Performance Shipping Inc. Annual Report 2016

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FY2016 Annual Report · Performance Shipping Inc.

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ANNUAL

R E P O R T 2016

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ANNUAL REPORT 2016 ■ 1

Diana Containerships inC.
2016 annual report

2 ■ ANNUAL REPORT 2016

Diana Containerships inC. 2016 annual report
letter to shareholDers

ANNUAL REPORT 2016 ■ 3

to our shareholders:

Throughout the past year, the container shipping industry continued to be burdened by
uncertainty as to global economic conditions and trade policies. Moreover, the sector has for
several years suffered the ill effects of a significant global over-supply of capacity, as tonnage has
grown at a much faster rate than demand. As a result of these industry forces, containership time
charter rates ended 2016 at or near historically low levels. While we may see some improvement
in container trade volume in the coming year, as global economies stabilize further, we believe the
industry must exercise discipline in such areas as the deployment of large vessels and scrapping
before supply and demand can come into balance.

In this difficult market, we believe that participants with conservative balance sheets and flexible
investment strategies will survive to see better times in the containership industry. Accordingly, the
management team at Diana Containerships Inc. has focused on navigating a prudent and steady
course – in order to manage those factors that are under our control and emerge in a stronger
position for the future.

right-sizing the Fleet One of the important ways in which we have positioned the Company to
navigate the challenges of the current environment is by divesting certain vessels and streamlining our
fleet to a size that is aligned with the prevailing supply-demand dynamic. To that end, the 1993-built
Panamax vessel Hanjin Malta was sold for demolition in the first quarter of 2016, while the 2006-built
Panamax vessel Angeles was sold for demolition in the fourth quarter of 2016. Following these
actions, our fleet at year-end consisted of 12 container vessels, 6 Post-Panamax and 6 Panamax.

Maintaining Financial Flexibility The Company also has taken steps during the past year
to prudently manage its financial resources and obligations. Specifically, in September 2016,
the Company amended its US$148 million loan agreement with The Royal Bank of Scotland plc
and its US$50 million loan agreement with Diana Shipping Inc. We believe the amended loan
agreements resulted in improved financial flexibility.

4 ■ ANNUAL REPORT 2016

We have always believed that it is important to be good stewards of our shareholders’
investment and of our financial resources. In this regard, the Board of Directors determined,
based on conditions in the container vessel market, to suspend the quarterly cash dividend on
our common shares effective as of the quarter ended June 30, 2016. This decision reflected
the Board’s determination that it was 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. In addition, the Company completed a
reverse stock split of its common shares at a ratio of 1-for-8, effective as of the opening of trading
on June 9, 2016. This action enabled the Company to regain compliance with the minimum bid
price requirement for The Nasdaq Global Select Market.

Financial results Time charter revenues for 2016, net of prepaid charter revenue amortization,
were $33.2 million, compared to $62.2 million for 2015, with the difference mainly due to reduced
employment opportunities and time charter rates. Net loss for 2016 amounted to $149.0 million,
compared to a net loss of $17.5 million for 2015. The loss for 2016 included $118.9 million of
impairment charges for seven of the Company’s vessels and $2.9 million of direct sale and other
charges for two vessels, without which the result for the period would have been a net loss of
$27.2 million. The loss for 2015 included $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, without
which the result for the period would have been a net loss of $2.6 million.

At December 31, 2016, we had approximately $17 million of available and restricted cash and

nearly $91 million in stockholders’ equity on the balance sheet.

Focused on the Future Moving forward, we will continue to manage our business with an
eye towards maintaining our financial strength and operational flexibility in this period of market
and industry challenges. We will remain sharply focused on protecting the integrity of our balance
sheet, operating our fleet in a prudent and well-managed fashion, and in general steering a steady
course through a turbulent industry cycle toward the better conditions that we believe lie ahead.
We deeply appreciate your interest in and support of Diana Containerships Inc., and are committed
to continuing our efforts to deliver shareholder value over the long-term.

Sincerely,

Symeon Palios

Chairman and Chief Executive Officer

ANNUAL REPORT 2016 ■ 5

This 2016 Annual Report of Diana Containerships Inc. (the “Company”) is substantially
derived from the Company’s 2016 Annual Report filed on Form 20-F with the U.S. Securities
and Exchange Commission (the “SEC”) on February 16, 2017, which is available on the
SEC’s website at www.sec.gov. Additional information, including documents filed as
exhibits to the Company’s Form 20-F, is also available on the SEC’s website.

taBle oF Contents

ForWarD-looKinG stateMents

part i

item 1.

item 2.

item 3.

item 4.

identity of Directors, senior Management and advisers ....................................... 7

offer statistics and expected timetable ............................................................. 7

Key information ................................................................................................. 7

information on the Company .............................................................................. 40

item 4a.

unresolved staff Comments .............................................................................. 63

item 5.

item 6.

item 7.

item 8.

item 9.

operating and Financial review and prospects ................................................... 63

Directors, senior Management and employees ................................................... 83

Major shareholders and related party transactions ............................................ 89

Financial information .......................................................................................... 91

the offer and listing ......................................................................................... 93

item 10.

additional information ........................................................................................ 93

item 11.

Quantitative and Qualitative Disclosures about Market risk .................................. 104

item 12.

Description of securities other than equity securities .......................................... 104

part ii

item 13.

Defaults, Dividend arrearages and Delinquencies................................................ 105

item 14. Material Modifications to the rights of security holders and use of proceeds ....... 105

item 15.

Controls and procedures ................................................................................... 105

item 16a. audit Committee Financial expert ....................................................................... 106

item 16B. Code of ethics .................................................................................................. 106

item 16C. principal accountant Fees and services ............................................................. 106

item 16D. exemptions from the listing standards for audit Committees .............................. 107

item 16e. purchases of equity securities by the issuer and affiliated purchasers .................. 107

item 16F. Change in registrant’s Certifying accountant ...................................................... 107

item 16G. Corporate Governance ...................................................................................... 107

item 16h. Mine safety Disclosure ...................................................................................... 108

inDeX to FinanCial stateMents

F-1

6 ■ ANNUAL REPORT 2016

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.

ANNUAL REPORT 2016 ■ 7

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

time charter revenues, net

Voyage expenses

Vessel operating expenses

Depreciation and amortization
of deferred charges

(3,798)

33,194

3,169

30,213

(8,566)

62,180

2,619

35,847

(11,610)

54,068

332

26,559

12,740

13,140

10,309

Management fees

General and administrative
expenses

impairment losses

loss on vessels’ sale

Foreign currency losses / (gains)

operating income / (loss)

interest and finance costs

7,241

118,861

2,899

111

(142,040)

(7,094)

6,194

6,607

8,300

(55)

(10,472)

(7,166)

6,306

695

9,850

(6,746)

(20,322)

54,015

705

30,870

11,070

305

5,059

42,323

16,481

(52,864)

(4,554)

(12,204)

56,631

1,404

28,969

12,476

1,551

3,468

(194)

8,957

(3,066)

8 ■ ANNUAL REPORT 2016

For the years ended December 31,

2016

2015

2014

2013

2012

(in thousands of u.s. dollars, except for share and per share data)

interest income

120

107

134

net income / (loss)

$ (149,014)

$ (17,531)

$ 3,238

$ (57,346)

$ 5,969

earnings / (loss) per common
share, basic and diluted

Dividends declared and paid,
per share

Weighted average number of
common shares, basic and
diluted

$ (16.28)

$ (1.92)

$ 0.49

$ (13.84)

$ $ 1.77

$ 0.04

$ 0.08

$ 1.64

$ 7.20

$ 8.00

9,150,574

9,109,555

6,455,634

4,144,916

3,366,817

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)

$ 8,316

$ 29,388

$ 82,003

$ 19,685

$ 31,526

22,875

240,352

946

9,000

266,531

129,863

34,914

384,549

987

9,000

435,723

24,697

86,446

306,094

1,089

9,870

409,263

9,290

22,980

265,372

321

9,870

316,709

3,779

36,912

260,945

9,270

337,045

6,110

127,129

45,617

142,678

48,950

98,298

50,867

98,102

50,233

91,906

Balance Sheet Data:

Cash and cash
equivalents

total current assets

Vessels’ net book value

property and equipment,
net

restricted cash

total assets

total current liabilities

Bank debt (net of
unamortized deferred
financing costs)

related party financing

total stockholders’ equity

$ 90,880

$ 239,174

$ 256,443

$ 164,465

$ 238,758

Cash Flow Data:

net cash provided by/
(used in) operating
activities

net cash provided by
/ (used in) investing
activities

net cash provided by
/ (used in) financing
activities

Fleet Data:

average number of
vessels (1)

number of vessels at end
of period

ownership days (2)

available days (3)

$ (11,963)

$ 17,445

$ 25,487

$ 31,740

$ 31,346

10,574

(111,751)

(51,636)

(81,663)

(149,960)

(19,683)

41,691

88,467

38,082

108,786

13.1

12.0

4,780

4,735

12.6

14.0

4,600

4,515

8.8

11.0

3,198

9.6

9.0

3,516

8.6

10.0

3,156

ANNUAL REPORT 2016 ■ 9

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)

3,304

69.8%

4,155

92.0%

3,189

99.7%

3,442

97.9 %

3,150

99.8%

$ 6,341

$ 13,192

$ 16,803

$ 15,162

$ 17,499

6,321

7,793

8,305

8,780

9,179

operating days (4)

Fleet utilization (5)

Average Daily Results:

time charter equivalent
(tCe) rate (6)

Daily vessel operating
expenses (7)

(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.

(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.

10 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 11

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.

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;

12 ■ ANNUAL REPORT 2016

 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.

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.

ANNUAL REPORT 2016 ■ 13

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.

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.

14 ■ ANNUAL REPORT 2016

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.

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.

ANNUAL REPORT 2016 ■ 15

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

16 ■ ANNUAL REPORT 2016

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.

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.

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

ANNUAL REPORT 2016 ■ 17

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

18 ■ ANNUAL REPORT 2016

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.

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.

ANNUAL REPORT 2016 ■ 19

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.

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:

 marine disasters;

 bad weather;

 business interruptions caused by mechanical failures;

 grounding, fire, explosions and collisions; and

 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

20 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 21

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.

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

22 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 23

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.

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:

24 ■ ANNUAL REPORT 2016

 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.

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.

ANNUAL REPORT 2016 ■ 25

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.

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

26 ■ ANNUAL REPORT 2016

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.

ANNUAL REPORT 2016 ■ 27

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

28 ■ ANNUAL REPORT 2016

depend upon our ability to identify and acquire suitable vessels to grow our fleet in the future and
successfully employ our vessels.

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;

ANNUAL REPORT 2016 ■ 29

 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.

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.

30 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 31

$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.

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.

32 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 33

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.

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

34 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 35

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.

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

36 ■ ANNUAL REPORT 2016

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.

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;

ANNUAL REPORT 2016 ■ 37

 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.

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.

38 ■ ANNUAL REPORT 2016

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

ANNUAL REPORT 2016 ■ 39

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.

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:

40 ■ ANNUAL REPORT 2016

 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.

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

ANNUAL REPORT 2016 ■ 41

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.”

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

42 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 43

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.

44 ■ ANNUAL REPORT 2016

Set forth below is summary information concerning our fleet as at February 16, 2017:

Vessel

Built teu

sister
ships*

Gross rate
(usD
per Day)

Com** Charterers

Delivery
Date to
Charterers***

redelivery Date
to
owners****

notes

saGitta

$ 5,850

3.50%

27-Jan-16

24-Jan-17

6 Panamax Container Vessels

2010 3,426

Centaurus

2010 3,426

neW JerseY
(ex YM new Jersey)

2006 4,923

paMina
(ex santa pamina)

2005 5,042

DoMinGo
(ex Cap Domingo)

2001 3,739

DouKato
(ex Cap Doukato)

2002 3,739

puelo

2006 6,541

puCon

2006 6,541

MarCh
(ex YM March)

$ 5,775

3.50%

24-Jan-17

24-Mar-17 - 24-May-17

CMa CGM

$ 5,500

3.50% CMa CGM

22-nov-16 22-Feb-17 - 22-aug-17

$ 6,150

3.50%

CMa CGM

11-apr-16

18-Jan-17

$ 6,000

5.00%

$ 6,250

3.75%

nile Dutch
africa line B.V.

rudolf a.
oetker KG

1-Mar-17

26-apr-17 - 1-Jan-18

23-Jan-16

16-Feb-17

6,7

8,9

Vasi shipping
pte. ltd.

17-Feb-17

6-apr-17 - 13-apr-17

6,10,11

6 Post - Panamax Container Vessels

$ 6,500

3.75%

MsC-
Mediterranean
shipping Co.
s.a., Geneva

17-May-16 17-apr-17 - 17-Jun-17

$ 6,075

5.00%

seaGo line a/s

3-Jul-16

7-Feb-17

2004 5,576

$ 6,850

1.25%

hapag-lloyd aG

15-Feb-17

25-nov-17 - 25-apr-18

Great
(ex YM Great)

2004 5,576

haMBurG

2009 6,494

rotterDaM

$ 6,700

3.50% CMa CGM

9-Jan-17

9-Mar-17 - 9-Dec-17

$ 6,200

5.00%

Maersk line a/s

27-apr-16

20-Feb-17 - 27-Feb-17

17,18

2008 6,494

$ 6,890

3.50%

CMa CGM

7-Mar-17

7-nov-17 - 7-Feb-18

* 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

ANNUAL REPORT 2016 ■ 45

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 up to 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.

