20-F 1 d7407529_20-f.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 20-F
(Mark One)

 ☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR

 ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____________to____________

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report. . . . . . . . . . . . . . . .


Commission file number 001-35025

DIANA CONTAINERSHIPS INC.
(Exact name of Registrant as specified in its charter)
 
 
Diana Containerships Inc.
(Translation of Registrant's name into English)
 
 
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
 
 
Pendelis 18, 175 64 Palaio Faliro, Athens, Greece
(Address of principal executive offices)
 
 
Mr. Ioannis Zafirakis
Pendelis 18, 17564 Palaio Faliro, Athens, Greece
Tel:  + 30-216-600-24000, Fax: + 30-216-600-2599
E-mail: izafirakis@dcontainerships.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class
Name of each exchange on which registered
Common stock, $0.01 par value
The NASDAQ  Stock Market LLC__
Preferred stock purchase rights
The NASDAQ  Stock Market LLC__

Securities registered or to be registered pursuant to Section 12(g) of the Act.

________________None________________
(Title of Class)


Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
________________None________________
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2016, there were 9,361,274 shares of the registrant's common stock outstanding.

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act.
 Yes ☐  No☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 Yes☐  No ☒
Note-Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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      ☐No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒Yes    ☐ No

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

       Large accelerated filer ☐
Accelerated filer   ☐                   Non-accelerated filer ☒
   

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

       U.S. GAAP  ☒
International Financial Reporting Standards as issued  by the International Accounting Standards Board  ☐
               Other☐
   
   
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.             Item 17 ☐  Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes    ☐       No ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
             Yes  ☐ No ☐



TABLE OF CONTENTS


FORWARD-LOOKING STATEMENTS
4
     
PART I
 
 
Item 1.
Identity of Directors, Senior Management and Advisers
5
Item 2.
Offer Statistics and Expected Timetable
5
Item 3.
Key Information
5
Item 4.
Information on the Company
35
Item 4A.
Unresolved Staff Comments
55
Item 5.
Operating and Financial Review and Prospects
55
Item 6.
Directors, Senior Management and Employees
73
Item 7.
Major Shareholders and Related Party Transactions
78
Item 8.
Financial Information
81
Item 9.
The Offer and Listing
82
Item 10.
Additional Information
83
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
93
Item 12.
Description of Securities Other than Equity Securities
93
   
PART II
 
Item 13.
Defaults, Dividend Arrearages and Delinquencies
94
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
94
Item 15.
Controls and Procedures
94
Item 16A.
Audit Committee Financial Expert
95
Item 16B.
Code of Ethics
95
Item 16C.
Principal Accountant Fees and Services
95
Item 16D.
Exemptions from the Listing Standards for Audit Committees
96
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
96
Item 16F.
Change in Registrant's Certifying Accountant
96
Item 16G.
Corporate Governance
96
Item 16H.
Mine Safety Disclosure
97
   
PART III
 
Item 17.
Financial Statements
98
Item 18.
Financial Statements
98
Item 19.
Exhibits
98




FORWARD-LOOKING STATEMENTS
Diana Containerships Inc., or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation.  This document and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance.  The words "believe", "anticipate," "intends," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect" and similar expressions identify forward-looking statements.
Please note in this annual report, "we", "us", "our" and "the Company" all refer to Diana Containerships Inc. and its subsidiaries, unless the context requires otherwise.
The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties.  Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein,  including under the heading "Item 3.D—Risk Factors," important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions, including fluctuations in charter hire rates and vessel values, changes in demand in the container shipping industry, changes in the supply of vessels, changes in the Company's operating expenses, including bunker prices, crew costs, drydocking and insurance costs, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents, labor disputes or political events, and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission, or the SEC.
We caution readers of this annual report not to place undue reliance on any forward-looking statements, which speak only as of their dates. We undertake no obligation to update or revise any forward-looking statements.

4



PART I
Item 1.          Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2.          Offer Statistics and Expected Timetable
Not Applicable.
Item 3.          Key Information
A.
Selected Financial Data 
The following table sets forth our selected consolidated financial data and other operating data. The selected consolidated financial data in the table as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, are derived from our audited consolidated financial statements and notes thereto which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The following data should be read in conjunction with Item 5. "Operating and Financial Review and Prospects", the consolidated financial statements, related notes and other financial information included elsewhere in this annual report.
All share and per share amounts disclosed in this annual report give retroactive effect to a one-for-eight reverse stock split effected on June 9, 2016, for all periods presented.
   
For the years ended December 31,
 
   
2016
   
2015
   
2014
   
2013
   
2012
 
   
(in thousands of U.S. dollars, except for share and per share data)
 
Statement of Operations Data:
                             
Time charter revenues
 
$
36,992
   
$
70,746
   
$
65,678
   
$
74,337
   
$
68,835
 
Prepaid charter revenue amortization
   
(3,798
)
   
(8,566
)
   
(11,610
)
   
(20,322
)
   
(12,204
)
Time charter revenues, net
   
33,194
     
62,180
     
54,068
     
54,015
     
56,631
 
Voyage expenses
   
3,169
     
2,619
     
332
     
705
     
1,404
 
Vessel operating expenses
   
30,213
     
35,847
     
26,559
     
30,870
     
28,969
 
Depreciation and amortization of deferred charges
   
12,740
     
13,140
     
10,309
     
11,070
     
12,476
 
Management fees
   
-
     
-
     
-
     
305
     
1,551
 
General and administrative expenses
   
7,241
     
6,194
     
6,306
     
5,059
     
3,468
 
Impairment losses
   
118,861
     
6,607
     
-
     
42,323
     
-
 
Loss on vessels' sale
   
2,899
     
8,300
     
695
     
16,481
     
-
 
Foreign currency losses / (gains)
   
111
     
(55
)
   
17
     
66
     
(194
)
                                         
Operating income / (loss)
   
(142,040
)
   
(10,472
)
   
9,850
     
(52,864
)
   
8,957
 
Interest and finance costs
   
(7,094
)
   
(7,166
)
   
(6,746
)
   
(4,554
)
   
(3,066
)
Interest income
   
120
     
107
     
134
     
72
     
78
 
                                         
Net income / (loss)
 
$
(149,014
)
 
$
(17,531
)
 
$
3,238
   
$
(57,346
)
 
$
$ 5,969
 
                                         
Earnings / (loss) per common share, basic and diluted
 
$
(16.28
)
 
$
(1.92
)
 
$
0.49
   
$
(13.84
)
 
$
$ 1.77
 
Dividends declared and paid, per share
 
$
0.04
   
$
0.08
   
$
1.64
   
$
7.20
   
$
8.00
 
Weighted average number of common shares, basic and diluted
   
9,150,574
     
9,109,555
     
6,455,634
     
4,144,916
     
3,366,817
 

5



   
As of and for the years ended December 31,
 
   
2016
   
2015
   
2014
   
2013
   
2012
 
   
(in thousands of U.S. dollars, except for fleet data and average daily results)
 
Balance Sheet Data:
                             
Cash and cash equivalents
 
$
8,316
   
$
29,388
   
$
82,003
   
$
19,685
   
$
31,526
 
Total current assets
   
22,875
     
34,914
     
86,446
     
22,980
     
36,912
 
Vessels' net book value
   
240,352
     
384,549
     
306,094
     
265,372
     
260,945
 
Property and equipment, net
   
946
     
987
     
1,089
     
321
     
-
 
Restricted cash
   
9,000
     
9,000
     
9,870
     
9,870
     
9,270
 
Total assets                                                    
   
266,531
     
435,723
     
409,263
     
316,709
     
337,045
 
Total current liabilities
   
129,863
     
24,697
     
9,290
     
3,779
     
6,110
 
Bank debt (net of unamortized deferred financing costs)
   
127,129
     
142,678
     
98,298
     
98,102
     
91,906
 
Related party financing
   
45,617
     
48,950
     
50,867
     
50,233
     
-
 
Total stockholders' equity
 
$
90,880
   
$
239,174
   
$
256,443
   
$
164,465
   
$
238,758
 

Cash Flow Data:
                             
Net cash provided by/ (used in) operating activities
 
$
(11,963
)
 
$
17,445
   
$
25,487
   
$
31,740
   
$
31,346
 
Net cash provided by / (used in) investing activities
   
10,574
     
(111,751
)
   
(51,636
)
   
(81,663
)
   
(149,960
)
Net cash provided by / (used in) financing activities
   
(19,683
)
   
41,691
     
88,467
     
38,082
     
108,786
 

Fleet Data:
                             
Average number of vessels (1)
   
13.1
     
12.6
     
8.8
     
9.6
     
8.6
 
Number of vessels at end of period
   
12.0
     
14.0
     
11.0
     
9.0
     
10.0
 
Ownership days (2)
   
4,780
     
4,600
     
3,198
     
3,516
     
3,156
 
Available days (3)
   
4,735
     
4,515
     
3,198
     
3,516
     
3,156
 
Operating days (4)
   
3,304
     
4,155
     
3,189
     
3,442
     
3,150
 
Fleet utilization (5)
   
69.8
%
   
92.0
%
   
99.7
%
   
97.9
%
   
99.8
%

Average Daily Results:
                   
Time charter equivalent (TCE) rate (6)
 
$ 6,341 
 
$ 13,192 
 
$ 16,803 
 
$ 15,162 
 
$ 17,499 
Daily vessel operating expenses (7)
 
 6,321 
 
 7,793 
 
 8,305 
 
 8,780 
 
 9,179 


(1)
Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of our fleet during the period divided by the number of calendar days in the period.
 (2)
Ownership days are 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.
 (3)
Available days are the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues.
6



 (4)
Operating days are the number of 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.
 (5)
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.
 (6)
Time charter equivalent rates, or TCE rates, are defined as our time charter revenues, net, less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. Voyage expenses include port charges, bunker (fuel) expenses, canal charges and commissions. TCE rate is a non-GAAP measure, and management believes it is useful to provide to investors because it 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 are generally expressed in such amounts. The following table reflects the calculation of our TCE rates for the periods presented.
   
For the years ended December 31,
 
   
2016
   
2015
   
2014
   
2013
   
2012
 
   
(in thousands of U.S. dollars, except for available days and TCE rate)
 
Time charter revenues, net of prepaid charter revenue amortization
 
$
33,194
   
$
62,180
   
$
54,068
   
$
54,015
   
$
56,631
 
Less: voyage expenses
   
(3,169
)
   
(2,619
)
   
(332
)
   
(705
)
   
(1,404
)
                                         
Time charter equivalent revenues
 
$
30,025
   
$
59,561
   
$
53,736
   
$
53,310
   
$
55,227
 
                                         
Available days
   
4,735
     
4,515
     
3,198
     
3,516
     
3,156
 
Time charter equivalent (TCE) rate
 
$
6,341
   
$
13,192
   
$
16,803
   
$
15,162
   
$
17,499
 

(7)
Daily vessel operating expenses, which include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, regulatory fees, environmental costs, lay-up expenses and other miscellaneous expenses are calculated by dividing vessel operating expenses by ownership days for the relevant period.
B.
Capitalization and Indebtedness
Not Applicable.
C.
Reasons for the Offer and Use of Proceeds
Not Applicable.
7



D.
Risk Factors
Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our common stock. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition or operating results or the trading price of our common stock.
Industry Specific Risk Factors
The containership sector is cyclical and volatile, with charter hire rates and profitability at reduced levels, and the continued global economic downturn has resulted in decreased demand for container shipping.
Our growth generally depends on continued growth in world and regional demand for containership services, and the global economic slowdown that commenced in 2008 and from which the global economy has not fully recovered resulted in decreased demand for containerships and a related decrease in charter rates that have not fully recovered.
The ocean-going containership sector is both cyclical and volatile in terms of charter hire rates and profitability. Containership charter rates peaked in 2005 and generally stayed strong until the middle of 2008, when the effects of the 2008 economic crisis began to affect global container trade. Containership charter rates subsequently improved and stabilized somewhat, although current rates remain below their long-term averages and may decline further. Fluctuations in charter rates result from changes in the supply and demand for ship capacity and changes in the supply and demand for the major products internationally transported by containerships. The factors affecting the supply and demand for containerships and supply and demand for products shipped in containers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable. We cannot assure you that we will be able to successfully charter our vessels in the future or renew existing charters upon their expiration or termination, most of which are scheduled to expire in the first half of 2017, assuming the earliest redelivery dates, at rates sufficient to allow us to meet our obligations or at all.
The factors that influence demand for containership capacity include:
·
supply and demand for products suitable for shipping in containers;
·
changes in global production of products transported by containerships;
·
the distance container cargo products are to be moved by sea;
·
the globalization of manufacturing;
·
global and regional economic and political conditions;
·
developments in international trade;
·
changes in seaborne and other transportation patterns, including changes in the distances over which container cargoes are transported;
·
environmental and other regulatory developments;
·
currency exchange rates;
·
weather; and
·
cost of bunkers.
8


The factors that influence the supply of containership capacity include:
·
the number of newbuilding orders and deliveries;
·
the extent of newbuilding vessel deferrals;
·
the scrapping rate of older containerships;
·
newbuilding prices and containership owner access to capital to finance the construction of newbuildings;
·
charter rates and the price of steel and other raw materials;
·
changes in environmental and other regulations that may limit the useful life of containerships;
·
the number of containerships that are sailing at reduced speed, or slow-steaming, to conserve fuel;
·
the number of containerships that are out of service;
·
port congestion and canal closures; and
·
demand for fleet renewal.
Our ability to employ any containerships that we acquire in the future and recharter our containerships upon the expiration or termination of their current charters, and the charter rates payable under any charters or renewal options or replacement charters will depend upon, among other things, the prevailing state of the containership charter market, which can be affected by consumer demand for products shipped in containers. When our containerships' charters expire, we may be forced to recharter our containerships at reduced or even unprofitable rates, or we may not be able to recharter our vessels at all, which may reduce or eliminate our earnings or make our earnings volatile. Currently, four of our vessels are in lay up, meaning temporarily idle and removed from commercial operations. The same issues will exist if we acquire additional vessels and attempt to obtain multi-year time charter arrangements as part of our acquisition and financing plan, which may affect our ability to operate our vessels profitably. The containership market also affects the value of our vessels, which follow the trends of freight rates and containership rates.
Liner companies, which are the most significant charterers of containerships, have been placed under significant financial pressure, thereby increasing our charter counterparty risk.
The decline in global trade as a result of the lingering effects of the economic slowdown has resulted in a significant decline in demand for the seaborne transportation of products in containers, including for exports from China to Europe and the United States. Consequently, the cargo volumes and freight rates achieved by liner companies, which charter containerships from ship owners like us, declined sharply in the second half of 2011, and continued to be weak throughout 2012 to 2015, especially for medium to smaller size containerships.   Although freight rates recovered somewhat throughout 2016, rates remained below their historical averages, which has adversely affected their profitability. The financial challenges faced by liner companies, some of which announced efforts to obtain third party aid and restructure their obligations, have reduced demand for containership charters compared to historical averages. The combination of the current surplus of containership capacity and the expected increase in the size of the world containership fleet over the next several years may make it difficult to secure substitute employment for our containerships if our counterparties fail to perform their obligations under the currently arranged time charters, and any new charter arrangements we are able to secure may be at lower rates.
9


