Eagle Bulk Shipping (EGLE) Risk Analysis

The hull and machinery of every commercial vessel must be certified by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the vessel's country of registry and SOLAS. A vessel must undergo annual surveys, intermediate surveys and special surveys. A vessel must also be drydocked every two and a half to five years, depending on its age, for inspection of its underwater parts. Compliance with current and future safety and other requirements imposed by vessel classification societies may cause us to incur significant additional costs and lost revenue from off-hire time. Compliance may include meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. If any of the Company's owned vessels does not maintain its class or fails any annual, intermediate or special survey, that vessel will be unable to trade between ports until the issues that led to the failure are rectified. Accordingly, the vessel would be unemployable and could become uninsurable for a period of time, which could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price.

Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. We are also required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial assurances with respect to our operations. These regulations include, but are not limited to, OPA, CERCLA, the CAA, the CWA, the MTSA, requirements of the USCG and the EPA and regulations of the IMO, including MARPOL, as from time to time amended including designation of ECAs thereunder, SOLAS, as from time to time amended, the ISM Code, the LL Convention, the Bunker Convention and EU regulations. Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or operational changes and may affect the fair market value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions, the management of ballast and bilge waters, restrictions on the discharge of wash water from and the use of open loop scrubbers, elimination of tin-based paint, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. In addition, we may not be able to obtain any or all permits, licenses and certificates, in a timely manner or at all, currently required to permit our vessels to operate. These costs or potential business interruptions could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations, which could have a material adverse effect on our business, results of operations, financial condition, cash flows or stock price. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are strictly, and jointly and severally, liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, financial condition and cash flows. For additional information regarding the environmental regulations affecting our operations and matters related to the Company's compliance with such regulations, see Item 1. Business and Note 11.  Commitments and Contingencies to the consolidated financial statements included elsewhere herein.

The operation of our vessels is affected by the requirements set forth in 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 any vessel that we agree to purchase will be ISM Code-certified when delivered to us. However, increased liability, decreased or invalidated insurance coverage or port restrictions as a result of failure to comply with the ISM Code could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price.

International shipping industries are subject to various security and customs inspection and related procedures in countries of origin and destination and at trans-shipment points. Inspection procedures may result in the seizure of contents of our vessels, delays in the loading, offloading, trans-shipment or delivery and the levying of customs duties, fines or other penalties against us. Changes to inspection procedures could impose additional financial and legal obligations on us, could impose additional costs and obligations on our customers and could, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price.

Some of our vessels may be chartered to Chinese customers or from time to time on our charterers' instructions, our vessels may call on Chinese ports. Such charters and any additional charters that we enter into may be subject to new regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other fees. Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect our vessels chartered to Chinese customers as well as our vessels calling to Chinese ports and could have a material adverse impact on our business, results of operations, financial condition, cash flows and stock price.

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 shareholders 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 and voyage chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time and voyage 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 and there is authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept 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. If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders may face adverse United States tax consequences and information reporting obligations. Under the PFIC rules, unless those shareholders made an election available under the Code (which election could itself have adverse consequences for such shareholders), such shareholders 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 shareholder's holding period of our common stock.

The Company has contracts with customers, suppliers, vendors, distributors, landlords, lenders, licensors and other business partners and these contracts may require the Company to obtain consent from these other parties in connection with the Proposed Merger. If these consents cannot be obtained, the counterparties to these contracts (and other third parties with which the Company currently has relationships, even if not contractual) may have the ability to terminate, reduce the scope of or otherwise materially adversely alter their relationships or terms of such contracts in anticipation of the Proposed Merger. In addition, counterparties to agreements that are near termination may determine not to renew such agreements as a result of the Proposed Merger or seek amendments to terms of existing contracts. The pursuit of such termination rights or amendments, or a determination not to renew such agreements, may result in the Company suffering a loss of potential future revenue, incurring liabilities in connection with breaches of agreements or losing rights that are material to our business. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Proposed Merger or the termination of the Merger Agreement.