46 ■ ANNUAL REPORT 2016

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.

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.

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,

ANNUAL REPORT 2016 ■ 47

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

48 ■ ANNUAL REPORT 2016

charterer’s financial condition, creditworthiness, reliability and track record are important factors
in negotiating our vessels’ employment.

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.

ANNUAL REPORT 2016 ■ 49

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.

 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

50 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 51

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.

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.

52 ■ ANNUAL REPORT 2016

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.

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.

ANNUAL REPORT 2016 ■ 53

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.

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.

54 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 55

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.

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

56 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 57

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.

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,

58 ■ ANNUAL REPORT 2016

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.

ANNUAL REPORT 2016 ■ 59

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

60 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 61

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.

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.

62 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 63

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.

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

64 ■ ANNUAL REPORT 2016

ship brokers and to in-house brokers associated with the charterer for the arrangement of
the relevant charter.

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.

ANNUAL REPORT 2016 ■ 65

For the year ended
December 31, 2016

For the year ended
December 31, 2015

For the year ended
December 31, 2014

ownership days
available days
operating days
Fleet utilization
time charter equivalent (tCe) rate (1)
Daily operating expenses

4,780
4,735
3,304
69.8%
$ 6,341
$ 6,321

4,600
4,515
4,155
92.0%
$ 13,192
$ 7,793

3,198
3,198
3,189
99.7%
$ 16,803
$ 8,305

(1) Please see “Item 3 A.-Selected Financial Data” for a reconciliation of TCE to GAAP

measures.

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.

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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.

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.

ANNUAL REPORT 2016 ■ 67

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.

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

68 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 69

 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.

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;

70 ■ ANNUAL REPORT 2016

 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”.

Vessel
1 sagitta
2 Centaurus
3 Domingo
4 Cap Doukato
5 hanjin Malta
6 puelo
7 pucon
8 March
9 Great
10 pamina
11 angeles
12 new Jersey
13 rotterdam
14 hamburg

Carrying Value
(in millions of us dollars)

at December 31,
2016
11.4
11.4
5.0
5.0
-
41.6*
41.7*
9.2
9.2
15.0*
-
17.9*
35.8*
37.2*

at December 31,
2015
38.2*
39.6 *
22.3 *
22.9 *
5.0
43.3 *
43.4 *
21.4
21.3
15.4 *
18.2 *
18.3 *
36.8 *
38.5

teu
3,426
3,426
3,739
3,739
4,024
6,541
6,541
5,576
5,576
5,042
4,923
4,923
6,494
6,494

Year Built
2010
2010
2001
2002
1993
2006
2006
2004
2004
2005
2006
2006
2008
2009

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

ANNUAL REPORT 2016 ■ 71

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.

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

72 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 73

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:

up to 4,000 teu

Between 4,000 teu and 6,000 teu

above 6,000 teu

average estimated daily time
charter equivalent rate used

$ 12,854

$ 15,478

$ 23,036

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)

7,552

8,841

23,036

impairment
charge
(in usD
million)

0.8

16.9

0.0

3-year
period
(in usD)

7,853

8,522

20,208

impairment
charge
(in usD
million)

0.8

16.9

0.0

1-year
period
(in usD)

5,475

4,979

13,208

impairment
charge
(in usD
million)

0.8

16.9

71.8

up to 4,000 teu

Between 4,000 - 6,000 teu

above 6,000 teu

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

74 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 75

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.

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.

76 ■ ANNUAL REPORT 2016

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.

ANNUAL REPORT 2016 ■ 77

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.

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

78 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 79

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.

80 ■ ANNUAL REPORT 2016

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.

ANNUAL REPORT 2016 ■ 81

As of December 31, 2016, and currently, we had $45.4 million of principal debt outstanding

under our loan facility with DSI.

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.

82 ■ ANNUAL REPORT 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 (1)

$ 420

$ -

long term Bank Debt (2)

related party Debt (3) (4)

128,861

45,617

128,861

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

$ -

long term Bank Debt (1)

related party Debt (1)

128,861

45,617

4,069

32,023

92,769

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.

G. Safe Harbor

See the section entitled “Forward-looking Statements” at the beginning of this annual report.

ANNUAL REPORT 2016 ■ 83

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

symeon palios

anastasios Margaronis

ioannis Zafirakis

andreas Michalopoulos

Giannakis (John) evangelou

antonios Karavias

nikolaos petmezas

reidar Brekke

age

position

Class iii Director, Chief executive officer and Chairman of the Board

Class ii Director and president

Class i Director, Chief operating officer and secretary

Chief Financial officer and treasurer

Class iii Director

Class i Director

Class iii Director

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.

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

84 ■ ANNUAL REPORT 2016

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.

ANNUAL REPORT 2016 ■ 85

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

86 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 87

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.

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-

88 ■ ANNUAL REPORT 2016

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.

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

seafaring

Total

178

217

E. Share Ownership

308

348

266

298

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.”

ANNUAL REPORT 2016 ■ 89

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.

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:

identity of person or group

Diana shipping inc. (1)

symeon palios (2)

anastasios Margaronis

ioannis Zafirakis

andreas Michalopoulos

non-executive directors

all directors and officers, as a group

shares Beneficially owned

number

2,408,717

424,477

62,036

18,084

504,597

percentage

25.7%

4.5%

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

90 ■ ANNUAL REPORT 2016

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.

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

ANNUAL REPORT 2016 ■ 91

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.

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.

92 ■ ANNUAL REPORT 2016

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.

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.

ANNUAL REPORT 2016 ■ 93

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.

Years

Year-ended December 31, 2012

Year-ended December 31, 2013

Year-ended December 31, 2014

Year-ended December 31, 2015

Year-ended December 31, 2016

periods

1st Quarter ended March 31, 2015

2nd Quarter ended June 30, 2015

3rd Quarter ended september 30, 2015

4th Quarter ended December 31, 2015

1st Quarter ended March 31, 2016

2nd Quarter ended June 30, 2016

3rd Quarter ended september 30, 2016

4th Quarter ended December 31, 2016

Months

august 2016

september 2016

october 2016

november 2016

December 2016

January 2017

February 2017 (through February 15, 2017)

item 10. additional information

A. Share Capital

Not Applicable.

low

$ 41.76

28.08

14.80

5.52

2.06

low

$ 15.52

15.76

9.92

5.52

high

$ 62.08

56.24

34.08

21.28

12.86

high

$ 21.28

21.20

16.80

11.04

$ 2.88

$ 6.40

3.35

3.29

2.06

low

$ 3.56

3.29

2.42

2.19

2.06

2.38

2.52

8.00

4.16

12.86

high

$ 4.15

3.88

3.40

12.86

3.88

3.24

2.91

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

94 ■ ANNUAL REPORT 2016

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.

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.

ANNUAL REPORT 2016 ■ 95

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.

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.

taxation of operating income: in General

The following discussion addresses the U.S. federal income taxation of our operating income

if we are engaged in the international operation of vessels.

Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign
corporation is subject to U.S. federal income taxation in respect of any income that is derived
from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat
charter basis, from the participation in a pool, partnership, strategic alliance, joint operating
agreement, code sharing arrangements or other joint venture it directly or indirectly owns or
participates in that generates such income, or from the performance of services directly related
to those uses, which we refer to as “shipping income,” to the extent that the shipping income is
derived from sources within the United States. For these purposes, 50% of shipping income that
is attributable to transportation that begins or ends, but that does not both begin and end, in the
United States constitutes income from sources within the United States, which we refer to as
“U.S.-source shipping income.”

96 ■ ANNUAL REPORT 2016

Shipping income attributable to transportation that both begins and ends in the United States
is considered to be 100% from sources within the United States. We are not permitted by law to
engage in transportation that produces income which is considered to be 100% from sources
within the United States. Shipping income attributable to transportation exclusively between non-
U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping
income derived from sources outside the United States will not be subject to any U.S. federal
income tax.

Exemption of Operating Income from U.S. Federal Income Taxation

Under Section 883 of the Code, or Section 883, we will be exempt from U.S. federal income

taxation on our U.S.-source shipping income if:

 we are organized in a foreign country that grants an “equivalent exemption” to corporations

organized in the United States, or U.S. corporations; and

either:

 more than 50% of the value of our common stock is owned, directly or indirectly, by qualified

shareholders, which we refer to as the “50% Ownership Test,” or

 our common stock is “primarily and regularly traded on an established securities market” in
a country that grants an “equivalent exemption” to U.S. corporations or in the United States,
which we refer to as the “Publicly-Traded Test.”

The Marshall Islands, the jurisdiction where we are incorporated, grant an “equivalent
exemption” to U.S. corporations. We anticipate that any of our shipowning subsidiaries will
be incorporated in a jurisdiction that provides an “equivalent exemption” to U.S. corporations.
Therefore, we will be exempt from U.S. federal income taxation with respect to our U.S.-source
shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met.

We do not currently anticipate a circumstance under which we would be able to satisfy the

50% Ownership Test. Our ability to satisfy the Publicly-Traded Test is discussed below.

Publicly-Traded Test

In order to satisfy the Publicly-Traded Test, our common stock must be primarily and regularly
traded on one or more established securities markets. The regulations under Section 883 provide,
in pertinent part, that shares of a foreign corporation will be considered to be “primarily traded” on
an established securities market in a country if the number of shares of each class of shares that
are traded during any taxable year on all established securities markets in that country exceeds
the number of shares in each such class that are traded during that year on established securities
markets in any other single country. Our common shares are “primarily traded” on The Nasdaq
Global Select Market.

Under the regulations, stock of a foreign corporation will be considered to be “regularly traded”
on an established securities market if one or more classes of stock representing more than 50%
of the outstanding stock, by both total combined voting power of all classes of shares entitled to
vote and total value, are listed on such market, to which we refer as the “listing threshold.” Since
our common shares are listed on The Nasdaq Global Select Market, we expect to satisfy the
listing threshold.

ANNUAL REPORT 2016 ■ 97

It is further required that with respect to each class of stock relied upon to meet the listing
threshold, (i) such class of shares is traded on the market, other than in minimal quantities, on at least
60 days during the taxable year or one-sixth of the days in a short taxable year, which we refer to as
the trading frequency test; and (ii) the aggregate number of stock of such class of shares traded on
such market during the taxable year is at least 10% of the average number of shares of such class
of stock outstanding during such year or as appropriately adjusted in the case of a short taxable
year, which we refer to as the trading volume test. Even if these tests are not satisfied, the regulations
provide that such trading frequency and trading volume tests will be deemed satisfied if, as is
expected to be the case with our common shares, such class of stock is traded on an established
securities market in the United States and such shares are regularly quoted by dealers making a
market in such shares, such as being traded and quoted on the Nasdaq Global Select Market.

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

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

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

We believe that we were subject to the Five Percent Override Rule, but nonetheless satisfied the
Publicly-Traded Test for the 2016 taxable year because there were nonqualified 5% Shareholders
did not own more than 50% of our common stock for more than half of the days during the taxable
year. We intend to take this position on our 2016 U.S. federal income tax returns.

Taxation in Absence of Exemption

To the extent the benefits of Section 883 are unavailable, our U.S.-source shipping income,
to the extent not considered to be “effectively connected” with the conduct of a U.S. trade or
business, as described below, would be subject to a 4% tax imposed by Section 887 of the
Code on a gross basis, without the benefit of deductions, which we refer to as the 4% gross
basis tax regime. Since under the sourcing rules described above, no more than 50% of our
shipping income would be treated as being derived from U.S. sources, the maximum effective
rate of U.S. federal income tax on our shipping income would never exceed 2% under the 4%
gross basis tax regime.

To the extent our U.S.-source shipping income is considered to be “effectively connected” with
the conduct of a U.S. trade or business, as described below, any such “effectively connected”
U.S.-source shipping income, net of applicable deductions, would be subject to the U.S. federal
corporate income tax currently imposed at rates of up to 35%. By statutory exclusion, the benefits

98 ■ ANNUAL REPORT 2016

of the section 883 exemption are not available to income that is “effectively connected” with the
conduct of a U.S. trade or business. In addition, we may be subject to an additional 30% “branch
profits” tax on earnings effectively connected with the conduct of such trade or business, as
determined after allowance for certain adjustments, and on certain interest paid or deemed paid
attributable to the conduct of such U.S. trade or business.

Our U.S.-source shipping income would be considered “effectively connected” with the

conduct of a U.S. trade or business only if:

 we have, or are considered to have, a fixed place of business in the United States involved in

the earning of shipping income; and

 substantially all of our U.S.-source shipping income is attributable to regularly scheduled
transportation, such as the operation of a vessel that follows a published schedule with
repeated sailings at regular intervals between the same points for voyages that begin or end
in the United States (or, in the case of income from the bareboat chartering of a vessel, is
attributable to a fixed place of business in the United States).

We do not anticipate that we will have any vessel operating to or from the United States on
a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping
operations and other activities, we do not anticipate that any of our U.S.-source shipping income
will be “effectively connected” with the conduct of a U.S. trade or business.