We are dependent upon a limited number of customers in a consolidating industry for a large part of our revenues. The loss of these customers could adversely affect our financial performance.
Most of our vessels are currently employed on time charter, to an aggregate of 6 different charterers.  Should charter rates for containerships improve, we will seek to charter a greater portion of our containerships pursuant to medium- and long-term fixed-rate time charters with leading liner companies, and we may remain dependent upon a limited number of liner operators. In addition, in recent years there have been significant examples of consolidation in the containership sector. Financial difficulties in the industry may accelerate the trend towards consolidation. The cessation of business with liner companies to which our vessels are chartered or their failure to fulfill their obligations under the charters for our containerships could have a material adverse effect on our financial condition and results of operations, as well as our cash flows and our ability to pay dividends to our shareholders.
An over-supply of containership capacity may lead to a further reduction in charter rates, which may limit our ability to operate our vessels profitably or at all.
According to industry sources, as of February 14, 2017, newbuilding containerships with an aggregate capacity of 3,157 million TEUs, representing approximately 15.84% of the total worldwide containership fleet capacity as of that date, were on order. The size of the orderbook when compared to the fleet is small relative to historical levels and will result in the increase in the size of the world containership fleet over the next few years. However, the orderbook remains heavily skewed towards ships of at least 8,000 TEU in size. An over-supply of containership capacity, combined with a decline in the demand for containerships, may result in a further reduction of charter hire rates. If such a reduction continues in the future, we may only be able to charter our fleet for reduced rates or unprofitable rates or we may not be able to charter our containerships at all.
The reduction in charter rates may cause certain vessel owners or operators, including us, to elect to "lay up" one or more of its vessels for an extended period of time.  The lay up of a vessel significantly reduces the vessel's operating costs during the lay up period, but the owners will continue to incur certain expenses relating to maintenance, insurance and debt service costs, among others.  In addition, vessel owners will incur expenditures to re-commission a vessel and place it back into service, the amount of which cannot generally be determined at the time of lay up.  These expenditures may be extensive, and may delay the eventual re-activation of the vessel until such time as the owner determine that there is a sustainable rebound in charter rates, which may result in lost earnings during the early stages of a recovery. Currently, four of the vessels in our fleet are in lay up. There is a risk that we may elect to lay up one or more additional vessels in the future.
The current state of global financial markets and current economic conditions may adversely impact our ability to obtain financing on acceptable terms or at all, which may hinder or prevent us from expanding our business.
Global financial markets and economic conditions have been, and continue to be, volatile. This volatility has negatively affected the general willingness of banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has been and may continue to be negatively affected by this decline in lending. A weak state of global financial markets and economic conditions might adversely impact our ability to issue additional equity at prices that will not be dilutive to our existing shareholders or preclude us from issuing equity at all.
Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has increased as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors, we cannot be certain that financing will be available if needed, and to the extent required, on acceptable terms or at all. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to enhance our existing business, or otherwise take advantage of business opportunities as they arise.
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The instability of the euro or the inability of countries to refinance their debts could have a material adverse effect on our revenue, profitability and financial position.
As a result of the credit crisis in Europe, the European Commission created the European Financial Stability Facility, or the EFSF, and the European Financial Stability Mechanism, or the EFSM, to provide funding to Eurozone countries in financial difficulties that seek such support. In September 2012, the European Council established a permanent stability mechanism, the European Stability Mechanism, to assume the role of the EFSF and the EFSM in providing external financial assistance to Eurozone countries. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations. An extended period of adverse development in the outlook for European countries could reduce the overall demand for consumer products and consequently for our services. These potential developments, or market perceptions concerning these and related issues, could affect our financial position, results of operations and cash flow.
A decrease in the level of China's export of goods or an increase in trade protectionism globally could have a material adverse impact on our charterers' business and, in turn, could cause a material adverse impact on our results of operations, financial condition and cash flows.
China exports considerably more goods than it imports. Our containerships may be deployed on routes involving containerized trade in and out of emerging markets, and our charterers' container shipping and business revenue may be derived from the shipment of goods from the Asia Pacific region to various overseas export markets including the United States and Europe. Any reduction in or hindrance to the output of China-based exporters could have a material adverse effect on the growth rate of China's exports and on our charterers' business. For instance, the government of China has implemented economic policies aimed at increasing domestic consumption of Chinese-made goods and restricting currency exchanges within China. This may have the effect of reducing the supply of goods available for export from China and may, in turn, result in a decrease of demand for container shipping. Additionally, though in China there is an increasing level of autonomy and a gradual shift in emphasis to a "market economy" and enterprise reform, many of the reforms, particularly some limited price reforms that result in the prices for certain commodities being principally determined by market forces, are unprecedented or experimental and may be subject to revision, change or abolition. 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. Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect our charterers' business and have a material adverse impact on our business, results of operations and financial condition.
Our operations expose us to the risk that increased trade protectionism from China or other nations will adversely affect our business. If the global recovery is undermined by downside risks and the recent economic downturn returns, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing the demand for shipping. Specifically, increasing trade protectionism in the markets that our charterers serve has caused and may continue to cause an increase in: (i) the cost of goods exported from China, (ii) the length of time required to deliver goods from China and (iii) the risks associated with exporting goods from China, as well as a decrease in the quantity of goods to be shipped.
Any increased trade barriers or restrictions on trade, especially trade with China, would have an adverse impact on our charterers' business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends to our shareholders.
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Vessel values may fluctuate, which may adversely affect our financial condition, result in the incurrence of a loss upon disposal of a vessel, impairment losses or increases in the cost of acquiring additional vessels.
Vessel values may fluctuate due to a number of different factors, including: general economic and market conditions affecting the shipping industry; competition from other shipping companies; the types and sizes of available vessels; the availability of other modes of transportation; increases in the supply of vessel capacity; the cost of newbuildings; governmental or other regulations; and the need to upgrade secondhand and previously owned vessels as a result of charterer requirements, technological advances in vessel design or equipment or otherwise. In addition, as vessels grow older, they generally decline in value. Due to the cyclical nature of the containership market, if for any reason we sell any of our owned vessels at a time when prices are depressed, we could incur a loss and our business, results of operations, cash flow and financial condition could be adversely affected. Moreover, if the book value of a vessel is impaired due to unfavorable market conditions we may incur a loss that could adversely affect our operating results. For example, in September 2016, we recognized $118.9 million of impairment charges for seven of our vessels.
Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of acquisition may increase and this could adversely affect our business, results of operations, cash flows, financial condition and ability to pay dividends to our shareholders.
The containership sector is highly competitive, and we may be unable to compete successfully for charters with established companies or new entrants that may have greater resources and access to capital, which may have a material adverse effect on us.
The containership sector is a highly competitive industry that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom may have greater resources and access to capital than we have. Competition among vessel owners for the seaborne transportation of semi-finished and finished consumer and industrial products can be intense and depends on the charter rate, location, size, age, condition and the acceptability of the vessel and its operators to charterers. Due in part to the highly fragmented market, many of our competitors with greater resources and access to capital than we have could operate larger fleets than we may operate and thus be able to offer lower charter rates or higher quality vessels than we are able to offer. If this were to occur, we may be unable to retain or attract new charterers on attractive terms or at all, which may have a material adverse effect on our business, prospects, financial condition, liquidity and results of operations.
An increase in operating costs could adversely affect our cash flows and financial condition.
Vessel operating expenses include the costs of crew, provisions, deck and engine stores, lube oil, bunkers, insurance and maintenance and repairs, which depend on a variety of factors, many of which are beyond our control. Some of these costs, primarily relating to insurance and enhanced security measures implemented after September 11, 2001 and as a result of increases in the frequency of acts of piracy, have been increasing. 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. Increases in any of these costs could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends to our shareholders.
Change to the price of fuel, or bunkers, may adversely affect profits.
While we generally do not bear the cost of fuel, or bunkers, for vessels operating on time charters, fuel is a significant factor in negotiating charter rates. As a result, an increase in the price of fuel beyond our expectations may adversely affect our profitability at the time of charter negotiation. While the price of fuel is currently at relatively low levels due to the price of oil, the price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by 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 and regulations.
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Fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.
Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and adversely affect our business.
The international containership sector is subject to additional security and customs inspection and related procedures in countries of origin, destination and trans-shipment points. These security procedures can result in cargo seizure, delays in the loading, offloading, trans-shipment, or delivery of containers and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, carriers.
It is possible that changes to existing inspection procedures will be proposed or implemented. Any such changes may affect the containership sector and have the potential to impose additional financial and legal obligations on carriers and, in certain cases, to render the shipment of certain types of goods by container uneconomical or impractical. These additional costs could reduce the volume of goods shipped in containers, resulting in a decreased demand for containerships. In addition, it is unclear what financial costs any new security procedures might create for containership owners and operators. Any additional costs or a decrease in container volumes could have an adverse impact on our ability to attract customers and therefore have an adverse impact on our ability to operate our vessels profitably.
Recent action by the IMO's Maritime Safety Committee and U.S. agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats.  This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is hard to predict at this time.
Compliance with safety and other vessel requirements imposed by classification societies may be very costly and may adversely affect our business.
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the United Nation's International Maritime Organization's, or the IMO, International Convention for the Safety of Life at Sea of 1974, or SOLAS.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel's machinery may be on a continuous survey cycle under which the machinery would be surveyed periodically over a five-year period. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable. If this were to happen to one or more of our vessels, it could negatively impact our results of operations and financial condition.
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We are subject to regulation and liability under environmental laws that could require significant expenditures and affect our cash flows and net income.
Our business and the operations of our containerships are materially affected by environmental regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which our containerships operate, as well as in the country or countries of their registration, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions (including greenhouse gases), water discharges and ballast water management.  These regulations include, but are not limited to, European Union regulations, the U.S. Oil Pollution Act of 1990, or OPA, requirements of the U.S. Coast Guard, or USCG and the U.S. Environmental Protection Agency, or EPA, the U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990), or the CAA, the U.S. Clean Water Act, or the CWA, and the U.S. Maritime Transportation Security Act of 2002, or the MTSA, and regulations of the IMO, including the International Convention on Civil Liability for Oil Pollution Damage of 1969, the International Convention for the Prevention of Pollution from Ships of 1973, as modified by the Protocol of 1978, collectively referred to as MARPOL 73/78 or MARPOL, including designations of Emission Control Areas, or ECAs, thereunder, SOLAS, the International Convention on Load Lines of 1966, or the LL Convention, the International Convention of Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, and the ISM Code.  Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with such requirements or the impact thereof on the re-sale price or useful life of any containership that we own or will acquire. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations. Government regulation of vessels, particularly in the areas of safety and environmental requirements, continue to change, requiring us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. In addition, we may incur significant costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential environmental violations and in obtaining insurance coverage.  For example, the cost of compliance with any new emissions regulation that may be adopted by the United Nations Framework Convention on Climate Change may be substantial, or we may face substantial taxes on bunkers. Additionally, we cannot predict the cost of compliance with any new regulation that may be promulgated by the United States as a result of the 2010 BP plc Deepwater Horizon oil spill in the Gulf of Mexico.
In addition, we are subject to the International Convention for the Control and Management of Ships' Ballast Water and Sediments, or the BWM Convention, adopted by the IMO in 2004. The BWM Convention requires vessels to install expensive ballast water treatment at the first MARPOL renewal survey after the convention becomes effective.  The BWM Convention's implementing regulations call for a phased introduction of mandatory concentration limits.  All ships will also have to carry a ballast water record book and an International Ballast Water Management Certificate. The BWM Convention enters into force 12 months after the date on which no less than 30 states, and the combined merchant fleets of which constitute no less than 35% of the gross tonnage of the world's merchant shipping, have either signed it without reservation as to ratification, acceptance or approval, or have deposited the requisite instruments of ratification, acceptance, approval or accession. The process to verify global tonnage figures to assess the BWM Convention's entry into force has completed.  On September 8, 2016, this threshold was met (with 52 countries making up 35.14%).  Many of the implementation dates originally written in the BWM Convention have already passed, so that once the BWM Convention enters into force, the period for installation of mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install ballast water management systems, or BWMS.  For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention.  This in effect makes all vessels constructed before the entry into force date 'existing' vessels, and allows for the installation of a BWMS on such vessels at the first renewal survey following entry into force of the Convention. The IMO's Marine Environment Protection Committee, or MEPC, adopted updated "guidelines for approval of ballast water management systems (G8)" at its 70th session in October 2016, MEPC 70. G8 updates previous guidelines concerning procedures to approve BWMS.  Once mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers and the costs of ballast water treatments may be material. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The United States for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements.  Although we do not believe that the costs of such compliance would be material, it is difficult to predict the overall impact of such a requirement on our operations.
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The operation of our containerships is also affected by the requirements in Chapter IX of SOLAS, which sets forth the ISM Code. The ISM Code requires the owner of a vessel, or any person who has taken responsibility for operation of a vessel, to develop and maintain 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 Manager, UOT, implements for compliance with the ISM Code.
The ISM Code requires that vessel operators also obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel's management with code requirements for a safety management system. No vessel can obtain a certificate under the ISM Code unless its manager has been awarded a document of compliance, issued in most instances by the vessel's flag state or by Classification Societies on behalf of the flag state. We believe that we have all material requisite documents of compliance for our offices and safety management certificates for all of our vessels for which such certificates are required by the ISM Code. We will renew these documents of compliance and safety management certificates as required.
Noncompliance with the ISM Code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to decreases in, or invalidation of, available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. 
In addition, we are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates, approvals and financial assurances with respect to our operations. Our failure to maintain necessary permits, licenses, certificates, approvals or financial assurances could require us to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet, or lead to the invalidation or reduction of our insurance coverage.
Environmental requirements can also affect the resale value or useful lives of our vessels, require a reduction in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including for cleanup obligations and natural resource damages, in the event that there is a release of petroleum or hazardous substances from our vessels or otherwise in connection with our operations. We could also become subject to personal injury or property damage claims relating to the release of hazardous substances associated with our existing or historic operations. Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines and other sanctions, including in certain instances, seizure or detention of our vessels.
We may be unable to attract and retain qualified, skilled employees or crew necessary to operate our business.
Our success will depend in large part on our ability and the ability of Unitized Ocean Transport Limited, which we refer to as UOT or our Manager, our wholly-owned subsidiary, to attract and retain highly skilled and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to attract and retain qualified crew members is intense. If we are not able to increase our rates to compensate for any crew cost increases, it could have a material adverse effect on our business, results of operations, cash flows and financial condition. Any inability we, or our Manager, experience in the future to hire, train and retain a sufficient number of qualified employees could impair our ability to manage, maintain and grow our business, which could have a material adverse effect on our financial condition, results of operations and cash flows.
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Labor interruptions could disrupt our business.
Our vessels are manned by masters, officers and crews that are employed by our vessel-owning subsidiaries. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out normally and could have a material adverse effect on our financial condition, results of operations and cash flows.
Our vessels may suffer damage due to the inherent operational risks of the seaborne transportation industry and we may experience unexpected drydocking costs or delays, which may adversely affect our business and financial condition.
Our vessels and their cargoes may be at risk of being damaged or lost because of events such as:
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marine disasters;
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bad weather;
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business interruptions caused by mechanical failures;
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grounding, fire, explosions and collisions; and
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human error, war, terrorism, piracy and other circumstances or events.
These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, delay or rerouting. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located relative to our vessels' positions. The loss of earnings while these vessels are forced to wait for space or to steam to more distant drydocking facilities would decrease our earnings. The involvement of our vessels in an environmental disaster may also harm our reputation as a safe and reliable vessel owner and operator.
World events could affect our results of operations and financial condition.
Continuing conflicts and recent developments in Russia, North Korea, the Middle East, including Iraq, Syria, and North Africa, and the presence of U.S. and other armed forces in the Middle East,  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, the Gulf of Guinea 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.
Acts of piracy on ocean-going vessels 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.  Although the frequency of sea piracy worldwide has generally decreased since 2013, sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of Somalia and increasingly in the  Sulu Sea and the Gulf of Guinea.  Acts of piracy could result in harm or danger to the crews that man our vessels. In addition, if these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as "war risk" zones, or Joint War Committee "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, due to employing onboard security guards, could increase in such circumstances.  We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us.  In addition, detention hijacking, involving the hostile detention of a vessel, as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition, results of operations.
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If our vessels call on ports located in countries that are subject to restrictions imposed by the U.S. or other governments, that could adversely affect our reputation and the market for our common stock.
While none of our vessels called on ports located in countries subject to U.S. sanctions during 2016, and we intend to comply with all applicable sanctions and embargo laws and regulations, there can be no assurance that we will maintain such compliance, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA expanded the application of the prohibitions to additional activities of non-U.S. companies and introduced limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. In addition, in 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in U.S. dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person's vessels from U.S. ports for up to two years.
On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) entered into an interim agreement with Iran entitled the "Joint Plan of Action" ("JPOA"). Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the U.S. and E.U. would voluntarily suspend certain sanctions for a period of six months.
On January 20, 2014, the U.S. and E.U. indicated that they would begin implementing the temporary relief measures provided for under the JPOA. These measures include, among other things, the suspension of certain sanctions on the Iranian petrochemicals, precious metals, and automotive industries from January 20, 2014 until July 20, 2014. The JPOA was extended twice.
On July 14, 2015, the P5+1 and the EU announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran's Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran's ability to develop and produce nuclear weapons for 10 years while simultaneously easing sanctions directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction and does not involve U.S. persons. On January 16, 2016, or Implementation Day, the United States joined the EU and the UN in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency, or IAEA, that Iran had satisfied its respective obligations under the JCPOA.
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U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have not actually been repealed or permanently terminated at this time. Rather, the U.S. government has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to refrain from exercising certain discretionary sanctions authorities; (3) removing certain individuals and entities from OFAC's sanctions lists; and (4) revoking certain Executive Orders and specified sections of Executive Orders. These sanctions will not be permanently "lifted" until the earlier of "Transition Day," set to occur on October 20, 2023, or upon a report from the IAEA stating that all nuclear material in Iran is being used for peaceful activities.
Although it is our intention to comply with the provisions of the JCPOA, there can be no assurance that we will be in compliance in the future as such regulations and U.S. Sanctions may be amended over time, and the U.S. retains the authority to revoke the aforementioned relief if Iran fails to meet its commitments under the JCPOA.
Due to the nature of our business and the evolving nature of the foregoing sanctions and embargo laws and regulations, there can be no assurance that we will be in compliance at all times in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any violation of such restrictions could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common stock may adversely affect the price at which our common stock trades. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our common stock may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Current or future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions imposed by the Obama administration, the European Union and/or other international bodies as a result of the annexation of Crimea by Russia in March 2014. If we determine that such sanctions require us to terminate existing or future contracts to which we or our subsidiaries are party or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer reputational harm. Currently, we do not believe that any of our existing counterparties are affiliated with persons or entities that are subject to such sanctions.
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We conduct business in China, where the legal system is not fully developed and has inherent uncertainties that could limit the legal protections available to us.
Some of our vessels may be chartered to Chinese customers and from time to time on our charterers' instructions, our vessels may call on Chinese ports. Such charters and voyages may be subject to 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. Applicable laws and regulations in China may not be well publicized and may not be known to us or to our charterers in advance of us or our charterers becoming subject to them, and the implementation of such laws and regulations may be inconsistent. Changes in Chinese laws and regulations, including with regards to tax matters, or changes in their implementation by local authorities could affect our vessels if chartered to Chinese customers as well as our vessels calling to Chinese ports and could have a material adverse impact on our business, financial condition and results of operations.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
A government of a vessel's registry could requisition for title or seize one or more of our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. A government could also requisition one or more of our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Even if we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of the payment would be uncertain. Government requisition of one or more of our vessels could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Failure to comply with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, could result in fines, criminal penalties and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption.  We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the FCPA. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, earnings or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
We expect that our vessels will call in ports in areas where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims which could have an adverse effect on our business, results of operations, cash flows and financial condition.
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Maritime claimants could arrest or attach our vessels, which would interrupt our business or have a negative effect on our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders, and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our business or require us to pay large sums of funds to have the arrest or attachment lifted, which would have a negative effect on our cash flows.
In addition, in some jurisdictions, such as South Africa, under the "sister-ship" theory of liability, a claimant may arrest both the vessel that is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert "sister-ship" liability against one vessel in our fleet for claims relating to another of our ships.
Company Specific Risk Factors
The market values of our vessels are highly volatile and have decreased and may continue to decrease in the future, which could limit the amount of funds that we can borrow under our loan facilities.
The market value of our vessels is related to prevailing freight charter rates. While the market value of vessels and the freight charter market have a very close relationship as the charter market moves from trough to peak, the time lag between the effect of charter rates on market values of ships can vary.  The market values of our vessels have generally experienced high volatility, and you should expect the market value of our vessels to fluctuate depending on a number of factors including:
·
the prevailing level of charter hire rates;
·
general economic and market conditions affecting the shipping industry;
·
competition from other shipping companies and other modes of transportation;
·
the types, sizes and ages of vessels;
·
the supply and demand for vessels;
·
applicable governmental regulations;
·
technological advances; and
·
the cost of newbuildings.
As a result of the decline in the market value of our fleet, we may not be able to obtain other financing or incur debt on terms that are acceptable to us or at all.
The market values of our vessels have declined, and we have not been in compliance with certain of the financial covenants in our secured credit facility, which may adversely affect our operating results.
Our $148.0 million loan agreement with The Royal Bank of Scotland plc dated September 10, 2015, as amended on September 12, 2016, or the RBS Loan, which is secured by mortgages on our vessels, requires us to comply with certain financial covenants, including maintenance of a minimum ratio of the market value of the mortgaged vessels under the facility to the amount outstanding under the facility. Due to a significant decline in the market value of our vessels, we are not in compliance with certain of these financial covenants, which led us to classify our loan balance of $128.9 million in current liabilities in our financial statements as of December 31, 2016. If we are unable to obtain waivers or amendments or otherwise remedy the relevant breaches, our lenders under the facility could accelerate our debt and foreclose on our fleet. We may not be successful in obtaining any such waiver or amendment, and we may not be able to refinance our debt or obtain additional financing. Moreover, the RBS Loan as amended or pursuant to any waiver, and any refinancing or additional financing, may be more expensive and carry more onerous terms than those in our existing debt agreements. In addition, if the book value of a vessel is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value, we would incur a loss that could adversely affect our operating results.
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Our independent auditors have expressed doubt about our ability to continue as a going concern. The existence of such report may adversely affect our stock price, our business relationships and our ability to raise capital. There is no assurance that we will not receive a similar report for the year ended December 31, 2017.
Our financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might be necessary if we are unable to continue as a going concern. Accordingly, the financial statements did not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event we are unable to continue as a going concern, except for the current classification of debt. However, there are material uncertainties related to events or conditions which raise substantial doubt on our ability to continue as a going concern and, therefore, we may be unable to realize our assets and discharge our liabilities in the normal course of business.
Our independent registered public accounting firm has issued their opinion with an explanatory paragraph in connection with our audited financial statements included in this annual report that expresses substantial doubt about our ability to continue as a going concern. Given the prolonged market downturn in the containerships segment and the continued depressed outlook on charter rates and vessels' market values, we expect that cash on hand and cash provided by operating activities might not be sufficient to cover our liquidity needs that become due within one year after the date that the financial statements are issued.  In addition, as described above, we are not in compliance with certain financial covenants under our $148.0 million loan agreement with The Royal Bank of Scotland plc.  We believe that our lenders will not demand payment of the loan before its maturity, since we intend to continue to pay interest and loan installments as they fall due under the existing loan facility. In addition we are also exploring several alternatives aiming to manage our working capital requirements, including seeking for more favorable chartering opportunities, future equity or debt security offerings, subject to lenders' consent, and potential sale of vessels or a combination thereof. However, there can be no assurance that such efforts will be successful, and accordingly, that our independent registered public accounting firm's report on our future financial statements for any future period will not include a similar explanatory paragraph. Our independent registered public accounting firm's expression of such doubt or our inability to overcome the factors leading to such doubt could have a material adverse effect on our stock price, our business relationships and ability to raise capital and therefore could have a material adverse effect on our business and financial prospects.
Our growth in the future depends on our ability to successfully charter our vessels, for which we will face substantial competition.
The process of obtaining new long-term time charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. Containership charters are awarded based upon a variety of factors relating to the vessel operator, including:
·
shipping industry relationships and reputation for customer service and safety;
·
containership experience and quality of ship operations, including cost effectiveness;
·
quality and experience of seafaring crew;
·
the ability to finance containerships at competitive rates and financial stability generally;
·
relationships with shipyards and the ability to get suitable berths;
·
construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications;
·
willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
·
competitiveness of the bid in terms of overall price.
 
 
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We expect substantial competition for providing new containership service from a number of experienced companies, including state-sponsored entities and major shipping companies. Many of these competitors have significantly greater financial resources than we do, and can therefore operate larger fleets and may be able to offer better charter rates. As a result of these factors, we may be unable to obtain new customers on a profitable basis, if at all, which will impede our ability to establish our operations and implement our growth successfully.
Furthermore, if our vessels become available for employment under new time charters during periods when charter rates are at depressed levels, we may have to employ our containerships at depressed charter rates, if we are able to secure employment for our vessels at all, which would lead to reduced or volatile earnings. Future charter rates may not be at a level that will enable us to operate our containerships profitably to allow us to implement our growth strategy successfully, pay dividends or repay our debt.
The failure of our counterparties to meet their obligations to us under any vessel purchase agreements or time charter agreements could cause us to suffer losses or otherwise adversely affect our business.
Currently, we have secured time charters for our operating vessels with minimum remaining durations up to 9 months. Generally, we intend to selectively employ our vessels under short-, medium- or long-term time charters. The ability and willingness of each of our counterparties to perform its obligations under a vessel purchase agreement or time charter agreement 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 containership market and the overall financial condition of the counterparty. If the seller of a vessel fails to deliver a vessel to us as agreed, or if we cancel a purchase agreement because a seller has not met its obligations, this may have a material adverse effect on our business. In addition, in depressed market conditions, there have been reports of charterers renegotiating their charters or defaulting on their obligations under charters and our future customers may fail to pay charterhire or attempt to renegotiate charter rates. If our future charterers fail to meet their obligations to us or attempt to renegotiate our future charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may be unable to locate suitable vessels or dispose of vessels at reasonable prices which would adversely affect our ability to operate our business.
We intend to further grow our fleet through selective acquisitions. Our business strategy is dependent on identifying and purchasing suitable vessels. Changing market and regulatory conditions may limit the availability of suitable vessels because of customer preferences or because they are not or will not be compliant with existing or future rules, regulations and conventions. Additional vessels of the age and quality we desire may not be available for purchase at prices we are prepared to pay or at delivery times acceptable to us, and we may not be able to dispose of vessels at reasonable prices, if at all. If we are unable to purchase and dispose of vessels at reasonable prices in accordance with our business strategy or in response to changing market and regulatory conditions, our business would be adversely affected.
Our purchasing and operating secondhand vessels may result in increased operating costs and vessels off-hire, which could adversely affect our earnings.
Our current business strategy includes growth through the acquisition of previously owned vessels. While we will typically inspect secondhand vessels before purchase, this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. Accordingly, we may not discover defects or other problems with such vessels before purchase. Any such hidden defects or problems, when detected, may be expensive to repair, and if not detected, may result in accidents or other incidents for which we may become liable to third parties. In addition, when purchasing secondhand vessels, we do not receive the benefit of any builder warranties if the vessels we buy are older than one year.
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In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel efficient than more recently constructed vessels due to improvements in engine technology. Potential charterers may also choose not to charter older vessels. Governmental regulations, safety and other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to some of our vessels and may restrict the type of activities in which these 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. As a result, regulations and standards could have a material adverse effect on our business, financial condition, results of operations and cash flows.
There is a lack of historical operating history provided with our secondhand vessel acquisitions and profitable operation of the vessels will depend on our skill and expertise.
Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, neither we nor our Manager will conduct any historical financial due diligence process when we acquire vessels. Accordingly, neither we nor our Manager will obtain the historical operating data for any secondhand vessels we may acquire in the future 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 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 also 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.
Due to the differences between the prior owners of these vessels and the Company with respect to the routes we expect to operate, our future customers, the cargoes we expect to carry, the freight rates and charter hire rates we will charge in the future and the costs we expect to incur in operating our vessels, we believe that our operating results will be significantly different from the operating results of the vessels while owned by the prior owners. Profitable operation of the vessels will depend on our skill and expertise. If we are unable to operate the vessels profitably, it may have an adverse effect on our financial condition, results of operations and cash flows.
We may not be able to implement our growth successfully.
Our business plan is to identify and acquire suitable vessels at favorable prices and trade our vessels on short-, medium- or long-term time charters. Our business plan will therefore depend upon our ability to identify and acquire suitable vessels to grow our fleet in the future and successfully employ our vessels.
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Growing any business by acquisition presents numerous risks, including undisclosed liabilities and obligations, difficulty obtaining additional qualified personnel and managing relationships with customers and suppliers. In addition, competition from other companies, many of which may have significantly greater financial resources than us, may reduce our acquisition opportunities or cause us to pay higher prices. We cannot assure you that we will be successful in executing our plans to establish and grow our business or that we will not incur significant expenses and losses in connection with these plans. Our failure to effectively identify, purchase, develop and integrate any vessels could impede our ability to establish our operations or implement our growth successfully. Our acquisition growth strategy exposes us to risks that may harm our business, financial condition and operating results, including risks that we may:
fail to realize anticipated benefits, such as cost savings or cash flow enhancements;
incur or assume unanticipated liabilities, losses or costs associated with any vessels or businesses acquired, particularly if any vessel we acquire proves not to be in good condition;
be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions;
significantly increase our interest expense or financial leverage if we incur debt to finance acquisitions; or
incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges. 
We have acquired re-sale newbuilding vessels in the past and we may in the future agree to acquire additional newbuilding vessels, and any delay in the delivery of vessels under contract could have a material adverse effect on us.
We have acquired re-sale newbuilding vessels in the past. As we grow our fleet in the future, we may acquire additional newbuildings. The completion and delivery of newbuildings could be delayed because of, among other things:
quality or engineering problems;
changes in governmental regulations or maritime self-regulatory organization standards;
work stoppages or other labor disturbances at the shipyard;
bankruptcy of or other financial crisis involving the shipyard;
a backlog of orders at the shipyard;
political, social or economic disturbances;
weather interference or a catastrophic event, such as a major earthquake or fire;
requests for changes to the original vessel specifications;
shortages of or delays in the receipt of necessary construction materials, such as steel;
an inability to finance the constructions of the vessels; or
an inability to obtain requisite permits or approvals.
If the seller of any newbuilding vessel we have contracted to purchase is not able to deliver the vessel to us as agreed, or if we cancel a purchase agreement because a seller has not met his obligations, it may result in a material adverse effect on our business, prospects, financial condition, liquidity and results of operations.
 
