859,069 for the 27 vessels currently in operation and
$405,311,811 to fund the Company's newbuilding program.






F-14





On August
4, 2009, the Company entered into a third Amendatory Agreement to its revolving
credit facility dated October 19, 2007. Among other things, the credit facility
reduces the amount of the credit facility to $1,200,000,000 with maturity in
July 2014. The agreement also modifies the minimum security covenant, the
minimum net worth covenant, and the minimum interest coverage ratio covenant,
until such time as the Company can comply with the original covenants for two
consecutive accounting periods. In the interim, the measurement of the three
covenants at the end of each accounting period has been amended as follows: (a)
The minimum security covenant has been suspended, (b) the minimum net worth
covenant has been amended to a threshold minimum of $400 million plus an amount
equal to fifty percent of any equity received by the Company, with the
determination of net worth to utilize book value of vessel assets as stated in
the financial statements rather than the market value, and (c) until
reinstatement of the original minimum security and net worth covenants, for 24
months from July 1, 2009 to June 30, 2011, at each accounting period, the
Company's cumulative EBITDA (EBITDA as defined in the credit agreement) will at
all times be not less than 120% of the cumulative loan interest incurred on a
trailing four quarter basis, and for each accounting period after June 30, 2011,
the Company's cumulative EBITDA will at all times be not less than 130% of the
cumulative loan interest incurred on a trailing four quarter basis. The
amendment also requires, that until the Company is in compliance with the
original covenants for two consecutive accounting periods, the Company will use
half the net proceeds from any equity issuance to reduce the facility, including
$48,645,523 from the equity raised in 2009.  These payments reduce the
available amount of the credit facility to $1,151,354,477. As of December 31,
2009, $251,183,597 is available for additional borrowings under the credit
facility. The Company will continue to be able to borrow the undrawn portion of
the facility and the amounts borrowed will bear interest at LIBOR plus 2.50%.
Undrawn portions of the facility will bear a commitment fee of 0.7%. The
facility is available in full until July 2012 when availability will begin to
decline in four semi-annual reductions of $53,969,741 with a full repayment at
maturity. In connection with the third amendment to the revolving credit
facility, the Company recorded a one-time non-cash charge of $3,383,289 relating
to write-off a portion of deferred finance costs associated with the reduction
of the credit facility.





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.





Under the terms of the third amendment
of the revolving credit facility, among other things, we will maintain with the
lender an amount not less than the greater of $500,000 per delivered vessel or
an amount equal to any reductions in the total commitments scheduled to be
effected within the next six months less the amount of the then unutilized
facility. As of December 31, 2009, the Company has recorded $13,500,000 as
restricted cash in the accompanying balance sheets.





On December 17, 2008, the Company
entered into a second Amendatory Agreement to its $1,600,000,000 revolving
credit facility. Among other things, the credit facility amends the amount of
the credit facility to $1,350,000,000. The agreement amends the minimum security
value of the credit facility to include the aggregate market value of the
vessels in the Company's operating fleet and the deposits on its newbuilding
contracts. The agreement amends the minimum security value clause of the credit
facility from 130% to 100% of the aggregate principal amount of debt outstanding
under the credit facility. The agreement also provides that future dividend
payments will be based on maintaining a minimum security value of 130%. The
agreement reduces the minimum net worth clause of the credit facility from
$300,000,000 to $75,000,000 for 2009, subject to annual review thereafter. The
agreement also amends the interest margin to 1.75% over LIBOR. In connection
with the second amendment to the revolving credit facility, the Company recorded
deferred a one-time non-cash charge of $2,089,701, to write-off a portion of
deferred finance costs associated with the reduction of the credit
facility.





For the
twelve months ended December 31, 2009, interest rates on the outstanding debt
ranged from 2.19% to 7.73%, including a margin of 1.75% to 2.50% over LIBOR
applicable under the terms of the amended revolving credit facility. The
weighted average effective interest rate was 6.23%. The Company incurred a
commitment fee ranging from 0.30% to 0.70% on the undrawn portion of the
revolving credit facility. Interest costs on borrowings used to fund the
Company's newbuilding program are capitalized until the vessels are
delivered.