United States Federal Income Taxation of Gain on Sale of Vessels

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

United States Federal Income Taxation of U.S. Holders

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

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

Distributions

Subject to the discussion of the passive foreign investment company, or PFIC, rules below,
distributions made by us with respect to our common stock, other than certain pro-rata
distributions of our common stock, to a U.S. Holder will generally constitute dividends, which may
be taxable as ordinary income or “qualified dividend income” as described in more detail below, to

ANNUAL REPORT 2016 ■ 99

the extent of our current and accumulated earnings and profits, as determined under U.S. federal
income tax principles. Distributions in excess of our current and accumulated earnings and profits
will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis
in his common stock on a dollar-for-dollar basis and thereafter as capital gain. Because we are
not a United States corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends-received deduction with respect to any distributions they receive from us. Dividends
paid with respect to our common stock will generally be treated as income from sources outside
the United States and will generally constitute “passive category income” or, in the case of certain
types of U.S. Holders, “general category income” for purposes of computing allowable foreign tax
credits for U.S. foreign tax credit purposes.

Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate,
which we refer to as a U.S. Individual Holder, will generally be treated as “qualified dividend
income” that is taxable to such U.S. Individual Holders at preferential tax rates, provided that
(1) the common stock is readily tradable on an established securities market in the United States
such as The Nasdaq Global Select Market, on which our common stock is traded; (2) we are not
a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable
year, as discussed below; (3) the U.S. Individual Holder has held the common stock for more than
60 days in the 121-day period beginning 60 days before the date on which the common stock
becomes ex-dividend; and (4) the U.S. Individual Holder is not under an obligation to make related
payments with respect to positions in substantially similar or related property.

There is no assurance that any dividends paid on our common stock will be eligible for these
preferential rates in the hands of a U.S. Individual Holder. Any distributions out of earnings and
profits we pay which are not eligible for these preferential rates will be taxed as ordinary income
to a U.S. Individual Holder.

Special rules may apply to any “extraordinary dividend,” generally, a dividend paid by us in an
amount which is equal to or in excess of ten percent of a U.S. Holder’s adjusted tax basis, or fair
market value in certain circumstances, in a share of our common stock. If we pay an “extraordinary
dividend” on our common stock that is treated as “qualified dividend income,” then any loss
derived by a U.S. Individual Holder from the sale or exchange of such common stock will be
treated as long-term capital loss to the extent of such dividend.

Sale, Exchange or other Disposition of Common Stock

Subject to the discussion of the PFIC rules below, a U.S. Holder generally will recognize taxable
gain or loss upon a sale, exchange or other disposition of our common stock in an amount equal
to the difference between the amount realized by the U.S. Holder from such sale, exchange or
other disposition and the U.S. Holder’s tax basis in such stock. A U.S. Holder’s tax basis in the
common stock generally will equal the U.S. Holder’s acquisition cost less any prior return of
capital. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s
holding period is greater than one year at the time of the sale, exchange or other disposition and
will generally be treated as U.S.-source income or loss, as applicable, for U.S. foreign tax credit
purposes. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.

PFIC Status and Significant Tax Consequences

Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign
corporation classified as a PFIC for U.S. federal income tax purposes. In general, we will be treated
as a PFIC with respect to a U.S. Holder if, for any taxable year in which such U.S. Holder held our
common stock, either:

100 ■ ANNUAL REPORT 2016

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

 at least 50% of the average value of our assets during such taxable year produce, or are held

for the production of, passive income, which we refer to as the asset test.

For purposes of determining whether we are a PFIC, cash will be treated as an asset which
is held for the production of passive income. In addition, we will be treated as earning and
owning our proportionate share of the income and assets, respectively, of any of our subsidiary
corporations in which we own at least 25% of the value of the subsidiary’s stock. Income earned,
or deemed earned, by us in connection with the performance of services would not constitute
passive income. By contrast, rental income would generally constitute “passive income” unless
we were treated under specific rules as deriving our rental income in the active conduct of a trade
or business.

Our status as a PFIC will depend upon the operations of our vessels. Therefore, we can give
no assurances as to whether we will be a PFIC with respect to any taxable year. In making the
determination as to whether we are a PFIC, we intend to treat the gross income we derive or
are deemed to derive from the time chartering and voyage chartering activities of us or any of
our wholly owned subsidiaries as services income, rather than rental income. Correspondingly,
in the opinion of Seward & Kissel LLP, such income should not constitute passive income, and
the assets that we or our wholly owned subsidiaries own and operate in connection with the
production of such income, should not constitute passive assets for purposes of determining
whether we are a PFIC. There is substantial legal authority supporting this position consisting of
case law and IRS pronouncements concerning the characterization of income derived from time
charters and voyage charters as services income for other tax purposes. However, there is also
authority which characterizes time charter income as rental income rather than services income
for other tax purposes. In the absence of any legal authority specifically relating to the statutory
provisions governing PFICs, the IRS or a court could disagree with the opinion of Seward &
Kissel LLP. On the other hand, any income we derive from bareboat chartering activities will likely
be treated as passive income for purposes of the income test. Likewise, any assets utilized in
bareboat chartering activities will likely be treated as generating passive income for purposes of
the asset test.

As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a
U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder
makes an election to treat us as a “Qualified Electing Fund,” which election we refer to as a “QEF
election,” or a “mark-to-market” election with respect to the common stock. In addition, if we
are a PFIC, a U.S. Holder will be required to file with respect to taxable years ending on or after
December 31, 2013 IRS Form 8621 with the IRS.

Taxation of U.S. Holders Making a Timely QEF Election.

If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an “Electing
Holder,” the Electing Holder must report each year for U.S. federal income tax purposes his pro rata
share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with
or within the taxable year of the Electing Holder, regardless of whether or not distributions were
received from us by the Electing Holder. The Electing Holder’s adjusted tax basis in the common
stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of
earnings and profits that had been previously taxed will result in a corresponding reduction in the
adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing

ANNUAL REPORT 2016 ■ 101

Holder would generally recognize capital gain or loss on the sale, exchange or other disposition
of our common stock. A U.S. Holder would make a QEF election with respect to any year that we
are a PFIC by filing IRS Form 8621 with his U.S. federal income tax return. After the end of each
taxable year, we will determine whether we were a PFIC for such taxable year. If we determine or
otherwise become aware that we are a PFIC for any taxable year, we will provide each U.S. Holder
with all necessary information, including a PFIC Annual Information Statement, in order to allow
such holder to make a QEF election for such taxable year.

Taxation of U.S. Holders Making a “Mark-to-Market” Election.

Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate will
continue to be the case, our shares are treated as “marketable stock,” a U.S. Holder would be
allowed to make a “mark-to-market” election with respect to our common stock, provided the
U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and
related Treasury regulations. If that election is made, the U.S. Holder generally would include as
ordinary income in each taxable year the excess, if any, of the fair market value of the common
stock at the end of the taxable year over such holder’s adjusted tax basis in the common stock.
The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the
U.S. Holder’s adjusted tax basis in the common stock over their fair market value at the end of
the taxable year, but only to the extent of the net amount previously included in income as a
result of the mark-to-market election. A U.S. Holder’s tax basis in his common stock would be
adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other
disposition of our common stock would be treated as ordinary income, and any loss realized on
the sale, exchange or other disposition of the common stock would be treated as ordinary loss
to the extent that such loss does not exceed the net mark-to-market gains previously included
by the U.S. Holder.

Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election.

Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who has not timely
made a QEF or mark-to-market election for the first taxable year in which it holds our common
stock and during which we are treated as PFIC, whom we refer to as a “Non-Electing Holder,”
would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any
distributions received by the Non-Electing Holder on our common stock in a taxable year in excess
of 125% of the average annual distributions received by the Non-Electing Holder in the three
preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common
stock), and (2) any gain realized on the sale, exchange or other disposition of our common stock.
Under these special rules:

 the excess distribution or gain would be allocated ratably to each day over the Non-Electing

Holders’ aggregate holding period for the common stock;

 the amount allocated to the current taxable year and any taxable year before we became a

PFIC would be taxed as ordinary income; and

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

These adverse tax consequences would not apply to a pension or profit sharing trust or other
tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with

102 ■ ANNUAL REPORT 2016

its acquisition of our common stock. In addition, if a Non-Electing Holder who is an individual dies
while owning our common stock, such holder’s successor generally would not receive a step-up
in tax basis with respect to such common stock.

U.S. Federal Income Taxation of Non-U.S. Holders

A beneficial owner of our common stock, other than a partnership or entity treated as a
partnership for U.S. Federal income tax purposes, that is not a U.S. Holder is referred to herein
as a Non-U.S. Holder.

Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on
dividends received from us with respect to our common stock, unless that income is effectively
connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. In
general, if the Non-U.S. Holder is entitled to the benefits of certain U.S. income tax treaties
with respect to those dividends, that income is taxable only if it is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States.

Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax
on any gain realized upon the sale, exchange or other disposition of our common stock, unless:

 the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in
the United States. In general, if the Non-U.S. Holder is entitled to the benefits of certain income
tax treaties with respect to that gain, that gain is taxable only if it is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States; or

 the Non-U.S. Holder is an individual who is present in the United States for 183 days or more

during the taxable year of disposition and other conditions are met.

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

Backup Withholding and Information Reporting

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

 fail to provide an accurate taxpayer identification number;

 are notified by the IRS that you have failed to report all interest or dividends required to be

shown on your U.S. federal income tax returns; or

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

Non-U.S. Holders may be required to establish their exemption from information reporting and

ANNUAL REPORT 2016 ■ 103

backup withholding by certifying their status on an applicable IRS Form W-8.

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

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

U.S. Holders who are individuals (and to the extent specified in applicable Treasury Regulations,
certain U.S. entities) who hold “specified foreign financial assets” (as defined in Section 6038D
of the Code) are required to file IRS Form 8938 with information relating to the asset for each
taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during
the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as
prescribed by applicable Treasury Regulations). Specified foreign financial assets would include,
among other assets, our common stock, unless the common stock is held through an account
maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file
IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful
neglect. Additionally, in the event a U.S. Holder who is an individual (and to the extent specified
in applicable Treasury regulations, a U.S. entity) that is required to file IRS Form 8938 does not
file such form, the statute of limitations on the assessment and collection of U.S. federal income
taxes of such holder for the related tax year may not close until three years after the date that the
required information is filed.

F. Dividends and paying agents

Not Applicable.

G. Statement by experts

Not Applicable.

H. Documents on display

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

I. Subsidiary information

Not Applicable.

104 ■ ANNUAL REPORT 2016

item 11. Quantitative and Qualitative Disclosures about Market risk

interest rates

Total interest incurred under our loan facilities and related interest rates during 2016, 2015 and

2014 were as follows:

interest expense (in millions of usD)

Weighted average interest rate (liBor plus margin)

2016

2015

2014

$ 6.6

3.54%

$ 5.8

3.65%

$ 5.9

3.91%

interest rates range during the year (liBor including margin)

3.12% to 4.06% 3.09% to 5.20% 3.25% to 5.17%

An average increase of 1% in 2016 interest rates would have resulted in interest expenses of

$8.5 million, instead of $6.6 million, an increase of about 29%.

As of December 31, 2016, we had $128.9 million of principal debt outstanding with RBS and $45.4
million of principal debt outstanding with DSI, and we expect to incur additional debt in the future. We
expect to manage any exposure in interest rates through our regular operating and financing activities
and, when deemed appropriate, through the use of derivative financial instruments.

Currency and exchange rates

We generate all of our revenues in U.S. dollars, but currently incur approximately half of our
operating expenses (around 41% in 2016 and 49% in 2015) and about half of our general and
administrative expenses (around 47% in 2016 and 50% in 2015) in currencies other than the U.S.
dollar, primarily the Euro. For accounting purposes, expenses incurred in Euros are converted
into U.S. dollars at the exchange rate prevailing on the date of each transaction. The amount and
frequency of some of these expenses, such as vessel repairs, supplies and stores, may fluctuate
from period to period. Since approximately 2002, the U.S. dollar has depreciated against the Euro.
Depreciation in the value of the dollar relative to other currencies increases the dollar cost to us of
paying such expenses. The portion of our expenses incurred in other currencies could increase in
the future, which could expand our exposure to losses arising from currency fluctuations.

While we have not mitigated the risk associated with exchange rate fluctuations through the use
of financial derivatives, we may determine to employ such instruments from time to time in the future
in order to minimize this risk. Our use of financial derivatives would involve certain risks, including the
risk that losses on a hedged position could exceed the nominal amount invested in the instrument
and the risk that the counterparty to the derivative transaction may be unable or unwilling to satisfy
its contractual obligations, which could have an adverse effect on our results. Currently, we do not
consider the risk from exchange rate fluctuations to be material for our results of operations and
therefore, we are not engaged in derivative instruments to hedge part of those expenses.

item 12. Description of securities other than equity securities

Not Applicable.

ANNUAL REPORT 2016 ■ 105

PART II

item 13. Defaults, Dividend arrearages and Delinquencies

None.

item 14. Material Modifications to the rights
of security holders and use of proceeds

Please see the section of this annual report entitled “Item 10.B—Memorandum and Articles of

Association—Amended and Restated Stockholders Rights Agreement.”

item 15. Controls and procedures

A. Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, has conducted
an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this
report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports that it files or submits to the SEC under
the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.

B. Management’s Annual Report on Internal Control over Financial Reporting

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

Management has conducted an assessment of the effectiveness of the Company’s internal
control over financial reporting based on the framework established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework). Based on this assessment, management has determined that the Company’s
internal control over financial reporting as of December 31, 2016 is effective.