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Increased competition in technological innovation could reduce the demand for our vessels and our ability to successfully implement our business strategy.
The charter hire 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 be loaded and unloaded 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 containerships are built that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced containerships could adversely affect the amount of charter hire payments we receive for our vessels or our ability to charter our vessels at all.
Our executive officers and directors do not devote all of their time to our business, which may hinder our ability to operate successfully.
Our executive officers and directors are involved in other business activities, such as the operation of Diana Shipping Inc., which we refer to as Diana Shipping or DSI, and are not required to work full-time on our affairs. This may result in such executive officers and directors spending less time than is necessary to manage our business successfully, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Certain existing shareholders currently own a significant portion of our outstanding common shares, which may limit your ability to influence our actions.
Diana Shipping currently owns approximately 25.7% of our outstanding common stock and our executive officers and non-executive directors collectively own approximately 5.4% of our outstanding common stock. Accordingly, certain of our existing shareholders have the power to exert considerable influence over our actions, including the election of directors, the adoption or amendment of provisions in our articles of incorporation and possible mergers or other significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, merger, consolidation, takeover or other business combination. This concentration of ownership could also discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which could in turn have an adverse effect on the market price of our shares. So long as certain of our existing shareholders continue to own a significant amount of our equity, even though the amount held by each such shareholder represents less than 50% of our voting power, they will continue to be able to exercise considerable influence over our decisions.
Diana Shipping will not provide any guarantee of the performance of our obligations nor will you have any recourse against Diana Shipping should you seek to enforce a claim against us.
Diana Shipping currently owns approximately 25.7% of our common stock, but will not provide any guarantee of the performance of our obligations. Further, you will have no recourse against Diana Shipping should you seek to enforce a claim against us.
The fiduciary duties of our officers and directors may conflict with those of the officers and directors of Diana Shipping and/or its affiliates.
Our officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our shareholders. However, our Chief Executive Officer and Chairman of the Board, President, Chief Operating Officer and Chief Financial Officer also serve as executive officers and/or directors of Diana Shipping. As a result, these individuals have fiduciary duties to manage the business of Diana Shipping and its affiliates in a manner beneficial to such entities and their shareholders. Consequently, these officers and directors may encounter situations in which their fiduciary obligations to Diana Shipping and us are in conflict. Although Diana Shipping is contractually restricted from competing with us in the containership sector, there may be other business opportunities for which Diana Shipping may compete with us such as hiring employees, acquiring other businesses, or entering into joint ventures, which could have a material adverse effect on our business. In addition, we are contractually restricted from competing with Diana Shipping in the drybulk carrier sector, which limits our ability to expand our operations.
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The Public Company Accounting Oversight Board inspection of our independent accounting firm, could lead to findings in our auditors' reports and challenge the accuracy of our published audited consolidated financial statements.
Auditors of U.S. public companies are required by law to undergo periodic Public Company Accounting Oversight Board ("PCAOB") inspections that assess their compliance with U.S. law and professional standards in connection with performance of audits of financial statements filed with the SEC. For several years certain European Union countries, including Greece, did not permit the PCAOB to conduct inspections of accounting firms established and operating in such European Union countries, even if they were part of major international firms. Accordingly, unlike for most U.S. public companies, the PCAOB was prevented from evaluating our auditor's performance of audits and its quality control procedures, and, unlike stockholders of most U.S. public companies, we and our stockholders were deprived of the possible benefits of such inspections. During 2015, Greece agreed to allow the PCAOB to conduct inspections of accounting firms operating in Greece. In the future, such PCAOB inspections could result in findings in our auditors' quality control procedures, question the validity of the auditor's reports on our published consolidated financial statements and the effectiveness of our internal control over financial reporting, and cast doubt upon the accuracy of our published audited financial statements.
Restrictive covenants in our credit facilities may impose financial and other restrictions on us.
We entered into a $148.0 million secured loan facility with The Royal Bank of Scotland plc, or RBS, in September 2015 in order to refinance part of the acquisition costs of certain of our vessels and to partially finance the acquisition of two new vessels, after we repaid the $98.7 million credit facility we had with the same bank. This loan facility was amended in September 2016. In addition, in May 2013, we entered into an unsecured loan agreement of up to $50.0 million with Diana Shipping Inc., one of our major shareholders, to be used to fund vessels acquisitions and for general corporate purposes. This loan agreement was amended in July 2014 and September 2015 and further amended in September 2016 . As of December 31, 2016 and currently, we had $174.3 million of principal debt outstanding under our loan facilities. As of December 31, 2016 and the date hereof we did not have any remaining borrowing capacity under our loan agreements.
Our loan facilities impose operating and financial restrictions on us. These restrictions may limit our ability to, among other things:
·
pay dividends or make capital expenditures if we do not repay amounts drawn under our loan facilities, if there is a default under the loan facilities or if the payment of the dividend or capital expenditure would result in a default or breach of a loan covenant;
·
incur additional indebtedness, including through the issuance of guarantees;
·
change the flag, class or management of our vessels;
·
create liens on our assets;
·
sell our vessels;
·
enter into a time charter or consecutive voyage charters that have a term that exceeds, or which by virtue of any optional extensions may exceed a certain period;
·
merge or consolidate with, or transfer all or substantially all our assets to, another person; and
·
enter into a new line of business.
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Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders' interests may be different from ours and we cannot guarantee that we will be able to obtain our lenders' permission when needed. This may limit our ability to pay any dividends to you, finance our future operations, make acquisitions or pursue business opportunities.
Our ability to obtain debt financing in the future may be dependent on the performance of our then existing charters and the creditworthiness of our charterers.
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels in the future or may significantly increase our costs of obtaining such capital. Our inability to obtain financing at all or at a higher than anticipated cost may materially affect our results of operation and our ability to implement our business strategy.
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, our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios; our President, Mr. Anastasios Margaronis; our Chief Financial Officer and Treasurer, Mr. Andreas Michalopoulos; and our Chief Operating Officer and Secretary, Mr. Ioannis Zafirakis. 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 adversely affect our business, results of operations and ability to pay dividends. We do not intend to maintain "key man" life insurance on any of our officers or other members of our management team.
If our insurance is insufficient to cover losses that may occur to our vessels or result from our operations due to the inherent operational risks of the shipping industry, it could adversely affect our financial condition.
The operation of an ocean-going vessel carries inherent risks, any of which could increase our costs or lower our revenues. These risks include the possibility of:
marine disaster;
environmental accidents;
cargo and property losses or damage;
business interruptions caused by mechanical failure, human error, political action in various countries, war, labor strikes, or adverse weather conditions; and
loss of revenue during vessel off-hire periods.
Under our vessel management agreements with UOT, our Manager is responsible for procuring and paying for insurance for our vessels. Our insurance policies contain standard limitations, exclusions and deductibles. The policies insure against those risks that the shipping industry commonly insures against, which are hull and machinery, protection and indemnity and war risk. The Manager currently maintains hull and machinery coverage in an amount at least equal to the vessels' market value. The Manager maintains an amount of protection and indemnity insurance that is at least equal to the standard industry level of coverage. We cannot assure you that the Manager will be able to procure adequate insurance coverage for our fleet in the future or that our insurers will pay any particular claim.
 
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We expect to continue to operate substantially outside the United States, which will expose us to political and governmental instability, which could harm our operations.
We expect that our operations will continue to be primarily conducted outside the United States and may be adversely affected by changing or adverse political and governmental conditions in the countries where our vessels are flagged or registered and in the regions where we otherwise engage in business. Any disruption caused by these factors may interfere with the operation of our vessels, which could harm our business, financial condition and results of operations. Past political efforts to disrupt shipping in these regions, particularly in the Arabian Gulf, have included attacks on ships and mining of waterways. In addition, terrorist attacks outside this region and continuing hostilities in the Middle East and the world may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States and elsewhere. Any such attacks or disturbances may disrupt our business, increase vessel operating costs, including insurance costs, and adversely affect our financial condition and results of operations. Our operations may also be adversely affected by expropriation of vessels, taxes, regulation, tariffs, trade embargoes, economic sanctions or a disruption of or limit to trading activities or other adverse events or circumstances in or affecting the countries and regions where we operate or where we may operate in the future.
We generate all of our revenues in U.S. dollars and incur a portion of our expenses in other currencies, and therefore exchange rate fluctuations could have an adverse impact on our results of operations.
We generate all of our revenues in U.S. dollars and incur a portion of our expenses in currencies other than the dollar. This difference could lead to fluctuations in net income due to changes in the value of the U.S. dollar relative to the other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the U.S. dollar falls in value can increase, decreasing our revenues. Further declines in the value of the dollar could lead to higher expenses payable by us.
Volatility in the London Interbank Offered Rate, or LIBOR, could affect our profitability, earnings and cash flow.
LIBOR may be volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the result of disruptions in the international markets. Because the interest rates borne by our outstanding loan facilities fluctuate with changes in LIBOR, it would affect the amount of interest payable on our debt, which, in turn, could have an adverse effect on our profitability, earnings and cash flow.
We may have to pay tax on United States source income, which would reduce our earnings.
Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as us and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code, or Section 883, and the applicable Treasury Regulations promulgated thereunder.
We intend to take the position that we qualified for this statutory tax exemption for U.S. federal income tax return reporting purposes for our 2016 taxable year and we intend to so qualify for future taxable years. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption for any future taxable year and thereby become subject to U.S. federal income tax on our U.S.-source shipping income. For example, in certain circumstances we may no longer qualify for exemption under Code Section 883 for a particular taxable year if shareholders, other than "qualified shareholders", with a five percent or greater interest in our common shares owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year. Due to the factual nature of the issues involved, there can be no assurances on our tax-exempt status.
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If we are not entitled to exemption under Section 883 for any taxable year, we would be subject for those years to an effective 2% United States federal income tax on the shipping income we derive during the year which is attributable to the transport of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.
We may be treated as a "passive foreign investment company," which could have certain adverse U.S. federal income tax consequences to U.S. holders.
A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." For purposes of these tests, cash will be treated as an asset held for the production of passive income. For purposes of these tests, "passive income" generally includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than those received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income." U.S. holders of stock in a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their stock in the PFIC.
Whether we will be treated as a PFIC will depend upon our method of operation. In this regard, we intend to treat the gross income we derive or are deemed to derive from time or voyage chartering activities as services income, rather than rental income. Accordingly, we believe that any income from time or voyage chartering activities will not constitute "passive income," and any assets that we may own and operate in connection with the production of that income will not constitute passive assets. However, any gross income that we may be deemed to have derived from bareboat chartering activities will be treated as rental income and thus will constitute "passive income," and any assets that we may own and operate in connection with the production of that income will constitute passive assets. There is substantial legal authority supporting this position consisting of case law and Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept our position with regard to our status from time to time as a PFIC, and there is a risk that the IRS or a court of law could determine that we are or have been a PFIC for a particular taxable year.
If we are or have been a PFIC for any taxable year, U.S. holders of our common stock will face certain adverse U.S. federal income tax consequences and information reporting obligations. Under the PFIC rules, unless such U.S. holders make certain elections available under the Code (which elections could themselves have certain adverse consequences for such U.S. holders), such U.S. holders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common stock, as if the excess distribution or gain had been recognized ratably over such U.S. holder's holding period for such common stock. See Item 10.E "Taxation—United States Federal Income Tax Considerations—United States Federal Income Taxation of U.S. Holders—PFIC Status and Significant Tax Consequences" for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. holders of our common stock if we are or were to be treated as a PFIC.
29



We may be subject to increased premium payments, or calls, because we obtain some of our insurance through protection and indemnity associations.
We may be subject to increased premium payments, or calls, in amounts based on our claim records as well as the claim records of other members of the protection and indemnity associations in the International Group, which is comprised of 13 mutual protection and indemnity associations and insures approximately 90% of the world's commercial tonnage and through which we receive insurance coverage for tort liability, including pollution-related liability, as well as actual claims. Amounts we may be required to pay as a result of such calls will be unavailable for other purposes.
The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.
We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court's jurisdiction if any other bankruptcy court would determine it had jurisdiction.
The Greek crisis could adversely affect the operations of our fleet manager, which has offices in Greece.
As a result of the ongoing economic slump in Greece and the capital controls imposed by the government in June 2015, our fleet manager, UOT, which has offices in Greece, may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek government new taxes or other fees. Furthermore, renewed political uncertainty and social unrest due to the worsening economic conditions and the growing refugee population in the country may undermine Greece's political and economic stability and may lead it to exit the Eurozone, which may adversely affect the operations of our manager located in Greece. We also face the risk that enhanced capital controls, strikes, work stoppages, civil unrest and violence within Greece may disrupt the operations of our manager located in Greece.
A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks in our operations and administration of our business. Our business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information in our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business and results of operations.
30



Risks Relating to our Common Shares
Our board of directors decided to suspend the payment of cash dividends on our common stock. We cannot assure you that our board of directors will reinstate dividend payments in the future, or when such reinstatement might occur. 
Effective with the quarter ended June 30, 2016, our board of directors decided to suspend the quarterly cash dividend on our common shares. The decision to suspend the dividend reflects our board of director's determination that it is in the best long-term interest of the Company and its shareholders to aggressively preserve liquidity to manage current market conditions and be in a position to benefit from an eventual sector recovery.  Our dividend policy will be assessed by our board of directors from time to time.
Our policy, historically, was to declare a variable quarterly dividend each February, May, August and November equal to available cash from operations during the previous quarter after the payment of cash expenses and reserves for scheduled drydockings, intermediate and special surveys and other purposes as our board of directors may from time to time determine are required, after taking into account contingent liabilities, the terms of any credit facility, our growth strategy and other cash needs and the requirements of Marshall Islands law.
The declaration and payment of dividends, at times when we have sufficient funds and we are not restricted from our lenders or from any other party, will always be subject to the discretion of our board of directors. The timing and amount of any dividends declared will depend on, among other things, our earnings, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy and provisions of Marshall Islands law affecting the payment of dividends. The international containership sector 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 section of the annual report. Our growth strategy contemplates that we will finance the acquisition of additional vessels through a combination of debt and equity financing on terms acceptable to us. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions with cash from operations, which would reduce or even eliminate the amount of cash available for the payment of dividends.
Marshall Islands law generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. In addition, any credit facilities that we may enter into in the future may include restrictions on our ability to pay dividends.
The market price of our common shares has been and may in the future be subject to significant fluctuations. Further, there is no guarantee of a continuing public market for you to resell our common shares.
 Our common shares commenced trading on The Nasdaq Global Market on January 19, 2011. Since January 2, 2013, our common shares have traded on The Nasdaq Global Select Market. We cannot assure you that an active and liquid public market for our common shares will continue. The Nasdaq Global Select Market and each national securities exchange have certain corporate governance requirements that must be met in order for us to maintain our listing. If we fail to maintain the relevant corporate governance requirements, our common shares could be delisted, which would make it harder for you to monetize your investment in our common shares and would cause the value of your investment to decline.
31



On June 9, 2016, we effected a one-for-eight reverse stock split of our common shares, par value $0.01 per share.  Our shareholders approved the reverse stock split at our annual general meeting of shareholders held on February 24, 2016. Our common shares began trading on a split-adjusted basis on The Nasdaq Global Select Market at the opening of trading on June 9, 2016. There were no changes to the trading symbol, number of authorized shares, or par value of our common stock in connection with the reverse stock split.
The market price of our common shares has been and may in the future be subject to significant fluctuations as a result of many factors, some of which are beyond our control. Among the factors that have in the past and could in the future affect our stock price are:
the failure of securities analysts to publish research about us, or analysts making changes in their financial estimates;
announcements by us or our competitors of significant contracts, acquisitions or capital commitments;
variations in quarterly operating results;
general economic conditions;
terrorist or piracy acts;
future sales of our common shares or other securities; and
investors' perception of us and the international containership sector.
These broad market and industry factors may materially reduce the market price of our common shares, regardless of our operating performance.
The shipping industry has been highly unpredictable and volatile. The market for common shares in this industry may be equally volatile. Therefore, we cannot assure you that you will be able to sell any of our common shares you may have purchased at a price greater than or equal to its original purchase price, or that you will be able to sell them at all.
Future offerings of debt securities and amounts outstanding under current and future credit facilities or other borrowings, which would rank senior to our common stock upon our liquidation, and future offerings of equity securities, which would dilute our existing stockholders, may adversely affect the market value of our common stock.
On September 10, 2015, we entered into an agreement for a loan facility of $148.0 million with RBS, which was amended on September 12, 2016, and on May 20, 2013 we entered into an unsecured loan agreement of $50 million with Diana Shipping, which was amended on July 28, 2014 and September 9, 2015, and further amended on September 12, 2016. In addition, on January 26, 2017, we filed with the SEC a shelf registration statement on Form F-3, which, when declared effective, will give us the ability to offer and sell, within a three year period, up to $250.0 million of our securities. In the future, we may attempt to increase our capital resources with further borrowing under credit facilities, making offerings of debt or additional offerings of equity securities, including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred stock. Upon liquidation, holders of our debt securities and preferred stock and lenders with respect to our credit facilities and other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market value of our common stock, or both. Any preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments that would limit amounts available for distribution to holders of our common stock. Because our decision to borrow additional amounts under credit facilities or issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future indebtedness or offering of securities. Therefore, holders of our common stock bear the risk of our future offerings reducing the market value of our common stock and diluting their shareholdings in us or that in the event of bankruptcy, liquidation, dissolution or winding-up of the Company, all or substantially all of our assets will be distributed to holders of our debt securities or preferred stocks or lenders with respect to our credit facilities and other borrowings.
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We are a holding company, and we depend on the ability of our current and future subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments.
We are a holding company, and our subsidiaries, which are directly or indirectly wholly-owned by us, conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our wholly-owned subsidiaries. As a result, our ability to satisfy our financial obligations and to pay dividends, if any, to our shareholders will depend on the ability of our subsidiaries to distribute funds to us. In turn, the ability of our subsidiaries to make dividend payments to us will depend on them having profits available for distribution and, to the extent that we are unable to obtain dividends from our subsidiaries, this will limit the discretion of our board of directors to pay or recommend the payment of dividends. Also, our subsidiaries are limited by Marshall Islands law which 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.
Because we are a foreign corporation, you may not have the same rights or protections that a shareholder in a U.S. corporation may have.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law and may make it more difficult for our shareholders to protect their interests. Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. The rights and fiduciary responsibilities of directors under the law of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions and there have been few judicial cases in the Marshall Islands interpreting the BCA. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction. Therefore, you may have more difficulty in protecting your interests as a shareholder in the face of actions by the management, directors or controlling stockholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.
Future sales of our common stock could cause the market price of our common stock to decline.
 As of December 31, 2016, and currently, we have 9,361,274 shares of common stock outstanding and in January 2017, we filed with the SEC a shelf registration statement on Form F-3, which, when declared effective, will give us the ability to offer and sell, within a three year period, up to $250.0 million of our securities consisting of common shares, including related preferred stock purchase rights, preferred shares, debt securities, warrants, purchase contracts, rights and units.
We may offer and sell such securities from time to time and through one or more methods of distribution, subject to market conditions and our capital needs.  The market price of our common stock could decline from its current levels due to sales of a large number of shares in the market, including sales of shares by our large shareholders, our issuance of additional shares, or securities convertible into our common stock or the perception that these sales could occur. These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of shares of our common stock. The issuance of such additional shares of common stock would also result in the dilution of the ownership interests of our existing shareholders. We have entered into a registration rights agreement with Diana Shipping that entitles it to have all the shares of our common stock that it owns registered for re-sale in the public market under the Securities Act.
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As a key component of our business strategy, we intend to issue additional shares of common stock or other securities to finance our growth as market conditions warrant. These issuances, which would generally not be subject to shareholder approval, may lower your ownership interests and may depress the market price of our common stock.
As a key component of our business strategy, we plan to finance potential future expansions of our fleet in large part with equity financing. Pursuant to our amended and restated articles of incorporation, we are authorized to issue up to 500 million common shares and 25 million preferred shares, each with a par value of $0.01 per share. Therefore, subject to the rules of The Nasdaq Global Select Market that are applicable to us, we may issue additional shares of common stock, and other equity securities of equal or senior rank, without shareholder approval, in a number of circumstances from time to time.
The issuance by us of additional shares of common stock or other equity securities of equal or senior rank will have the following effects:
our existing shareholders' proportionate ownership interest in us may decrease;
the relative voting strength of each previously outstanding share may be diminished;
the market price of our common stock may decline; and
the amount of cash available for dividends payable on our common stock, if any, may decrease.
It may not be possible for our investors to enforce judgments of U.S courts against us.
We are incorporated in the Republic of the Marshall Islands. Substantially all of our assets are located outside the United States. As a result, it may be difficult or impossible for U.S. shareholders to serve process within the United States upon us or to enforce judgment upon us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we are incorporated or where our assets are located (1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us based upon these laws.
Anti-takeover provisions in our organizational documents could make it difficult for our shareholders to replace or remove our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the value of our securities.
Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our shareholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable.
These provisions include:
authorizing our board of directors to issue "blank check" preferred stock without shareholder approval;
providing for a classified board of directors with staggered, three-year terms;
prohibiting cumulative voting in the election of directors;
authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of two-thirds of the outstanding common shares entitled to vote generally in the election of directors;
limiting the persons who may call special meetings of shareholders; and
establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders at shareholder meetings.
 