F-15











Interest
Expense, exclusive of capitalized interest, consists of:


2009
            
            
            2008
            
            
            2007Loan
      Interest
            
            $
            27,530,612
            
            
            $
            15,545,287
            
            
            $
            12,259,010Commitment
      Fees
            
            
            —
            
            
            
            26,449
            
            
            
            239,739Amortization
      of Deferred Financing Costs
            
            
            1,373,998
            
            
            
            244,837
            
            
            
            242,357Write-off
      of Deferred Financing Costs
            
            
            3,383,289
            
            
            
            2,089,701
            
            
            
            —Total
      Interest Expense
            
            $
            32,287,899
            
            
            $
            17,906,274
            
            
            $
            12,741,106





Interest
paid, excluding capitalized interest, amounted to $26,116,825 in 2009,
$13,557,351 in 2008 and $13,031,996 in 2007.





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. Under these swap contracts, exclusive of applicable margins,
the Company will pay fixed rate interest and receive floating-rate interest
amounts based on three-month LIBOR settings. The swaps are designated and
qualify as cash flow hedges. The following table summarizes the interest rate
swaps in place as of December 31, 2009, and December 31, 2008.





Notional
      Amount Outstanding –
              December
      31, 2009
            
            Notional
      Amount Outstanding –
              December
      31, 2008
            
            Fixed
      Rate
            
            Maturity$                  —
            
            $      84,800,000
            
            5.240%
            
            09/200925,776,443
            
            25,776,443
            
            4.905%
            
            03/201010,995,000
            
            10,995,000
            
            4.980%
            
            08/2010202,340,000
            
            202,340,000
            
            5.040%
            
            08/2010100,000,000
            
            100,000,000
            
            4.220%
            
            09/201030,000,000
            
            30,000,000
            
            4.538%
            
            09/2010144,700,000
            
            144,700,000
            
            3.580%
            
            10/20119,162,500
            
            9,162,500
            
            3.515%
            
            10/20113,405,174
            
            3,405,174
            
            3.550%
            
            10/201117,050,000
            
            17,050,000
            
            3.160%
            
            11/201125,048,118
            
            25,048,118
            
            4.740%
            
            12/201136,752,038
            
            36,752,038
            
            5.225%
            
            08/201281,500,000
            
            81,500,000
            
            3.895%
            
            01/201384,800,000
            
            —
            
            3.900%
            
            09/2013$  771,529,273
            
            $    771,529,273





The Company records the fair value of
the interest rate swaps as an asset or liability on its balance sheet. The
effective portion of the swap is recorded in accumulated other comprehensive
income. Accordingly, liabilities of $35,408,049 and $50,538,060 have been
recorded in Other Liabilities in the Company's balance sheets as of December 31,
2009, and 2008, respectively.




Foreign
Currency swaps





The
Company has entered into foreign exchange swap transactions to hedge foreign
currency risks on its capital asset transactions (vessel newbuildings). The
swaps are designated and qualify as cash flow hedges.





At
December 31, 2008, the Company had outstanding foreign currency swap contracts
for notional amounts aggregating 8.6 billion Japanese yen swapped into the
equivalent of $80,378,030. In February 2009, the Company fixed the gain on its
outstanding foreign currency swaps contracts. This gain will be recognized upon
delivery of the remaining vessels as an offset to the cost of the vessels.
During the year ended December 31, 2009, the Company recognized a foreign
currency gain of $8,710,806 which offset the cost of the Japanese vessels upon
delivery or payment incurred. The remaining gain as of December 31, 2009
aggregating $4,765,116 will offset the cost of the remaining two vessels upon
their delivery in January, 2010 and February 2010.






F-16





The Company records the fair value of
the currency swaps as an asset or liability in its financial statements. The
effective portion of the currency swap is recorded in accumulated other
comprehensive income. Accordingly, an amount of $4,765,116 and $15,039,535 have
been recorded in Fair value of derivative instruments in the accompanying
balance sheets as of December 31, 2009, and December 31, 2008,
respectively.








Note
6.  Fair Value Measurements





The following methods and assumptions
were used to estimate the fair value of each class of financial
instrument:





Cash and cash equivalents—the
carrying amounts reported in the consolidated balance sheet for interest-bearing
deposits approximate their fair value due to their short-term nature
thereof.





Debt—the carrying amounts of
borrowings under the revolving credit agreement approximate their fair value,
due to the variable interest rate nature thereof.





Interest rate swaps—the fair
value of interest rate swaps (used for hedging purposes) is the estimated amount
that the Company would receive or pay to terminate the swaps at the reporting
date.





Foreign currency swaps—the
fair value of foreign currency swaps (used for hedging purposes) is the
estimated amount that the Company would receive or pay to terminate the swaps at
the reporting date.