The registered public accounting firm that audited the financial statements included in this
annual report containing the disclosure required by this Item 15 has issued an attestation report
on management’s assessment of our internal control over financial reporting.

C. Attestation Report of Independent Registered Public Accounting Firm

The attestation report on the Company’s internal control over financial reporting issued by the
registered public accounting firm that audited the Company’s consolidated financial statements,

106 ■ ANNUAL REPORT 2016

Ernst Young (Hellas) Certified Auditors Accountants S.A., appears on page F-3 of the financial
statements filed as part of this annual report.

D. Changes in Internal Control over Financial Reporting

None.

inherent limitations on effectiveness of Controls

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

item 16a. audit Committee Financial expert

Mr. John Evangelou serves as the Chairman of the Company’s Audit Committee. Our board
of directors has determined that Mr. Evangelou qualifies as an “audit committee financial expert”
and is “independent” according to SEC rules.

item 16B. Code of ethics

We have adopted a code of ethics that applies to officers, directors, employees and agents.
Our code of ethics is posted on our website, http://www.dcontainerships.com, under “About
Us—Code of Ethics.” Copies of our Code of Ethics are available in print, free of charge, upon
request to Diana Containerships Inc., Pendelis 18, 175 64 Palaio Faliro, Athens, Greece. We intend
to satisfy any disclosure requirements regarding any amendment to, or waiver from, a provision
of this Code of Ethics by posting such information on our website.

item 16C. principal accountant Fees and services

A. Audit Fees

Our principal accountants, Ernst and Young (Hellas), Certified Auditors Accountants S.A., have

billed us for audit services.

Audit fees in 2016 amounted to Euro 199,500 or about $224,000 and in 2015 amounted to
Euro 199,500 or about $220,000 and relate to audit services provided in connection with the audit
and AU 722 interim reviews of our consolidated financial statements, the audit of internal control
over financial reporting as well as audit services performed in connection with the Company’s
registration statements.

ANNUAL REPORT 2016 ■ 107

B. Audit-Related Fees

None.

C. Tax Fees

During 2016 and 2015, we received tax services for which fees amounted to $16,100 and

$8,500, respectively, and relate to the calculation of Earnings and Profits of the Company.

D. All Other Fees

None.

E. Audit Committee’s Pre-Approval Policies and Procedures

Our Audit Committee is responsible for the appointment, replacement, compensation,
evaluation and oversight of the work of our independent auditors. As part of this responsibility,
the Audit Committee pre-approves all audit and non-audit services performed by the independent
auditors in order to assure that they do not impair the auditor’s independence from the Company.
The Audit Committee has adopted a policy which sets forth the procedures and the conditions
pursuant to which services proposed to be performed by the independent auditors may be pre-
approved.

F. Audit Work Performed by Other Than Principal Accountant
if Greater Than 50%

Not applicable.

item 16D. exemptions from the listing standards for audit
Committees

Not applicable.

item 16e. purchases of equity securities by the issuer and
affiliated purchasers

Not applicable.

item 16F. Change in registrant’s Certifying accountant

Not applicable.

item 16G. Corporate Governance

We have certified to Nasdaq that our corporate governance practices are in compliance with,
and are not prohibited by, the laws of the Republic of the Marshall Islands. Therefore, we are
exempt from many of Nasdaq’s corporate governance practices other than the requirements
regarding the disclosure of a going concern audit opinion, submission of a listing agreement,
notification to Nasdaq of non-compliance with Nasdaq corporate governance practices, prohibition
on disparate reduction or restriction of shareholder voting rights, and the establishment of an audit
committee satisfying Nasdaq Listing Rule 5605(c)(3) and ensuring that such audit committee’s

108 ■ ANNUAL REPORT 2016

members meet the independence requirement of Listing Rule 5605(c)(2)(A)(ii). The practices we
follow in lieu of Nasdaq’s corporate governance rules applicable to U.S. domestic issuers are as
follows:

 As a foreign private issuer, we are not required to have an audit committee comprised of at

least three members. Our audit committee is comprised of two members;

 As a foreign private issuer, we are not required to adopt a formal written charter or board
resolution addressing the nominations process. We do not have a nominations committee, nor
have we adopted a board resolution addressing the nominations process;

 As a foreign private issuer, we are not required to hold regularly scheduled board meetings at

which only independent directors are present;

 In lieu of obtaining shareholder approval prior to the issuance of designated securities, we will
comply with provisions of the Marshall Islands Business Corporations Act, which allows the
Board of Directors to approve share issuances;

 As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to
Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent
with Marshall Islands law and as provided in our bylaws, we will notify our shareholders of
meetings between 15 and 60 days before the meeting. This notification will contain, among
other things, information regarding business to be transacted at the meeting. In addition, our
bylaws provide that shareholders must give us between 150 and 180 days advance notice to
properly introduce any business at a meeting of shareholders.

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

standards applicable to U.S. domestic issuers.

item 16h. Mine safety Disclosure

Not applicable.

ANNUAL REPORT 2016 ■ 109

Diana Containerships inC.
inDeX to ConsoliDateD FinanCial stateMents

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as at December 31, 2016 and 2015

Consolidated Statements of Operations for the years ended
December 31, 2016, 2015 and 2014

Consolidated Statements of Comprehensive Income / (Loss) for the years ended
December 31, 2016, 2015 and 2014

Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the years ended
December 31, 2016, 2015 and 2014

Notes to Consolidated Financial Statements

Page

F-2

F-3

F-4

F-5

F-6

F-7

F-9

F-1

110 ■ ANNUAL REPORT 2016

report oF inDepenDent reGistereD puBliC aCCountinG FirM

The Board of Directors and Stockholders of Diana Containerships Inc.

We have audited the accompanying consolidated balance sheets of Diana Containerships
Inc. as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive income/ (loss), stockholders’ equity and cash flows for each of the three years
in the period ended December 31, 2016. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Diana Containerships Inc. at December 31, 2016 and 2015,
and the consolidated results of its operations and its cash flows for each of the three years in
the period ended December 31, 2016, in conformity with U.S. generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the consolidated financial
statements, the Company expects that cash on hand and cash provided by operating activities
might not be sufficient to cover its liquidity needs for a reasonable period of time. In addition,
the Company has not complied with certain covenants included in its bank loan agreement.
These conditions raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also described in Note 3. The
2016 consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Diana Containerships Inc.’s internal control over financial reporting
as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 16, 2017 expressed an unqualified opinion thereon.

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

Athens, Greece
February 16, 2017

F-2

ANNUAL REPORT 2016 ■ 111

report oF inDepenDent reGistereD puBliC aCCountinG FirM

The Board of Directors and Stockholders of Diana Containerships Inc.

We have audited Diana Containerships Inc.’s internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). Diana Containerships Inc.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.

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

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

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

In our opinion, Diana Containerships Inc. maintained, in all material respects, effective internal

control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Diana Containerships Inc.
as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive income/ (loss), stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2016 of Diana Containerships Inc. and our report dated February
16, 2017 expressed an unqualified opinion thereon.

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

Athens, Greece
February 16, 2017

F-3

112 ■ ANNUAL REPORT 2016

Diana Containerships inC.

Consolidated Balance sheets as at December 31, 2016 and 2015

(expressed in thousands of u.s. Dollars, except for share and per share data)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

accounts receivable, trade

inventories

prepaid expenses (of $1,274 and $920 as of December 31, 2016 and
2015, respectively) and other assets
restricted cash, current (note 7)
Total current assets
FIXED ASSETS:
Vessels (note 5)
accumulated depreciation (note 5)
Vessels’ net book value (Note 5)
property and equipment, net
Total fixed assets
Deferred charges, net
restricted cash, non-current (note 7)
prepaid charter revenue (note 6)
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term bank debt, net of unamortized deferred
financing costs (note 7)
related party financing, current (note 4)
accounts payable, trade and other
Due to related parties, current (note 4)
accrued liabilities
Deferred revenue
Total current liabilities
long-term portion of bank debt, net of unamortized deferred financing
costs (note 7)
related party financing, non-current (note 4)
other liabilities, non-current
Commitments and contingencies (note 8)
STOCKHOLDERS’ EQUITY:
preferred stock, $0.01 par value; 25,000,000 shares authorized, none
issued
Common stock, $0.01 par value; 500,000,000 shares authorized;
9,361,274 and 9,236,285 issued and outstanding as at December 31,
2016 and 2015, respectively (note 9)
additional paid-in capital (note 9)
other comprehensive income / (loss)
accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity

2016

2015

$ 8,316

$ 29,388

471

2,581

2,507

9,000
22,875

753

3,704

1,069

-
34,914

286,991
(46,639)
240,352
946
241,298
2,358
-
-
$ 266,531

421,903
(37,354)
384,549
987
385,536
2,475
9,000
3,798
$ 435,723

$ 127,129

$ 14,897

-
1,471
105
1,050
108
129,863
-

45,617
171
-

5,000
2,707
105
1,341
647
24,697
127,781

43,950
121
-

374,881
(20)
(284,075)
90,880
$ 266,531

373,764
5
(134,687)
239,174
$ 435,723

the accompanying notes are an integral part of these consolidated financial statements.

F-4

ANNUAL REPORT 2016 ■ 113

Diana Containerships inC.

Consolidated statements of operations

For the years ended December 31, 2016, 2015 and 2014

(expressed in thousands of u.s. Dollars – except for share and per share data)

REVENUES:

time charter revenues (note 1)

prepaid charter revenue amortization (note 6)

Time charter revenues, net

EXPENSES:

Voyage expenses

Vessel operating expenses

Depreciation and amortization of deferred charges (note 5)

General and administrative expenses (note 4)

impairment losses (note 5)

loss on vessels’ sale (note 5)

Foreign currency losses / (gains)

Operating income / (loss)

OTHER INCOME/(EXPENSES)

2016

2015

2014

$ 36,992 $ 70,746

$ 65,678

(3,798)

33,194

3,169

30,213

12,740

7,241

118,861

2,899

111

(8,566)

62,180

2,619

35,847

13,140

6,194

6,607

8,300

(55)

(11,610)

54,068

332

26,559

10,309

6,306

695

$ (142,040)

$ (10,472) $ 9,850

interest and finance costs (notes 4, 7 and 10)

$ (7,094)

$ (7,166)

$ (6,746)

interest income

Total other expenses, net

Net income / (loss)

Earnings / (loss) per common share, basic and diluted
(Note 11)

Weighted average number of common shares, basic and
diluted (Note 11)

Diana Containerships inC.

Consolidated statements of Comprehensive income / (loss)

For the years ended December 31, 2016, 2015 and 2014

(expressed in thousands of u.s. Dollars)

120

107

134

$ (6,974)

$ (7,059)

$ (6,612)

$ (149,014)

$ (17,531)

$ 3,238

$ (16.28)

$ (1.92)

$ 0.49

9,150,574

9,109,555

6,455,634

Net income /(loss)

2016

2015

2014

$ (149,014)

$ (17,531)

$ 3,238

other comprehensive income / (loss) (actuarial gain / (loss)

(25)

(68)

Comprehensive income / (loss)

$ (149,039)

$ (17,458)

$ 3,170

the accompanying notes are an integral part of these consolidated financial statements.

F-5

114 ■ ANNUAL REPORT 2016

Diana Containerships inC.

Consolidated statements of stockholders’ equity

For the years ended December 31, 2016, 2015 and 2014

(expressed in thousands of u.s. Dollars – except for share and per share data)

Common stock

# of
shares

par
Value

additional
paid-in
Capital

other
Comprehensive
income / (loss)

accumulated
Deficit

total

Balance, December 31, 2013

4,381,409 $ 44

$ 276,542

$ -

$ (112,121) $ 164,465

- net income

- issuance of common
stock, net of issuance costs 4,718,247

- issuance of restricted
stock and compensation
cost on restricted stock
(note 9)

- actuarial loss

- Dividends declared and
paid (at $1.2, $0.4, $0.02
and $0.02 per share) (note
11)

45,180

95,954

341

(68)

3,238

96,001

341

(68)

(7,534)

Balance, December 31, 2014

9,144,836 $ 91

$ 372,837

$ (68)

$ (116,417) $ 256,443

- net loss

- issuance of restricted
stock and compensation
cost on restricted stock
(note 9)

- actuarial gain

- Dividends declared and
paid (at $0.02, $0.02,
$0.02 and $0.02 per
share) (note 11)

91,449

(17,531)

927

928

(739)

Balance, December 31, 2015

9,236,285 $ 92

$ 373,764

$ 5

$ (134,687) $ 239,174

- net loss

- issuance of restricted
stock and compensation
cost on restricted stock
(note 9)

- actuarial loss

- Dividends declared and
paid ($0.02, $0.02, $0.00
and $0.00 per share) (note
11)

124,989

1,117

(25)

(149,014)

1,119

(25)

(374)

Balance, December 31, 2016

9,361,274 $ 94

$ 374,881

$ (20)

$ (284,075) $ 90,880

the accompanying notes are an integral part of these consolidated financial statements.

F-6

ANNUAL REPORT 2016 ■ 115

Diana Containerships inC.