34



In addition, we have entered into an amended and restated stockholders rights agreement, or the Stockholders Rights Agreement, pursuant to which our board of directors may cause the substantial dilution of any person that attempts to acquire us without the approval of our board of directors.
These anti-takeover provisions, including provisions of our Stockholders Rights Agreement, could substantially impede the ability of shareholders to benefit from a change in control and, as a result, may adversely affect the value of our securities, if any, and the ability of shareholders to realize any potential change of control premium.
Item 4.          Information on the Company
A.          History and Development of the Company
Diana Containerships Inc. is a corporation incorporated under the laws of the Republic of the Marshall Islands on January 7, 2010. Each of the Company's vessels is owned by a separate wholly-owned subsidiary. Diana Containerships Inc. is the owner of all the issued and outstanding shares of the subsidiaries listed in Exhibit 8.1 to this annual report. We maintain our principal executive offices at Pendelis 18, 175 64 Palaio Faliro, Athens, Greece. Our telephone number at that address is +30 216 600 2400. Our agent and authorized representative in the United States is our wholly-owned subsidiary, Container Carriers (USA) LLC, established in July 2014, in the State of Delaware, which is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808.
On June 9, 2016, we effected a one-for-eight reverse stock split of our common shares, par value $0.01 per share and the number of our common shares issued and outstanding at that date was reduced from 74,890,570 to 9,361,274. Our shareholders approved the reverse stock split at our annual general meeting of shareholders held on February 24, 2016. Our common shares began trading on a split-adjusted basis on The Nasdaq Global Select Market at the opening of trading on June 9, 2016. There were no changes to the trading symbol, number of authorized shares, or par value of our common stock in connection with the reverse stock split. All share and per share amounts disclosed in this annual report give effect to the reverse stock split retroactively, for all periods presented.
Business Development and Capital Expenditures and Divestitures
In 2014, we entered into various supplemental agreements with The Royal Bank of Scotland plc, lenders of  the then existing revolving credit facility of up to $100.0 million, which provided for certain amendments of the terms of the initial facility agreement. The loan was repaid in full in September 2015, when we entered into a new loan agreement with The Royal Bank of Scotland plc  for up to $148.0 million, discussed below.
In February 2014, we sold the m/v Apl Sardonyx, to unrelated parties for demolition, for the sale price of $9.7 million, net of address commission. The vessel was delivered to her new owners in the same month.
In July 2014, we entered into an agreement to sell 4,581,673 shares of our common stock in a private placement (the "Private Placement") to a group of investors including Diana Shipping, unaffiliated institutional investors, and our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, and a member of his family, along with other members of the Company's senior management, at a purchase price of $20.08 per share. In the transaction, Diana Shipping purchased common shares of value $40.0 million, two institutional investors not affiliated with us whose manager is based in the United States together purchased common shares of value $40.0 million, and Mr. Palios and a member of his family, along with other members of the Company's senior management, purchased common shares of an aggregate value $12.0 million.  The transaction closed on July 29, 2014. In connection with the Private Placement, we entered with our respective counterparties, into amendments to the brokerage services agreement with Diana Enterprises Inc., the loan agreement with Diana Shipping Inc., the facility agreement with The Royal Bank of Scotland plc and the then existing stockholders rights agreement.  The net proceeds received from the transaction, after deducting offering expenses payable by us, amounted to $91.3 million.  The purchasers received customary registration rights with respect to the shares purchased in the Private Placement.  The transaction was approved by an independent committee of our Board of Directors, which obtained a fairness opinion from Houlihan Lokey Financial Advisors, Inc. regarding the financial fairness to us of the aggregate purchase price to be received by us in the transaction.  For more information on the Private Placement, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions."
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In August 2014, we signed, through two separate wholly-owned subsidiaries, two Memoranda of Agreement to purchase from an unrelated party two 2004-built Post-Panamax container vessels of approximately 5,576 TEU capacity each, the m/v YM March and the m/v YM Great, for a purchase price of $22.175 million each. The vessels were delivered to us in September and October 2014, respectively.
In November 2014, we signed, through a separate wholly-owned subsidiary, a Memorandum of Agreement to purchase from an unrelated party a 2005-built Panamax container vessel of approximately 5,042 TEU capacity, the m/v Santa Pamina, for a purchase price of $15.95 million. The vessel was delivered to us in November 2014.
In December 2014, we acquired, jointly with two other related parties, from unrelated individuals, a plot of land, in Athens, Greece, for an aggregate price of Euro 2.0 million or $2.5 million, based on the exchange rate of U.S. Dollar to Euro on the date of acquisition. The plot of land is under the common ownership of the joint purchasers. We paid one third of the purchase price, and the total cost for the acquisition of the plot, including additional capitalized costs, amounted to $0.9 million.
In March 2015, we entered, through two separate wholly-owned subsidiaries, into two Memoranda of Agreement with unrelated parties, to acquire the 2006-built Panamax container vessels of approximately 4,923 TEU capacity, the m/v YM New Jersey and the m/v YM Los Angeles, for the purchase price of $21.5 million each. The vessels were delivered to us in April 2015.
In July 2015, we entered, through two separate wholly-owned subsidiaries, into two Memoranda of Agreement with unrelated parties, to acquire two Post-Panamax container vessels of approximately 6,494 TEU capacity, the 2009-built m/v Hamburg and the 2008-built m/v Rotterdam, for the purchase price of $38.5 million and $37.5 million, respectively. The vessels were delivered to us in November and September 2015, respectively.
In September 2015, we sold the m/v Garnet (ex Apl Garnet) to unrelated parties for demolition, for the sale price of $7.6 million, net of address commission. The vessel was delivered to her new owners in the same month.
In September 2015, we, through nine separate wholly-owned subsidiaries, entered into a loan agreement with RBS of up to $148.0 million, to re-finance the acquisition cost of seven of our vessels, including the full prepayment of the existing facility agreement with RBS, and to support the acquisition of the two newly acquired vessels, the m/v Hamburg and the m/v Rotterdam (discussed above). The  loan facility had a term of six years, was repayable in quarterly installments and a balloon payment payable together with the last installment, and bore interest at the rate of 2.75% per annum over LIBOR. Until December 31, 2015, we drew down in full the $148.0 million. In connection with this loan, we paid arrangement and structuring fees amounting to $1.9 million and a commitment fee of 1.375% per annum on the undrawn amount of the loan until the drawdown dates.
In September 2015, and in relation with the RBS refinance discussed above, the loan agreement with Diana Shipping was amended. The loan agreement is extended until March 2022, provided for annual repayments of $5.0 million, plus a balloon installment at the final maturity date, and bore interest at LIBOR plus margin of 3.0% per annum. We also agreed to pay at the date of the amendment the accumulated back-end fee, amounting to $1.3 million, and that no additional back-end fee would be charged thereafter. Furthermore, we agreed that we will pay at the final maturity date a flat fee of $0.2 million.
In February 2016, we sold the m/v Hanjin Malta to unrelated parties for demolition, for the sale price of $4.8 million, net of commissions. The vessel was delivered to her new owners in March 2016.
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In August 2016, we entered into a First Amended and Restated Stockholders Rights Agreement, or the Rights Agreement, with Computershare Inc. as Rights Agent, which amended and restated in its entirety the original Stockholders Rights Agreement between the Company and Mellon Investor Services LLC, dated as of August 2, 2010, as amended on July 28, 2014. Pursuant to the Rights Agreement, each share of our common stock includes one right, which we refer to as a Right, that entitles the holder to purchase from us a unit consisting of one one-thousandth of a share of our Series A Participating Preferred Stock at an exercise price of $50.00, subject to specified adjustments.
In September 2016, we amended our $148.0 million loan agreement with RBS dated September 10, 2015 (discussed above). Amendments to the RBS loan agreement included, among others things, the prepayment of $7.6 million by September 15, 2016; a reduction in the first four consecutive quarterly repayment installments under each tranche, to be repaid ratably over the remaining quarterly installments, and the deferral of all quarterly repayments until September 15, 2017; the creation of a new $8.9 million tranche, or the Deferred Tranche, out of the reallocation of amounts due under the existing tranches, whose repayment will commence on March 15, 2019; a prohibition on the payment of dividends until the later of prepayment or repayment in full of the Deferred Tranche and September 15, 2018; and a prohibition on the incurrence of additional indebtedness (with the exception of intra-group debt) or the acquisition of additional vessels until September 15, 2018.
In September 2016, as a condition to the RBS loan amendments discussed above, we also amended our $50.0 million loan agreement with Diana Shipping Inc. dated May 20, 2013, as amended in July 2014 and September 2015, to, among other things, defer its repayment until the later of the repayment or prepayment in full by the Company of the Deferred Tranche under the RBS loan and September 15, 2018.
As of September 30, 2016 and thereafter, due to a significant decline in the market value of our vessels, we were not in compliance with certain financial covenants in the RBS loan agreement, as well as with the required covenant for the minimum required security cover ("hull cover ratio"). As advised by the lenders, to rectify the shortfall of the minimum required security cover, we would have to repay to RBS an amount of $18.9 million, or provide additional security. Due to these technical breaches in our loan covenants, we have classified our bank debt as of December 31, 2016 in current liabilities.
In November 2016, we sold the m/v Angeles (ex YM Los Angeles) to unrelated parties for demolition, for the sale price of $6.4 million, net of commissions. The vessel was delivered to her new owners in the same month.
In January 2017, we filed with the SEC a shelf registration statement on Form F-3. The shelf registration statement, when declared effective, will give us the ability to offer and sell, within a three year period, up to $250.0 million of our securities consisting of common shares, including related preferred stock purchase rights, preferred shares, debt securities, warrants, purchase contracts, rights and units. We may offer and sell such securities from time to time and through one or more methods of distribution, subject to market conditions and our capital needs.
B.          Business Overview
We are a corporation formed under the laws of the Republic of the Marshall Islands on January 7, 2010. We were founded to own containerships and pursue containership acquisition opportunities.
As of the date of this annual report, our fleet consists of six panamax and six post-panamax containerships with a combined carrying capacity of 61,517 TEU and a weighted average age of 10.7 years. As at December 31, 2016, our fleet consisted of six panamax and six post-panamax containerships with a combined carrying capacity of 61,517 TEU and a weighted average age of 10.6 years. As at December 31, 2015, our fleet consisted of eight panamax and six post-panamax containerships with a combined carrying capacity of 70,464 TEU and a weighted average age of 10.3 years. As at December 31, 2014, our fleet consisted of seven panamax and four post-panamax containerships with a combined carrying capacity of 52,359 TEU and a weighted average age of 11.2 years.
During 2016, 2015 and 2014, we had fleet utilization of 69.8%, 92.0%, and 99.7%, respectively, our vessels achieved a daily time charter equivalent rate of $6,341, $13,192, and $16,803, respectively, and we generated revenues, net of prepaid charter revenue amortization, of $33.2 million, $62.2 million and $54.1 million, respectively.
Set forth below is summary information concerning our fleet as at February 16, 2017:
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Vessel
Sister Ships*
Gross Rate (USD Per Day)
 
Com**
Charterers
Delivery Date to       Charterers***
Redelivery Date to Owners****
Notes
BUILT    TEU
 
                 
6 Panamax Container Vessels
SAGITTA
A
$5,850
 
3.50%
CMA CGM
27-Jan-16
24-Jan-17
   
$5,775
 
3.50%
24-Jan-17
24-Mar-17 - 24-May-17
2010    3,426
               
CENTAURUS
A
$5,500
 
3.50%
CMA CGM
22-Nov-16
22-Feb-17 - 22-Aug-17
2010   3,426
               
NEW JERSEY
 
-
 
-
-
-
- - -
(ex YM New Jersey)
               
2006   4,923
               
PAMINA
 
-
 
-
-
-
- - -
(ex Santa Pamina)
               
2005   5,042
               
DOMINGO
B
$6,150
 
3.50%
CMA CGM
11-Apr-16
18-Jan-17
(ex Cap Domingo)
               
   
$6,000
 
5.00%
Nile Dutch Africa Line B.V.
1-Mar-17
26-Apr-17 - 1-Jan-18
6,7
2001   3,739
               
DOUKATO
B
$6,250
 
3.75%
Rudolf A. Oetker KG
23-Jan-16
16-Feb-17
8,9
(ex Cap Doukato)
             
   
-
 
-
VASI Shipping Pte. Ltd.
17-Feb-17
6-Apr-17 - 13-Apr-17
6,10,11
2002   3,739
             
6 Post - Panamax Container Vessels
PUELO
C
$6,500
 
3.75%
MSC-Mediterranean Shipping Co. S.A., Geneva
17-May-16
17-Apr-17 - 17-Jun-17
12 
2006   6,541
             
PUCON
C
-
 
-
-
-
- - -
13 
2006   6,541
               
MARCH
D
$6,075
 
5.00%
SeaGo Line A/S
3-Jul-16
7-Feb-17
14 
(ex YM March)
               
   
$6,850
 
1.25%
Hapag-Lloyd AG
15-Feb-17
25-Nov-17 - 25-Apr-18
15 
2004   5,576
               
GREAT
D
-
 
-
-
-
- - -
16 
(ex YM Great)
               
2004   5,576
               
HAMBURG
E
$6,700
 
3.50%
CMA CGM
9-Jan-17
9-Mar-17 - 9-Dec-17
 
2009   6,494
               
ROTTERDAM
E
$6,200
 
5.00%
Maersk Line A/S
27-Apr-16
20-Feb-17 - 27-Feb-17
17,18
   
$6,890
 
3.50%
CMA CGM
7-Mar-17
7-Nov-17 - 7-Feb-18
2008   6,494
               
* Each container vessel is a "sister ship", or closely similar, to other container vessels that have the same letter.
 
** Total commission paid to third parties.
 
*** In case of newly acquired vessel with time charter attached, this date refers to the expected/actual date of delivery of the vessel to the Company.
 
**** Range of redelivery dates, with the actual date of redelivery being at the Charterers' option, but subject to the terms, conditions, and exceptions of the particular charterparty.
 
1  In January 2017, the Company agreed to extend as from January 24, 2017 the previous charter party with CMA CGM for a period of minimum 2 months to maximum 4 months at a gross charter rate of US$5,775 per day.
 
2 Vessel on unscheduled maintenance from September 19, 2016 to November 16, 2016.
 
3 As of October 11, 2016, vessel has been placed on lay-up, in Malaysia.
 
4 As of October 10, 2016, vessel has been placed on lay-up, in Malaysia.
 
5 Currently without an active charterparty.

6 Estimated delivery date to the charterers.
 
7 The Company has the option to withdraw the vessel any time after the completion of the first 6 months charter period against a 60 day Notice of Withdrawal from service to be tendered from Owners  earliest 4 months after delivery.
 
8 In January 2016, the Company agreed to extend as from January 23, 2016 the previous charter party with Rudolf A. Oetker KG for a period of minimum 3 months to maximum 12 months at a gross charter rate of US$6,250 per day.
 
9 As per addendum dated November 14, 2016, owners and charterers mutually agreed to extend the maximum redelivery date from January 23, 2017 to February 25, 2017.
 
10 Redelivery dates based on an estimated time charter trip duration of about 48-55 days.
 
11 Repositioning trip. Charterers to supply 1600 mts IFO 380 cst and 85 mts MGO for SECA areas fuel at the time of delivery. This will be the maximum required quantity on charterers' account for the trip from UK / Continent upto redelivery China. In case that vessel will burn less quantities than the supplied ones then Company to refund charterers with the difference between the supplied and the actual consumed quantity. After 54 days, charterers will pay US$5,500 per day until redelivery of the vessel. Total commission paid to third parties US$5,000.
 
12 The charterer has the option to further employ the vessel for a twelve (12) month period, at a gross charter rate of US$8,600 per day starting twelve (12) months after delivery of the vessel to the charterer. After that period the charterer has the option to employ the vessel for a further twelve (12) month period, at a  gross charter rate of US$20,000 starting twenty-four (24) months after delivery of the vessel to the charterer. Charterer has the option to employ the vessel for plus or minus thirty (30) days on final declaration.  All gross charter rates include a 3.75% commission paid to third parties. Options must be declared by the charterer not later than nine (9) months for the first option and twenty (20) months for the second option after the delivery of the vessel to the charterer.
 
13 As of July 27, 2016, vessel has been placed on lay-up, in Malaysia.
 
14 The charter rate commenced 10 days after the delivery of the vessel to the charterers.
 
15 Charterers will pay US$1 per day for the first 15 days of the charter period.
 
16 As of September 27, 2016, vessel has been placed on lay-up, in Malaysia.
 
17 Estimated redelivery date from the charterers.
 
18 In March 2016, the Company agreed to extend as from April 27, 2016 (00:01) the previous charter party with Maersk Line A/S for a period of minimum 6 months to about 13 months at a gross charter rate of US$6,200 per day.

 
38

Our Management Team
Our management team is responsible for the strategic management of our company, including the development of our business plan. Strategic management also involves, among other things, locating, purchasing, financing and selling vessels. Our management team is led by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, who founded the predecessors of Diana Shipping and DSS in 1972. Mr. Palios has served as the Chief Executive Officer and Chairman of the Board of Diana Shipping Inc. since 2005 and as a director since 1999. Mr. Anastasios Margaronis, our President and a director, also serves as President and as a director of Diana Shipping Inc. and has been employed by the Diana Shipping group of companies since 1979. Mr. Ioannis Zafirakis, our Chief Operating Officer, Secretary and a director, also serves as Chief Operating Officer and Secretary and a director of Diana Shipping Inc. and has been employed by the Diana Shipping group of companies since 1997. Mr. Andreas Michalopoulos, our Chief Financial Officer and Treasurer, has held these same offices with Diana Shipping Inc. since 2006.
Our management team has experience in multiple sectors of the international shipping industry, including the containership sector, and a proven track record of strategic growth beginning with the formation of the Diana Shipping group of companies in 1972. Our management team is responsible for identifying assets for acquisition and for the operation of our business in order to build our fleet and effectively manage our growth.
Potential Conflicts of Interest
Our management team is comprised of four executive officers who are also executive officers of Diana Shipping.  Three of our executive officers serve on our board of directors as well as the board of directors of Diana Shipping.  Our officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our shareholders. As a result, these individuals have fiduciary duties to manage the business of Diana Shipping and its affiliates in a manner beneficial to such entities and their shareholders. Consequently, these officers and directors may encounter situations in which their fiduciary obligations to Diana Shipping and us are in conflict. Although Diana Shipping is contractually restricted from competing with us in the containership industry, there may be other business opportunities for which Diana Shipping may compete with us such as hiring employees, acquiring other businesses, or entering into joint ventures, which could have a material adverse effect on our business. In addition, we are contractually restricted from competing with Diana Shipping in the dry bulk carrier sector, which limits our ability to expand our operations.
39



Management of Our Fleet
The business of Diana Containerships Inc. is the ownership of containerships.  Diana Containerships Inc. wholly owns, directly or indirectly, the subsidiaries which own the vessels that comprise our fleet. The holding company sets general overall direction for the company and interfaces with various financial markets.  The commercial and technical management of our fleet, as well as providing administrative services relating to the fleet's operations, are carried out since March 1, 2013, by UOT, our fleet manager. In exchange for providing us with commercial and technical services, we pay our Manager a commission that is equal to 2% of our gross revenues, a fixed management fee of $15,000 per month for each vessel in operation and a fixed monthly fee of $7,500 for laid-up vessels, if any. In addition, pursuant to an Administrative Services Agreement, we pay to UOT a fixed monthly administrative fee of $10,000, in exchange for providing us with accounting, administrative, financial reporting and other services necessary for the operation of our business. These amounts are considered inter-company transactions and are, therefore, eliminated from our consolidated financial statements. For the laid-up vessels of our fleet, in addition to the management services provided by UOT, we have also appointed Wilhelmsen Ship Management LTD, an unaffiliated third party, to provide specific management services in relation to the laying-up for a fixed monthly fee for each laid-up vessel.
Business Strategy
Strategically deploy our vessels in order to optimize the opportunities in the time charter market
We intend to actively monitor market conditions, charter rates and vessel operating expenses in order to selectively employ vessels as market conditions warrant. In the near term we intend to enter into short-term time charters to allow our shareholders to benefit from what we believe to be an improving charter rate environment. Depending on market conditions, in the future we might enter into long-term time charters at rates that compare favorably to historical averages, shielding us from charter rate decreases and cyclical fluctuations. We believe that maintaining staggered charter maturities will provide us with the flexibility to capitalize on favorable market conditions, while providing us with a base of strong, visible cash flows.
Acquire high quality containerships throughout the shipping cycle
At times when we have sufficient funds and we are not restricted from our lenders or from any other party, we will seek to provide attractive returns to our investors by making accretive acquisitions of high quality containerships in the secondhand market, including from shipyards and lending institutions. Over time, we expect that asset prices and charter rates will increase and we will continue to seek to make acquisitions that meet our investment criteria. Because members of our senior management team have successfully navigated previous market cycles, we believe that we have the experience and discipline to capitalize on market movements. We will continue to initially focus on vessels ranging from 3,500 TEU to 8,500 TEU because we believe that the current orderbook composition, coupled with global GDP growth, creates a favorable multi-year dynamic of supply and demand for these mid-sized containerships. As industry dynamics change, we might opportunistically acquire containerships outside of this range as well as enter into newbuilding contracts with shipyards on terms that meet our acquisition criteria.
Our Customers
Our customers include national, regional, and international companies, such as Maersk Line A/S, CMA CGM, MSC Mediterranean Shipping Co S.A, Geneva, Rudolf A. Oetker KG, VASI Shipping Pte. Ltd, SeaGo Line A/S and Yang Ming (UK, G) Ltd. During 2016, three of our charterers accounted for 67% of our revenues: Yang Ming (UK)Ltd (34%), Maersk Line A/S (22%) and CMA CGM (11%). During 2015, five of our charterers accounted for 83% of our revenues: Yang Ming (UK)Ltd (25%), Maersk Line A/S (11%), Reederei Santa Containerschiffe / Rudolf A. Oetker KG (10%), CSAV Valparaiso / Hapag Lloyd A.G Hamburg (24%) and Hanjin Shipping Co. Ltd (13%). During 2014, four of our charterers accounted for 87% of our revenues: Reederei Santa Containerschiffe MbH & Co. (25%), CSAV Valparaiso (31%), NOL Liner (Pte) Ltd (17%) and Hanjin Shipping Co. Ltd (14%). We believe that developing strong relationships with the end users of our services allows us to better satisfy their needs with appropriate and capable vessels. A prospective charterer's financial condition, creditworthiness, reliability and track record are important factors in negotiating our vessels' employment.
40



The Container Shipping Industry
The containers used in maritime transportation are steel boxes of standard dimensions. The standard unit of measure of volume or capacity in container shipping is the 20-foot equivalent unit, or TEU, representing a container which is 20 feet long and typically 8.5 feet high and 8 feet wide. In recent years, 40-foot long containers (9.5 feet high), equivalent to two TEU, have increasingly been used by large retailers to move lightweight, fast moving consumer goods across the globe. There are specialized containers of both sizes to carry refrigerated perishables or frozen products, as well as tank containers that carry liquids such as liquefied gases, spirits or chemicals.
A container shipment begins at the shipper's premises with the delivery of an empty container. Once the container has been filled with cargo, it is transported by truck, rail or barge to a container port, where it is loaded onto a containership. The container is shipped either directly to the destination port or through an intermediate port where it is transferred to another vessel, an activity referred to as transshipment. When the container arrives at its destination port, it is off-loaded and delivered to the receiver's premises by truck, rail or barge.
Container shipping has a number of advantages compared with other shipping methods, including:
·
Less Cargo Handling
Containers provide a secure environment for cargo. The contents of a container, once loaded into the container, are not directly handled until they reach their final destination. Using other shipping methods, cargo may be loaded and discharged several times, resulting in a greater risk of breakage and loss.
·
Efficient Port Turnaround
With specialized cranes and other terminal equipment, containerships can be loaded and unloaded in significantly less time and at lower cost than other cargo vessels.
·
Highly Developed Intermodal Network
Onshore movement of containerized cargo, from points of origin, around container ports, staging or storage areas, and to final destinations, benefits from the physical integration of the container with other transportation equipment such as road chassis, railcars and other means of hauling the standard-sized containers. Sophisticated port and intermodal industries have developed to support container transportation.
·
Reduced Shipping Time
Containerships can travel at a speed of up to 25 knots per hour, even in rough seas, thereby transporting cargo over long distances in shorter periods of time. Such speed reduces transit time and facilitates the timeliness of regular scheduled port calls, compared to general cargo shipping. However, since 2008, due to higher fuel prices and the negative effects of the global recession, most operators have reduced speeds and deployed more ships on some voyage strings. This has also had a positive environmental effect in helping reduce ship emissions.
Types of Container Ships
Containerships are typically "cellular," which means they are equipped with metal guide rails to allow for rapid loading and unloading, and provide for more secure carriage. Partly cellular containerships include roll-on/roll-off vessels, or "ro-ro" ships, designed to carry chassis and trailers, and multipurpose ships which can carry a variety of cargo including containers.
The main categories of containerships are broadly as follows:
·
Very Large:
"Very large" ships (with capacity in excess of 10,000 TEU) are currently exclusively deployed on the Asia-North Europe and Mediterranean and Transpacific trades. Middle East trades may at some stage see the regular deployment of ships with capacity exceeding 10,000 TEU.
41



·          Large:
Large ships have a capacity of 8,000 to 9,999 TEU and are currently deployed on the Transpacific, Asia-Middle East and Asia to Latin America trades.
·          Post Panamax:
Ships with a capacity of 5,000 to 7,999 TEU, so-called because of their inability to transit through the existing Panama Canal due to dimension restrictions. However, the Panama Canal was widened in 2016, and the expansion allows ships with capacity of up to about 13,000 TEU to transit the waterway. Ships of this size can be considered the workhorses of many smaller or emerging trade routes outside of the main east-west arteries.
·          Panamax:
Ships with a capacity between 3,000 to 4,999 TEU.
·          Intermediate:
In this category, the ships range in capacity between 2,000 and 2,999 TEU and are generally able to operate on all trades.
·          Handysize:
Smaller ships with capacities ranging from 1,000 to 1,999 TEU, for use in regional trades – a primary example being the intra-Asian trades.
·          Feeder:
Ships with a capacity of less than 1,000 TEU, which are usually employed as feeder vessels on trades to and from hub ports or on small niche trades or domestic routes.
Containership Newbuilding Prices
The factors which influence new-built prices include ship type, shipyard capacity, demand for ships, "berth cover", i.e., the forward book of business of shipyards, buyer relationships with the yard, individual design specifications, including fuel efficiency or environmental features and the price of ship materials, engine and machinery equipment and particularly the price of steel.
Containership Secondhand Prices
Vessel values are primarily driven by supply and demand for vessels. During extended periods of high demand, as evidenced by high charter rates, secondhand vessel values tend to appreciate and during periods of low demand, evidenced by low charter rates, vessel values tend to decline. Vessel values are also influenced by age and specification and by the replacement cost (new-built price) in the case of vessels up to five years old.
Values for younger vessels tend to fluctuate on a percentage, if not on a nominal, basis less than values for older vessels. This is due to the fact that younger vessels with a longer remaining economic life are less susceptible to the level of charter rates than older vessels with limited remaining economic life.
Vessels are usually sold through specialized brokers who report transactions to the maritime transportation industry on a regular basis. The sale and purchase market for vessels is usually quite transparent and liquid, with a number of vessels changing hands on an annual basis.
42



Containership Charter Rates
The main factors affecting vessel charter rates are primarily the supply and demand for container shipping.  The shorter the charter period, the greater the vessel charter rate is affected by the current supply to demand balance and by the current phase of the market cycle (high point or low point). For longer charter periods, from three years to ten years, vessel charter rates tend to be more stable and less cyclical because the period may cover not only a particular phase of a market cycle, but a full market cycle or several market cycles. Other factors affecting charter rates include the age and characteristics of the ships (including fuel consumption, speed, wide beam, shallow draft, whether geared or gearless), the price of new-built and secondhand ships (buying as an alternative to chartering ships) and market conditions.
According to industry sources, during 2016 time charter rates remained flat during the first half of the year only to collapse in the second half of 2016. The Alphaliner charter index ended the year at 39.3 points, down 12% compared to December 2015.
Container Freight Rates
Factors that drive vessel charter rates also affect container freight rates. Container freight rates are primarily driven by the supply and demand for container shipping, the cost of operating ships, fuel prices, and carrier behaviour, including inter-carrier competition. To some extent, container freight rates are also affected by market conditions.
The Clarksons average Containerships Earnings Index was at the end of 2016 at $5,360/day, compared to the beginning of 2016 when it was $5,964/day.
Global Container Trade
According to industry sources, the global container trade grew by approximately 3.6% in 2016 and is expected to grow by 4.3% in 2017.
Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934
The disclosure below does not relate to any activities conducted by Diana Containerships Inc., its management or Unitized Ocean Transport Limited, its vessel technical manager.  The disclosure herein relates solely to certain activities conducted by Diana Shipping Inc.
Section 219 of the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, or ITRA, added a new Section 13(r) to the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that requires each SEC reporting issuer to disclose in its annual and, if applicable, quarterly reports regardless of whether it or any of its affiliates have knowingly engaged in certain activities, transactions or dealings relating to Iran or with the Government of Iran or certain designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the report. The required disclosure includes disclosure of activities that are not prohibited by U.S. or other law, even if conducted outside of the U.S. by non-U.S. affiliates in compliance with local law.
43