Effective January 1, 2008, the Company
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements.  The fair value hierarchy
for disclosure of fair value measurements is as follows:





Level 1 –
Quoted prices in active markets for identical assets or liabilities


Level 2 –
Quoted prices for similar assets and liabilities in active markets or inputs
that are observable


Level 3 –
Inputs that are unobservable (for example cash flow modeling inputs based on
assumptions)





The following table summarizes assets
and liabilities measured at fair value on a recurring basis at December 31,
2009:




Level
      1
            Level
      2
            Level
      3Assets:Foreign
      currency contracts
            —
            $4,765,116
            —Liabilities:Interest
      rate contracts
            —
            $35,408,049
            —





The fair value of the interest rate and
foreign currency swap contracts are based on quoted market prices for a similar
contract and can be validated through external sources.








F-17











Note
7.  Commitments and Contingencies








Vessel
Technical Management Contract





The Company has technical management
agreements for its vessels with independent technical managers. The Company paid
average monthly technical management fees of $9,233 per vessel in 2009 and
$9,041 per vessel in 2008, and $8,906 per vessel in 2007.





On August
4, 2009, the Company entered into a management agreement (the "Management
Agreement") with Delphin Shipping LLC ("Delphin"), a Marshall Islands limited
liability company affiliated with Kelso Investment Associates VII, and KEP VI,
LLC and the Company's Chief Executive Officer, Sophocles
Zoullas.  Delphin was formed for the purpose of acquiring and
operating dry bulk and other vessels. Under the terms of the Management
Agreement, the Company will provide commercial and technical supervisory vessel
management services to dry bulk vessels to be acquired by Delphin for a fixed
monthly management fee based on a sliding scale. Pursuant to the terms of the
Management Agreement the Company has been granted an opportunity to acquire for
its own account any dry bulk vessel that Delphin proposes to
acquire.  The Company has also been granted a right of first refusal
on any dry bulk charter opportunity, other than a renewal of an existing charter
for a Delphin owned vessel, that the Company reasonably deems suitable for a
Company owned vessel.  The Management Agreement also provides the
Company a right of first offer on the sale of any dry bulk vessel by Delphin.
The term of the Management Agreement is one year and is renewable for successive
one year terms at the option of Delphin.





Operating
Lease





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 $276,056 which amount is recorded as restricted cash in
the accompanying balance sheets. The lease expires in 2018.





The
future minimum commitments under the leases for office space as of December 31,
2009 are as follows:





2010
            648,5522011
            788,5192012
            835,1752013
            835,175Thereafter
            3,688,690Total
            $          6,796,111








Note
8.  Earnings Per Common Share





The computation of basic earnings per
share is based on the weighted average number of common shares outstanding
during the period. Diluted net income per share gives effect to stock options
and restricted stock units using the treasury stock method, unless the impact is
anti-dilutive. Diluted net income per share as of December 31, 2009, does not
include 1,327,704 restricted stock units and 590,668 stock options as their
effect was anti-dilutive. Diluted net income per share as of December 31, 2008,
does not include 1,704,787 restricted stock units and 50,001 stock options as
their effect was anti-dilutive.











F-18











2009
            
            2008
            
            2007Net
      Income
            $  33,287,271
            
            $  61,632,809
            
            $  52,243,981Weighted
      Average Shares - Basic
            55,897,946
            
            46,800,550
            
            42,064,911Dilutive
      effect of stock options and restricted stock units
            25,362
            
            88,238
            
            130,650Weighted
      Average Shares - Diluted
            55,923,308
            
            46,888,788
            
            42,195,561Basic
      Earnings Per Share
            $             0.60
            
            $             1.32
            
            $             1.24Diluted
      Earnings Per Share
            $             0.60
            
            $             1.31
            
            $             1.24








Note
9.  Stock Incentive Plans





2009 Equity Incentive plan.
In May 2009, our shareholders approved the 2009 Equity
Incentive Plan (2009 Plan) for the purpose of affording an incentive to eligible
persons. The 2009 Equity
Incentive Plan provides for the grant of equity based awards, including stock
options, stock appreciation rights, restricted stock, restricted stock units,
dividend equivalents, unrestricted stock, other equity based or equity related
awards, and/or performance compensation awards based on or relating to the
Company's common shares to eligible non-employee directors, officers, employees
or consultants. The 2009 Plan is administered by a compensation committee or
such other committee of the Company's board of directors. A maximum of 4.2
million of the Company's common shares have been authorized for issuance under
the 2009 Plan.