Consolidated statements of Cash Flows

For the years ended December 31, 2016, 2015 and 2014

(expressed in thousands of u.s. Dollars)

Cash Flows provided by / (used in) Operating Activities:

net income / (loss)

$ (149,014)

$ (17,531)

$ 3,238

2016

2015

2014

adjustments to reconcile net income /(loss) to net cash
provided by / (used in) operating activities:

Depreciation and amortization of deferred charges (note 5)

12,740

13,140

amortization of deferred financing costs

amortization of deferred revenue

amortization of prepaid charter revenue (note 6)

impairment losses (note 5)

loss on vessels’ sale (note 5)

Compensation cost on restricted stock awards (note 9)

actuarial gain / (loss)

(increase) / Decrease in:

accounts receivable, trade

inventories

prepaid expenses and other assets

increase / (Decrease) in:

accounts payable, trade and other

Due to related parties

accrued liabilities

Deferred revenue

other liabilities

Drydock costs

427

3,798

118,861

2,899

1,119

(25)

282

1,123

(1,617)

(1,236)

(291)

(539)

(540)

268

(50)

8,566

6,607

8,300

928

(62)

(1,397)

(487)

900

604

289

206

(48)

(2,861)

10,309

196

(221)

11,610

695

341

(68)

(157)

(343)

(714)

600

154

(310)

Net Cash provided by /(used in) Operating Activities

$ (11,963)

$ 17,445

$ 25,487

Cash Flows provided by /(used in) Investing Activities:

Vessel acquisitions and other vessel costs (note 5)

proceeds from sale of vessels, net of expenses (note 5)

acquisition of time charter

land acquisition

property and equipment additions

insurance settlements

(194)

10,618

(29)

179

(113,020)

7,045

(6,000)

(39)

263

(60,379)

8,784

(871)

(29)

859

Net Cash provided by / (used in) Investing Activities

$ 10,574

$ (111,751)

$ (51,636)

Cash Flows provided by / (used in) Financing Activities:

proceeds from long term bank debt (note 7)

repayments of long term debt (notes 4 and 7)

issuance of common stock, net of issuance costs

payments of financing costs (note 7)

Cash dividends (note 11)

Changes in restricted cash

(19,159)

148,000

(103,263)

(150)

(374)

96,001

(3,177)

(739)

870

(7,534)

Net Cash provided by / (used in) Financing Activities

$ (19,683)

$ 41,691

$ 88,467

Net increase / (decrease) in cash and cash equivalents $ (21,072)

$ (52,615)

$ 62,318

Cash and cash equivalents at beginning of period

$ 29,388

$ 82,003

$ 19,685

F-7

116 ■ ANNUAL REPORT 2016

Diana Containerships inC.

Consolidated statements of Cash Flows

For the years ended December 31, 2016, 2015 and 2014

(expressed in thousands of u.s. Dollars)

Cash and cash equivalents at end of period

$ 8,316

$ 29,388

$ 82,003

2016

2015

2014

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year for:

Interest payments, net of amounts capitalized

$ 6,626

$ 5,571

$ 6,106

the accompanying notes are an integral part of these consolidated financial statements.

F-8

ANNUAL REPORT 2016 ■ 117

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

1. General Information

The accompanying consolidated financial statements include the accounts of Diana
Containerships Inc. (“DCI”) and its wholly-owned subsidiaries (collectively, the “Company”). Diana
Containerships Inc. was incorporated on January 7, 2010 under the laws of the Republic of
Marshall Islands for the purpose of engaging in any lawful act or activity under the Marshall Islands
Business Corporations Act.

Effective June 9, 2016 the Company effected a 1-for-8 reverse stock split on its issued
and outstanding common stock (Note 9). All share and per share amounts disclosed in the
accompanying consolidated financial statements give effect to this reverse stock split retroactively,
for all periods presented.

The Company is engaged in the seaborne transportation industry through the ownership
of containerships and operates its fleet through Unitized Ocean Transport Limited, a wholly-
owned subsidiary, while Wilhelmsen Ship Management LTD, an unaffiliated third party, provides
management services to the laid-up vessels of the Company’s fleet, for a fixed monthly fee for
each vessel. The fees payable to Wilhelmsen Ship Management LTD, amounted to $604 for 2016
and are included in Vessel operating expenses in the accompanying 2016 consolidated statement
of operations.

As at December 31, 2016, the Company was the sole owner of all outstanding shares of the

following subsidiaries:

a/a

Company

place of
incorporation

Vessel

Flag

teu

Date
built

Date
acquired

Date
sold

Vessel Owning Subsidiaries - Panamax Vessels

1 likiep shipping Company inc.

2 orangina inc.

rongerik shipping Company
inc.

4 utirik shipping Company inc.

5 Dud shipping Company inc.

6 Mago shipping Company inc.

Marshall
islands

sagitta

Centaurus

Marshall
islands

Domingo
(ex Cap Domingo)

Marshall
islands

Cap Doukato

Marshall
islands

pamina
(ex santa pamina)

Marshall
islands

new Jersey
(ex YM new Jersey)

Marshall
islands

3,426 Jun-10

Jun-10

3,426 Jul-10

Jul-10

3,739 Mar-01 Feb-12

3,739 Feb-02 Feb-12

5,042 May-05 nov-14

4,923 nov-06 apr-15

Vessel Owning Subsidiaries - Post-Panamax Vessels

7 eluk shipping Company inc.

8 oruk shipping Company inc.

9 Delap shipping Company inc.

Marshall
islands

puelo

pucon

March
(ex YM March)

Marshall
islands

6,541 nov-06 aug-13

6,541 aug-06 sep-13

5,576 May-04 sep-14

F-9

118 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

a/a

Company

place of
incorporation

Vessel

Flag

teu

Date
built

Date
acquired

Date
sold

10 Jabor shipping Company inc.

11 Meck shipping Company inc.

langor shipping Company
inc.

Marshall
islands

Great
(ex YM Great)

rotterdam

hamburg

Marshall
islands

5,576 apr-04 oct-14

6,494 Jul-08 sep-15

6,494 Mar-09 nov-15

Vessel Owning Subsidiaries - Sold Vessels

13 lemongina inc.

nauru shipping Company
inc. (note 5)

Kapa shipping Company inc.
(note 5)

unitized ocean transport
limited

17 Container Carriers (usa) llC

Marshall
islands

Garnet
(ex apl Garnet)

hanjin Malta

Marshall
islands

angeles
(ex YM los angeles)

Marshall
islands

Other Subsidiaries

Marshall
islands

Delaware -
usa

Management company

Company’s us
representative

4,729 aug-95 nov-12 sep-15

4,024 Jan-93 Mar-13 Feb-16

4,923 Dec-06 apr-15 nov-16

Unitized Ocean Transport Limited (the “Manager” or “UOT”), was established for the
purpose of providing the Company and its vessels with management and administrative services,
effective March 1, 2013. The fees payable to UOT pursuant to the respective management and
administrative agreements are eliminated in consolidation as intercompany transactions.

Container Carriers (USA) LLC (“Container Carriers”), was established in July 2014 in the
State of Delaware, USA, to act as the Company’s authorized representative in the United States.

During 2016, 2015 and 2014, charterers that accounted for more than 10% of the Company’s

hire revenues were as follows:

Charterer

F-10

2016

34%

22%

11%

2015

2014

25%

10%

24%

11%

13%

25%

31%

17%

14%

ANNUAL REPORT 2016 ■ 119

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

2. Significant Accounting Policies and Recent Accounting
Pronouncements

(a) Principles of Consolidation: The accompanying consolidated financial statements have
been prepared in accordance with U.S. generally accepted accounting principles and include
the accounts of Diana Containerships Inc. and its wholly-owned subsidiaries referred to in Note
1 above. All significant intercompany balances and transactions have been eliminated upon
consolidation.

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

(c) Other Comprehensive Income / (loss): The Company follows the provisions of
Accounting Standard Codification (ASC) 220, “Comprehensive Income”, which requires separate
presentation of certain transactions, which are recorded directly as components of stockholders’
equity. The Company presents Other Comprehensive Income / (Loss) in a separate statement
according to ASU 2011-05.

(d) Foreign Currency Translation: The functional currency of the Company is the U.S.
Dollar because the Company operates its vessels in international shipping markets, and therefore,
primarily transacts business in U.S. Dollars. The Company’s accounting records are maintained in
U.S. Dollars. Transactions involving other currencies during the years presented are converted into
U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet
dates, monetary assets and liabilities which are denominated in other currencies are translated into
U.S. Dollars at the period-end exchange rates. Resulting gains or losses are reflected separately
in the accompanying consolidated statements of operations.

(e) Cash and Cash Equivalents: The Company considers highly liquid investments such as
time deposits, certificates of deposit and their equivalents with an original maturity of three months
or less to be cash equivalents.

(f) Restricted Cash: Restricted cash includes minimum cash deposits required to be

maintained under the Company’s borrowing arrangements.

(g) Accounts Receivable, Trade: The account includes receivables from charterers for hire,
freight and demurrage billings. At each balance sheet date, all potentially uncollectible accounts
are assessed individually for purposes of determining the appropriate provision for doubtful
accounts. No provision for doubtful accounts has been made as of December 31, 2016 and 2015.

(h) Inventories: Inventories consist of lubricants and victualling which are stated at the lower
of cost or market. Cost is determined by the first in, first out method. Inventories may also consist
of bunkers when the vessel operates under freight charter or when on the balance sheet date a

F-11

120 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

vessel has been redelivered by her previous charterers and has not yet been delivered to new
charterers, or remains idle. Bunkers are also stated at the lower of cost or market and cost is
determined by the first in, first out method.

(i) 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 fair 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.

(j) 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.

(k) Vessel Depreciation: The Company depreciates containership vessels on a straight-
line basis over their estimated useful lives, after considering the estimated salvage value. Each
vessel’s salvage value is the product of her light-weight tonnage and estimated scrap rate, which
is estimated at $0.35 per light-weight ton for all vessels in the fleet. Management estimates
the useful life of the Company’s vessels to be 30 years from the date of initial delivery from the
shipyard. Second-hand vessels are depreciated from the date of their acquisition through their
remaining estimated useful life. 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.

(l) Impairment of Long-Lived Assets: The Company follows ASC 360-10-40 “Impairment
or Disposal of Long-Lived Assets”, which addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. The Company reviews vessels for impairment
whenever events or changes in circumstances indicate that the carrying amount of a vessel
may not be recoverable. When the estimate of future undiscounted net operating cash flows,
excluding interest charges, expected to be generated by the use of the vessel over her remaining
useful life and her eventual disposition is less than her carrying amount, the Company evaluates
the vessel for impairment loss. Measurement of the impairment loss is based on the fair value
of the vessel. The fair value of the vessel is determined based on management estimates and
assumptions and by making use of available market data and third party valuations. The Company
evaluates the carrying amounts and periods over which vessels are depreciated to determine if
events have occurred which would require modification to their carrying values or useful lives.
In evaluating useful lives and carrying values of long-lived assets, 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 conditions in

F-12

ANNUAL REPORT 2016 ■ 121

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

the containerships market with decreased charter rates and decreased vessel market values
are conditions that the Company considers indicators of a potential impairment. In developing
estimates of future undiscounted cash flows, the Company makes assumptions and estimates
about the vessels’ future performance, with the significant assumptions being related to charter
rates, fleet utilization, vessels’ operating expenses, vessels’ residual value and the estimated
remaining useful life of each vessel. The assumptions used to develop estimates of future
undiscounted cash flows are based on historical trends as well as future expectations.

The Company determines undiscounted projected net operating cash flows for each vessel
and compares it to the vessel’s carrying value. The projected net operating cash flows are
determined by considering the historical and estimated vessels’ performance and utilization, the
charter revenues from existing time 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 10 year
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 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 to 98% in the
Company’s exercise, if vessel not laid-up, taking into account the period(s) each vessel is expected
to undergo her scheduled maintenance (dry docking and special surveys), as well as an estimate
of 1% off hire days each year, assumptions in line with the Company’s historical performance. 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 the Company’s vessels, which are
separately reflected in the accompanying consolidated statements of operations (Note 5), while
the review for 2014 did not result in an indication of impairment.

(m) Assets held for sale: It is the Company’s policy to dispose of vessels and other fixed
assets when suitable opportunities occur and not necessarily to keep them until the end of their
useful life. The Company classifies assets or assets in disposal groups as being held for sale in
accordance with ASC 360-10-45-9 “Long-Lived Assets Classified as Held for Sale”, when the
following criteria are met: (i) management possessing the necessary authority has committed to
a plan to sell the asset (disposal group); (ii) the asset (disposal group) is immediately available
for sale on an “as is” basis; (iii) an active program to find the buyer and other actions required to
execute the plan to sell the asset (disposal group) have been initiated; (iv) the sale of the asset
(disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify
for recognition as a completed sale within one year; and (v) the asset (disposal group) is being
actively marketed for sale at a price that is reasonable in relation to its current fair value and actions
required to complete the plan indicate that it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn. In case a long-lived asset is to be disposed of other than
by sale (for example, by abandonment, in an exchange measured based on the recorded amount
of the nonmonetary asset relinquished, or in a distribution to owners in a spinoff) the Company
continues to classify it as held and used until its disposal date. Long-lived assets or disposal
groups classified as held for sale are measured at the lower of their carrying amount or fair value
less cost to sell. These assets are not depreciated once they meet the criteria to be held for sale.