Diana Shipping Inc. is the former parent company of the Company and current owner of 25.7% of our common stock, and certain members of the Company's board of directors and senior management team are also members of the board of directors and management team of Diana Shipping Inc., however all vessel operations of the Company and Diana Shipping Inc. are performed by separate companies that do not share common management teams or boards of directors.  The Company has been advised that the Annual Report on Form 20-F for the year ended December 31, 2016 to be  filed by Diana Shipping Inc. with the Securities and Exchange Commission is expected to contain the disclosure set forth below (with all references contained therein to "the Company" being references to Diana Shipping Inc. and its consolidated subsidiaries).  As a result, it appears that the Company may be required to provide the disclosures set forth below pursuant to Section 219 of ITRA and Section 13(r) of the Exchange Act. By providing this disclosure, the Company does not admit that it is an affiliate of Diana Shipping Inc.
The disclosure relates solely to activities conducted by Diana Shipping Inc. and its consolidated subsidiaries.
The expected disclosure of Diana Shipping Inc. is as follows:
Disclosure Pursuant to Section 219 of the Iran Threat Reduction And Syrian Human Rights Act
Section 219 of the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, or the ITRA, added new Section 13(r) to the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, requiring each SEC reporting issuer to disclose in its annual and, if applicable, quarterly reports whether it or any of its affiliates have knowingly engaged in certain activities, transactions or dealings relating to Iran or with the Government of Iran or certain designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the report.
Pursuant to Section 13(r) of the Exchange Act, we note that for the period covered by this annual report, four of our vessels made one port call each to Iran in 2016.
The vessel Amphitrite made a call to the port of Bandar Imam Khomeini on February 24, 2016, discharging corn, and remained in the port of Bandar Imam Khomeini during 2016 for seven days. During this time the Amphitrite was on time charter to Bunge S.A. at a gross rate of $7,700 per day.
The vessel Artemis made a call to the port of Bandar Imam Khomeini on October 4, 2016, discharging sugar, and remained in the port of Bandar Imam Khomeini for 20 days. During this time the Artemis was on time charter to Bunge S.A. at a gross rate of $5,350 per day.
The vessel Melite made a call to the port of Bandar Imam Khomeini on March 4, 2016, discharging corn, and remained in the port of Bandar Imam Khomeini for eight days. During this time the Melite was on time charter to Cargill International S.A. at a gross rate of $7,250 per day.
The vessel Myrto made a call to the port of Bandar Imam Khomeini on March 3, 2016, discharging soya bean meal and pellets, and remained in the port of Bandar Imam Khomeini for 34 days. During this time the Myrto was on time charter to Cargill International S.A. at a gross rate of $6,000 per day.
44



The aggregate gross revenue attributable to these 69 days that our vessels remained in the port of Bandar Imam Khomeini was approximately $0.4 million. As we do not attribute profits to specific voyages under a time charter, we have not attributed any profits to the voyages which included these port calls. Our charter party agreements for our vessels restrict the charterers from calling in Iran in violation of U.S. sanctions, or carrying any cargo to Iran which is subject to U.S. sanctions. However, there can be no assurance that the four vessels referenced above or another of our vessels will not, from time to time in the future on charterer's instructions, perform voyages which would require disclosure pursuant to Exchange Act Section 13(r).
Environmental and Other Regulations
Government regulation significantly affects the ownership and operation of our vessels. We are subject to international conventions and treaties, and, in the countries in which our vessels may operate or are registered, 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 governmental and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the USCG and harbor masters), classification societies, flag state administrations (countries of registry) and charterers. Some of these entities require us to obtain permits, licenses, certificates or approvals for the operation of our vessels. Our failure to maintain necessary permits, licenses, certificates, approvals or financial assurances could require us to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet, or lead to the invalidation or reduction of our insurance coverage.
In recent periods, heightened levels of environmental and operational safety concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the shipping industry. Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. We believe that the operation of our vessels will be in substantial compliance with applicable environmental laws and regulations and that our vessels will 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 strict requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the re-sale value or useful lives of our vessels. In addition, a future serious marine incident, such as one comparable to the 2010 BP plc Deepwater Horizon oil spill, that results in significant oil pollution, release of hazardous substances, loss of life, or otherwise causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization (IMO)
The IMO has adopted MARPOL, which entered into force on October 2, 1983.  It has been adopted by over 150 nations, including many of the jurisdictions in which our vessels operate.  MARPOL is broken into six Annexes, each of which regulates a different source of pollution.  Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, in liquid or packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions.  Annex VI was separately adopted by the IMO in September of 1997.  
45



Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution.  Effective May 2005, Annex VI sets limits on nitrogen oxide emissions from ships whose diesel engines were constructed (or underwent major conversions) on or after January 1, 2000.  It also prohibits "deliberate emissions" of "ozone depleting substances," defined to include certain halons and chlorofluorocarbons.  "Deliberate emissions" are not limited to times when the ship is at sea; they can for example include discharges occurring in the course of the ship's repair and maintenance.  Emissions of "volatile organic compounds" from certain tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls (PCBs)) are also prohibited.  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, known as ECAs (see below).
MEPC adopted amendments to Annex VI on October 10, 2008, which entered into force on July 1, 2010.  The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships.  As of January 1, 2012, the amended Annex VI requires that fuel oil contain no more than 3.50% sulfur. On October 27, 2016, at MEPC 70, MEPC announced its decision concerning the implementation of regulations mandating a reduction in sulfur emissions from the current 3.50% to 0.50% as of the beginning of 2020 rather than pushing the deadline back to 2025.  By 2020 ships will now have to either remove sulfur from emissions through the use of emission scrubbers or buy fuel with low sulfur content.
Sulfur content standards are even stricter within certain ECAs.  As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.10%.  Amended Annex VI establishes procedures for designating new ECAs.  Currently, the Baltic Sea and the North Sea have been so designated.  Effective August 1, 2012, certain coastal areas of North America were designated ECAs, and effective January 1, 2014, the applicable areas of the United States Caribbean Sea were designated ECAs.  If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the EPA or the states where we operate, compliance with these regulations could entail significant capital expenditures, operational changes, or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new tier III marine engines, depending on their date of installation. At MEPC 70, MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxides, effective January 1, 2021.  It is expected that these areas will be formally designated after draft amendments are presented at MEPC's next session. The U.S. EPA promulgated equivalent (and in some senses stricter) emissions standards in late 2009.
Safety Management System Requirements
The IMO also adopted SOLAS and 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. May 2012 SOLAS Convention amendments entered into force as of January 1, 2014, and May 2013 SOLAS Convention amendments regarding emergency training and drills, entered into force as of January 1, 2014. The Convention on Limitation of Liability for Maritime Claims of 1976, as amended, or the LLMC, was recently amended and the amendments went into effect on June 8, 2015. The amendments alter the limits of liability for loss of life or personal injury claim and property claims against ship-owners.
 
46



Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose pollution control and liability in international waters and the territorial waters of the signatory nations to such conventions. For example, 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, or the CLC, although the United States is not a party. 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, subject to certain defenses, for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil. The limits on liability outlined in the 1992 Protocol use the International Monetary Fund currency unit of Special Drawing Rights, or SDR. Amendments adopted in 2000, which entered into force in 2003, raised the compensation limits set forth in the 1992 Protocol by 50 percent. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner's personal fault and under the 1992 Protocol where the spill is caused by the shipowner's personal act or omission by intentional or reckless conduct. A state that is a party to the CLC may not allow a ship under its flag to trade unless that ship has a certificate of insurance or something equivalent. 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 CLC. We believe that our protection and indemnity insurance will cover the liability under the plan adopted by the IMO.
The IMO adopted 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 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 LLMC. 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.
In addition, the IMO adopted the International Convention for the Control and Management of Ships' Ballast Water and Sediments, or the BWM Convention, in 2004. The BWM Convention requires vessels to install expensive ballast water treatment at the first MARPOL renewal survey after the convention becomes effective.  The BWM Convention's implementing regulations call for a phased introduction of mandatory concentration limits.  All ships will also have to carry a ballast water record book and an International Ballast Water Management Certificate. The BWM Convention enters into force 12 months after the date on which no less than 30 states, and the combined merchant fleets of which constitute no less than 35% of the gross tonnage of the world's merchant shipping, have either signed it without reservation as to ratification, acceptance or approval, or have deposited the requisite instruments of ratification, acceptance, approval or accession. The process to verify global tonnage figures to assess the BWM Convention's entry into force has completed.  On September 8, 2016, this threshold was met (with 52 countries making up 35.14%).  Many of the implementation dates originally written in the BWM Convention have already passed, so that once the BWM Convention enters into force, the period for installation of mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install ballast water management systems, or BWMS.  For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention.  This in effect makes all vessels constructed before the entry into force date 'existing' vessels, and allows for the installation of a BWMS on such vessels at the first renewal survey following entry into force of the Convention. The IMO's Marine Environment Protection Committee, or MEPC, adopted updated "guidelines for approval of ballast water management systems (G8)" at its 70th session in October 2016, MEPC 70. G8 updates previous guidelines concerning procedures to approve BWMS.  Once mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers and the costs of ballast water treatments may be material. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The United States for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements.
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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.
U.S. Regulations
OPA establishes 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 U.S. waters, which includes the U.S. territorial sea and its 200 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, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define "owner and operator" "in the case of a vessel as any person owning, operating or chartering by demise, the vessel."  Although OPA is primarily directed at oil tankers (which are not operated by us), it also applies to non-tanker ships, including containerships, with respect to the fuel oil, or bunkers, used to power such ships. CERCLA also applies to our operations.
Under OPA, vessel owners and operators 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:
·
Injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
·
Injury to, or economic losses resulting from, the destruction of real and personal property;
·
net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
·
loss of subsistence use of natural resources that are injured, destroyed or lost;
·
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
·
net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs.  Effective December 21, 2015, the USCG adjusted the limits of OPA liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,100 per gross ton or $939,800 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct.  The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies.  There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war.  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 $500,000 for any other vessel.   These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations.  The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
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OPA and CERCLA each preserve the right to recover damages under existing law, including maritime or tort law.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of their potential liability under OPA and CERCLA.   Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or statutes, including the raising of liability caps under OPA.  For example, on August 15, 2012, the U.S. Bureau of Safety and Environment Enforcement, or BSEE, issued a final drilling safety rule for offshore oil and gas operations that strengthens the requirements for safety equipment, well control systems, and blowout prevention practices.  Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. A new rule issued by the U.S. Bureau of Ocean Energy Management, or BOEM, that increased the limits of liability of damages for offshore facilities under OPA based on inflation took effect in January 2015. In April 2015, it was announced that new regulations are expected to be imposed in the United States regarding offshore oil and gas drilling and the BSEE announced a new Well Control Rule in April 2016. In December 2015, the BSEE announced a new pilot inspection program for offshore facilities. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. Additional legislation, regulations, or other requirements applicable to the operation of our vessels that may be implemented in the future could adversely affect our business.
We 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 a material adverse effect on our business, financial condition, results of operations and cash flows. 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.
The EPA regulates the discharge of ballast and bilge water and other substances in U.S. waters under the CWA. EPA regulations require vessels 79 feet in length or longer (other than commercial fishing and recreational vessels) to comply with a Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP, authorizing ballast and bilge water discharges and other discharges incidental to the operation of vessels. For a new vessel delivered to an owner or operator after September 19, 2009, to be covered by the VGP the owner must submit a Notice of Intent at least 30 days before the vessel operates in U.S. waters. The VGP imposes technology and water-quality based effluent limits for certain types of discharges and establishes specific inspection, monitoring, recordkeeping and reporting requirements to ensure the effluent limits are met.  On March 28, 2013, the EPA re-issued the VGP for another five years; this VGP took effect on December 19, 2013. The new VGP focuses on authorizing discharges incidental to operations of commercial vessels. The VGP also contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in US waters, more stringent requirements for exhaust gas scrubbers and the use of environmentally acceptable lubricants.  
USCG regulations adopted under the U.S. National Invasive Species Act, or NISA, also impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in U.S. waters. As of June 21, 2012, the USCG implemented revised regulations on ballast water management by establishing standards on the allowable concentration of living organisms in ballast water discharged from ships in U.S. waters.  The revised ballast water standards are consistent with those adopted by the IMO in 2004. The USCG must approve any technology before it is placed on a vessel, but has not yet approved the technology necessary for vessels to meet the foregoing standards.
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Notwithstanding the foregoing, as of January 1, 2014, vessels are technically subject to the phrasing-in of these standards.  As a result, the USCG has provided waivers to vessels which cannot install the as-yet unapproved technology.  The EPA on the other hand has taken a different approach to enforcing ballast discharge standards under the VGP. On December 27, 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any waivers.  Compliance with the EPA and the USCG regulations could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
It should also be noted that in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains in effect until the EPA issues a new VGP. It presently remains unclear how the ballast water requirements set forth by the EPA, the USCG, and IMO BWM Convention, some of which are in effect and some which are pending, will co-exist.
The U.S. Clean Air Act
The CAA requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties.  Member States were required to enact laws or regulations to comply with the directive by the end of 2010.  Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.  The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger.
The European Union has adopted regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, flag and the number of time the ship has been detained.  The European Union also adopted and then extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses.  The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. 
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from ships in international transport are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions. The 2015 United Nations Convention on Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016.  The Paris Agreement does not result in an agreement that directly limit greenhouse gas emissions from ships.
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As of January 1, 2013, all ships must comply with mandatory requirements adopted by the MEPC in July 2011 relating to greenhouse gas emissions.  Under those measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014.  All ships are required to follow the Ship Energy Efficiency Management Plans.  Now the minimum energy efficiency levels per capacity mile, outlined in the Energy Efficiency Design Index, applies to all new ships.  These requirements could cause us to incur additional compliance costs. The IMO is planning to implement market-based mechanisms to reduce greenhouse gas emissions from ships at an upcoming MEPC session.
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 marine vessels. In April 2013, the European Parliament rejected proposed changes to the European Union Emissions Law regarding carbon trading. In June 2013, the European Commission developed a strategy to integrate maritime emissions into the overall European Union Strategy to reduce greenhouse gas emissions. If the strategy is adopted by the European Parliament and Council large vessels using European Union ports would be required to monitor, report, and verify their carbon dioxide emissions beginning in January 2018. Furthermore, in December 2013 the European Union environmental ministers discussed draft rules to implement monitoring and reporting of carbon dioxide emissions from ships. In April 2015, a regulation was adopted requiring that large ships (over 5,000 gross tons) calling at European ports from January 2018 collect and publish data on carbon dioxide omissions.
In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has adopted regulations to limit greenhouse gas emissions from certain mobile sources and large stationary sources. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, the EPA is considering a petition from the California Attorney General and environmental groups to regulate greenhouse gas emissions from ocean-going vessels. Moreover, in the United States, individual states can also enact environmental regulations.  For example, California has introduced caps for greenhouse gas emissions and, in the end of 2016, signaled it might take additional action regarding climate change.
Any passage of climate control legislation or other regulatory initiatives by the IMO, European Union, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restrict emissions of greenhouse gases could require us to make significant financial expenditures, including capital expenditures to upgrade our vessels, which we cannot predict with certainty at this time.
International Labour Organization
The International Labour Organization, or ILO, is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labor Convention 2006, or MLC 2006. A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. The MLC 2006 entered into force on August 20, 2013.  Amendments to MLC 2006 were adopted in 2014 and 2016. The MLC 2006 requires us to maintain developed procedures to ensure full compliance.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the MTSA came into effect. To implement certain portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements on certain ports and facilities, some of which are regulated by the EPA.
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Similarly, in December 2002, amendments to the SOLAS Convention created a new chapter of the convention dealing specifically with maritime security. The new Chapter XI-2 became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate, or ISSC from a recognized security organization approved by the vessel's flag state. The following are among the various requirements, some of which are found in SOLAS:
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, 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.
Ships operating without a valid certificate, the ship may be detained at port until it obtains an ISSC, or it may be expelled from port, or refused entry at port.
The USCG regulations, intended to align with international maritime security standards, exempt from MTSA vessel security measures non-U.S. vessels that have on board, as of July 1, 2004, a valid ISSC attesting to the vessel's compliance with SOLAS security requirements and the ISPS Code. We have already implemented the various security measures addressed by the MTSA, the SOLAS Convention and the ISPS Code.
Inspection by Classification Societies
Every oceangoing vessel must be constructed and classified in accordance with the applicable Rules & Regulations of a classification society. The Class Certificate that will be issued upon completion of vessel's construction by the classification society certifies that the vessel complies with the Class Rules and includes vessel's Character of Classification and the applicable class notations which provide useful information about the construction and the characteristics of the vessel. To maintain it's 'class', every vessel shall be inspected periodically by authorized surveyors of the classification society that is classed with. During these periodical surveys it shall be confirmed compliance with applicable class rules and regulations. In addition, the classification society acting as Recognized Organization, or RO, will carry out necessary statutory surveys and will issue the statutory certificates on behalf of vessel's Flag Administration which will ensure compliance with all applicable International and National requirements and will enable the vessel to obtain sail permit from the port authorities.
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For maintenance of the class certification, regular (periodical) 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, within three months before or after each anniversary date of 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 are to be carried out at or between 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 intervals indicated by the character of classification, (usually every 5 years). At the special survey, the vessel is thoroughly examined, including UTM-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. Upon shipowner's request, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.
·
Bottom Surveys : Underwater parts of vessel's hull shall be surveyed twice within a class period which normally shall be carried out in drydock. However for vessels with special class notation, one of the two bottom surveys may be carried out afloat with class approved diving company.
·
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. All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard agreements.
100% Container Screening
On August 3, 2007, the United States signed into law the Implementing Recommendations of the 9/11 Commission Act of 2007 (or the 9/11 Commission Act). The 9/11 Commission Act amends the SAFE Port Act of 2006 to require that all containers being loaded at foreign ports onto vessels destined for the United States be scanned by nonintrusive imaging equipment and radiation detection equipment before loading.
As a result of the 100% scanning requirements added to the SAFE Port Act of 2006, ports that ship to the United States may need to install new x-ray machines and make infrastructure changes in order to accommodate the screening requirements. Such implementation requirements may change which ports are able to ship to the United States and shipping companies may incur significant increased costs. It is impossible to predict how this requirement will affect the industry as a whole, but changes and additional costs can be reasonably expected.
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Risk of Loss and Insurance Coverage
General
The operation of any containership 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 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, protection and indemnity cover and freight, demurrage and defense cover for our vessels 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 we procure adequate insurance coverage, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery and War Risks Insurance
We maintain for our vessels marine hull and machinery and war risks insurance, which covers, among other risks, the risk of actual or constructive total loss. Our vessels are each covered up to at least market value with deductibles which vary according to the size and value of the vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance is generally 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 or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage to 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."
We procure protection and indemnity insurance coverage for pollution in the amount of $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 certain P&I Associations which are members of the International Group, we are subject to calls payable to the associations based on the group's claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group. Supplemental calls are made by the P&I Associations based on estimates of premium income and anticipated and paid claims and such estimates are adjusted each year by the Board of Directors of the P&I Associations until the closing of the relevant policy year, which generally occurs within three years from the end of the policy year. We do not know whether any supplemental calls will be charged in respect of any policy year by the P&I Associations in which the Company's vessels are entered. To the extent we experience supplemental calls; our policy is to expense such amounts.
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C.          Organizational Structure
We are a corporation incorporated under the laws of the Republic of the Marshall Islands on January 7, 2010. We are the sole owner of all of the issued and outstanding shares of the subsidiaries listed in Note 1 "General Information" of our consolidated financial statements filed as part of this annual report and in exhibit 8.1 to this annual report.
D.          Property, Plants and Equipment
Our Manager, UOT, currently rents our office space from an unrelated third party and owns office furniture and equipment. Furthermore, in December 2014, UOT acquired, jointly with two other related parties, from unrelated individuals, a plot of land, in Athens, Greece, for an aggregate price of Euro 2.0 million or $2.5 million, based on the exchange rate of U.S. Dollar to Euro on the date of acquisition. The plot of land is under the common ownership of the joint purchasers. We paid one third of the purchase price, and the total cost for the acquisition of the plot, including additional capitalized costs, amounted to $0.9 million.
Other than this interest in real property, our only material properties are the vessels in our fleet.
Item 4A.          Unresolved Staff Comments
Not applicable.
Item 5.          Operating and Financial Review and Prospects
The following management's discussion and analysis should be read in conjunction with our consolidated financial statements and their notes included elsewhere in this report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in the section entitled "Item 3.D-Risk Factors" and elsewhere in this report.
A.
Operating Results
We charter our vessels to customers primarily pursuant to short-term and long-term time charters. Currently, we have secured time charters for the majority of our vessels with minimum remaining durations up to 9 months. Under our time charters, the charterer typically pays us a fixed daily charter hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes, environmental costs and other miscellaneous expenses, and we also pay commissions to one or more unaffiliated ship brokers and to in-house brokers associated with the charterer for the arrangement of the relevant charter.
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Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in our results of operations consist of the following:
·
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.
·
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 scheduled repairs or repairs under guarantee, vessel upgrades or special surveys including the aggregate amount of time that we spend positioning our vessels for such events. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues.
·
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 and special surveys including vessel positioning for such events.
·
Time Charter Equivalent (TCE) rates. We define TCE rates as our time charter revenues, net, 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 non-GAAP measure, and management believes it is useful to provide to investors because it 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.
·
Daily Operating Expenses. We define daily operating expenses as total vessel operating expenses, which include crew wages and related costs, the cost of insurance and vessel registry, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, regulatory fees, environmental costs, lay-up expenses and other miscellaneous expenses divided by total ownership days for the relevant period.
The following table reflects our ownership days, available days, operating days, fleet utilization, TCE rate and daily operating expenses for the periods indicated.