2005 Equity Incentive plan.
In 2005, the Company adopted the 2005 Equity
Incentive Plan (2005 Plan) for the purpose of affording an incentive to eligible
persons. The 2005 Equity
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 shares 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 were authorized for issuance under the
plan. None of the Company's common shares remain available for issuance under
the 2005 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. During 2007, options
to purchase 13,333 shares were exercised. The options expire ten years from the
date of grant.





On January 12, 2007, the Company
granted options to purchase 13,334 of the Company's common shares to its
independent non-employee directors and 524,000 of the Company's common shares to
members of its management. The options have an exercise price of $17.80 per
share and they vested and became exercisable for the non-employee directors on
the grant date while the options for management vest and become exercisable over
three years. All options expire ten years from the date of grant. During 2008,
options to purchase 13,333 shares were exercised and 26,667 options were
forfeited.





On May 23, 2007, the Company granted
options to purchase 50,001 of the Company's common shares to its independent
non-employee directors. These options vested and became exercisable on the grant
date at an exercise price of $21.88 per share. The options expire ten years from
the date of grant.





On January 23, 2009, the Company
granted options to purchase 222,815 of the Company's common shares to its
independent non-employee directors. These options vested and became exercisable
on the grant date at an exercise price of $5.00 per share and expire six years
from the date of grant.






F-19





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 2.2% to 5%, dividend
yield ranging from 0% to 15%, expected stock price volatility factor of 33% to
74%.  The Company has recorded non-cash compensation charges of
$852,328, $301,477 and $448,037 relating to the fair value of these stock
options in 2009, 2008 and 2007, respectively.





In 2006 and 2007, the Company granted
Dividend Equivalent Rights Awards to its independent non-employee directors and
members of its management. The Dividend Equivalent Rights 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.





On March 17, 2006, the Company granted
a Dividend Equivalent Rights Award to its independent non-employee directors
equivalent to 62,964 shares of the Company's common stock.  During
2007, the Company granted an additional Dividend Equivalent Rights Award to its
independent non-employee directors equivalent to 45,370 shares of the Company's
common stock. In 2007, the Company also granted a Dividend Equivalent Rights
Award to members of its management equivalent to 524,000 shares of the Company's
common stock. The Company recorded $0, $1,236,337 and $1,210,457 as compensation
expense for the Dividend Equivalent payments in 2009, 2008 and 2007,
respectively.





In 2007 the Company granted 793,713
Restricted Stock Units ("RSUs") to members of its management. Each Restricted
Stock Unit granted to the participant represents the right to receive one share
of the Company's Common Stock as of the date of vesting, with such vesting to
occur ratably over three years. The fair value of the non-vested restricted
stock at the grant date, equivalent to the market value at the date of grants,
is $21,912,547. During the year ended December 31, 2009, 139,888 RSUs were
vested and 123,950 were forfeited. During the year ended December 31, 2008,
260,814 RSUs were vested and 5,219 were forfeited. Amortization of this charge,
which is included in non-cash compensation expense, for the year ended December
31, 2009, 2008 and 2007, were $7,283,857, $7,282,819 and $670,928, respectively.
The remaining expense for the year ended 2010 will be $6,613,967.





In June 2008, the Company granted
833,333 RSUs, vesting ratably over five years, to its Chief Executive Officer as
part of an employment agreement. In August 2008, the Company granted 105,000
RSUs, vesting ratably over three years, to a new member of management. The fair
value of the non-vested RSUs at the grant date, equivalent to the market value
at the date of grants, is $27,089,190. During the year ended December 31, 2009,
107,984 RSUs were vested and 93,683 were forfeited. Amortization of this charge,
which is included in non-cash compensation expense, for the year ended December
31, 2009 and 2008, were $5,796,398 and $2,919,189, respectively. The remaining
expense for the years ended 2010, 2011 and 2012 will be $5,796,398, $5,450,402,
4,849,998 respectively, and $2,276,805 thereafter.