Fuel is a significant expense in our shipping operations when vessels are under voyage charter. In addition, while we generally do not bear the cost of fuel for vessels operating on time charters, the cost of fuel is a significant factor in negotiating charter rates. The price of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. For example, the volatility of market prices for fuel increased as a result of supply disruptions from the conflict between Russia and Ukraine as well as from the impact of recent attacks on commercial vessels in the Red Sea and Gulf of Aden. As a result, an increase in the price of fuel may have a material adverse effect on our results of operations, financial condition, cash flows and stock price.

We utilize FFAs, which are derivative instruments, to economically hedge our exposure to the charter market by providing for the purchase or sale of a contracted charter rate for a specific period of time. Upon settlement, if the contracted rate is less than the actual BSI for the specified period, the seller of the FFA is required to pay the buyer an amount equal to the difference between the contracted rate and the BSI-based settlement rate, multiplied by the number of days in the specified period. Conversely, if the contracted rate is greater than the BSI-based settlement rate, the buyer is required to pay the seller the settlement sum. We also utilize interest rate swaps to hedge our exposure to interest rate risk with the objective of effectively converting debt from a floating-rate to a fixed-rate obligation. Under these contracts, exclusive of applicable margins, we pay a fixed rate of interest and receive a floating rate of interest based on a benchmark interest rate and an underlying notional amount. As of December 31, 2023, the Company had derivative liabilities of $2.0 million. If our hedging strategies are not effective, we may incur substantial losses, which could have a material adverse effect on our earnings, financial condition, cash flows and stock price.

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 drydock, which would reduce our fleet utilization. Furthermore, we usually do not receive the benefit of warranties on secondhand vessels. In addition, if we expand our fleet through vessel acquisition, we will need to recruit additional suitable seafarers and may need to recruit additional suitable shore-side administrative and management personnel. We cannot guarantee that we will be able to hire suitable employees and if we or our crewing agents encounter business or financial difficulties, we may not be able to adequately staff our vessels. The costs of purchasing and operating secondhand vessels could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. Older vessels are typically less fuel efficient and more expensive 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. Regulations and safety or other standards related to the age of vessels may require us to install new equipment, perform alterations or drydock vessels more frequently and may restrict the type of activities in which our vessels may engage, each of which could increase our operating costs and reduce our profitability. 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. The aging of our fleet could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.

China is a significant source of global shipping demand for drybulk commodities and our vessels transport goods into and out of Chinese ports for the benefit of charterers across a number of industries. A deterioration in the economic fundamentals for this nation could adversely affect shipping demand, and therefore, freight rates. A worsening of the Chinese property sector could adversely affect the Chinese banking sector, which could exert downward pressure on overall economic growth in China. A decrease in the level of China's imports or exports of drybulk commodities could have an adverse effect on our charterers' business and, in turn, could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.