   
For the year ended December 31, 2016
   
For the year ended December 31, 2015
   
For the year ended December 31, 2014
 
Ownership days
   
4,780
     
4,600
     
3,198
 
Available days
   
4,735
     
4,515
     
3,198
 
Operating days
   
3,304
     
4,155
     
3,189
 
Fleet utilization
   
69.8
%
   
92.0
%
   
99.7
%
Time charter equivalent (TCE) rate (1)
 
$
6,341
   
$
13,192
   
$
16,803
 
Daily operating expenses
 
$
6,321
   
$
7,793
   
$
8,305
 


(1)
Please see "Item 3 A.-Selected Financial Data" for a reconciliation of TCE to GAAP measures.
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Time Charter Revenues

Our revenues are driven primarily by the number of vessels in our fleet, the number of voyage days and the amount of daily charter hire 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 drydock undergoing repairs;
·
maintenance and upgrade work;
·
the age, condition and specifications of our vessels;
·
levels of supply and demand in the container shipping industry; and
·
other factors affecting spot market charter rates for container vessels.
Period charters refer to both time and bareboat charters. Vessels operating on time charters for a certain period of time provide more predictable cash flows over that period of time, but can yield lower profit margins than vessels operating in the spot charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market generate revenues that are less predictable but may enable their owners to capture increased profit margins during periods of improvements in charter rates although their owners would be exposed to the risk of declining charter rates, which may have a materially adverse impact on financial performance. As we employ vessels on period charters, future spot charter rates may be higher or lower than the rates at which we have employed our vessels on period charters.
Currently, the majority of the vessels in our fleet are employed on time charters, while some of them are not chartered or remain idle. Our time charter agreements subject us to counterparty risk. In depressed market conditions, charterers may seek to renegotiate the terms of their existing charter agreements 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.
Voyage Expenses
We incur voyage expenses that include port and canal charges, bunker (fuel oil) expenses and commissions. 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 owner of the vessels. The majority of our vessels are currently employed under time charters that require the charterer to bear all of those expenses. In addition to this, our laid up vessels do not incur bunkers costs. However, at times when our vessels are off-hire due to other reasons, we incur port and canal charges and bunker expenses.
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We have paid commissions ranging from 0% to 5% of the total daily charter hire rate of each charter to unaffiliated ship brokers, depending on the number of brokers involved with arranging the charter. Our fleet manager, UOT, our wholly-owned subsidiary, receives commission that is equal to 2% of our gross revenues in exchange for providing us with technical and commercial management services in connection with the employment of our fleet. However, this commission is eliminated from our consolidated financial statements as an intercompany transaction.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance and vessel registry, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, regulatory fees, environmental costs, lay-up expenses and other miscellaneous expenses. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for crew wages and insurance, may also cause these expenses to increase. In conjunction with our senior executive officers, our Manager has established an operating expense budget for each vessel and performs the day-to-day management of our vessels under separate management agreements with our vessel-owning subsidiaries. We monitor the performance of our Manager by comparing actual vessel operating expenses with the operating expense budget for each vessel. We are responsible for the costs of any deviations from the budgeted amounts.
Vessel Depreciation
We depreciate our vessels on a straight-line basis over their estimated useful lives which we estimate to be 30 years from the date of their initial delivery from the shipyard. Depreciation is based on the cost less the estimated salvage values. Each vessel's salvage value is the product of her light-weight tonnage and estimated scrap rate, which, effective July 1, 2013, is estimated at $350 per light-weight ton for all vessels in the fleet. We believe that these assumptions are common in the containership industry.
General and Administrative Expenses
We incur general and administrative expenses, including our onshore related expenses such as legal and professional expenses. Certain of our general and administrative expenses are provided for under our Broker Services Agreement with Diana Enterprises Inc. We also incur payroll expenses of employees and general and administrative expenses reflecting the costs associated with running a public company, including board of director costs, director and officer insurance, investor relations, registrar and transfer agent fees and legal and accounting costs related to our compliance with public reporting obligations and the Sarbanes-Oxley Act of 2002.
Interest and Finance Costs
We incur interest and finance costs in connection with our vessel-specific debt. As at December 31, 2016, we had $128.9 million of outstanding principal indebtedness from our loan agreement with The Royal Bank of Scotland plc and $45.4 million outstanding principal indebtedness from our loan agreement with Diana Shipping Inc.
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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 will 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 shares 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 in the past and we may, in the future, acquire vessels with existing 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.
When we purchase a vessel and assume or renegotiate a related time charter, we must take, among other things, the following steps before the vessel will be ready to commence operations:
·
obtain the charterer's consent to us as the new owner;
·
obtain the charterer's consent to a new technical manager;
·
obtain the charterer's consent to a new flag for the vessel;
·
arrange for a new crew for the vessel;
·
replace all hired equipment on board, such as gas cylinders and communication equipment;
·
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
·
register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;
·
implement a new planned maintenance program for the vessel; and
·
ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.
The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations.
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Our business is mainly comprised of the following elements:
·
acquisition and disposition of vessels;
·
employment and operation of our vessels; and
·
management of the financial, general and administrative elements involved in the conduct of our business and ownership of our vessels.
The employment and operation of our vessels mainly require the following components:
·
vessel maintenance and repair;
·
crew selection and training;
·
vessel spares and stores supply;
·
contingency response planning;
·
on board safety procedures auditing;
·
accounting;
·
vessel insurance arrangement;
·
vessel chartering;
·
vessel hire management;
·
vessel surveying; and
·
vessel performance monitoring.
The management of financial, general and administrative elements involved in the conduct of our business and ownership of vessels, mainly requires the following components:
·
management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts;
·
management of our accounting system and records and financial reporting;
·
administration of the legal and regulatory requirements affecting our business and assets; and
·
management of the relationships with our service providers and customers.
The principal factors that may affect our profitability, cash flows and shareholders' return on investment include:
·
rates and periods of charterhire;
·
levels of vessel operating expenses;
·
depreciation expenses;
·
financing costs; and
·
fluctuations in foreign exchange rates.
See " Item 3.D-Risk Factors" for additional factors that may affect our business.
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Our Fleet – Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of our Vessels
In "Critical Accounting Policies – Impairment of long-lived assets," we discuss our policy for impairing the carrying values of our vessels. Historically, the market values of vessels have experienced volatility, which from time to time may be substantial.  As a result, the charter-free market value of certain of our vessels may have declined below those vessels' carrying value, even though we would not impair those vessels' carrying value under our accounting impairment policy. In 2016, we recorded impairment charges for the vessels Sagitta, Centaurus, Domingo, Cap Doukato, Angeles, Great and March, as our impairment test exercise indicated that their carrying values were not recoverable. In 2015, we recorded impairment charges for the vessel Hanjin Malta, as our impairment test exercise indicated that its carrying value was not recoverable.
Based on: (i) the carrying value of each of our vessels as of December 31, 2016 and 2015, and (ii) what we believe the charter-free market value of each of our vessels was as of December 31, 2016 and 2015, the aggregate carrying value of 6 vessels in our fleet as of December 31, 2016 and 10 vessels as of December 31, 2015 exceeded their aggregate charter-free market value by approximately $87.7 million and $99.0 million, respectively, as noted in the table below. This aggregate difference represents the approximate analysis of the amount by which we believe we would have to reduce our net income or increase our loss if we sold all of such vessels at December 31, 2016 and 2015, on industry standard terms, in cash transactions, and to a willing buyer where we were not under any compulsion to sell, and where the buyer was not under any compulsion to buy.  For the purposes of this calculation, we have assumed that these 6 and 10 vessels, respectively, would be sold at prices that reflect our estimate of their charter-free market values as of December 31, 2016 and 2015. However, as of December 31, 2016, and currently, we have not entered into any agreement to sell any of our vessels.
Our estimates of charter-free market value assume that our vessels were all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind.  Our estimates are based on information available from various industry sources, including:
·
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
·
news and industry reports of similar vessel sales;
·
news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates;
·
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;
·
offers that we may have received from potential purchasers of our vessels; and
·
vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
As we obtain information from various industry and other sources, our estimates of charter-free market values are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future charter-free market values of our vessels or prices that we could achieve if we were to sell them.  We also refer you to the risk factor under "Item 3.D—Risk Factors"  entitled "Vessel values may fluctuate which may adversely affect our financial condition, result in the incurrence of a loss upon disposal of a vessel, impairment losses or increases in the cost of acquiring additional vessels".
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Carrying Value
(in millions of US dollars)
 
Vessel
 
TEU
   
Year Built
   
At December 31, 2016
   
At December 31, 2015
 
Sagitta
   
3,426
     
2010
     
11.4
     
38.2
*
Centaurus
   
3,426
     
2010
     
11.4
     
39.6
*
Domingo
   
3,739
     
2001
     
5.0
     
22.3
*
Cap Doukato
   
3,739
     
2002
     
5.0
     
22.9
*
Hanjin Malta
   
4,024
     
1993
     
-
     
5.0
 
Puelo
   
6,541
     
2006
     
41.6
*
   
43.3
*
Pucon
   
6,541
     
2006
     
41.7
*
   
43.4
*
March
   
5,576
     
2004
     
9.2
     
21.4
 
Great
   
5,576
     
2004
     
9.2
     
21.3
 
10 
Pamina
   
5,042
     
2005
     
15.0
*
   
15.4
*
11 
Angeles
   
4,923
     
2006
     
-
     
18.2
*
12 
New Jersey
   
4,923
     
2006
     
17.9
*
   
18.3
*
13 
Rotterdam
   
6,494
     
2008
     
35.8
*
   
36.8
*
14 
Hamburg
   
6,494
     
2009
     
37.2
*
   
38.5
 
 
Vessels Net Book Value
             
240.4
     
384.6
 

_______________________________
*Indicates vessels for which we believe, as of December 31, 2016 and December 31, 2015, the charter-free market value was lower than the vessel's carrying value. We believe that the aggregate carrying value of these vessels exceeded their aggregate charter-free market value by approximately $87.7 million and $99.0 million, respectively.

Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies when we acquire and operate vessels, because they generally involve a comparatively higher degree of judgment in their application. For a description of all our significant accounting policies, see Note 2 to our consolidated financial statements included in this annual report.
Accounts Receivable, Trade
Accounts receivable, trade, at each balance sheet date, include receivables from charterers for hire net of a provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts.
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Accounting for Revenues and Expenses
Revenues are generated from time charter agreements that we have entered into for our vessels and may enter into in the future. Time charter agreements with the same charterer are accounted for as separate agreements according to the terms and conditions of each agreement. Time charter revenues are recorded over the term of the charter as service is provided. Revenues are recorded when they become fixed and determinable. Revenues from time charter agreements providing for varying annual rates over their term are accounted for on a straight line basis. Income representing ballast bonus payments in connection with the repositioning of a vessel by the charterer to the vessel owner is recognized in the period earned. Deferred revenue includes cash received prior to the balance sheet date for which all criteria for recognition as revenue would not be met, including any deferred revenue resulting from charter agreements providing for varying annual rates, which are accounted for on a straight line basis. Deferred revenue also may include the unamortized balance of liabilities associated with the acquisition of secondhand vessels with time charters attached, acquired at values below market value at the date the acquisition agreement is consummated.
Voyage expenses, primarily consisting of port, canal and bunker expenses that are unique to a particular charter, are paid for by the charterer under time charter arrangements or by the Company under voyage charter arrangements, except for commissions, which are always paid for by the Company, regardless of charter type. All voyage and vessel operating expenses are expensed as incurred, except for commissions. Commissions are deferred over the related voyage charter period to the extent revenue is deferred since commissions are due as revenues are earned.
Prepaid/Deferred Charter Revenue
The Company records identified assets or liabilities associated with the acquisition of a vessel at their relative fair value, determined by reference to market data. The Company values any asset or liability arising from the market value of the time charters assumed when a vessel is acquired. The amount to be recorded as an asset or liability at the date of vessel delivery is based on the difference between the current market value of the charter and the net present value of future contractual cash flows. In determining the relative fair value, when the present value of the contractual cash flows of the time charter assumed is different than its current fair value, the difference, capped to the excess between the acquisition cost and the vessel's fair value on a charter free basis, is recorded as prepaid charter revenue or as deferred revenue, respectively. Such assets and liabilities, respectively, are amortized as a reduction of, or an increase in, revenue over the period of the time charter assumed.
Vessel Cost
Vessels are stated at cost which consists of the contract price and costs incurred upon acquisition or delivery of a vessel from a shipyard. Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessels; otherwise these amounts are charged to expense as incurred.
Vessel Depreciation
We have recorded the value of our vessels at their cost, which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for her initial voyage, less accumulated depreciation. We depreciate our containership vessels on a straight-line basis over their estimated useful lives, estimated to be 30 years from the date of initial delivery from the shipyard which we believe is also consistent with that of other shipping companies. Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. Depreciation is based on cost less the estimated salvage value. Furthermore, we have historically estimated the salvage values of our vessels to be $200 to $350 per light-weight ton depending on the vessels age and market conditions, while effective July 1, 2013 we adjusted prospectively the scrap rate used to $350 per light-weight ton for all vessels in the fleet. A decrease in the useful life of a containership or in her salvage value would have the effect of increasing the annual depreciation charge. When regulations place limitations on the ability of a vessel to trade on a worldwide basis, the vessel's useful life is adjusted at the date such regulations are adopted.
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Deferred Drydock Cost
Our vessels are required to be drydocked every five years for major repairs and maintenance that cannot be performed while the vessels are operating. We defer the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period through the date the next drydocking is scheduled to become due. Unamortized drydocking costs of vessels that are sold are written off and included in the calculation of the resulting gain or loss in the year of the vessel's sale. Costs capitalized as part of the drydocking include actual costs incurred at the yard and parts used in the drydocking. We believe that these criteria are consistent with industry practice and that our policy of capitalization reflects the economics and market values of the vessels.
Impairment of Long-lived Assets
We evaluate the carrying amounts, primarily for vessels and related drydock costs, and periods over which our long-lived assets are depreciated to determine if events have occurred which would require modification to their carrying values or useful lives. When the estimate of future undiscounted net operating cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, we should evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset. We determine the fair value of our assets based on management estimates and assumptions and by making use of available market data and taking into consideration third party valuations. In evaluating useful lives and carrying values of long-lived assets, management reviews certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. The current economic and market conditions are having broad effects on participants in a wide variety of industries. The current conditions in the containerships market with decreased charter rates and decreased vessel market values are conditions that we consider indicators of a potential impairment.
We determine future undiscounted net operating cash flows for each vessel and compare them to the vessel's carrying value. The projected net operating cash flows are determined by considering the historical (excluding years with extraordinary figures) and estimated vessels' performance and utilization, the charter revenues from existing charters for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days, based, to the extent applicable, on the most recent ten-year blended, for modern and older vessels, average historical 6-12 months time charter rates available for each type of vessel, considering also current market rates, over the remaining estimated life of each vessel net of brokerage commissions, expected outflows for scheduled vessels' maintenance and vessel operating expenses assuming an average annual inflation rate of 3.5%. Effective fleet utilization is assumed at 98%, if vessel not laid-up, taking into account the period(s) each vessel is expected to undergo its scheduled maintenance (drydocking and special surveys), as well as an estimate of 1% off hire days each year, which assumptions are in line with our historical performance and our expectations for future fleet utilization under our current fleet deployment strategy. The review of the vessel's carrying amounts in connection with the estimated recoverable amounts for 2016 and 2015 indicated impairment charges for certain of our vessels, amounting to $118.9 million and $6.6 million, respectively.
Set forth below is an analysis of the average estimated daily time charter equivalent rate used in our impairment analysis as of December 31, 2016:
   
Average estimated daily time charter equivalent rate used
 
Up to 4,000 TEU
 
$
12,854
 
Between 4,000 TEU and 6,000 TEU
 
$
15,478
 
Above 6,000 TEU
 
$
23,036
 

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For the purposes of presenting our investors with additional information to determine how the Company's future results of operations may be impacted in the event that daily time charter rates do not improve from their current levels in future periods, we set forth below an analysis that shows the 1-year, 3-year and 5-year average blended rates and the effect the use of each of these rates would have on the Company's impairment analysis.

   
5-year period (in USD)
   
Impairment charge
(in USD million)
   
3-year period (in USD)
   
Impairment charge
(in USD million)
   
1-year period (in USD)
   
Impairment charge
(in USD million)
 