In December 2009 the Company granted
1,150,000 Restricted Stock Units ("RSUs") to members of its management and
certain employees. Each Restricted Stock Unit granted to the participant
represents the right to receive one share of the Company's Common Stock as of
the date of vesting, with such vesting to occur ratably over three years. During
the year ended December 31, 2009, 6,000 were forfeited. The fair value of the
non-vested restricted stock at the grant date, equivalent to the market value at
the date of grants, is $5,628,480. Amortization of this charge, which is
included in non-cash compensation expense, for the year ended December 31, 2009,
was $45,391. The remaining expense for the years ended 2010, 2011 and 2012 will
be $1,876,160, $1,876,160 and $1,830,769.





As of December 31, 2009, RSUs covering
a total of 2,144,508 of the Company's shares are outstanding. The Restricted
Stock Unit also entitles the participant to receive a Dividend Equivalent
payment on the unvested portion of the underlying shares granted under the
award, each time the Company pays a dividend to the Company's stockholders. The
Company has also recorded $0 and $2,464,662 in compensation expense for the
Restricted Stock Units Dividend Equivalent payments in 2009 and 2008,
respectively.






F-20





On January 15, 2008, the Company
granted 30,000 shares of its common stock, which vested on the grant date, to
its independent non-employee directors. The fair value of the stock at the grant
date was equal to the closing stock price on that date and a total amount of
$608,400 has been recorded in non-cash compensation expense in
2008.








Note
10.  Non-cash Compensation





The
Company has recorded non-cash compensation charges of $13,977,974, $11,111,885
and $4,256,777, respectively in 2009, 2008 and 2007. These non-cash compensation
charges relate to the stock options and restricted stock units granted to
certain directors of the Company, members of management and certain employees
under the 2005 and 2009 Stock Incentive Plan (see Note 9) and non-cash,
non-dilutive charges relating to profits interests awarded to members of the
Company's management by the Company's former principal shareholder Eagle
Ventures LLC.





Members
of the Company's management had been awarded profits interests in the Company's
former principal shareholder Eagle Ventures LLC that entitled such persons to an
economic interest of up to 16.7% on a fully diluted basis (assuming all profits
interests were vested) in any appreciation in the value of the assets of Eagle
Ventures LLC (including shares of the Company's common stock owned by Eagle
Ventures LLC when sold). These profits interests diluted only the interests of
owners of Eagle Ventures LLC, and did not dilute direct holders of the Company's
common stock. However, the Company's statement of operations reflects non-cash
charges for compensation related to the profits interests. In the aggregate, one
fourth of the profits interests were service-related and the remaining profits
interests were performance related.  Since these profits interests
would not be settled in stock of the Company, they were being accounted for as a
liability plan.  The compensation charge was based on the fair value
of the profits interests by marking to market the assets of Eagle Ventures LLC
at the end of each reporting period. The impact of any changes in the estimated
fair value of the profits interests was 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 was adjusted prospectively as a change in
estimate. As Eagle Ventures LLC has sold all of its remaining holdings in the
Company, the non-cash, non-dilutive charges relating to profits interests ended
in the first quarter of 2007 and there will be no charges in future periods.
Amount recorded with respect to the non-cash, non-dilutive charge relating to
profits interests was $3,137,812 in 2007.





The
non-cash compensation expenses recorded by the Company and included in General
and Administrative Expenses are as follows:




2009
            
            2008
            
            2007Stock
      Option Plans
            $       852,328
            
            $       301,477
            
            $    1,118,965Restricted
      Stock Grants
            13,125,646
            
            10,202,008
            
            -Stock
      Grants
            -
            
            608,400
            
            -Non-dilutive
      Profits Interests
            -
            
            -
            
            3,137,812Total
      Non-cash compensation expense
            $  13,977,974
            
            $  11,111,885
            
            $    4,256,777








Note
11.  Capital Stock





Common  Stock





On March
6, 2007, the Company sold 5,400,000 of the Company's common shares for $18.95
per share, raising gross proceeds of $102,330,000. On March 23, 2007, the
Company raised an additional $7,841,870 in gross proceeds from the underwriter's
exercise of their over-allotment option for the sale of 413,819 of the Company's
common shares. On September 21, 2007, the Company sold 5,000,000 of the
Company's common shares at a price of $25.90 per share, raising gross proceeds
of $129,500,000. The Company has incurred fees and expenses aggregating
$5,642,117 for the shares sold in 2007.






F-21





On June
30, 2009, the Company completed its offering under an Equity Distribution
Agreement of $100,000,000.  From May through June 2009, the Company
sold 14,847,493 common shares. The net proceeds, after underwriting commission
of 2.5% and other issuance fees, amounted to $97,291,046.