(n) Accounting for Revenues and Expenses: Revenues are generated from time charter
agreements. Time charter agreements with the same charterer are accounted for as separate

F-13

122 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

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 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, are recognized in the period earned. Deferred revenue,
if any, 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.

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 has been deferred since commissions are due as revenues
are earned.

(o) Earnings / (Loss) per Common Share: Basic earnings / (loss) per common share are
computed by dividing net income / (loss) attributable to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings / (loss) per
common share reflects the potential dilution that could occur if securities or other contracts to
issue common stock were exercised.

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

(q) Accounting for Dry-Docking Costs: The Company follows the deferral method of
accounting for dry-docking costs whereby actual costs incurred are deferred and amortized on
a straight-line basis over the period through the date the next dry-docking will be scheduled to
become due. Unamortized dry-docking costs of vessels that are sold are written off and included
in the calculation of the resulting gain or loss in the year of the vessel’s sale. The unamortized
dry-docking cost is reflected in Deferred Charges, net, in the accompanying consolidated balance
sheets. Amortization of dry-docking costs, for 2016, 2015 and 2014 amounted to $657, $385
and nil, respectively, and is reflected in Depreciation and amortization of deferred charges, in the
accompanying consolidated statement of operations.

(r) Financing Costs: Fees paid to lenders for obtaining new loans or refinancing existing

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notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

ones are deferred and recorded as a contra to debt, in accordance with ASU 2015-13: Interest-
Imputation of Interest. Other fees paid for obtaining loan facilities not used at the balance sheet
date are capitalized as deferred financing costs. Fees are amortized to interest and finance costs
over the life of the related debt using the effective interest method and, for the fees relating to loan
facilities not used at the balance sheet date, according to the loan availability terms. Unamortized
fees relating to loans repaid or refinanced as debt extinguishment are expensed as interest and
finance costs in the period the repayment or extinguishment is made. Loan commitment fees are
charged to expense in the period incurred.

(s) Repairs and Maintenance: All repair and maintenance expenses including underwater
inspection expenses are expensed in the period incurred. Such costs are included in vessel
operating expenses in the accompanying consolidated statements of operations.

(t) Share Based Payment: ASC 718 “Compensation – Stock Compensation”, requires the
Company 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 (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. The Company initially measures 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 remeasured 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.

(u) Variable Interest Entities: ASC 810-10-50 “Consolidation of Variable Interest Entities”,
addresses the consolidation of business enterprises (variable interest entities) to which the usual
condition (ownership of a majority voting interest) of consolidation does not apply. The guidance
focuses on financial interests that indicate control. It concludes that in the absence of clear control
through voting interests, a company’s exposure (variable interest) to the economic risks and
potential rewards from the variable interest entity’s assets and activities are the best evidence of
control. Variable interests are rights and obligations that convey economic gains or losses from
changes in the value of the variable interest entity’s assets and liabilities. The Company evaluates
financial instruments, service contracts, and other arrangements to determine if any variable
interests relating to an entity exist, as the primary beneficiary would be required to include assets,
liabilities, and the results of operations of the variable interest entity in its financial statements. The
Company’s evaluation did not result in an identification of variable interest entities as of December
31, 2016 and 2015.

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notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

(v) Fair Value Measurements: The Company follows the provisions of ASC 820 “Fair Value
Measurements and Disclosures”, which defines fair value and provides guidance for using fair
value to measure assets and liabilities. The guidance creates a fair value hierarchy of measurement
and describes fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants in the market in which the reporting
entity transacts. In accordance with the requirements of accounting guidance relating to Fair Value
Measurements, the Company classifies and discloses its assets and liabilities carried at the fair
value in one of the following categories:

 Level 1: Quoted market prices in active markets for identical assets or liabilities;
 Level 2: Observable market based inputs or unobservable inputs that are corroborated by

market data;

 Level 3: Unobservable inputs that are not corroborated by market data.

(w) Concentration of Credit Risk: Financial instruments, which potentially subject the
Company to significant concentrations of credit risk, consist principally of cash and trade accounts
receivable. The Company places its temporary cash investments, consisting mostly of deposits,
with various qualified financial institutions and performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in the Company’s investment
strategy. The Company limits its credit risk with accounts receivable by performing ongoing credit
evaluations of its customers’ financial condition and generally does not require collateral for its
accounts receivable and does not have any agreements to mitigate credit risk.

Recent Accounting Standards Adopted

Going Concern: In August 2014, the FASB issued ASU No. 2014-15 – Presentation of Financial
Statements - Going Concern. ASU 2014-15, which provides guidance about management’s
responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue
as a going concern and to provide related footnote disclosures. The Company has adopted the
provisions of ASU 2014-05 (Note 3) on December 31, 2016.

Recent Accounting Pronouncements Not Yet Adopted

(a) In July 2015, the FASB issued ASU No. 2015-11 –Inventory. ASU 2015-11 is part of FASB
Simplification Initiative. Current guidance requires an entity to measure inventory at the lower of
cost or market. Market could be the replacement cost, net realizable value or net realizable value
less an approximately normal profit margin. Under this Update, the entities will be required to
measure inventory at the lower of cost or net realizable value. Net realizable value is defined as
estimated selling prices in the ordinary course of business, less reasonably predictable costs of
completion, disposal and transportation. The amendments under the Update more closely align
measurement of inventory in US GAAP with the measurement of inventory in IFRS. For public
entities, the amendments of this Update are effective for fiscal years beginning after December
15, 2016, including interim periods within those fiscal years. The amendments of this Update
should be applied prospectively with early application permitted. The Company does not expect
the adoption of this ASU to have a material impact on Company›s results of operations, financial
position or cash flows.

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notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

(b) In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which requires
lessees to recognize most leases on the balance sheet. This is expected to increase both reported
assets and liabilities. The new lease standard does not substantially change lessor accounting.
For public companies, the standard will be effective for the first interim reporting period within
annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees
and lessors will be required to apply the new standard at the beginning of the earliest period
presented in the financial statements in which they first apply the new guidance, using a modified
retrospective transition method. The requirements of this standard include a significant increase
in required disclosures. The Company is analyzing the impact of the adoption of this guidance
on the Company›s consolidated financial statements, including assessing changes that might be
necessary to information technology systems, processes and internal controls to capture new
data and address changes in financial reporting.

(c) In March 2016, the Financial Accounting Standards Board («FASB») issued Accounting
Standards Update («ASU» or «Update») No. 2016-09- Compensation-Stock Compensation
– Improvements to Employee Share-Based Payment Accounting (Topic 718) which involves
several aspects of the accounting for share-based payment transactions, including the income
tax consequences, classification of awards as either equity or liabilities, and classification on the
statement of cash flows. Under the new standard, all excess income tax benefits and deficiencies
are to be recognized as income tax expense or benefit in the income statement and the tax effects
of exercised or vested awards should be treated as discrete items in the reporting period in which
they occur. An entity should also recognize excess tax benefits regardless of whether the benefit
reduces taxes payable in the current period. Excess Tax benefits should be classified along with
other income tax cash flows as an operating activity. In regards to forfeitures, the entity may
make an entity-wide accounting policy election to either estimate the number of awards that are
expected to vest or account for forfeitures when they occur. ASU 2016-09 is effective for fiscal
years beginning after December 15, 2016 including interim periods within that reporting period,
however early adoption is permitted. The Company has adopted the provisions of ASU 2016-09,
which did not impact its consolidated financial statements and notes disclosures.

(d) In May and April 2016, the FASB issued two Updates with respect to Topic 606: ASU 2016-
10, «Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing» and ASU 2016-12, «Revenue from Contracts with Customers (Topic 606): Narrow-
Scope Improvements and Practical Expedients.» The amendments in these Updates do not
change the core principle of the guidance in Topic 606, which is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services by applying the following steps: (1) Identify the contract(s) with a customer; (2) identify
the performance obligations in the contract; (3) determine the transaction price; (4) allocate the
transaction price to the performance obligations in the contract; and (5) recognize revenue when
(or as) the entity satisfies a performance obligation. The amendments in Update 2016-10 simply
clarify the following two aspects of Topic 606: (1) identifying performance obligations and (2)
licensing implementation guidance. The amendments in Update 2016-12 similarly affect only
certain narrow aspects of Topic 606; namely, (1) «Assessing the Collectibility Criterion in Paragraph
606-10-25-1(e) and Accounting for Contracts That Do Not Meet the Criteria for Step 1 (Applying
Paragraph 606-10-25-7),» (2) «Presentation of Sales Taxes and Other Similar Taxes Collected

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126 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

from Customers,» (3) «Noncash Consideration,» (4) «Contract Modifications at Transition,»
(5) «Completed Contracts at Transition,» and (6) «Technical Correction.» The amendments in
these Updates also affect the guidance in Accounting Standards Update 2014-09, Revenue
from Contracts with Customers (Topic 606), which is not yet effective. The effective date and
transition requirements for the amendments in these Updates are the same as the effective date
and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09).
Accounting Standards Update 2015-14, «Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date,» has deferred the effective date of Update 2014-09 for public
business entities to annual reporting periods beginning after December 15, 2017, including interim
reporting periods within that reporting period. Earlier application is permitted. The new revenue
standard may be applied using either of the following transition methods: (1) a full retrospective
approach reflecting the application of the standard in each prior reporting period with the option
to elect certain practical expedients, or (2) a modified retrospective approach with the cumulative
effect of initially adopting the standard recognized at the date of adoption (which includes
additional footnote disclosures). The Company will adopt the standard in the first quarter of 2018
and preliminary expects to use the modified retrospective method. However, the Company is in
the process of reviewing its historical contracts to quantify the impact that the adoption of the
standard will have on specific performance obligations.

(e) In June 2016, the FASB issued ASU No. 2016-13– Financial Instruments – Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends
guidance on reporting credit losses for assets held at amortized cost basis and available for
sale debt securities. For public entities, the amendments of this Update are effective for fiscal
years beginning after December 15, 2019, including interim periods within those fiscal years.
Early application is permitted. The Company is in the process of assessing the impact of the
amendment of this Update on the Company›s consolidated financial position and performance.

(f) In August 2016, the FASB issued ASU No. 2016-15- Statement of Cash Flows (Topic 230)
– Classification of Certain Cash Receipts and Cash Payments which addresses the following
eight specific cash flow issues with the objective of reducing the existing diversity in practice:
Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments
or other debt instruments with coupon interest rates that are insignificant in relation to the
effective interest rate of the borrowing; contingent consideration payments made after a business
combination; proceeds from the settlement of insurance claims; proceeds from the settlement
of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies
(BOLIs)); distributions received from equity method investees; beneficial interests in securitization
transactions; and separately identifiable cash flows and application of the predominance principle.
ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 including interim
periods within that reporting period, however early adoption is permitted. The Company is
currently evaluating the provisions of this guidance and assessing its impact on its consolidated
financial statements and notes disclosures.

(g) In November 2016, the FASB issued ASU No. 2016-18—Statement of Cash Flows (Topic
230) - Restricted Cash which addresses the requirement that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalents. Therefore, amounts generally described as

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Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

restricted cash and restricted cash equivalents should be included with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments in this Update apply to all entities that have restricted
cash or restricted cash equivalents and are required to present a statement of cash flows under
Topic 230. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 including
interim periods within that reporting period, however early adoption is permitted. The Company is
currently evaluating the provisions of this guidance and assessing its impact on its consolidated
financial statements and notes disclosures.

3. Going Concern

As of December 31, 2016, due to the significant decline in the market value of its vessels,
following the prolonged weak charter market conditions, the Company was not in compliance with
certain financial covenants, as well as with the minimum required security cover (“hull cover ratio”).
Even though as of the date of approval of the consolidated financial statements the lenders have
not declared an event of default under the loan agreement, the breaches of the financial covenants
constitute events of default and could result in the lenders requiring immediate repayment of the
outstanding loan. Due to these technical breaches of the covenants as of December 31, 2016,
the Company has classified the long-term portion of its bank debt of $124,792 in current liabilities
(Note 7). As a result, the Company, at December 31, 2016, reported a working capital deficit
(which is current assets minus current liabilities) of $106,988.

Given the prolonged market downturn in the containerships segment and the continued
depressed outlook on charter rates and vessels’ market values the Company expects that cash on
hand and cash provided by operating activities might not be sufficient to cover its liquidity needs
that become due within one year after the date that the financial statements are issued. The above
conditions raise substantial doubts about the Company’s ability to continue as a going concern.

Management believes that the lenders will not demand payment of the loan before its maturity,
since the Company will continue to pay interest and loan installments, as they fall due under
the existing loan facility. In addition, the Company, is also exploring several alternatives aiming
to manage its working capital requirements, including seeking for more favorable chartering
opportunities, future equity or debt security offerings (discussed in Note 14) subject to lenders’
consent, and potential sale of vessels or a combination thereof.

Management believes that the Company’s plans to manage its working capital requirements
will be successful, and as a result the consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Accordingly, they do 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 the
Company is unable to continue as a going concern.