Up to 4,000 TEU
   
7,552
     
0.8
     
7,853
     
0.8
     
5,475
     
0.8
 
Between 4,000 - 6,000 TEU
   
8,841
     
16.9
     
8,522
     
16.9
     
4,979
     
16.9
 
Above 6,000 TEU
   
23,036
     
0.0
     
20,208
     
0.0
     
13,208
     
71.8
 

Share Based Payment
According to Code 718 "Compensation – Stock Compensation" of the Accounting Standards Codification,  we are required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions. That cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period, which is usually the vesting period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met. We initially measure the cost of employee services received in exchange for an award or liability instrument based on its current fair value; the fair value of that award or liability instrument is re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period are recognized as compensation cost over that period with the exception of awards granted in the form of restricted shares which are measured at their grant date fair value and are not subsequently re measured. The grant-date fair value of employee share options and similar instruments are estimated using option-pricing models adjusted for the unique characteristics of those instruments unless observable market prices for the same or similar instruments are available. If an equity award is modified after the grant date, incremental compensation cost is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.
Results of Operations
Year ended December 31, 2016 compared to the year ended December 31, 2015
Net Loss.  Net loss for 2016 amounted to $149.0 million, compared to net loss of $17.5 million for 2015. The loss for 2016 includes $118.9 million of impairment charges for seven of our vessels and $2.9 million of direct sale and other charges for two vessels. The loss for the year ended December 31, 2015, includes $8.3 million of direct sale and other charges associated with the disposal of one vessel and $6.6 million of impairment charges of another vessel.
Time Charter Revenues, net of prepaid charter revenue amortization.  Time charter revenues, net of prepaid charter revenue amortization of $3.8 million and $8.6 million for 2016 and 2015 respectively, amounted to $33.2 million for 2016, compared to $62.2 million in 2015. The time charter revenues decreased, mainly due to reduced employment opportunities and lower time charter rates, despite the increase of the ownership days by 4%. The decrease of the time charter revenues was partly off-set by the decrease of the prepaid charter revenue amortization.
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Voyage Expenses. Voyage expenses for 2016 amounted to $3.2 million, compared to $2.6 million in 2015. Voyage expenses mainly consist of bunkers costs and commissions paid to third party brokers. The increase in voyage expenses in 2016 compared to 2015 was mainly due to the increased bunkers costs that we incurred while certain of our vessels were off-hire and idle, and was partly off-set by decreased commissions. As commissions are a percentage of time charter revenues, they follow the same trend with time charter revenues.
Vessel Operating Expenses. Vessel operating expenses amounted to $30.2 million in 2016, compared to $35.8 million in the prior year and mainly consist of expenses for running and maintaining the vessels, such as crew wages and related costs, consumables and stores, insurances, repairs and maintenance, environmental compliance costs and lay-up expenses. The decrease in 2016 was attributable to the decrease of all major categories of operating expenses, such as average insurance, stores, spares, repairs and maintenance and crew costs, as a result of the increased off-hire days leading to reduced vessels' operations.
Depreciation and Amortization of Deferred Charges.  Depreciation and amortization of deferred charges for 2016 amounted to $12.7 million, compared to $13.1 million in 2015 and mainly represents the depreciation expense of our containerships and the amortization charge of dry-docking costs for vessels. In 2016, despite the increase of our ownership days, the depreciation expense decreased, as a result of the vessels' impairment charges recorded as of September 30, 2016 for seven of our vessels.
General and Administrative Expenses.  General and administrative expenses for 2016 amounted to $7.2 million, compared to $6.2 million in 2015 and mainly consist of payroll expenses of office employees, consultancy fees, brokerage services fees, compensation cost on restricted stock awards, legal fees and audit fees. The increase in general administrative expenses was mainly attributable to increased office personnel and increased payroll taxes payable by the Company, which both led to increased salaries, as well as to increased brokerage fees.
Impairment Losses. Impairment losses in 2016 amounted to $118.9 million and represent non-cash impairment charges recorded  during the year for the vessels Sagitta, Centaurus, Domingo, Cap Doukato, Great, March and Angeles, for which the Company's assessment concluded that their book values as of September 30, 2016 were not recoverable. In 2015, impairment losses were $6.6 million and represented non-cash impairment charges recorded for the vessel Hanjin Malta.
Loss on Vessels' Sale. Loss on vessels' sale amounted to $2.9 million in 2016, and relates to the sale of the vessels Hanjin Malta and Angeles in March and November 2016, respectively, while in 2015, Loss on vessels' sale amounted to $8.3 million and relates to the sale of the vessel Garnet in September 2015.
Foreign Currency Losses / (Gains). Foreign currency losses for 2016 amounted to $111 thousand, and mainly consist of unrealized exchange differences derived from the year-end valuation of accounts other than the U.S. Dollar. In 2015, there were foreign currency gains of $55 thousand.
Interest and Finance Costs. Interest and finance costs for 2016 amounted to $7.1 million, compared to $7.2 million for 2015 and consist of the interest expenses relating to our average debt outstanding during the respective periods and other loan fees and expenses. The slight decrease in 2016 was mainly attributable to reduced loan expenses and related fees in connection with our loan agreements with RBS and DSI, despite the increase of our average total debt resulting in higher bank interest expense.
Interest Income. Interest income for 2016 and 2015 amounted to $0.1 million, and consists of interest income received on deposits of cash, cash equivalents and restricted cash.
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Year ended December 31, 2015 compared to the year ended December 31, 2014
Net Income / (Loss). Net loss for 2015 amounted to $17.5 million, compared to a net income of $3.2 million for 2014. The loss for 2015 was mainly the result of impairment charges and direct sale and other charges totaling $14.9 million.
Time Charter Revenues, net of prepaid charter revenue amortization.  Time charter revenues, net of prepaid charter revenue amortization of $8.6 million and $11.6 million for 2015 and 2014 respectively, amounted to $62.2 million for 2015, compared to $54.1 million in 2014. The net time charter revenues increased, despite the decrease of the daily time charter rates, mainly as a result of the 44% increase of ownership days and the decrease of the prepaid charter revenue amortization.
Voyage Expenses. Voyage expenses for 2015 amounted to $2.6 million, compared to $0.3 million in 2014. Voyage expenses in 2015 mainly consist of bunkers costs and commissions paid to third party brokers. The increase in voyage expenses in 2015 compared to 2014 was mainly due to the increased bunkers costs that we incurred while certain of our vessels were off-hire and also due to increased commissions. As commissions are a percentage of time charter revenues, they follow the same trend with time charter revenues.
Vessel Operating Expenses. Vessel operating expenses amounted to $35.8 million in 2015, compared to $26.6 million in the prior year and mainly consist of expenses for running and maintaining the vessels, such as crew wages and related costs, consumables and stores, insurances, repairs and maintenance and environmental compliance costs. The increase in 2015 was primarily due to the enlargement of our fleet and also due to increased average stores and spares expenses, partly offset by decreased average crew cost and repairs and maintenance costs.
Depreciation and Amortization of Deferred Charges Depreciation and amortization of deferred charges for 2015 amounted to $13.1 million, compared to $10.3 million in 2014 and for 2015, it mainly represents the depreciation expense of our containerships and the amortization charge of dry-docking costs for four of our vessels which underwent during the year their scheduled dry-dockings. In 2014, the figure mainly includes the vessel's depreciation expense, as no vessels had performed any dry-dockings until then.
General and Administrative Expenses.  General and administrative expenses for 2015 amounted to $6.2 million, compared to $6.3 million in 2014 and mainly consist of payroll expenses of office employees, consultancy fees, brokerage services fees, compensation cost on restricted stock awards, legal fees and audit fees. The slight decrease in general administrative expenses was mainly attributable to decreased payroll and bonuses of the office employees and was partly off-set by increased compensation cost on restricted stock awards and legal fees.
Impairment Losses. Impairment losses in 2015 were $6.6 million and represent non-cash impairment charges recorded for the vessel Hanjin Malta.
Loss on Vessels' Sale. Loss on vessels' sale amounted to $8.3 million in 2015, and relates to the sale of the vessel Garnet (ex Apl Garnet) in September 2015, while in 2014, Loss on vessels' sale amounted to $0.7 million and related to the sale of the vessel Apl Sardonyx.
Foreign Currency Losses / (Gains). Foreign currency gains for 2015 amounted to $55 thousand, which mainly consists of unrealized exchange differences derived from the year-end valuation of accounts other than the U.S. Dollar. In 2014, there were foreign currency losses of $17 thousand
Interest and Finance Costs. Interest and finance costs for 2015 amounted to $7.2 million, compared to $6.7 million for 2014 and consist of the interest expenses relating to our average debt outstanding during the respective periods and other loan fees and expenses. The increase in 2015 was mainly attributable to the increase of our average total debt, after our re-finance of our loan agreement with RBS in September 2015, and to commitment fees payable in connection with this agreement, and was partly off-set by decreased interest rates, which decreased to 3.7% in 2015 from 3.9% in 2014.
Interest Income. Interest income for 2015 and 2014, amounted to $0.1 million, and consists of interest income received on deposits of cash and cash equivalents.
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Inflation
Inflation does not have a material effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and financing costs.
B.          Liquidity and Capital Resources
We have financed our capital requirements with cash flow from operations, equity contributions from shareholders and long-term debt. Our operating cash flow is generated from charters on our vessels, through our subsidiaries. Our main uses of funds have been capital expenditures for the acquisition of new vessels, expenditures incurred in connection with ensuring that our vessels comply with international and regulatory standards, repayments of bank loans and payments of dividends. At times when we are not restricted from our lenders to acquire additional vessels, we will require capital to fund vessel acquisitions and debt service.
During 2016, we amended our $148.0 million loan facility with RBS and our $50.0 million loan facility with DSI, and agreed, among others, to amend the repayment schedules of both loans. As of December 31, 2016, due to the significant decline in the market value of our vessels, following the prolonged weak charter market conditions, we were not in compliance with certain financial covenants in the RBS loan, as well as with the minimum required security cover ("hull cover ratio"). Due to these technical breaches of the covenants as of December 31, 2016, we classified the long-term portion of our bank debt of $124.8 million in current liabilities. As a result, working capital, which is current assets minus current liabilities, resulted in a deficit of $107.0 million at December 31, 2016, while as at December 31, 2015 we had a working capital surplus of $10.2 million. Given the prolonged market downturn in the containership segment and the continued depressed outlook on charter rates and vessels' market values we expect that cash on hand and cash provided by operating activities might not be sufficient to cover our liquidity needs that become due within one year after the date that the financial statements are issued. The above conditions raise substantial doubts about our ability to continue as a going concern and our independent registered public accounting firm has issued their opinion with an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern.
However, we believe that the lenders will not demand payment of the loan before its maturity, since we will continue to pay interest and loan installments, as they fall due under the existing loan facility. In addition, we are also exploring several alternatives aiming to manage our working capital requirements, including seeking for more favorable chartering opportunities, future equity or debt security offerings subject to lenders' consent, and potential sale of vessels or a combination thereof. Therefore, our financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Cash Flow
As at December 31, 2016, cash and cash equivalents amounted to $8.3 million compared to $29.4 million for the prior year. We consider highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are primarily held in U.S. dollars.
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Net Cash Provided by/ (Used in) Operating Activities
Net cash used in operating activities in 2016 amounted to $12.0 million, while in 2015 and 2014 net cash provided by operating activities amounted to $17.4 million, and $25.5 million, respectively. Cash from operations for 2016 was negative due to the prolonged weak charter market conditions in the containership sector, which led to low fleet utilization during the year through vessels' lay-up and increased off-hire days, and also due to reduced time charter rates achieved for the operating vessels of our fleet. The decrease in cash from operating activities in 2015 compared to 2014, is mainly due to the decrease of our time charter rates in 2015, counterbalanced with the enlargement of our average fleet, after the acquisition of four vessels and the disposal of one vessel in 2015.
Net Cash Provided by/ (Used in) Investing Activities
Net cash provided by investing activities in 2016 was $10.6 million and consists of $10.6 million received from the sale of two vessels during the year, $0.2 million paid for additional capitalized costs for one vessels, $29 thousand paid for equipment additions, and finally $0.2 million received, representing insurance settlements.
Net cash used in investing activities in 2015 was $111.8 million and consists of $113.0 million paid for the four vessels that we acquired during the year, $6.0 million paid for time charter agreements attached to the memoranda of agreement for two vessels acquired during the year, $7.0 million received from the sale of one vessel during the year, $39 thousand paid for equipment additions, and finally $0.3 million received, representing insurance settlements.
Net cash used in investing activities in 2014 was $51.6 million and consists of $60.4 million paid for the three vessels that we acquired during the year, $0.9 million paid for the acquisition of a plot of land and for equipment additions, $8.8 million received from the sale of one vessel during the year, and finally $0.9 million received, representing insurance settlements.
Net Cash Provided by/ (Used in) Financing Activities
Net cash used in financing activities in 2016 was $19.7 million and consists of $19.2 million of debt repayments, $0.2 million of finance costs that we paid for our new loan agreement with RBS and $0.4 million of cash dividends paid to investors.
Net cash provided by financing activities in 2015 was $41.7 million and consists of $148.0 million of loan proceeds received under our new loan agreement with The Royal Bank of Scotland plc, $103.3 million of debt repayments and prepayments, $3.2 million of finance costs that we paid for our new loan agreement with RBS and for our amendment of the DSI loan agreement, $0.7 million of cash dividends paid to investors and $0.9 million of reduced restricted cash required under our loan facility with The Royal Bank of Scotland plc.
Net cash provided by financing activities in 2014 was $88.5 million and consists of $96.0 million of net proceeds received from the offering of 136,574 shares of common stock under our at-the-market program and of 4,581,673 shares under the private equity placement that took place during the year, and $7.5 million of cash dividends paid to investors.
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Loan Facilities
The Royal Bank of Scotland plc – Revolving Credit Facility.: On December 16, 2011, we entered into a revolving credit facility with The Royal Bank of Scotland plc, where the lenders agreed to make available to us a revolving credit facility of up to $100.0 million, in order to refinance part of the acquisition cost of the vessels m/v Sagitta and m/v Centaurus, and finance part of the acquisition cost of additional containerships ("Additional Ships").  An aggregate amount of $98.7 million was drawn down under the credit facility. We paid an arrangement fee of 1%, or $1 million, on signing of the agreement. We also paid commitment commissions of 0.99% per annum on the available commitment up to October 31, 2013, date at which the available amount to be drawn from the credit facility became zero.
The facility would have been available for five years with the maximum available amount reducing based on the age of the financed vessels and being assessed on a yearly basis, as well as, at the date on which the age of any Additional Ship exceeded the 20 years. In the event that the amounts outstanding at that time exceeded the revised Available Facility Limit, we would have repaid such part of the loan that exceeded the Available Facility Limit. The credit facility provided for interest at LIBOR plus a margin of 2.75% per annum, and effective June 1, 2013, for an increased margin of 3.10% per annum over LIBOR.
The facility was secured by first priority mortgages over certain vessels of the fleet, general assignments of earnings, insurances and requisition compensation, minimum insurance coverage, specific assignments of any charters exceeding durations of twelve months, pledge of shares of the guarantors which were the ship-owning companies of the mortgaged vessels, manager's undertakings and minimum security value depending on the average age of the mortgaged vessels. The credit facility also included restrictions as to changes in certain shareholdings, management and employment of vessels, and required minimum cash of 10% of the drawings under the revolving facility, but not less than $5.0 million, to be deposited by the borrower with the lenders. Furthermore, the facility agreement contained customary financial covenants and we were not permitted to pay any dividends that would result in a breach of the financial covenants. In 2013 and 2014, we entered into various supplemental agreements with the lenders, the main terms of which provided for security interest on the minimum cash held by us in favor of the lenders and for changes in the definitions of certain financial covenants. In addition, we were required to provide additional vessels as collateral to secure the facility and were restricted from providing any security interest over our assets in favor of DSI.
Based on the age of the financed vessels, an amount of $6.0 million was repaid in August 2015. On September 15, 2015, in connection with the loan re-finance discussed below, we prepaid in full the outstanding balance of $92.7 million and the facility was terminated.
The Royal Bank of Scotland plc – Term Loan: On September 10, 2015, we, through nine of our subsidiaries, entered into a loan agreement with RBS of up to $148.0 million, to re-finance the acquisition cost of seven of our vessels, including the full prepayment of the existing facility agreement (discussed above), and to support the acquisition of the two newly acquired vessels, the m/v Hamburg and the m/v Rotterdam. Until December 31, 2015, we drew down the full amount of the loan and paid arrangement and structuring fees amounting to $1.9 million. We also paid commitment commissions of 1.375% per annum on the undrawn amounts, from July 30, 2015, the date of acceptance of the lenders' offer letter, until the drawdown dates. The loan, until its amendment discussed below, bore interest at the rate of 2.75% per annum over LIBOR and was repayable in quarterly installments and a balloon payment payable together with the last installment in September 2021. The loan is secured by first preferred mortgages on nine vessels of our fleet, first priority deeds of assignments of insurances, earnings, charter rights and requisition compensation and a corporate guarantee. The loan agreement also contains customary financial covenants, minimum security value of the mortgaged vessels, requires minimum liquidity of $0.5 million per vessel in the fleet and restricted cash of $9.0 million to be deposited by the borrowers with the lenders for the duration of the loan. There are also restrictions as to changes in the DSI loan agreement, in the securities purchase agreement that we entered into in connection with the Private Placement, in certain shareholdings and management of the vessels. Finally, we are not permitted to pay any dividends that would result in a breach of the financial covenants.
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On September 12, 2016, we entered into an amendment of our loan agreement with RBS, according to which the Company prepaid an amount of $7.6 million and agreed to change the repayment schedule and recommence repaying the principal on September 15, 2017. Moreover, the loan amendment provides for changes to the borrowers and to the mortgaged vessels and required an amendment to our loan agreement with DSI. It also prohibits the incurrence of additional indebtedness and the acquisition of additional vessels until September 15, 2018, and the payment of dividends until the later of: (a) prepayment or repayment in full on June 15, 2021 of the deferred tranche of $8.9 million which was created out of the reallocation of amounts due under the existing tranches, and (b) September 15, 2018. Furthermore, the minimum security covenant ("hull cover ratio") was reduced from 140% to 125% until September 30, 2018, certain financial covenants were amended while the application of others was deferred to 2019, and the interest rate margin increased from 2.75% per annum to 3.10% per annum until December 31, 2018. Finally, we paid an amendment fee of $0.2 million at the signing of the agreement and an additional fee of $0.2 million is payable on December 31, 2018.
As of September 30, 2016 and thereafter, due to a significant decline in the market value of our vessels, we were not in compliance with two financial covenants in the RBS loan, as well as with the required covenant for the minimum required security cover ("hull cover ratio"). As advised by the lenders, to rectify the shortfall of the minimum required security cover, we would have to repay to RBS an amount of $18.9 million, or provide additional security. Due to these technical breaches in our loan covenants, we have classified our bank debt of $128.9 million as of December 31, 2016 in current liabilities. However, we believe that the lenders will not demand payment of the loan before its maturity, since we will continue to pay interest and loan installments, as they fall due under the existing loan facility. In addition, we are also exploring several alternatives aiming to manage our working capital requirements, including seeking for more favorable chartering opportunities, future equity or debt security offerings subject to lenders' consent, and potential sale of vessels or a combination thereof.
Diana Shipping Inc. ("DSI"): On May 20, 2013, we, through our subsidiary Eluk Shipping Company Inc., entered into an unsecured loan agreement of up to $50.0 million with DSI, to be used to fund vessel acquisitions and for general corporate purposes. The loan is guaranteed by the Company and, until the amendment discussed below, it bore interest at a rate of LIBOR plus a margin of 5.0% per annum and a fee of 1.25% per annum ("back-end fee") on any amounts repaid upon any repayment or voluntary prepayment dates. In August 2013, the full amount was drawn down under the loan agreement which was originally repayable on August 20, 2017.
On September 9, 2015, and in relation with the RBS refinance discussed above, the loan agreement with DSI was amended. The new loan agreement is extended until March 15, 2022 or such earlier date on which the outstanding principal balance of the loan is paid in full, provides for annual repayments of $5.0 million, plus a balloon installment at the final maturity date, and bears interest at LIBOR plus margin of 3.0% per annum. We also agreed to pay at the date of the amendment the accumulated back-end fee, amounting to $1.3 million, and that no additional back-end fee will be charged thereafter. Furthermore, we agreed that we will pay at the final maturity date a flat fee of $0.2 million.
On September 12, 2016 and in relation with the RBS amended loan agreement discussed above, we further amended the loan agreement with DSI. The loan was undertaken by  our wholly-owned subsidiary Kapa Shipping Company Inc. and its repayment was immediately suspended and will not recommence until the later of: (i) September 15, 2018 and (ii) until the deferred tranche of the RBS supplemental agreement is fully repaid on June 15, 2021 or prepaid. Finally, the margin has been revised to 3.35% per annum until December 31, 2018, thereafter reverting to 3.0% per annum until maturity.
As of December 31, 2016, and currently, we had $45.4 million of principal debt outstanding under our loan facility with DSI.
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As at December 31, 2016 and the date of this annual report, we have not used any derivative instruments for hedging purposes or other purposes.
Capital Expenditures
Our future capital expenditures relate to the purchase of containerships and vessel upgrades.
We also expect to incur additional capital expenditures when our vessels undergo surveys. This process of recertification may require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our operating days during the period. The loss of earnings associated with the decrease in operating days, together with the capital needs for repairs and upgrades results in increased cash flow needs which we fund with cash on hand.
C.          Research and Development, Patents and Licenses
From time to time, we incur expenditures relating to inspections for acquiring new vessels that meet our standards. Such expenditures are capitalized to vessel's cost upon such vessel's acquisition or expensed, if the vessel is not acquired, however, historically, such expenses were not material.
D.           Trend Information
Our results of operations depend primarily on the charter hire rates that we are able to realize.  Charter hire rates paid for containerships are primarily a function of the underlying balance between vessel supply and demand.
With some exceptions, time charter rates for all containership sizes increased steadily from 2002 into 2005, in some cases rising by as much as 50.0%, as charter markets experienced significant growth. Demand for vessels was largely spurred on by growth in the volume of exports from China. In 2006, time charter rates weakened due to supply rising faster than demand and also market perception. This trend continued in 2007 and 2008, and in 2009 rates fell even further due to rising supply and very weak demand. With the recovery in demand since 2009 charter rates across most sizes have improved from the lows of 2009, although in a historical context they still remain low.  As such, we cannot assure investors that we will be able to fix our vessels, upon expiration of their current charters, at average rates higher than or similar to those achieved in previous years.
E.          Off-balance Sheet Arrangements
As of the date of this annual report, we do not have any off-balance sheet arrangements.
F.          Tabular Disclosure of Contractual Obligations
The following table presents our contractual obligations as of December 31, 2016. The amount of our bank debt has been classified as "Less than 1 year" in the contractual obligations table to be consistent with the classification of the debt as current liability within our consolidated financial statements.
   
Payments due by period
 
Contractual Obligations 
 
Total Amount
   
Less than 1 year
   
2-3 years
   
4-5 years
   
More than 5 years
 
   
(in thousands of US dollars)
 
Broker Services Agreement (1)
 
$
420
   
$
420
   
$
-
   
$
-
   
$
-
 
Long Term Bank Debt (2)
   
128,861
     
128,861
     
-
     
-
     
-
 
Related Party Debt (3) (4)
   
45,617
     
-
     
6,667
     
10,000
     
28,950
 
                                         
Total
 
$
174,898
   
$
129,281
   
$
6,667
   
$
10,000
   
$
28,950
 

(1)
Our agreement with Diana Enterprises Inc., dated April 1, 2016, expires on March 31, 2017. Please see "Item 6B.-Compensation" and "Item 7B.-Related Party Transactions" for more details.
 (2)
As discussed in Note 7 to our consolidated financial statements, we have classified our bank debt of $128.9 million as of December 31, 2016 in current liabilities. The amounts in the table under "Long Term Bank Debt" do not include any projected interest payments.
 (3)
The due dates of the related party debt principal payments, are directly connected to the repayment dates of the bank loan and more specifically the repayment of the DSI loan will  recommence on the later of: (i) September 15, 2018 and (ii) until the deferred tranche of the RBS supplemental agreement is fully repaid on June 15, 2021 or prepaid. Accordingly, in the table above the RBS loan is assumed to be fully repaid in 2017, thus the repayments of the DSI loan will are assumed to recommence in September 2018. The amounts in the table under "Related Party Debt" do not include any projected interest payments.
 (4)
The table above includes a flat fee payable to Diana Shipping in 2022, amounting to $0.2 million.
As a supplement to our contractual obligations table, the following schedule sets forth our loan repayment obligations as required under our loan facilities as of December 31, 2016.

   
Payments due by period
 
Contractual Obligations 
 
Total Amount
   
Less than 1 year
   
2-3 years
   
4-5 years
   
More than 5 years
 
   
(in thousands of US dollars)
 
Broker Services Agreement
 
$
420
   
$
420
   
$
-
   
$
-
   
$
-
 
Long Term Bank Debt (1)
   
128,861
     
4,069
     
32,023
     
92,769
     
-
 
Related Party Debt (1)
   
45,617
     
-
     
-
     
2,917
     
42,700
 
                                         
Total
 
$
174,898
   
$
4,489
   
$
32,023
   
$
95,686
   
$
42,700
 


(1)
The table above does not include projected interest payments which are based on LIBOR plus a margin, which are estimated at about $7.3 million for 2017, $12.8 million for 2018 and 2019, $8.8 million for 2020 and 2021 and $0.4 million for 2022, as long as the LIBOR rate remains at the levels of the year ended December 31, 2016.

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G.          Safe Harbor
See the section entitled "Forward-looking Statements" at the beginning of this annual report.
Item 6.          Directors, Senior Management and Employees
A.          Directors and Senior Management
Set forth below are the names, ages and positions of our directors and executive officers. Our board of directors is elected annually on a staggered basis, and each director elected holds office for a three-year term.  Officers are appointed from time to time by our board of directors and hold office until a successor is elected.
All of our executive officers are also executive officers of Diana Shipping.

Name
 
Age
 
Position
Symeon Palios          
 
75
 
Class III Director, Chief Executive Officer and Chairman of the Board
Anastasios Margaronis          
 