Dividends





Payment
of dividends is in the discretion of the board of directors and is limited by
the terms of certain agreements to which the Company and its subsidiaries are
parties to and provisions of Marshall Islands law. The Company's revolving
credit facility permits it to pay quarterly dividends in amounts up to its
cumulative free cash flows, which is 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 for the period, provided that
the Company is in compliance with its loan covenants. 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. In this connection, the dry
bulk market has recently declined substantially. In December 2008, the Company's
board of directors suspended the payment of dividends to stockholders in order
to increase cash flow, optimize financial flexibility and enhance internal
growth.  In the future, the declaration and payment of dividends, if
any, will always be subject to the discretion of the board of directors,
restrictions contained in the credit facility and the requirements of Marshall Islands law. The timing
and amount of any dividends declared will depend on, among other things, the
Company's earnings, financial condition and cash requirements and availability,
the ability to obtain debt and equity financing on acceptable terms as
contemplated by the Company's growth strategy, the terms of its outstanding
indebtedness and the ability of the Company's subsidiaries to distribute funds
to it.





In 2008,
the Company declared four quarterly dividends in the aggregate amount of $2.00
per share of its common stock in February, May, August and November. Aggregate
payments were $93,592,906 for dividends declared in 2008.





In 2007,
the Company declared four quarterly dividends in the aggregate amount of $1.98
per share of its common stock in February, April, July and November. Aggregate
payments were $82,134,982 for dividends declared in 2007.





Note
12.  Shareholder Rights Plan





On November 9, 2007, the Company's
board of directors adopted a shareholder rights plan and declared a dividend
distribution of one Right for each outstanding share of our common stock to
shareholders of record on the close of business on November 23, 2007. Each Right
is nominally exercisable, upon the occurrence of certain events, for one
one-thousandth of a share of Series A Junior Participating Preferred Stock, par
value $.01 per share, at a purchase price of $125.00 per unit, subject to
adjustment.

















F-22










Note
13.  2009, 2008 and 2007 Quarterly Results of Operations
(Unaudited)




Consolidated Statement of
      Operations(Unaudited)
            Three
      Months
              ended
              March 31,
            
            Three
      Months
              ended
              June 30,
            
            Three
      Months
              ended
              September 30,
            
            Three
      Months
              ended
              December 31,2009Revenues,
      net of commissions
            $55,977,666
            
            $53,021,338
            
            $41,551,805
            
            $42,024,017Total
      Operating Expenses
            32,265,141
            
            32,918,240
            
            30,428,069
            
            31,592,816Operating
      Income
            23,712,525
            
            20,103,098
            
            11,123,736
            
            10,431,201Net
      Income
            17,236,781
            
            13,347,535
            
            512,261
            
            2,190,694Basic
      Net Income Per Share
            0.37
            
            0.26
            
            0.01
            
            0.04Diluted
      Net Income Per Share
            0.37
            
            0.26
            
            0.01
            
            0.042008Revenues,
      net of commissions
            $36,686,016
            
            $37,223,200
            
            $51,553,232
            
            $59,962,501Total
      Operating Expenses
            20,376,459
            
            19,750,394
            
            25,002,973
            
            43,539,354Operating
      Income
            16,309,557
            
            17,472,806
            
            26,550,259
            
            16,423,147Net
      Income
            14,345,810
            
            14,906,130
            
            23,221,617
            
            9,159,252Basic
      Net Income Per Share
            0.31
            
            0.32
            
            0.50
            
            0.20Diluted
      Net Income Per Share
            0.31
            
            0.32
            
            0.49
            
            0.20Cash
      dividends declared and paid
            0.50
            
            0.50
            
            0.50
            
            0.502007Revenues,
      net of commissions
            $26,908,532
            
            $28,338,047
            
            $33,955,704
            
            $35,612,521Total
      Operating Expenses
            16,067,004
            
            14,601,064
            
            15,580,744
            
            18,234,292Operating
      Income
            10,841,528
            
            13,736,983
            
            18,374,960
            
            17,378,229Net
      Income
            8,487,788
            
            11,924,695
            
            15,501,895
            
            16,329,603Basic
      Net Income Per Share
            $0.23
            
            $0.29
            
            $0.37
            
            $0.35Diluted
      Net Income Per Share
            $0.23
            
            $0.29
            
            $0.37
            
            $0.35Cash
      dividends declared and paid
            $0.51
            
            $0.50
            
            $0.47
            
            $0.50























F-23