4. Transactions with Related Parties

a) Altair Travel Agency S.A (“Altair”): Effective March 1, 2013 the Company uses the
services of an affiliated travel agent, Altair, which is controlled by the Company’s CEO and

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128 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

Chairman of the Board. Travel expenses payable to Altair for 2016, 2015 and 2014, were $864,
$1,120 and $1,007 respectively, and are included in Prepaid expenses and other assets, in
Operating expenses, in General and administrative expenses and in Loss on vessel’s sale in the
accompanying consolidated financial statements. As at December 31, 2016 and 2015, an amount
of $3 and $17, respectively, was payable to Altair and is included in Due to related parties, current
in the accompanying consolidated balance sheets.

b) Diana Enterprises Inc. (“Diana Enterprises” or “DEI”): Diana Enterprises, a company
controlled by the Company’s CEO and Chairman of the Board, provides brokerage services to
DCI, pursuant to a Brokerage Services Agreement for a fixed fee. For 2016, 2015 and 2014,
total brokerage fees and bonuses to Diana Enterprises, amounted to $2,005, $1,451 and $1,450
respectively, and are included in General and administrative expenses in the accompanying
consolidated statements of operations. As at December 31, 2016 and 2015, there was no amount
due from or due to Diana Enterprises.

c) Diana Shipping Inc. (“DSI”): On May 20, 2013, the Company, through its subsidiary Eluk
Shipping Company Inc., entered into an unsecured loan agreement of up to $50,000 with Diana
Shipping Inc., one of the Company’s major shareholders, to be used to fund vessel acquisitions
and for general corporate purposes. The loan was guaranteed by the Company and, until the
amendments 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 repayable on August 20, 2017.

On September 9, 2015, and in relation with The Royal Bank of Scotland plc (“RBS”) refinance
discussed in Note 7, the loan agreement with DSI was amended. The maturity of the loan
agreement was extended until March 15, 2022, provided for annual repayments of $5,000, plus
a balloon instalment at the final maturity date, and bore interest at LIBOR plus margin of 3.0% per
annum. The Company also agreed to pay at the date of the amendment the accumulated back-
end fee, amounting to $1,302, and that no additional back-end fee would be charged thereafter.
Furthermore, the Company agreed to pay at the final maturity date a flat fee of $200.

On September 12, 2016 and in relation with the RBS amended loan agreement discussed in
Note 7, the loan agreement with DSI was further amended. The loan was undertaken by 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.

For 2016, 2015 and 2014, interest and back-end fee expense incurred under the loan
agreement with DSI amounted to $1,692, $2,745 and $3,247, respectively, and is included in
Interest and finance costs in the accompanying consolidated statements of operations (Note 10).
As at December 31, 2016 and 2015, the flat fee of $200 is included in Related party financing,
non-current, in the accompanying consolidated balance sheets. Accrued interest as of December
31, 2016 and 2015 amounted to $102 and $103, respectively, and is included in Due to related
parties in the accompanying consolidated balance sheets.

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Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

5. Vessels

In 2015, the Company, through Kapa Shipping Company Inc. and Mago Shipping Company
Inc., entered into two memoranda of agreement with unrelated parties, to acquire the container
vessels “Angeles” and “New Jersey”, respectively, for the purchase price of $21,500 each. The
vessels were acquired with attached time charters, for which a deferred asset was recognized
(Note 6). Later in 2015, the Company, through Meck Shipping Company Inc. and Langor Shipping
Company Inc., entered into two memoranda of agreement with unrelated parties, to acquire the
container vessels “Rotterdam” and “Hamburg”, for a purchase price of $37,500 and $38,500
respectively. An amount of $475 was deducted from the purchase price of the vessel “Rotterdam”,
representing a lumpsum compensation agreed with the sellers. Additional capitalized costs for the
years ended December 31, 2016 and 2015 amounted to $194 and $495, respectively.

In 2015, the Company, through Lemongina Inc., entered into a memorandum of agreement
to sell the vessel “Garnet” (ex “ APL Garnet”) to an unrelated party for demolition, for a sale price
of $7,615, net of address commission. In March 2016, the Company, through Nauru Shipping
Company Inc., sold the vessel “Hanjin Malta” to an unrelated party for demolition, for a sale price of
$4,842, net of commissions. In November 2016, the Company, through Kapa Shipping Company
Inc., sold the vessel “Angeles” to an unrelated party for demolition, for a sale price of $6,448, net of
commissions. The aggregate loss from the sale of the vessels in 2016 and 2015, including direct
to sale expenses, amounted to $2,899 and $8,300, respectively, and is separately reflected in the
2016 and 2015 accompanying consolidated statements of operations.

In 2016 and 2015, the Company, after taking into account factors such as the vessels’ age
and employment prospects under the then current market conditions, determined the future
undiscounted cash flows for each of its vessels, considering its various alternatives, including sale
possibilities. This assessment concluded that the carrying value of seven vessels in 2016 and one
vessel in 2015 was not recoverable and accordingly, the Company has recognized an aggregate
impairment loss of $118,861 and $6,607 respectively, which is separately reflected in the 2016
and 2015 accompanying statements of operations. The fair value of the vessels was determined
through Level 3 inputs of the fair value hierarchy as determined by management, making also use
of available market data for the market value of vessels with similar characteristics. The vessels
were measured at fair value on a non-recurring basis as a result of the management’s impairment
test exercise. The fair value of the specific vessels as of September 30, 2016 was $59,900.

The amounts in the accompanying consolidated balance sheets are analyzed as follows:

Balance, December 31, 2014

- acquisitions and other vessels’ costs

- Vessels’ disposals

- Depreciation

- impairment charges

Vessels’ Cost

accumulated
Depreciation

net Book Value

$ 333,078

$ (26,984)

$ 306,094

113,020

(17,588)

(6,607)

2,243

(12,613)

113,020

(15,345)

(12,613)

(6,607)

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130 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

Balance, December 31, 2015

$ 421,903

$ (37,354)

$ 384,549

Vessels’ Cost

accumulated
Depreciation

net Book Value

- Capitalized costs

- Vessels’ disposals

- Depreciation

- impairment charges

194

(16,245)

(118,861)

2,728

(12,013)

194

(13,517)

(12,013)

(118,861)

Balance, December 31, 2016

$ 286,991

$ (46,639)

$ 240,352

As at December 31, 2016, certain of the Company’s vessels, having a total carrying value of

$215,449, were provided as collateral to secure the term facility with RBS, discussed in Note 7.

6. Prepaid Charter Revenue

The amounts presented as Prepaid charter revenue in the accompanying consolidated balance
sheets represent the unamortized balance of an asset associated with vessels acquired with time
charters attached at values above their charter-free fair market values at the time of acquisition,
which is amortized to revenue over the period of the respective time charter agreements. In this
respect, during 2015, the Company recognized prepaid charter revenue for the newly-acquired
vessels “Angeles” and “New Jersey” (Note 5), the charters of which have expired in 2016.
Accordingly, the balance of the account as of December 31, 2016, is nil.

The movement of the prepaid charter revenue from vessel acquisitions with time-charter

attached for the years 2016 and 2015 was as follows:

Balance, December 31, 2014

- additions

- amortization for the period

- Write-off of fully amortized assets

Balance, December 31, 2015

- amortization for the period

- Write-off of fully amortized assets

Balance, December 31, 2016

Gross
amount

accumulated
amortization

net amount

$ 33,500

$ (27,136)

$ 6,364

6,000

(12,500)

(8,566)

12,500

6,000

(8,566)

$ 27,000

$ (23,202)

$ 3,798

(11,500)

(3,798)

11,500

(3,798)

15,500

$ (15,500)

$ -

The amortization to revenues for 2016, 2015 and 2014 is separately reflected in Prepaid

charter revenue amortization in the accompanying consolidated statements of operations.

7. Long-Term Bank Debt, Current and Non-Current

The amounts of long-term bank debt shown in the accompanying consolidated balance sheets

are analyzed as follows:

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ANNUAL REPORT 2016 ■ 131

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

2016 total

Current

non-current

2015 total

Current

non-current

$ 128,861

$ -

$ 144,687 $ 15,376

$ 129,311

200

(1,932)

(2,009)

(479)

(1,530)

$ 127,129

$ -

$ 142,678

$ 14,897

$ 127,781

the royal Bank of
scotland plc - term
loan

plus financing fees
payable to the
lenders

less unamortized
deferred financing
costs

Total bank debt,
net of unamortized
deferred financing
costs

The Royal Bank of Scotland plc (“RBS”) – Revolving Credit Facility: On December 16,
2011, the Company entered into a revolving credit facility with the Royal Bank of Scotland plc
(“RBS”), where the lenders have agreed to make available to it a revolving credit facility of up to
$100,000 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 costs of additional containerships (“Additional
Ships”). An aggregate amount of $98,700 has been drawn down under the credit facility.

The facility would be 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 Available Facility Limit, the Company would repay 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 $5,000, to be deposited by the borrower with the
lenders. Furthermore, the facility agreement contained customary financial covenants and the
Company was not permitted to pay any dividends that would result in a breach of the financial
covenants. In 2013 and 2014, the Company entered into various supplemental agreements with
the lenders, the main terms of which provided for security interest on the minimum cash held
by the borrower in favor of the lenders and for changes in the definitions of certain financial
covenants. In addition, the Company was required to provide additional vessels as collateral to
secure the facility and was restricted from providing any security interest over the Company’s
assets in favor of DSI.

F-23

132 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

Based on the age of the financed vessels, an amount of $6,000 was repaid in August 2015.
On September 15, 2015, in connection with the loan re-finance discussed below, the Company
prepaid in full the outstanding balance of $92,700 and the facility was terminated.

The Royal Bank of Scotland plc (“RBS”) – Term Loan: On September 10, 2015, the
Company, through nine of its subsidiaries, entered into a loan agreement with RBS of up to
$148,000, to re-finance the acquisition cost of seven of the Company’s vessels, including the full
prepayment of the previous facility agreement, and to support the acquisition of the two newly
acquired vessels, the “Hamburg” and the “Rotterdam”. Until December 31, 2015, the Company
drew down the full amount of the loan and paid arrangement and structuring fees amounting to
$1,875.

The loan, until its amendment discussed below, bore interest at the rate of 2.75% per annum
over LIBOR and was repayable in quarterly instalments and a balloon payment payable together
with the last installment in September 2021. The Company 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 is secured by first preferred mortgages on nine vessels of the Company’s 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 $500 per vessel
in the fleet and restricted cash of $9,000 to be deposited by the borrowers with the lenders for
the duration of the loan. There are also restrictions as to changes in the loan agreement with DSI,
in the securities purchase agreement that the Company entered into in the private placement
which took place in July 2014, in certain shareholdings and management of the vessels. Finally,
the Company is not permitted to pay any dividends that would result in a breach of the financial
covenants.

On September 12, 2016, the Company entered into an amendment of its loan agreement with
RBS, according to which the Company prepaid an amount of $7,607 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 the loan agreement with DSI (Note 4). 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 $8,851, 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, the Company paid an amendment fee of $150 at the signing of the agreement and
an additional fee of $200 is payable on December 31, 2018.

As of September 30, 2016 and thereafter, due to a significant decline in the market value of
its vessels, the Company was not in compliance with two financial covenants, as well as with the

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Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

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, the Company would have
to repay to RBS an amount of $18,861, or provide additional security. Due to these technical
breaches in its loan covenants, the Company has classified its bank debt as of December 31,
2016 in current liabilities. Accordingly, the loan balance and the loan-related fees have been
reclassified to Current portion of long-term bank debt, net of unamortized deferred financing costs
and the restricted cash under the facility has been reclassified to Restricted cash, current in the
accompanying 2016 consolidated balance sheet.

The weighted average interest rate of the bank loans during 2016 and 2015 was 3.52% and
3.22%, respectively. During 2016, 2015 and 2014, total interest incurred on long-term bank debt,
amounted to $4,902 $3,541 and $3,282, respectively, and is included in Interest and finance
costs in the accompanying consolidated statements of operations (Note 10). Commitment fees
incurred during 2016, 2015 and 2014, amounted to $0, $329 and $0, respectively, and are also
included in Interest and finance costs in the accompanying consolidated statements of operations.

8. Commitments and Contingencies

(a) Various claims, suits, and complaints, including those involving government regulations and
product liability, arise in the ordinary course of the shipping business. In addition, losses may arise
from disputes with charterers, agents, insurance and other claims with suppliers relating to the
operations of the Company›s vessels. Currently, management is not aware of any such claims or
contingent liabilities, which should be disclosed, or for which a provision should be established in
the accompanying consolidated financial statements.

The Company accrues for the cost of environmental liabilities when management becomes
aware that a liability is probable and is able to reasonably estimate the probable exposure.
Currently, management is not aware of any such claims or contingent liabilities, which should
be disclosed, or for which a provision should be established in the accompanying consolidated
financial statements.

The Company’s vessels are covered for pollution in the amount of $1 billion per vessel per
incident, by the protection and indemnity association (“P&I Association”) in which the Company’s
vessels are entered. The Company’s vessels are subject to calls payable to their P&I Association
and may be subject to supplemental calls which are based on estimates of premium income and
anticipated and paid claims. Such estimates are adjusted each year by the Board of Directors
of the P&I Association until the closing of the relevant policy year, which generally occurs within
three years from the end of the policy year. Supplemental calls, if any, are expensed when they
are announced and according to the period they relate to. The Company is not aware of any
supplemental calls outstanding in respect of any policy year.

(b) As at December 31, 2016, the majority of our vessels were operating under time charter
agreements, while the rest of them were not chartered. The minimum contractual annual charter
revenues, net of related commissions to third parties, to be generated from the existing as at
December 31, 2016, non-cancelable time charter contracts, all expiring in 2017, are estimated
at $2,336.