As the Company has U.S. and EU incorporated entities, we are subject to U.S. and EU economic sanctions and trade embargo laws and regulations as well as equivalent economic sanctions laws of other relevant jurisdictions in connection with our activities. The laws and regulations of these different jurisdictions vary in their application and do not all apply to the same covered persons or proscribe the same activities. In addition, the sanctions and embargo laws and regulations of each jurisdiction may be amended to increase or reduce the restrictions they impose over time and the lists of persons and entities designated under these laws and regulations are amended frequently. Moreover, most sanctions regimes provide that entities owned or controlled by the persons or entities designated in such lists are also subject to sanctions. The U.S. and EU have enacted new sanctions programs in recent years. Additional countries or territories, as well as additional persons or entities within or affiliated with those countries or territories, have been, and in the future could be, the target of sanctions. As a result of the conflict between Russia and Ukraine, the U.S., EU and United Kingdom, together with numerous other countries, have imposed significant sanctions on persons and entities associated with Russia and Belarus, as well as comprehensive sanctions on certain areas within the Donbas region of Ukraine and such sanctions apply to entities owned or controlled by such designated persons or entities. These sanctions could adversely affect our ability to operate in the region, restrict parties whose cargo we may carry and restrict the entities that we may use to hire and/or pay our Ukrainian and Russian crew. In recent years, multilateral international sanctions targeting Iran have restricted and/or prohibited us and our charterers from engaging in Iran-related activities, including calling on ports in Iran. The United States continues to maintain comprehensive sanctions on Iran that generally prohibit persons and companies in the United States, as well as U.S. persons and persons owned or controlled by U.S. persons, wherever located, from engaging in nearly all Iran-related activity. In addition, following the U.S. withdrawal from the Joint Comprehensive Plan of Action ("JCPOA"), the U.S. re-imposed all of its previously-lifted sanctions that target non-U.S. companies for engaging in certain activities with Iran, including those related to Iran's energy, shipping, shipbuilding and insurance sectors and has issued additional sanctions targeting other sectors of the Iranian economy. On the other hand, the EU has stayed in the JCPOA and maintained the lifting of nearly all of its sanctions targeting Iran, except for targeted asset freezes and travel bans against certain Iranian individuals and entities and restrictions on activities related to the military, nuclear proliferation and human rights abuses. The EU and Germany also have blocking rules in place intended to protect the interests of EU persons against the extraterritorial application of U.S. sanctions against Iran and Cuba. Sanctions and trade embargo laws and regulations are generally subject to strict liability. Although we intend to maintain compliance with all applicable economic sanctions and trade embargo laws and regulations, there can be no assurance that, notwithstanding our compliance safeguards, we will not be found in the future to have been in violation, particularly as the sanctions and embargo laws and regulations are amended, the scope of certain laws and regulations may be unclear and the laws and regulations are subject to discretionary interpretations by regulators that may change over time. Further, charterers or other counterparties may violate provisions in contracts with us, or legal restrictions relating to sanctions. Any such violation could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price, including that any such violation could result in substantial fines or other civil and/or criminal penalties and could severely impact our ability to access U.S. capital markets and conduct our business. Additionally, our reputation and the market for our securities may be adversely affected and/or some investors may decide to divest their interest, or not to invest, in the Company if we engage in activities in countries subject to sanctions, such as entering into permissible charters or engaging in permissible operations with individuals or entities in or associated with those countries. The determination by these investors and/or lenders not to invest in, or to divest from, our common shares may adversely affect the price at which our common shares trade. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

Inflation could adversely affect our operating results by increasing the costs of labor and materials needed to operate our business. During 2023, we experienced increased costs for crew, as well as higher prices on spares, stores and the costs of services integral to the operations of our vessels, which could continue into 2024. We may be unable to offset the increasing costs of our operations through increased shipping rates, which could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.

Acts of piracy and the risk of loss due to war, terrorism, military tensions and other hostilities have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean, the Gulf of Guinea and the Gulf of Aden. In addition, from October 2023 into 2024, the war between Israel and Hamas in Gaza has created political and potential economic uncertainty in the Middle East. Although the frequency of hostile events and sea piracy worldwide has decreased from 2014 to 2023, such incidents continue to occur, with drybulk carriers and tankers particularly vulnerable to such attacks. From 2020 to 2023, the Company experienced three acts of piracy on our vessels which were resolved peacefully and without significant losses to the Company and with no loss of life or personal injury to our crew members. In addition, in January 2024, one of the Company's vessels, while underway in the Gulf of Aden, was struck by an anti-ship ballistic missile that resulted in limited vessel damage and with no loss of life or personal injury to our crew members. If acts of piracy or other hostilities continue to occur in regions that are characterized as "war risk" zones, or Joint War Committee "war and strikes" listed areas, our insurance costs could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs and other costs for the employment of onboard security guards could increase. If our vessels were seized and detained as a result of such events, while we believe the charterer remains liable for charter payments, the charterer may dispute this and withhold charter hire payment until the vessel is released. A charterer may also claim that a seized vessel was not "on-hire" for a certain number of days and is therefore entitled to cancel the charter party, a claim that we would dispute. Losses from such incidents in excess of our insurance coverages or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, results of operations, financial condition, cash flows and stock price.

Global financial markets, as well as benchmark interest rates, are volatile and access to debt and equity capital may become more expensive or restrictive in the future. There can be no assurance that additional financing will be available if, and when, needed. There can also be no assurance that we will be able to refinance our Global Ultraco Debt Facility and Convertible Bond Debt, if we so choose, on acceptable terms or at all, prior to or upon maturity. If additional financing is not available when needed, or is available only on unfavorable terms, we may not be able to meet our obligations as they come due, which could have a material adverse effect on our financial condition, cash flows and stock price, nor be able to grow our business. For more information on our debt facilities, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources and Note 7. Debt to the consolidated financial statements included elsewhere herein.