61
 
Class II Director and President
Ioannis Zafirakis          
 
45
 
Class I Director, Chief Operating Officer and Secretary
Andreas Michalopoulos          
 
45
 
Chief Financial Officer and Treasurer
Giannakis (John) Evangelou          
 
72
 
Class III Director
Antonios Karavias          
 
75
 
Class I Director
Nikolaos Petmezas          
 
68
 
Class III Director
Reidar Brekke          
 
56
 
Class II Director

The term of the Class I directors expires in 2017, the term of the Class II directors expires in 2018, and the term of the Class III directors expires in 2019.
The business address of each officer and director is the address of our principal executive offices, which are located at Pendelis 18, 175 64 Palaio Faliro, Athens, Greece.
Biographical information concerning the directors and executive officers listed above is set forth below.
Symeon Palios has served as our Chief Executive Officer and Chairman of the Board since January 13, 2010 and has served as Chief Executive Officer and Chairman of the Board of Diana Shipping Inc. since February 21, 2005 and as a Director of that company since March 9, 1999. Mr. Palios also serves currently as the President of Diana Shipping Services S.A. Prior to November 12, 2004, Mr. Palios was the Managing Director of Diana Shipping Agencies S.A. Since 1972, when he formed Diana Shipping Agencies S.A., Mr. Palios has had overall responsibility for its activities. Mr. Palios has experience in the shipping industry since 1969 and expertise in technical and operational issues. He has served as an ensign in the Greek Navy for the inspection of passenger boats on behalf of Ministry of Merchant Marine and is qualified as a naval architect and engineer. Mr. Palios is a member of various leading classification societies worldwide and he is a member of the board of directors of the United Kingdom Freight Demurrage and Defense Association Limited. He holds a bachelor's degree in Marine Engineering from Durham University.
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Anastasios Margaronis has served as our Director and President since January 13, 2010 and has served in these positions with Diana Shipping Inc. since February 21, 2005. Mr. Margaronis also serves as an employee of Diana Shipping Services S.A. Prior to February 21, 2005, Mr. Margaronis was employed by Diana Shipping Agencies S.A. and performed the services he now performs as President. He joined Diana Shipping Agencies in 1979 and has been responsible for overseeing our insurance matters, including hull and machinery, protection and indemnity, loss of hire and war risks insurances. Mr. Margaronis has experience in the shipping industry, including in ship finance and insurance, since 1980. He is a member of the Greek National Committee of the American Bureau of Shipping and a member of the board of directors of the United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited and of the United Kingdom Mutual Steam Ship Assurance Association (Europe) Limited. He holds a bachelor's degree in Economics from the University of Warwick and a master's of science degree in Maritime Law from the Wales Institute of Science and Technology.
Ioannis Zafirakis serves as our Director, Chief Operating Officer and Secretary. He also serves as Director, Chief Operating Officer and Secretary of Diana Shipping Inc. In addition, he is the Chief Operating Officer of Diana Shipping Services S.A., where he also serves as Director and Treasurer. Since June 1997 and up to February 2005 Mr. Zafirakis was employed by Diana Shipping Agencies S.A. where he held  a number of positions in its finance and accounting department. Mr. Zafirakis is also a member of the Business Advisory Committee of the MSc in International Shipping and Finance at ICMA Centre, Henley Business School, University of Reading. He holds a bachelor's degree in Business Studies from City University Business School in London and a master's degree in International Transport from the University of Wales in Cardiff.
Andreas Michalopoulos has served as our Chief Financial Officer and Treasurer since January 13, 2010 and has served in these positions with Diana Shipping Inc. since March 8, 2006. Mr. Michalopoulos started his career in 1993 when he joined Merrill Lynch Private Banking in Paris. In 1995, he became an International Corporate Auditor with Nestle SA based in Vevey, Switzerland and moved in 1998 to the position of Trade Marketing and Merchandising Manager. From 2000 to 2002, he worked for McKinsey and Company in Paris, France as an Associate Generalist Consultant before joining a major Greek Pharmaceutical Group with U.S. R&D activity as a Vice President of International Business Development and Member of the Executive Committee in 2002 where he remained until 2005. From 2005 to 2006, he joined Diana Shipping Agencies S.A. as a Project Manager. Mr. Michalopoulos graduated from Paris IX Dauphine University with Honors in 1993 obtaining an MSc in Economics and a master's degree in Management Sciences specialized in Finance. In 1995, he also obtained a master's degree in Business Administration from Imperial College, University of London. Mr. Andreas Michalopoulos is married to the youngest daughter of Mr. Symeon Palios.
Giannakis (John) Evangelou has served as an independent Director and as the Chairman of our Audit Committee since February 8, 2011. Mr. Evangelou is also a member of the Board of Directors of Elgeka-Ferfelis Romania S.A., a member of Elgeka S.A. Group of Companies which is listed on the A.S.E. and a Director of Baker Tilly South East Europe, a professional services company. Mr. Evangelou retired from Ernst & Young (Hellas), which he joined as a partner in 1998, on June 30, 2010. During his 12 years at Ernst & Young, he acted as Transaction Support leader for Greece and a number of countries in Southeast Europe including Turkey, Bulgaria, Romania and Serbia. In addition to his normal duties as a partner, Mr. Evangelou held the position of Quality and Risk Management leader for Transaction Advisory Services responsible for a sub-area comprising 18 countries spanning from Poland and the Baltic in the North to Cyprus and Malta in the South. From 1986 through 1997, Mr. Evangelou held the position of Group Finance director at Manley Hopkins Group, a Marine Services Group of Companies. From 1991 through 1997, Mr. Evangelou served as Chief Accounting Officer for Global Ocean Carriers, a shipping company that was listed on a U.S. stock exchange during that time. From 1996 to 1998, Mr. Evangelou was an independent consultant and a member of the team that prepared Royal Olympic Cruises for its listing on Nasdaq. From 1974 through 1986, Mr. Evangelou was a partner of Moore Stephens in Greece. Additionally, Mr. Evangelou is a Fellow of the Institute of Chartered Accountants in England and Wales, a member of The Institute of Certified Public Accountants of Cyprus and a member of the Institute of Certified Accountants—Auditors of Greece.
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Antonios Karavias has served as an independent Director and as the Chairman of our Compensation Committee and member of our Audit Committee since the completion of the private offering. Since 2007 Mr. Karavias has served as an Independent Advisor to the Management of Société Générale Bank and Trust and Marfin Egnatia Bank. Previously, Mr. Karavias was with Alpha Bank from 1999 to 2006 as a Deputy Manager of Private Banking and with Merrill Lynch as a Vice President from 1980 to 1999. He holds a bachelor's degree in Economics from Mississippi State University and a master's degree in Economics from Pace University. As of 2012, Mr. Karavias has been President of UNION F.Z., a financial services company registered in the U.A.E.
Nikolaos Petmezas has served as an independent Director and as a member of our Compensation Committee since the completion of our private offering in 2010. From 2001 until mid-2015, Mr. Petmezas served as the Chief Executive Officer of Maersk-Svitzer-Wijsmuller B.V. Hellenic Office and, prior to its acquisition by Maersk, as a Partner and as Chief Executive Officer of Wijsmuller Shipping Company B.V. He has also served since 1989 as the Chief Executive Officer of N.G. Petmezas Shipping and Trading, S.A., and since 1984 as the Chief Executive Officer of Shipcare Technical Services Shipping Co. LTD. Since 1995, Mr. Petmezas has served as the Managing Director of Kongsberg Gruppen A.S. (Hellenic Office) and, from 1984 to 1995, as the Managing Director of Kongsberg Vaapenfabrik A.S. (Hellenic Branch Office). Mr. Petmezas served on the Board of Directors of Neorion Shipyards, in Syros, Greece from 1989 to 1992. Mr. Petmezas began his career in shipping in 1977, holding directorship positions at Austin & Pickersgill Ltd. Shipyard and British Shipbuilders Corporation until 1983. Mr. Petmezas has been a member of the Advisory Committee of Westinghouse Electric and Northrop Grumman since 1983 and a Honorary Consul under the General Consulate of Sri Lanka in Greece since 1995. Mr. Petmezas holds degrees in Law and in Political Sciences and Economics from the Aristotle University of Thessaloniki and an LL.M. in Shipping Law from London University.
Reidar Brekke has served as an independent Director since June 1, 2010. Mr. Brekke has been a principal, advisor and deal-maker in the international energy, container logistics and transportation sector for the last 20+ years. Mr. Brekke is currently President of Intermodal Holdings LP, a company investing in intermodal assets. From 2008-2012, he was President of Energy Capital Solutions Inc., (New York and Florida) providing strategic and financial advisory services to international shipping, logistics and energy related companies. From 2003-2008 he served as Manager of Poten Capital Services LLC, a registered broker-dealer specializing in the maritime sector. Prior to 2003, Mr. Brekke was C.F.O., then President and C.O.O., of SynchroNet Marine, a logistics service provider to the global container transportation industry. From 1994 to 2000, he held several senior positions with American Marine Advisors, including Fund Manager of American Shipping Fund I LLC, and C.F.O. of its broker dealer subsidiary. Prior to this, Mr. Brekke was an Advisor for the Norwegian Trade Commission in New York and Oslo, Norway, and a financial advisor in Norway. Mr. Brekke graduated from the New Mexico Military Institute in 1986 and in 1990 he obtained a MBA from the University of Nevada, Reno. He has been an adjunct professor at Columbia University's School of International and Public Affairs – Center for Energy, Marine Transportation and Public Policy, and is currently on the board of directors of Scorpio Tankers Inc. (NYSE: STNG) and three privately-held companies involved in container logistics, container leasing and drybulk shipping.
B.          Compensation
Since June 1, 2010, the members of our senior management have been compensated through their affiliation with Diana Enterprises Inc., a related party controlled by our Chief Executive Officer and Chairman of the Board Mr. Symeon Palios, as described under "Item 7B. Related Party Transactions". Pursuant to the respective Broker Services Agreements, fees payable to Diana Enterprises Inc. for brokerage services  provided to us in 2016, 2015, and 2014, amounted to $2.0 million, $1.5 million and $1.5 million, respectively.
Our executive officers received in 2016, 2015 and 2014 a number of 106,905, 91,449 and 45,180 shares of restricted stock awards, respectively, which all vest ratably over three years from the grant date. In 2016, 2015, and 2014, compensation costs relating to the aggregate amount of restricted stock awards amounted to $1.1 million, $0.9 million and $0.3 million, respectively.
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Our non-executive directors receive annual compensation in the aggregate amount of $40,000 plus reimbursement of their out-of-pocket expenses incurred while attending any meeting of the board of directors or any board committee. In addition, a committee chairman receives an additional $20,000 annually, and other committee members receive an additional $10,000. In 2016 our non-executive directors were awarded 18,084 shares of restricted stock awards, which will vest ratably over three years from the grant date.  We do not have a retirement plan for our officers or directors. For 2016, 2015, and 2014, fees, bonuses and expenses to non-executive directors amounted to $0.3 million, $0.3 million and $0.4 million, respectively.
Finally, in February 2017, our Board of Directors approved an award of restricted common stock with value $0.4 million to our executive management and non-executive directors. The award will be granted on February 9, 2018 and the exact number of shares for the grantees will be defined based on the share closing price of February 9, 2018. One third of the shares will vest on the grant date and the remainder will vest ratably over two years from the grant date.
2012 Equity Incentive Plan
In 2010, we adopted an equity incentive plan, which we refer to as the 2010 Equity Incentive Plan, under which directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates would be eligible to receive options to acquire common stock, stock appreciation rights, restricted stock, restricted stock units and unrestricted common stock. We reserved for issuance a total of 49,024 common shares under the plan, which was subject to adjustment for changes in capitalization as provided in the plan.  On February 21, 2012, we amended the 2010 Equity Incentive Plan and it was renamed as the 2012 Amended and Restated Equity Incentive Plan. We refer to this plan as the 2012 Equity Incentive Plan. The sole material change from the 2010 Equity Incentive Plan to the 2012 Equity Incentive Plan was the reservation for issuance of an additional 250,000 common shares.
The 2012 Equity Incentive Plan is administered by our compensation committee, or such other committee of our board of directors as may be designated by the board to administer the plan.
Under the terms of the 2012 Equity Incentive Plan, stock options and stock appreciation rights granted under the plan will have an exercise price per common share equal to the market value of a common share on the date of grant, unless otherwise specifically provided in an award agreement, but in no event will the exercise price be less than the greater of (i) the market value of a common share on the date of grant and (ii) the par value of one share of common stock. Options and stock appreciation rights will be exercisable at times and under conditions as determined by the plan administrator, but in no event will they be exercisable later than ten years from the date of grant.
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting and forfeiture provisions and other terms and conditions as determined by the plan administrator in accordance with the terms of the plan. Following the vesting of a restricted stock unit, the award recipient will be paid an amount equal to the number of restricted stock units that then vest multiplied by the market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization or other extraordinary event. In the event of a "change in control" (as defined in the plan), unless otherwise provided by the plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.
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Our board of directors may amend the plan and may amend outstanding awards, provided that no such amendment may be made that would materially impair any rights, or materially increase any obligations, of a grantee under an outstanding award without the consent of such grantee. Shareholder approval of plan amendments will be required under certain circumstances. Unless terminated earlier by our board of directors, the 2012 Equity Incentive Plan will expire ten years from the date the plan was adopted. The plan administrator may cancel any award and amend any outstanding award agreement except no such amendment shall be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to the outstanding award.
As of the date of this annual report, we have issued a total of 294,943 restricted shares under our 2012 Equity Incentive Plan to our executive officers and non-executive directors, of which 93,933 shares have vested.
2015 Equity Incentive Plan
On May 5, 2015, our board of directors approved to adopt the 2015 Equity Incentive Plan, with substantially the same terms and provisions as the 2012 Equity Incentive Plan.  Under the 2015 Equity Incentive Plan, an aggregate of 625,000 common shares were reserved for issuance. The plan is administered by the compensation committee, or such other committee of our board of directors as may be designated by the board to administer the plan. The plan will expire ten years from its date of adoption.
As of the date of this annual report, we have issued zero restricted shares under our 2015 Equity Incentive Plan to our executive officers and non-executive directors.
C.          Board Practices
Actions by the Board of Directors of Diana Containerships
Our amended and restated bylaws provide that vessel acquisitions and disposals from or to a related party and long term time charter employment with any charterer that is a related party will require the unanimous approval of the independent members of our board of directors and that all other material related party transactions shall be subject to the approval of a majority of the independent members of the board of directors.
Committees of the Board of Directors
We have established an Audit Committee, comprised of two members of our board of directors, which is responsible for reviewing our accounting controls, recommending to the board of directors the engagement of our independent auditors, and pre-approving audit and audit-related services and fees. Each member has been determined by our board of directors to be "independent" under Nasdaq rules and the rules and regulations of the SEC. As directed by its written charter, the Audit Committee is responsible for reviewing all related party transactions for potential conflicts of interest and all related party transactions are subject to the approval of the Audit Committee. Mr. John Evangelou has served as the Chairman of the Audit Committee since February 8, 2011. We believe that Mr. Evangelou qualifies as an Audit Committee financial expert as such term is defined under SEC rules. Mr. Antonios Karavias serves as a member of our Audit Committee.
In addition, we have established a Compensation Committee, comprised of two independent directors, which, as directed by its written charter, is responsible for recommending to the board of directors our senior executive officers' compensation and benefits. Mr. Antonios Karavias serves as the Chairman of the Compensation Committee and Mr. Nikolaos Petmezas serves as a member of our Compensation Committee.
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We have also established an Executive Committee comprised of three directors, Mr. Symeon Palios, our Chief Executive Officer and Chairman of the Board, Mr. Anastasios Margaronis, our President, and Mr. Ioannis Zafirakis, our Chief Operating Officer and Secretary. The Executive Committee is responsible for the overall management of our business.
We also maintain directors' and officers' insurance, pursuant to which we provide insurance coverage against certain liabilities to which our directors and officers may be subject, including liability incurred under U.S. securities law.
D.          Crewing and Shore Employees
We crew our vessels primarily with Greek and Filipino, and secondarily with Ukrainian and Romanian officers and seamen. We are responsible for identifying our Greek officers, which are hired by our fleet manager on behalf of the vessel-owning subsidiaries. Our Filipino officers and seamen are referred to us by Crossworld Marine Services Inc., an independent crewing agency. The crewing agency handles each seaman's training and payroll. We ensure 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 supervise 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.
The following table presents the number of shoreside personnel employed by our manager and the number of seafaring personnel employed by our vessel-owning subsidiaries as of December 31, 2016, 2015 and 2014:
 
As of December 31, 2016
As of December 31, 2015
As of December 31, 2014
Shoreside
39
40
32
Seafaring
178
308
266
Total
217
348
298

E.          Share Ownership
With respect to the total amount of common stock owned by all of our officers and directors individually and as a group, see "Item 7.A- Major Shareholders and Related Party Transactions."
Item 7.          Major Shareholders and Related Party Transactions
A.          Major Shareholders
The following table sets forth information regarding ownership of our common stock of which we are aware as of February 16, 2017, for (i) beneficial owners of five percent or more of our common shares and (ii) our officers and directors, individually and as a group. All of our shareholders, including the shareholders listed in this table, are entitled to one vote for each common share held.
Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, common shares subject to options held by that person that are currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this report, are deemed to be beneficially owned by that person. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
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As of February 16, 2017, we had 9,361,274 common shares issued and outstanding and the percentage of beneficial ownership below is based on this figure:
       
   
Shares Beneficially Owned
 
 
Identity of person or group
 
Number
   
Percentage
 
Diana Shipping Inc. (1)         
   
2,408,717
     
25.7
%
Symeon Palios (2)          
   
424,477
     
4.5
%
Anastasios Margaronis
   
62,036
     
*
 
Ioannis Zafirakis          
   
0
     
0
%
Andreas Michalopoulos          
   
0
     
0
%
Non-executive directors
   
18,084
     
*
 
All directors and officers, as a group
   
504,597
     
5.4
%

(1)
As at December 31, 2016, 2015, and 2014, Diana Shipping Inc. owned 25.7%, 26.1%, and 26.3% of our common stock, respectively.
(2)
Based on the Schedule 13D/A filed with the SEC on December 13, 2016. Of these shares, Mr. Palios may be deemed to beneficially own 288,932 common shares through Taracan Investments S.A., 19,371 common shares through Corozal Compania Naviera S.A., 38,742 common shares through Ironwood Trading Corp., and 77,432 common shares through Abra Marinvest Inc. and Mitzela Corp., companies for which he is the controlling person, for an aggregate of 424,477 common shares. As at December 31, 2016, 2015, and 2014, Mr. Palios beneficially owned 4.5%, 8.7% and 8.5%, respectively, of our common shares.
* Less than 1%

As of February 15, 2017, we had 53 shareholders of record, 42 of which were located in the United States and held an aggregate of 8,984,125 of our common shares, representing 95.97% of our outstanding common shares. However, one of the U.S. shareholders of record is CEDE & CO., a nominee of The Depository Trust Company, which held 8,978,829 of our common shares as of February 15, 2017. Accordingly, we believe that the shares held by CEDE & CO. include common shares beneficially owned by both holders in the United States and non-U.S. beneficial owners. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control.
B.          Related Party Transactions
Diana Enterprises Inc.
Diana Enterprises, an affiliated entity that is controlled by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, provides to us brokerage services for an annual fee pursuant to a Brokerage Services Agreement. In 2016, 2015 and 2014,  brokerage fees amounted to $2.0 million, $1.5 million and $1.5 million, respectively. The terms of this relationship are currently governed by a Brokerage Services Agreement dated April 1, 2016, due to expire on March 31, 2017.
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Diana Shipping Inc.
We and Diana Shipping had entered into a non-competition agreement whereby we had agreed that, during the term of the Administrative Services Agreement with DSS and any vessel management agreements entered into with DSS, and for six months thereafter, we would not acquire or charter any vessel, or otherwise operate in, the drybulk sector and Diana Shipping would not acquire or charter any vessel, or otherwise operate in, the containership sector.  On March 1, 2013, in connection with the appointment of UOT as our new Manager, we amended and restated the initial non-competition agreement with Diana Shipping Inc., where we agreed that, as long as any of our current or continuing executive officers also serves as an executive for Diana Shipping Inc., and for six months thereafter, we will not acquire or charter any vessel, or otherwise operate in, the drybulk sector and Diana Shipping will not acquire or charter any vessel, or otherwise operate in, the containership sector.
On May 20, 2013, we entered into a loan agreement of up to $50.0 million with Diana Shipping, which was subsequently amended on July 28, 2014, September 9, 2015 and September 12, 2016.  Please see "Item 5.B–Liquidity and Capital Resources–Loan Facilities."
Private Placement
We entered into a Securities Purchase Agreement, dated July 28, 2014, with Diana Shipping and two institutional investors not affiliated with the Company or Diana Shipping (together, the "Unaffiliated Entities"), Taracan Investments S.A., 4 Sweet Dreams S.A., Andreas Michalopoulos, and Ioannis Zafirakis (collectively, the "Purchasers"),  pursuant to which we issued and sold to the Purchasers and the Purchasers purchased from the Company in the Private Placement an aggregate of 4,581,673 common shares at a price of $20.08 per share, which reflected the 30-day volume-weighted average price of the Company's common stock over the 30 trading days preceding the date of the Securities Purchase Agreement.   The issuance and sale of the shares was approved by an independent committee of our Board of Directors.  The Purchasers were also granted customary registration rights pursuant to a registration rights agreement, dated July 28, 2014.
Pursuant to the terms of the Securities Purchase Agreement, Diana Shipping and the Unaffiliated Entities granted each other a right of first offer in connection with any proposed privately negotiated block sale of our common shares constituting ten percent (10%) or more of the outstanding common stock (other than sales of stock to us and certain other permitted transfers).  The Unaffiliated Entities also agreed that for so long as they collectively own ten percent (10%) or more of the outstanding common stock they will not, without our consent, (i) acquire beneficial ownership of additional shares of our voting stock in excess of the amount of shares owned as of the closing under the Securities Purchase Agreement or (ii) make or otherwise participate in any "solicitation" of "proxies" to vote shares of our common stock, subject to certain exceptions.  Additionally, the Unaffiliated Entities were granted one observer seat at each meeting of our Board of Directors and Audit Committee and certain information rights. The Securities Purchase Agreement also grants the Purchasers certain rights of first refusal over subsequent equity offerings.
Pursuant to the Securities Purchase Agreement, we agreed that, commencing with the dividend payable with respect to the second quarter of 2014, and for not less than four consecutive fiscal quarters thereafter, we would not declare or pay dividends in excess of $0.08 per share on an annualized basis; provided, however, that in the event of a material improvement in the container shipping market, our board of directors may amend this dividend policy to resume the payment of dividends if the board of directors determines in good faith that such changed dividend policy is in the best interests of the Company and its shareholders.
In connection with the Private Placement, we entered into amendments to the loan dated May 20, 2013 between the Company, Eluk Shipping Inc. and Diana Shipping Inc., and the loan agreement with The Royal Bank of Scotland plc dated December 16, 2011.  We also amended our Stockholders Rights Agreement, dated August 10, 2010, to provide that the Unaffiliated Entities will not be considered an Acquiring Person, as defined therein.
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Altair Travel Agency S.A
Effective March 1, 2013, Altair Travel Agency S.A., or Altair, an affiliated entity that is controlled by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, provides us with travel related services. In 2016, 2015 and 2014, the expenses we incurred in exchange for travel services provided by Altair, amounted to $0.9 million, $1.1 million and $1.0 million, respectively. We believe that the amounts that we pay to Altair Travel Agency S.A. for acquiring tickets and other travel related services are no greater than fees we would pay to an unrelated third party for comparable services.
C.          Interests Of Experts And Counsel
Not applicable.
Item 8.          Financial information
A.          Consolidated Statements and Other Financial Information
See Item 18.
Legal Proceedings
We have not been involved in any legal proceedings which may have, or have had a significant effect on our business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
Dividend Policy
Effective with the quarter ended June 30, 2016, our board of directors decided to suspend the quarterly cash dividend on our common shares. The decision to suspend the dividend reflects our board of director's determination that it is in the best long-term interest of the Company and its shareholders to aggressively preserve liquidity to manage current market conditions and be in a position to benefit from an eventual sector recovery. Our board of directors may review and amend our dividend policy from time to time, in light of our plans for future growth and other factors.

Our policy, historically, was to declare a variable quarterly dividend each February, May, August and November equal to available cash from operations during the previous quarter after the payment of cash expenses and reserves for scheduled drydockings, intermediate and special surveys and other purposes as our board of directors may from time to time determine are required, after taking into account contingent liabilities, the terms of any credit facility, our growth strategy and other cash needs and the requirements of Marshall Islands law. In March and May 2016 we declared a cash dividend of $0.02 per share (as adjusted for our one-for-eight reverse stock split effected on June 9, 2016) with respect to the fourth quarter of 2015 and first quarter of 2016, respectively.
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While we have declared and paid cash dividends on our common shares in the past, we do not currently, and there can be no assurance that dividends will be paid in the future. The actual timing and amount of dividend payments, if any, will be determined by our board of directors and could be affected by various factors, including our cash earnings, financial condition and cash requirements, the loss of a vessel, the acquisition of one or more vessels, required capital expenditures, reserves established by our board of directors, increased or unanticipated expenses, a change in our dividend policy, additional borrowings or future issuances of securities, many of which will be beyond our control. 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. In addition, any credit facilities that we may enter into in the future may include restrictions on our ability to pay dividends.
Marshall Islands law generally prohibits the payment of dividends other than from surplus, or while a company is insolvent or would be rendered insolvent by the payment of such a dividend.
 We may continue to have insufficient cash available for distribution as dividends. The containership sector is cyclical and volatile. We cannot predict with accuracy the amount of cash flows our operations will generate in any given period. Factors beyond our control may affect the charter market for our vessels and our charterers' ability to satisfy their contractual obligations to us, and we cannot assure you that dividends will actually be declared or paid in the future. We cannot assure you that we will be able to resume payment of regular quarterly dividends, and our ability to resume payment of dividends will be subject to the limitations set forth above and in the section of this annual report titled "Item 3.D—Risk Factors."
In times when we have debt outstanding, we intend to limit our dividends per share to the amount that we would have been able to pay if we were financed entirely with equity. Our board of directors may review and amend our dividend policy from time to time, in light of our plans for future growth and other factors.
B.          Significant Changes
There have been no significant changes since the date of the annual consolidated financial statements included in this annual report, other than those described in "Note 16—Subsequent Events" of our annual consolidated financial statements.
Item 9.          The Offer and Listing
Our common shares have traded on The Nasdaq Global Market under the symbol "DCIX" since January 19, 2011 and on The Nasdaq Global Select Market since January 2, 2013. The table below sets forth the high and low closing prices for each of the periods indicated, as adjusted for the one-for-eight reverse stock split effective June 9, 2016.
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Years
Low
 
High
 
             
Year-ended December 31, 2012
 
$
41.76
   
$
62.08
 
Year-ended December 31, 2013
   
28.08
     
56.24
 
Year-ended December 31, 2014
   
14.80
     
34.08
 
Year-ended December 31, 2015
   
5.52
     
21.28
 
Year-ended December 31, 2016
   
2.06
     
12.86
 
                 
Periods
Low
 
High
 
                 
1st Quarter ended March 31, 2015
 
$
15.52
   
$
21.28
 
2nd Quarter ended June 30, 2015
   
15.76
     
21.20
 
3rd Quarter ended September 30, 2015
   
9.92
     
16.80
 
4th Quarter ended December 31, 2015
   
5.52
     
11.04
 
                 
1st Quarter ended March 31, 2016
 
$
2.88
   
$
6.40
 
2nd Quarter ended June 30, 2016
   
3.35
     
8.00
 
3rd Quarter ended September 30, 2016
   
3.29
     
4.16
 
4th Quarter ended December 31, 2016
   
2.06
     
12.86
 
                 
Months
Low
 
High
 
                 
 August 2016
 
$
3.56
   
$
4.15
 
 September 2016
   
3.29
     
3.88
 
 October 2016
   
2.42
     
3.40
 
 November 2016
   
2.19
     
12.86
 
 December 2016
   
2.06
     
3.88
 
 January 2017
   
2.38
     
3.24
 
February 2017 (through February 15, 2017)
   
2.52
     
2.91
 


Item 10.          Additional Information
A.          Share Capital
Not Applicable.
B.          Memorandum and Articles of Association 
Our amended and restated articles of incorporation were filed as exhibit 3.1 to our Form F-4 filed with the SEC on October 15, 2010 with file number 333-169974. The information contained in this exhibit is incorporated by reference herein.  Such amended and restated articles of incorporation were amended on June 8, 2016, in connection with our one-for-eight reverse stock split. A copy of the articles of amendment to the amended and restated articles of incorporation was filed as exhibit 3.3 to our report on Form 6-K filed with the SEC on June 9, 2016.  The information contained in this exhibit is incorporated by reference herein. 
A description of the material terms of our amended and restated articles of incorporation and bylaws is included in the section entitled "Description of Capital Stock" in our Registration Statement on Form F-3 filed with the SEC on January 26, 2017 with file number 333-215748 and is incorporated by reference herein.
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Amended and Restated Stockholders Rights Agreement
On August 29, 2016, we entered into a First Amended and Restated Stockholders Rights Agreement, or the Rights Agreement, with Computershare Inc. as Rights Agent. The Rights Agreement amended and restated in its entirety the original Stockholders Rights Agreement between the Company and Mellon Investor Services LLC, dated as of August 2, 2010, as amended on July 28, 2014. Pursuant to the Rights Agreement, each share of our common stock includes one right, or a Right, that entitles the holder to purchase from us a unit consisting of one one-thousandth of a share of our Series A Participating Preferred Stock at an exercise price of $50.00, subject to specified adjustments. The Rights will separate from the common stock and become exercisable only if a person or group acquires beneficial ownership of 15% or more of our common stock in a transaction not approved by our Board of Directors.  In that situation, each holder of a Right (other than the acquiring person, whose Rights will become void and will not be exercisable) will have the right to purchase, upon payment of the exercise price, a number of shares of our common stock having a then-current market value equal to twice the exercise price. In addition, if the Company is acquired in a merger or other business combination after an acquiring person acquires 15% or more of our common stock, each holder of the Right will thereafter have the right to purchase, upon payment of the exercise price, a number of shares of common stock of the acquiring person having a then-current market value equal to twice the exercise price.  The acquiring person will not be entitled to exercise these Rights. Under the Stockholders Rights Agreement's terms, it will expire on August 2, 2020.
A copy of the Stockholders Rights Agreement is filed as Exhibit 4.1 to our report on Form 6-K filed with the SEC on August 31, 2016.
C.          Material Contracts
The contracts included as exhibits to this annual report are the contracts we consider to be both material and not entered into in the ordinary course of business, which (i) are to be performed in whole or in part on or after the filing date of this annual report or (ii) were entered into not more than two years before the filing date of this annual report.  Other than these agreements, we have no material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any member of the group is a party. We refer you to Item 5.B for a discussion of our loan facilities, Item 4.B and Item 7.B for a discussion of our agreements with companies controlled by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, and Item 6.B for a discussion of our 2012 Equity Incentive Plan and our 2015 Equity Incentive Plan.
D.          Exchange Controls
Under Republic of the 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.
E.          Taxation
 The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations of the ownership and disposition by a U.S. Holder and a Non-U.S. Holder, each as defined below, with respect to the common stock. This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which, such as dealers in securities or commodities, financial institutions, insurance companies, tax-exempt organizations, U.S. expatriates, persons liable for the alternative minimum tax, persons who hold common stock as part of a straddle, hedge, conversion transaction or integrated investment, U.S. Holders whose functional currency is not the United States dollar and investors that own, actually or under applicable constructive ownership rules, 10% or more of the Company's common stock, may be subject to special rules. This discussion deals only with holders who hold the common stock as a capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local or foreign law of the ownership of common stock.
 
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Marshall Islands Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material Marshall Islands tax consequences of the Company's activities to the Company and of the ownership of the Company's common stock to its shareholders. The Company is incorporated in the Marshall Islands. Under current Marshall Islands law, the Company is not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by the Company to its shareholders.
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, the Company's U.S. counsel, the following are the material U.S. federal income tax consequences to the Company of its activities and to U.S. Holders and Non-U.S Holders, each as defined below, of the common stock. The following discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, all of which are subject to change, possibly with retroactive effect.