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134 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

9. Changes in Capital Accounts

(a) 1-for-8 reverse stock split: On January 14, 2016, the Company received written
notification from The NASDAQ Stock Market LLC indicating that, because the closing bid price
of the Company’s common stock for the last 30 consecutive business days was below $1.00
per share, the Company no longer met the minimum bid price requirement for The Nasdaq
Global Select Market. In this respect effective as of the opening of trading on June 9, 2016, the
Company effected a one-for-eight reverse stock split of its common shares, which was approved
by shareholders at the Company’s 2016 Annual Meeting of Shareholders held on February 24,
2016. The number of the Company’s common shares issued and outstanding at that date was
reduced from 74,890,570 to 9,361,274. No fractional shares were issued in connection with the
reverse stock split. Shareholders who would otherwise hold fractional shares of the Company’s
common stock received a cash payment in lieu of such fractional share.

(b) Compensation cost on restricted common stock: In 2010 the Company adopted an
equity incentive plan which entitles the Company’s directors, officers, employees, consultants and
service providers to receive options to acquire the Company’s common stock, stock appreciation
rights, restricted stock, restricted stock units and unrestricted common stock. The Equity Incentive
plan was amended in 2012. A total of 299,024 common shares have been reserved under the
Incentive plan (as amended) for issuance, of which as at December 31, 2016, 4,064 common
shares remain available to be issued. The plan is administered by the Company’s compensation
committee, or such other committee of the Company’s Board of Directors as may be designated
by the Board to administer the plan. The plan will expire in ten years from the adoption of the plan
by the Board of Directors. In May 2015, the Company’s board of directors approved to adopt
the Diana Containerships Inc. 2015 Equity Incentive Plan, with substantially the same terms
and provisions as the Company’s Amended and Restated 2010 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 the Company’s board of directors as may be designated by the board to administer the plan.
The plan will expire in ten years from the adoption of the plan by the Board of Directors.

During 2016, the Company’s Board of Directors approved the grant of restricted common
stock to the executive management pursuant to the Company’s equity incentive plan, and in
accordance with terms and conditions of restricted shares award agreements signed by the
grantees. The restricted shares are subject to forfeiture until they vest. Unless they forfeit, grantees
have the right to vote, to receive and retain all dividends paid and to exercise all other rights,
powers and privileges of a holder of shares. The fair value of the restricted shares has been
determined with reference to the closing price of the Company’s stock on the date the agreements
were signed. The aggregate compensation cost is being recognized ratably in the consolidated
statement of operations over the respective vesting periods, which is 3 years.

During 2016, 2015 and 2014, compensation cost on restricted stock amounted to $1,119,
$928 and $341, respectively, and is included in General and administrative expenses in the
accompanying consolidated statements of operations. At December 31, 2016 and 2015, the
total unrecognized compensation cost relating to restricted share awards was $1,058 and

F-26

ANNUAL REPORT 2016 ■ 135

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

$1,797, respectively. At December 31, 2016, the weighted-average period over which the total
compensation cost related to non-vested awards not yet recognized is expected to be recognized
is 0.94 years. During 2016, 2015 and 2014, the movement of restricted stock cost was as follows:

Outstanding at December 31, 2013

1,666

$ 60.00

number of shares

Weighted average
Grant Date price

Granted

Vested

Forfeited or expired

Outstanding at December 31, 2014

Granted

Vested

Forfeited or expired

Outstanding at December 31, 2015

Granted

Vested

Forfeited or expired

45,180

(1,666)

45,180

91,449

(15,060)

121,569

124,989

(45,543)

29.76

60.00

$ 29.76

18.32

29.76

$ 21.15

3.04

22.10

Outstanding at December 31, 2016

201,015

$ 9.68

(c) ATM offering: On May 21, 2013, the Company filed a prospectus supplement pursuant
to Rule 424(b) relating to the offer and sale of an aggregate of up to $40.0 million in gross
proceeds of its common stock under an at-the market offering. In 2014, a number of 136,574
shares were issued and the net proceeds received during the period, after deducting underwriting
commissions and offering expenses payable by the Company, amounted to $4,652. On July 28,
2014, the Company announced the suspension of the offer and sale of its common shares under
the existing at-the-market offering.

(d) Private Equity Placement: On July 28, 2014, the Company entered into an agreement
to sell 4,581,673 shares of its common stock in a private placement at a purchase price of
$20.08 per share. In the transaction, DSI purchased $40,000 of common shares, two unaffiliated
institutional investors together purchased $40,000 of common shares and the Company’s CEO
and Chairman, a member of his family and other members of the senior management, together
purchased $12,000 of common shares. The transaction was approved by an independent
committee of the Company’s Board of Directors, which obtained a fairness opinion from an
independent financial advisor regarding the financial fairness to the Company of the aggregate
purchase price to be received by the Company. Pursuant to the Securities Purchase Agreement,
the Company 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, it will 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, the Company’s board of
directors may amend this dividend policy to resume the payment of dividends. In connection with
this transaction, the Company and its respective counter parties entered into amendments to the
brokerage services agreement with DEI, the loan agreement with DSI, both discussed in Note
4 and the facility agreement with RBS discussed in Note 7. The transaction closed on July 29,

F-27

136 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

2014 and the net proceeds received, after deducting offering expenses payable by the Company,
amounted to $91,349.

10. Interest and Finance Costs

The amounts in the accompanying consolidated statements of operations are analyzed as

follows:

interest expense on bank debt (note 7)

$ 4,902

$ 3,541

$ 3,282

interest expense and other fees on related party debt (note 4)

amortization of deferred financing costs (note 7)

Commitment fees and other (note 7)

Total

1,692

427

2,945

268

412

3,247

196

$ 7,094

$ 7,166

$ 6,746

2016

2015

2014

11. Earnings / (Loss) per Share

All shares issued (including the restricted shares issued under the equity incentive plan)
are DCI’s common stock and have equal rights to vote and participate in dividends, subject to
forfeiture provisions set forth in the applicable award agreement. Unvested shares granted under
the Company’s incentive plan of 201,015 as at December 31, 2016, and 121,569 as at December
31, 2015 (Note 9), received dividends which are not refundable, even if such shares are forfeited,
and therefore are considered participating securities for basic earnings per share calculation
purposes. Dividends declared and paid during the years ended December 31, 2016, 2015 and
2014 amounted to $374, $739 and $7,534, respectively. The calculation of basic earnings/ (loss)
per share does not consider the non-vested shares as outstanding until the time-based vesting
restrictions have lapsed. For the purpose of calculating diluted earnings per share, the weighted
average number of diluted shares outstanding includes the incremental shares assumed issued
as determined in accordance with the antidilution sequencing provisions of ASC 260. For the
years ended December 31, 2016 and 2015, and on the basis that the Company incurred losses,
the effect of the incremental shares assumed issued would have been anti-dilutive and therefore
basic and diluted losses per share is the same amount. For 2014, the effect of the incremental
shares assumed issued, determined in accordance with the antidilution sequencing provision of
ASC 260, was anti-dilutive.

2016

2015

2014

Basic lps Diluted lps Basic lps Diluted lps Basic eps Diluted eps

net income / (loss)

$ (149,014)

$ (17,531)

$ 3,238

(50)

(149,014)

(17,531)

3,188

less distributed
earnings allocated to
restricted shares

Net income /
(loss) available
to common
stockholders

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ANNUAL REPORT 2016 ■ 137

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

2016

2015

2014

Basic lps Diluted lps Basic lps Diluted lps Basic eps Diluted eps

9,150,574

9,109,555

6,455,634

9,150,574

9,109,555

6,455,634

$ (16.28)

$ (1.92)

$ 0.49

Weighted average
number of common
shares, basic

Weighted average
number of common
shares, diluted

Earnings / (loss)
per common share,
basic and diluted

12. Income Taxes

Under the laws of the countries of the companies’ incorporation and / or vessels’ registration,
the companies are not subject to tax on international shipping income; however, they are
subject to registration and tonnage taxes, which are included in vessel operating expenses in the
accompanying consolidated statements of operations.

Under Section 883 of the Internal Revenue Code of the United States (the “Code”), a corporation
would be exempt from U.S. federal income taxation on its U.S.-source shipping income if: (a) it
is organized in a foreign country that grants an “equivalent exemption” to corporations organized
in the United States (“United States corporations”); and (b) either (i) more than 50% of the value
of its common stock is owned, directly or indirectly, by “qualified shareholders,”, which is referred
to as the “50% Ownership Test,” or (ii) its common stock is “primarily and regularly traded on
an established securities market” in a country that grants an “equivalent exemption” to U.S.
corporations or in the United States, which is referred to as the “Publicly-Traded Test.”

The Marshall Islands, the jurisdiction where DCI and each of its vessel-owning subsidiaries
are incorporated, grant an “equivalent exemption” to U.S. corporations. Therefore, the Company
would be exempt from U.S. federal income taxation with respect to its U.S.-source shipping
income if either the 50% Ownership Test or the Publicly-Traded Test is met.

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

The Company believes that it was subject to the Five Percent Override Rule, but nonetheless
satisfied the Publicly-Traded Test for the 2016 taxable year and intends to take this position on
the 2016 U.S. federal income tax returns. However, there are factual circumstances beyond the
control of the Company that could cause it to lose the benefit of the Section 883 exemption in the
future. For example, there is a risk that the Company could no longer qualify for exemption under
Code section 883 for a particular taxable year if shareholders with a five percent or greater interest

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138 ■ ANNUAL REPORT 2016

Diana Containerships inC.
notes to Consolidated Financial statements
December 31, 2016
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)

in its common shares were to own 50% or more of its outstanding common shares on more than
half the days of the taxable year.

It is not anticipated that the Company will have any vessel operating to the United States on
a regularly scheduled basis. Based on the foregoing and on the expected mode of the shipping
operations and other activities of Diana Containerships, it is not anticipated that any of the U.S.-
source shipping income of the Company will be “effectively connected” with the conduct of a U.S.
trade or business.

13. Financial Instruments

The carrying values of temporary cash investments, accounts receivable and accounts payable
approximate their fair value due to the short-term nature of these financial instruments. The fair
value of long-term loans and restricted cash balances, bearing interest at variable interest rates,
approximate their recorded values as at December 31, 2016 and 2015.

14. Subsequent Events

(a) Filing with the SEC of a shelf registration statement on Form F-3: On January
26, 2017, the Company filed with the SEC a shelf registration statement on Form F-3. The shelf
registration statement, when declared effective, will give the Company the ability to offer and sell,
within a 3 year period, up to $250,000 of its securities consisting of common shares, including
related preferred stock purchase rights, preferred shares, debt securities, warrants, purchase
contracts, rights and units. The Company may offer and sell such securities from time to time and
through one or more methods of distribution, subject to market conditions and the Company’s
capital needs.

(b) Equity Incentive Plan: On February 9, 2017, the Company’s Board of Directors approved
an award of restricted common stock with value $380 to the executive management and the non-
executive directors, pursuant to the Company’s equity incentive plan. 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.

F-30

ANNUAL REPORT 2016 ■ 139

F-31

Legal Counsel
Seward and Kissel LLP
One Battery Park Plaza
New York, NY 10004
Tel: +1-212-574-1200

Independent Auditors
Ernst & Young (Hellas)
Certified Auditors-Accountants S.A
Chimarras 8B
151 25 Maroussi
Greece
Tel: +30-210-288-6000

Shareholder/Corporate Information
Any shareholder, investor, or analyst seeking
further information may contact:

Corporate Contact:
Ioannis Zafirakis
Director, Chief Operating Officer and
Secretary
Pendelis 18
17564 Palaio Faliro
Athens, Greece
Tel: +30-216-600-2400
Email: izafirakis@dcontainerships.com

Investor and Media Relations:
Edward Nebb
Comm-Counsellors, LLC
724 Valley Road
New Canaan, Connecticut 06840
Tel: +1-203-972-8350
Email: enebb@optonline.net

Website
Press releases, fleet information, stock
quotes, corporate investor information,
and SEC filings can all be accessed on the
company’s website,
www.dcontainerships.com

Corporate Directory

Directors and Executive Officers

symeon palios
Chairman of the Board of Directors
and Chief Executive Officer

anastasios Margaronis
Director and President

andreas Michalopoulos
Chief Financial Officer and Treasurer

ioannis Zafirakis
Director, Chief Operating Officer and Secretary

eleni leontari
Chief Accounting Officer

antonios Karavias
Non-Executive Director

nikolaos petmezas
Non-Executive Director

Giannakis evangelou
Non-Executive Director

reidar Brekke
Non-Executive Director

Corporate Offices
Diana Containerships Inc.
Pendelis 18
17564 Palaio Faliro
Athens, Greece
Tel: +30-216-600-2400
Email: info@dcontainerships.com

Stock Listing
Diana Containerships Inc.’s stock is traded
on the Nasdaq Global Market under the symbol
“DCIX”.

Transfer Agent and Registrar
Computershare
P.O. Box 358015
Pittsburgh, PA 15252-8015
or 480 Washington Boulevard
Jersey City, NJ 07310
Toll Free Number: +1-800-231-5469
Outside of US: +1-201-680-6578
www.bnymellon.com/shareowner/equityaccess

DIana ContaInershIps InC.

PENDELIS 18
17564 PALAIO FALIRO
ATHENS, GREECE
Phone: +30 216 6002400
Fax: +30 216 6002599
www.dcontainerships.com